What is 'underwriting' in insurance?

Underwriting in insurance refers to the process of evaluating risk in order to determine the appropriate terms and conditions of an insurance policy, as well as the premiums that will be charged for that coverage. This involves analyzing various factors associated with the applicant's profile, such as health information, driving history, property details, and other relevant data that can impact the likelihood of a claim being made. By assessing the risk involved, insurers can make informed decisions about whether to offer coverage, under what terms, and at what price, ensuring that the insurer remains financially healthy while providing protection to policyholders.

Calculating insurance premiums may be an outcome of the underwriting process, but the core of underwriting is about evaluating risk rather than merely about premium calculation. Investigating claims pertains to what happens after a policy has been issued and relates to verifying the legitimacy of claims made by policyholders. Assessing the financial stability of a company is important for overall business viability but is distinct from the underwriting function, which focuses specifically on individual risk assessment and policy issuance.