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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.

Simply stated, underwriting is the process of insuring someone or something. Insurance Underwriters  are qualified persons who evaluate an insurance proposal to assess the kind and degree of risk involved.

The Underwriting Process or Insurance Cycle
The underwriting process determines how much premium, or money, an insurance company should charge for that policy. Underwriters balance the losses insurance carriers may derive from your potential risk of potential claims. Premiums, based on rates filed in your state, also reflect personal claims experience of, and the risk of incurring future claims based upon, that risk.

Many people feel helpless in this process. That is not true! For example, underwriting considers: 
• Claims Experience - If your claims experience is low, your premiums can be low. Underwriters frown on applicants with many frequent small claims. When possible, take higher deductibles on your auto and home insurance and pay small claims yourself.
• Credit Rating - Credit score is a factor in underwriting. A history of paying your bills on time means lower premiums!
• Type of Vehicle - It is less expensive to insure a mid-sized sedan than a turbo-charged convertible.
• Driving Record - A clean driving record and attendance at a defensive driving class makes you a better risk.

Underwriting Examples
1. Joshua was researching new car insurance coverage. When he communicated his driving history, numerous speeding tickets, driving without a license, and jail time for reckless driving, the insurance agent said their underwriting department would not insure him due to his increased/high risk.

2. Alternatively, Sarah, who also wanted to investigate new car insurance options, met with the same agent. She shared her past record of only one parking ticket. Moreover, Sarah had taken Defensive Driving. The underwriters, in this case, approved Sarah’s car insurance policy at a relatively low rate, as she was a low risk.

One place to find out more about how these factors affect the underwriting process – your local independent insurance agent. A certified agent can help evaluate your risk and steer your toward the right coverage for the best price.

“The information on this site is general in nature. Any description of coverage is necessarily simplified. Whether a particular loss is covered depends on the specific facts and the provisions, exclusions and limits of the actual policy. Nothing on this site alters the terms or conditions of any policies, nor does it provide any guarantees. You should read your specific policy for a complete description of coverage.”

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