What is the purpose of insurance underwriting?

The purpose of insurance underwriting is to evaluate risk and determine appropriate premiums. Underwriting is a critical process in which an insurance company assesses the likelihood of a policyholder making a claim based on their individual circumstances, such as their health, lifestyle, and any other relevant factors. By analyzing this information, underwriters can classify applicants into various risk categories.

This risk assessment helps the insurer decide how much coverage to offer and at what price (premium). The ultimate goal is to create a balanced and sustainable insurance portfolio where the premiums collected are enough to cover the claims made while also ensuring that policyholders are being charged fairly based on their risk profile. Understanding this function of underwriting is essential for comprehending how insurance operates on a fundamental level, including the relationship between risk and cost for the policyholder.