Definition - What does Underwriting mean?
Underwriting refers to the process where insurance companies calculate risk and issue insurance policies based on their calculations. In an insurance policy, an insurance company provides financial protection against various types of risks in exchange for periodic payments known as premiums. Insurance companies employ underwriters to handle the underwriting process.
Insuranceopedia explains Underwriting
For example, a life insurance company issues a number of insurance policies at certain prices after determining the amount of risk each individual represents and the figures needed to make a profit. If an insurance company takes in more revenue from its underwriting activity than it pays out, then it is said to have made an underwriting profit. This is one of the main ways that insurance companies make money. However, if insurance companies make miscalculations during the underwriting process, then it is possible for them to lose money as well.
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