The Basics of the Property
Risk is everywhere. It touches virtually every facet of the lives of individuals and the operations of enterprise. The insurance industry is in the business of assuming and managing the numerous and diverse risks that impact our world.
Individuals and businesses pay premiums to transfer their risks to insurance companies. By doing so, the insured party purchases the insurer’s contractual promise that if a certain adverse event occurs, the insurer will pay, enabling the insured to protect assets from the financial impact of the event, or at least lessen the resulting financial burden.
These adverse events can range from a fire that destroys a family’s home, to a liability lawsuit that forces a corporation to pay hefty legal defense fees, settlements or judgments, to medical expenses incurred by an employee who is injured on the job.
Underwriters at insurance companies specialize in assessing the risks confronting people and businesses around the world. These professionals also determine the proper amount of premium the insurer should charge to assume a risk, based on the size of the risk, the terms and conditions to be put forth in the insurance contract and the likelihood that a claim will occur.
An insurance company typically invests the premiums it collects so that its money grows, ensuring its financial ability to pay claims and fulfill its promise to insureds while maintaining a profitable business. Profits come to insurance companies primarily in two ways: underwriting profits, which are monies left over from premiums collected after operating expenses and claims are paid, and investment income, which is the income an insurer generates from investing its capital and the loss reserves maintained on its balance sheet to pay losses.
