Nature of the Insurance Industry
The insurance industry provides protection against financial losses resulting from a variety of hazards. By purchasing insurance policies, individuals and businesses can receive reimbursement for medical expenses, loss of income due to disability or death and losses due to car accidents, theft of property and fire and storm damage etc.
Insurance Industry Overview
The insurance industry consists mainly of insurance carriers and insurance agencies and brokerages. In general, insurance carriers are large companies that provide insurance and assume the risks covered by the policy. Insurance agencies and brokerages sell insurance policies for the carriers. While some agencies and brokerages are directly affiliated with a particular carrier and sell only that carrier’s policies, many are independent and are thus free to market the policies of a variety of insurance carriers.
In addition to these two primary components, the insurance industry includes establishments that provide other insurance-related services, such as claims adjustment or third-party administration of insurance and pension funds. One service provided by these other establishments is the processing of claims forms for medical practitioners. Other insurance industry services include loss prevention and risk management. Insurance companies sometimes hire independent claims adjusters to investigate accidents and claims for property damage and to assign a dollar estimate to the claim.
Insurance carriers assume the risk associated with insurance policies and assign premiums to be paid for the policies. In the policy, the carrier states the length and conditions of the agreement, exactly which losses it will provide compensation for and how much will be awarded. The premium charged for the policy is based primarily on the amount to be awarded in case of loss and the likelihood that the insurance carrier will actually have to pay. In order to be able to compensate policyholders for their losses, insurance companies invest the money they receive in premiums, building up a portfolio of financial assets and income-producing real estate which can then be used to pay off any future claims that may be brought. There are two basic types of insurance carriers in the insurance industry: primary and reinsurance. Primary carriers are responsible for the initial underwriting of insurance policies and annuities, while reinsurance carriers assume all or part of the risk associated with the existing insurance policies originally underwritten by other insurance carriers.