Many businesses rely on the underwriting process to evaluate and manage financial risks.
For instance, an insurance company uses underwriting to judge applicants for coverage and decide whether to accept or deny their application. Similarly, a mortgage lender relies on underwriting to evaluate a loan application and determine whether to approve or reject a home loan. And an investment bank goes through the underwriting process when raising money for a client, such as through an initial public offering (IPO).
Considering a career in underwriting? In this guide, we cover:
- Underwriting Definition
- What Is an Underwriter?
- Is Underwriting a Good Career?
- How to Learn the Underwriting Process
- Types of Underwriting
- Frequently Asked Questions
Underwriting Definition
What is underwriting? It’s the process of determining and evaluating the risk of a financial contract, whether that’s a loan, insurance policy, or investment. During the underwriting process, the organization or individual agrees to take on financial risk for a fee.
The word “underwriting” reportedly originated with Lloyd’s of London in the 17th century, when the risk takers would literally write their names under the risk amounts (specifically for shipping risks) they were willing to take on.
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What Is an Underwriter?
An underwriter is the ship’s captain, so to speak, when it comes to assessing risk in a financial arrangement. Underwriters typically work for lenders, insurance companies, and investment banks.
An underwriter at a mortgage lender, for instance, typically reviews an applicant’s financial history, looking for signs that the applicant would be a desirable or undesirable borrower. One of the factors the underwriter will examine is the applicant’s track record for making mortgage payments, paying credit card bills, and meeting other financial obligations.
A mortgage lender is ultimately trying to bring aboard customers who consistently pay their bills and weed out applicants with a spotty payment history. The mortgage underwriter also wants to make sure the applicant earns enough income to make payments on the new loan. Furthermore, they determine whether the home would provide sufficient collateral in case of a default or foreclosure.
Underwriters perform the same sorts of duties for other lenders, insurance companies, and investment banks.
The many titles you might come across in underwriting include:
- Underwriter trainee
- Associate underwriter
- Underwriting analyst
- Senior underwriter
- Underwriting consultant
- Underwriting manager
- Underwriting team lead
- Executive underwriter
Is Underwriting a Good Career?
Pablo Nuñez, who oversees risk and underwriting at payment processing company Redde Payments, says underwriting is a promising career for anyone interested in finance and risk management.
>>MORE: Learn if finance is a good career path.
“Underwriting is a great career. It’s challenging, but it offers a lot of opportunities for growth and advancement,” Nuñez says.
However, many tasks in the underwriting process are now automated, meaning some industries are scaling back on hiring underwriting professionals.
Depending on experience and responsibilities, annual salaries in underwriting might range from roughly $35,000 for a starting position as an underwriter to approximately $220,000 for a vice president of underwriting, Nuñez says.
For example, according to the U.S. Bureau of Labor Statistics, the average annual pay in 2022 for an insurance underwriter was $82,990.
How to Learn the Underwriting Process
In many cases, someone might need to earn a bachelor’s degree to become an underwriter, though there is no degree in underwriting specifically. Most industry professionals major in finance, economics or business.
In addition, Nuñez says, an underwriter must undergo training that’s specific to the industry they’re working in. They also might be required to obtain certification. Standard underwriting certifications include:
- Chartered Property Casualty Underwriter (CPCU)
- Associate in Commercial Underwriting (AU)
- Associate in Personal Insurance (API)
- Associate in Risk Management (ARM)
- Life Underwriter Training Council Fellow (LUTCF)
- Chartered Life Underwriter (CLU)
“Each field has its own areas of due diligence, but the end goal is the same for the underwriter — only approve the application based on calculated risk that meets the industry’s criteria,” Nuñez says.
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Types of Underwriting
Underwriting generally fits into four categories.
Insurance Underwriting
The insurance underwriting process determines whether an applicant will receive a policy and, if so, how much coverage they’ll receive and how much the coverage will cost.
>>MORE: What Is an Insurance Underwriter?
Loan Underwriting
Loan underwriting assesses the financial risk of approving applications for auto, personal, student, business, and other lending products. With the help of software, the loan underwriting process also generally determines what rate the person taking out the loan will pay.
>>MORE: Loan Officer vs. Underwriter: What’s the Difference?
Mortgage Underwriting
Mortgage underwriting dives into the finances of a mortgage applicant. Among other things, a mortgage underwriter will look at factors such as an applicant’s credit history, credit score, income history, and employment status to assess the financial risks and rewards of approving a mortgage application.
>>MORE: What Is a Mortgage Underwriter?
Securities Underwriting
At an investment bank, securities underwriting involves due diligence around raising capital for a company. In many instances, they work to ensure a company can generate cash through an initial public offering, or IPO, of a company’s stock. In the case of an IPO, a securities underwriter prices, sells and resells a company’s shares.
How to Get Into an Underwriting Career
In many cases, you might need to earn a bachelor’s degree to become an underwriter, though there is no degree in underwriting specifically. Most industry professionals major in finance, economics, or business.
In addition, an underwriter must undergo training that’s specific to the industry they’re working in, says Nuñez. You also may be required to obtain certification. Standard underwriting certifications include:
- Chartered Property Casualty Underwriter (CPCU)
- Associate in Commercial Underwriting (AU)
- Associate in Personal Insurance (API)
- Associate in Risk Management (ARM)
- Life Underwriter Training Council Fellow (LUTCF)
- Chartered Life Underwriter (CLU)
“Each field has its own areas of due diligence, but the end goal is the same for the underwriter — only approve the application based on calculated risk that meets the industry’s criteria,” Nuñez says.
Several hard and soft skills are also crucial for a successful underwriting career. Relevant underwriting hard skills include:
- Math
- Statistics
- Data analysis
- Microsoft Excel
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Important soft skills for underwriters include:
Does assessing risk feel like the perfect career path for you? Check out the difference between an underwriter vs. actuary career.
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Frequently Asked Questions
For a loan, the lender verifies assets, income, debt, and property to assess the risk of lending money.
No, the underwriting process happens before closing. Once the underwriter approves the loan documents, the closing process commences.
It depends on the transaction and can vary widely. For instance, the underwriting process for personal or auto loans and life or property insurance can take under a week. Mortgage loan underwriting typically takes a few days after the underwriter has all the necessary information. Securities underwriting can take six to nine months.
