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Home » Articles » Understanding underwriting: A guide to the financial process

Understanding underwriting: A guide to the financial process

In the realm of finance, underwriting is a crucial pillar that verifies the stability and reliability of various transactions.

This unique financial process plays a pivotal role in assessing and evaluating risks. It’s useful whether you’re obtaining insurance, securing a loan, or engaging in securities trading.

Underwriting involves meticulous analysis, informed decision-making, and risk management. It exists to protect the financial interests of all parties involved.

This guide provides a comprehensive overview of the underwriting procedure, its different types, underwriters’ duties, and tips for a smooth underwriting experience.

What is underwriting?

Underwriting involves assessing and evaluating risk factors associated with financial transactions.

It acts as a foundation that ensures the stability and reliability of insurance policies, loans, and securities. Underwriting also determines insurability, creditworthiness, or marketability.

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The underwriting process typically involves the collection and analysis of detailed information. This data can vary depending on the type of procedure performed.

What is underwriting

Duties of an underwriter

Underwriters are financial experts who provide underwriting services. They are vital in financial decisions because they carefully analyze related factors.

These professionals ensure that risks are minimized and profitability is maintained.

An underwriter handles a range of tasks in the underwriting process, including:

  • Reviewing applications and assessing risks
  • Evaluate various factors such as credit history, financial statements, and collateral
  • Setting terms and conditions of insurance policies, loans, or securities
  • Ensure terms are fair and reasonable while considering the organization’s risk appetite
  • Determine the premium or interest rates to be charged based on the level of risk involved
  • Use statistical models and actuarial tables to confirm fair pricing for potential losses
  • Makes sure the underwriting procedure complies with regulatory requirements and internal policies
  • Verify that all necessary documentation and legal obligations are met

Underwriters consider an applicant’s financial history, creditworthiness, collateral, and risk exposure. They do so to determine the appropriate terms and conditions for financial plans.

3 types of underwriting

Underwriting typically involves thoroughly reviewing various elements to determine risk levels. These factors vary on the type of approach being done.

Let’s explore the three main types of underwriting:

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1. Insurance underwriting

Insurance underwriting evaluates risks related to insurance policies. It contributes to the insurance verification process.

Underwriters assess the insured’s age, health condition, occupation, and lifestyle habits. These criteria determine the likelihood of potential claims.

Insurance underwriters also review historical claims data, market trends, and probabilities to set premiums.


Underwriting for a life insurance policy considers the applicant’s medical history, family history, and lifestyle choices.

Insurance underwriters can identify whether the applicant smokes or participates in dangerous activities. They can then determine the risk profile through comprehensive checking and assign a premium.

2. Loan underwriting or Mortgage underwriting process

Loan underwriting assesses the reliability of individuals or businesses applying for loans.

Mortgage underwriter evaluate credit scores, income stability, debt to income ratio, and collateral. These factors can determine the borrower’s ability to repay the loan.

Then, financial statements, tax returns, and employment history are analyzed to assess the level of risk involved.


In mortgage underwriting, a loan underwriter may review the borrower’s credit report, employment history, and down payment amount. These help determine if a borrower meets the lender’s criteria.

Based on these factors, the approval of the loan, its amount, and the interest rate are decided.

3. Securities underwriting

Securities underwriting determines risks for issuing stocks, bonds, or other types of securities.

Underwriters measure the financial viability of the issuing company. They also look into market conditions and investor demand.

Investment banks specializing in underwriting help entities raise capital by selling their securities to investors, thus facilitating growth and investment opportunities.

Financial statements, market trends, and economic indicators would set terms, conditions, and pricing.


A company plans to issue stocks in an initial public offering (IPO). Securities underwriters can help assess the firm’s financial health, growth potential, and market demand.

As a result, the number of shares to be issued, the offer price, and the overall market strategy is determined.

How long does underwriting take?

The duration of the underwriting process can vary depending on the subject’s complexity, application volume, and the required documentation.

While some financial decisions can be made within a few hours or days, others may take several weeks or even months.

Applicants should understand that the procedure is meticulous and thorough. Underwriting aims to guarantee the best possible outcome for all parties involved.

