What does it mean to underwrite a risk?

Underwriting a risk involves evaluating the details of a potential insurance applicant and deciding whether to accept or decline their application for coverage. This process typically includes assessing factors such as the applicant's history, the nature of the risk they present, and any related data that could influence the likelihood of a claim.

Successful underwriting ensures that the insurance company maintains a balanced risk portfolio by selecting applicants whose risk profiles align with their underwriting guidelines. This decision-making process is fundamental to the insurer's ability to price policies accurately and manage overall risk exposure. Thus, choosing to evaluate and decide on the eligibility for insurance accurately captures the essence of what underwriting entails.