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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 sometimes correspond with policyholders, agents, and managers about policy cancellations or other matters. On rare occasions, they accompany sales representatives on appointments with prospective customers. (Life insurance agents and brokers are increasingly called "life underwriters;" they are included in the section 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 application for insurance.
An increasing proportion of insurance sales, particularly in life and health insurance, are being made through group contracts. A standard group policy insures everyone in a specified group through a single contract at uniform premium rates. The group underwriter analyzes the overall composition of the group to ensure 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 have desk jobs that require no unusual physical activity. Their offices generally are comfortable and pleasant. Although some overtime may be required, underwriters generally work from 35 to 40 hours a week. They occasionally 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 96,000 jobs in 1994. The following tabulation shows the percent distribution of wage and salary jobs by industry.Total 100 Fire, marine, and casualty insurance carriers 38 Insurance agents, brokers, and service 31 Life insurance carriers 16 Pension funds and miscellaneous insurance carriers 4 Medical service and health insurance carriers 3 Other industries 8The majority of underwriters worked for insurance companies, often called "carriers." Most of the remaining underwriters worked throughout the country in independent insurance agencies-firms which represent one or more insurance companies-and brokers-firms which may deal with any insurance company and represent the interests of the buyers of insurance, known as "insureds". A small number of underwriters worked for banks, mortgage companies, and real estate firms.
Office underwriters in the life insurance industry are most likely to work in an insurance company's home office. In some large general agencies, underwriters help life insurance agents, or "producers", 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, most large insurance companies prefer college graduates who have a degree in business administration or finance, with courses or experience in accounting. However, a bachelor's degree in almost any field-plus courses in business law and accounting-provides a good general background and may be sufficient to qualify. Basic familiarity with computers is essential.
Beginners typically start as underwriter trainees or assistant underwriters. They may help collect information on applicants and evaluate routine applications under the supervision of an experienced risk analyst. 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 cover greater risks. 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 awards the designations "Associate in Underwriting" (AU), and "Chartered Property Casualty Underwriter" (CPCU). To earn the AU designation, underwriters complete a series of courses and examinations; it usually takes about two years to earn the AU designation. Earning the more advanced CPCU designation generally takes about 5 years, and requires passing 10 examinations covering personal and commercial insurance, risk management insurance, business law, accounting, finance, management, economics, and ethics. Although CPCU's may be underwriters, the CPCU is intended for everyone working in any and all aspects of insurance. An AU designation is the first, formal step in developing a career in underwriting.
Underwriting can be a satisfying career for people who enjoy working with detail and 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 senior underwriter or underwriting manager. Some underwriting managers are promoted to senior managerial jobs. Others are attracted to the earnings potential of sales and obtain state licensing to sell insurance and insurance products as agents or brokers.
Employment of underwriters is expected to change or grow more slowly than the average for all occupations through the year 2005. Most job openings 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. 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.
Employment of underwriters, however, is expected to increase more slowly than growth in demand for insurance. The trend toward self-insurance is expected to lower the demand for some property and casualty underwriters. Businesses that 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. The increased use of "intelligent" or "smart" underwriting software systems is also slowing the demand for new underwriters. These systems automatically analyze and rate insurance applications, then accept or deny the risk without human intervention.
Underwriters specializing in one particular area of insurance may find it difficult to transfer to another type of insurance if their jobs are threatened. Because insurance is usually regarded as a necessity, regardless of economic conditions, underwriters are unlikely to be laid off because of a recession.
Median annual earnings of full-time wage and salaried underwriters in 1994 were about $30,800. The middle 50 percent earned between $22,000 and $40,500 a year. The lowest 10 percent earned less than $18,600; the top 10 percent, more than $54,800 a year.
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.
General information about a career as an insurance underwriter is available from the home offices of many life insurance and property and liability insurance companies. Information about the insurance business in general and the underwriting function in particular also may be obtained from:
The American Institute for Chartered Property and Casualty Underwriters, 720 Providence Rd., P.O. Box 3016, Malvern, PA 19355-0716.
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