April 16, 2024
The central part of the insurance business is underwriting. Underwriting is a process, by which an insurer decides whether to accept a proposed risk or not – if the risk is accepted, the insurer needs to fix the price and terms. The person, who deals with matters of underwriting, is referred to as an underwriter.
In essence, by nature of their business, underwriters are the hub of an insurance company – they can make or break an insurance company. There is a joke that circulates in insurance that underwriters are ‘gate-keepers’ of an insurance company akin to bouncers at a get-together party. Surely, you know what bouncers are capable of doing – don’t you?
An insurance underwriter differs from that in the equity market. In the capital market, an underwriter is one, who undertakes to buy up excessively issued shares to ensure that the issuing company raises the target amount of capital. The common denominator between the two is that their business involves taking risks.