Underwriting explained: What role does an insurance underwriter play?

If you have a business, chances are you have insurance cover. 

Depending on the nature of your enterprise, you may hold property, workers’ compensation, public liability, professional indemnity, business interruption and cyber policies.

Then there’s specialty cover for unique items, services and risks. Take Taylor Swift’s legs, for example. The superstar singer hit the headlines in 2015 when it emerged that her prized pins had been insured for an extraordinary $US40 million.

Deciding whether to offer cover to a potential client and if so, how much it should cost isn’t always straightforward. That’s why insurance companies employ underwriters.

“It’s their job to take the information that’s been presented from a customer or broker and assess it to determine whether it falls within their target market and meets their insurable guidelines,” explains Chris Quick, Head of Market Management, Steadfast Underwriting Agencies.

We’ll look at what an underwriter does and why it’s important.

Rating the risk

As part of the underwriting process, an underwriter will rate the risk associated with providing the cover that’s being sought, generally against a set of pre-determined criteria.

For example, when assessing an application for property cover on an older building, whether the premises have been rewired is likely to be a consideration, according to Quick.

Different construction materials can have different risk ratings applied to them, as can regions and postcodes.

Correctly rating a risk enables an insurer to calculate a competitive premium that is compliant with its target loss ratio – the projected difference between the premiums it receives and the claims it pays out each year.

While a regular underwriter can usually assess most insurance applications that cross their desk, larger and more complex risks may need to be referred up the line.

In these cases, it will often go to a senior or specialist underwriter with the authority to approve or decline them.

An underwriter will also conduct a risk review towards the end of each insurance period, considering any changes in conditions and claims that may have been lodged. They’ll then re-rate a client’s risk accordingly.

Delving into the data

Data plays a vital role in the decision-making process. Luckily, these days, underwriters have a wealth of it at their fingertips.

“There are business quoting tools and rating algorithms that save a lot of time and manual work, as well as specialised databases, such as multi-layered flood mapping. These allow underwriters to drill down and obtain detailed information at an individual property level,” Quick says.

“Artificial intelligence is also being deployed to automate administrative aspects of the underwriting process and provide brokers and customers with answers much more quickly than was possible in the past.”

But while that’s a trend that’s set to continue, human intervention will still be required in cases that don’t fit neatly into a template.

“Having a customer or their broker explain the details of the risk can enable an underwriter to understand the complexities and make an informed decision in a way that a computer program, however sophisticated, cannot do,” Quick says.

“Even in today’s times, it’s a massively important role.”

Cover to safeguard your business 

Having the right insurance in place can help protect your small business from a range of accidents and incidents.

A broker can help you make smarter decisions about the types of cover best suited to your needs and liaise with insurance underwriters on your behalf if your circumstances are complex or unique. For a discussion about your requirements, contact your broker today.

Important notice

This article is of a general nature only and does not take into account your specific objectives, financial situation or needs. It is also not financial advice, nor complete, so please discuss the full details with your Steadfast insurance broker as to whether these types of insurance are appropriate for you. Deductibles, exclusions and limits apply. You should consider any relevant Target Market Determination and Product Disclosure Statement in deciding whether to buy or renew these types of insurance. Various insurers issue these types of insurance and cover can differ between insurers.