The Vital Role of Insurers in Our Society
Insurers serve many essential functions that benefit individuals, communities, and the broader economy. At their core, insurers help policyholders manage risk effectively by offering insurance products and fulfilling claims when covered events occur.
In fact, data from the Financial Ombudsman Service (FOS) reveals that insurers pay out more than 97% of claims submitted.* This demonstrates their commitment to supporting people when they need it most.
Beyond individual claims, insurers play a crucial part in helping communities recover from natural disasters. They are also major employers and investors, fueling economic growth through funding projects like infrastructure development. By providing financial security, insurance encourages individuals and businesses to make significant investments—buying homes, expanding businesses, or investing in infrastructure—that might otherwise seem too risky.
A strong insurance industry is a hallmark of a modern, thriving economy and society.
Pooling Premiums: Spreading the Risk
Insurance works by pooling the contributions of many people facing similar risks. When you pay your insurance premium, you’re adding to a shared fund designed to help those few who experience losses.
This pooled money means that if your property is damaged, stolen, or destroyed, and your policy covers the loss, you can claim funds from this collective pool to repair or replace your belongings, rather than bearing the entire cost yourself.
However, it’s important to remember that insurance isn’t a savings account. You only access this pool if you file a claim for a covered event. Some policyholders may pay premiums for years without ever needing to claim.
Understanding Underwriting: Setting Fair Premiums
Underwriting is the process insurers use to assess risk and decide how much to charge for a policy. Underwriters evaluate factors such as your age, driving history, location, and the type of property or vehicle you want to insure to determine:
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The level of coverage they will provide
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The circumstances under which claims will be paid
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The premium amount
Each insurer follows its own guidelines to decide whether to accept a risk and under what terms. Sometimes insurers may decline coverage for certain risks, creating opportunities for others in the market.
The goal of underwriting is to set premiums that attract enough customers while ensuring there are sufficient funds to cover claims and maintain profitability.
Reinsurance: Insurance for Insurers
Reinsurance acts as a safety net for insurers themselves. It helps them manage the financial burden of large-scale claims, such as those arising from natural disasters like floods or cyclones. This “catastrophe cover” ensures insurers can meet many claims simultaneously without jeopardizing their stability.
Additionally, reinsurance covers situations where individual claims exceed a set limit, providing further financial security. Often, reinsurers from various regions collaborate to share these risks, spreading exposure across multiple parties.
