What is the primary purpose of the underwriting process in insurance?

The primary purpose of the underwriting process in insurance is to evaluate the risk associated with insuring a client. This involves assessing various factors related to the potential insured, such as their health, lifestyle, and financial stability, to determine whether they are a good candidate for coverage. The underwriting process enables insurers to decide on the insurability of the client, meaning whether or not to provide insurance protection to them.

Additionally, once insurability is established, underwriting sets the premium rate, which reflects the level of risk that the client poses to the insurer. Thus, this process ensures that the insurance company can maintain its financial stability while also providing appropriate coverage to clients, balancing risk with profitability. This integral role of underwriting in assessing risk and determining pricing is foundational to the functioning of the insurance industry.