A primary insurer is an insurance company that originally offers and underwrites an insurance policy. It retains part of the risk while the rest can be transferred to a reinsurer. The primary insurer is responsible for processing claims, managing policyholder relationships, and handling the initial underwriting of the policy.
Types of Primary Insurers
Proprietary Insurers
These are privately-owned entities that seek profit for their shareholders. They can be publicly traded companies or privately-held firms.
Mutual Insurers
These insurers are owned by policyholders rather than shareholders. Profits are often reinvested into the company or distributed as dividends to policyholders.
Government Insurers
These insurers are government-owned entities designed to offer insurance policies as a public service, often at a lower cost than private insurers.
Underwriting Process
The primary insurer assesses risk through the underwriting process. Here, they evaluate the likelihood and severity of a claim based on various criteria like health, property condition, or driving record.
Historical Context
The concept of primary insurers has evolved over centuries. Historically, the modern insurance sector took shape in the 17th century with the establishment of Lloyd’s of London, where individuals would underwrite marine insurance.
Applicability and Role
Primary insurers play a crucial role in various sectors, such as:
- Automobile Insurance: Primary insurers cover the risk associated with vehicle ownership and operation.
- Health Insurance: These companies provide risk management related to medical costs.
- Property Insurance: They offer policies covering property damage or loss.
Comparisons
Primary Insurer vs. Reinsurer
- Primary Insurer: Writes the initial policy, retains part of the risk, handles claims.
- Reinsurer: Accepts transferred risk from the primary insurer, helps spread the risk.
Related Terms
- Reinsurance: The practice where a primary insurer passes on part of its risk portfolio to another insurance company to mitigate risk.
- Underwriter: A professional who evaluates the risks involved in insuring people and assets and sets appropriate premiums.
FAQs
What happens if the primary insurer goes bankrupt?
How does a primary insurer impact premiums?
References
- Wikipedia contributors. “Insurance.” Wikipedia, The Free Encyclopedia.
- Vaughan, E., & Vaughan, T. (1995). Fundamentals of Risk and Insurance. John Wiley & Sons.
Summary
A primary insurer is crucial in the insurance landscape, initially writing policies and retaining part of the risk while collaborating with reinsurers to spread the remaining risk. Understanding the roles, processes, and distinctions related to primary insurers helps consumers and professionals navigate the insurance domain effectively.
