Define underwriting in insurance.

Underwriting in insurance refers specifically to the evaluation of risks and the determination of premium terms associated with those risks. This critical function serves as the foundation for how insurance companies assess potential policyholders and the likelihood of a loss occurring.

During the underwriting process, underwriters analyze various factors such as an applicant's health history, driving record, property conditions, and other relevant information to gauge the level of risk they represent. Based on this analysis, underwriters decide whether to accept the application for coverage and on what terms, including setting the appropriate premiums. This step is essential for ensuring that the insurer can maintain financial stability while providing coverage to those who are deemed insurable at acceptable risk levels.

The other options pertain to different aspects of the insurance process: advertising involves promoting policies to potential customers; managing claims relates to handling reported losses and payouts; and negotiating policyholder agreements focuses on discussing the terms under which coverage is provided. Each of these plays a unique role within the insurance industry but does not capture the essence of underwriting as effectively as evaluating risks and determining premium terms.