Financial organizations employ underwriters who assess and evaluate the risks involved in representing another party before accepting those risks. Mortgage companies, banks and insurance agencies rely on underwriters to make sound decisions before they offer loans and issue insurance policies. The fee for this assessment usually takes the form of interest payments or premiums.
Underwriters in the Insurance Business
Insurance underwriters evaluate the risks before insuring a business, home or automobile so that the risks don’t outweigh the potential benefits for the organization. They consider certain criteria to make sure the contract will be profitable for the insurance agency. For example, if a person has been in numerous accidents, they may be denied car insurance or may pay a higher premium than a person who has a clean driving record.
Banks and other financial institutions employ underwriters to evaluate the applicant’s financial history before approving a mortgage or other loan. Financial records and credit ratings are reviewed to ensure the party will be able to pay back the loan on time.
The underwriter wants the loan to be safe for all involved. In some instances, underwriting software is utilized to give a more accurate picture of the risks.
Underwriters play a critical role in the financial process of issuing loans and insurance policies.