What is a fundamental purpose of underwriting in insurance?

Underwriting is a critical process in the insurance industry that involves evaluating and assessing potential risks associated with insuring an individual or entity. This assessment is done to determine the likelihood that a loss will occur and the potential financial impact of that loss.

The primary purpose of underwriting is to establish whether the insurer can provide coverage based on the level of risk presented by the applicant. By analyzing various factors such as the applicant's medical history, financial status, property conditions, and other relevant information, underwriters are able to make informed decisions about policy terms, premiums, and acceptance of coverage.

This risk assessment process helps insurers maintain financial stability and ensures that premiums charged reflect the potential risks being covered, thus protecting both the insurer and policyholders. Other functions, such as promoting policies, handling customer service inquiries, or processing claims, do not address the core goal of underwriting, which focuses specifically on evaluating risk.