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Underwriting Risk
Definition: Underwriting risk refers to the potential loss to an insurer emanating from faulty underwriting. The same may affect the solvency and profitability of the insurer in an adverse manner.
Description: Underwriting is a critical risk mitigation mechanism adopted in the insurance industry. The process helps in deciding the appropriate premium for an insured. The underwriter needs to match the premium received with the claims paid with an eye on profitability. In the event of a dichotomy between the two, with the premium received not sufficient enough to cover the claims, the insurer is confronted with the probability of loss.
The premium charged by the insurer must incorporate the risk premium that covers not only the claims but also the capital requirements, also called the solvency requirements. In the event that the matching is not done in a pragmatic manner, the underwriting risk arises.
- Part of Speech: noun
- Synonym(s):
- Blossary:
- Industry/Domain: Insurance
- Category: General insurance
- Company:
- Product:
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