An underwriter is a member of a financial organization who evaluates and assumes another party’s risk for a fee. They work in various industries, including insurance, mortgages, loans, and investments. Here's what underwriters do:
- In insurance, underwriters assess the risks associated with insuring a person or asset and decide whether to accept or reject insurance applications based on that risk. They also determine coverage amounts, premiums, and prepare policies to minimize risk to the insurer.
- In the mortgage and loan industries, underwriters evaluate the borrower's financial status, credit history, income, and debt to decide whether to approve or deny a loan application.
- In investment banking, underwriters help companies issue securities, such as during an initial public offering (IPO), by marketing and selling the securities, setting offering prices, and sometimes purchasing the securities themselves to resell to investors.
Underwriters use their expertise and data analysis to measure and manage risk and play a critical role in financial decision-making by determining whether a business risk is worth taking. They typically receive fees such as commissions, premiums, or interest in return for assuming the risk. In short, an underwriter evaluates risk to help financial institutions make informed decisions about lending, insurance, investments, and securities offerings.
