Project

Underwriting in Insurance Sector
Executive Summary
Underwriting agencies are a long standing and highly profitable sector of the
insurance market, which the regulator and the other market participants have not
seen in their true light. This was largely because the sector had no independent
representation or voice.
The primary focus of an insurer is obtaining and maintaining their risk-rated capital.
The primary focus of a broker is the obtaining and servicing of policyholders.
Initially set up by a steering committee of underwriting agency practitioners and

interested parties, and chaired by Reg Brown, the object is to invite all UK MGAs to
join, with the aim of representing 75% of the MGA market. The original steering
committee formed the initial Board of the MGAA until elections took place in
February 2012.
The MGAA exists for MGAs, however, the board recognises that other

professionals can provide valuable support to the MGAA and its members in terms
of knowledge, information and finance. Therefore a limited number of such
professionals may apply for Associate Membership. Supplier and Insurer Associate
Members each have the right to vote for a representative to the Board.
The MGAA works within the professionalism framework of the Chartered

Insurance Institute (CII), and the MGAA observes a code of conduct. The MGAA
has been incorporated as a company limited by guarantee. The Articles of
Association as currently constituted will be amended in due course to reflect how
the membership wish to organise the MGAA's affairs.
The MGAA is a non-profit organisation, and members of the Board are not being
remunerated in relation to the creation or running of the MGAA or other matters.
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INSURANCE
Insurance is a form of risk management in which the insured transfers the cost of
potential loss to another entity in exchange for monetary compensation known as
the premium.
Insurance allows individuals, businesses and other entities to protect themselves

against significant potential losses and financial hardship at a reasonably affordable
rate. We say "significant" because if the potential loss is small, then it doesn't make
sense to pay a premium to protect against the loss. After all, you would not pay a
monthly premium to protect against a $50 loss because this would not be
considered a financial hardship for most.
Insurance is appropriate when you want to protect against a significant monetary

loss. Take life insurance as an example. If you are the primary breadwinner in your
home, the loss of income that your family would experience as a result of our
premature death is considered a significant loss and hardship that you should
protect them against. It would be very difficult for your family to replace your
income, so the monthly premiums ensure that if you die, your income will be
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replaced by the insured amount. The same principle applies to many other forms of
insurance. If the potential loss will have a detrimental effect on the person or entity,
insurance makes sense.
INTRODUCTION TO UNDERWRITING
Underwriting is an agreement, entered into by a company with a financial agency, in order to

ensure that the public will subscribe for the entire issue of shares or debentures made by the
company. The financial agency is known as the underwriter and it agrees to buy that part of
the company issues which are not subscribed to by the public in consideration of a specified
underwriting commission. The underwriting agreement, among others, must provide for the
period during which the agreement is in force, the amount of underwriting obligations, the
period within which the underwriter has to subscribe to the issue after being intimated by the
issuer, the amount of commission and details of arrangements, if any, made by the underwriter
for fulfilling the underwriting obligations. The underwriting commission may not exceed 5
percent on shares and 2.5 percent in case of debentures. Underwriters get their commission
irrespective of whether they have to buy a single security or not.
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Underwriting has become very important in recent years with the growth of the corporate
sector. It provides several benefits to a company:-
▪ It relieves the company of the risk and uncertainty of marketing the securities.
▪ Underwriters have an intimate and specialised knowledge of the capital market. They
offer valuable advice to the issuing company in the preparation of the prospectus, time
of floatation and the price of securities, etc. They also provide publicity service to the
companies which have entered into underwriting agreements with them.
▪ It helps in financing of new enterprises and in the expansion of the existing projects.
▪ It builds up investors' confidence in the issue of securities. The association of well-
known underwriters lends prestige to the company and the investors feel that the issue
is sound enough for profitable investment.
▪ Also, the securities underwritten by reputed underwriters receive better response from
the public.
▪ The issuing company is assured of the availability of funds. Important projects are not
delayed for want of funds.
▪ It facilitates the geographical dispersal of securities because generally, the
underwriters maintain contacts with investors throughout the country.
DEFINITION OF 'UNDERWRITING'
The process by which investment bankers raise investment capital from investors on behalf
of corporations and governments that are issuing securities (both equity and debt).
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INSURANCE UNDERWRITER'
Insurance underwriting is big business – just ask Warren Buffett, who for years has used
insurance and reinsurance premiums to fund his investments at Berkshire Hathaway.
Insurance companies walk a tightrope between being too aggressive or too conservative in
their underwriting duties. If they are too aggressive, greater-than-expected claims could
cut into company earnings; if they are too conservative, they will be out priced by the
competition and lose business.
DEFINITION OF 'INSURANCE UNDERWRITER'

A financial professional that evaluates the risks of insuring a particular person or asset and
uses that information to set premium pricing for insurance policies. Insurance underwriters
are employed by insurance companies to help price life insurance, health insurance,
property/casualty insurance and homeowners insurance, among others.

Underwriters use computer programs and actuarial data to determine the likelihood and
magnitude of a payout over the life of the policy. Higher-risk individuals and assets will
have to pay more in premiums to receive the same level of protection as a (perceived)
lower-risk person or asset.
WHAT IS UNDERWRITING?
● Not all life insurance policies are underwritten, but because some are it is important to
understand what it means.
● Underwriting is a term used by life insurers to describe the process of assessing risk,
ensuring that the cost of the cover is proportionate to the risks faced by the individual
concerned. People with the same or similar risk pay the same or similar premium rates.
● The process of underwriting takes place when you submit your application. To assess a
person’s risk, life insurers rely on information from a range of sources. If you are
applying for a policy that is underwritten, as a minimum you will be asked to complete an
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application form and a medical questionnaire.
● Approximately 93% of applicants that go through the underwriting process will not
experience any difficulty and will end up paying the standard premium rates for their life
insurance.
● People who have a higher risk of developing chronic illness or who work in high risk
occupations are usually required to complete additional forms and may be asked to pay an
extra premium to cover this risk. This only happens to a low proportion of applicants. And
an even smaller number may not be eligible for cover at all.
● Remember, if you have access to insurance through your super or through your employer,
the insurance company may decide not to assess the risks for every individual in the
policy. Instead they may spread the risk across everyone in the group. This is called a
‘Group Policy’.
TYPES OF UNDERWRITING
▪ Syndicate Underwriting:- is one in which, two or more agencies or underwriters jointly

underwrite an issue of securities. Such an arrangement is entered into when the total issue
is beyond the resources of one underwriter or when he does not want to block up large
amount of funds in one issue.
▪ Sub-Underwriting:- is one in which an underwriter gets a part of the issue further

underwritten by another agency. This is done to diffuse the risk involved in underwriting.
The name of every under-writer is mentioned in the prospectus along with the amount of
securities underwritten by him.
▪ Firm Underwriting:- is one in which the underwriters apply for a block of securities.
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Under it, the underwriters agree to take up and pay for this block of securities as ordinary
subscribers in addition to their commitment as underwriters. The underwriter need not
take up the whole of the securities underwritten by him. For example, if the underwriter
has underwritten the entire issue of 5 lakh shares offered by a company and has in
addition applied for 1 lakh shares for firm allotment. If the public subscribes to the entire
issue, the underwriter would be allotted 1 lakh shares even though he is not required to
take up any of the shares.
TYPES OF UNDERWRITERS
Underwriting of capital issues has become very popular due to the development of the
capital market and special financial institutions. The lead taken by public financial
institutions has encouraged banks, insurance companies and stock brokers to underwrite on
a regular basis. The various types of underwriters differ in their approach and attitude
towards underwriting:-
● Development banks like IFCI, ICICI and IDBI:- they follow an entirely objective

approach. They stress upon the long-term viability of the enterprise rather than
immediate profitability of the capital issue. They attempt to encourage public response
to new issues of securities.
● Institutional investors like LIC and AXIS:- their underwriting policy is governed by
their investment policy.
● Financial and development corporations:- they also follow an objective policy while
underwriting capital issues.
● Investment and insurance companies and stock-brokers:- they put primary emphasis on
the short term prospects of the issuing company as they cannot afford to block large
amount of money for long periods of time.
To act as an underwriter, a certificate of registration must be obtained from Securities and

Exchange Board of India (SEBI) . The certificate is granted by SEBI under the Securities
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and Exchanges Board of India (Underwriters) Regulations, 1993. These regulations deal
primarily with issues such as registration, capital adequacy, obligation and responsibilities
of the underwriters. Under it, an underwriter is required to enter into a valid agreement with
the issuer entity and the said agreement among other things should define the allocation of
duties and responsibilities between him and the issuer entity. These regulations have ben
further amended by the Securities and Exchange Board of India (Underwriters)
(Amendment) Regulations, 2006.
INSURANCE TO NON-RESIDENT INDIANS (NRIS)

