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Dear Unschooled:
For starters, let's say you own some valuable jewellery that you have listed separately on your insurance policy (called "scheduling"), but your neighbour doesn't. Then suppose you have rented out the basement apartment of your 3,000-square-foot house, while your neighbour lives with his immediate family in a 2,000-square-foot dwelling. All of these factors would cause an insurance company to decide there was more at risk in insuring your home than your neighbour's, and so you would pay more for your coverage. That's underwriting! It simply means deciding on what terms to accept a "risk" -- like your home or your neighbour's -- and pricing it accordingly.
It's a strange word, but once you know how it came about, it all makes sense. Insurance began back in the 15th century with merchants insuring ships and cargoes. Insurance companies didn't exist then -- all risks were insured by private individuals who did this as a sideline to their regular business. By the 17th century, an "insurance office keeper" -- the predecessor to today's broker -- took the policy around the city of London in search of wealthy merchants who could pay their share if a ship went down. Those taking a share of the risk signed their names, with the amount they were investing, one beneath the other at the bottom of the policy wording. Hence the term "underwriters."
It's really not all that different today, at least in theory. The insurance company "underwrites" the risk -- or not -- based on various "risk factors" that it has established. In underwriting personal insurance, like property and automobile, the company has already decided what rules it will use to determine if an applicant is eligible for insurance. A risk either fits the company's criteria or it doesn't.
An insurance company also employs people who are called "underwriters." They decide whether the company should insure a particular risk, based on the risk factors the company has set, and, if so, at what price.
The insurance for your house and your neighbour's was priced according to these risk factors -- whether a house is occupied by the owner or by tenants; whether it's a single-family dwelling or has multiple tenants; the size and style of the house; and its location (how far it is from a hydrant and fire hall). Generally, insurance is cheaper for an owner-occupied, single-family dwelling.
And don't forget, not all homeowner policies are alike -- you may have purchased broader coverage than your neighbour has. So be sure you are comparing apples with apples before you upset the apple cart.
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