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Insurance companies protect individuals and organizations from financial loss by assuming billions of dollars in risks each year. Underwriters are needed to identify and calculate the risk of loss from policyholders, establish appropriate premium rates, and write policies that cover these risks. An insurance company may lose business to competitors if the underwriter appraises risks too conservatively, or it may have to pay excessive claims if the underwriting actions are too liberal.
With the aid of computers, underwriters analyze information in insurance applications to determine if a risk is acceptable and will not result in a loss. Applications are often supplemented with reports from loss-control consultants, medical reports, data vendors, and actuarial studies. Underwriters then must decide whether to issue the policy and the appropriate premium to charge. In making this determination, underwriters serve as the main link between the insurance carrier and the insurance agent. On occasion, they accompany sales agents to make presentations to prospective clients.
Technology plays an important role in an underwriter’s job. Underwriters use computer applications called “smart systems” to manage risks more efficiently and accurately. These systems automatically analyze and rate insurance applications, recommend acceptance or denial of the risk, and adjust the premium rate in accordance with the risk. With these systems, underwriters are better equipped to make sound decisions and avoid excessive losses.
The Internet also has affected the work of underwriters. Many insurance carriers’ computer systems are now linked to different databases on the Internet that allow immediate access to information—such as driving records—necessary in determining a potential client’s risk. This reduces the amount of time and paperwork necessary for an underwriter to complete a risk assessment.
Most underwriters specialize in one of three major categories of insurance—life, health, or property and casualty. Life and health insurance underwriters may further specialize in group or individual policies.
Property and casualty underwriters usually specialize in either commercial or personal insurance, and then by type of risk insured, such as fire, homeowners, automobile, marine, liability, or workers’ compensation. In cases where casualty companies provide insurance through a single “package” policy, covering various types of risks, the underwriter must be familiar with different lines of insurance. For business insurance, the underwriter often must be able to evaluate the firm’s entire operation in appraising its application for insurance.
An increasing proportion of insurance sales, particularly in life and health insurance, is being made through group contracts. A standard group policy insures everyone in a specified group through a single contract at a standard premium rate. The group underwriter analyzes the overall composition of the group to assure that the total risk is not excessive. Another type of group policy provides members of a group—a labor union, for example—with individual policies reflecting their needs. These usually are casualty policies, such as those covering automobiles. The casualty underwriter analyzes the application of each group member and makes individual appraisals. Some group underwriters meet with union or employer representatives to discuss the types of policies available to their group.