Understanding Insurance Underwriting

When consumers think about insurance, they think about peace of mind and financial protection. When insurance companies and their underwriters are thinking about these policies, they are thinking about risk assessment and statistics. Like any company, insurance firms want to make a profit but selling insurance isn’t the same as selling cars or computers. If they end up having to pay out more in claims than they take in through premiums, they are losing money. And finding a balance can be trickier than you might imagine. That’s where underwriters come into the picture and some of their work is evident when you receive free insurance quotes.

What is Underwriting?

In every type of insurance, underwriters are used to evaluate risk. For example, if a 17 year old male teenager driving a convertible goes into get insurance, the underwriter is going to view him as being at high risk of being involved in a car accident due to his gender, his age, and his type of car. Because he is more likely to be involved in a car accident and to cost the insurance company money, he would be expected to pay much higher premiums than a 35 year old mom driving a sedan.

When you receive free insurance quotes, the numbers you get are based on some preliminary statistics generated from the work of underwriters. They can tell quite a bit about you and where you fit into the risk assessments based on just a few questions, such as your age. However, more detailed information may be required before you are approved for a policy.

The Process of Underwriting

As you probably already know, if you want to apply for any type of insurance you’ll have to complete an application. The application will ask you some basic questions about yourself, as well as questions regarding the specific type of insurance you want. For example, if you’re getting health insurance, you’ll be asked about your pre-existing conditions and about whether or not you smoke.

The application you submit is one piece of the underwriter’s puzzle, but they have other pieces they also compile to put together an accurate picture of how big a risk you are to the insurance company. Many health insurance policies will require you to complete a medical examination; some life insurance policies do as well. Auto insurance underwriters will look at your driving record and compare that to other people in your age group.

All of the information the underwriter acquires from you and these other sources will be compiled to create a risk profile of you. That profile will be compared with other insured people to determine how likely you are to make a claim, how big those claims are going to be, and how long it might take for you to make that first claim.

Quotes & Underwriters

When you receive free insurance quotes quickly, underwriters haven’t had a chance to look over the information you have submitted. Instead, information compiled by underwriters has been used to create some basic risk analysis methods that allow you to get some idea of what you’d be paying in premiums based on the small amount of information requested.

Because these methods are based on years of statistic gathering from all over the country, the results they generate are fairly accurate based on the provided information. Additional information down the road could change what you actually have to pay.

You & the Underwriters

You will never have direct contact with these underwriters, but you will be affected by their work. They are, after all, the ones who make the important decisions about your policy — not your agent, as many people assume.

When you’ve looked at the free insurance quotes and have made a decision about which company to use, you’ll complete a full application and that will be the start of the process described above. After 1 to 3 weeks (sometimes less, depending on the type of insurance you require), you’ll be told the results of the process.

Hopefully, your policy will be approved. This means you’ll receive the coverage you wanted with no problems. You’ll also end up paying right around what you had been quoted for coverage.

In some cases, new information from the underwriters may cause your policy to be modified. This may mean you’ll receive less coverage, may be required to pay higher premiums, or may need to have a higher deductible.

Finally, some individuals who apply are rejected for coverage. This can happen if new information uncovered by the underwriters makes you seem like a bigger risk than what is acceptable for the company. It can also happen if anything on your application turns out to be false.

Unfortunately, if you are rejected for insurance from one company, other companies are going to be less likely to approve you. That rejection will follow you. In some cases, you may have to choose a high risk insurance program to get the coverage you need even though that might require paying much higher premiums.

August 19, 2009, Posted by Rainy Day Mitch