What is the primary function of underwriting in insurance?

The primary function of underwriting in insurance is to evaluate the risks of insuring individuals. Underwriters assess a potential policyholder's application and health status to determine the likelihood of a claim being made in the future. This evaluation involves analyzing various factors, including medical history, lifestyle choices, occupation, and even geographic location, to accurately gauge risk. Based on this assessment, underwriters decide whether to accept the risk and under what terms, such as premium rates and coverage limits.

Collecting premiums is an important part of the insurance process but is not the direct function of underwriting. Similarly, investigating claims pertains to ensuring that claims are valid and accurate after a policyholder has made a claim, which is a separate function that occurs post-underwriting. Advertising insurance products focuses on promoting the policies available to potential customers rather than assessing their risk. Underwriting is integral to ensuring the financial stability of insurance companies by allowing them to set appropriate premiums that reflect the risks being taken on by insuring individuals.