Insurance companies are corporations that sell policies to individuals and businesses for protection against financial loss resulting from various hazards. These policies typically reimburse the policyholder or beneficiary for losses resulting from auto accidents, loss or damage of property, disability or death. In the case of medical and dental insurance, the insurance companies may directly pay the service providers.
Functions of Insurance Companies
The U.S. Department of Labor describes the typical insurance carrier as a large company that provides insurance and assumes the financial risk of the policies. One important function of an insurance company is to collect premiums, the primary source of revenues for its operations.
Business Model
The insurance agreement specifies the terms of the policy, such as the length of coverage, the types of losses covered, and amount of benefit to be paid out. The premium is calculated based on the amount of the benefit and the probability of a payout. When assigning a premium to a policy, the insurance company must balance financial profitability and competitive pricing in the market. An important element of a viable insurance business is sound investment of the premium dollars it receives. The insurance company needs to develop a portfolio of financial assets and real estate, that can generate income to pay off any future claims.
Industry Organization
The insurance carrier usually sells policies through insurance agencies and brokers. These agencies and brokerages market to the consumers and handle the business transactions involved in the selling and maintenance of policies. Separate affiliates are responsible for supportive functions in the industry, such as claim adjustment and claim processing.
Company Ranking
When you shop for an insurance plan, you may find it useful to know who the industry leaders are by market share. The Insurance Information Institute publishes this free information on its website. The rankings of insurance companies are categorized by insurance type: property/casualty, life insurance, personal and commercial auto, commercial lines and workers compensation insurance.
Regulations
In the United States, insurance companies must be licensed in the states in which they sell insurance policies. Each state operates a Department of Insurance responsible for regulating insurance companies and their products. Contact your state's Department of Insurance to make sure that the insurance company you want to do business with is in good standing.
Member Comments