Professional Series - The Underwriter

Hello my fellow readers, my name is Risky Biscuit and I am an insurance underwriter based in the San Francisco Bay Area. One practical way to understand the insurance industry is to explore the various types of jobs within. Which is exactly why I present the Professional Series to all of you. This is the inaugural piece of the series, and it is about a type of job called insurance underwriter.

Contrary to popular belief, an insurance underwriter is not a salesperson who sells insurance out of his or her car trunk. Insurance underwriters are people employed by insurance companies who take on certain levels of financial risk as liabilities and guarantee payment in events that contribute to financial loss.

The word underwriter came from Lloyd's of London. Back in the 17th century, financial backers hired by Lloyd's of London would accept some risk on a given business venture (involves shipping cargo across the sea, aka marine cargo insurance) in exchange for premium. The risk information related to any insured venture would be recorded on a piece of parchment with the Lloyd's logo, a financial backer would then write his name under the risk information. This was literally how the term underwriting was created.

Though the underwriting profession had existed for centuries, the job is still very much important and relevant today. As a commercial insurance underwriter, I evaluate whether it will be profitable for my company to provide insurance coverage to a certain business enterprise. If it is likely that the potential client will need an expensive insurance payout in the future, as an underwriter, I can refuse to provide insurance coverage. A typical underwriting evaluation process is as follows:

Step 1 - I do research on the potential client using the internet, phoning risk consultants and reading any supporting documentation submitted to me. I pay attention to factors such as business operations, class of industry, financial performance and claims history. The results I come up with will help create a risk profile.

Step 2 - Using the risk profile I just created, I decide whether I would like to pursue the potential client. If yes, I will then determine what type of policy coverage to offer. I can use forms called endorsements to either restrict or modify coverage.

Step 3 - Using information from claims history and guidance from the actuaries, I price the premium for the coverage types requested.

Step 4 - I create an insurance quotation that contains coverage offered and premium amounts.

Step 5 - I send the quote to a broker or agent who is seeking insurance on behalf of the potential client. The broker would possibly negotiate with me to alter the pricing or some parts of the coverages.

At this point, one might get the impression that an underwriter makes drastically subjective decisions based on objective information. Though this is true to some degree, state laws strictly prohibit underwriters like me to discriminate against applicants based on factors such as race, gender, ethnicity and religion.

If the potential client is happy with the quotation, I, the underwriter will proceed to issue the insurance policy. During the policy effective period, I will intervene when additional assessments are required, i.e. claims are reported, the client has acquired or sold off assets, a request to modify coverage terms midway or there are problems with payment remittance etc.

While voluminous insurance transactions give off the impression that insurance firms are swimming in money, series of catastrophic events such as natural disasters or recessions, can swiftly wipe away profits earned over the years. The role of underwriters becomes significant because underwriters are gatekeepers that decide what types of risk to insure so that an insurance company can not only make profit but also maintain solvency during times of crisis.

Again, hope everyone's holiday season is off to a fabulous start! If you find this post helpful, hit "like", leave a comment below and click subscribe!