What Is the Role of the Insurance Carrier?
Many of the most recognizable names in American business belong to an insurance carrier. These include State Farm, Metropolitan Life, GEICO, Travelers, The Hartford, Allstate, AFLAC, Aetna and Prudential. What do these insurance carriers do?
Many of these companies are financial conglomerates, selling all manner of financial services and products to consumers. To the insured, though, the most important role played by the insurance carrier is the one in which the carrier pays out a financial claim submitted by the insured in the event of an unplanned event. Of course, in return for this insurance coverage the insured signs an insurance contract stipulating a monthly premium payment. So long as the insured holds up his or her end of the bargain by paying the premium in a timely manner, the carrier will pay out valid claims up to the limit of the insurance contract after the deductible amount has been met.
As part of this process, the insured transfers its risks to the insurance carrier. For example, in the instance of property and casualty insurance the insured may transfer its risk someone will slip and fall on its premises or a warehouse filled with valuable inventory could potentially burn down. By accepting the insured’s signature on the insurance contract and its premium payments, the insurance carrier agrees to assume these two risks. Of course, before doing so the insurance carrier will determine the level and probability of these risks, and price the insurance policy accordingly. The higher and more expensive the insured’s risk, the higher the premium and/or deductible.
The insurance carrier fulfills another role by pooling the risks of many companies. The term “risk pooling” refers to the spreading of financial risks evenly among a large number of contributors to the program – policyholders. The premium amounts paid by these contributors are used to settle the claims of individual policy holders.
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