What is an Underwriter in Insurance? 5 Facts to Know (Explained)

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What is an Underwriter in Insurance? 5 Facts to Know (Explained)

What is an Underwriter in Insurance?

If you’re wondering, “What is an underwriter in insurance?”, keep reading. This article outlines the role of an underwriter and the criteria they use to set premiums. It also discusses the different career options available to underwriters. If you’re interested in becoming an insurance underwriter, read on! Posted in Careers, Underwriters

Criteria used by insurance underwriters

When it comes to life insurance, you’ll be categorized by the criteria used by underwriters to determine the risk level. In general, they look for risk factors that could shorten your life, like smoking or a family history of illness.

The higher your risk factor scores, the higher your premium will be. You may find it surprising that some people have risky habits, but these do not necessarily hurt your classification.

Read on to learn about the criteria that insurance underwriters use to determine your risk level and insurance premium.

In addition to medical history, insurance underwriters also look at your driving record.

If you have a poor driving record, insurance companies will view you as a high risk, and therefore increase your premiums. They may also get involved if you make any claims, have too many vehicles, or have payment issues.

Whatever the case, an insurance underwriter’s job is to strike a balance between caution and risk.

In an October 2000 study, the Kaiser Family Foundation examined medical underwriting practices for the individual market. It asked hypothetical applicants to submit detailed questionnaires about their physical and mental health.

The results varied widely, and for less serious ailments, the results were dramatically different.

For instance, an applicant with seasonal allergies was accepted five times, declined five times, and offered standard coverage just three times.

In addition, she was excluded from coverage for her upper respiratory system and suffered an average 25% increase in premiums.

Criteria used to determine premiums

The criteria an underwriter uses to set premiums for insurance policies vary, but a recent study by the Kaiser Family Foundation examined the various methods of medical underwriting. They asked hypothetical applicants to provide various medical histories, and the results varied significantly.

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For example, a seasonal allergy sufferer was offered standard coverage three times, declined five times, and offered policies that had benefit limits or exclusion riders 46 percent of the time. The result was a premium rate hike of 25%, on average, for the applicant.

The primary purpose of rate-making is to set a minimum premium for each category of applicants, with the goal of charging a lower premium for low-risk groups than for high-risk groups.

However, underwriting and rate-making must be accurate to ensure fair compensation. Otherwise, inaccurate rates can result in significant losses.

Therefore, it is vital to conduct a statistical analysis of each applicant’s health history and the costs associated with their conditions.

Rate making should be based on four principles. The rates should reflect differences in risk among applicants, while not creating excessive profits.

They should be regularly revised to reflect costs and encourage loss prevention among insured people. In addition, premiums should be affordable for all insured parties, as low premiums may make it unattractive for some consumers.

However, it should never be the case that a company’s rates are too high.

Career opportunities for underwriters

Underwriters typically work in teams in the insurance industry and can progress to the positions of the senior underwriter, team leader, or manager.

Underwriters usually take on responsibility for younger staff, and they may be expected to deliver training and mentor new staff. As a career progresses, underwriters may be required to manage complex risks, or they can move into a sales role.

Underwriters often need to have a predicted 2:1 to be successful.

Underwriters are analytical, strategic, and practical thinkers who enjoy research. They like drawing conclusions based on their research and analyzing data.

If you’re detail-oriented and enjoy making complex decisions, you’ll love a career as an underwriter. The insurance industry is projected to grow by about seven percent annually through the fiscal year 2022.

You can expect a good salary with a career in this industry.

Salary for an insurance underwriter starts at around PS40, with the potential for advancement to a senior position. This salary can rise up to PS90,000 with experience.

If you want to make more money and work in a larger company, you can opt for a career education program.

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Earning a degree can greatly increase your earning potential and marketability. You can enroll in a program online and get the education you need to advance your career.

 

Conclusion

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