Before an insurance company can offer you a policy, it has to decide if it can afford to take on the risk. The process it uses to figure this out is called underwriting. Essentially, the insurance company uses the information you provide on its application plus a few public documents to evaluate your chances of filing a claim. If your risk fits the company’s underwriting guidelines, it typically sets a premium and offers you a policy.
Our underwriting process is different from many of our competitors in that we go beyond the information you provide when you apply. In fact, we look at thousands of data points to fine tune our underwriting. As a result, we can often provide more affordable home insurance to more homeowners ﹘ even when their homes are in high-risk areas like coastal Florida.
Most insurers have underwriting departments staffed with professionals who are trained in risk assessment. These underwriters are the people who decide if the insurance company will offer you a policy and how much that policy will cost.
When it comes to homeowners policies, the insurance underwriting process includes several steps, such as:
Once the underwriter has all the information, they assess the risk and assign a rate to it. This is how your final premium is calculated.
An insurance quote is really just an estimate of your final premium, but it comes before the underwriting process is complete. This means that you can get a quote for an amount that is different from the actual cost of the policy.
For instance, let’s say you’re sure your home was built in 1965 and that you got a new roof just a few years ago. You put that on your application and get a quote of $1,100 per year for homeowners insurance. That sounds pretty good to you, so you decide to buy the policy and pay the premium. This triggers the underwriting process.
While searching public records, the underwriter discovers that your home was actually built in 1955 and that the roof is closer to 15 years old. These are not issues that cause the insurance company to reject your application, but they may cause the premium to go up.
In your case, the insurance company sends a policy with an updated premium for $1,200 per year. You can either pay the additional $100 of premium, or you can cancel the policy and get a refund for any unused premium.