What is an Underwriting Referral?

Insurance companies determine the cost of policies through a process called underwriting. The insurance company will gather information about the customer and calculate their rates according to their level of risk. Drivers at a high risk of being involved in an accident will pay the highest rates, and drivers who are least likely to get into an accident will have the lowest rates. The cost of insurance is affected by numerous things such as:

• A driver’s demographic information
• The driving history of a person
• Where the insurance policy is being sold
• What type of vehicle is being insured
• What coverage a driver is carrying
• How many people have access to the policy
• and more

Car insurance companies rely on a mixture of statistical and practical information to assess risk. The final price of an insurance policy is computed by a computer-generated algorithm that takes into account all of the information gathered by the company.

Because the factors influencing insurance rates change over time, it’s important for insurance companies to constantly re-assess a customer’s risk and adjust rates accordingly. For example, a customer may get involved in an auto accident from one term to the next, leading to an increase in rates. A driver may also change the vehicle they drive, move to a new state or otherwise alter their rates with their actions. In order to keep up with the changes happening to an insured’s risk, insurance companies conduct regular underwriting reviews.

What Happens During an Underwriting Review?

Before a policy renews, the insurance company will collect information about the insured. This may require a phone call, email survey or other form of communication. The insurance company will determine the mileage of the vehicle, how many drivers have access to it, what the primary purpose of the vehicle is and whether it sustained any damage throughout the year. Other underwriting questions may be asked depending on the specific insurance company’s policies and procedures.

Once the information has been gathered, the insurance company will plug the new variables into the computer that assesses risk. They’ll update the contact information for the insured at this time as well. They will also note any information they already have on file, such as claims filed throughout the year or traffic violations that were reported to them. The computer will run its algorithm and generate the new rates for the insured.

How Often do Underwriting Reviews Occur?

An underwriting review will usually take place once or twice a year depending on how frequently the policy renews and how the insurance company handles its insureds. In some cases, the insurance company may renew a policy without calling the insured; not all insurance companies will require personal contact with the insured each time a review occurs.

On the other hand, insurance companies may need to conduct an additional underwriting review throughout the year. If the claims department, agent or other insurance representative discovers that a change has been made to the policy partway through the term, they will notify the underwriting department through a process called an “underwriting referral.” Depending on the situation, this may lead to substantial investigation and the increase of rates or even cancellation of a policy if the change goes against the policy agreement.

For example, if a driver is discovered to be using their vehicle as a taxi without purchasing a commercial policy, an underwriting referral will be generated. The underwriting department will then review the policy, conduct an investigation and determine if the vehicle is in fact being used as a taxi and if that violates the policy. If it does, the company may cancel the policy or choose not to renew it.

Such policy cancellations are quite rare, but if you are discovered using your vehicle in a way inconsistent with the policy terms, you may face non-renewal. In addition to using a vehicle for commercial practices, insurance companies may choose to drop insureds who engage in illegal or very high risk activities, such as racing, or insureds who carry coverage for vehicles they do not actually own. As long as you are using your vehicle in a manner consistent with what’s listed on your policy, you should not risk a policy cancellation.

Underwriting referrals are a regular part of auto insurance, and they can have a positive or negative impact on your rates. If you want to see your rates decrease at your next policy renewal, be sure to focus on safe driving habits throughout the year and taking advantage of discounts as they become available to you. By driving safely and within the terms of your policy agreement, you can maintain the lowest cost auto insurance.

Case Studies: Underwriting Referrals in Car Insurance

Case Study 1: Underwriting Referral for Commercial Vehicle Usage

In this fictional case, a driver was discovered to be using their personal vehicle as a taxi without purchasing a commercial policy. The insurance company generated an underwriting referral to investigate the matter.

The underwriting department reviewed the policy, conducted an investigation, and determined that the vehicle was indeed being used as a taxi, which violated the policy agreement. As a result, the insurance company canceled the policy or chose not to renew it.

Case Study 2: Underwriting Referral for Policy Modification

In this hypothetical case, a policyholder made a significant change to their policy during the term without informing the insurance company. The claims department or insurance representative discovered the modification and notified the underwriting department, triggering an underwriting referral.

The underwriting team reviewed the policy, conducted an investigation, and assessed whether the change aligned with the policy agreement. Depending on the situation, the insurance company might adjust the rates or even consider canceling the policy.

Case Study 3: Underwriting Referral for Risky Activities

In this fictional scenario, an insured individual engaged in high-risk activities such as racing or carried coverage for vehicles they did not own. Such actions can increase the level of risk and trigger an underwriting referral.

The insurance company reviewed the policy, investigated the reported activities, and assessed whether they violated the policy terms. If found in violation, the insurance company might choose to cancel the policy or not renew it.