Buying an insurance policy is a simple procedure. However, there are certain requirements
that you would need to fulfill as an NRI. The following are the details:
●A non-resident Indian should hold a valid passport issued by the Government of India. The
NRI should not be a green card holder. He/she should not have applied for or planning to
apply in the near future for acquiring citizenship of his/her present country of residence or
any other country. Foreign Nationals of Indian Origin are not treated as NRIs for the purpose
of buying insurance.
● Insurance cover is canvassed in India and all formalities regarding filling in the proposal
forms, obtaining medical examination report / special medical reports and Moral Hazard
Report should be completed during their stay in India, if not it can be completed on their visit
to India.
● From their present country of residence known as ‘mail order business’, all or some of the
formalities regarding filling in the proposal forms, obtaining medical and special reports
should be completed in their present country of residence.
● Proposals from NRIs will be considered for a minimum basic sum assured of Rs. two lakhs.
Sum assured over Rs. two lakhs will be in multiple of Rs. one lakh.
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● There is no maximum sum assured limit when all formalities are completed in India on the
NRIs’ visit to India.
●A maximum sum assured of Rs. 1 crore may be allowed under ‘Mail Order Business’, i.e.,
where all formalities are completed in the NRI’s present country of residence. The maximum
sum assured to be allowed would be in accordance with the existing rules for financial
underwriting.
● For proof of income, income tax returns filed in the country of residence is needed when the
total rated up sum assured exceeds Rs. 15 lakhs. If tax returns are not filed, then copy of
employment contract mentioning salary or a certificate from a Chartered Accountant
regarding business or other income can be submitted. Personal Financial Questionnaire (PFQ)
duly filled in and signed by the proposer and countersigned by the Official filling in the MHR
can be accepted as proof of income up to a rated up sum assured Rs. 25 lakhs.
● An NRI can buy any insurance policy of his choice. However, the following are the
restrictions.
● Maximum sum assured under pure Term Insurance Plans is Rs. 25 lakhs
● Term Rider benefit will be allowed up to Rs. 25 lakhs.
● Critical Illness benefit will not be allowed.
● Proposal under non-medical (special) scheme will be entertained subject to the following
conditions:
● Maximum age at entry should not be over 45 years of age.
● Maximum sum assured is Rs. 5 lakhs, which is based on sum under consideration i.e. rated up
sum assured during last two full years.
● The plans that are not allowed are - Whole life with profits, Jeevan Mitra (Triple cover),
Jeevan Bharati, Anmol Jeevan and Term rider.
● Maximum aggregate sum assured of Rs. 2 lakhs under Table Nos. Jeevan Mitra (Double
Cover), Jeevan Saathi, New Janaraksha, Jeevan Chhaya, Jeevan Surabhi-15, 20 and 25 years.
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● The proposer should be employed in Government or reputed commercial firm or should be a

professional such as Chartered Accountant, Cost Accountant, Engineer, Architect,
Management / computer consultant, Doctor, Lawyer, Teacher, Insurance Agent, etc.
● Non-medical scheme under ‘Mail Order Business’ will be allowed only if agents visit the
present country of residence of the NRIs to complete all formalities.
● MHR by agent should be in the prescribed format.
PROCEDURE TO BE FOLLOWED FOR NON-MEDICAL BUSINESS
● The procedure of buying insurance for NRIs is similar to that of selling any regular
insurance policy. A copy of the passport is needed.
● ‘Mail order business’ – Non-medical scheme is allowed only if the agent visits the present
country of residence of the NRI for completing the formalities. The agent should
complete the usual procedure for non-medical business. He should either send the
proposal papers including NRI Questionnaire, Special Questionnaire and a copy of the
passport by mail or hand over the papers personally to the concerned Branch Office.
MEDICAL BUSINESS
● On NRIs’ visit to India, similar procedure of selling insurance is followed. A copy of the
passport is needed.
● For ‘Mail Order Business, the procedure to be followed is given below:
● The format of special MHR is to be filled in by the agent when he visits the country of
residence of the NRI to complete the formalities. Chairman’s Club Member agents can
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complete formalities under proposals from NRIs during their visit to countries of their
present residence. It has now been decided to allow other agents also to complete
formalities under proposals from NRIs during their visit to NRIs’ present countries of
residence.
● Special Questionnaire for ‘Mail Order Business’ under Medical Scheme-if the agent does
not visit the country of residence of the NRI for completing the formalities, a special
questionnaire has to be filled in by
● The employer in the case of employed persons
● Dean or Principal of educational institutes in the case of students
● Personal physician in the case of self-employed / business people
THE BASICS OF UNDERWRITING
● Underwriting is a process whereby a large financial institution assesses whether or not a

prospective client is eligible to receive a given service. For example, banks, insurance
companies and investment funds seek underwriting for the issuance of credit or insurance
policies. This means that the specifics of what underwriting involves can change depending
on who is doing it, but the basic concept is one of risk mitigation/management. The two most
commonly encountered forms of underwriting involve conventional banking loans and
insurance.
BANK UNDERWRITING
● Conventional banking uses the term "underwriting" to describe the analysis of a borrower's
ability to pay. For a private citizen, this will typically involve a credit report, financial
statements, and details regarding employment and salary. This is an example of underwriting
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that should be familiar to most people. In the case of a real estate transaction, underwriting
may involve the property itself being brought into scrutiny.
INSURANCE UNDERWRITING
● In the insurance industry, underwriting means plain risk assessment. An underwriter

evaluates whether a person or project should receive insurance, how much coverage they
should get, and how much they should pay for it. Every insurance company has its own set of
specific guidelines regarding how underwriting should work, but the purpose is always the
same--to make sure that the company brings in more money than it is likely to pay out on the
policy. For example, a driver with a terrible record is likely to be refused for auto insurance
and if he does receive it, the coverage will be limited and expensive. This is the other area of
underwriting that most private citizens will be familiar with.
SECURITIES UNDERWRITING
● Securities underwriting is involved in the issuance of new bonds or stock. A group of

financial institutions agrees to underwrite the stock or bond issuance by buying up all the
new issue themselves, and then reselling them. This is typically the case when the issuer of
the securities needs the capital in a hurry and does not have the time or resources to locate
sufficient buyers themselves. For example, a city needing to plug a budget shortfall quickly
might sell bonds at a discount to a group of underwriters, who then assume the risk for
selling those bonds onto themselves. The banks/underwriters do this in hopes of turning a
profit in the resale of those bonds.
CONSIDERATIONS
● Much of what goes into underwriting comes from a field called "actuarial science." This field
uses mathematical and statistical methods to assess risk and is a specialty of the financial
industry. A person who uses actuarial science is called an actuary, with some versions of
underwriters having substantial overlap with the role of an actuary.
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● An underwriter is a professional who impartially reviews a client’s eligibility for services.

This person reviews the application of a potential client for services such as insurance
coverage and loans to determine whether services should be granted. The two main types of
underwriter jobs are those with insurance companies and those with financial institutions.
● Regardless of industry, an underwriter is charged with the task of thoroughly reviewing an

applicant’s information and determining his or her potential risks as a client. This evaluation
must be completely unbiased, even though an underwriter is employed by the company and
not by the individual. Based on the information gathered and the factors under
consideration, an underwriter then approves or denies a potential client and outlines the
terms of service.
● Insurance underwriters can work in any of several subcategories, including life, health,
property and casualty insurance. In life and health insurance, the underwriter reviews
medical history, actuarial studies and health factors in the interest of determining the risk an
individual poses. If the risk is too great, an underwriter denies coverage. If risk is minimal,
he or she determines the premium that a client pays and the scope of coverage that the client
receives.
● The other types of insurance underwriter jobs deal with property and casualty insurance.
These policies include homeowners insurance and auto insurance. The underwriter assesses
the condition of a commercial or residential property or automobile and offers package
coverage. It is important for underwriters in this line of work to be familiar with each
specific coverage option and how each one is most effectively packaged.
● Underwriting jobs in the financial industry typically involve loans, such as mortgages.

