Insurers are in the business of accepting risks and insuring against financial loss associated with those risks. This does not mean that they want to (or have to) accept every application for insurance. Accepting too many bad risks threatens an insurer with insolvency. An insurer’s underwriting department will carefully review each application for insurance to determine whether or not it represents an acceptable (standard) risk. The objective of risk selection is to provide equity among all classes of risks.

There are many components involved in determining premium rates. Among these are loss experience, the occupancy or operation involved, construction of the structure (i.e. brick or frame) and the overall exposures. Underwriters also look at loss ratios which assist in future analysis. How do underwriters determine if an applicant is standard, substandard, preferred or uninsurable? There are several sources that an underwriter utilizes to reach his/her decision including:

Application The most important source of information is the application. The application contains a considerable amount of information, all of which helps the underwriter determine an adequate premium level. The questions on the application are intended to provide a complete picture of the applicant, revealing any physical, moral, or morale hazards. Producer’s Report The producing agent or broker provides information to an underwriter regarding his/her opinion and/or recommendation regarding the applicant and the proposed insured.

Inspections With property insurance the underwriter wants to make sure that the property to be covered actually exists and is in the condition claimed. Physical inspection of the property is usually required by the underwriter. Inspection may be conducted by the producing agent or broker or a company representative. Consumer reports An underwriter may wish to investigate the applicant in more detail. When an applicant signs the application, they give the insurer the authorization to obtain a consumer report. This consumer report may include a credit report of the applicant or be of an investigative

nature where an insurer representative interviews current or previous employers or neighbors regarding the applicant and the exposure. An investigative consumer report may shed light on an applicant's character, reputation, personal habits, and mode of living. If an investigative report is obtained, the applicant must be notified within 3 days. Note: A signed application authorizes the insurer to collect information for 30 months. If they have not done so by then a new authorization must be obtained.

If an applicant is denied coverage due to information collected, the Fair Credit Reporting Act grants access to the information and reasons for the denial. After receiving notice that an adverse underwriting decision has been made, an individual has 90 business days within which to request a copy of the report. Note: This law does not allow the insured to require that the insurer send him/her a copy of the report. It allows them to request a copy of the report from the agency who provided the information.

Financial Status Independent rating services help the consumer identify insurers who are financially sound. Consumers commonly look to ratings services prior to making a decision on which insurer to purchase coverage from. Ratings services gauge a corporation's financial ability to make the interest and principal payments of the bonds they have issued. Ratings services include Moody's, Fitches, A.M. Best and Standard & Poor’s to name a few. It’s widely accepted that AAA is the highest financial rating, D being the lowest. A “D” rating indicates the insurer is in default and is unable to pay its claims. Note: Rating services are private corporations and are not regulated by the NAIC.

the lowest. A “D” rating indicates the insurer is in default and is unable to pay its claims. Note: Rating services are private corporations and are not regulated by the NAIC.