What is Underwriting in Insurance?

Underwriting in insurance is when an insurance company figures out how much of a risk it is to insure someone or something and whether it makes sense for the insurance company from a business perspective.

How do underwriters decide whether to insure a business?

When underwriters review an insurance application, they look at various factors to understand the risk involved. Here's a breakdown of the key elements they focus on:

Prior Losses/Claims

Underwriters check how often the company has filed claims and the size of those claims. This historical data helps evaluate the risk and predict the likelihood of future claims.

Financial Stability of the Business

Underwriters examine the financial health of the business. A stable financial foundation indicates the business can pay its bills and is not going to cancel the policy midterm for lack of funds.

Industry Type

The nature of the industry matters. Businesses in riskier sectors might be less appealing to insurance carriers. Understanding industry risks is crucial for underwriting decisions.

Demonstrated Ownership Experience

Underwriters consider the owners' experience. More years with experience in management would usually imply that the owner can manage risks effectively.

Employee Retention Rate

Turnover rates provide insights into the work environment. A low turnover rate suggests a positive atmosphere and efficient management, influencing the underwriter's risk perception.

Subcontractor Exposure

For businesses relying on subcontractors, the underwriter looks at the percentage of wages or payroll paid to them. A higher proportion raises concerns about the potential diversification of work for subcontractors.

Decision Points: To Quote or Not-to-Quote

When underwriters finish their thorough review, they reach a crucial decision point. They can either provide a quote, detailing the coverage terms and conditions or decide not to offer one. This decision depends on how the underwriter assesses the risk and whether it aligns with the insurance company's risk tolerance.

In simple terms, insurance underwriting is a careful balancing act. The insurance company doesn't want to lose money on your policy. 

They have to figure out a policy amount that allows them to give businesses coverage, pay injured worker expenses and cover the cost of their own workers and utilities. If they have too many injuries and not enough money to pay the bills, they would go bankrupt and that’s not a good business model :)

So the underwriter will decide what the chances of them losing money by insuring your business are and if they like those odds. If the odds are too risky, they will decline your business. 

Kickstand tip:

‍Don’t sweat yet, because another insurance company will evaluate the odds differently and they might be ok with it. A knowledgeable insurance agent will know which insurance companies like which particular industries. They will know where to go to get you a policy that will be approved by the underwriter.  

How does the Underwriting Process Work?

Understanding how insurance works involves grasping the underwriting process, a crucial journey that decides the fate of coverage for businesses. By understanding how the process works, you can take action that will make you a better candidate so insurance companies want to insure your business.

1. Agent's Role: Helping business get insurance

The process begins when a business starts looking for insurance coverage. They can either approach an agent or start an online quote that will get sent to an agent.

Agents act as the connection between businesses and underwriters, playing a key role in submitting applications for their clients. These submissions contain a wide range of information, covering details about the business, its financial stability, past claims history, and more.

2. Document Requests: The application process

After an application is submitted, underwriters conduct a thorough analysis. They may ask for additional documents to get a more complete view of the business's risk profile. Here are the key documents they may ask for:

Currently Valued Loss Runs

These records, maintained by all insurance companies, give insights into the business's claims history. Underwriters examine whether claims are open or closed, the nature of the claims, and the payouts made by the insurance company.

You may have to request your loss runs from your previous insurance company if the underwriter wants a copy of them.

Supplemental Applications

Tailored to specific industries, supplemental applications dive into nuanced aspects of the business. For instance, in construction or healthcare, where risks may be more complex, these applications provide a deeper understanding of the business's operations.

3. Decision-Making: The Underwriter's evaluates the risks

In the decision-making phase, underwriters have to evaluate the risk presented by the business and decide whether to accept or decline it. This decision has two possible outcomes:

Declination

Underwriters may determine that taking on the business's risk doesn't align with the insurer's comfort level. In such cases, they may choose not to offer coverage.

Quotation

If the underwriter finds the risk manageable, they can provide a quote. This quote specifies the terms and conditions of coverage, including the premium amount the business needs to pay in exchange for assuming the risk of potential injury, damage, or loss.

Essentially, the underwriting process acts as the gatekeeper for insurance relationships. Businesses get tailored coverage, and insurers gain a solid understanding of the risks they choose to underwrite.

How long does Insurance Underwriting take?

The time it takes for insurance underwriting varies and depends on multiple factors, requiring a careful balance between efficiency and accuracy. 

In today's world, technological advancements, especially in Insurtech, have changed the speed and dynamics of the underwriting process.

How does AI and technology affect the underwriting process?

The rise of "Insurance Tech" marks a significant change in how underwriting works. Artificial intelligence (AI) technologies are now widely used by underwriters to make the underwriting process faster and more efficient. 

This means businesses can get instant quotes or basic cost estimates online, gaining quick insights into potential coverage.

Yet, relying on technology has its challenges. Automated systems might miss some details, and errors may only become apparent during audits. 

Despite these challenges, the use of technology in underwriting has greatly improved the speed and accessibility of insurance processes for businesses.

What role does the underwriter have in the process?

Manual human underwriting is really important in insurance. Even with technology, some risks need the careful understanding and judgment that only people can provide.

The underwriter will use AI technology as a tool but usually a person will make the final decision after carefully evaluating all the information.

Using manual underwriting makes the evaluation process more thorough. This lowers the chance of missing important details and reduces surprises later on.

Finding the right balance 

In the changing world of insurance, companies like Kickstand use a hybrid approach. They use software to quickly give businesses an initial idea of coverage and costs. 

But this is not the final decision. Kickstand also has its team manually review the quotes to make sure they're accurate.

The hybrid approach is important for efficiency and accuracy in insurance. By combining technology’s speed with human judgment, companies like Kickstand focus on both speed and accuracy. This helps businesses get timely information without sacrificing thoroughness.

Keep your online footprint clean and accurate

In insurance underwriting, balancing speed and accuracy is vital for businesses. Technology offers speed, but a human touch is necessary for a thorough evaluation.

Kickstand tip

Our top underwriting tip for businesses navigating this complex process is to maintain a clean digital presence. In an era where insurers look beyond traditional data, your social media and website act as a reflection of your business and what you do.

Insurance companies check your online presence to confirm your business claims. A clean website and social media profile, without conflicting information or aspirational statements, can speed up the underwriting process.

Keep these platforms updated, accurate, and free of conflicting information to portray an accurate picture to the underwriter. 

Get the best of both worlds with Kickstand!

Unlock the potential for a smoother underwriting process by partnering with Kickstand Insurance. Our team combines technology’s speed with human judgment to give careful evaluations, making sure you get quick and accurate information. 

Take the first step toward streamlined underwriting—request a quote today!