Here are some possible underwriting timelines for common financial cases:

Personal loans

When it comes to personal loans, underwriting’s duration can vary depending on the following factors:

  • Loan amount
  • Borrower’s creditworthiness
  • Lending institution’s internal methods

Personal loans can be underwritten and approved within a few days. In some cases, it can be instantaneous. It’s important to provide all necessary data and respond quickly to requests from the underwriter. This helps speed up the underwriting process.

Stocks and bond issues

Underwriting can be more complex and time-consuming for companies looking to issue stocks or bonds.

Underwriters must extensively review the financial health of the issuing firm. They may also check market conditions and investor demand.

This evaluation involves thorough financial analysis, legal documentation review, and due diligence.

The processing for stocks and bond issues can take months to complete because it requires careful consideration of various market factors and regulatory requirements.


For insurance underwriting, the timeline can vary depending on the insurance type and the risks’ complexity.

Simple insurance policies like auto or home insurance can be underwritten and approved in a short time frame.

On the other hand, more complex insurance policies may require a more in-depth evaluation. Such insurance policies include life insurance or commercial insurance. Underwriters would need to check the medical history, financial statements, or business operations.

Insurance policies can be underwritten in a few days to several weeks, depending on the specific circumstances.

It is important to note that these time frames are provided as general guidelines. The actual duration of the underwriting process may vary based on individual circumstances, the specific underwriter’s workload, and other external factors. 

It is advisable to consult with the relevant agency or underwriter for more accurate estimates. They can also provide informed updates on the underwriting timeline.

How long does underwriting take

Steps involved in the underwriting process

Underwriting typically follows a structured series of steps. While there may be variations based on the subject matter, the following provides a general overview:

1. Application

The process begins with submitting an application. This is where you provide relevant information and documentation needed for evaluation.

2. Preliminary assessment

Underwriters conduct an initial analysis of the submitted application. This step is where they determine its completeness and eligibility.

An underwriter may request additional information or supporting documents at this stage.

Once all necessary information is gathered, the underwriter submits a recommendation for loan approval or denial based on the applicant’s risk profile and financial standing.

3. Risk evaluation

Underwriters then assess the risk factors associated with the subject matter. At this stage, they analyze the given information and conduct background checks.

An underwriter will also check for financial viability, market conditions, or insurability.

4. Documentation review

After determining the risks, underwriters review all submitted documents. They may look into financial statements, credit reports, or insurance claims history.

Underwriters can then verify the accuracy and authenticity of the data provided.

5. Decision-making

Underwriters make informed decisions after analyzing all necessary data. They determine if the application can be approved, the terms and conditions to be set, or ask for additional requirements (if needed).

6. Communication

After making a decision, underwriters will inform applicants or relevant parties involved. They may provide explanations, answer queries, or request further action or information at this stage.

7. Documentation completion

Upon approval, underwriters confirm that all necessary documentation is completed accurately.

This part is where coordination with legal departments may be needed. This is to ensure regulatory compliance and contractual obligations.

8. Ongoing monitoring

Underwriters sometimes monitor the application’s performance. This involves checking claims experience, loan repayment patterns, or securities market performance.

This helps an underwriter evaluate and manage risks effectively.

Steps involved in the underwriting process

Tips to have the best underwriting experience

Consider the following tips for a smooth and efficient underwriting experience:

  • Submit all necessary information and documents accurately and completely. Failure to do so may cause application delays or rejection.
  • Respond promptly to any requests or queries from the underwriter. Cooperate in providing additional information or clarifications as needed.
  • Familiarize yourself with the underwriting requirements specific to your situation. This will help you gather the necessary data and better understand the process.
  • Prioritize maintaining a good credit score and financial stability. This will enhance your eligibility and demonstrate your creditworthiness to underwriters.
  • Maintain a good credit score by making timely payments and managing debts responsibly.
  • If you find the underwriting process complex or challenging, consider seeking the help of financial advisors or professionals specializing in the field.
  • Be patient and realistic in your expectations. Avoid putting unnecessary pressure on the underwriter.
  • Understand that unexpected delays or challenges may arise during the procedure. Have a contingency plan and be mentally prepared for potential challenges. Doing so enables you to navigate obstacles while moving the process forward.

By following these tips, you can raise your chances of having a positive underwriting experience. You would then have the opportunity to achieve your desired financial outcomes.

Please note that the information provided in this article is for educational purposes only and shouldn’t be considered financial or legal advice. Always consult with professionals in the respective fields for personalized guidance and advice.

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