The key role of insurance is to help people protect themselves financially against life’s uncertainties, such as natural disasters, a car accident, or vacation illness.
Reading: How do insurance companies work
how does insurance work?
Insurance works by pooling the resources of a large number of people who have similar risks to ensure that the few people who experience loss are protected.
When you take out an insurance policy and pay an insurance premium, you’re putting some of your own money into that fund.
If your property is accidentally lost, stolen, damaged, or destroyed, and you have an umbrella insurance policy that covers the property for those risks, you can file a claim and use that pool of money to help pay the bills. repairs or replacements. costs.
This may allow you to avoid paying the full cost to replace, repair, rebuild, or restore valuable things if they are lost, stolen, damaged, or destroyed. it also means you could avoid ending up with a lot of debt or liability.
When you pay an insurance premium, you will have access to the pool of money only if you claim a loss that is covered by your insurance policy.
A person who has paid an insurance premium for many years may never file a claim.
When you buy an insurance policy, your insurer promises to pay you for the type of loss stated in the policy, such as an accident, theft, loss, or catastrophe, by financing repairs or replacement of items, up to your policy limit or , sometimes providing a cash settlement.
Policies from each insurer have different rules about what the policy will cover. Exclusions may apply, so read your policy carefully and seek advice if you are unsure what your policy will cover.
what is subscription?
underwriting is how an insurer calculates how much to charge for each risk it covers for each person who buys an insurance policy and under what terms.
When preparing a policy, insurers will calculate:
- how much will they agree to pay for a loss
- under what circumstances will they make a payment
- how much will the premium be
Underwriters think of several different things when pricing a particular risk for insurance. For example, car insurance premiums can vary based on the age, gender, and driving history of primary drivers, as well as the location, type, and age of the car.
Each insurer has its own set of underwriting guidelines to help determine whether or not they should accept the risk in a particular situation.
In some cases, one insurer may decide not to cover a particular risk while other insurers may.
underwriting involves calculating a premium that is low enough to attract a good number of buyers and high enough that there is enough money in the pooled funds to pay all claims that may be made, plus get a profit for the shareholders of the insurer.
what is reinsurance?
Reinsurance is like insurance for insurers. it can be used to cover different risks for insurers. For example, insurers may use reinsurance to ensure that they can pay a large number of claims if a major disaster occurs, such as a cyclone or flood. this is generally called catastrophic coverage.
Insurers can also resort to reinsurance if they have insured claims greater than a certain value, previously agreed with the reinsurer.
Reinsurance involves multiple insurers, often from different geographic regions, pooling together to share their risk exposure.