What Does an Underwriter Do?

Young man is signing financial mortgage contract of sale for a new house with real estate agent at office.
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Getting approval for a loan, insurance or a mortgage can be stressful. Your application has to go through a rigorous process to ensure that the financial risk the company is about to take is worth approving. This is where an underwriter comes in. Underwriters act as gatekeepers for your financial services approval.

Underwriting is one of the most important functions in the financial industry, practiced mainly in insurance, loan and investment companies. An underwriter evaluates your financial health and decides whether to take your contract based on your level of risk.

Keep reading to learn about what an underwriter is, the different types of underwriters, and what they do.

What Is an Underwriter?

An underwriter is an individual or party that evaluates another party’s financial status and assumes the risk at a fee. Usually, an underwriter receives payment in the form of a premium, commission, or both a premium and commission.

If you’re dealing with an underwriter, you’re most likely trying to get approval for some type of large purchase in one of several industries, such as mortgages, insurance, loans or equity markets. Every industry has its own underwriters who specialize in specific fields.

These individuals use their expertise to assess the degree of risk of each applicant before assuming the risk. If the company determines the risk is too much cost, the underwriter is held responsible.

Role of an Underwriter

An underwriter uses their expertise to evaluate whether the risk they are about to take is worth it. Depending on the type of financial service you’re seeking approval for — let’s say a loan — an underwriter will assess your personal information like your credit history to determine the premium amounts to charge.

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The role of an underwriter is risky. Based on their risk assessment, an underwriter has to assess an acceptable level of risk to determine whether you qualify for approval or not.

Types of Underwriters

As mentioned, each industry has its own underwriters that play an important role in the financial world. They include the following types.

Insurance Underwriter

Insurance underwriters assess and analyze the risks involved in getting approval for an insurance policy. They evaluate a company’s risk in insuring a home, car or driver or health and life insurance policies for individuals. After determining the risks involved, the underwriter sets a price charged in the form of an insurance premium in exchange for the risk taken.

Insurance underwriters are professionals with specialized knowledge in risk assessment. They utilize their expertise to decide whether an applicant is eligible for approval or not. Once they determine an applicant’s eligibility for the policy, they then establish the type of policy.

For exceptional cases, an underwriter uses automated software — a computer-generated process — to determine the degree of risk and whether an applicant is eligible for the policy based on the insurer’s specific requirements. Insurance underwriters understand the risks and know how to avoid them.

Mortgage Underwriter

Mortgage loan underwriters are the most common type of underwriters, and for a good reason. Buying a house is a risky venture, even if you have a good credit score or high income. A mortgage underwriter will perform a thorough evaluation to determine if the risk is manageable.

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Good To Know

A mortgage underwriter may review your personal information, including your credit history, credit score, annual income and overall savings to determine your eligibility for mortgage loan approval. They’ll also evaluate the property you intend to buy.

The underwriter then uses their risk assessment to weigh various factors of your mortgage loan application to determine the acceptable level of risk. Your loan underwriter is the final person who decides whether or not you can qualify for a mortgage.

Securities Underwriter

Securities include individual stocks and debt securities, such as bonds, which are tradable financial instruments that provide ownership rights to holders. Securities underwriters regulate the issuance and distribution of securities. They often work with initial public offerings to evaluate the risk and determine a fair price for specific securities. The underwriting process is often performed on behalf of a potential investor, usually an investment bank.

An investment bank buys (underwrites) securities issued by the company seeking IPO and then sells those securities in the market. This ensures that the issuers of the security can raise the full amount of capital they need while earning the underwriters a premium in return for their service. Underwriting securities, however, comes along with risks — for instance, the investment bank is liable for any difference between the initial valuation and the actual price.

Loan Underwriter

Mortgage underwriting is the most common type of loan underwriting, in which an underwriter assesses your financial status to determine whether you qualify for loan approval. As part of the approval process, banks often use the loan underwriter’s human assessment and automated software together to assess the risk of lending.

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The loan underwriting process not only assesses your creditworthiness and the ability to repay the loan but whether you meet all the requirements of the loan program. A loan underwriter eventually approves or denies a loan.

Difference Between Underwriters, Agents and Brokers

There’s usually an agent or broker when it comes to financial products. Underwriters often have the final say, and they’re the ones to determine whether you receive approval or not. On the other hand, agents and brokers act as salespersons. They sell products to individuals and companies — but only with the underwriter’s permission.

The table below summarizes the difference between underwriters, agents and brokers.

Underwriters Agents and Brokers
Approve or decline the service Sell products to individuals and companies, but only with the permission of the underwriter
Work for a financial organization Work for both companies and individuals

Final Take

If you’re seeking approval for a financial service, be it a mortgage, a loan or insurance, then you might need an underwriter. An underwriter will assess your current financial situation to determine the acceptable level of risk based on the company’s specific requirements. For things to end well, discuss the underwriting process with your agent, broker or company to better understand the procedure.

Our in-house research team and on-site financial experts work together to create content that’s accurate, impartial, and up to date. We fact-check every single statistic, quote and fact using trusted primary resources to make sure the information we provide is correct. You can learn more about GOBankingRates’ processes and standards in our editorial policy.


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