- What are the objectives of insurance?
Insurance a risk transfer mechanism that facilitates transfer of financial consequences from an individual/institution to the insurer. Insurance provides protection to those exposed to risks. One of the objectives of insurance is to pool the risk of a sufficiently large number of policyholders. By collecting premiums from many individuals or organizations, insurers can pay out relatively few claims each year while collecting premiums from the majority of policyholders who don’t file claims over that same period.
A second key objective of insurance is to compensate policyholders following predetermined catastrophic events. For example, auto insurance policyholders are reimbursed for part or all of the damages sustained by their vehicle in a collision.
A third objective of insurance is to satisfy policyholders that insurers are financially stable and solvent. This is important because if any policyholders weren’t compensated for eligible losses it would undermine society’s confidence in the system
- What is the difference between Insurance Company and a reinsurance company?
An insurance company is an institution that that carries the risks and pays out claims. It is referred to as the insurer or an assurer. Where an insurer assumes risks which are beyond their retention, part of the risk will be passed over to a reinsurer. Reinsurance is insurance for insurers.
- What is the difference between Assurance and insurance?
Assurance is a type of financial coverage that provides compensation for an event that is certain to happen. Assurance is similar to insurance, but insurance specifically protects policyholders from events that might happen and provides compensation to the insured if and when a financial loss occurs.
- What does Reinsurance mean?
Reinsurance, also known as insurance for insurers, is the practice of insurers transferring portions of risk they have assumed to other parties by some form of agreement to reduce the likelihood of having to pay a large amount resulting from an insurance claim.
- Who is an agent?
An agent is a person who represents an insurance firm and sells insurance policies on its behalf. The insurer being the principal is liable for the actions of the agent.