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

The definition of 'underwriting' in the context of insurance is accurately encapsulated by the process of evaluating the risk of insuring a person or asset. Underwriting is a critical function within the insurance industry where underwriters assess the potential risks associated with insuring an individual or entity. This process involves examining various factors, such as the individual’s health history for life insurance, or property conditions for homeowners insurance.

Underwriters rely on statistical data and actuarial analyses to determine how likely it is that a claim will be made and, consequently, the financial risk to the insurer. This assessment ultimately helps determine whether coverage will be provided, under what terms, and at what premium rate. By evaluating these risks effectively, underwriting ensures the insurer can operate sustainably while still providing coverage to clients.

The other options describe different aspects of the insurance process but do not capture the essence of underwriting itself. Pricing of premiums is a result of underwriting but not the process itself. Administrative tasks relate to managing existing policies rather than evaluating risks. Negotiating terms with clients is part of policy sales and customer relations rather than the fundamental underwriting function.