What role does an underwriter play in an insurance company?

An underwriter plays a critical role in an insurance company primarily by minimizing adverse selection. Adverse selection occurs when there is an imbalance in information between buyers and sellers; typically, individuals with a higher risk are more likely to seek insurance, which can lead to potential losses for the insurer.

Underwriters assess the risks associated with insuring a client based on various factors such as health, lifestyle, occupational hazards, and other relevant criteria. By carefully evaluating these risks, underwriters determine whether to accept or reject an application for insurance and at what terms. This process helps to ensure that the insurance pool consists of balanced risks, ultimately protecting the insurer's financial stability.

While issuing claims, handling customer service, and setting premium rates are also important functions within an insurance company, they do not directly address the issue of adverse selection as the underwriter does. Setting premium rates is typically a separate function that can be influenced by the underwriter's risk assessment but involves broader market analysis, while claims processing and customer service are responses to existing policies rather than preventative measures against adverse selection.