Who is an underwriter?
Underwriters are key members of any financial institution like insurance, loan, mortgage, and investment companies. Their main role in any company is to evaluate the risk involved in a particular transaction; for instance, if the company is giving a loan or insurance policy, the underwriters first analyze the risk associated with it and provide the report to the company. In exchange for their evaluation, underwriters receive fee, and it could be in any form like commission, premium, spread, or interest.
Generally, underwriters possess specialized knowledge to assess risk precisely. They use their expertise to determine whether approving a loan or issuing a policy aligns with their company’s interests. If a transaction turns out to be risky and results in a loss, the underwriter is held accountable.
To become an underwriter, individuals generally need a bachelor’s degree related to a chosen industry, such as finance, business, or economics. They might also need to complete specific training programs.
What does an underwriter do?
Underwriters use their industry-specific knowledge to determine the risk associated with a contract. For instance, health insurance underwriters evaluate the health risks of applicants.
To assess risk, underwriters review various factors, including an applicant's age, current health, and medical and family history. This information is then input into underwriting software, which calculates the appropriate premium and policy terms. Additionally, the software helps determine if the policy presents an excessive risk.
The specific information required by underwriters varies depending on the type of contract. Health insurance underwriters focus on medical details, while loan underwriters assess factors like credit history.
Underwriting is a complex process. Underwriters must determine an acceptable level of risk and decide whether a contract should be approved. In complicated cases, they may need to conduct extensive research and gather additional information.