What is the signature?

Subscription is the method used to assess a customer's current eligibility to receive some type of financial product. The product range includes various financial devices such as insurance coverage, mortgages for residential and commercial properties, financing for risky projects or a line of credit. By going through this evaluation process, the lender will determine whether the transaction has a good chance of generating a profit in exchange for financial assistance.

When a financial provider such as a bank or insurance company chooses to sign up, two events are expected to occur. First, the lender or insurer is indicating that it believes in any project the borrower wants to finance and is going ahead with the requested financial support. Second, by underwriting the mortgage, insurance policy or business, the lender anticipates a return on investment at some point in the future. The return can be made in incremental payments or as a lump sum at a later date. Finance charges or some other type of compensatory fee, such as a premium, are typically included in any form of underwriting activity.

Insurers do not just consider the degree of risk associated with the applicant. In addition to taking steps to ensure the prospect's ability to honor their end of the contract, the underwriter will also consider the degree of risk to other customers of the company when establishing this new association. Developing acceptance standards helps to minimize the chance that the company will be harmed in some way to the point where it cannot fulfill commitments to existing customers.

Insurance is an example of a field that uses underwriting as a core business function. In the case of health insurance, the provider will thoroughly investigate the applicant's current and past health within the applicable timeframes. In some cases, the provider may have some reservations due to a past medical incident, but choose to insure the claimant, with some pre-existing conditions omitted from coverage for a period of time. Other times, the medical history may indicate a degree of risk that is not acceptable to the company, and the provider will choose not to underwrite health coverage. By not insuring those most likely to require extensive long-term medical coverage, the provider can maintain a more stable financial foundation and continue to serve other clients.

Subscription is also a common means of financing specific projects or ventures, such as a company that has developed and wants to commercialize a new technology. In general, the insurer will consider a number of factors, such as the marketing of the new product, the marketing plan developed by the applicant, the costs associated with producing and marketing the products, and changes to achieve a net profit on each unit sold. The underwriter may wish to receive shares in the company as part of the compensation package, or simply receive a fixed interest rate on the value of the financial support upfront.