Unlike insurance underwriters, credit history consideration is the most important concern for
an underwriter working for a creditor. Reviewing an applicant’s payment history concerning
his or her other debts and examining the applicant's credit score is the best way to determine
eligibility.
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● A loan underwriter verifies a borrower’s ability and willingness to repay a loan, as well as
his or her assets and collateral. Together, these elements are indicators of the risk posed to a
creditor by offering a line of credit to the borrower. Underwriter jobs are vital to the
financial industry because they allow large institutions to review thousands of applications
on an individual basis and avoid investing in unreliable clients.
● Underwriter jobs typically do not require a degree or particular course of education. Most
insurance and financial companies do prefer a bachelor’s degree in finance or business
administration. Underwriters can work for a wide range of businesses: insurance companies,
credit unions, banks and mortgage lenders. On average, underwriters earn between $50,000
US Dollars and $60,000 USD annually.
THE BASICS OF UNDERWRITING INSURANCE
Insurance underwriting is the process of classification, rating, and selection of risks. In
simpler terms, it's a risk selection process. This selection process consists of evaluating
information and resources to determine how an individual will be classified (whether a
standard or substandard risk). After this classification procedure is completed, the policy
is rated in terms of the premium that the applicant will be charged. The policy is then
issued and subsequently delivered to the purchaser by the producer (more commonly
known as the insurance agent).
The underwriter's job is to use all the information gathered from numerous sources to
determine whether or not to accept a particular applicant. Individuals applying for
individually-owned life and health insurance typically receive more underwriting scrutiny
than members holding a group policy. As such, the concepts discussed in this article apply
primarily to underwriting for individual coverage. The underwriter must employ sound
judgment based on his or her years of experience to read beyond the basic facts and get a
true picture of the applicant's lifestyle.
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For instance, the underwriter will look for any factors (such as occupation, dangerous
hobbies, etc.) that could make the applicant more likely to die before his or her natural life
expectancy, or reasons to anticipate that the individual may become ill or involved in an
accident that will create high medical expenses. Of course, the underwriter certainly
cannot - and isn't expected to - foresee all possible circumstances. The underwriter's
primary function is to protect the insurance company insofar as is possible against adverse
selection (very poor risks) and those parties who may have fraudulent intent.
Adverse selection can be said to exist when a risk (an individual) or group of risks that are
insured is more likely than the average corresponding group to experience a loss. As a
basic example, let's say that in a randomly-selected group of 1,000 25-year-old
individuals, only two might be expected to die in any given year. However, human nature
is generally such that many healthy 25-year-old young adults do not typically regard the
need to buy life insurance, and therefore prefer to spend their money on other things. It's
usually only those 25-year-olds who are ill or perhaps employed in dangerous occupations
that are likely to purchase insurance. The underwriter's job is to ensure that an inordinate
number of these poorer-than-average risks aren't accepted or the insurance company will
lose money.
The underwriter has a number of resources that can be called upon to provide the
necessary information for the risk selection process. These sources include:
● The policy application;

● Medical history and examinations;
● Inspection reports;
● The Medical Information Bureau (MIB); and
● The producer or insurance agent.
THE APPLICATION
● The application is an absolutely crucial document because it's usually attached to and
incorporated as an integral part of the insurance contract. The producer must therefore take
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special care with its accuracy in the interests of both the insurance company and the
insured. The application is divided into sections, with each designed to obtain specific
types of information.
● Although the form of the application may differ from one company to another, most
provide for submission of the following data: Part 1 (General Information), Part 2
(Medical Information), the Agent's Statement or Report, and the proper signatures of all
contractual parties.
● Part 1 of the application requests the insured's general or personal data, such as name and
address, date of birth, business address and occupation, Social Security number, marital
status, and other insurance that may be owned. Additionally, if the policy applicant and
the insured are not the same person, the applicant's name and address would also be
required in this section.
● Part 2 of the application is designed to provide information regarding the insured's past
medical history, current physical condition, and personal morals. If the proposed insured is
required to take a medical examination, Part 2 is usually completed as part of the physical
exam.
● After reviewing the medical information contained in the application and the medical
exam, the underwriter may also request an Attending Physician's Statement, or APS, from
the proposed insured's doctor. The APS is typically used to obtain more specific
information about a particular medical problem or issue.
● The Agent's Statement, which is part of the application, requires that the insurance agent
provide certain information regarding the proposed insured. This generally includes
information regarding the agent's relationship to the insured, data about the proposed
insured's financial status, habits, general character, and any other information that may be
pertinent to the risk being assumed by the insurance company.
● The signature of the insured - and the policy owner if not the same person - must be
obtained in the appropriate places on the application. The producer usually also signs the
document as a witness to the applicants' signatures. Additionally, the application will also
contain information regarding the policy owner's choices for the mode of the premium
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(monthly, semiannually, annually, etc.), the use of any dividends, and the designation of
beneficiaries.
MEDICAL EXAMINATIONS
Medical exams and tests, when required by the insurance company, are conducted by
physicians or paramedics at the expense of the insurer. Such exams usually aren't required
for health insurance (which only emphasizes the importance of the agent accurately
recording medical information on the application).
The medical exam requirement is much more common for life insurance underwriting than
for health insurance. (As a side note, simplified issue life insurance requires no medical
examination and the application asks only very basic health-related questions. This type of
coverage is usually only available in low face amounts to reduce the insurance company's
subjection to the hazard of adverse selection.)
INSPECTION REPORTS
To supplement the information on the application, the underwriter may order an inspection
report on the applicant from an independent investigating firm or credit agency, which
provides financial and moral (or lifestyle choices) information. This data is used only to
help determine the insurability of the applicant.
If the amount of insurance being applied for is average, the inspector will typically write a
general description about the applicant's finances, health, character, occupation, hobbies,
and other habits.
When larger amounts of coverage are requested, the inspector will provide a more detailed
report. This information is based on interviews with the applicant's associates at home
(including neighbors and friends), at work, and elsewhere. Such "investigative consumer
reports" may not be made unless the applicant is clearly and accurately told beforehand
about the report in writing.
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This consumer report notification is usually part of the application. At the time that the
application is completed, the producer will separate the notification and present it to the
applicant.
THE MEDICAL INFORMATION BUREAU
● Another source of information that may aid the underwriter in determining whether or not
to underwrite a particular risk is the Medical Information Bureau, or MIB, which is
located in Massachusetts. The MIB is a nonprofit trade association that maintains medical
information on applicants for life and health insurance.
● It consists of well over six hundred member companies that write more than eighty
percent of the health insurance and over ninety-eight percent of the life insurance policies
in the United States and Canada.
● The MIB maintains an extensive database of medical information and occupational risks
on applicants for life and health insurance. For every ten insurance applicants, the MIB
will have a file on one or two of them. Medical Information Bureau data is reported to
member companies in code form so as to preserve the confidentiality of the file's contents.
The database contains no details about the individual.
● The codes simply alert companies to the fact that there was information obtained and
reported by a member company on a particular medical impairment or vocational risk.
Furthermore, the report does not disclose any action taken by other insurers, nor does it
indicate the amount of insurance that was requested.
● Underwriters use the MIB by comparing its file against the information contained in the
prospective insured's application. If the MIB file contains a code for a condition that
should be listed on the application but is not, the underwriter would then inquire more
specifically about that area.
● For example, an MIB file might contain a code indicating that an applicant suffers from
high levels of cholesterol, while the application indicates that he or she has no ongoing
medical conditions. This discrepancy would prompt the underwriter to investigate whether
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the applicant has misrepresented his or her health status, or perhaps alternatively has
recovered completely from the condition.
● In addition to tracking medical and vocational information, the MIB also reports the
number of times that information has been requested on an individual in the previous two
years. This report is known as the Insurance Activity Index (IAI), and it's useful for two
important reasons.
● The first is that it allows insurance companies to identify people who replace their
insurance policies frequently. Since most of the costs associated with issuing a policy
occur within the first year or two of coverage, insurance companies want to identify those
individuals who are likely to cancel their policies within that period of time.
● Second, the IAI can also help to spot situations in which an individual is accruing
insurance coverage by applying for numerous smaller policies that might fall below the
radar screen for other underwriting requirements.
● By purchasing several small- to medium-sized policies, an individual may be attempting

to avoid drawing attention to the accumulation of an extremely large death benefit. This
situation has occurred in several instances as part of criminal "murder for profit" schemes.
● Although useful for underwriting purposes, an insurer may not refuse to accept a risk
based solely on the information contained in an MIB report. There must be additional
substantiating factors that lead to the decision to deny coverage to the applicant.
Furthermore, the MIB must provide explanations to applicants who are denied coverage,
allowing consumers to challenge possibly inaccurate information about their medical
history.
FACTORS IN UNDERWRITING
The factors used during the underwriting process varies somewhat based upon the type of
insurance being underwritten. If people are being insured, such as under life, health and
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disability insurance, key factors used in the underwriting process may include:
· Age;
· Sex;
· Health and health history;
· Occupation and occupation history;
· Financial condition;
· Personal habits such as smoking or drinking alcohol;
· Size of the policy; and
· Current insurance in force.
If property is insured, as in homeowners, automobile, and commercial property insurance,

underwriters may review factors such as:
· Type of the property;
· Value of the property;
· Condition of the property;
· Construction materials used in the property;
· Potential hazards surrounding or within the property;
· Age of the property;
· Use of the property;
· Security measures and other loss control measures associated with the property;
· Upkeep of the property;
· Location of the property;
· Current insurance in force on the property; and
· Prior losses associated with the property.
FUNCTIONS OF UNDERWRITING
Underwriting involves examining application forms, supporting documents such as appraisals

