Define "underwriting" in insurance.

Underwriting in insurance refers to the process of evaluating risk and determining the terms of coverage associated with an insurance policy. This involves assessing the potential risks that an applicant presents, which may include factors such as their health status, driving record, or the location of their property, depending on the type of insurance. By thoroughly analyzing these factors, underwriters can make informed decisions about whether to accept the risk and what terms to set, including coverage limits and premiums.

This process is crucial because it helps insurance companies remain financially viable by ensuring they do not take on more risk than they can manage. Underwriting also plays a vital role in the overall pricing and profitability of insurance products, as it determines the level of risk associated with each policyholder. The focus on risk assessment and coverage terms is what distinguishes underwriting from other processes like claims settlement or marketing, making it a fundamental aspect of how insurance operates.