Definition of "Underwriting"

The underwriting process evaluates the likelihood an insured event will occur, determines its likely cost and develops an appropriate premium for the coverage that is competitive in the marketplace and remunerative to the insurance company writing the policy. For some standardized coverage's that are highly competitive, underwriting may be somewhat besides the point -- the policy has to be priced according to marketplace pressures if the insurer wishes to remain in that line of coverage. Underwriting still plays a substantial role for many coverage's, however, even those in the increasingly competitive businesses of auto, home and term life insurance. Insurance companies don’t all target the same slice of the market in the same states, and thus often have different objectives in their underwriting efforts as well as different cost structures that determine operating profit margins in their underwriting calculations. Underwriting differences account in part for the substantial differences in insurance premiums for comparable coverage's.

The process of selecting applicants for insurance and classifying them according to their degrees of insurability so that the appropriate premium rates may be charged. The process includes rejection of unacceptable risks.

The process by which an insurance company accepts or rejects and classifies a risk in order to charge the proper premium. This process is performed in an insurance company by an underwriter. In life and health insurance, the process may involve review of the application, home office speciment, blood chemistry profile, inspection report, attending physician statement, and depending on the size of the policy and the age of the proposed insured, a paramedical or medical examination. Underwriting may also take the form of financial underwriting. This is more important in business insurance, large face amount policies and disability income policies.