or bills that verify the value of property, or medical reports that verify the health condition of
an individual, looking at insurance maps that provide information relevant to the statistical
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possibility of certain types of loss, reviewing statistical data applicable to the risk to be
insured,
reviewing company records regarding the application and evaluating site inspection reports.
Upon a thorough examination of all the data, underwriters then assign rates to the application,
or decline to issue a policy if it does not meet underwriting standards. During the entire
process, the underwriting department frequently communicates with agents, inspectors,
adjusters and other field personnel.
● In the insurance industry, the practice of underwriting refers to the process of accepting or
rejecting risks. It is the very heart of insurance and is the first step taken by an insurance
company to generate premiums. Originally, insurance and underwriting were synonymous.
That is, underwriting referred to the operation of the insurance business. As the insurance
industry developed, underwriting took on a more specialized meaning.
● In the early days insurance was more personal than it is today. A contract was drawn up
between a property owner and a second party, who was willing to insure the specified
property, or between the insured and the insurer. The contract specified the terms under which
the property would be insured.
● The property owner placed his name at the top of the contract, stating that he was the owner of
the property and beneficiary of the contract if the property was subsequently damaged. The
other party, who guaranteed the contract and was the insurer, signed his name below, at the
bottom of the contract. Literally, he "underwrote" the contract.
● An underwriter is the person who decides whether or not to insure risks for which applications
have been submitted. The underwriter's task is to evaluate a risk, estimate the potential
exposure, determine the likelihood of loss, then make a decision whether or not to accept the
application for insurance.
● The term "underwriter" developed in the early days of marine insurance. It was common
practice for individuals seeking insurance for a ship and its cargo to meet with those desiring
to write such insurance in coffeehouses. A person seeking insurance for his ship and its cargo
would bring a paper describing the ship, its contents, crew, and destination to the coffeehouse.
● The paper would circulate, with each individual who wished to assume some of the obligation
signing his name at the bottom and indicating how much exposure he was willing to assume.
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An agreed-upon rate and terms were also included in the paper. Since these people signed
their named under the description of the risk, they became known as underwriters.
● As insurers changed from individual to companies, signatures on insurance contracts became
those of company officers. The term underwriter continued to be used in a more restrictive
sense; it applied only to the person who performed the process of selecting risks and
determining the terms of insurance. Risk selection and determination of policy terms continue
to be the basic duties of underwriters today.
● Underwriters work for insurance companies. In addition to on-the-job training, they may earn
an Associate in Underwriting designation from the Insurance Institute of America. In the life
insurance segment, underwriters may enter a program of study that leads to the designation of
Chartered Life Underwriter (CLU).
● Most CLU's are engaged in some aspect of insurance sales as well. In the property and casualty
insurance segment, underwriters may work toward the designation of Chartered Property
Casualty Underwriter (CPCU).
UNDER WRITING'S FOUR BASIC FUNCTIONS:
The process of underwriting involves four basic functions:
1) selection of risks,
2) classification and rating,
3) policy forms, and
4) retention and reinsurance.
By performing these four functions the underwriter increases the possibility of securing a safe
and profitable distribution of risks.
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● RISK SELECTION.
In this step the underwriter decides whether or not to accept a particular risk. It involves
securing factual information from the applicant, evaluating that information, and deciding on
a course of action. The underwriter is typically aided by a list of acceptable and prohibited
risks.
● CLASSIFICATION AND RATING.
Once the risk has been accepted, the underwriter then classifies and rates the policy. Several
tentative classifications are usually assigned before a final decision on classifying the risk is
reached. The purpose of using classifications is to separate risks into homogeneous groups to
which rates can be assigned. Insurers may have their own classification and rating system, or
they may obtain a system from a rating bureau.
● POLICY FORMS.
After determining the acceptability of an applicant and assigning the proper classification and
rating, the underwriter is ready to issue an insurance policy. The underwriter must be familiar
with the different types of policies available as well as be able to modify the form to fit the
needs of the applicant.
The first three underwriting functions—risk selection, classification and rating, and policy
selection—are interdependent. That is, the underwriter determines that a certain risk is
acceptable when specified rates and forms are used. The underwriter also performs a fourth
separate function on every risk before the underwriting is complete: reinsurance.
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● RETENTION AND REINSURANCE.
Reinsurance involves protecting the insurance company against a certain portion of potential
losses. Every risk presents the possibility of loss that will equal or exceed the policy limits. It
is up to the underwriter to protect his or her company from undue financial strain. The
underwriter does this by retaining only a certain portion of the risk and securing reinsurance
for the remainder of the risk.
FUNCTIONS OF UNDERWRITERS
Underwriters accept or reject risks on behalf of the insurance company. Brokers and agents
submit applications for insurance on behalf of individuals or businesses and an underwriter
reviews the applications and decides whether to offer insurance to the applicants (that is,
whether to accept or reject the risk). Underwriters also:
● determine what coverage is available, the premium to be paid and other terms required in
accepting the risk.
● counsel clients on risk management solutions, negotiates terms and contracts, and develops
relationships with key clients (ie brokers).
● review existing client portfolios and determine whether the insurance company should continue
to provide insurance coverage for the risk.
● remain aware of current industry trends through development of a good working relationship
with brokers and other sources of industry news and developments.
● Insurance is based on risk. When you get an insurance policy, the insurance company is taking
on some of your risk. For example, if you drive a car, you have a risk that your car will be
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damaged in an accident. Having auto insurance means that if the car does get damaged, the

insurance company will pay for the repairs. By having a policy, your risk is lower.
● The insurance company makes up for the risk it takes on by charging premiums and
setting deductibles. If a company charges too little, it could go bankrupt when large claims are
filed. But if a company charges too much, it will lose business to its competition.
● An underwriter’s job is to make sure that the insurance charges just the right amount for the
coverage it provides. They figure how much risk you represent, how much coverage the
company can offer you, and how much that coverage should cost.
Underwriting is a term that varies depending on what it is used for. Broadly, it refers to a form
of risk management that is useful to financial entities. Underwriters are people who perform
this service, but the term can be used to describe the professional who uses actuarial methods
to determine your viability for a loan or insurance, to the bank that buys up a new issuance of
debt or equity for resale.
TYPICAL FUNCTIONS:

The functions within this job family will vary by level, but may include the following:
● Reviews and evaluates applications for workers’ compensation insurance; determines
appropriate classifications based on the type and nature of work performed.
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● Determines appropriate premium rates and codes based on the classification assigned.
● Interprets policies and explains coverage and changes to interested parties; responds to inquiries
from employers and employees concerning workers’ compensation policies, procedures and
rules.
● Conducts interviews with applicants to gather information to prepare policies or determine

classifications or rates.
● Processes renewal policies and makes adjustments to payroll, rates and premiums; prepares
certificates of insurance.
● Gathers and prepares information for computer generated reports.
UNDERWRITING CYCLE
Profits in property and liability insurance have tended to rise and fall in fairly regular patterns
lasting between five and seven years from peak to peak; this phenomenon is termed
the underwriting cycle. Stages of the underwriting cycle may be described as follows:
initially, when profits are relatively high, some insurers, wishing to expand sales, start to
lower prices and become more lenient in underwriting. This leads to greater underwriting
losses. Rising losses and falling prices cause profits to suffer. In the second stage of the cycle,
insurers attempt to restore profits by increasing rates and restricting underwriting, offering
coverage only to the safest risks. These restrictions may be so severe that insurance in some
lines becomes unavailable in the marketplace. Insurers are able to offset a portion of their
underwriting loses through earnings on investments. Eventually the increased rates and
reduced underwriting losses restore profits. At this point, the underwriting cycle repeats itself.
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The general effect of the underwriting cycle on the public is to cause the price of property and
liability insurance to rise and fall fairly regularly and to make it more difficult to purchase
insurance in some years than in others. The competition among insurers caused by the
underwriting cycle tends to create cost bargains in some years. This is especially evident when
interest rates are high, because greater underwriting losses will, in part, be offset by greater
investment earnings.
THE ROLE OF AN UNDERWRITER

● Perhaps the most visible and familiar element of the initial public offering process is the
underwriter. The underwriter is the organization that is actually responsible for pricing,
selling, and organizing the issue, and it may or may not provide additional services.
With direct public offerings, there is no need for an underwriter.
● Selection of a good underwriter is of the utmost importance, but it's important to

understand that many underwriters are equally selective of their clients. Because an
underwriter's reputation depends on successful issues, few firms will be willing to stake
their reputation on questionable companies.

