The Insurance Company is a business entity that collects premiums from policyholders and pays out the agreed upon amount if something were to happen to them. These companies are designed to be profitable while paying out policy amounts. They do this by investing the excess funds of their premiums. As a result, they are also regulated by state laws.
Insurance companies are much like commercial banks in that they hold a variety of assets and liabilities. Many of these assets are contingent liabilities, which are paid on a pre-specified event. The exact timing of this event is unknown when the insurance contract is written. The insurance company is highly regulated by the government, and is required to have adequate financial resources to cover the risks that they take. Insurance companies fall into two basic categories, proprietary companies and mutual companies. Examples of proprietary companies are Allstate, Liberty Mutual, and Progressive.
When buying insurance, it is important to choose an agency that will give you a good experience. A good insurance company will be able to answer your questions and resolve claims quickly and fairly. A good way to determine whether a company has a bad reputation is to check the National Claims Database. The Insurance Department of each state will also have records of complaints about insurance companies.
The Insurance Company uses several different methods to determine the premiums it charges for its policies. In the initial rate-making phase, insurers consider the frequency and severity of insured perils and the expected payout. They also collect historical loss data to determine what premiums they should charge to cover these risks. In this stage, insurers often use actuarial science to estimate their risk by comparing prior losses to the amount of premium collected and the expenses incurred.
