What does the term 'underwriting' refer to in insurance?

The term 'underwriting' in insurance primarily refers to the evaluation and selection of risks to insure. This process is crucial as it involves assessing the potential risk presented by an individual or entity seeking coverage and determining the terms under which that coverage will be offered. Underwriters analyze various factors, including the applicant's history, the nature of the risk, and statistical data, to decide whether to accept the risk and at what premium.

Understanding underwriting is essential because it ensures that the insurer maintains a profitable portfolio by matching risks with the appropriate coverage and rates, making it pivotal to the insurance industry's sustainability. This assessment helps mitigate potential losses and ensures that insured individuals are appropriately priced based on their risk profile.