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What Is an Underwriter and What Do They Do?

What is an underwriter?
What is an underwriter?

Underwriting is a common practice used in commercial, insurance and investment banking. Underwriters work for mortgage, loan, insurance or investment companies and do everything from evaluating your health to assessing your financial status. Based on their assessment, underwriters help companies determine if they should take on an applicant’s contract or not based on that applicant’s risk.

If you’re considering a new life insurance policy or you’re interested in purchasing a home, understanding the role of an underwriter is vital. Here’s a breakdown of the role and responsibilities of an underwriter.

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 Are the Responsibilities of an Underwriter?

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.

Types of Underwriters

What is an underwriter?
What is an underwriter?

Once you understand the role of an underwriter, it’s important to identify the common financial fields where you’ll interact with them. Here are a few of the main industries where you can expect to work with underwriters.


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 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.


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.


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 an outsourced 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.

The Bottom Line

What is an underwriter?
What is an underwriter?

Underwriters play a crucial role in many financial situations. The process of underwriting also has several complexities. Therefore, the more questions you ask, the better you’ll understand the process and requirements for coverage and approval before finding the best insurance policy or loan available.

Tips on Applying for a Loan or Insurance

  • Consider working with a financial advisor to better understand your specific financial situation before taking on a loan or insurance policy. Finding the right financial advisor that fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in five minutes. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now.

  • Learn how much house you can afford before securing the right mortgage. Consider all of the various mortgage providers, too. With the right 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 another type, there are a variety of policies available. Take the time to find the one that’s right for you and your financial situation.

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The post What Is an Underwriter and What Do They Do? appeared first on SmartAsset Blog.

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