What is the purpose of underwriting in insurance?

The purpose of underwriting in insurance is to evaluate risk and set appropriate premiums. Underwriters review various factors, including the applicant's health, lifestyle, claims history, and other relevant information, to assess the likelihood of a claim being made. By understanding the risk associated with insuring a particular individual or entity, underwriters can determine the appropriate premium that reflects that risk. This process helps ensure that the insurance company remains financially stable and able to pay out claims while also offering competitive pricing to policyholders. Through effective underwriting, insurers can manage their risk exposure and maintain profitability in a competitive market.