Rethinking Underwriting

Stunned by abnormally large loan losses during the crisis, banks are beginning to rethink the loan underwriting process. Moving on after the recession no longer means simply surviving, it means they will have to move forward and look for new account acquisitions to compete in the future. In order to protect themselves from unanticipated losses, banks will need to rethink the underwriting process.

In the article "Rethinking Underwriting", Oliver Wyman Partner Peter Carroll examines what happened, what lessons can be learned, and what we can do to prevent unexpected loss. Improving the current processes, which include upgrading credit scores and a renewed focus on the Five C's of Credit - collateral, capital, conditions, character, and capacity, will require more specific and granular risk discrimination of applicants. To contain cost per loan, institutions will continue to choose automated decision processes over human underwriting. Three important aspects to rethinking and improving underwriting that Carroll highlights and discusses are:

  • Broadening the scope of what we are trying to assess in underwriting 
  • Factoring in the effect of macroeconomics (using balance sheets and capital management)
  • Keeping the economics of underwriting in consideration


Article Summary: "Rethinking Underwriting" by Peter Carroll, as published in The RMA Journal: December 2010 - January 2011.

Rethinking Underwriting