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Beginner’s guide to Insurance underwriting

Insurance underwriting is a necessity so long insurance policy remains a veritable commodity, count it a reasonable idea to secure one’s future against unforeseen circumstances like hazard, potential risks and perils.

Given this, insurance underwriting is put in place to access the extent of these risks and as well act on behalf of the insurance company in a situation to determine if a customer should get a cover from the company.

What is Insurance underwriting?

Underwriting refers to how an insurance company evaluates and classifies risks pertaining the property of the insured which could include life most times, cars, houses, employee or the public depending on the type of insurance under review.

This is a case that decides whether an insurance will be provided and to what extent and under what circumstance.

A representative of an insurance company who accesses and classifies risks on behalf of the Insurance company is referred to as the “Underwriter.”

Read also: What is Public liability insurance?

How underwriting works

In underwriting, factors presumed to determine a client’s profile are being assessed, however, these factors are subject to the insurance package you so wish to apply for or purchase.

Factors being assessed before-hand include but limited to

  • Nature of the business
  • How long the business has been in existence
  • Financial status of such business which takes cognizance of its size, sales being made and assets acquired in the name of such business.
  • Where there are assets and properties their conditions are weighed and put to consideration
  • How secured is the business, are security measures duly in place to forestall possible theft because the insurance company will not indemnify your carelessness, etc.

Illustration 1

Assuming Mr. George Dean wants to buy a car insurance policy with Alpha dot Insurance company, it’s the duty of the underwriter to access and classify the very car under certain arrangement wherein the company can indemnify the insured in a situation where the car had an accident or involved in a fire disaster, etc.

The underwriter determines if the car or any other property in view poses an acceptable risk, while calculating a fair value for the coverage.

Responsibilities and roles of Insurance underwriter

An underwriter is saddled with several responsibilities which determine how smart an insurance company portrays and manages its business. Among these responsibilities include but not limited to,

  • He stands to review and examine an insured application for detail compliance, adherence of business policy
  • It’s the duty of an underwriter to carry out a detailed (KYC) on a client as well his financial status to ascertain the level of involvement and suitability of the insurance policy to be purchased
  • The underwriter determines evenly underwriting alternatives
  • He brings up quotes wherein there abounds a competitive insurance premium to at large ensure the company participates actively in customer share in the insurance market.
  • There’s a concept of negotiation, wherein specific terms of insurance policies are being negotiated with brokers, policyholders and parties concerned at every level of involvement.
  • The underwriter is a record keeper overseeing company’s policies underwritten in the past which include broad and narrow decisions being made in the course operations with its clients.

Given this, the underwriter accesses your available data which in the end puts up a signal as whether the insurance company can go ahead to consolidate a business with you.

Illustration 2.

Assuming Mr. George Dean wants to buy a general liability insurance with Alpha dot insurance, it’s saddled with the underwriter to know if you’ve been into any form of legal tussle and why you sued or were sued in such tussle.

An honest revelation will signal if you are such a potential threat that may cause the insurance company fortunes at long run as a result certain claims made unjustifiably in the past.

In a provision where you wish to buy a business owner’s policy, it has to be established if you have necessary safety requirements and equipment since the non-availability of any of these could easily lead to claim arising from mere carelessness.

To buy a business vehicle insurance, the underwriter should have a firsthand information on your possible involvement in accident and claims thereafter.

Read also: Beginner’s guide to car insurance in Nigeria

Car insurance underwriting process

To set the stage, you should first and fore most understand that car underwriting process is being handled by an auto underwriter.

The auto underwriter looks to review information from the client’s auto insurance application which should help to determine actual risk of insuring such customer.

It’s on this premise that the underwriter determines the type of coverage suitable for the customer as well spell out conditions to which the contract remains binding and valid.

To proceed in most cases as a duty, the insurance underwriter rely on certain algorithms to evaluate what the implication of the driver’s risks to the insurance company entails.

The underwriter draws into consideration if it lies in the interest of the company to give a coverage to the customer since the insurance company is a profitable business looking to make money, that said weighing and balancing possible risks is not out of contention.

As an underwriting and client’s risk evaluation process, the underwriter takes into consideration things like,

  • The driver’s driving record
  • Gender
  • Credit history
  • Zip code which relatively affect how much a customer should pay as insurance premium.

Underwriter vs Agent/broker are there differences?

An insurance underwriter is saddled with responsibilities to access and classify risks prior to offering an insurance coverage to a customer.

The underwriter does his bid to ascertain the insurance company is not involved in a bad business by inheriting a customer who will cost the company at short or long run.

Over all, the underwriter in plain terms determines to whom an insurer will offer coverage at large.

However, insurance agents and brokers are somewhat representatives of the insurance company, they go all out to interface and convince customers to buy a coverage with the insurer, they are mainly field agents and brokers who represent the insurer’s business.

It’s within their jurisdiction to,

  • Carefully identify the type of coverage that’s ideal for you, this could serve as educating you properly too.
  • Given that insurance policy involves paper work, they’ll help you with clarity and basic interpretation of the information to complete the form which you may not be too familiar with
  • The agents and brokers sometimes hold brief for the underwriter in interpreting the insurer information to both existing and prospective customers.
  • Most times they negotiate your contract terms with the underwriter strictly on your approval and directives.

Becoming an insurance underwriter and requirements

There’s no rocket feelings if you choose to become an insurance underwriter, however, you are required to have met the below standards at least to have a safe sailor in the insurance industry.

  • You should have a BS in Business Administration, Finance or any other related field.
  • You need a certified insurance underwriting experience
  • Should have analytic ability and with tools and statistical ability with packages like spreadsheets and databases.
  • Your decision making skills should be top-notch with immense confidence
  • You should have outstanding knowledge of insurance policies too
  • Certification or Diploma are necessary, etc.

Conclusion

Insurance underwriting deals with accessing and classifying risks on behalf of the insurer by a certified underwriter which is aimed at ascertaining the true and likeliness of a customer to get a cover from an insurance company.

The underwriter is at the pole position to make specific and sensitive decisions for the company which should drive at maximizing profit since the insurer is out to making profit as a business entity.

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