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Auto Insurance Policy Underwriting Basics

In a very general sense, underwriting is the process of evaluating, defining, and pricing insurance risks. It also includes decisions based on this process to reject taking on such risks. Many consumers do not even realize that at some point in the process, their auto insurance policies are looked into by an underwriter, and sometimes multiple underwriters. Underwriting is a very important part of the insurance process as a whole. As a customer, you can benefit from having a broader understanding of what underwriters do in the insurance process. Such knowledge can help you anticipate what they might be looking for, and work to improve your chances over time of qualifying for more affordable coverage.

Insurance is Based on Risk

Auto insurance, like all insurance forms, is based on risk and the assumption of that risk. In making the choice to take you on as a customer, an insurance company is essentially choosing to take on some of that risk on your behalf. Any time you drive an automobile, or even when you just park a car and walk away from it, you are taking a risk. By carrying an auto insurance policy on that vehicle, you are assigning some of that risk to your insurer.

For example, when you get in your car and drive to work each morning, you might use back roads or highways, but regardless of the route you take, you are exposed to risk just by operating the automobile. Any number of things could, happen, up to and including a serious accident involving other vehicle and property. When you enter into an auto insurance coverage agreement with an insurance provider, the company is taking the responsibility of paying for any damages covered by the plan they sell you, so you don't have to. They are taking on some of your risk in allowing you to become their customer.

Car insurance companies agree to take on that risk in exchange for charging customers premiums and setting deductibles in their policies. If they make the mistake of selling policies too cheaply, they will lose money over the course of time by paying out more in claims than they take in through premium payments, and they will eventually go bankrupt or out of business at the very least. If, on the other hand, they charge too much for auto insurance coverage, customers will go elsewhere for their auto policies, and the companies overcharging will lose their customer base, and again very likely go out of business.

Importance of Insurance Underwriting

All this is the reason why the task of underwriting is so important. Achieving a balance between price competitiveness and profitability is a difficult undertaking, but underwriters are charged with just that sort of responsibility in the work they do each day. Insurers obviously want to stay in business and do everything they can to remain price competitive. It is clear enough to any observer that underwriting and the specific work that underwriters do is very important to auto insurance providers themselves.

But it is also important to customers, though many of them do not know it. Whether or not you are even aware of the work an insurance underwriter does in behalf of your policy, it shapes everything from the price you pay to the very question of whether or not you qualify for coverage. The underwriter's findings, not some secret magic formula, will determine the rates you pay for coverage. They even have a great deal of sway over whether you might be denied for coverage for one reason or another. The importance of the work of the underwriter is manifest when you receive quotes back for coverage from different companies. The prices you see will largely be based on the research the underwriters did to dig up information about you as a potential customer.

If you get denied for coverage by any particular auto insurance provider, that denial makes the rounds, not existing merely in a vacuum in your interaction with that specific company. Denials stay with you, appearing as a mark on your insurance record. If one underwriter decides not to approve you for a policy, others are more likely to follow suit because they will take a closer look at your candidacy based just on that first denial. You can get turned down for coverage even simply based on a mistake or discrepancy on your application, so take the paperwork seriously and complete it neatly and accurately, never leaving a line blank or a question unanswered.

While you are certainly free to go ahead and apply with any other company if one particular auto insurance provider declines to offer you coverage, it is clear the effects of a denial follow you around wherever you go for an extended period of time. So take the time and care to get to know what auto insurance underwriters are looking for, and do the best you can to provide exactly that. But do not falsify information or mislead underwriters in your application: this kind of action will do much more harm than any possible good. They generally find out the truth, so it is good to be honest in order to paint yourself in the best possible light as a prospective customer.

Underwriting is no small task, nor is it a job just anyone could handle. Underwriters are highly trained to understand the process of classifying, rating and selecting risks on behalf of the insurance providers for whom they work. In other words, in a lot of ways the work of underwriters drive many of the decisions made by auto insurers (as well as insurers in all different areas of coverage).

Factors Underwriters Take into Consideration

An underwriter's duty is to objectively take into consideration all available pertinent pieces of information they can gather from multiple sources to make a suitable determination on whether or not to accept an applicant for coverage. The level of tolerable risk an underwriter will accept is closely tied in to the types of customers the insurer is looking to attract. A mainstream provider seeking preferred-class drivers would expect different decision-making standards from their underwriters than would a non-standard or high-risk specialist.

One of the major factors all underwriters look into is your driving record. Any claims history you might have will also be examined, as well as a host of other factors including your credit-based insurance score, a score derived from your credit rating. Credit-based insurance scoring seeks to use credit information from customers to predict the likely frequency and costs of their future claims. Aside from these major factors, there are others as well. Underwriters also verify all the information provided on the application form, so again, it is important to be forthright and thorough in filling out these forms and completing your application for auto insurance coverage.

Auto insurance underwriters are a largely unknown group of workers, but the work they do is vastly influential as it pertains to both the acceptance and rejection of applicants for coverage and the setting of policy pricing for those who do qualify. Learn more about the auto insurance underwriting process and maximize your chances for approval.


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