Underwriting is the process an insurer uses to assess the risk of insuring a person or asset, decide whether to offer cover, and set the premium and terms. It turns information about the applicant into a price and policy conditions.
In one line: Underwriting is how insurers assess risk to decide whether to offer cover and at what price.
How underwriting works
During underwriting, the insurer examines factors such as age, claims history, location and the item being insured, often using statistical models. The output is a decision to accept, decline or accept with specific terms and excesses.
For a motor applicant, an underwriter might price a careful experienced driver at 500 GBP but quote 1,900 GBP for a newly qualified driver with a powerful car, because the expected cost of future claims is far higher.
Underwriting also sets exclusions and conditions, so a misrepresentation at this stage can later allow a claim to be refused.
Underwriting vs the premium
Underwriting is the risk assessment behind the scenes. The premium is the price that assessment produces, so the premium is the outcome rather than the process itself.
Accurate answers during underwriting matter because the insurer relies on them to price the policy and may void cover if the information given was false.
Primary source: FCA: Insurance