Underwriting

What Does Underwriting Mean?

Underwriting is the process by which insurance companies assess and calculate the risk associated with providing coverage and issue insurance policies based on these assessments. In exchange for providing financial protection against various risks, the insurance company collects periodic payments known as premiums from policyholders. Insurance companies employ underwriters to manage this process, ensuring that the risks are properly evaluated and that the terms of the policy are appropriately set.

Insuranceopedia Explains Underwriting

For example, a life insurance company issues policies at specific prices after evaluating the amount of risk each individual represents and determining the figures necessary to ensure profitability. If the company collects more revenue from premiums than it pays out in claims and expenses, it is said to have made an underwriting profit. This is one of the primary ways insurance companies generate income. However, if the insurance company miscalculates the risks during the underwriting process, it could result in paying out more than anticipated, leading to an underwriting loss.