How it works
The NAIC describes underwriting as examining a risk, deciding whether to accept it, classifying the risks that are accepted and setting the appropriate rate. For car insurance, the Texas Department of Insurance says companies use underwriting to decide whether to sell you a policy and how much to charge, looking at:
- your driving record and claims history,
- where you keep your car,
- the kind of car and how you use it,
- at some companies, your credit.
Most companies check your claims history through a CLUE report. Texas notes that a company can charge more, or refuse to sell you a policy, based on that report. You can get a free copy each year from LexisNexis to check it for errors.
Risk groups
Underwriting sorts applicants into groups. The NAIC glossary describes a standard risk as a normal risk insurable at standard rates, and a preferred risk as one less likely to have a loss than the standard applicant. Drivers whom no company will accept can usually get basic coverage through their state's assigned risk plan.
Related terms
Sources
- NAIC, Glossary of insurance terms definitions of underwriting, underwriter, standard risk and preferred risk
- Texas Department of Insurance, Auto insurance guide underwriting factors, CLUE reports and coverage for drivers turned down by insurers
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