When it comes to insurance, you have probably heard and read the term underwriting. If you have wondered what it means, don’t worry; you’re not alone. Underwriting is the process insurance companies use to determine the risks of insuring a small business. It involves determining whether the company poses an acceptable risk. Read more below to know more:
Underwriting in Insurance
Underwriting is central to all forms of insurance—it involves individuals or companies transferring their risks to an insurance company. Conversely, the insurer will charge a fee to provide financial assistance in case of loss.
Before an insurance policy is provided, insurance companies must first understand the nature and scope of the level of risk they’re taking on. This is where underwriting comes to play. The process applies to various forms of small business insurance, such as:
- General liability insurance
- Commercial auto insurance
- Business Owner’s Policy (BOP)
- Umbrella/excess liability insurance
How It Works
As mentioned, underwriting is a method that assesses the factors to determine the potential client’s risk profile. Several factors are taken into consideration here, such as:
- Business type
- Business age
- Financial characteristics (size, sales, assets)
- Prior financial behavior
- Property condition
- Prior insurance claims
- Safety/Security systems
- Loss-prevention practices
Your underwriter is the one responsible for managing the insurance underwriting process. Now, once the underwriter understands the factors listed above, they will determine whether your business has risk factors that affect desirability as a buyer of a specific insurance type.
In the case that the analysis didn’t go well, the underwriter may offer you other options that will take the risk out. For example, your underwriter may suggest amending the coverage by endorsement to prevent you from filling specific kinds of claims.
Underwriter vs. Insurance Agents/Brokers
Since we’re on the topic of underwriting, you might also have questions about the role of an underwriter, and you might also wonder why you can’t hire an insurance agent or broker instead to do the job.
This is because an insurance underwriter has a different specialization that makes him or her necessary to the process. Underwriters’ main task is to create the underwriting system that determines to whom an insurance company will provide coverage. On the other hand, insurance agents or brokers are the field representatives of the system.
An insurance agent or broker will help you understand the insurance types you may qualify for. They will also help you through the process of getting insurance, such as filling out the forms, educating you about the insurance you purchased, and negotiating with the underwriters. Insurance brokers will also help underwriters interpret information about your business.
Conclusion
Now that you know what underwriting is and its role in insurance, you have a better understanding of how it works and why you need to interact with them through the process. We also explained the difference between underwriters and insurance agents/brokers. Keeping yourself informed and educated when it comes to insurance will help you get the best one for your company.
Have questions about commercial insurance? Quesurance helps businesses in Hopatcong and the surrounding New Jersey communities reduce risk and find the best insurance companies. Let us help you today!
