Insurance Term: "Underwriter"

When discussing insurance, whether in the news or with your own insurance agent you hear the term “Underwriter”. I thought that with this blog post I would tell you a little bit about what an underwriter does in the property and casualty insurance world and tell you where there name comes from.

An underwriter is a person who works for a financial institution, and for this blog we will specifically talk about a property and casualty insurance company. The underwriter’s job is to assess risk and determine if an individual or business is eligible for the insurance company’s products and what pricing they will receive. They pour over the data give them by either you the customer, your insurance agent, other third party data sources and/or the historical data of your account to help them come up with their decisions.

So where does the term “Underwriter” come from? Back in the late 1600’s groups of merchants, investors and sea captains gathered at a little coffee shop in London owned by a man named Edward Lloyd. Between sips of Ed’s coffee the merchants who had a large cargo of goods to ship overseas would sit down with business investors and ask them to give some kind of financial backing if something happened to their cargo of goods while being shipped. Investors would agree to pay for the lost cargo if the ship didn’t make it to its destinations but required a fee or premium from the merchant for taking on this possible loss. Eventually the merchants started to post on the walls of Ed’s coffee shop the amount of backing they needed for their shipment. The investor would then come and writer their name under the request and there the contract was bound. The fact that the investor wrote “under” the request is key because there is where they came up with the term “Underwriter”.

One other item to note; does the named Lloyd sound familiar? Edward Lloyd’s coffee shop was the birth place of Lloyd’s of London.