What is an Insurer? The Key Player in the Insurance Industry
What is an Insurer?
An insurer is a company that provides insurance policies to individuals or organizations in exchange for premium payments. Insurers take on financial risks from policyholders by agreeing to pay for potential future losses specified in the insurance policy.
Types of Insurers
There are several common types of insurers:
- Liability insurer – Covers policyholder legal liabilities resulting from injuries to other people or damage to their property. Examples: commercial general liability, errors & omissions, directors & officers liability.
- Property insurer – Covers policyholder financial losses resulting from damage or destruction of property they own. Examples: homeowner’s, renter’s, business property, inland marine, ocean marine.
- Health insurer – Covers medical expenses for illness, injury, or preventive care for insured individuals. Examples: major medical, short-term health plans.
- Auto insurer – Covers losses associated with personal and commercial vehicles. Examples: private passenger auto, commercial auto, specialty vehicles like RVs.
These common categories can overlap. For example, a homeowner’s insurer provides both property coverage for the home itself and liability coverage for injuries occurring on the insured property.
The Insurer’s Role
An insurance provider, insurance carrier, or insurance underwriter serves several key functions:
- Develop, price, and market various insurance products to meet client needs
- Accurately evaluate and quantify potential future losses based on risk profiles
- Set appropriate premium rates to cover predicted losses and expenses while remaining profitable
- Maintain sufficient financial capacity and reserves to pay future claims
- Handle administration of policies, claims, and payouts
Balancing these responsibilities is an insurer’s core business. The viability of their company depends on efficiently carrying out these roles at scale across large numbers of policies and unpredictable losses.
How Insurers Set Rates
Insurers use actuarial science to develop statistical models to forecast future claims costs. Historical data and risk characteristics serve as inputs to estimate losses in a given period. The actuarial team determines appropriate premium pricing corresponding to different risk profiles.
Data utilized often includes:
- Policyholder attributes like age, location, claims history
- Type, scale, and loss history of past events
- Trends over time influenced by technology, regulation, court awards
- Impacts of risk reduction, safety improvements, etc.
There is both art and science behind accurately rating policies at a granular level while ensuring the book of business meets profitability targets.
Insurance Underwriting
Insurance underwriters are responsible for carrying out the core insurance functions for targeted customer segments. Their duties include:
- Evaluating submissions for new business
- Assessing the nature of the risk or peril being insured
- Determining appropriate premium rates for applicants based on risk profiles
- Deciding whether to accept or decline coverage
Quality underwriting prevents adverse selection, ensures premium adequacy, and produces a diversified balanced portfolio of policies. Superior underwriting is crucial for an insurer’s long-term financial success.