Role and functions of underwriters

Underwriting is a common practice used in the commercial, insurance and investment banking industries. An underwriter typically works for mortgage, loan, insurance or investment companies. During the underwriting process, they do everything from evaluate your health to assess your financial status. Based on their findings, underwriters help companies determine if they should take on an applicant’s contract or not based on their associated level of risk.

What Is an Underwriter?

An underwriter is a member of a financial organization. They work for mortgage, insurance, loan or investment companies. They assess, evaluate and assume the risk of another party for a fee. Often, you’ll see this fee in the form of a commission, premium, spread or interest. At any rate, if you’re working with an underwriter, you’re most likely seeking approval for a large purchase or insurance coverage.

Each industry has their own underwriters and these individuals must understand the intricacies of their specific field. They use their knowledge and expertise to best asses the risk of an applicant. Underwriters determine if giving a loan or issuing an insurance policy will work in favor of their company. However, if the contract turns out to be too risky, the underwriter is accountable for the loss.

Most underwriters have a bachelor’s degree and have completed a training program. Typically, they have an academic major within their industry of specialization. Common majors include finance, business and economics.

What Does an Underwriter Do?

Using the knowledge they have in their field, underwriters decides if a contract is worth the risk. For example, underwriters who work with health insurance companies evaluate the health risk of applicants.

The underwriter will review the applicant’s information including age, current health condition and past medical and family history. Using this information and other factors, an underwriter will enter the data into underwriting software. The software will determine the premium amount and terms they should apply to the policy. Also, this assessment determines if the policy is too risky to move forward.

The information provided to various underwriters is subject to the specific case. For example, an underwriter for a health insurance company will review medical details, while a loan underwriter will assess factors like credit history.

An underwriter’s job is complex. They have to determine an acceptable level of risk and what’s eligible for approval based on their risk assessment. When assessing complicated situations, underwriters may need to conduct research and acquire a large number of details.

Different Types of Underwriters

Insurance Underwriter

Insurance underwriters asses the risk of insuring a home, car or driver. They also assess individuals who are applying for life insurance policies. Insurance underwriters determine if the contract is profitable for the insurer.

Mortgage Underwriter

Mortgage underwriters are some of the most commonly used underwriters among the loan industry. Even if a new homeowner has a good income and great credit score, buying a home is still a risky endeavor. A mortgage underwriter must do a thorough risk assessment. Once an assessment is done, the underwriter can confirm if the loan is a manageable undertaking for the applicant.

Loan Underwriter

Similar to mortgage underwriters, loan underwriters asses the risk involved in lending an applicant a loan such as an auto loan. The objective is to determine if the loan is safe for all parties. Large banks often use a combination of underwriters and underwriting software to determine the risk of lending funds to an applicant. Using the combination of software and an underwriter is a common practice among big and small banks.

Securities Underwriter

A securities underwriter is a different type of underwriter. Securities underwriters often work with initial public offerings (IPOs). They asses the investment’s risk to determine an appropriate price for an IPO. Typically, a securities underwriter is an employee of the investment bank or another specialist.

Underwriters play a crucial role across many financial situations. The process of underwriting also has several complexities, all of which are based on how well the specifics of your finances line up with the company’s respective policies. Don’t be afraid to ask questions about the underwriting process during your talks with your broker, agent or the company in general. The more you understand about the entire process, the better off you’ll be in the end.

What Is Underwriting?

Underwriting is the process through which an individual or institution takes on financial risk for a fee. This risk most typically involves loans, insurance, or investments. The term underwriter originated from the practice of having each risk-taker write their name under the total amount of risk they were willing to accept for a specified premium.

Although the mechanics have changed over time, underwriting continues today as a key function in the financial world.

  • Underwriting is the process through which an individual or institution takes on financial risk for a fee. 
  • Underwriters assess the degree of risk of insurers’ business.
  • Underwriting helps to set fair borrowing rates for loans, establish appropriate premiums, and create a market for securities by accurately pricing investment risk.
  • Underwriting ensures that a company filing for an IPO will raise the capital needed and provide the underwriters with a premium or profit for their services.
  • Investors benefit from the vetting process of underwriting grants by helping them make informed investment decisions.


The process of underwriting involves four basic functions: 1) selection of risks, 2) classification and rating, 3) policy forms, and 4) retention and reinsurance. By performing these four functions the underwriter increases the possibility of securing a safe and profitable distribution of risks.


In this step the underwriter decides whether or not to accept a particular risk. It involves securing factual information from the applicant, evaluating that information, and deciding on a course of action. The underwriter is typically aided by a list of acceptable and prohibited risks.


Once the risk has been accepted, the underwriter then classifies and rates the policy. Several tentative classifications are usually assigned before a final decision on classifying the risk is reached. The purpose of using classifications is to separate risks into homogeneous groups to which rates can be assigned. Insurers may have their own classification and rating system, or they may obtain a system from a rating bureau.


After determining the acceptability of an applicant and assigning the proper classification and rating, the underwriter is ready to issue an insurance policy. The underwriter must be familiar with the different types of policies available as well as be able to modify the form to fit the needs of the applicant.

The first three underwriting functions—risk selection, classification and rating, and policy selection—are interdependent. That is, the underwriter determines that a certain risk is acceptable when specified rates and forms are used. The underwriter also performs a fourth separate function on every risk before the underwriting is complete: reinsurance.


Reinsurance involves protecting the insurance company against a certain portion of potential losses. Every risk presents the possibility of loss that will equal or exceed the policy limits. It is up to the underwriter to protect his or her company from undue financial strain. The underwriter does this by retaining only a certain portion of the risk and securing reinsurance for the remainder of the risk.


Aishwarya Says:

I have always been against Glorifying Over Work and therefore, in the year 2021, I have decided to launch this campaign “Balancing Life”and talk about this wrong practice, that we have been following since last few years. I will be talking to and interviewing around 1 lakh people in the coming 2021 and publish their interview regarding their opinion on glamourising Over Work.


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In the year 2021, we wrote about 1000 Inspirational Women In India, in the year 2022, we would be featuring 5000 Start Up Stories.

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