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Underwriting in Insurance | Meaning & Process

In insurance, underwriting is the process of assessing the risk of providing coverage to an applicant. Based on the underwriting, the insurance company decides the terms on which it can offer coverage to the applicant.

A person seeking insurance coverage has to provide all the relevant information in the policy application. All the information which is relevant and can impact the insurer’s decision on policy terms is called material facts. Based on the information provided in the policy application, the insurer assesses the level of risk associated with covering the applicant. 

Depending on the level of risk, the insurer decides to issue the insurance policy at normal rates or higher than normal rates. The insurer can also deny giving coverage to the applicant.

An insurance contract is based on the principle of utmost good faith. The insurer believes that all the information provided by the applicant in the policy application is true and complete. This information is crucial to decide the terms of the insurance policy. 

Non-disclosure of information, intentionally or unintentionally, at the application stage can lead to claim denials or policy being terminated.

 

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