Most of us know about insurance agents. They are professionals who help prevent financial loss by selling quality insurance coverage. Whether it be health, life, property, or casualty, the role of an insurance agent, also known as an insurance producer, is clearly defined. In this post, we shed some light on a lesser-known but equally important position in the insurance industry, the role of the insurance underwriter.
Definition of an Insurance Underwriter
Simply put: the role of the underwriter is to assess the risk of a potential insurance policy. After all, an insurance agent or producer can not set up an insurance policy however they like. It must be a compromise between what the policyholder needs and what the insurer is financially comfortable with providing. The underwriter typically evaluates the risk using their specialized insurance training, guidelines set by the carrier, and actuarial data. Underwriters use these guidelines to determine if the risk submitted by an agent will be a good fit for their employer, the carrier, or the broker.
The History of Insurance Underwriting
Insurance underwriting goes as far back as ancient civilizations. During that time, communities would pool resources for financial protection against unforeseen events like floods or fires. In the modern era, those ideas gave rise to the first formal insurance company, founded in 1666 in London, England, following the Great Fire that destroyed much of the city. This company (or carrier) was established to provide insurance coverage for property owners against fire damage.
Today, insurance is in every part of our lives. We insure our homes, cars, valuables, businesses, and health. And every one of those insured items carries some sort of “risk” to the insurance company. But a Ferrari on the streets of NYC carries a very different risk than a 20-year-old pickup truck in a small country town. The risk to insure a dollar store is very different than insuring Tiffany’s. Underwriters help determine if the risk fits the guidelines of the carrier and is worth the carrier offering a policy at the premium that’s already set.
As we insured more and more, companies needed reliable systems to calculate these risks. Enter the role of the underwriter. Today, underwriters use actuarial tables, which are statistical charts that use data from past claims and historical events, to predict the likelihood of future events. These tables allow insurers to assess risk and set premiums accordingly; often called the law of large numbers. The larger the pool of policyholders and the lower the number of claims, the less risk the company will absorb for that type of insurance.
How Underwriting Impacts the Insurance Agent
Most insurance agents are at the mercy of an underwriter. Whether the underwriter works for a broker or carrier, they help the agent determine what insurance coverage is available to the applicant and whether the insurance application is accepted or declined.
In most cases, underwriting occurs in the background. The process of an insurance company approving or denying an insurance application is completed through an Agency Management System (AMS), carrier portal, or via email.
There are no guarantees that an agent will interact with the underwriter reviewing their insurance applications or “submissions.” Agents most often work with an underwriter when he or she is using an insurance broker.
How Underwriting Impacts the Insured (Policyholder)
Every insurance policy has to be underwritten, whether that occurs digitally or through an underwriter who manually reviews the insurance submission. The underwriter is ultimately who will determine if the agent’s submission meets the guidelines set forth by the carrier.
How to Become an Underwriter
It is relatively simple to become an entry-level insurance underwriter. Most insurance companies look for applicants with a college degree. A bachelor’s degree is perfectly acceptable. A degree in finance, business, or economics is preferred but certainly not required.
The second step in becoming an underwriter is to obtain your state’s insurance producer license. Once licensed, you can start applying for jobs in underwriting. Most insurance carriers and brokers generally list these jobs in the careers section of their websites.
Some companies may want you to work in the insurance field for a few years before you apply to be an underwriter. You can gain this experience by working as an insurance agent for an independent agency, broker, or carrier. Need help breaking into the agency market? Have no fear; we outline five easy steps to become an insurance agent on our blog.
We hope you found the information in this article helpful. If you’re interested in becoming an underwriter, we encourage you to get your insurance license. You can obtain your license in as little as one month and be on your way to this exciting new career path.