What Does Insurer Mean?
An insurer is a party that agrees to compensate people, companies or other organizations for specific financial losses. A financial loss would include the destruction of a home due to a fire or a vehicle to an accident — any event that would put the client in a lesser financial state than before the event occurred.
While an insurance company is the “insurer,” the purchaser of insurance would be the “insured.” The exact losses covered and the exact cost of the premiums are laid out in the contractual agreement between the insurer and the insured. Each party must follow specific terms in order for the insured to be indemnified for their loss. One standard clause on the insuring agreement of an insurance contract is the exchange of premium for the promise of indemnity. In other words, the insured agrees to pay for insurance and the company agrees to cover the insured’s losses.
Insurers commonly cover perils associated with automobiles, homes, health, businesses, liabilities and more. They may provide coverage for one single type of risk or have the capacity to insure many different types of risk. For example, one insurer may specialize only in auto insurance for classic cars, while another may provide insurance for classic cars, regular cars and homes for a single client.
Insuranceopedia Explains Insurer
The more premiums an insurer has come in, the more money it has available to pay out claims. Because typically not every policyholder files claims at the same time, insurers are commonly able to meet their claims obligations with the money they receive from premiums.
Underwriters are responsible for assessing the risk for the insurer. They use actuarial data to determine the likelihood of an insured being involved in a loss. For example, in the application for insurance, the purchaser includes their accident and claims history from their previous auto insurance contract. Using this information, the underwriter decides if the application is approved or denied and if the terms of the contract must be modified. If the applicant has a high number of insurance claims, the underwriter may deny physical damage coverage on the vehicle or decline the application altogether because the probability of having to pay out on a claim is too high.
If the insurer takes on too many clients who make claims, the company may need to start restricting coverage or raising premiums to recoup their financial losses. With insurance, every policyholder pays into a large account. From that account, insurers pay out claims — if the account gets too low, premiums go up.
Insurers have existed for thousands of years in various forms. They are essentially those that have the financial means to protect another. Some say the oldest form of insurance was written in the Code of Hammurabi — a set of laws written around 1750 BC that said ship merchants could finance their cargo with lenders (what would be considered insurers today). If the cargo made it to port safely, the merchants paid back the lenders. If the cargo did not make it back because of a shipwreck or accident, then merchants did not have to pay it back. The premiums for this were quite high because the risk of loss was difficult to predict.