What does underwriting refer to in the insurance industry?

• A. The process of selling insurance policies
• B. The evaluation of risk and determination of coverage terms
• C. The assessment of claims submitted by policyholders
• D. The method of calculating policyholder premiums

Answer: (B)

Underwriting in the insurance industry is fundamentally about evaluating risk and determining the terms of coverage. This process involves analyzing various factors related to the applicant—such as their health, lifestyle, occupation, and even geographical location—to assess the likelihood that a claim will be made. Underwriters use statistical data, actuarial science, and their professional judgment to decide how much risk the insurer is willing to accept and under what conditions.

This assessment is crucial because it helps insurance companies maintain financial stability while offering competitive policies. By understanding the risk associated with insuring an individual or entity, underwriters can set appropriate premiums, including exclusions and limitations in coverage, ensuring that the insurer can cover potential claims effectively.

Other options provided do not accurately define underwriting; selling insurance policies pertains more to sales or marketing activities, while assessing claims relates to claims processing. Calculating premiums follows the underwriting phase and is based on the risk evaluation but is not the same as underwriting itself.