What Are the Functions of Insurance Companies?

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Regardless of your opinion of the service and protection insurance provides, insurance companies themselves serve a number of purposes for businesses, individuals, families and the general economy. These companies employ an array of advanced strategies and tactics to assess risk, mitigate losses and contribute to economic health.

Sell Insurance Policies

Like any other business, insurance companies operate for the purpose of generating a profit and returning money to their investors. They accomplish this task by deploying armies of insurance agents, most of which are independent contractors, to meet with prospective clients, evaluate client needs and sign insurance policies. Your local insurance agent might operate totally independently, may run a small office or, in some cases, may work as an employee of the insurance company to generate revenue. Many insurance companies operate online portals that allow you to browse available services, including home and auto insurance, select a coverage level, and sign up without ever visiting an agent’s office. Insurance companies serve a vital purpose for certain consumers, including homeowners who are required to have homeowners insurance and car owners who are required to have auto insurance.

Tip

  • Selling policies is only one of the ways insurance companies generate revenues and profits. These companies use a number of other strategies and tactics, including carefully evaluated financial investments, to increase investor returns.

Evaluate Risk

Insurance companies employ actuators, analysts and other staff to evaluate and reduce risks. Actuators constantly evaluate risks of every available policy, using factors like claim histories and weather patterns, to determine how likely the company is to receive claims on its policies. If the risk of a claim increases, the company can increase premiums to cover possible expenses.

Tip

  • Though the exact formulas insurance companies use to evaluate risk are proprietary, companies routinely share risk information with the public. Insurance companies also share information with other insurers via inter-company tools like the CLUE database.

Mitigate Risk

Insurance companies provide a variety of tools for reducing and mitigating risk. Many health insurance companies, for example, provide well-being seminars and complimentary health screenings for their customers. Auto insurance companies also provide safe driving tips and evaluate the safety of vehicle models.

Tip

  • Insurance companies mitigate risk in many different ways. Some of these methods are public and very visible while others, like lobbying for favorable government regulations, take place more quietly.

Service Claims

When you experience a loss, the insurance company provides the service, support and financial assistance you need to recover. Your insurance company provides a resource to contact when necessary, and sends a claims adjuster to evaluate the impact or damage. Depending on the type of claim, the insurance company then contracts with repair service providers, handles damage control or issues a final payout.

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