The term underwriter is used in a variety of businesses and industries, but it primarily refers to a person or firm who is responsible for assessing and assuming financial risks on behalf of another firm or individual. Underwriters work for investment banks and insurance companies, but they are also individuals who are financially responsible for sponsoring events. Essentially, underwriters receive special terms or benefits for their participation in events or business ventures.
Underwriters in the insurance business agree to pay for items like homes, health insurance and cars, in exchange for monthly payments, or premiums. In terms of the financial industry, an underwriter may work with a securities firm to help a company take their stock public. The underwriter buys the stock at a bulk rate, providing the company with capital. The underwriter can then sell the stock and make a profit for themselves or their firm. Underwriters can also be wealthy individuals or corporations who sponsor events or charities. If one underwriter sponsors an event, they may wish to have control of the event. Most charities and other functions prefer to have more than one underwriter, allowing the charity more freedom.
Insurance underwriters assume billions of dollars of risk annually when they choose to issue insurance policies. The underwriter assesses the risk and determines who receives a policy and under what terms that insurance policy may be issued. An underwriter in the financial industry does much the same as the insurance underwriter but they are determining if an individual should receive a mortgage loan or if a business meets the requirements to take their stock public.
There is no formal educational requirement to become an underwriter, but the most sought after employees have a college degree in business administration, finance, or accounting. They also have strong communication and computer skills. Many colleges have courses designed for underwriters and you can also find online training courses for bachelors and master's degrees related to underwriting.
A commitment to continuing education is an important part of an underwriter's career. Insurance underwriters may choose to specialize in commercial or personal policies. The designation of ACU or API indicates that your underwriter has completed a series of courses and successfully passed examinations set forth by the Insurance Institute of America. Mortgage underwriters may be designated as CMB, certified mortgage banker, with a further designation of residential CMB or commercial CMB.
Technology has enabled underwriters to compile their research more quickly than ever, so the average mortgage or insurance underwriter can process more applications in a shorter amount of time. Computer underwriting programs called 'smart systems' play a large role in the insurance underwriter's decision making process. Mortgage underwriters also use computer programs like Desktop Underwriter to gather information and help assess risk.