Underwriting

Category: Underwriting practice · Reviewed by Matt Bartlett, Director · Founder · Last reviewed

Underwriting is the process by which an insurer evaluates a presented risk, decides whether to accept it, on what terms, at what price and with what conditions. The word originates from 17th-century Lloyd’s coffee-house practice: insurers signed their name under the description of the risk on a marine slip.

Steps in a commercial underwriting decision

1. Receive submission — broker presentation of the risk via slip, e-trade platform or proposal form.
2. Triage — fit with appetite, capacity available, conflict checks.
3. Risk evaluation — analysing exposure, loss history, controls, financials.
4. Pricing — applying technical models, schedule rating, market view.
5. Structuring — limits, retentions, sub-limits, conditions, warranties.
6. Reinsurance check — ensuring inwards risk fits within outwards reinsurance.
7. Decision — accept, decline, refer, modify.
8. Quotation — communicated to the broker.
9. Bind — on instruction; issue of cover note and policy.

Legal foundation in the UK

• Insurance Act 2015 — duty of fair presentation; remedies for breach.
• Marine Insurance Act 1906 — still the foundational statute for marine and (by analogy) other classes.
• Consumer Insurance (Disclosure and Representations) Act 2012 — consumer equivalent.

Underwriting profitability

A line is profitable when premium and investment income exceed expected claims, expenses and the cost of capital. The headline measure is the combined ratio — a combined ratio below 100% indicates a technical underwriting profit before investment return.

References

• Lloyd’s. Underwriting Standards.
• Insurance Act 2015.
• IFoA. Practical Guide to GI Underwriting.

Cross-references

• Underwriter
• Insurance underwriting cycle
• Underwriting profit
• Combined ratio underwriting

Maintained by Matt Bartlett, Director, Apex Insurance Brokers Limited. FCA FRN 724952. Companies House 07014570.