What is Insurance Underwriting?
Underwriting services are mainly provided by large financial institutions that ensure that the risk is properly calculated before carrying out a financial transaction of a meaningful magnitude.
Underwriters, at times, take a guarantee of their risk assessment, and that means that in the case where the other party defaults, then the underwriters guarantee payments equivalent to the financial loss incurred.
Over the recent past, Insurance Policy and plans have considerably increased in scope. Insurance tends to be an increasingly important aspect that needs to cover substantial ground pertaining to risk and reward related matters.
As a matter of fact, it can be seen that insurance underwriting is nothing but a risk assessment that helps insurance companies to undermine the level of risk required.
Insurance underwriting can therefore be described as a process of evaluating a company’s risk in insuring a given asset.
Therefore, insurance underwriting can alternatively be termed as a risk assessment which helps the policy giver to ensure that proper ground has been covered that can help them devise a plan that correctly reflects the risks and rewards of the underlying scheme of affairs.
Who are Insurance Underwriters?
Insurance Underwriters evaluate the risks that are involved in ensuring assets, or commodities. Subsequently, they establish the relevant pricing for the level of risk that is undertaken by the company.
Insurance Underwriters, for one, assume the specific risk that is involved in a contract with a given individual or an entity.
For instance, they might assume the underlying risk involved within a house in case of fire, in exchange for a certain charge. The underwriter, in this scenario, assesses not only the possible damage caused by the fire, but also the probability of the fire itself.
The underwriters’ job, therefore, is to ensure that they cover all the stated variables in the asset itself so that they can accurately calculate the respective probabilities regarding the chances of losses that might occur as a result.
For different types of insurance, there are different types of insurance underwriters present. For example, home insurance underwriters have a different lookout as compared to car insurance underwriters.
Subsequent explanation and description of insurance underwriters are given in the following section:
Types of Insurance Underwriters
There are several types of insurance underwriters. They are given below:
- Business Insurance Underwriters: Business Insurance refers to insuring business against possible and potential losses as a result of unforeseen circumstances and situations. Business Insurance Underwriters are responsible to calculate the underlying risk of the business so that a potential policy can be drafted. There are no two similar business-related policies. In this regard, business insurance underwriters are entrusted with the responsibility to ensure that all business risks are incorporated so that the chance of the insurance company losing out money as a result of unforeseen business losses is mitigated to a maximum extent.
- Home Insurance Underwriters: Home Insurance covers ground pertaining to events that might potentially cause financial damage to the house itself. Therefore, home insurance tends to be increasingly important for homeowners, as well as for insurance companies. The main job of the home insurance underwriter is to ensure that they are able to assess the likelihood of repairs and maintenance expense within the house, which is going to eventually help them devise a strategy that can mitigate the level of risk involved in losses incurred by home insurance.
- Car Insurance Underwriters: Car Insurance underwriting covers ground pertaining to damages caused to the car, under unforeseen circumstances. Insurance of motor vehicles needs to inculcate a variety of different factors, that might include the driving history (in terms of ticketing, overspeeding, etc.), as well as the condition of the vehicle itself. Car insurance underwriters need to prepare a policy that is aligned with the stated policy factors.
- Life Insurance Underwriters: Life Insurance Policy underwriters involve devising policies that are based on a number of different factors that tend to have an influence on the health, and the lifeline of an individual. Therefore, life insurance underwriters are supposed to study and investigate these factors and assess the existing risk when it comes to setting policy for life insurance. It is important to use mathematical calculations to estimate the payouts, and the risk involved when issuing life insurance.
- Health Insurance Underwriters: Health Insurance Underwriting also comprises of determining the level of risk involved in certain individuals. Regardless of the fact that this cannot be accurately calculated, yet there is no doubt to the fact that this tends to be a highly important step in drafting policy frameworks.
How to Become an Insurance Underwriter?
There is no stringent requirement or degree path that can be selected when it comes to becoming an insurance underwriter.
However, there is a preferable path that individuals can take on, in order to properly launch their career as an insurance underwriter. These steps have been summarized below:
- Getting an Undergraduate degree: Getting an undergraduate degree is a core step in getting to know the field better. Even better, it greatly helps if the undergraduate degree is in the field of business and finance so that individuals can get a clear-cut idea regarding business functionality, and how business affairs work.
- Researching and Goal Setting: Researching and goal setting is a primitive step in establishing a clear trajectory in pursuing a career as an insurance underwriter. Researching possible streams and fields of study within underwriting is an important part because it helps to determine the selected path of study, and how it can be further streamlined in the near future.
- Professional Accounting/Risk-Management Degree: There are numerous different degree programs that can be undertaken in order to develop a stronger level of interest in the field itself. Getting a professional accounting and risk-related degree is resourceful because it greatly helps in securing a relevant internship or a job further on in the career. Degrees and certifications like CPA or ACCA can help in getting a holistic idea regarding how accounting works, and what can be done in order to get a deeper and broader idea regarding accounting and risk management-related stuff.
- Getting an Internship: Theoretical study might not solely suffice because it might not give a proper idea regarding how the real business world functions. Hence, it is important to get enrolled in an internship that is going to help get an idea regarding the financial institutions, and how they function. Getting to know a mentor, who is already working as an underwriter is also really helpful because it helps to get an idea about what a typical job description of an underwriter really is.
- Certifications and Diplomas: Risk Assessment and insurance underwriting is a skill that only grows and improves with time. However, there are numerous different certifications, diplomas, and training that can be undertaken in order to ensure that a proper skill set continues to develop for individuals who have finally decided to pursue a career as an insurance underwriter.
The list that has been mentioned above is not exhaustive, and it is certainly not limited to the options mentioned above.
However, it is important to consider the fact that insurance underwriting in itself tends to be a highly technical choice of career.
Though not insurmountable, it does require a certain level of commitment by the individual in order to ensure that there is an acceptable level of skill set that can be used in order to undertake the responsibility of assessing the respective risks.