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What is an 'Insurance Underwriter'

Insurance underwriters are employed by insurance companies to help price life insurance, health insurance, commercial liability insurance and homeowners insurance, among others. Underwriters use computer programs and actuarial data to determine the likelihood and magnitude of a claims payout over the life of the policy. Evaluating an insurer's risk prior to the policy period and at renewal is a vital function of an underwriter.

BREAKING DOWN 'Insurance Underwriter'

Insurance companies walk a tightrope between being too aggressive or too conservative in their underwriting duties. If they are too aggressive, greater-than-expected claims could cut into company earnings; if they are too conservative, they will be outpriced by the competition and lose business. Insurance underwriting is big business as Warren Buffett has used insurance and reinsurance premiums to fund his investments at Berkshire Hathaway.

Underwriters must analyze numerous rating factors when developing premium rates. Not every risk can be measured objectively. Pricing is subject to underwriting discretion that typically accompanies systematic rating methodologies.

Homeowners Insurance Underwriters

Homeowners insurance underwriters must consider numerous variables when rating a homeowners policy. Property and casualty insurance agents act as field underwriters, initially inspecting homes or rental properties for conditions such as deteriorated roofs or foundations that pose a risk to the carrier. Those hazards are reported to the home underwriter who additionally considers hazards that may trigger a liability claim. Conditions such as unfenced pools or cracked sidewalks present risk to the insurance company who may need to pay a liability claim in the event of an accidental drowning or slip and fall injury.

Inputting a number of factors, which often includes an applicant's credit score, homeowners underwriters employ an algorithmic rating method to price policies. That system generates an appropriate premium based on the platform’s interpretation and synthesization of all data reported from the observations of the field underwriter. The lead underwriter also subjectively considers answers submitted by the applicant on the policy application when arriving at a premium.

Medical Stop Loss Underwriters

Medical stop loss underwriters assess risk based on the individual health conditions of self-insured employer groups. Stop loss insurance is placed to protect groups that pay their own health insurance claims for employees, rather than paying premiums to transfer all risk to the insurance carrier.

Self-insured entities pay medical and prescription drug claims plus administration fees out of company reserves and assume risk posed by the potential for large or catastrophic losses such as organ transplants or cancer treatments. As such, these underwriters must assess individual medical profiles of employees who present with emerging or pre-existing medical conditions. Underwriters also assess the risk of a group as a whole and calculate an appropriate premium level and aggregate claims limit which, if exceeded, may cause irreparable financial harm to the employer.

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