Insurance Underwriter

What is 'Insurance Underwriter'

Insurance underwriters are professionals who evaluate and analyze the risks of insuring people and assets and establish pricing for accepted insurable risks.  Underwriters help price life insurance, health insurance, commercial liability insurance, homeowners insurance, et al. Underwriters use computer programs and actuarial data to determine the likelihood and magnitude of claim payouts over the life of the policy. Evaluating an insurer's risk before the policy period and at renewal is a vital function of an underwriter.

BREAKING DOWN 'Insurance Underwriter'

Insurance companies face the precarious dilemma of either being too aggressive or too conservative in their underwriting duties. If too aggressive, greater-than-expected claims could compromise earnings; if too conservative, they will be outpriced by competitors and lose market share. Insurance underwriting is a large and profitable industry.  For example, Warren Buffett used insurance and reinsurance premiums to fund investments at Berkshire Hathaway.

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

Homeowners Insurance Underwriters

Homeowners insurance underwriters must consider numerous variables when rating a homeowner 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. They report these hazards to the home underwriter. The home underwriter additionally considers hazards that may trigger a liability claim. Hazards considered include unfenced swimming pools, cracked sidewalks, and the presence of dead or dying trees on the property. These and other hazards represent risks to an insurance company which may eventually be required to pay liability claims in the event of accidental drownings or slip and fall injuries.

Inputting a number of factors, which often includes an applicant's credit rating, homeowner insurance underwriters employ an algorithmic rating method to price policies. The system generates an appropriate premium based on the platform’s interpretation and the combination 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.