In order for the insurance companies to make profit and charge the appropriate rate for an insured, they undergo the underwriting process. In simpler words, insurance underwriting is a process of risk classification. The purpose of insurance underwriting is to spread risk among a pool of insured in a way that is both profitable for the insurer and fair to the customer. Insurance companies need to make a profit like many other businesses. Therefore, it doesn’t make sense if they sell insurance for everyone who applies for it. They may not want to charge an excessive high rate to the customer and also it is not good for them to charge the same premium to every policyholder. Insurance underwriting enables the company to weed out certain applicants and to charge the remaining applicants premiums that are commensurate with their level of risk. The insurance underwriting process consist of evaluating several sources of an applicant and the use of complex pricing models developed by actuaries that help the insurance companies set prices.
An insurance company usually looks at various factors during the underwriting process in order to evaluate a potential customer in terms of risk. These factors enable the insurer to determine whether or not the potential customer is insurable. If the potential customer is determined to be insurable, then these factors will help to place them in the appropriate risk group. Some of the factors considered are age, sex, health history, current health/physical condition, personal family health history, occupation, personal habits/character, financial condition, and hobbies.… Read the rest