What is the definition of underwriting in the context of insurance?

Underwriting in the context of insurance refers to the evaluation of a risk to determine coverage eligibility. This process involves assessing various factors related to the individual or entity seeking insurance, such as health history, lifestyle, occupation, and even geographical location. Underwriters analyze this information to decide whether to accept the risk and, if accepted, under what terms and at what premium.

This evaluation is critical because it helps ensure that the insurer is taking on risks that are manageable and financially sound. By determining the likelihood of a claim being made, underwriters play a key role in balancing the insurer's portfolio of policies and maintaining the overall health of the insurance company.

The other options present different aspects of the insurance process but do not accurately capture the essence of underwriting. Setting premiums based on competition relates more to market strategy rather than risk evaluation. A marketing strategy for selling policies involves different considerations, and negotiation of terms, while important, occurs after the underwriting process determines the nature of coverage and pricing.