Insurance underwriters help life insurance companies reach their financial goals by analyzing the health and lifestyles of potential clients and advising insurance companies on how much to charge clients for premiums based on their potential risk. Show
Underwriters help insurance companies decide which policies to offer clients or if it is worth taking on certain clients, explains the U.S. Bureau of Labor Statistics. Life insurance underwriters usually have college degrees in areas such as business administration and finance. They need proficient computer skills because they depend on software programs to effectively do their jobs. Understanding the role of underwriters in insurance work will help you decide if this career is right for you. Classification of ClientsLife insurance underwriters classify each potential client based on factors such as health, family health history, and employment, according to Insure.com. For example, people who are classified as Preferred Plus No Nicotine often get the best premiums since they are considered the lowest risk. An underwriter sees that these individuals don't smoke, exercise regularly, and have little to no disease in their family history. An underwriter might classify another potential client as Standard No Nicotine. This individual is not a smoker, though he or she might have conditions such as asthma or depression. An underwriter might suggest a policy with a slightly higher premium. Researching Client HistoriesUnderwriters look at potential clients' medical records and work history. They might suggest that individuals undergo medical exams. They often use software called "smart systems" that allow them to determine risk. Once they get results from the underwriting software, however, they analyze these results based on factors such as their life insurance company's own history with clients who've had similar histories and lifestyles. Writing Insurance PoliciesLife insurance underwriters commonly assist in writing insurance policies. They set premiums based on their understanding of the financial risk of various classifications. Because of their thorough understanding of the policies their companies offer, underwriters commonly give presentations to potential clients, investors and associates. They might also assist salespeople in their company by educating them on which policies are ideal for certain groups of people and which selling points might make their policies seem the most competitive. Balancing the Company's PortfolioLife insurance underwriters need to strike a delicate balance regarding how many consumers for whom they recommend policies and which kinds of policies they offer to certain individuals. On the one hand, underwriters need to make sure they are not taking on considerable risks. This might include offering low premium policies to individuals who are in extremely poor health and who smoke since these policies would have a greater chance of causing the insurance company to lose money. At the same time, they have to accept clients who might be on the higher end of the risk scale so the company can continue to grow with a greater number of clients. An insurance underwriter combs through an insurance application to gauge the applicant’s risk and determine whether to extend coverage—and, if so, what the cost and limits of the coverage will be. Usually, with help from software, they make decisions about auto, homeowners, life, disability, or business insurance, for example. Are you considering a career in the industry? In this guide, we cover:
What Is Insurance Underwriting?At its core, insurance underwriting involves determining how much risk an insurer is willing or able to take on. For example, if a homeowner is applying for homeowners insurance, the underwriting process would consider factors such as the location, age, and condition of the home. In addition, homeowners insurance underwriting typically includes evaluating potential hazards in or around the house and examining the applicant’s background, such as their credit score. The underwriter looks at this data to assess the likelihood of and potential costs associated with paying out claims. Based on their findings and likely guidance from underwriting software, they determine whether the applicant should be covered. If the likelihood of paying multiple or pricey claims is too high, the applicant is rejected. If the application is approved, the underwriting process computes the coverage amount the homeowner would get and the premium that the homeowner would pay for the policy. Riskier customers generally pay higher prices. (Say, for instance, your home is expensive and costly to rebuild.) Ultimately, the goal of underwriting is to strike a balance between taking on new policyholders, so the carrier can turn out a profit and afford the claims it does cover, and minimizing the companies’ risk exposure. (Too many claims could put the carrier out of business.) This process and its ultimate goal is similar to how a mortgage underwriter approaches home loans. What Does an Insurance Underwriter Do?It would be easy to state that they evaluate and manage risk. But it goes further than that. According to the Bureau of Labor Statistics, the duties of an insurance underwriter may include:
An insurance underwriter often specializes in one type of coverage, such as health, life, or property and casualty policies. Seth Brickman, managing director of Windsor, Connecticut-based Business Risk Partners, an underwriter of specialty insurance for businesses, explains that insurance underwriters “turn over the rocks and find any important facts that may be hiding.” Underwriters then tailor coverage, including policy limits and premium prices, to align with what they’ve unearthed. If you’re looking to get better acquainted with the day-to-day duties of an insurance underwriter, check out Forage’s Aon Introduction to Insurance Virtual Experience Program. How Much Do Insurance Underwriters Make?The Bureau of Labor Statistics says the median pay for an insurance underwriter was $76,390 in May 2021. Comparatively, the median pay for all occupations in May 2021 was $45,760. However, the bureau predicts employment of insurance underwriters will decline by 2% from 2020 to 2030 as automated underwriting software reduces the need for human underwriters. How to Become an Insurance UnderwriterGenerally, someone pursuing a career in this industry needs a bachelor’s degree, often in business. However, some employers might hire someone without a bachelor’s degree based on work experience and skills.
New underwriters typically are trained by senior underwriters and initially work on basic insurance applications. In addition, some employers provide in-house training for beginning underwriters. To move up the underwriting career ladder, an employer often requires that an insurance underwriter gain certification. Here are some of the options, according to the Bureau of Labor Statistics:
Pros and Cons of Insurance Underwriting CareersPros
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Brickman calls insurance underwriting a “great option” for a career, “especially if you are analytical yet don’t have a practical application for your degree. It not only teaches you all the fundamentals of insurance but opens you up to other avenues that in time you may feel you’re more suited for.” Linda Chavez, founder and CEO of Seniors Life Insurance Finder, which sells life and burial insurance for seniors, says being an underwriter demands that you analyze complicated information, make sound decisions, and demonstrate strong communication and interpersonal skills. “If you are looking for a challenging and rewarding career, underwriting may be the right choice for you,” Chavez says. What is the main function of an underwriter?An underwriter is a member of a financial organization. They work for mortgage, insurance, loan or investment companies. They assess, evaluate and assume the risk of another party for a fee. Often, you'll see this fee in the form of a commission, premium, spread or interest.
What is underwriting in insurance in simple terms?The term underwriting means receiving remuneration for the willingness to pay a potential risk. Underwriters use specialized software and actuarial data to determine the likelihood and magnitude of a risk.
What skills are needed for underwriting?A good underwriter is also detail-oriented and has excellent skills in math, communication, problem-solving, and decision-making. Although a university degree isn't a requirement across the board, some employers may hire you if you have relevant work experience and computer proficiency.
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