Studies have proven that underwriting is the core of insurance business according to GrayMatter’s Insurance Analytics (2014). It constitutes the most significant function of insurance companies as it is the determinant of any transaction between the insurer and the public. It consists of 2 components; risk assessment and pricing. Successful underwriting requires a system of risk selection by assessing the proposer’s exposure, to obtain a group in which loss results will be reasonably predictable by means of the law of averages (NIILM University). To accomplish this goal, there must be a balance between obtaining volume and obtaining homogeneous risks. By pulling similar risks together, insurance companies can transform the unpredictability of the occurrence of an event to an individual, into expected events affecting any of the insured. In underwriting insured risks, risk profiling is done and based on this; the insurer determines whether or not to accept the risk and/or the conditions under which the risk is to be accepted. According to global outlook (2015), the ability to identify customer behaviors and risk profiles is a key driver of profitability and sustainability.

These conditions may include charging an extra premium, adding exclusions or clauses that mitigates the proposed risk to a reasonable level. The underwriting process is not without challenges, just like other technical areas in the insurance business (Marcedo, 2009). The objective of underwriting is to produce a pool of insureds, by categories, whose actual loss experience will closely approximate the expected loss experience of a given hypothetical pool of insureds. However, certain factors such as less effective technology, insufficient information, lack of facilities, inadequate qualified professionals amidst other factors, have contributed to the deficiency of most insurance companies underwriting process, consequence of which has led to inability to remain solvent or make profit.  Chiang (2014) stated that social networking technology may help insurance companies to improve their underwriting profits and select prospective policyholders. According to Jaffe (2008), the underwriting function in a company is more than just staffing; it involves how to operate with both an experienced and an intellectually growing staff. This is a result of the technical nature of underwriting.

The inability of insurance companies to attain proficient underwriting performance in order to be profitable is seen to affect their ability to fulfill their obligation of protecting the insured in times of loss. Marcedo (2009) emphasized that the job of the underwriter is to protect the insurance company from acquiring non profitable business. According to Ebere (2011), the Insurance industry is bedeviled by an image problem, which has created a poor public perception about the sector and retarded its growth. This plague has been in existence for decades, it has been the major reason for the Insurance Industry setbacks.  Proper underwriting has a role to play in alleviating this problem, and promoting the image of Insurance in the eyes of the public through the effective outcomes it generates.

One of the prominent underwriting insurance firms, in an attempt to ensure an effective underwriting process, have developed a technique for risk assessment which involves assessing the physical characteristics of the insured object that may increase the possibility of a claim on one hand and on the other hand, the applicants’ reputation, financial position or criminal record-moral risk. They have also adopted a general knowledge acquisition model that broadens their knowledge about the proposed risk as well as increase the amount of information they generate. The underwriter is expected to understand the perils than the insured is exposed to it. The essence of this is to help the insurance company in creating homogeneous portfolio by evaluating the risks and accepting them under conditions that make them behave similarly, which is geared towards promoting good insurance image as a result of the effective underwriting process employed.


The current Insurance industry status has been attributed to its dent image in the eyes of Nigerians. Apere (2015) stated that the insurance industry has poor public image, negative perception or lack of consumer trust due to companies’ inability to provide adequate services (poor claims management). The industry is perceived as being quick to collect premium but slow/unwilling to respond to claims, a demonstration of lack of professionalism by some insurers, agents and brokers.  Lots of derogatory remarks have been made by Nigerians with respect to this subject matter. The inability of the insurers to underwrite risks profitably may have led to this quagmire of the poor insurance image maintained in Nigeria. An effective underwriting process develops and maintains a profitable book of business for the insurer by minimizing the effects of adverse selection of risks that are capable of leading to great loss according to the description. Insurance companies with ineffective underwriting process are very vulnerable to insolvency which will affect their business dealings with the public and earn them the common name of “corporate thieves” as mostly used by Nigerians. The deficiencies spotted are bedeviled by lack of modern technology, insufficient information and facilities to enhance the underwriting process; deficient risk assessment by unqualified personnels in the industry.  As a result of the above stated problems, this research study is conducted.


From the above stated problems the study explores the various factors leading to improper underwriting process; and suggests how this process can be improved to aid ability of the insurer to meet their contractual obligations with the insured in times of loss. In view of the above, this research project is intended;

i.  To assess the factor that will enhance proper underwriting process.

ii.  To explore the challenges faced by underwriters in the underwriting process.

iii.  To find out the factors militating against proper underwriting.


i.  What are the factors that foster a proper underwriting process?

ii.  What are the challenges faced by underwriters in the underwriting process?

iii.  What are the factors militating against proper underwriting?


H0:  There is no significant impact of proper underwriting in promoting insurance image.

H1:  There are significant impacts of proper underwriting in promoting insurance image.

H02:  There is no significant relationship between modern technology and proper underwriting.

H2:  There is a significant relationship between modern technology and proper underwriting.

H03:  There is no significant relationship between insufficient information and proper underwriting.

H3:  There is a significant relationship between insufficient information and proper underwriting.


The research will encourage insurance companies to adopt a proper/effective underwriting process in subsequent insurance transactions. This will enable the Insurers meet their contractual obligations to the insured hence, promoting insurance image in Nigeria. The findings from this study will add onto the existing body of literature on the importance of proper underwriting. It will also educate the general public about their risk exposure and how to acquire the best cover i.e insure them effectively and efficiently. It will also aid students pursuing a degree in insurance to carry out further research on related topics in the future.


Underwriter: The person who reviews an application for insurance and decides if the applicant is acceptable and at what premium rate.

Underwriting: The process an insurance company uses to decide whether to accept or reject an application for a policy.

Premium: The amount paid by an insured to an insurance company to obtain or maintain an insurance policy.

Perils: A specific risk or cause of loss covered by a property insurance policy, such as a fire, windstorm, flood, or theft. A named-peril policy covers the policyholder only for the risks named in the policy. An all-risk policy covers all causes of loss except those specifically excluded.

Policy: The contract issued by the insurance company to the insured which serves as an evidence of agreement between the insurance company and the insured.

Insured: The person or organization covered by an insurance policy.

Moral Hazard: The attitude and personal characteristics of the prospective insured that might increase or decrease the size or probability of a loss experience.

Physical Hazard: Physical environment which could increase or decrease the probability or severity of a loss.