What is Underwriting?

Learn the ins and outs of insurance underwriting.

When you submit an insurance claim—whether for a fender bender or a flooded basement—you expect your insurer to keep its promise and pay for your loss. Underwriting is a risk evaluation process that helps an insurance company remain fiscally strong, so that when life throws you a lemon, your insurer has the funds to swing into action and pay your claim.

What does an insurance underwriter do?

Think of it like this: When you’re walking out the door in the morning, you need to assess the risk of rain so you can decide whether or not to grab your umbrella. Underwriters at insurance companies also assess risk, but they ramp it up to ninja level. They look at loads of data and use complex formulas and software programs to decide whether to sell someone a policy and how much to charge for that policy. The riskier someone seems, the higher their rate will be. These folks work behind the scenes, so as a customer, you’ll never interact with an underwriter (unless you bump into one at a party, at which point you can dazzle them with your newfound knowledge of underwriting).

Insurance underwriters spend a lot of time calculating odds. If an auto insurance company decided to specialize in covering only reckless drivers (high risk), it would likely pay too many claims and would soon be out of business. On the other hand, if an insurer played it safe, turning down anyone who’d ever had an accident, it wouldn’t be able to sell enough policies to stay in business. So it’s all about balance.

Did you know? The term “underwriting” is believed to have been coined by Lloyd’s of London, which has insured everything from soccer star David Beckham’s legs to the Titanic. Back in the day, the renowned Lloyd’s would have the customer write his name under the text describing the item or event that was being insured, hence the term!

How long does underwriting take?

The length of the underwriting process varies by insurance company. You can get an auto insurance quote pretty quickly (sometimes within 15 minutes), but the full underwriting process may take 30 to 60 days. If the underwriter then discovers traffic tickets or collisions, the quoted rate might change or the policy might be canceled. Homeowners insurance underwriting can also take up to 60 days, and could include a home inspection.

The availability, qualifications, and amounts of coverages, costs and discounts may vary from state to state and there may be coverages and discounts not listed here. In addition, other terms, conditions, and exclusions not described above may apply, and total savings may vary depending on the coverages purchased. For more information regarding your eligibility for certain coverages and savings opportunities, please contact your AAA agent. Insurance products in California offered by AAA Northern California Insurance Agency, License #0175868, in Nevada by AAA Nevada and in Utah by AAA Utah. Insurance provided by CSAA Insurance Group, a AAA insurer.