Insurance is a very technical field, with more width (range or scope), depth, and complexities than what it appears to be. Therefore, Insurer Guru aims to serve as a platform to educate the people (be it professionals from this industry or outside) to make them more familiar with this insurance world. This industry is primarily made up of customers with some risk, insurers (insurance companies), re-insurers (reinsurance companies) and retrocessionaires (further re-insurers). We at Insurer Guru wants to bring you helpful, informative, knowledge-enhancing content from those areas.
Insurance
Let’s start with basic concept of what insurance is. In simple terms, insurance is a mechanism to transfer a risk by distributing that risk among people who are vulnerable to it. Insurance is a financial arrangement where an individual or an entity (such as a business) pays a fee, called a premium, to an insurance company in exchange for protection against certain risks or potential losses. The insurance company, in turn, promises to provide financial compensation or coverage if the insured event occurs.
How insurance works
- Premium Payment: As mentioned earlier, the insured (person or entity seeking insurance) pays a periodic premium to the insurance company. The amount of the premium depends on factors like the type of insurance, the level of coverage, the insured’s risk profile, and other relevant factors.
- Policy: In return for the premium, the insurance company issues a contract known as an insurance policy. The policy outlines the terms and conditions of the coverage, the specific risks it protects against, the duration of the coverage, and any exclusions or limitations.
- Insured Event: If an event covered by the insurance policy occurs, the insured can file a claim with the insurance company. The event could be a car accident, property damage, a health issue, theft, or any other covered circumstance, depending on the type of insurance policy.
- Claims Processing: Once the insurance company receives the claim, they evaluate the circumstances and determine whether the claim is valid according to the terms of the policy. If the claim is approved, the insurance company will provide financial compensation or benefits to the insured, as per the policy’s coverage limits.
- Risk Pooling: The fundamental concept behind insurance is risk pooling. Many individuals pay premiums, and only a few will experience losses or events that require claims. The premiums from many policyholders create a pool of funds that the insurance company can use to pay out claims to those who need it.
Insurance serves as a safety net, protecting individuals and businesses from financial hardship when unexpected events or losses occur. It allows people to transfer some of their risks to the insurance company, providing peace of mind and financial security. Common types of insurance include health insurance, life insurance, auto insurance, home insurance, and business insurance, among others. Each type of insurance covers different risks and offers specific benefits, tailored to the needs of the insured.
You may also like to read reinsurance and retrocession.
