Insurance companies assume billions of dollars in risks each year by writing policies that transfer the risk of loss from their policyholders to themselves. Underwriters appraise and select the risks their company will insure. An insurance company may lose business to competitors if the underwriter appraises risks too conservatively, or it may have to pay more claims if the underwriting actions are too liberal.
Underwriters decide whether an applicant for insurance is an acceptable risk. They analyze information in insurance applications, reports from loss control consultants, medical reports, and actuarial studies reports that describe the probability of insured loss. They then decide whether to issue a policy and may outline the terms of the contract, including the amount of the premium. Underwriters frequently correspond with policyholders, agents, and managers about policy cancellations or other matters. On rare occasions, they accompany sales workers on appointments with prospective customers. (Life insurance agents and brokers are increasingly called life underwriters; they are included in the statement on insurance agents and brokers elsewhere in the Handbook.)
Most underwriters specialize in one of three major categories of insurance: Life, property and casualty, or health. They further specialize in group or individual policies. Property and casualty underwriters specialize by type of risk insured, such as fire, homeowner, automobile, marine, property, or workers' compensation. In cases where casualty companies insure in a single package policy, covering various types of risks, the underwriter must be familiar with different lines of insurance. Some underwriters, called commercial account underwriters, handle business insurance exclusively. They often evaluate a firm's entire operation in appraising its insurance application.
An increasing proportion of insurance sales are being made through group contracts. A standard group policy insures all persons in a specified group through a single contract at uniform premium rates, generally for life or health insurance protection. The group underwriter analyzes the overall composition of the group to be sure that the total risk is not excessive. Another type of group policy provides members of a group a labor union, for example with individual policies reflecting their needs. These generally are casualty policies, such as those covering automobiles. The casualty underwriter analyzes the application of each group member and makes individual appraisals. Some group underwriters meet with union or employer representatives to discuss the types of policies available to their group.
Underwriters frequently correspond with policyholders, agents, and managers about policy cancellations or other matters.
Underwriters have desk jobs that require no unusual physical activity. Their offices generally are comfortable and pleasant. Although some overtime may be required, the normal workweek is 35-40 hours. Underwriters occasionally may attend meetings away from home for several days. Construction and marine underwriters often travel to inspect work sites and assess risks.
Insurance underwriters held about 100,000 jobs in 1992. The following tabulation shows the percent distribution of wage and salary jobs by industry.
Total...........................................................100
Insurance carriers.............................................. 61
Fire, marine, and casualty insurance.......................... 40
Life insurance................................................ 14
Medical service plans and health insurance.................... 4
Pension funds and miscellaneous insurance..................... 3
Insurance agents, brokers, and service.......................... 32
Banks and credit agencies....................................... 5
Other industries................................................ 2
The majority of underwriters worked for insurance companies (or carriers). Most of the remaining underwriters worked throughout the country in independent agencies firms which represent one or more insurance companies and brokers firms which may deal with any insurance company but represent none. Small numbers of underwriters worked for banks, mortgage companies, and real estate firms.
Underwriters in the life insurance industry are most likely to work in an insurance company's home office. In some large agencies, underwriters help life insurance agents determine if the risk will be accepted or rejected by the home office. However, most regional life insurance offices deal predominantly with sales, not underwriting. Property and casualty underwriters also work in home offices, but more work for agencies or regional branch offices, where they have the authority to underwrite risks and determine an appropriate rating without consulting the home office.
For beginning underwriting jobs, many large insurance companies prefer college graduates who have a degree in business administration or finance, with courses or experience in accounting. However, a degree in almost any field plus courses in business law and accounting provide a good general background. Basic familiarity with computers is also needed.
Some companies also hire persons without a college degree for underwriter trainee positions. In addition, some high school graduates who begin as underwriting clerks may be trained as underwriters after they demonstrate an aptitude for the work. In the property and casualty industry, ratings clerks sometimes advance to underwriter jobs through their skill and experience in researching risk and setting rates.