● When selecting an underwriter, it's important to seek out an established company with a
good reputation and quality research coverage in your field. The decision may also
depend on the kind of agreement the underwriter is willing to make regarding the sale of
shares. For profitable and established private companies, it shouldn't be difficult to
locate an underwriter willing to make a firm commitment arrangement. Under such an
agreement, the underwriter agrees to buy all issues shares, regardless of ability to sell
them at a particular price.
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● For riskier or less established companies, an underwriter may offer a best efforts
arrangement for the initial public offering. A best efforts contract requires the
underwriter to buy only enough shares to fill investor demand. Under this arrangement,
the underwriter accepts no responsibility for unsold shares.
● Aside from fees and sales arrangements, most underwriters are fairly similar in their
roles. An underwriter will assist in the preparation and submission of all appropriate
SEC filings, helping potential investors make informed decisions about your offering.
All underwriters are required to exercise due diligence in verifying the information they
submit, so a certain amount of investigation should be expected from any responsible
underwriter.
● In addition to SEC registration filings, the underwriter will create a preliminary

prospectus that will become a major part of the issue's marketing campaign. This
document is also referred to as the red herring, after a small red passage in the document
that states that the company is not attempting to sell shares prior to SEC approval.
● Once SEC approval is obtained, the underwriter and the corporation will embark on a
road show to gauge and attract interest from investors. While the road show does not
involve getting binding commitments from investors, it helps the underwriter determine
the best strategies for pricing and issuance.
● After the initial public offering, the underwriter continues to provide services for the
newly public corporation. For months or even years after the offering, the underwriter
may continue to make a market for the stock, ensuring liquidity for investors and
making the shares more desirable. Twenty-five days after the issue, the underwriter is
also permitted to make statements or projections regarding the company and its
prospects.
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● Prior to that time, there is an SEC-mandated quiet period, since investors are forced to
rely only on the documents filed by the underwriter. Most underwriters opt to provide
favorable coverage at the end of the quiet period. Because an initial public offering is so
complex and expensive, it's important to have a good understanding of what to expect
from an underwriter. Without knowing what to expect, it's impossible to make a wise
and informed selection.
QUALIFICATIONS FOR BECOMING AN INSURANCE

UNDERWRITER
An Insurance Underwriter career requires having an extensive education. Each State has
regulation or State Insurance Commission, that license underwrites, after completing
required course studies, examinations, and continuing education. There is no Federal
Regulatory System regarding any standard of education. Underwriters must have good
judgment skills, good communication, interpersonal skills, and being able to work well with
other agents, and insurance professionals. Specialized fields in underwriting insurance
include: Health, life, property and liability (automobile, fire, and worker's compensation).
Continuing education is essential, and often is required to maintain a current license or

degree. Insurance Underwriter profession requires having a Bachelor Degree in Business
Administration, finance or math. Required basic course studies in accounting, law, and
computer knowledge. Upon completion, graduates would work as underwriter trainee or
assistant underwriter. Responsibilities would include studying claims files, and become
familiar with factors associated to certain types of losses. Many insurance companies offer
Work Study Programs that teach, for several months or years. Insurance companies may pay
for the tuition underwriting courses, their trainees successfully complete.
UNDERWRITER AND MASTER DEGREES
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● The Insurance Institute of America offers courses, as introduction to underwriting, which

takes one to two years. Recognized upon completion: The degree Associate in Commercial
Underwriter (AU) or Associate Personal Insurance (API). Either degree requires completing
course studies, and examinations. Advance study in underwriting, offered by Insurance
Institute of America, and upon completion receiving a Charter Property and Casualty
Underwriter Degree (CPCU).
● The requirements for completion are four years course studies and eight examinations.
These courses include: Risk management, insurance operations and regulations, business
and insurance law, financial management, and financial institutions. Also, require three
courses in personal or commercial insurance coverage.
● The American College offers Degrees in Charter Life Underwriter (CLU) and Registered
Health Underwriter (RHU). Charter Life Underwriter applicants have to complete five
required courses, and choose three out of five elective courses. Required courses include:
Fundamentals of Insurance, Individual Life Insurance, Life, Insurance Law, Fundamentals
of Estate Planning, and Planning for Business Owners and Professionals.
● The elective courses include: Financial Planning: Process and Environment, Individual
Health Insurance, Income Taxation, Group Benefits, Planning for Retirement Needs,
Investments, and Estate Planning Association.
● Underwriters that have completed any of these course studies, and received their degree, are
more likely to advance to a senior underwriter or managerial position.
● Risk Management and Insurance Degrees are available course studies in some Universities.
The program prepares students to manage risk in organizational settings, provide adequate
insurance, and risk - aversion services to business, individuals, and other organizations.
Including instructions in general liability, casualty, property insurance, employee benefits,
social and health insurance, underwriting, loss adjustments, risk theory and pension
planning.
● Some insurance companies will promote applicants to senior management positions that
have completed a Master's Degree in any related Business studies.
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● In 2002, Insurance Underwriters earned an average salary $45,590, and approximately

102,000 were employed. Insurance companies usually offer employee benefits: Life
insurance, health insurance, retirement plans, and commission. Some companies will pay for
automobile and transportation expenses, costs attributed to attending conventions, and
meetings.
HOW TO BECOME AN INSURANCE UNDERWRITER
To become an insurance underwriter, you will most likely start as an underwriter trainee or
assistant underwriter with an organization. A small percentage of underwriters are self-
employed. Many employers seek a bachelor's degree, or other secondary school education, in
the educational background of a potential underwriter.
About 65 percent of underwriters work for insurance companies, but it also possible to find
work with a bank, mortgage company or real estate agency. In the United States, it is expected
that the profession will continue to grow; the Canadian government anticipates an uptick in
the demand for underwriters partly because the profession is somewhat insulated from
technology changes that affect administrative efficiencies.
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Duties of Underwriters
Underwriters work in several insurance categories, including health, life, auto and home. Their
job is to review applications for insurance, analyze risks and decide whether the company will
offer coverage. Underwriters must approve applications so that the insurance company can
collect premiums. They must not approve too many high-risk applicants who may require large
payouts, however, because the insurance company ultimately wants to make money.
CALCULATE PREMIUM & COMPARE PLANS. 3 STEPS TO GET INSURED.
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Screen Applicants
Underwriters review applications for insurance and screen them based on the criteria of the
insurance company. Applicants who do not meet the basic requirements are instantly denied
insurance. For example, some auto insurance companies will not cover boats or motorcycles, so
applicants seeking coverage for those are immediately denied coverage.
Analyze Risk
An insurance underwriter analyzes the risks associated with applications that meet the minimum
criteria. For example, a home insurance underwriter considers whether a home or property is in
a high-risk flood or earthquake zone. Health insurance underwriters consider medical risks such
as a family history of cancer or heart disease, or an individual with a history of smoking.
Underwriters may communicate with medical doctors, credit bureaus and other agencies to
gather additional information as needed.
Approve Applications
Underwriters use computer programs and software to help them determine an applicant's
eligibility and risk factors. The underwriter must understand what facts to enter into the
program. Based on the recommendations from the software and risk analysis, the underwriter
decides whether to approve or reject an application. He may also choose to consider more
information, such as credit history or additional medical records, if an applicant is on the border
of being rejected or accepted.
Write Policies
Underwriters determine the coverage limits and premiums for approved policies. Higher-risk
applicants pay higher premiums than those with lower risk. In addition, they may receive less
coverage. Insurance underwriters write insurance policies explaining client coverage and
premiums, while minimizing potential losses for the insurance company.
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What is Insurance Underwriting and Why is it Important?
The underwriting process determines how much premium, or money, an insurance company
should charge for that policy.
IMPORTANCE OF UNDERWRITING:
Underwriting is one of the aspects of insurance that makes most people’s eyes glaze over.
Underwriters deal with statistics — they’re number crunchers. Many people who have an
insurance policy don’t even know that at some point their application passed through an
underwriter’s hands.
But underwriting is one of the most important parts of the insurance process. And knowing what
an underwriter does — and why it’s so important — is helpful for people who are shopping for
a new policy.
Top of Form
Bottom of Form
Insurance companies want to stay competitive and stay open for business — so it makes sense
why underwriting is important to them.
But why is it important to you? Because when you’re applying for an insurance policy, your
application is going to be looked over by an underwriter. And that underwriter’s opinion is
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going to determine how much you pay for insurance. And based on the condition of your health
— or even a mistake on your application — they could decide to deny your application entirely.
No big deal… you can always apply with a different company, right? Actually, it isn’t that easy.
Like almost everything else these days, applying for insurance leaves a record. And if you get
denied coverage, it will show up in that record. Once you’ve been denied coverage at one
company, other companies are more likely to deny you, too.
So what can you do? It isn’t like you can call up a company’s underwriter and plead your case.
But your insurance agent can.
WORKING WITH AN AGENT
Many insurance agents represent several insurance companies. They have a sense of what kinds
of risks each one is willing to take on. When you work with an agent, they can steer you toward
the companies that are most likely to accept you at their “preferred rates” — meaning you get
the most savings.
And many agents have professional relationships with the underwriters at the companies they
represent. That means they can “shop quietly.” They can contact those underwriters and —
without formally applying — get an idea of whether your application would be accepted, and
what rates you’d qualify for.
That's just one of the reasons why working with an agent is a good idea.
To get matched with agents licensed in your area, fill out this short form. You'll get free
insurance quotes from professional agents, with no obligation to buy anything.
● Underwriters are important to the sales process. When I began my career over 12 years
ago, I joined an underwriting team. We had negligible contact with our own consultants
and little understanding of what brokers had to do to give us applications to underwrite. It
was not seen as an important part of our training.
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● How things have changed and I am pleased to say the company I worked for has one of
the best underwriting teams to deal with. But there is still much more insurers can do to
ensure their underwriters are more commercially savvy. An insurer could give us a
fantastic account manager, great rates and strong products but all their good work can be
undermined by underwriters who do not work closely with brokers to secure business.
● I value underwriters who offer options. If the decision is borderline and decreasing the
term of the plan could improve the terms, then an underwriter should offer it. If increasing
the deferment period will improve the decision, why not suggest it? I know one frustration
advisers face is that exclusions are rare for a vocational risks. I appreciate insurers prefer
to rate because beneficiaries may not be aware an exclusion has been agreed.
● But if an expensive premium means cover is unaffordable, there will not be any cover to
begin with. If a customer is happy for their skydiving to be excluded because the premium
is too high, this option should be considered and proactively offered at outset.
Underwriters should not worry about stepping on the toes of the adviser.
● It is about helping get customers cover and this can be invaluable to a broker who may not
know there are alternatives. The key advantage to the insurer is their underwriters are
doing what they can to win business after a costly underwriting process.
● The other area where underwriters can be more sales focussed is in promoting what they
do. We have experienced informative underwriting presentations that have directly
resulted in increased levels of business. Some underwriters are concerned that giving
brokers knowledge of underwriting could lead to anti-selection at best and encouragement
of non-disclosure at worst and some brokers have proved this in the past.
● But the vast majority of intermediaries are honest and want to make informed choices. It
is not possible to promote all updates but it is helpful for providers to publish significant
changes, particularly to key partners.
● Changing underwriting stances to be more competitive is not much use unless people get
to hear about it. Educating brokers about underwriting can also reduce not-taken-up rates,
and may even dissuade multi-proposing options. Let us see more providers encourage
closer relationships between underwriting and sales.Emma Prescott, life office
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relationship director at Life search
UNDERWRITING IN THE FIELD

