A Video Explaining the Nature of Insurance Underwriting

Read the full article at https://www.linkedin.com/pulse/insurance-underwriting-barry-zalma-esq-cfe and see the full video at https://rumble.com/vnhcno-insurance-underwriting.html and https://youtu.be/8Gp6WT990IY and at https://zalma.com/blog plus more than 3900 posts. 

Before the insurance claims adjuster begins a claims investigation he or she must understand the nature of underwriting because it is how an insurance policy comes into existence.

Underwriting is defined as the process of accepting or rejecting risks. It requires a determination by the underwriter of the risks for which insurance is sought and the terms under which the insurance will be written if the risk is acceptable. Underwriting insurance is a function unique to the insurance industry which transfers the risk of loss from the person or entity insured to the insurer.

Three centuries ago, insurance originally was a very personal matter. A property owner would discuss with an individual insurer the problems, values and risks of loss involved in a commercial enterprise. They would then agree upon the terms under which the insurer would insure the risk. Together they would draft a contract and the insurer would sign his name at the bottom — he literally underwrote the insurance.

When the Lloyd’s insurance marketplace started in Edward Lloyd’s coffee shop policies were often written in chalk on a blackboard and those who wished to join in the insurance would sign their name and the percentage they wished to take of the risk under the terms of the policy written on the board.

In its original usage, underwriting referred to the operation of the insurance business. Today, in application, there is a more restricted meaning applied to the term.

Underwriting, in modern usage, is a systematic technique for evaluating risks that are offered to an insurer by prospective insureds. The function of underwriting involves evaluating, selecting, classifying, and rating each risk. Underwriting establishes the standards of coverage and amount of protection to be offered to each acceptable risk. It formulates and administers the rules and procedures that are used to ensure that predetermined standards are met by underwriters. Underwriters are the risk takers. Adjusters only become involved when the risk becomes a loss and the adjuster is called upon to keep the promises made by the policy created by the underwriter.

In the US underwriting has become more corporate and less individual. Underwriters are now invariably employees of insurance companies and no longer put their personal fortunes at risk.