Insurer

Reviewed by Stefan Tirschler

Noun

in·sur·er | ɪnˈʃʊrɚ

Definition: A company that underwrites an insurance risk.

The insurer paid to replace the property that was damaged by the fire.

What is an insurer?

The main purpose of an insurance policy is to provide financial compensation when the insurance customer suffers a loss.

The insurer is the company that pays out that compensation. They’re the company that designs the insurance policy and sets the terms of the agreement. The word “insurer” is usually interchangeable with “underwriter”. An insurance policy is a promise to reimburse the policyholder for a loss; insurers are responsible for fulfilling that promise.

Often, you buy your insurance policy directly from an insurer. Manulife, TD Insurance, and the Insurance Corporation of British Columbia (ICBC) are well-known insurers in Canada.

However, many people buy their insurance through a broker. Brokers are not insurers. Brokers sell policies on behalf of insurers. If you buy your insurance from a broker, the insurer issues your policy and will handle any claims you make.

If you’re unsure about who your insurer is, check your policy. Your policy’s declarations page will clearly identify the insurer that’s underwriting the policy.

People often have confusion about insurers vs. insureds. The insurer is the one doing the insuring; they issue the policy and pay the claims. The insured is the person (or people) that the policy is covering; they buy the policy and receive money from claims.

What about Square One?

Square One has a bit of a unique setup. We’re not an insurer, though we perform most of the services normally provided by an insurer. We issue, bill and service home insurance policies on behalf of an insurer: The Mutual Fire Insurance Company of British Columbia. Mutual Fire underwrites home insurance policies sold by Square One.

Who insures the insurer?

People often ask: who insures insurance companies?

Insurance companies have much more complex insurance needs than the average home insurance customer, so there isn’t a one-size-fits-all answer.

Some large insurance companies self-insure at least some areas of their business. That is, they don’t have an insurance policy at all; they simply pay for losses out of their own pocket.

There are a few types of insurance an insurance company might have:

Commercial insurance

Like any business, insurance companies have offices and equipment to insure. Commercial insurance policies cover losses to the company’s physical property (like computers, desks, or coffee machines). They also include liability insurance, which protects the company from legal damages if, say, a customer slipped and fell inside their office.

Errors and omissions insurance

Errors and omissions insurance (often shortened to E&O) protects insurance companies and their agents financially when they make a mistake that leads to financial loss.

If an insurance agent makes a mistake during the process of issuing a new policy, the insured buying that policy might, for example, end up with less coverage than they were promised.

If that insured takes legal action against the agent or the insurance company, E&O insurance can help cover the cost of the lawsuit and damages.

Reinsurance

Reinsurance helps insurance companies pay claims that they otherwise couldn’t afford to pay.

For home insurance companies, the biggest reason to buy reinsurance is protection against catastrophic disasters. Insurers pay most day-to-day claims out of the pool of premiums they collected from their customers.

However, large-scale disasters like earthquakes, wildfires, or floods can cause billions of dollars in insurable damage. Most home insurance providers just don’t have that kind of cash – it would make premiums unaffordable – so they turn to their reinsurers to pay the excess portion of the claims.

An insurance company might also seek reinsurance during times of rapid expansion. During the early days of expanding, an insurer might not yet have collected enough premiums to pay their new customers’ claims. Their reinsurers will help cover any shortfall until they’ve built up their funds.

Reinsurance providers are big. Most have tens of billions of dollars in annual revenue. Every time anyone on Earth buys insurance, at least a little part of their premium is probably going to a reinsurance company somewhere.

Some of the most well-known reinsurance providers are Munich Re, Swiss Re, Allianz, and SCOR.

The important points

  • An insurer is the company responsible for paying claims under a contract of insurance.
  • An insurer provides insurance policies, while an insured is protected by those insurance policies.
  • Insurance customers often buy their policies directly from insurers, but may also buy from a broker that sells policies on behalf of an insurer.
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Even when you take precautions, accidents can happen. Home insurance is one way to protect your family against financial losses from accidents. And, home insurance can start from as little as $12/month,

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