BharatNotes Underwriting
noun (also the present participle / gerund of the verb "underwrite")Usage in a UPSC answer
By underwriting crop-insurance premiums for marginal farmers, the state effectively socialises agrarian risk, shielding the rural economy from the volatility of an increasingly erratic monsoon.
Synonyms
Antonyms
Word Family
underwrite (v), underwriter (n), underwritten (adj), underwrote (v past), underwritable (adj)
Root
Old English underwrītan = to write under, subscribe; loan-translation of Latin subscribere
Etymology
From Old English underwrītan ("to write under, subscribe"), a loan-translation of Latin subscribere; the insurance sense (1620s) derives from the practice of signing one's name under risk details on a Lloyd's of London slip.
Memory Hook
Think "write UNDER your name to take on the risk" — at Lloyd's, backers signed UNDER the risk on the slip, so they were UNDERWRITING it.
How This Word Works in UPSC Writing
The assumption of another party's risk for a fee, which takes two forms the exam treats separately. In a securities issue, an underwriter agrees to subscribe to whatever portion the public does not take up, so the issuer's capital is assured regardless of investor appetite, and the unsubscribed portion devolving on the underwriter is the risk being priced. In insurance, underwriting is the prior assessment that decides whether a proposal is accepted at all and at what premium, which is how insurers manage adverse selection, where those most likely to claim are the keenest to buy. The same discipline in banking is credit appraisal, and weak underwriting standards there are a recognised source of non-performing assets.
Don’t Confuse It With
Underwriting means assuming risk for a fee. Broking is matching buyer and seller for commission without taking on the risk. Devolvement is the point at which an underwriter must actually buy the unsubscribed part of an issue. Actuarial valuation is the statistical basis on which insurance underwriting prices risk, and reinsurance is the onward transfer of part of that risk to another insurer.
Hindi Meaning
हामीदारी (hāmīdārī); जोखिम अंकन for the risk-assessment sense in insurance.
Common Questions
- What does underwriting mean in insurance?
- The process of assessing a proposed risk to decide whether to accept it and at what premium.
- What does an underwriter do in a share issue?
- Agrees in advance to buy any portion of the issue that the public does not subscribe to, guaranteeing the issuer its capital in return for a commission.
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