How does auto insurance underwriting work? [Complete Guide]

Auto insurance underwriters determine the risk for insuring a driver. Policy underwriting can take 30 to 120 days depending on the state. Look at company financial strength to determine your car insurer.

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Rachel Bodine graduated from college with a BA in English. She works as an associate editor and writer for 4autoinsurancequote.com for over a year and enjoys creating content that offers expert advice on car insurance topics.

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Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products including home, life, auto, and commercial and working directly with insurance customers to understand their needs...

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Reviewed byLeslie Kasperowicz
Former Farmers Insurance CSRhttps://res.cloudinary.com/quotellc/image/upload/insurance-site-images/4autoins-live/6ea5d860-leslie-kasperowicz.jpg

UPDATED: May 23, 2020

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Here’s what you need to know…

  • Car underwriters determine how much of a risk you are to the insurance company
  • They are the “behind-the-scenes” person who actually calculates how much your rates should be and if the company will even offer to insure you
  • Basic policies are sometimes written by an automated underwriting program

Your car insurance employs a person called an auto insurance underwriter. What does an auto insurance underwriter do? This employee plays a crucial role in the claims process.

Today, we’re explaining exactly what an auto insurance underwriter does and asking: how does car insurance underwriting work?

If you’re trying to save money on your auto insurance, you can get free quotes from multiple insurers using our free tool above.

What Does an Auto Insurance Underwriter Do?

What is an auto insurance underwriter? Generally, an auto insurance underwriter calculates risk, but what do auto underwriters do?

What exactly do auto insurance underwriters look for?  Some of the specific roles and functions of car insurance underwriters include:

  • Review information from the customer’s auto insurance application to determine the actual risk of insuring the customer
  • Determine the type of policy coverage to offer the client, including what auto insurance does not cover and under which conditions
  • Alter or restrict coverage using auto insurance endorsements (a special insurance policy provision that overrides other policy information)
  • Negotiate with your insurance broker or agent to add or remove certain policy coverage add-on options

FindLaw notes that insurance underwriters heavily rely on computer programs and their algorithms to evaluate what the driver’s risk will be to the insurance company, which is what determines policy rates.

An auto insurance underwriter is a trained professional. These professionals have years of experience assessing risk. They use this knowledge to determine whether or not to insure a driver.

What else do car insurance underwriters look for, and what is the main function of an underwriter? Underwriters determine how much of a risk a person or group will be to the insurer. Insurance companies are in the business of making money, after all. 

Is it in the insurance company’s best interest to offer insurance to this person? How much should we charge this person for insurance based on their risk? Car insurance underwriters work to answer these questions every day.

The rates they determine are based on a wide variety of factors, so your rates may not be the same as your friend who lives outside of the city.

But you can get a general idea with this chart, which shows average rates across the country.

Average Auto Insurance Rates in US
YearLiability Auto Insurance RatesCollision Auto Insurance RatesComprehensive Auto Insurance RatesFull Coverage Auto Insurance Rates
2015$538.73$322.61$148.04$1,009.38
2014$530.01$308.32$143.45$981.77
2013$517.88$295.27$137.77$950.92
2012$503.28$287.87$133.30$924.45
2011$492.03$284.60$131.80$908.43
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Things like your driving record, credit history, gender, and even your ZIP code affect how much you will pay. Your underwriter’s insurance rate determination will also change by company, as insurers determine their prices independently. 

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How Insurance Underwriting Works

Underwriting insurance is the process of evaluating the risk of insuring a driver and a vehicle. Before you get an auto insurance policy from an insurance company, the company needs to complete the underwriting process.

During the underwriting process, the company will analyze your vehicle, your driving history, and other information. Based on this information, the insurance company will be able to calculate your auto insurance risk. Then, the insurance company charges you a premium based on your risk factor.

In many cases, the “insurance underwriter” is just a software program. On standard car insurance policies, most underwriting can be performed automatically with underwriting software. For other policies, however, the underwriter might be human.

After determining risk, the underwriter sets a price and established the insurance premium. The driver pays the premium. In exchange, the insurance company takes on the risk of covering the driver.

All of this takes place behind the scenes at a car insurance company. After receiving an estimate online from GEICO, for example, you might proceed with buying your policy. Before the policy is finalized, however, an underwriter will verify the information you provided.

Insurance companies are for-profit organizations: the company is built to earn a profit. Underwriters help protect the bottom line of a car insurance company by accepting the right insurance customers at the right price.

The main questions an auto insurance underwriter needs to answer are: what is the likelihood that this customer will make a claim that costs our auto insurance company money? How much should we charge this customer to ensure we make a profit while still offering competitive prices?

Underwriters play a similar role in home insurance and health insurance: they work behind the scenes to calculate the risk of each policyholder.

As a customer, you should do your own research. These top insurers in the country have good ratings, as you can see below.

