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What Do Underwriters Do?

Underwriting: What Is It and How It Works
Written by
January 19, 2023
min read

Underwriters assess the risk of insuring or lending to an individual or entity. They review applications and determine whether to accept or reject them based on the likelihood that the applicant will default on their debt.

If an underwriter accepts an application, they then settle the terms and conditions based on the client's risk level. 

Types of Underwriters

Underwriting is necessary in all industries involving financial risk, so assorted underwriters exist. Insurance, securities, mortgage, and debt security are the four main categories.

Insurance Underwriters

Insurance underwriters work for insurance companies and are responsible for specifying an applicant's risk level based on personal and financial history, the type of insurance being applied for, and the applicant's occupation and lifestyle. They decide whether to offer coverage and, if so, under what terms.

Securities Underwriters

Security underwriters play a key role in issuing and selling securities to the public and determining the rate. They are financial professionals who assess the risk associated with a security or investment and determine the adequate price to offer the security to investors. 

Mortgage Underwriters

Mortgage underwriters assess the home loan risk by reviewing the borrower's credit report, income and employment, and other financial documents. They also consider the value of the property being used as collateral and whether it is sufficient to cover the loan in case of default. 

The underwriter will analyze this data to decide whether to approve the loan request or seek more details before making the verdict. In addition, they play a role in creating the terms and conditions of the mortgage.

Debt Security Underwriters

Debt security underwriters work for investment banks and other financial institutions and specialize in selling such securities to investors. Debt securities are tools that represent a borrower's promise to repay a loan to the institution. 

Responsibilities of Underwriters

Underwriters have various responsibilities, depending on the industry they are involved in. However, some typical obligations include: analyzing financial information, assessing risk, reviewing applications, making approval decisions, setting terms, staying up to date with the industry, managing relationships, and marketing securities. 

Analyzing financial information

Underwriters evaluate the creditworthiness of borrowers and the risks associated with types of loans, insurance policies, or debt securities. They will examine both the loan and the borrower to get a complete understanding of the ambiguities.

Assessing risk

Underwriters evaluate the uncertainties associated with a loan, insurance policy, or debt security and determine whether the borrower or issuer is a reasonable gamble for the lender or investor. They accept the loan if they decide the borrower is low risk. 

If the underwriter concludes the risk is high, they will either deny the transaction or renegotiate the terms and conditions of the loan, security, or policy.

Reviewing applications

Underwriters review applications for loans, insurance policies, or debt securities to ensure that all necessary information has been provided and that the applicant meets the requirements. This includes double-checking all of the paperwork and following up on queries.

Making approval decisions

Based on their analysis of the borrower's creditworthiness, underwriters establish whether to approve loan applications, insurance policies, or debt securities. They are the primary decision-makers when it comes to loan approval.

Setting terms

Underwriters work with borrowers or issuers to resolve the terms of loans, insurance policies, or debt securities, including the interest rate, maturity date, and other details. The underwriter analyzes all the factors to confirm the terms.

Keeping up with the industry

Underwriters must stay current on regulations to make informed decisions and comply with all applicable laws.

Understanding the status of their respective industry, such as mortgage underwriters keeping informed about the current housing market, also aids them in deciding how risky a client is compared to the average potential borrower.

Managing relationships

Underwriters may be responsible for maintaining relationships with clients and developing new business opportunities. Although it changes, many underwriters have a relationship with the potential client and are responsible for representing the institution they work for.

Marketing securities

In some cases, underwriters market securities to potential investors and manage the selling process. This is a niche responsibility. Often, security underwriters are in charge of marketing.

What are the red flags?

Underwriters assess the financial situation of borrowers to determine creditworthiness. The primary cautions are low credit scores, limited credit history, self-employment, fraud, unstable job history, and verifiability. 

Low credit scores

Underwriters hesitate to approve a loan for someone with a low credit score, as this may indicate a history of financial instability or mismanagement. A credit score of 620 is the baseline to get approved for most loans. However, that number changes depending on the industry.

Limited credit history

Limited credit history is a warning because more credit information makes an informed decision. This lack of financial information will make them hesitant to approve a loan.


Underwriters often view self-employment riskier because income might be less predictable. It can also mean some documentation may need to be available, which may be tougher to accomplish.


The primary job of an underwriter is to protect the institution from loss. Hence, if the underwriter suspects fraudulent activities, they will deny a loan.

Unsteady employment

Having worked at several jobs in a short time or having gaps in employment history is a red flag because it tells underwriters that although the potential borrower is doing well, they were unable to maintain a low-risk position in the past.


If the borrower has difficulties producing verifying documents for income and assets, underwriters will deny the loan.

When do underwriters make their decision?

The time varies based on loan type and industry. It generally takes a few days to a few weeks to examine the capital.

Underwriters go through an extensive process to ensure they evaluate all assets. This includes evaluating financial documents, such as income statements and balance sheets, and other chronicles that provide insight into the company or individual's operations.

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