Chapter 4Underwriting

The process of underwriting is at the heart of the insurance contract. The role of insurance underwriters is to consider the nature and frequency of risks which might attach to a particular prospective customer, and then calculate terms which will form the basis of the insurance cover. The dominant purpose of the underwriting process is to ensure that an insurer carries a book of business which is both profitable and commensurate with the insurer's own risk appetite.

An insurance underwriter is a highly skilled individual working closely with other members of the team such as risk managers and actuaries. Most underwriters focus on one of five areas of business:

  • General insurance which covers household, pet, motor, travel.
  • Life insurance/assurance which covers illness, injury, death.
  • Commercial insurance which covers businesses and companies.
  • Reinsurance where part of the risk is placed with another insurer.
  • Specialist lines, such as aviation, terrorism and marine.

Results for establishing the right premium come from a combination of actuarial analytics, experience and judgment. It might reasonably be argued that underwriting is one of the most analytical functions within an insurance organization and that this department needs to be at the cutting edge of the Big Data discussion.

For an insurer to properly and consistently assess the risk, insurance companies usually develop underwriting guidelines. For example, in a proposal for life cover, certain specific ...

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