What Is an Underwriter & What Do They Do?

Underwriters evaluate risk for insurance companies and loan providers. 

If you’ve tried to get a loan or an insurance policy recently, you know how stressful it can be to try and get approval. Mortgage applications and insurance policies have to go through rigorous processes to get approval. So just who is behind the scenes deciding whether to approve these applications ? That would be an underwriter. 

What Is an Underwriter?

An underwriter is the party that assesses and evaluates the risk of a mortgage, loan, health insurance policy, or other investment and decides whether or not it is worth it for their company to assume that risk.

Underwriters are most common in environments that most consistently bring risk with them. If you as an individual are dealing with an underwriter, you’re likely dealing with a major life event—trying to get insurance for a major purchase, applying for a mortgage for a new home, or selecting a health insurance policy. Each risky industry has its own underwriters with a firm understanding of the specialized knowledge of that field, as well as a general knowledge of how risk works in finance.

What Do Underwriters Do?

Using a thorough knowledge of their field and available data and statistics, an underwriter determines if the inherent risk of a loan or policy is worth it to their company. Based on the degree of risk involved in the investment, an underwriter then decides how it should impact the deal, should it go through at all.

Say you are an underwriter for a health insurance company trying to determine whether to approve an policy and what sort of coverage should be offered. You would look into relevant information like the individual’s age, medical history, and family history. You would then enter this information into an underwriting software that would help you determine whether a policy should be offered and at what premium.

The specific information needed to make a decision varies based on the claim. Naturally, an underwriter for a health insurance company looks into medical history; an underwriter assessing the risk of a car loan, on the other hand, would look more closely at credit score and payment history, among other things.

Being an underwriter can mean walking a fine line. They can’t give out loans or policies to risky parties since it’s their employer that will be taking on that risk, but the degree of riskiness that is acceptable—and what an applicant can be offered based on their specific risk profile—is what the underwriter has to determine. Can the party receiving a loan to realistically pay it back? And if so, what interest rate would be needed to compensate the lender for the party’s default risk? 

Each case has a unique set opf details that must be assessed, especially in fields with more complex policies. Some cases are very simple and don’t require extensive analysis and research. Even in these cases, though, underwriters are still needed to help walk people through the loan and be available if sudden extenuating circumstances change the situation.

What Are the Different Types of Underwriter?

So what are these various industries underwriters can work in? What are these risky environments? Here are some of the more common forms of underwriters.

Mortgage Underwriters

Mortgage underwriters are among the most common types of loan underwriters. A mortgage for a house is inherently risky for the lender, even when lending to someone with great credit and high income.

Underwriters in the mortgage industry have to be incredibly thorough to make sure the risk they are taking on is not unmanageable, considering how many of the mortgages given out are, at minimum, above six figures. Credit score and history are factored into mortgage decisions, but there are many other factors that must be looked at as well. Is there verifiable proof of a job and steady income? How much debt does the mortgage seeker have compared to their income? 

Many factors, both in and out of the mortgage seeker’s control, must be looked into to ensure that the mortgage is fair for everyone involved.

Loan Underwriters

Though mortgage underwriters are the most common type of loan underwriter, other loans also require a party to evaluate risk. Auto loans and other personal loans are common, but banks also lend to other businesses, and each of these loan types may require an underwriter. 

Insurance Underwriters

Insurance underwriters are another particularly common group. They evaluate the risk profiles of individuals and businesses seeking various types of insurance in order to make approval decisions and determine premiums and policy details. Some insurance underwriters specialize in health insurance, while others specialize in life insurance, car insurance, or property insurance. 

Securities Underwriters

Securities underwriters frequently work with investment banks to help corporations facilitate initial public offerings (IPOs). They assess riskiness to help determine the appropriate share price price for an IPO, then they buy shares and offer them to the public. One of the bigger risks here is that if an IPO doesn’t create enough public interest, the facilitating investment bank may be stuck owning more shares in the underlying corporation than they anticipated. 

How Do You Become an Underwriter?

Underwriters are expected to have a bachelor’s degree, but most educationalinstitutions don’t offer programs specific to underwriting. Individuals interested in an underwriting career can choose from a number of relevant majors and courses. Finance, economics, business, and mathematics majors are common in the underwriting field. 

In addition to education in a related field, aspiring underwriters should have excellent computer proficiency and attention to detail, two particularly important elements of the uprofession.

Entry-level positions don’t usually require certifications aside from a relevantbachelor’s degree, but new employees typically receive extensive on-the-job training from their superiors as they train in their specialized field.

How Much Money Do Underwriters Make? 

Underwriter salaries vary considerably by state and specialty. That being said, the average salary for underwriters across a variety of fields is around $72,000, according to career website Indeed.com. As with most fields, salaries go up with experience 

According to Indeed, the top-paying cities for underwriters are New York, Chicago, Charlotte, Dallas, and Denver, with underwriters in New York reporting an average salary of around $109,000. 

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