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A Video Explaining the Nature of Insurance Underwriting   

https://zalma.com/blog

Before the insurance claims adjuster begins a claims investigation he or  she must understand the nature of underwriting because it is how an  insurance policy comes into existence.  Underwriting is defined as the process of accepting or rejecting risks.  It requires a determination by the underwriter of the risks for which  insurance is sought and the terms under which the insurance will be  written if the risk is acceptable. Underwriting insurance is a function  unique to the insurance industry which transfers the risk of loss from  the person or entity insured to the insurer.  

Three centuries ago, insurance originally was a very personal matter. A  property owner would discuss with an individual insurer the problems,  values and risks of loss involved in a commercial enterprise. They would  then agree upon the terms under which the insurer would insure the  risk. Together they would draft a contract and the insurer would sign  his name at the bottom \\u2014 he literally underwrote the insurance.  When the Lloyd\\u2019s insurance marketplace started in Edward Lloyd\\u2019s coffee  shop policies were often written in chalk on a blackboard and those who  wished to join in the insurance would sign their name and the percentage  they wished to take of the risk under the terms of the policy written  on the board.  In its original usage, underwriting referred to the operation of the  insurance business. 

Today, in application, there is a more restricted  meaning applied to the term.  Underwriting, in modern usage, is a systematic technique for evaluating  risks that are offered to an insurer by prospective insureds. The  function of underwriting involves evaluating, selecting, classifying,  and rating each risk. Underwriting establishes the standards of coverage  and amount of protection to be offered to each acceptable risk. It  formulates and administers the rules and procedures that are used to  ensure that predetermined standards are met by underwriters.  Underwriters are the risk takers. Adjusters only become involved when  the risk becomes a loss and the adjuster is called upon to keep the  promises made by the policy created by the underwriter.  In the US underwriting has become more corporate and less individual.  Underwriters are now invariably employees of insurance companies and no  longer put their personal fortunes at risk.  

\\xa9 2021 \\u2013 Barry Zalma  

Barry Zalma, Esq., CFE, now limits his practice to service as an  insurance consultant specializing in insurance coverage, insurance  claims handling, insurance bad faith and insurance fraud almost equally  for insurers and policyholders.