● A key element in the underwriting process is the role of the insurance producer, or agent. It
may even be argued that the producer is the most important part of the risk selection process.
This is due to the fact that the producer is in a position to actually see and talk to the proposed
insured, to ask the questions contained on the application and gauge the responses, and to
accurately and completely record the answers to those questions.
● Thus, one of the most important functions of the producer is to oversee the completion of the
insurance application. Much of the information reported on the document becomes the basis
upon which to accept or reject the proposed risk.
● Furthermore, as previously stated, a signed and witnessed copy of the application also
becomes part of the policy, the legal contract between the insurer and the insured.
● The most essential element of this process for the producer is the display of accuracy,
thoroughness, and honesty when completing the application. Answers to questions must be
recorded with exactness and totality, along with frankness and sincerity.
● The producer may not omit pertinent information or report it inaccurately in order to facilitate
the policy's issuance. The ethical conduct of the producer with regard to the underwriting
process must be, in all instances, above reproach.
● Additionally, the producer can also help to expedite the underwriting process by the prompt
submission of the application, by scheduling the applicant for any necessary physical exams,
and by assisting the home office underwriter with other requirements (such as obtaining an
Attending Physician's Statement), as needed.
● Finally, if the applicant is rated or declined for coverage, it's the producer's role as a field
underwriter to explain the reasons for the underwriting action. Seldom is an individual totally
declined for life insurance, but it does happen that he or she may be classified as substandard
and thus receive a rated (or substandard) policy in place of the one originally applied for.
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● When this occurs, the producer must be prepared to not only explain the reasons for the
substandard rating but also to explain the rated policy that the company has countered with.
BASIC PURPOSE:
Positions in this job family are assigned responsibilities involving the review and processing of
applications for workers’ compensation insurance. This includes determining eligibility for
coverage, recommending appropriate classifications, coding and rates, preparing policies and
certificates of insurance and other related actions. Responsibilities also include advising
employers and employees on laws, rules and policies concerning workers’ compensation and
providing assistance as needed.

PRINCIPLES
UNDERWRITING
Underwriting has to do with the selection of subjects for insurance in such a manner that
general company objectives are met. The main objective of underwriting is to see that the risk
accepted by the insurer corresponds to that assumed in the rating structure. There is often a
tendency toward adverse selection, which the underwriter must try to prevent. Adverse selection
occurs when those most likely to suffer loss are covered in greater proportion than others. The
insurer must decide upon certain standards, terms, and conditions for applicants, project
estimated losses and expenses through the anticipated period of coverage, and calculate
reasonably accurate rates to cover these losses and expenses. Since many factors affect losses
and expenses, the underwriting task is complex and uncertain. Bad underwriting has resulted in
the failure of many insurers.
In some types of insurance major underwriting decisions are made in the field, and in
other types they are made at the home office. In the field of life insurance the agent’s
judgment is not accepted as final until the home-office underwriter can make a decision, for
the life insurance contract is usually noncancelable, once written. In the field of property and
liability insurance, on the other hand, the contract is cancelable if the home-office underwriter
later finds the risk to be unacceptable.
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It is not uncommon for a property and liability insurer to accept large risks only to cancel
them at a later time after the full facts are analyzed. The insurance underwriter must tread a
thin line between undue strictness and undue laxity in the acceptance of risk. The
underwriter’s position is not unlike that of the credit manager in a business corporation, in
which unreasonably strict credit standards discourage sales but overly weak credit standards
invite losses.
An important initial task of the underwriter is to try to prevent adverse selection by

analyzing thehazards that surround the risk. Three basic types of hazards have been identified as
moral, psychological, and physical. A moral hazard exists when the applicant may either want
an outright loss to occur or may have a tendency to be less than careful with property.
A psychological hazardexists when an individual unconsciously behaves in such a way as to
engender losses. Physical hazards are conditions surrounding property or persons that increase
the danger of loss.
An underwriter may suspect the existence of a moral hazard on applications submitted by

persons with known records of dishonesty or when excessive coverage is sought or the
replacement value of the property exceeds its value as a profit-making enterprise.
Underwriters are aware that fire losses are more likely to occur during business depressions.
The underwriter can detect moral hazard in various ways: An applicant’s credit may be
checked; courthouse and police records may reveal a criminal history or a history of
bankruptcy; and other insurance companies can be queried for information when it is
suspected that an individual is trying to obtain an excessive amount of coverage or has been
turned down by other insurers.
The psychological type of hazard can take a number of forms. Some persons are said to be
“accident-prone” because they have far more than their share of accidents, suggesting that
unconsciously they want them. It is well known that persons applying for annuities tend to
have longer than average lives, and consequently a special mortality table is used for
annuitants. Certain types of insanity have to be watched for—notably the impulse to set fires.
39 | Page
Physical hazards include such things as wood-frame construction in buildings, particularly in

areas where such properties are densely concentrated. Earthquake insurance rates tend to be
high where geologic faults exist (as in San Francisco, which is built almost directly over such
a fault).
Each kind of insurance has its characteristic hazards. In fire insurance the physical hazards are
analyzed according to four major factors: type of construction, the protection rating of the city
in which the property is located, exposure to other structures that may spread a conflagration,
and type of occupancy.
In underwriting automobile insurance, the underwriter considers the following factors: the

age, sex, and marital status of the driver and members of the driver’s household; length of
driving experience; occupation; stability of employment and residence; physical impairments;
accident and conviction record; extent of use of alcohol and drugs; customary use of the
vehicle; age, condition, and maintenance of the vehicle; and records of insurance cancellation
or refusal. In some cases tests of emotional maturity are administered. Some underwriters
even consider such factors as the school records of student drivers and whether or not driving
courses have been taken.
The hazards considered in the underwriting of general liability insurance depend on the type
of business and the record of the person applying for coverage. In the field of contracting, for
example, the underwriter is interested in the type of equipment owned or rented by the
applicant; the applicant’s losses in the past, attitude toward safe practice, cooperation
with building inspectors, and financial position and credit standing; the stability of
supervisory employees; and the degree to which the applicant has been a successful contractor
in the past.
UNDERWRITER
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● Act promptly, while exercising sound, objective, and consistent judgment, in making
underwriting decisions.
● Follow established risk classification principles that differentiate fairly on the basis of sound
actuarial principles and/or reasonable anticipated mortality or morbidity experience.
● Treat all underwriting information with the utmost confidentiality, and use it only for the
express purpose of evaluating and classifying risk.
● Comply with the letter and spirit of all insurance legislation and regulations, particularly as they
apply to risk classification, privacy, and disclosure.
● Avoid any underwriting action which is in conflict with the obligation to act independently and
without bias.
● Act responsibly as an employee with scrupulous attention to the mutual trust required in an
employer/employee relationship.
● Provide information and support to sales personnel to help them fulfill their filed underwriting
responsibilities in selecting risks and submitting underwriting information.
● Strive to attain Fellowship in the Academy of Life Underwriting, maintain a high level of

