July 24, 2010

Underwriting And How It Is Used In The Auto Insurance Industry

Insurance plays a vital role in protecting the interests of individuals and businesses. The first step in purchasing insurance is to get a rate quote. When you obtain auto insurance quotes, you'll find that costs will differ with the level of coverage you select. This is a reflection of the insurance underwriting process behind decisions on whether or not to offer coverage, at what level, and at what price.

Underwriting is the way insurers estimate their level of risk when insuring an entity. It's an essential component of the insurance industry because it's the method used to determine how much coverage to offer, at what price. Insurance underwriting for auto insurance quotes will take a variety of circumstances into account and come up with a policy that limits the risk of the insurer while meeting the needs of the insured. For instance, it's assumed an individual with a driving record filled with accidents or speeding tickets will continue to drive in a manner that results in accidents and speeding tickets. Since each accident involves the insurance company and costs them something because they must pay on the claim resulting from that accident, unsafe drivers are unattractive customers. To reflect his fact, the policy for that individual will cost more than the policy for an individual with a clean driving record.

Underwriting is also the basis for decisions on whether or not to include or exclude certain aspects of coverage. A result of this might be a higher deductible, or auto insurance quotes for a policy that will cover damage caused under one set of circumstance but not another. It's all going to be based on the risk/return ratio for the insurer. Taking on some clients at higher rates may be good business. Taking on too many can mean losses that will undermine the ability of the insurance company to pay on the other claims that come in.

Insurance underwriting involves a lot of calculations, but not all are made by hand for each specific customer or policy. Decisions for many types of insurance policies are made with the use of a computer model that takes the identified risks as inputs and uses them to calculate a risk profile. The risk profile is then used to determine auto insurance quotes that will minimize the impact on the company if that drive is insured and makes a claim. Different underwriters use different factors in their decisions. They also apply different weights to the variables. In the long run, the most successful insurers will be those with the most accurate underwriting methods and criteria.