A article to explain key terms used in Insurance Industry and Insurance Business. Also learn about various operational and performance metrics used in insurance domain.
Let us understand some common terms used in the context of insurance business.
Insurer : The company which issues insurance policy is called insurer. Insurer is the party to an insurance arrangement who undertakes to indemnify for losses. Insurer agrees to pay compensation on the happening of uncertain and unfortunate event.
Insured : The person, group or property for which an insurance policy is issued is called
Insured. The person who is protected against uncertain losses and who is paid a compensation by the insurance company is called insured. Insured is also known as the policyholder.
Policy : It’s a written document that contains the contract of Insurance. It’s a document given by the insurance company to the policyholder, which defines the terms and conditions of the policy taken. This is an important document that needs to be produced by the policyholder to initiate any claims.
Premium : Premium is the periodic financial consideration paid by the insured to the insurance company in return for the insurers guarantee to compensate for his losses in future. The amount of premium depends on the policy amount and the cover period. Amount of premium to be paid is generally calculated in the beginning and remains same throughout the entire policy period.
Claim : A formal request by the insured to an insurance company asking for a payment based on the terms of the insurance policy. Insurance claims are reviewed by the company for their validity and then paid out to the insured. Claim is made on the happening of the event. For example, fire, flood, theft, death, etc.
Actuary : Actuary is a professional person appointed by an insurance company who deals with the financial impact of risk and uncertainty. An actuary is a highly trained statistician with expertise in evaluating various types of risks. An actuary is a specialist mathematician who calculates premiums for insurance companies.
Reinsurance :When multiple insurance companies share risk by purchasing insurance policies from other insurers to limit the total loss the original insurer would experience in case of disaster. When reinsurance occurs, the premium paid by the insured is typically shared by all of the insurance companies involved. This is done to protect company from the heavy losses in case of big tragedy. This is generally considered for high value items for example satellites, ships etc.