What Is Insurance Underwriting?

Definition and Examples of Insurance Underwriting

Insurance Underwriting

The Balance / Nicole DeLeon 

Underwriting is how an insurance company evaluates its risk. This may be in regard to insuring a home, car, driver, or a person's health or life. It helps an insurance company decide whether taking a chance on providing coverage to a person or business would be profitable.

After looking at the risk involved, the underwriter sets the insurance premium that will be charged in exchange for taking on this risk.

What Is Insurance Underwriting?

An insurance company must have a way to decide just how much of a gamble it's taking by providing coverage. It also needs to know the chances that something will go wrong, causing it to have to pay out a claim. For instance, a payout may be nearly assured if a company is being asked to insure a person who has cancer.


A company won't take on the risk of issuing a policy if the odds of a costly payout are too high.

How do companies decide what is an acceptable level of risk? That's where underwriting comes in. Underwriting is a complex process that involves data, statistics, and guidelines provided by actuaries. All of this helps underwriters predict the likelihood of most risks. Then, insurance companies charge premiums based on the level of risk.

How Insurance Underwriting Works

Underwriters are trained insurance professionals who understand risks and how to prevent them. They have special knowledge in risk assessment. They use skill and information to decide whether they'll insure something or someone—and at what cost.

The underwriter looks at all the information your agent provides. Then, they decide whether the company is willing to gamble on you. The job also includes:

  • Reviewing information to find the risk
  • Determining what kind of policy coverage or what perils the insurance company agrees to insure, and under what conditions
  • Possibly changing coverage by endorsement
  • Looking for solutions that might reduce the risk of future claims
  • Possibly negotiating with your agent or broker to find ways to insure you when there are issues


A lot of underwriting is automated with the use of computer programs. These programs are much like the quoting systems you might see when you get an online quote.

An underwriter may become involved in cases when more assessment is needed. For instance, this could be when an insured person has made many claims, when new policies are issued, or when there are payment issues.

Insurance underwriters will often review policies and risk information whenever a situation seems outside the norm. It doesn't mean that an underwriter will never look at your case again just because you've already applied for or have a policy. An underwriter can become involved whenever there's a change in insurance conditions or a change in risk. 


When there's a change in insurance conditions, the underwriter will take a look to see whether the company is willing to continue the policy on its current terms, or it may present new terms.

State laws prohibit underwriting decisions based on race, income, education, marital status, or ethnicity. Some states also prohibit an insurer from declining to provide a policy based solely on credit score or reports.

Underwriters vs. Agents/Brokers

An agent or broker sells insurance policies. An underwriter decides whether the insurance company should and will make the sale of that coverage. Your agent or broker has to present a solid case that will convince the underwriter that the risk you present is a good one.


Most underwriters worked for insurance carriers as of May 2021.

Agents aren't usually able to make decisions beyond the basic rules they're given in the underwriting manual, but some agents might decide they're not able to insure you, based on the knowledge they have about their company's underwriting decisions. They can't make special arrangements to offer you insurance without the underwriter's approval.

The underwriter protects the company by enforcing the rules and assessing risks based on this understanding. They can decide, above and beyond the basic guidelines, how the company will respond to the risk opportunity. They can also make exceptions or alter conditions in order to make a situation less risky.

Underwriters Insurance Agents or Brokers
Approve or decline the risk of issuing a policy Sell policies and coverage to companies and individuals, but only with permission from the underwriter
Work for the insurance company Work for both the insurance company and the insured

Examples of Insurance Underwriting

These examples may help you understand when an underwriter might make their own decision about your policy.

When a Home Isn't Occupied

Suppose Liz and John bought a new home and decided to sell their old one. The real estate market was tough at the time, and they didn't sell their first home as fast as they'd hoped. They ended up moving out before they'd sold it.

They called their insurance agent to let them know that the old home was empty. Their agent let them know that they would need to fill out a vacancy questionnaire and provide some more details. Then, the underwriter would look at the risks and decide whether they would allow the vacancy permit to keep the home insured.

When a Home Needs Repairs

Liz and John's new home needed a lot of repairs. The insurance company would not normally insure a home that did not have updated wiring, but Liz and John had been clients for a few years, and they had never made any claims. They also insured their car with the same company. Their agent decided to refer their case to underwriting.

Liz and John promised to repair the wiring within 30 days. The underwriting department looked at their profile and decided they were comfortable with taking on the risk. The underwriter advised the agent that they would not cancel the home insurance policy due to the lack of repairs. Instead, they would temporarily increase the deductible and give Liz and John 30 days to get the work done.


Policy terms could go back to a more reasonable deductible after a slight increase when certain conditions have been met.

Multiple Auto Insurance Claims

Mary has made three glass claims on her car insurance policy in five years. Other than that, she has a perfect driving record. The insurance company wants to continue to insure her, but it wants to make the risk profitable again. It has paid $1,400 in glass claims in the past five years, but Mary pays only $300 per year for glass coverage. Her deductible is only $100.

The underwriter reviews the file and decides to offer new conditions to Mary upon her renewal. The company agrees to offer her full coverage, but it will increase her deductible to $500.

The underwriter also provides another option: They will renew the policy, but it will include limited glass coverage. This is the underwriter's way to minimize risk, while still providing Mary with the other coverage she needs, like liability and collision insurance.

Key Takeaways

  • Insurance underwriting is how an insurer decides how risky it is to issue coverage to a certain person or business.
  • The process looks at how likely it is that the insured will make a costly claim and whether the insurer will lose money by issuing the policy.
  • Underwriters, agents, and brokers all work for the insurance company, but an agent or broker also has a duty to serve the best interests of the insured.