By Elisabeth Axiak
Insurance. You need insurance coverage for any car, home, business, or farm you own. We all know this – but who is writing these insurance policies? Who decides what risks to take on and at what cost?
Let’s take a walk through the insurance policy process, and along the way, you’ll meet two key players: Insurance Brokers, and Insurance Underwriters.
Where do you start?
As a client who wants a new insurance policy, you’ll first contact your insurance broker. Those are the people that will take all of your information, and shop around to see which insurance provider would be the best fit for you.
That’s where the underwriters come in
Underwriters are the ones who decide which risks to accept (or reject) on behalf of the insurance provider. Your broker will complete an application on your behalf, and send it along to an underwriter at the desired provider. From there, the underwriter will review the application and look at tons of different factors – including what type of policy you are looking for, where you live, your previous insurance, and much more. Then, they determine if the ‘risk’ qualifies for a certain coverage, and then determine the appropriate premium to charge.
If they accept the application, the underwriter issues the policy and sends the policy documents to you and your broker. Congratulations, you are now a policyholder!
Elephant in the Room
Let’s talk about why on earth they are called underwriters. They sit like normal people at their desks, not under them, we promise. The term actually comes from the Lloyd’s of London insurance market in the 1600’s. When a merchant needed to send cargo from port to port, the cargo would be shipped (on an actual ship!). In order to make sure that the cargo arrived safely, the merchant would have other wealthy merchants ‘insure’ it. They would literally sign their names ‘under’ the name of the ship that they were willing to share the risk in insuring the contents! That way, if anything were to happen to the cargo, the wealthy merchants could cover the cost of the damages. Cool, huh?
Check out our infographic below to get a closer look into everything that goes into (or should we say, under?) underwriting!
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