A financial professional that evaluates the dangers of insuring a particular person or asset and uses that information to set premium pricing for insurance policies. Insurance underwriters are employed by insurance companies to help price life insurance, medical insurance, property / casualty insurance and homeowners insurance, among others.
Underwriters use computer programs and actuarial data to establish the magnitude and likelihood of a payout over the life of the policy. Assets and higher-risk persons must pay more in premiums to get the same degree of protection as a (perceived) lowerrisk individual or asset..
Insurance underwriting is big business – simply ask Warren Buffett, who for years has used reinsurance and insurance premiums to finance his investments at Berkshire Hathaway.
Insurance companies walk a tightrope between being too aggressive or too conservative in their underwriting obligations. If they’re too aggressive, greater-than – expected claims could cut into firm earnings; if they are too conservative, they will be outpriced by the contest and lose business.