Why is claims history important for underwriting?

Claims history is vital for underwriting because it provides a detailed record of past claims which is essential in assessing the risk associated with insuring a particular individual or entity. By analyzing this data, underwriters can identify patterns related to frequency and severity of claims that a specific profile is likely to incur in the future. This predictive capacity helps underwriters make more informed decisions about the level of risk they are willing to accept and the terms they might offer.

For instance, if a particular type of coverage or business has a history of frequent or severe claims, underwriters may determine that increased premiums or specific exclusions are necessary to mitigate the risk. Additionally, past claims data can prompt underwriters to implement loss control measures or suggest improvements to the insured to help reduce the likelihood of future claims. This process allows for a more accurate pricing and underwriting strategy that aligns with the actual risk presented by the applicant, ultimately contributing to the insurer's profitability and stability.