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What Is an Underwriter, and What Do They Do?


Underwriting is a common practice used in the commercial, insurance and investment banking industries. An underwriter typically works for mortgage, loan, insurance or investment companies. During the underwriting process, they do everything from evaluate your health to assess your financial status. Based on their findings, underwriters help companies determine if they should take on an applicant’s contract or not based on their associated level of risk.

If you’re considering a new life insurance policy, it might be a good idea to consult with a financial advisor.

What Is an Underwriter?

An underwriter is a member of a financial organization. They work for mortgage, insurance, loan or investment companies. They assess, evaluate and assume the risk of another party for a fee. Often, you’ll see this fee in the form of a commission, premium, spread or interest. At any rate, if you’re working with an underwriter, you’re most likely seeking approval for a large purchase or insurance coverage.

Each industry has their own underwriters and these individuals must understand the intricacies of their specific field. They use their knowledge and expertise to best asses the risk of an applicant. Underwriters determine if giving a loan or issuing an insurance policy will work in favor of their company. However, if the contract turns out to be too risky, the underwriter is accountable for the loss.

Most underwriters have a bachelor’s degree and have completed a training program. Typically, they have an academic major within their industry of specialization. Common majors include finance, business and economics.

What Does an Underwriter Do?

Using the knowledge they have in their field, underwriters decides if a contract is worth the risk. For example, underwriters who work with health insurance companies evaluate the health risk of applicants.

The underwriter will review the applicant’s information including age, current health condition and past medical and family history. Using this information and other factors, an underwriter will enter the data into underwriting software. The software will determine the premium amount and terms they should apply to the policy. Also, this assessment determines if the policy is too risky to move forward.

The information provided to various underwriters is subject to the specific case. For example, an underwriter for a health insurance company will review medical details, while a loan underwriter will assess factors like credit history.

An underwriter’s job is complex. They have to determine an acceptable level of risk and what’s eligible for approval based on their risk assessment. When assessing complicated situations, underwriters may need to conduct research and acquire a large number of details.

Examining the Different Types of Underwriters


Insurance Underwriter

Insurance underwriters asses the risk of insuring a home, car or driver. They also assess individuals who are applying for life insurance policies. Insurance underwriters determine if the contract is profitable for the insurer. They consider if the applicant meets certain criteria to qualify for an insurance policy. From there, they establish the type of policy for which an applicant is eligible. Finally, they provide an outline of what the policy covers for the applicant’s unique circumstances.

Insurance underwriters are insurance professionals. They understand insurance risks and how to avoid them. They use their risk assessment to decide if they will insure someone and under what terms they’ll provide a policy.

In cases without special circumstances, underwriting is done through an automated system. Underwriting programming is similar to a quoting system. It’s able to determine if an applicant meets the insurer’s specific requirements for coverage.

Mortgage Underwriter

Mortgage underwriters are some of the most commonly used underwriters among the loan industry. Even if a new homeowner has a good income and great credit score, buying a home is still a risky endeavor. A mortgage underwriter must do a thorough risk assessment. Once an assessment is done, the underwriter can confirm if the loan is a manageable undertaking for the applicant.

At any rate, underwriters may review internal information such as the number of mortgages the company has given out. They also review an applicant’s credit score and history, proof of steady income, debt-to-income ratio, overall savings and other important factors that determine their risk.

Additionally, the underwriter will assess features in and outside of the mortgage applicant’s control, such as the value and type of property. This helps determine if the mortgage terms are fair for all parties.

If an underwriter denies the mortgage, the applicant can appeal the decision. However, the process can be lengthy and often requires a large amount of evidence to be overturned.

Loan Underwriter

Similar to mortgage underwriters, loan underwriters asses the risk involved in lending an applicant a loan such as an auto loan. The objective is to determine if the loan is safe for all parties. Large banks often use a combination of underwriters and underwriting software to determine the risk of lending funds to an applicant. Using the combination of software and an underwriter is a common practice among big and small banks.

In some cases, underwriters may need to assist financial institutions with underwriting for business loans. Depending on the size of the business, an underwriter may need to work with multiple banks.

Securities Underwriter

A securities underwriter is a different type of underwriter. Securities underwriters often work with initial public offerings (IPOs). They asses the investment’s risk to determine an appropriate price for an IPO. Typically, a securities underwriter is an employee of the investment bank or another specialist.

One of the biggest risks involved with securities underwriting is the sales period. For instance, if a security doesn’t sell for the suggested price, the investment bank is liable for the difference.

Underwriters vs. Agents and Brokers

When it comes to financial products that require the oversight of an underwriter, there’s usually also an agent or broker. They’re typically who you, the customer, will actually speak with. In basic terms, an agent or broker is simply a salesperson that sells you the product. They may also be responsible for relaying to you the underwriter’s final decision on your situation.

On the other hand, the underwriter has far more decision-making power. That’s because, as we state above, their evaluation of your application and financial situation ultimately determines if you receive approval or not.

In many cases, the broker or agent you’re dealing with will have a basic understanding of what the company’s underwriting policies are. During your conversations with them, they may provide you with some insight into what your likely outcome will be. While this is undoubtedly valuable, the underwriter, again, has the final say.

Bottom Line


Underwriters play a crucial role across many financial situations. The process of underwriting also has several complexities, all of which are based on how well the specifics of your finances line up with the company’s respective policies. Don’t be afraid to ask questions about the underwriting process during your talks with your broker, agent or the company in general. The more you understand about the entire process, the better off you’ll be in the end.

Loan and Insurance Tips

  • Consider consulting with a financial advisor before taking on an expensive loan or insurance policy. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • Be sure to learn how much home you can afford before securing a mortgage. Consider all of the various mortgage providers, too. With an appropriate budget in mind, you’ll be able to take on a mortgage with a monthly payment that fits your needs.
  • Compare insurance policies from various providers before making a final decision. Whether it’s health insurance, life insurance, car insurance or any other type, there are a variety of options to pick from. Take the time to find the one that’s right for you and your financial situation.

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