Underwriting is one of the aspects of insurance that makes most people’s eyes glaze over. Underwriters deal with statistics — they’re number crunchers. Many people who have an insurance policy don’t even know that at some point their application passed through an underwriter’s hands.
But underwriting is one of the most important parts of the insurance process. And knowing what an underwriter does — and why it’s so important — is helpful for people who are shopping for a new policy.
Insurance is based on risk. When you get an insurance policy, the insurance company is taking on some of your risk. For example, if you drive a car, you have a risk that your car will be damaged in an accident. Having auto insurance means that if the car does get damaged, the insurance company will pay for the repairs. By having a policy, your risk is lower.
The insurance company makes up for the risk it takes on by charging premiums and setting deductibles. If a company charges too little, it could go bankrupt when large claims are filed. But if a company charges too much, it will lose business to its competition.
An underwriter’s job is to make sure that the insurance charges just the right amount for the coverage it provides. They figure how much risk you represent, how much coverage the company can offer you, and how much that coverage should cost.
Insurance companies want to stay competitive and stay open for business — so it makes sense why underwriting is important to them.
But why is it important to you? Because when you’re applying for an insurance policy, your application is going to be looked over by an underwriter. And that underwriter’s opinion is going to determine how much you pay for insurance. And based on the condition of your health — or even a mistake on your application — they could decide to deny your application entirely.
No big deal… you can always apply with a different company, right? Actually, it isn’t that easy. Like almost everything else these days, applying for insurance leaves a record. And if you get denied coverage, it will show up in that record. Once you’ve been denied coverage at one company, other companies are more likely to deny you, too.
So what can you do? It isn’t like you can call up a company’s underwriter and plead your case. But your insurance agent can.
Many insurance agents represent several insurance companies. They have a sense of what kinds of risks each one is willing to take on. When you work with an agent, they can steer you toward the companies that are most likely to accept you at their “preferred rates” — meaning you get the most savings.
And many agents have professional relationships with the underwriters at the companies they represent. That means they can “shop quietly.” They can contact those underwriters and — without formally applying — get an idea of whether your application would be accepted, and what rates you’d qualify for.
That's just one of the reasons why working with an agent is a good idea.
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