The terminology are going to be, i will be using and what I’m most conversant in will be Australian terminology. this might differ from where you reside, but frankly tons of terms are interchangeable (e.g Excess in Australia, is your deductible within the us .)
So let’s start with part one.
The major players you’ll find generally insurance are:
The Policy Holder/Insured –
That’s you. You’re vital as you’re why these companies are in business.
The insurance firm and Insurance Carriers- Now for the foremost part these are one and therefore the same, however i will be able to note some small things here. Carriers are usually branded policies (for example in Australia Coles Insurance) which are underwritten by the insurance firm (in the case of the above example Westfarmers). More often than not, your Insurance Carrier are going to be an equivalent as your insurance firm , though within the case where multiple brands are owned by an equivalent company (take for instance AAMI, GIO, Suncorp, Just Car, Bingle, Vero all being owned by Suncorp Group) they’re going to be underwritten by the parent company (In the case of the above i think it’s still AAI Insurance, which was the Parent Company of AAMI and APIA before the Suncorp buyout.)
These are large multinational companies with stupidly huge amounts of cash , like Lloyd’s of London who insure the insurers against catastrophic events. They’re those who set stipulations like “Do not protect nuclear fallout” they seem to be a a part of legislation in Australia after the collapse of FAI Insurance, and every one general insurers in Australia must be reinsured by law.
Then you’ve got your secondary players, these are your Brokers, who are a more personalised insurance company who write policies surely companies (A broker may write policies for his or her clients underwritten by Allianz for example), and repair providers- repairers, builders, fraud investigators.
Part Two, the why’s and hows:
Why they exist, well you’ll enter history for that, finding it as a collective that sea-faring merchants pooled into just in case of serious shipment. Everyone paid in to hide the unfortunate soul should something happen, if the quantity put within the pool earned interest all of them took a cut.
This is not dissimilar to today, however now we all pay into a corporately managed pool as individual citizens.
The Policy Holder could seem sort of a losing gain, you’re paying into a pool and might never use it (I myself are paying insurance for 13 years now, and haven’t claimed once) However, the quantity I’ve paid in 13 years (avg 600/year * 13 years = 7800) remains but what it might cost to exchange my current $30 000 vehicle should it’s written off. I make money by not having to pay $30 000 to urge a replacement car, or $10000 for repairs etc etc.
The Enterprize makes their money through those premiums paid into the pool. Those premiums earn interest over the fiscal year , and when you’re talking many policies paying into the pool, that’s a tonne of cash to earn interest on. They protect their earnings through reinsurance. In 2011, Suncorp group received $250 000 000 in natural disaster claims. By accessing their reinsurance, they were ready to stop their losses at that quantity for natural disasters, and have their reinsurance cover the rest . During this way, very similar to how we pay to hide our cars, Insurers pay to hide their pool of premiums so as to stay the corporate liquid to hide other claims.