professional competency through continued education, and help promote the further education
of all underwriters.
● Maintain the dignity and sound reputation of the Underwriting Profession.
● Increase the public’s understanding of underwriting by providing information about risk

classification.
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● “These Guiding Principles are presented, not as specific standards for others to measure
individual performance, but for the self-guidance of all those who are striving to understand and
meet the responsibilities of an underwriter.”
INSURANCE UNDERWRITER: JOB DESCRIPTION
Insurance underwriters decide if applications for insurance cover (risks) should be accepted and
if so, what the terms of that acceptance are. They assess a risk according to the likelihood of a
claim being made by weighing up a number of factors and asking for detailed information from
prospective clients (policyholders). The aim is to minimize losses for their company and help to
make a profit.
Most underwriters specialized in one type of insurance. The main types of insurance are:
● general insurance: covers household, pet, motor, travel;

● life insurance/assurance: covers illness, injury, death;
● commercial insurance: covers companies;
● reinsurance: part of the risk is placed with another insurer.
Insurance underwriters work closely with actuaries, risk and claims managers to ensure a
balance between attracting and retaining customers through competitive insurance premiums
(fees) and being able to cover any potential losses from claims.
ACTIVITIES OF UNDERWRITING
Daily activities vary according to the type of insurance offered by the company but may
include:
● studying various insurance proposals;
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● gathering and assessing background information in order to effectively assess the risk
involved;
● calculating possible risk and deciding how much individuals or organizations should pay
for insurance (the premium);
● deciding whether the risk should be shared with a reinsurer;
● computing results for appropriate premiums using actuarial information, other statistics and
own judgement;
● visiting brokers or potential customers and preparing quotes;
● liaising with specialists, such as surveyors or doctors, for risk assessment;
● gathering information and various types of reports (e.g. medical records) from specialists;
● negotiating terms with policyholders or their brokers;
● ensuring that premiums are competitive;
● specifying conditions to be imposed on different types of policies, for example, asking that
a property owner install a security alarm;
● negotiating with brokers and drawing up contracts;
● writing policies;
● keeping detailed and accurate records of policies underwritten and decisions made.
THE ROLE OF THE AGENT IN THE UNDERWRITING PROCESS

The agent is crucial in the underwriting process. Agents are often referred to as field
underwriters, or even simply as underwriters. This is because they gather underwriting
information, evaluate risk, often do a preliminary assignment of premium, may authorize
preliminary coverage, and may reject applicants on behalf of the insurer. During the
underwriting process, the agent is often responsible to gather additional documentation and
information to assist the home office underwriting team.
43 | Page
Suitability
An important part of the agent’s function in underwriting is determining a suitable financial
product for the client. Agents involved in offering life insurance and health insurance products
are most affected by the requirements and processes involved in suggesting suitable products.
Many elements are included in determining a client's suitability. These include the age of the
client, the tax status of the client, what type of investments the client already owns, the
investment objectives of the client and the net worth and overall financial health of the client.
Determining Client Needs

Often the insurance company the agent represents provides procedures and forms to aid in
determining a client's needs. Depending upon the types of products the agent offers, the needs
analysis or fact-finding process may be relatively simple, or it may be very detailed.
Basic Information
The first part of a needs analysis generally focuses on basic information about the client. The
agent will ask for the client’s full name, address, occupation, marital status, number and age of
minor children, and age of the client, for example. This basic information can help the agent
begin to see certain potential needs of the customer. For example, the marital status of a client
may indicate a need to protect loved ones from financial loss. The age of a client can indicate
that a client is nearing retirement or at an age when long-term care planning is prudent. The
occupation of a client may indicate that he is likely covered by a healthy benefits plan or they he
may need full or supplemental coverage. However, the agent needs more information before
the agent may make any judgments about potential product needs.
44 | Page
BROKER VS UNDERWRITER
Insurance broker or insurance underwriter is a question you’re going to have to ask yourself
before starting out in the insurance industry. When you don’t know much about a role, it’s
difficult to know if you’ll enjoy it or if you’ll be any good at it, so I’ve put together a list of
characteristics for the two main roles in insurance that might make the decision that little bit
easier.
The Broker
An insurance broker is generally the socially savvy type who can make a stranger feel like
you’re their best friend and find business opportunities wherever they turn. To be a great broker,
you will need to be:
▪ Incredibly outgoing - Being a broker is a very social job; you look after your clients needs as
well as build relationships with your underwriters to obtain great cover at competitive prices for
your clients. You also need to be able to pick up the phone to anyone and make conversation, so
if you’re the type of person who chats to the guy next to them on the plane, or can hold a
conversation with someone without them saying anything, you’re going to be good at being an
insurance broker.
▪ A great negotiator – As a broker, you will be buying insurance on your clients’ behalf, and to
keep them as a client you are going to have to find them the best cover at the best price, which
means negotiation. You will have many different underwriters competing for your business and
it is your job to provide the best cover to your client for the best price and to place your business
45 | Page
with a company that has a great brand. So if you can get discounts at Tesco, or manages to
haggle a free Big Mac with your Happy Meal, broking is for you.
▪ Super competitive – The broking market has a variety of players, some of which will be
competing in your space. Large companies will want to ensure they have the best broker
representing them and the competition for this place will be rife. You’ll be pitching to clients as
to why you should represent them, and will be wining business from your competition. If you
can do this and get ahead of your competition and across the finish line in first position, you’ll
be falling over promotions.
▪ Resilient - Other brokers will attack your book of clients ferociously, and you need to be
resilient enough to keep fighting them back every time they try to win business from one of
your clients.
If you have these four character traits, being an insurance broker will be as natural as walking.
Now all you have to do is get yourself a pair of braces and wear red socks on Fridays.
THE UNDERWRITER
An underwriter is often the numeric type who can think about the big picture just as easily as
they can consider the detail. You will run your own portfolio of risks and be held accountable
for it’s performance. To be a good underwriter you need to be:
▪ A decision maker - As an insurance underwriter, you will build a book of business around your
specialist area. You must know which risks are good risks, which risks are poor risks and how
to price and risk manage both. If you underwrite a risk that costs you $10 million and wipes out
your book’s profits for the year, you have to stand by your decision and justify your decision to
management. If you are a natural leader and decision making comes easily to you, then you
would make a good underwriter.
▪ Logical – When considering if you want to insure a particular risk, you need to logically think
where the claims could come from. You need to consider the type and amount of cover you are
46 | Page
willing to provide and ensure you are not liable for any risks you are not prepared to take
on. Being obscenely organised and task focused will stand you in good stead as an underwriter.
▪ Analytical - There is a lot of information to process when you are considering underwriting a
piece of business and many of the factors you look at will have pricing implications. You will
need to build a price up from scratch, considering the information you have and be able to
justify it if challenged. An underwriter will also have to consider how each risk will impact their
overall book of business; it is important to diversify your book to protect your bottom line and
ensure you are not over exposed in a certain area.
▪ Having a mathematical background and being confident with numbers is essential to becoming
a good underwriter. Understanding how you get to your price and understanding how a
particular risk will affect your overall book of business will be vital to your success.
▪ Comfortable being your own boss - All the way up to chief underwriting officer, you will work
within certain boundaries in terms of the type of risks you are authorised to write and how much
cover you are able to provide. However, within these boundaries you will be able to underwrite
your own risks and be accountable for your own book.
▪ Your team will be around you for advice and support, but you should be aware of your own
book’s performance and you will be held accountable for your own P&L.
▪ A marketer - A large part of being an underwriter is going out and building your book of
business, through engaging brokers and building lasting relationships. You need to be incredibly
social and engaging, and not afraid of putting yourself out there. If you are able to introduce
yourself to anyone and hold their attention, it will be a great asset as a underwriter.
The art of underwriting takes time to learn and years to perfect, however if you have these
characteristics, you’ll take underwriting in your stride.
47 | Page
Everyone has an opinion on the broker vs underwriter battle; some stick with one their entire
career, others hop between. If you’ve got a clear cut view on what makes a good insurance
underwriter or what makes a good insurance broker, or even if you just want to offer fashion
tips aside from the red socks / braces combo, pop it down below.
HDFC
Job description
● Document key Underwriting processes and guidelines with necessary inter-linkage/interface
with Reinsurer and/or any other department.
● Providing user requirements and system specifications, Participate in GAP Analysis, User
Acceptance Testing
● Process all cases in the underwriting queue within the turnaround timelines underwritten within
the underwriting framework established for health insurance policies
● Prepare and publish MIS and Dashboard on daily, weekly and monthly basis.
● Liaison with pre-policy medical team for requesting / receiving medical reports
● Liaison with the Reinsurer if required for any referrals or specialist opinion
● Prepare letters for counter offer, further requirements, Decline Postpone letters, etc as per
quality standards.
● Perform underwriting administration activities like Inward, Filing, Decision processing, Initial
Underwriting data entry etc
● Ensure preparation of a DAILY MIS for all underwriting cases and their status on any given day
● To participate in projects with underwriting implications.
● To upgrade self on the latest developments in the medical field & legislations in health
insurance.
AUTHORISATION & LIMITATIONS:
48 | Page
Authority to approve/reject Health Policies up to specified Authority limits. Underwriting

