What Does an Underwriter Do? (Plus Types and FAQs)

By Indeed Editorial Team

Published 19 April 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

An underwriter examines insurance, mortgage, loan or securities applications to determine risk. They often base their assessment on a careful analysis of the applicant's data. If you're considering becoming an underwriter, it's helpful to understand what the role involves, so you can determine if it's suitable for your career goals. In this article, we answer the question "what does an underwriter do", explain how to become one and answer some frequently asked questions about the role.

What does an underwriter do?

Before applying for the job, it's important to understand the answer to the question "What does an underwriter do?". An underwriter is a professional who works in the healthcare, finance and insurance industries, performing assessments on insurance applicants to determine their eligibility for coverage. They act as the liaison between insurance agencies and companies to make sure that the company policies are upheld at every level.

Underwriters take on various responsibilities related to evaluating, assessing and assuming risk in their industry. Here are a few broad duties and responsibilities that underwriters across all industries have in common:

Gathering and interpreting data

One of the primary duties of underwriters is to gather and interpret data. They gather the data necessary to make an accurate assessment within their industry, such as the demographic information of the applicant and guarantors or the personal financial information or business financial information. They then interpret that data as it relates to risk.

Related: How to Become an Underwriter and What Underwriters Do

Using software to analyse data

Underwriters are skilled at using software commonly used in their industry. This can help them automate part of the assessment process. This is especially valuable for mortgage or insurance underwriters who often work through large volumes of applications each day.

Related: 16 Jobs for Analytical Thinkers (With Salaries and Duties)

Making informed assessments

Once they've gathered and interpreted all the data they need, underwriters make a final assessment. Typically, this assessment is in the form of a recommendation to either avoid risk or assume the risk. For instance, in the mortgage industry, they reject or approve an application based on the risk of the borrower failing to repay the mortgage. In the insurance industry, they may either reject or approve an application for coverage based on the risk of an applicant making a claim on the insurance.

Carefully preparing policies or terms and conditions

Underwriters can minimise some risks associated with various financial products through careful wording in the policies and terms and conditions that the buyer or applicant agrees to. They're responsible for making sure those agreements help to minimise risk to the financial institution as much as possible. Also, they're partially responsible for ensuring that all agreements adhere to any laws regulating that financial product. For instance, if an insurance policy doesn't meet certain legal standards, underwriters could rule the entire agreement invalid, potentially causing the financial institution to lose money on that policy.

Types of underwriters

Here are four types of underwriters and the unique responsibilities of each one:

Insurance underwriter

In the insurance industry, an underwriter assesses the risk that an applicant seeking coverage files a claim on their insurance policy. For instance, underwriters assessing a home insurance application often consider factors like the condition of the property, the natural disasters that can affect its value and the estimated cost of paying out the types of claims that the policy would cover. When making these assessments, underwriters often consider the laws that regulate the kind of insurance they cover.

Loan and mortgage underwriter

Companies often use underwriters for approving mortgages, as these are usually substantial loan amounts. They may also approve other types of loan applications, such as business loans, personal loans or auto loans. Their primary responsibility is to individually assess each application the financial institution receives for the risk that the applicant defaults on that loan. Depending on the amount of risk that the institution is willing to assume, they then recommend either rejecting or approving the loan application based on their risk assessment.

Although it's possible for a single underwriter to assess risk across a variety of loans, larger institutions may hire underwriters who specialise in particular loan types. This is because there are different risk factors to consider for different loan types. These factors may include government regulations, default risk and forecasting and predictions.

Equity underwriter

In an equity market, an underwriter acts as a financial expert who works with a company to issue stock and set the price of that stock. They're especially important in the initial public offering process (IPO) where previously private companies start to sell shares of their company on a public stock exchange. After the IPO, an underwriter continues to assist in the selling and buying of shares and ensuring that the organisation is compliant with all regulations.

Securities underwriter

Securities underwriters are somewhat similar to equity underwriters in that the former assist an institution in selling and buying debt securities. These securities may include corporate stocks, preferred stock, government bonds and other types of securities. The primary responsibility of this underwriter is to assess which securities to buy and estimate when and how to resell them at a profit to the company.

How to become an underwriter

To get hired as an underwriter, it's important to demonstrate an expert level of knowledge in the industry you want to work in and the analytic skills to make reliable risk assessments. Here are the steps you can take to gain that unique combination of skills and expertise.

1. Earn a bachelor's degree

Employers often require a bachelor's degree at a minimum. Consider earning a bachelor's degree in accounting, business or finance. If you already know exactly which industry you want to work in, taking specialised coursework related to that industry would also be an asset.

2. Obtain certifications

Employers rarely require certifications, but they highly recommend them, especially for entry-level candidates. There are several organisations that offer certification examinations in underwriting for specific industries. If you want to become a mortgage underwriter, a certification in mortgage underwriting can help you demonstrate your expertise, even if you don't have any professional experience yet.

3. Seek internships or trainee positions

Many companies offer specially designed positions for prospective underwriters with no prior work experience to gain on-the-job training. These positions often involve assisting a senior underwriter in assessing policies or applications. This allows you to learn both from watching an experienced professional and from doing some simple assessments yourself. If you're struggling to find a training or internship programme, consider applying for an entry-level position right after college.

Related: 10 Benefits of an Internship (Plus Tips for Getting One)

Frequently asked questions about underwriters

Here are the answers to frequently asked questions about underwriters:

What skills do underwriters need to perform their duties effectively?

Here are some of the skills necessary to succeed in the role:

  • Communication skills: Part of underwriters' research work involves communicating with clients, so it's important for them to speak clearly and ask the right questions in a professional and friendly manner.

  • Mathematical skills: While a computer performs most of the calculations involved in an application, an underwriter verifies the accuracy before making a decision. They often use probabilities and statistics when calculating an appropriate rate or determining the probability that the applicant files a claim.

  • Computer skills: As an underwriter, you may complete most statistical analyses using a computer, so it's important to have excellent computer skills. Consider mastering spreadsheet software.

  • Analytical skills: There are several factors that determine an applicant's risk. Analytical skills can help you examine each factor, assess it appropriately and make a decision.

Related: Hard Skills vs. Soft Skills: Key Differences and Examples

How much does an underwriter make per month?

Underwriters are usually full-time, salaried professionals. The average salary of an underwriter is $40,644 per month, but this amount may vary depending on several factors, including your years of experience, level of education and employer. You may also earn more annually in cash bonuses and have eligibility to receive employee benefits, including health insurance, life insurance and annual leave.

Related: What Is the Difference Between Gross and Net Salary?

What does the work environment of underwriters look like?

Underwriters usually work in an office setting. They usually work regular business hours with occasional overtime. They sit for long periods of time while working at a computer, either analysing or entering data. Underwriters often interact with agents, either via email, over the phone or in person. It's also possible for them to travel to attend meetings. They often work within financial services, such as an investment company, insurance agency, credit union or a bank.

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