What is Underwriting in Auto Insurance?

Insurance underwriting is a part of the policy application approval process that determines if a particular risk is acceptable to the company and how much premium to charge for it. Underwriters are tasked with the job of considering the risks based on insurers’ criteria and offering quotes to customers. In case of car insurance, it would be looking at the details provided in a quote form, determining if the drivers and vehicles are insurable and setting the price.

Vehicle insurance underwriters look at your age, gender, driving history, claims record, credit score, homeownership and marital status, zip code, insurance history, other drivers included, details of the vehicle and many more factors to determine the likelihood of you making a claim in the near future and calculate a fair premium for your risk profile. Evaluating the possibility of losing or making money from this applicant at the time of the first quote and renewal is a vital function of an underwriter.

Insurance is started as an idea to pool resources to pay for people who need financial aid. It is commercialised today and run by insurers. The underwriting process determines who can join the pool and how much they need to pay based on their likelihood of themselves needing compensation. Underwriting criteria constantly changes to adapt, improve and better price risks in order to make sure everyone pays their fair share.

Another important part of the work is carried out by insurance actuaries, who try to make sense of and run cost analysis of future uncertainties based on past events, statistics, theories and probabilities. They help insurance companies understand the potential risks and develop solutions to reduce likely costs by better predicting the losses.

How Does Car Insurance Underwriting Work?

Today, auto insurance companies use the calculations from actuaries, add their underwriting experience and come up with complex algorithms to take everything into account within seconds, price policies and deliver it to the customers automatically. If you are buying a non-standard policy, have too many claims or traffic tickets, you may be referred to an underwriter to consider your application. Otherwise, the process would most likely be completed by the computer program.

Underwriters keep checking and tweaking their underwriting criteria and car insurance rates in the background and still may have a final say on who gets accepted or cancelled once they complete their checks within the underwriting period allowed by the state, which is usually 60 days from the start of a new policy.

Within a year, your current automobile insurer may have added new measures, reduced the weighting of some of the factors and increased importance of certain details. That is why you need to keep checking the competitiveness of your renewal premium by getting multiple quotes and comparing them at least once a year.

Essentially, auto insurance underwriters consider the likelihood of an applicant making a claim that costs the company money. Based on that assessment, they calculate the premium they think will be sufficiently competitive to win the business but high enough to make a profit from this transaction.

It is nice to know how it works, what details are considered and who is involved in working out vehicle insurance premiums. However, you can only know the basic workings of it as insurers don’t share their calculation methods, weightings of the factors and rating structures. They guard it like a secret sauce.

So, all a motorist can do is get multiple auto insurance quotes from various companies, have a good look at the coverage offered, deductibles, liability limits and the final price to make their own determination as to which quote they will accept at the end. You can only work on the assumption that each underwriting team had a good look at the details you provided, considered everything and this is the best price they can offer you.