What does "underwriting" refer to in the context of insurance?

Underwriting in the insurance context refers to the systematic evaluation of risks involved in insuring a potential policyholder. This process involves analyzing an individual's information, such as health history, lifestyle choices, and other relevant factors, to determine the likelihood of a claim being made. The underwriter assesses these risks to decide whether to provide coverage, and if so, under what terms and at what premium rate.

This process is essential for ensuring that the insurance company can maintain financial stability while providing coverage to those who are likely to benefit from it. By effectively assessing risks, insurance companies can balance their portfolios and avoid taking on excessive risk that could lead to financial losses.