Insurance companies provide insurance which attempts to quantify risk by pooling together a large number of risks. This makes use of the law of large numbers. As applied to insurance, this means that the greater the number of similar risks, the greater accuracy with which insurers can estimate the overall risk. For example, many individual people purchase health insurance policies and they each pay a small monthly or yearly premium to an insurance company. When a policy holder gets ill, the insurance company provides money to cover medical treatment. For some individuals the insurance benefits may total far more money than they have ever paid into the insurance policy. Others may never make a claim. When averaged out over all of the people buying policies, value of the claims even out. Insurance companies set their premiums based on their calculated payouts. They plan to take in more money (in premiums and in profit from the float) than they pay out in the end to cover expenses. For-profit insurance companies set their rates to make a profit rather than to break even. Insurance companies also earn investment profits, because they have the use of the premium money from the time they receive it until the time they need it to pay claims. This money is called the float. When the investments of float are successful, they may earn large profits, even if the insurance company pays out in claims every penny received as premiums. In fact, most insurance companies pay out more money than they receive in premiums. Insurance companies give an assurance to each individual by providing various Insurance options for a set period of time.
TYPES OF INSURANCE COMPANIES
Insurance companies may be classified as :
- Life insurance companies, who sell life insurance, annuities and pensions products.
- Non-life or general insurance companies, who sell other types of insurance.
In most countries, life and non-life insurers are subject to different regulations, tax and accounting rules. The main reason for the distinction between the two types of company is that life business is very long term in nature - coverage for life assurance or a pension can cover risks over many decades. By contrast, non-life insurance cover usually covers shorter periods, such as one year.
Companies may sell both life and non life insurance, in which case they are sometimes known as composite insurance companies.
Insurance companies are also often classified as either mutual or stock companies. This is more of a traditional distinction as true mutual companies are becoming rare. Mutual companies are owned by the policyholders, while stockholders, (who may or may not own policies) own stock insurance companies.
Reinsurance companies sell insurance cover to other insurance companies. This helps insurance companies to spread their risks, and protects them from very large losses. The reinsurance market is dominated by a few very large companies, with huge reserves
Insurance companies usually depend on teamwork and communication in order to develop an appropriate insurance policy for a client, or to bring a claim to a fair conclusion. If you are representing your company as an agent who helps individuals and families select suitable insurance policies, you need to be outgoing, confident, and knowledgeable. As a claims adjuster, you work closely with claimants, witnesses, and colleagues, so interpersonal skills are essential. Insurance company provides pure insurance, which pays you in time of need in form of cash value insurance, which also has a savings vehicle.
