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What Is an Insurance Underwriter?

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An insurance underwriter combs through an insurance application to gauge the applicant’s risk and determine whether to extend coverage—and, if so, what the cost and limits of the coverage will be. Usually, with help from software, they make decisions about auto, homeowners, life, disability, or business insurance, for example. Are you considering a career in the industry? In this guide, we cover:

What Is Insurance Underwriting?

At its core, insurance underwriting involves determining how much risk an insurer is willing or able to take on.

For example, if a homeowner is applying for homeowners insurance, the underwriting process would consider factors such as the location, age, and condition of the home. In addition, homeowners insurance underwriting typically includes evaluating potential hazards in or around the house and examining the applicant’s background, such as their credit score. The underwriter looks at this data to assess the likelihood of and potential costs associated with paying out claims.

Based on their findings and likely guidance from underwriting software, they determine whether the applicant should be covered. If the likelihood of paying multiple or pricey claims is too high, the applicant is rejected. If the application is approved, the underwriting process computes the coverage amount the homeowner would get and the premium that the homeowner would pay for the policy. Riskier customers generally pay higher prices. (Say, for instance, your home is expensive and costly to rebuild.)

Ultimately, the goal of underwriting is to strike a balance between taking on new policyholders, so the carrier can turn out a profit and afford the claims it does cover, and minimizing the companies’ risk exposure. (Too many claims could put the carrier out of business.) This process and its ultimate goal is similar to how a mortgage underwriter approaches home loans.

What Does an Insurance Underwriter Do?

It would be easy to state that they evaluate and manage risk. But it goes further than that. According to the Bureau of Labor Statistics, the duties of an insurance underwriter may include:

  • Analyzing information provided on insurance applications, such as an applicant’s medical history or driving record
  • Determining the risk involved in insuring a potential policyholder
  • Evaluating recommendations churned out by underwriting software
  • Reaching out to others, such as health care professionals, to obtain more information
  • Determining how much coverage to offer an applicant and how much the premiums will be
  • Keeping up with changes in underwriting automation software

An insurance underwriter often specializes in one type of coverage, such as health, life, or property and casualty policies.

Seth Brickman, managing director of Windsor, Connecticut-based Business Risk Partners, an underwriter of specialty insurance for businesses, explains that insurance underwriters “turn over the rocks and find any important facts that may be hiding.” Underwriters then tailor coverage, including policy limits and premium prices, to align with what they’ve unearthed.

If you’re looking to get better acquainted with the day-to-day duties of an insurance underwriter, check out Forage’s Aon Introduction to Insurance Virtual Experience Program.

How Much Do Insurance Underwriters Make?

The Bureau of Labor Statistics says the median pay for an insurance underwriter was $76,390 in May 2021. Comparatively, the median pay for all occupations in May 2021 was $45,760.

However, the bureau predicts employment of insurance underwriters will decline by 2% from 2020 to 2030 as automated underwriting software reduces the need for human underwriters.

How to Become an Insurance Underwriter

Generally, someone pursuing a career in this industry needs a bachelor’s degree, often in business. However, some employers might hire someone without a bachelor’s degree based on work experience and skills.

New underwriters typically are trained by senior underwriters and initially work on basic insurance applications. In addition, some employers provide in-house training for beginning underwriters.

To move up the underwriting career ladder, an employer often requires that an insurance underwriter gain certification. Here are some of the options, according to the Bureau of Labor Statistics:

  • For underwriters with at least two years of insurance experience, The Institutes offers the Chartered Property and Casualty Underwriter (CPCU) designation. For beginning underwriters, The Institutes offers a training program. The Institutes also provides other designations in insurance specialties, such as Associate in Commercial Underwriting (AU) and Associate in Personal Insurance (API). To earn them, underwriters complete a series of courses and exams, usually lasting one to two years.
  • The National Association of Insurance and Financial Advisors provides the Life Underwriter Training Council Fellow (LUTCF) designation, which features a three-part curriculum in basic insurance concepts.
  • The American College of Financial Services provides the Chartered Life Underwriter (CLU) certification, which requires five core courses and three electives. A CLU candidate must have three years of related work experience.

Pros and Cons of Insurance Underwriting Careers

Pros

  • Good pay
  • Open to a variety of college majors
  • Transferable skill set

Cons

  • Declining employment opportunities due to automation
  • Labor-intensive certifications often required for job growth

Brickman calls insurance underwriting a “great option” for a career, “especially if you are analytical yet don’t have a practical application for your degree. It not only teaches you all the fundamentals of insurance but opens you up to other avenues that in time you may feel you’re more suited for.”

Linda Chavez, founder and CEO of Seniors Life Insurance Finder, which sells life and burial insurance for seniors, says being an underwriter demands that you analyze complicated information, make sound decisions, and demonstrate strong communication and interpersonal skills.

“If you are looking for a challenging and rewarding career, underwriting may be the right choice for you,” Chavez says.

Learn more about whether, in general, finance is a good career path.

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