A look at how the consumer insurance industry works.

The insurance industry is saturated with different products that offer coverage for almost everything; from your health to food trucks. It’s also common to find jargon within the policies that make it difficult for your average person to understand.

However, the concept of most insurance products are very similar. In this article, we’ll run through how the consumer insurance industry runs in a nutshell.

Who is Involved?


The party or company that underwrites the insurance policy and is responsible for providing compensation.

Policy Holder

The person/party who owns the insurance policy. This is the side which will be covered by the policy.


An intermediary between the insurer and policy holder. Brokers may be affiliated with multiple insurance companies. They represent their clients in settling insurance claims and negotiate for the best deals the policy holder can get. Brokers also tend to act as insurance agents, hence adding to the cost of your premium for commissions.

Insurance Comparison Tools

This is a relatively new concept in the insurance realm. Since there is an overwhelming amount of insurance products in the market, insurance comparison tools such as PolicyScout allows you to compare prices of different insurance policies in an instant without having to deal with different brokers.

How Insurance Works

Having an insurance policy is a means of protecting you and your family from financial loss. Generally, they all work the same way.

When you sign up for an insurance policy, say, health insurance, you’ll be paying a premium each year (or semi-annually) to the insurer. The insurer will compensate you in the event you end up with a medical bill and make a valid claim.

How much they compensate or cover you will depend on the terms written in the policy. Normally, the higher your premium, the higher the coverage. Most insurance policies and after a year, and you can renew or look for a different policy altogether.

How Is Your Premium Calculated?

There are a bunch of factors that influence how much your insurance policy would cost. Primarily, it is how much coverage you will receive as well as how “risky” the insurer considers you. This would depend on the personal information form you fill up.

A higher coverage would of course, incur higher premiums. Because your insurer would be footing most of the medical bills, it’s only fair that they receive a bigger pay.

If you’re a mid-40’s smoker applying for health insurance, your premiums would be more expensive compared to a 25-year-old that doesn’t smoke even if you both are getting a coverage of $250,000 the same year. This is because the odds of you filing a claim would be higher than the other person.

The same concept applies for car insurance. If you live in a high-risk neighbourhood and have no garage, the chances of your car being stolen or vandalized is higher than in a gated neighbourhood. Therefore, your premiums will be higher.

Each insurer has their unique way of rating each of their criteria for assessing risk. This also means that you can shop around until you find something that gives you the best value for your money.

Other factors that rack up your premiums:

Competition for insurance in your location

Your insurer may deviate policy premiums to attract new business if your particular location has a competitive insurance market

Broker fees

If you have a broker doing your bidding, you could be paying more for their services.

Comprehensiveness of your policy

You can negotiate with your insurers if you wish to have add-ons to your insurance policy. For example, if you have basic house insurance, you can also opt for an all risk coverage that insures your personal properties as well. But, this will make your policy more expensive.

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