What does the term "underwriting" refer to in insurance?

Underwriting in insurance refers to the process of evaluating risk and determining policy terms and cost. This critical function involves assessing the likelihood that a policyholder will file a claim based on various factors such as their health, lifestyle, and financial situation. Underwriters analyze this data to establish the appropriate premium for the policy, ensuring that the insurer can cover potential claims while remaining financially viable.

This process is essential for maintaining the balance of risk within an insurance portfolio. By carefully assessing each applicant, underwriters help insurers make informed decisions about which risks to accept and under what terms, thereby protecting the company and its policyholders from excessive loss.

In contrast, the other options pertain to different aspects of the insurance process. For instance, assessing a policyholder's financial needs relates more to financial planning rather than the risk evaluation that defines underwriting. The marketing strategy focused on selling policies falls outside the underwriting domain as it relates to customer acquisition rather than risk management. Furthermore, the procedure for filing claims is a post-incident function and does not connect to the initial risk assessment and policy setup that underwriting entails.