The insurance industry is one of the most lucrative right now and is marked with fierce competition. Some use aggressive tactics to woo clients who may have little or no understanding of what they are signing up for.
While insurance products do prove helpful in times of calamities, some end being rip offs where the client does not understand the responsibilities of an insurance company.
Broadly, an insurance company provides cover against the risk of loss a client (individual or company) may suffer in case of unforeseen events. The company allows people to share loss through pooling, therefore protecting the individual or company from financial devastation.
Some of the key responsibilities of an insurance company include assessing applications, assessing risks, calculating premiums, and making payments.
- Assessment of Applications
An Insurance underwriter receives several applications from clients; some are accepted whilst others are rejected. It is the responsibility of an underwriter to decide whether an application is acceptable or not.
The company considers various factors and asks for detailed information from policyholders before coming up with a decision.This assessment is carried out to minimize losses and maximize on profits.
The insurance company will also set or state terms and conditions for accepted applications. For instance, a company may offer loading; where the insured will pay a higher premium, or exclusion, where it excludes something from the policy.
- Risk Assessment
Risk assessment entails measurement of the likelihood that something bad will happen. Insurance companies need to predict the likelihood of unforeseen events happening to determine if they will make a loss or profit in covering individuals or companies against a particular risk.
In one way, insurance companies use statistics from what has happened before to determine risk. Insurance companies can also carry out risk assessment through comparison of similar events, but with qualifications.
- Computing Premiums
Since insurance companies are business entities, they need to maximize on profits whilst minimizing losses. For this reason, it is necessary for the companies to set premiums at rates that can adequately cover the cost of selling its policy, administering it, and paying premiums on claims.
Calculation of premiums is dependent on the type of insurance plan and factors that affect it. A health insurance company may calculate premiums based on age, location, and tobacco use of applicant.
- Making Payments
Individuals take insurance cover to receive payment in the event of certain unforeseen circumstances (such as accidents or death). It is the responsibility of an insurance company to make payment on legitimate claims.
Once an insurance company determines that a claim is valid and honest, it needs to pay the client as per agreed terms on a timely manner. The insurance company also needs to exercise fairness, integrity, and honesty when making payment on claims.