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Unit 3 Nature of the Industry
Tools of the Underwriting Trade
How does an underwriter know whether an applicant poses a
good risk or a poor one? The policy application, statistics, and other
data sources are used to make the decision. For example, for medical
insurance, the underwriter will look at the application to find out the
person’s age, occupation, medical history, and current physical health.
The underwriter also relies on the assessment of the insurance
agent. The agent is the one who walks the person through the
application process. Insurance companies rely on their agents for local
knowledge about people, houses, and businesses to supplement the
underwriting process.
Computer applications play a big role in the underwriting process.
Smart systems help calculate risk. Smart systems are computer
applications that can quickly analyze applications, recommend
whether to deny or accept them, and adjust premiums based on the
applicant’s risk profile. The underwriter sets up what information the
smart system should screen for, like credit scores, income, and health
status. Smart systems are only guides. An underwriter can choose
whether to accept the decision or reject it.
Sometimes, insurers require a medical exam or a physician’s
statement when considering an application. This is typical with life
insurance policies. If the underwriter needs more information about the
applicant, he can order an inspection report. The application will include
a statement indicating that an inspection report may be requested.
An inspection report takes a more detailed look at the applicant’s
finances, health habits, occupation, and character. The process may
involve phone interviews with colleagues, friends, and neighbors.
Inspection report companies are independent. Insurance companies
pay for their services.
History of
Insurance
Lloyd’s of London was
an early player in the
insurance game. It is not
actually a company, but
an association of people
willing to take on insurance
risks. It started in the late
1600s when men with
the means to underwrite
shipments to the New
World gathered at Lloyd’s
coffeehouse. The coffee-
house became known as
the place for mariners to
go to insure their cargo.
Its history of insuring ships
was evident in the writing
of its first automobile policy
in 1904. The automobile
was described as “a ship
navigating on land.” Today,
Lloyd’s of London is known
for the specialized insurance
it offers. For example, it
insures Bruce Springsteen’s
voice and other celebrity
body parts.
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Underwriters study
various data sources
to get more information
about an applicant.
Source: Shutterstock (Stephen Coburn)