The word “underwriting” has its origins in the early days of maritime insurance during the 17th century in London. It comes from the practice where insurance underwriters wrote their names under the risk information of a ship or cargo that they were agreeing to cover. Such a practice indicated their consent of becoming answerable for any possible loss or damage during the voyage.
The term “underwrite” itself is composed of two parts: “under” and “write.” The “under” part refers to the position of signing. In this context, it was at the bottom of the insurance policy. “Write” refers to the act of writing or signing one’s name. Together, “underwrite” means to “to write under or at the end of something,” indicating agreement and responsibility.
Lloyds of London, one of the oldest insurance markets, played a significant role in this practice. Wealthy individuals and financiers would literally sign their names under the written details of the risks, pledging to cover a portion of the potential losses in exchange for a premium. This practice laid the foundation for modern insurance and financial underwriting, where entities assume financial risk in exchange for payment.
