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Overview of types of Underwriting

Underwriting determines whether insurance applicants receive coverage and at what rates. But for most, its inner workings appear complex. In this guide, we’ll discuss underwriter IPO, types of underwriting, and more. Read on to understand this crucial part of securing insurance.

What is Underwriting?

Underwriting refers to the overall process that insurance carriers adopt to assess the risk levels of applicants. Underwriter IPO determines coverage terms and appropriate premium pricing and makes approval or rejection decisions based on age, lifestyle habits, health, occupation, etc.

By ensuring risk exposures are balanced across their policyholder pool, insurers can offer affordable plans to millions while achieving long-term profitability. Thus, underwriting allows expanded insurance access sustainably.

Types of Underwriting

 There are three major types of underwriting including:

  1. Loan Underwriting

When a borrower applies for a loan, loan underwriters at the lending institution carefully evaluate whether the applicant qualifies for the loan and, if yes, under what terms and conditions. The key role of loan underwriters is to assess if the borrower can repay the debt obligation based on careful financial analysis. They review documents such as loan application forms, income statements, tax returns, credit reports, property appraisals, and bank statements. This is done to understand the borrower’s overall income potentials, fixed and variable expenses, existing debts or liabilities, creditworthiness based on repayment history, and value of assets that could potentially be liquidated as collateral.

  1. Securities Underwriting 

Securities underwriting refers to the process where one or more investment banks stand as intermediaries between companies issuing new securities and public investors. The underwriters facilitate raising corporate equity or debt capital through instruments like stocks, bonds, or derivatives via initial public offerings (IPOs), follow-on offerings, rights issues, etc.

In a typical issuance process, the issuer appoints underwriting firms who buy or commit to buying the entire securities issuance from the company at an agreed price on a firm commitment basis. The underwriters then sell these securities to their investor clients and the general marketplace. Several types of underwriting shares are involved when a company issues new shares to raise funds from public investors in capital markets.

  1. Insurance Underwriting

Insurance underwriting refers to the detailed evaluation process undertaken by insurers to categorise applicants according to their riskiness and determine appropriate premium rates based on the probability of expected claims from each group.

Underwriting starts after the submission of a filled-in proposal form. Underwriters gather extensive information about the applicant across factors like demographics, medical history, financial information, occupation details, etc. Next, intensive assessment is done on potential mortality, morbidity, or liability risks, as the case may be for products like life, health, or casualty insurance. 

Using vast data repositories and predictive analytics, underwriters classify applicants under standard and sub-standard risk categories. After that, commensurate premium rates are decided based on aggregate past experiences of each risk class. 

The final output of underwriting procedures includes the all-important decision of whether to approve or decline coverage to the applicant, along with appropriate riders and exclusions if policy issuance is warranted. Moreover, In the insurance industry, companies employ various types of underwriting in insurance processes to evaluate and categorise risks when applicants seek new policies.

Functions of Underwriters

Underwriters have specialised expertise within specific insurance lines, leveraging data analytics, medical knowledge, statistical modelling, actuarial science principles, and strong business acumen.

  1. Evaluating Risk Exposures

Gather extensive information per applicant across domains like health histories, age, financials, driving records, hazardous avocations, foreign travel or residences, etc. Assess results against established underwriting requirements.

  1. Assigning Risk Classes 

Determine appropriate premium rates by classifying applicants under standard or substandard risk categories based on assessments. 

  1. Recommending Approval or Decline  

Decide whether the risk exposure is acceptable and, if yes, under what appropriate terms. Recommend approval, postponement or decline actions, providing clear justifications.

  1. Negotiating Coverage Terms

Propose suitable restrictive riders to offset risks if warranted rather than outright declination. For example, excluding pre-existing illnesses under health insurance for limited periods.

  1. Monitoring Trends

Keep updating underwriting guidelines and pricing models based on portfolio experiences and changes in applicant mix, economic factors, competition, etc. Fine-tune risk classification norms accordingly.      

Key Factors Considered

Underwriting involves holistic evaluation of various factors with varying relevance across product lines.

  • Age: Advanced age heightens risks of health issues and mortality, leading to cautious underwriting. Premium costs by age bands differ, reflecting rising anticipated claims. 
  • Lifestyle Habits: Tobacco usage elevates numerous health hazards. Alcohol consumption beyond moderation can indicate impaired judgement and risk exposures. Drug use and dangerous hobbies like skydiving or auto racing also raise red flags.
  • Family History: Genetic predispositions to diseases like cancers, heart problems, etc, necessitate a deeper assessment of hereditary risks.
  • Residences and Travels: Frequent foreign travel or living in regions with high illness rates or terror risks impacts insurability.
  • Financial Profile: Income levels, unstable earnings, heavy debts, priors, bankruptcies, etc., influence insurance affordability. Lawsuits or regulatory infractions may also signal future reliability concerns.
  • Occupation Hazards: High-risk jobs like mining, law enforcement, offshore workers, etc., entail greater accident and health complications. Stress factors are also considered. 
  • Driving Violations: Multiple speeding tickets, license suspensions, accident convictions, etc., within short periods, indicate higher loss likelihoods for motor insurance or mortality risks.  
  • Health Histories: Existing conditions, prescription drug usages, prior procedures, hospitalisations, etc., compiled from physical exams, lab tests, attending physician records, etc., provide deep insights on clinical risks.

Strategies for Favorable Underwriting Outcomes

While underwriting decisions involve seemingly endless information gathering and evaluations against pre-set standards, you can improve your chances by:  

Selecting Suitable Carriers

Research insurers thoroughly, as underwriting requirements differ. Compare declination and premium rates across products. Apply with carriers aligned to your risk profile.

Applying at Early Ages

Procure insurance when younger as health changes with advancing years, leading to waning insurability even if previously covered. Lock in lower premium rates for longer durations by starting early before drastic premium hikes hit.

Optimising Lifestyles

Adopt healthier regimes minimising smoking, unsafe behaviours, and harmful consumption early since underwriters assess past histories typically spanning 1-2 years or more.

Bundling Covers

Offsetting risks through relevant supplementary products opens doors. For example, pairing critical illness plans with life insurance proposals.

Using Specialist Agents

Work with the right agents experienced in tricky cases and can steer your application effectively by highlighting positives and navigating negatives. Check their declined application ratios as good markers of expertise. 

Appealing Decisions

Provide strong evidence with your appeal if your application gets initially denied. This may include updated medical examinations, financial proofs, etc. Specialist agents can advise further here as well. 

Seeking Rapid Underwriting

Leverage accelerated underwriting innovations involving predictive analytics, digital data integration, etc., where possible for quicker decisions. Useful when needing insurance rapidly or to avoid exhaustive paperwork.


Insurance underwriting has evolved from vague, mysterious gate-keeping thwarting access to sophisticated data-driven risk filtering for fairer premiums and expanded coverage. While underwriters will continue scrutinising our lives intricately, we have far greater methods to navigate the system successfully. By carefully selecting carriers, optimising risk profiles and working with experts, underwriting can unlock the critical financial security insurance provides rather than hinder it.


How long does the underwriting process take?

It varies but usually takes a few days to a few weeks. It depends on the complexity of the case and how quickly you provide the needed information.

Why is underwriting necessary?

Underwriting helps financial institutions manage risks. It ensures they lend money or provide insurance to people who are likely to fulfill their obligations.

How does loan underwriting work?

Loan underwriting checks if you qualify for a loan. It looks at your credit history, income, and other financial details to make sure you can repay the borrowed money.

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