What does "underwriting" refer to in the context of insurance?

In the context of insurance, underwriting is the process of evaluating risks to determine whether to issue a policy and under what terms. This involves analyzing various factors such as the applicant's health history, lifestyle, and other relevant information to assess the likelihood of a claim occurring. Underwriters use this information to decide if the insurance company should accept the risk and how much premium should be charged based on the assessed level of risk.

This process is crucial because it helps ensure that the insurance company maintains financial stability by balancing the premiums collected with the claims paid out. By accurately evaluating risks, underwriters contribute to the overall effectiveness of the insurance system.