Underwriter trainee or assistant underwriter is the typical entry-level position for this occupation. Beginners may help collect information on applicants and evaluate routine applications under the close supervision of an experienced risk appraiser. Property and casualty trainees study claim files to become familiar with factors associated with certain types of losses. Many larger insurers offer a training program, lasting from a few months to a year, that combines study with work. As trainees develop the necessary judgment, they are assigned policy applications that are more complex and have a greater face value. These often require the use of computers for more efficient processing.
Continuing education is necessary for advancement. Insurance companies generally pay tuition for underwriting courses that their trainees successfully complete; some also offer salary incentives. Independent study programs for experienced property and casualty underwriters are also available. The American Institute for Chartered Property Casualty Underwriters offers the designations Associate in Underwriting (AU), and Chartered Property Casualty Underwriter (CPCU). Earning the AU designation usually requires a year and a half and the completion of an examination covering course material. Earning the more advanced CPCU designation generally takes about 5 years, and requires passing 10 examinations covering such subjects as personal and commercial risk management, business law, accounting, finance, economics, and ethics. Although CPCU's may be underwriters, the CPCU is intended for prospective managers. An AU designation is sufficient for a career in underwriting.
Underwriting can be a satisfying career for persons who like working with detail and enjoy analyzing information. In addition, underwriters must possess good judgment in order to make sound decisions. They must also be imaginative and aggressive, especially when they have to obtain information from outside sources.
Experienced underwriters who complete courses of study may advance to chief underwriter or underwriting manager. Some underwriting managers are promoted to senior managerial jobs.
Employment of underwriters is expected to increase about as fast as the average for all occupations through the year 2005. Most job openings, however, are expected to result from the need to replace underwriters who transfer to other occupations or stop working altogether.
A number of factors underlie the continuing need for underwriters. Shifts in the age distribution of the population will result in an increase in the number of people who assume career and family responsibilities. People in this group have the greatest need for life and property and casualty insurance. A growing demand for insurance coverage for working women also is expected. In addition, expanding long-term healthcare and pension benefits for retirees an increasing proportion of the population will increase underwriting requirements. Growing concerns for financial security and liability should also contribute to demand for more insurance protection for homes, automobiles, pleasure craft, and other valuables. New or expanding businesses will need protection for new plants and equipment, product liability, and insurance for workers' compensation and employee benefits.
On the other hand, the trend toward self-insurance is expected to lower the demand for some property and casualty underwriters. Businesses who self-insure set a rate for their own company and pay premiums into a reserve fund. Additionally, many property and casualty companies are foregoing personal lines of insurance especially automobile and concentrating on commercial lines of business. Demand for health insurance underwriters should be lower if national health insurance legislation reduces insurers' freedom to refuse coverage to high-risk individuals. Underwriters specializing in one particular area of insurance may find it difficult to transfer to another type of insurance if their jobs are threatened.
Since insurance is usually regarded as a necessity, regardless of economic conditions, underwriters are unlikely to be laid off because of a recession.
The following tabulation shows the median salaries of casualty and property underwriters in 1991, according to a survey by the Alliance of American Insurers in collaboration with the American Insurance Association and the National Association of Independent Insurers.
Underwriters of personal lines
Entry level................................................$25,000
Intermediate level........................................ 32,200
Senior level.............................................. 40,400
Supervisor................................................ 45,300
Manager................................................... 61,000
Underwriters of commercial lines
Entry level...............................................$28,000
Intermediate level........................................ 32,800
Senior level.............................................. 40,600
Supervisor................................................ 45,500
Manager................................................... 61,000
Most insurance companies have liberal vacation policies and other employee benefits. Almost all insurance companies provide employer-financed group life and retirement plans.
Underwriters make decisions on the basis of financial data. Other workers with the same type of responsibility include auditors, budget analysts, financial advisors, loan officers, credit managers, real estate appraisers, and risk managers.
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Reprinted with Permission of U. S. Department of Labor