What is the primary purpose of underwriting in insurance?

The primary purpose of underwriting in insurance is to assess risk and determine premium rates. Underwriting involves evaluating the information provided by applicants or policyholders regarding their risk factors, such as health conditions, property characteristics, or lifestyle habits. This assessment helps insurers decide whether to accept or reject a risk and how much premium should be charged based on that risk.

By accurately assessing risk, underwriters contribute to the overall financial stability of the insurance institution. They ensure that the premiums collected are sufficient to cover potential claims, thereby allowing the insurer to operate profitably while providing protection to policyholders.

The other choices reflect important functions within the insurance industry but do not capture the central role of underwriting. Investing premium funds, settling claims efficiently, and marketing insurance products, while critical to an insurer's operations, do not define the underwriting process. Underwriting specifically focuses on evaluating risks and pricing policies appropriately to mitigate the insurer's exposure to loss.