authority will be determined basis primary quality check of cases.
49 | Page
CONCLUSION
● Insurance is a form is risk management in which the insured transfers the cost of potential loss
to another entity in exchange for monetary compensation known as the premium.
● Underwriting is the process of evaluating the risk to be insured. This is done by the insurer
when determining how likely it is that the loss will occur, how much the loss could be and then
using this information to determine how much you should pay to insure against the risk..
● Property and casualty insurance is insurance that protects against property losses to your
business, home, or car and/or against legal liability that may result from injury or damage to the
property of others. This type of insurance can protect a person or a business with an interest in
the insured physical property against losses.
● An auto insurance policy typically covers you and your spouse, relatives who live in your home
and other licensed drivers to whom you give permission to drive your car.
● Homeowners insurance typically covers the dwelling (the structure), personal property and
contents, and some forms of personal liability. The policy may cover direct and consequential
loss resulting from damage to the property itself, loss or damage to personal property, and
liability for unintentional acts arising out of the non-business, non-automobile activities of the
insured and members of that insured's household.
● Umbrella insurance helps you protect your assets if you are sued.If you are worried that the
liability insurance coverage you have through your auto or property policies is still not enough,
you can consider adding an umbrella policy.
● Health insurance is a type of insurance that pays for medical expenses in exchange for
premiums. The way it works is that you pay your monthly or annual premium and the insurance
policy contracts healthcare providers and hospitals to provide benefits to its members at a
discounted rate.
● An indemnity plan, sometimes called a fee-for-service plan, is a type of insurance that
reimburses you according to a schedule for medical expenses, regardless of who provides the
service.
50 | Page
● The HMO is the most common type of insurance policy people own and the one most
frequently provided by employers. HMOs provide a wide range of comprehensive healthcare
services to a group of subscribers in return for a fixed periodic payment.
● PPOs are a group of healthcare providers that contract with an insurance company, third-party
administrators, or others (like employers) to provide medical care services at a reduced fee.
● A point of service plan is a hybrid plan that combines aspects of an HMO, PPO and indemnity
plan. This type of plan is more flexible in that it allows you to decide at the time you need
services to elect to use the POS plan's physician to arrange in-network care (HMO feature), or
to go outside the network or hospital and pay a higher portion of the cost.
● Disability insurance can replace a portion of the salary you were making before you became
disabled and unable to work after a serious injury or illness.
● Disability insurance providers rate their premiums based on your job and the level of risk
involved in doing that job.
● The reason to buy long term care insurance is to protect your assets in case you need to pay for
assisted living, home care or a nursing home stay.
● Life insurance provides you with the opportunity to protect yourself and your family from
personal risk exposures like repayment of debts after death, providing for a surviving spouse
and children, fulfilling other economic goals (such as putting your kids through college),
leaving a charitable legacy, paying for funeral expenses, etc.
● Whole life insurance provides guaranteed insurance protection for the entire life of the insured,
otherwise known as permanent coverage. These policies carry a "cash value" component that
grows tax deferred at a contractually guaranteed amount (usually a low interest rate) until the
contract is surrendered.
● Universal life insurance, also known as flexible premium or adjustable life, is a variation of
whole life insurance. Like whole life, it is also a permanent policy providing cash value benefits
based on current interest rates.
51 | Page
BIBLIOGRAPHY
● www.ipo-experts.com
● http://www.lifewise.org.au/insurance-101/what-is-
underwriting#sthash.E6LZ8WEW.dpuf
● www.cignattkinsurance.in
● http://www.referenceforbusiness.com/encyclopedia/Thir-Val/Underwriting-
Insurance.html#ixzz2vpRKoiUD
● http://www.ehow.com/about_4704328_what-does-underwriter-
do.html#ixzz2vpU1ASBn
● www.hdfcergo.com/Car_Insurance
● http://www.ehow.com/about_4704328_what-does-underwriter-do.html#ixzz2vpU8Au2z
● http://www.finweb.com/insurance/the-basics-of-underwriting-
insurance.html#ixzz2vpVOp8V2
52 | Page

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Underwriting in Insurance Sector

Initially set up by a steering committee of underwriting agency practitioners and

The MGAA exists for MGAs, however, the board recognises that other

The MGAA works within the professionalism framework of the Chartered

Insurance allows individuals, businesses and other entities to protect themselves

Insurance is appropriate when you want to protect against a significant monetary

Underwriting is an agreement, entered into by a company with a financial agency, in order to

DEFINITION OF 'INSURANCE UNDERWRITER'

application form and a medical questionnaire.

▪ Syndicate Underwriting:- is one in which, two or more agencies or underwriters jointly

▪ Sub-Underwriting:- is one in which an underwriter gets a part of the issue further

▪ Firm Underwriting:- is one in which the underwriters apply for a block of securities.

● Development banks like IFCI, ICICI and IDBI:- they follow an entirely objective

To act as an underwriter, a certificate of registration must be obtained from Securities and

INSURANCE TO NON-RESIDENT INDIANS (NRIS)

● Term Rider benefit will be allowed up to Rs. 25 lakhs.

● Critical Illness benefit will not be allowed.

● Maximum age at entry should not be over 45 years of age.

● The proposer should be employed in Government or reputed commercial firm or should be a

● MHR by agent should be in the prescribed format.

PROCEDURE TO BE FOLLOWED FOR NON-MEDICAL BUSINESS

● For ‘Mail Order Business, the procedure to be followed is given below:

● The employer in the case of employed persons

● Dean or Principal of educational institutes in the case of students

● Personal physician in the case of self-employed / business people

THE BASICS OF UNDERWRITING

● Underwriting is a process whereby a large financial institution assesses whether or not a

● In the insurance industry, underwriting means plain risk assessment. An underwriter

● Securities underwriting is involved in the issuance of new bonds or stock. A group of

● An underwriter is a professional who impartially reviews a client’s eligibility for services.

● Regardless of industry, an underwriter is charged with the task of thoroughly reviewing an

● Underwriting jobs in the financial industry typically involve loans, such as mortgages.

● The policy application;

THE MEDICAL INFORMATION BUREAU

● By purchasing several small- to medium-sized policies, an individual may be attempting

If property is insured, as in homeowners, automobile, and commercial property insurance,

Underwriting involves examining application forms, supporting documents such as appraisals

UNDER WRITING'S FOUR BASIC FUNCTIONS:

The process of underwriting involves four basic functions:

2) classification and rating,

3) policy forms, and

4) retention and reinsurance.

● CLASSIFICATION AND RATING.

● RETENTION AND REINSURANCE.

damaged in an accident. Having auto insurance means that if the car does get damaged, the

● Conducts interviews with applicants to gather information to prepare policies or determine

● Gathers and prepares information for computer generated reports.

THE ROLE OF AN UNDERWRITER

● Selection of a good underwriter is of the utmost importance, but it's important to

● In addition to SEC registration filings, the underwriter will create a preliminary

QUALIFICATIONS FOR BECOMING AN INSURANCE

Continuing education is essential, and often is required to maintain a current license or

UNDERWRITER AND MASTER DEGREES

● The Insurance Institute of America offers courses, as introduction to underwriting, which

● In 2002, Insurance Underwriters earned an average salary $45,590, and approximately

HOW TO BECOME AN INSURANCE UNDERWRITER

CALCULATE PREMIUM & COMPARE PLANS. 3 STEPS TO GET INSURED.

What is Insurance Underwriting and Why is it Important?

WORKING WITH AN AGENT

relationship director at Life search

UNDERWRITING IN THE FIELD

An important initial task of the underwriter is to try to prevent adverse selection by

An underwriter may suspect the existence of a moral hazard on applications submitted by