Insurance Underwriting Definition
Keeping claim payouts to a minimum is an important factor in determining the profitability of insurance companies. Underwriting plays an important role in an insurer's profitability by assessing the potential for future risk. Underwriters analyze information found on various consumer reports to determine the likelihood that a policyholder or applicant will report a claim. If they deem it necessary, they will take action, such as rejecting an application for insurance or canceling an in-force policy.
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Function
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Insurance underwriters examine applications for insurance to determine if the applicant meets underwriting eligibility requirements. They also examine the records of existing policyholders to determine if they have excessive claims history or a frequency of late payments. In some instances, they may be required to terminate coverage by issuing a notice of cancellation.
Benefits
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Underwriting benefits an insurance company by limiting its exposure to risk. This results in fewer claims for the insurance company which can make it more profitable. Underwriters assist agents who sell insurance policies by consulting with them to ensure that the policy they are about to write will meet established eligibility guidelines.
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Types
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Underwriters typically specialize in specific areas of insurance underwriting. Personal lines property and casualty underwriters work with auto and homeowner insurance. Underwriters may also specialize in personal life or health insurance. Commercial underwriters deal with business risks, such as commercial automobile fleets, business liability and business property.
Considerations
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Underwriters should possess strong analytical skills to evaluate information found in documents, such as motor vehicle reports, medical reports and claims histories. They also must have the ability to make decisions based on their findings. Underwriters correspond frequently with agents and occasionally with policyholders, so good communication skills are essential. A four-year college degree in areas, such as business administration or finance is usually required, although degrees in other fields may also be considered. Some underwriters may need to obtain an insurance license depending on their specific job functions and the state in which they are employed.
Potential
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According to the Bureau of Labor Statistics, the median annual salary for underwriters was $56,790 as of May 2008. The BLS also indicates that turnover of underwriters will be high through 2018 due to the lack of opportunities for upward mobility. During that period, employment of underwriters is expected to decline by 4 percent.
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References
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