When extending coverage to a client, insurance companies are agreeing to provide financial compensation if the client experiences an event resulting in filing a claim for damages or loss. While the future event may not happen, there is always a chance that it might- that is considered a risk to the insurance company. In order to minimize the costs of claim payments, companies put certain parameters in place of how much risk they are willing to take on from clients. Insurance companies hire underwriters to assess and analyze the risk levels of potential clients and determine if they fall within such parameters. In doing so, they work to reduce the chances of the insurance paying too much at one time, resulting in the inability to help all of their clients.
How do underwriters determine the level of risk involved? Underwriters will use software, data from actuaries, and statistical analysis to make these evaluations. Factors about a client such as their age, marital status, medical history, and driving record may be taken into account. The region’s likelihood of experiencing a natural disaster, proximity to a fire station, and crime rate are assessed. Other factors such as construction type, building & roof age, claims history, and the building assessment are also considered. Different companies will have different requirements for what levels of risk they are willing to accept, and it is up to the underwriters to determine if a client falls within those requirements.
After determining whether the insurance company is willing to extend coverage, underwriters will determine the cost of coverage and the pricing of the premium. While an insurance agent would sell and service the policy, an underwriter would determine whether the insurance company should and will offer a policy to begin with. Underwriters themselves are usually specific to one insurance company and type of insurance, such as auto, healthcare, or property insurance.
There are lot of people that work together to make insurance work for you. Have questions about this or anything insurance-related? Please let us know. We are here for you!