What does "underwriting" refer to in insurance?

Underwriting in insurance refers to the evaluation of risk and the determination of premium rates. This process involves analyzing a potential policyholder's information, such as their health history, lifestyle, and other critical factors, to assess their level of risk to the insurer. Based on this assessment, underwriters decide whether to accept or reject an application for insurance coverage and set the terms of the policy, including the premium rates.

The evaluation of risk is crucial because it helps the insurer balance the potential for loss against the premium that will be charged, ensuring that the company remains financially sound while providing coverage to policyholders. This process requires a thorough understanding of statistical models, market conditions, and the specific nature of the risks being insured.

In contrast to underwriting, the other options pertain to different aspects of insurance operations but do not encompass the primary purpose of underwriting itself. Marketing insurance policies involves promoting existing products to potential customers, creating new insurance products focuses on innovation within the industry, and adjusting insurance claims refers to assessing and settling claims made by policyholders after incidents occur.