All Insurance Company
What does an Insurance Company do?
Insurance companies are universally categorized into two groups: Life Insurance Companies and Non-life Insurance Companies. A life insurance company sells annuities, pension products, and life insurance, whereas a non-life insurance company will offer general policies for the protection against losses realized to consumer products or services.
Insurance is an economic and legal tool that operates as a form of risk management for consumers and companies. An insurance product is typically used as a form of hedge against the risk of a contingent or realized loss. The product is defined as an equitable transfer of the risk or a loss from one entity to another in exchange for a tangible payment.
As a result, the insurer or company who offers insurance will sell the hedge or risk management tool to the insured individual. The entity that purchases the policy will be protected from damages or a loss attached to the underlying product or resource.
All insurance companies provide the risk management tool to accrue a profit. Although insurance companies are in business to realize a financial gain, the policies offered enable the consumer protection against an elevated cost. All insurance companies utilize an insurance rate, which is a factor used to determine the price charged for a certain amount of coverage.
An insurance company can provide a policy for seemingly any consumer product or valuable service. Houses, property, credit, automobiles, boats, medical care, a person’s life, and various consumer products are typically attached with some form of insurance policy.
An insurance company provides these policies to a consumer base by pooling funds from multiple insured entities to pay for the losses that may incur. As a result of this relationship, the insured entities are protected from risk for a fee charged by the insurance company. That being said, all insurance companies will evaluate particular scenarios and individuals to ascertain which goods or entities are in fact insurable. An insurance company will adjust the rates attached depending on the likelihood that the individual or the good attached will incur damages and costs to the insurance company.
All private insurance companies incorporate a model which prices seven potential types of risks: accidental losses, large losses, calculable losses, a definite loss, large number of similar exposure units, an affordable premium, and a limited risk of catastrophically large losses.
Legal Issues Attached to Insurance Companies
When an insurance company insures an entity, there are basic legal requirements attached to the policy and the transaction of the product. The following list contains examples of basic legality issues that affect an insurance company’s business model:
Indemnity: The insurance company will compensate the insured entity in the case of certain losses only up to the insured interest.
Utmost Good Faith: The insurance company and the insured entity are tied together through the agreement by a good faith bond. The contract must be honored with honesty and fairness, and all material facts must be disclosed in the agreement. A failure to institute the agreed upon contractual obligation will result in a lawsuit and a termination of the policy.
Insurable Interest: The insured entity must directly suffer from the loss to realize coverage. The policy holder must possess a “stake” in the damages suffered or the monetary loss of their insured good or service.