Unverified Domain 2: Underwriting
Official domain names are unverified; this section covers underwriting, a core insurance operations function. ### Underwriting process Underwriting selects and prices risks. The process includes gathering information (applications, inspections, loss runs, credit where permitted), evaluating loss frequency and severity, applying guidelines and authority limits, and documenting the decision. Pricing must be adequate, equitable, and not excessive; it must also avoid adverse selection and moral hazard. Underwriters can accept, modify (deductible, terms), or decline. Authority is capped by manual rules and referral thresholds. Quality reviews audit file documentation and adherence to guidelines. ### Worked example A property owner applies for a commercial building policy. The loss runs show a water-damage claim two years ago, and the building lacks automatic leak detection. The underwriter checks the manual: prior water loss within three years requires mitigation or a higher deductible. She requires leak detection and a $10,000 water-damage deductible, then documents the exception. The reasoning: guidelines exist to price predictable hazards; without mitigation, the risk is mispriced. ### Traps Candidates focus only on price and ignore moral hazard or adverse selection. Another trap is using prohibited factors such as race, religion, or national origin, which is unfair discrimination. Failing to document exceptions or exceeding authority also costs marks. ### Key points - Underwriting selects, prices, and documents risk decisions. - Use permitted information only; avoid unfair discrimination. - Apply authority limits and refer exceptions. - Address moral hazard and adverse selection explicitly. - Document every exception and rationale.