What is the purpose of underwriting in insurance?

The purpose of underwriting in insurance is to evaluate risks and determine appropriate policy terms. Underwriting involves assessing the likelihood of claims based on various factors related to the insured party or property. This assessment helps insurers establish the coverage limits, terms, and pricing for a policy. By carefully analyzing risk factors such as health history in health insurance or driving records in auto insurance, underwriters can make informed decisions about whether to insure a particular individual or asset and under what conditions.

This process is crucial for maintaining the financial stability of insurance companies, as it allows them to appropriately balance risk and profitability. The result is a tailored policy that reflects the risk profile of the insured, ensuring that both the insurer and the insured are adequately protected.