When it comes to insurance underwriting, attention to detail is critical. Whether it is a fender bender that has dented your driving record, an unforeseen medical injury that has drained your pockets, or heavy rains that damaged your roof, every detail matters to an underwriter to evaluate your coverage!

But what exactly is Insurance Underwriting?

Underwriting is a process to evaluate the risks for any new proposal, which can then help insurers price the coverage accordingly. The risk factors that underwriters assess include age, occupation, health, past insurance claims, lifestyle, etc. Once they assess the risk, insurers determine whether to issue the policy and how much premium to charge for the desired coverage.

What would happen if insurance did not have underwriting?

Without insurance underwriters, several consequences could arise, such as high-risk individuals obtaining insurance coverage, destabilization of insurance pools, unsustainable premiums, and even market distortion!

What does the insurance underwriting process look like?

The insurance underwriting process can vary for each type of insurance. But generally, here’s what insurance underwriters do:

  1. Reviewing an application and all supporting documents to determine the acceptability of the submission
  2. If they accept the submission, they will assign the proposal to an underwriter based on expertise and workload.
  3. The assigned underwriter will then run a deeper analysis of the risks and may take help from third-party sources for verification
  4. Once the risk meets the insurer’s criteria, the underwriters will determine the coverage and set the pricing.

What are the types of insurance underwriting?

Life Insurance: The life insurance underwriter will assess two parts which are the financial underwriting and the medical underwriting. Financial underwriting will include taking into account the applicant’s loan, liabilities, assets, etc. Whereas for medical underwriting, the underwriter will assess facts that may impact mortality such as age, lifestyle habits, occupation, medical reports and history, family’s medical history, etc.

Health Insurance: Health underwriting serves a critical role for both individuals and groups, such as organizations seeking coverage for their workforce. Insurance underwriters will assess the applicant’s health risks including medical conditions, history of surgery or hospitalization, drug usage, lifestyle habits such as exercise or smoking, as well as request additional information from healthcare providers.

P&C Insurance: For property and casualty insurance, insurance underwriting involves evaluating risks related to insuring property and liability. This includes assessing details on the type of property (e.g., residential, commercial), age of the property, geographic risks, and construction materials.

Auto Insurance: When it comes to auto insurance, the risks are completely different. Insurance underwriters will take on the task of scrutinizing driver records (e.g., past accidents, violations), vehicle type (e.g., make, model, mileage), and intended use of the vehicle.

Challenges for Insurance Underwriting

Based on a 2024 Capgemini report, nearly 40% of underwriters’ time goes toward administrative and operational activities. Outdated systems, third-party data capabilities, and complex processes often hinder an underwriter’s ability to get a comprehensive picture of the total risk and potentially lead to missed opportunities. With so much uncertainty lurking, companies require advanced technologies that offer real-time data, market-sensing capabilities, and end-to-end automation that spans the underwriting process. This transformation can enable insurers to shift from being at hindsight to being at foresight, enhancing their decision-making capabilities!

Wrapping up

Insurance underwriting stands as a crucial pillar for the insurance sector, ensuring that all types of risks are assessed and policies are accurately priced. Without underwriting, the stability of the insurance market would be compromised. Insurance risks are evaluated based on different criteria tailored to the different types of insurance. With underwriters playing such a crucial role, it is necessary to leverage the right technology to position insurers to proactively manage risks and increase efficiency.

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