What is the term for the process of evaluating risk to set insurance premiums?

The insurance process of evaluating risk to set premiums is called underwriting.

Insurance underwriting is the insurer’s risk-selection and pricing process. An underwriter examines information about a potential policyholder or property, estimates the likelihood and potential cost of claims, and decides whether to accept the risk. The result may include a standard premium, a higher adjusted premium, an exclusion, or a decision to decline coverage.

The information considered depends on the policy. Automobile underwriting may examine driving history and vehicle characteristics; life and health underwriting can consider medical information where permitted; property underwriting may assess construction, location, fire protection, and exposure to hazards. Actuaries help develop pricing models using statistics and probability, but underwriting applies those rules to an individual application or risk.

The word has a colorful origin. In the Lloyd’s of London market, people who agreed to take on part of a venture’s risk literally wrote their names beneath the description of the risk. That practice gave English the term “underwriting.” Claims adjusting happens after a loss, while reinsurance transfers part of an insurer’s existing risk to another insurer.