The working of Insurance Company

The working of Insurance Company
Insurance is a contract between two persons which acts as a shield or provides shelter or
reimbursement against losses and acts as a hedge against the risk of an uncertain loss. The first
person who provides the contract or policy is known as the insurance company (insurer) or
underwriter, and the second person is the insured who chooses the policy or the contract.
In an Insurance Company, the products offered are the Insurance Policies to the people who want
their risks to be underwritten. These people, known as insured, pay “premiums” to the insurance
companies for underwriting their risks. Whenever any event occurs for which the insurance was
taken, the insurance company pays the insured a sum of money which was agreed in the contract.
Meanwhile, the premiums received from the insured are invested in market, which in return
provides interest income or gains on investment which forms another major source of income for
the Insurance Company. Another source of income is through accepting reinsurance from other
insurance companies. This occurs when an insurance company wants to share the risk with other
insurance companies to prevent it from going bankrupt incase huge number of claims occur.
For eg. Exide Life Insurance, it offers Life Insurance through various policies such as protection
plans, saving and investment plans, retirement and pension plans.
Extracts from financial statements of Exide Life Insurance1 for the year ended 31 December
2019 – figures converted to $ using current exchange rate of 1 Rupee = $ 0.013
Income Amount ($) Expense Amount ($)
Premium income $ 275,850,854 Claims paid $ 124,358,437
Interest income $ 91,311,356 Change in valuation of liability
against life policies
$ 178,837,864
Gain on investments $ 28,391,619 Operating Expenses (comprising
of Employees remuneration and
sales and promotion expenses)
$ 79,497,731
Commission to agents $ 18,027,979
References
1 Exide Life Insurance has a total of $ 1,967,914,794 worth of Investments as at 31 December 2019 from which the
interest income and gain on investments arise from.

(2019). Retrieved from Exide Life Insurance Company Limited: https://www.exidelife.in/docs/default-
source/public-disclosures/2019-2020/3rd-quarter/consolidated.pdf?sfvrsn=2
(2020). Retrieved from Understand Insurance:
http://understandinsurance.com.au/landing/understanding-insurance
(2020). Retrieved from Business - Australian Government: https://www.business.gov.au/risk-
management/insurance/business-insurance