Top 10 Car Insurance Companies by Market Share
COMPANIESA.M. BEST RATINGDIRECT PREMIUMS WRITTENMARKET SHARELOSS RATIO
State FarmA++ (Superior)$41.9 billion17.01%63%
GeicoA++ (Superior)$33.1 billion13.41%71%
ProgressiveA+ (Superior)$27.1 billion10.97%62%
AllstateA+ (Superior)$22.7 billion9.19%56%
USAA (Military Personnel & Family Members)A++ (Superior)$14.5 billion5.87%77%
Liberty MutualA (Excellent)$11.8 billion4.77%62%
FarmersA (Excellent)$10.5 billion4.26%61%
NationwideA+ (Superior)$6.7 billion2.73%58%
American FamilyA (Excellent)$4.7 billion1.90%69%
TravelersA++ (Superior)$4.7 billion1.90%60%
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A.M. Best Ratings show the financial strength of a company. If you see a loss ratio within the optimum range of 45 to 75 percent, that’s probably a good sign.

This video talks a little bit more about A.M. Best Ratings.

Also, if customer service is something you highly value, you might want to look at the J.D. Power rankings, as they measure customer satisfaction for major insurers.

What about automated underwriting?

Some Auto Insurance Underwriting is Automated

If you have a standard car insurance policy, then your underwriting process may have been automated. A computer program might verify your information against public records, for example, before offering you a car insurance policy.

Most auto insurance providers rely on automated underwriting systems. These systems are similar to the online quote application forms you see on our website or on a car insurance provider’s website.

If you have a more complicated car insurance policy, then it’s possible an underwriter will get involved. A human underwriter might get involved in the following situations:

  • You have multiple claims or incidents on your driving record
  • You have never purchased car insurance to insure a new driver
  • There were issues processing your payment or verifying part of your record

If your policy gets flagged to be handled by an underwriter, it’s not a big deal. It just means it requires a little more effort than the computer can handle.

The Difference Between an Underwriter and Agent or Broker

There are multiple groups involved with the car insurance purchasing process, including auto insurance specialists like underwriters, agents, and brokers. These three parties might interact with one another regularly, but they all perform separate roles.

Think of the underwriter as the person behind-the-scenes. The underwriter receives an application and has to determine whether or not to offer car insurance to that person – and at what price.

The agent and broker, meanwhile, is the frontline salesperson: these are the people selling car insurance policies to customers.

Agents do not typically have decision-making authority. Agents can offer car insurance to clients who meet specific criteria. However, the agent is not typically able to alter the insurance policy outside of the boundaries of this agreement.

If a customer meets the basic criteria outlined in the underwriting manual, for example, then the customer might qualify for a car insurance policy immediately. However, the agent is not typically able to “bend the rules” and change your policy without first consulting the insurance underwriter.

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Conclusion on What Underwriters Do

Unless you’ve made a claim before, auto insurance can be a bit of a mystery. It’s easy to get confused about how everything fits together. The auto insurance underwriter, however, plays a crucial role in how auto insurance companies operate.

Enter your ZIP code below to get free quotes from multiple insurers and save money on your auto insurance.

Frequently Asked Questions

If we haven’t answered all your questions, take a look below at these additional underwriter FAQs.

How do you become an insurance underwriter?

What are car insurance underwriters’ qualifications? You’ll need to have a bachelor’s degree in order to become an insurance underwriter, with bonus points if it’s in business or finance. Study.com notes that underwriters need strong math and computer skills, be detail-oriented and be organized.

This video from State Farm talks about some underwriter requirements working at the company.

The job requires discretion with private information, as well.

Do insurance underwriters make good money?

The U.S. Bureau of Labor Statistics reports that insurance underwriters make an average of $70,020 per year, with an anticipated job decline of five percent between 2018 and 2028.

What are some insurance underwriter companies?

Every company that sells insurance — whether auto, life, home, or other — will probably have underwriters, including all major auto insurers you’re familiar with, like Geico and Safeco.

What are different types of underwriting in insurance?

There are several types of underwriting, including loan underwriting and securities underwriting. But, insurance underwriting is for auto insurance, and these underwriters draw up coverage policies.

How long does auto insurance underwriting take?

Each state sets limits on how long it can take to underwrite a new policy. These limits vary from 30 days to 120 days.

What are the principles of underwriting in insurance?

The Academy of Life Underwriting sets out a set of guiding principles that apply to all underwriters.

These include:

  • Act promptly and with good judgment
  • Follow risk calculation principles to be fair
  • Treat all information confidentially
  • Comply with all laws
  • Act fairly
  • Provide support to all partners
  • Endeavor to acquire professional designations in underwriting and continue learning the trade
  • Promote the further education of new underwriters
  • Maintain the reputation and dignity of professional underwriters

These are set out to guide the professional underwriter to be successful in their career.

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