What Is Underwriting?

The Gatekeeper of Insurance

Underwriting is the process of evaluating a risk, deciding whether to accept it, and on what terms. Every insurance policy that exists has been through an underwriting decision: even if that decision was automated.

The underwriter's job is to balance two competing objectives. On one side: the company needs premium income and market share, so you want to accept business. On the other: the company needs to remain solvent and profitable, so you can't accept every risk that walks through the door.

In Ghana, underwriting is especially important because data is scarce. In mature markets, underwriters have decades of claims data to inform their decisions. In Ghana, many product lines have limited loss history, which means underwriting judgment (the ability to assess a risk based on experience, market knowledge, and common sense) is more important than in markets where algorithms do the heavy lifting.

The Underwriting Process

Every underwriting decision follows a basic framework:

1. Receive the proposal. The customer (or agent/broker) submits a proposal form with details about the risk: the property to be insured, the vehicle, the life to be covered, the business activity.

2. Gather information. Is the proposal form enough, or do you need more? For a simple motor policy, the proposal may suffice. For a large commercial fire risk, you might need an engineer's survey, fire protection details, loss history, and financial statements.

3. Assess the risk. What is the likelihood of a claim? How severe could it be? What factors increase or decrease the risk? This is where underwriting skill lives.

4. Decide. Accept at standard terms, accept with modified terms (higher premium, exclusions, conditions), decline, or refer to a more senior underwriter or reinsurer.

5. Quote and bind. If accepting, set the premium and terms. Issue the policy. The risk is now on your book.