Underwriting involves conducting research and assessing the degree of risk of each applicant or entity before assuming that risk. This check helps to set fair borrowing rates for loans, establish appropriate premiums to adequately cover the true cost of insuring policyholders, and create a market for securities by accurately pricing investment risk. If the risk is deemed too high, an underwriter may refuse coverage.
An underwriter evaluates risks, accepts, postpones or declines life insurance applications, and determines the appropriate premium to charge acceptable risks. The decision of an underwriter regarding the classification of a risk and the premium to charge for insurance coverage is commonly referred to as the underwriting decision. Underwriting decisions greatly affect the success or failure of a life insurance company.
Underwriters are accountable for assessing and classifying risks based on relevant information and for making appropriate decisions regarding the acceptance, postponement or rejection of such risks.
