July 31st, 2012
Insurance underwriting is a common but vague term referring to the process of determining risk for potential clients. It largely takes place behind the scenes; agents and brokers traditionally use the terms set by underwriters and present them to customers.
The term “underwriter” likely got its start from financiers accepting risks on sea voyages in exchange for premiums more than a century ago. Lloyds of London created this market, along with the piece of paper on which the agreement was formalized; the banks would quite literally sign their names under the space allotted for risk information. Hence, underwriting.
Most underwriters focus on a specific subset of the insurance world, whether it’s corporate liability, health care, car insurance or another. There are many historical data points that help underwriters do their jobs quickly. For example, if someone is seeking health insurance but has a history of heart disease -- the insurer knows, quite well, that they are exposed to more risk.
Car insurance underwriting is similarly supported by historical data, informing the risks posed by drivers. And these are the ranking factors we always talk about: driving history, credit score (except for in California), vehicle, domestic situation, education level and others. That’s why we’re able to produce real rates instantly.
There are obviously occasions when underwriters have to create new models to assess risk. For example, if an insurer is approached about covering a new shorefront resort in an exotic country. Threats coming from weather, seismology, health, security and other factors would have to be ascertained before the insurance company underwriting the policy would be comfortable with a risk level and premium amount.
Insurance underwriters don’t interface directly with the consumer; that is the job of brokers and agents who traditionally manage the account and handle any customer service issues that arise. Commercial insurance brokers will shop around to many underwriters, in order to find the best terms.
In the case of car insurance, agents are often just the customer service wing of their own underwriters. CoverHound is an independent, national marketplace so we are able to gather up the rates of numerous rates and present them to you in a matter of seconds.