What does the term "underwriting" refer to in insurance?

Underwriting is a crucial process in the insurance industry that involves assessing the risk associated with insuring an individual or entity and determining the appropriate coverage terms and rates. This process ensures that the insurer can set premiums that accurately reflect the level of risk involved, thus making it sustainable to cover potential claims.

During underwriting, factors such as the applicant’s health, location, driving record, and other relevant information are analyzed. This comprehensive assessment enables the underwriter to make informed decisions about which applications to approve, the amount of coverage to offer, and the premiums to charge.

In contrast, selling insurance policies relates to the distribution and marketing aspect, paying claims pertains to the insurer's obligation to compensate policyholders after a loss, and determining policy exclusions involves specifying situations or conditions that are not covered by the insurance policy. While all these aspects are important in the insurance process, underwriting is specifically focused on evaluating risk and establishing coverage conditions and costs.