Your car insurance employs a person called an underwriter. This employee plays a crucial role in the claims process. Today, we’re explaining exactly what an auto insurance underwriter does.
How Insurance Underwriting Works
Underwriting 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 risk. Then, the insurance company charges you a premium based on your risk factor.
In many cases, the “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.
What Does an Auto Insurance Underwriter Do?
Generally, an auto insurance underwriter calculates risk. Some of the specific roles they perform include:
- Review information from the customer’s application to determine the actual risk of insuring the customer
- Determine the type of policy coverage to offer the client, including which incidents are covered and under which conditions
- Alter or restrict coverage using an endorsement (a special insurance policy provision that overrides other policy information)
- Negotiate with your agent or broker to add or remove certain policy coverage options
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. 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.
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 before
- There were issues processing your payment or verifying part of your record
What’s the Difference Between an Auto Insurance Underwriter and an Agent or Broker?
There are multiple groups involved with the car insurance purchasing process, including auto insurance 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.
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.