What is meant by 'underwriting' in insurance?

Underwriting in insurance refers to the process of evaluating the risks associated with insuring an individual or entity and determining the terms and conditions of coverage. This involves analyzing various factors such as the applicant's health history, lifestyle, financial stability, and other relevant risk factors that may affect the likelihood of a claim being made.

The underwriter uses this information to assess the level of risk posed by the applicant and to decide how much coverage to offer and what premium should be charged. This step is crucial for insurers as it helps them maintain financial stability by ensuring that they are charging appropriate premiums that reflect the risk involved.

By evaluating these risks accurately, underwriters help protect the insurance company from unforeseen losses while providing policyholders with the coverage they need. Hence, this process is fundamental to the insurance sector, laying the groundwork for both risk management and pricing strategies.