Underwriting is the process of evaluating and pricing risk. When a bank considers your loan application, the underwriter assesses your income, credit history, employment, assets, and debts to decide whether to approve the loan and at what interest rate.
Underwriting exists in three main areas: banking (loan underwriting), insurance (policy underwriting), and securities (IPO underwriting). In an IPO, the underwriter (usually an investment bank) guarantees to buy any unsold shares — taking on the risk that the market might not absorb the entire offering.
Modern underwriting increasingly uses AI and machine learning algorithms to assess risk faster and more accurately. Automated underwriting systems can approve a mortgage in minutes rather than weeks. However, human underwriters still handle complex cases requiring judgment and contextual understanding.