Underwriters play a crucial role in almost every facet of the financial world. An underwriter is someone who assumes the financial responsibilities and risks for another party. Underwriters are present in the banking industry, insurance companies and real estate.
The term ‘underwriter’ originated in London. A historic insurance company, Lloyds of London, provided insurance for ocean bound ships. Lloyds agreed to be responsible for all risks associated with sailing, in exchange for an agreed upon premium. Many times, they would also claim a stake in any profit from the journey. Lloyds of London would sign directly under a list of risks, which lead to the term that is so widely used today.
What Do Underwriters Do?
Underwriters are present in many industries and provide a number of different specific functions. All of them tie into the above definition – they assume risk to allow another party to take action. Below are the three most common types of underwriting and their roles:
- Securities Underwriting – One of the many roles of investment banks is assisting corporations and businesses with launching an IPO. Securities underwriting is the process where capital is raised from investors for the corporations. Essentially, it is a way of selling newly issued securities to investors. An underwriter takes on all the risk of distributing these securities. If they are unable to find enough investors, the underwriting firm will hold the securities. Usually the investment bank will reach an agreement with the corporation involving exclusivity to various rights and a predetermined award.
- Bank Underwriting – Not to be confused with security underwriting, a bank underwriter will carefully review the credit history of an applicant before approving a loan or line of credit. Banking underwriters will examine income, employment history and a credit report in determining the risk associated with the granting the requested loan. The term ‘bank underwriting’ can also apply to purchasing government bonds and corporate securities.
- Insurance Underwriting – An insurance underwriter determines risks related to insuring potential clients. This applies to every form of insurance: life, medical, auto and home. All possible data is gathered to determine the amount of coverage the potential client should receive. Underwriters also determine the premium that will be paid by the client. Every insurance company has their own set of guidelines that underwriters follow.
How Can I Become an Underwriter?
There are many various methods available for becoming an underwriter. Each method will vary depending on which type of underwriter you wish to become. Below is a general step-by-step process to becoming an underwriter:
- Consider which of the aforementioned industries you would like to pursue a career in. Consider what type of underwriting you would excel at, and which industry matches up with your interests and passions.
- Follow the news and updates related to your industry of choice. This helps develop your interest in the field, and ensures that you are passionate about it.
- Become skilled with computers and multitasking. Underwriters in all industries are expected be able to process a large amount of information electronically.
- Once you have decided on an industry, pursue higher education. Almost any industry related bachelor’s degree would allow you to become an underwriter. You may even pursue an Information Technology Degree online if you have a busy schedule. Every industry will deal with finances; once you have obtained your bachelor’s degree, going back for your Masters Degree in Finance will set you ahead of the pack when applying for jobs.
- After you have graduated, seek an internship as an underwriting trainee or analyst. This will provide you with much needed job experience when it’s time to become an underwriter. Many times, the company that hires you as an intern will hire you as an underwriter.
The average salary for an underwriter varies dramatically depending on the industry you pursue and company that hires you. Underwriters earn an average salary that ranges from $30,000 to $80,000.
Is This the Career For You?
Becoming an underwriter is perfect for the individual who is able to pay attention to detail and enjoys technical analysis of financial figures. It requires a reasonable amount of higher education, and will often yield a very generous salary. Underwriters play a key role in any business related to the financial industry, which results in a tremendous amount of job opportunities for a qualified underwriter.
This guest post article was written and provided by Kendra Lorenzo. Kendra finished her Bachelor’s degree online this last fall. She is now continuing her education by pursuing her Master’s degree online.