Types and Functions of Insurance Companies to Help Customers
The abundance of risks and uncertainties in life pushes Indonesian people to use insurance. Insurance is no longer a seen as burden, but a necessity to protect lives and possessions from risks. To do so, customers need to use services from insurance companies. Understand more about insurance corporations and their functions here!
Insurance companies are companies that provide insurance products to take over risk from customers. It means that insurance corporations take the role of risk bearers, while the customers have their risks taken care of by these companies. Insurance corporations and customers make agreements with each other in insurance policies signed by both sides.
Insurance corporations are regulated by Government Regulation Number 73 of 1992 concerning the Implementation of Insurance Business in Indonesia. The regulation states that insurance corporations are legitimate business corporations in the eyes of Indonesian law. Credible insurance corporations are listed and supervised by the Financial Services Authority (OJK).
In the process, insurance companies provide protection or protection services to the public. Meanwhile, customers become suppliers of company resources through premiums paid in accordance with the agreement stipulated in the policy. Customers are also users of services provided by insurance companies.
The following are the characteristics of credible insurance companies:
- Presents information about insurance products transparently
- Has an international network
- Provides comprehensive protection
- Adapts products to the needs of insurance participants
- Do not offer excessive products
- Customers can easily contact them
The number of insurance corporations continues to multiply over the years. As their numbers multiply, the examples of different insurance companies also increase.
1. General Insurance
This type of insurance corporation protects against economic loss risk from damage or loss of assets. As such, general insurance corporations are tasked with protecting assets from customers against all kinds of risk. General insurance companies usually provide products such as travel insurance, asset insurance, house insurance, vehicle insurance, personal accident insurance, and many others.
2. Life Insurance
Life insurance corporations are entities that offer products relating to risks against the customers’ life conditions or deaths. The main focus of this insurance is protecting the economic value of someone’s life. Life insurance products consist of term life insurance, endowment life insurance, and unit link life insurance.
3. Social Insurance
Social insurance corporations are companies that provide insurance in the form of a social security framework. One of the most popular social insurance in Indonesia is the Social Health Insurance Administration Body (BPJS) which offers BPJS Kesehatan (Healthcare And Social Security Agency) and BPJS Ketenagakerjaan (Social Security Administrator for Employment).
4. Mandatory Insurance
A mandatory insurance company refers to an insurance entity that provides compulsory insurance products. Usually, these insurance companies are SOEs (State-Owned Enterprises) that belong to the Indonesian government. One example is PT Jasa Raharja.
5. Insurance Corporations
The last example is insurance companies whose customers are either life insurance corporations or general insurance corporations. Reinsurance corporations offer reinsurance services against the risks faced by both types of insurance corporations.
Insurance corporations perform three main functions, namely:
1. Risk transfer
The first function is to transfer the risk faced by the customer. Customers as the insured or insured party take out insurance policies to transfer potentially adverse risks to their property or life.
In an insurance contract, the risk is transferred from the insured to the insurance company in exchange for premium payments that are balanced with the level of risk. The amount of premium paid by the insured must be fair and proportional to the amount of risk borne by the insurance company (fair premium).
The process of transferring risk from the customer to the insurance company occurs through a contract or agreement contained in the policy. This risk transfer aims to reduce financial losses that may occur and control the risk to a lower level by paying a premium.
Insurance companies also act as collectors of funds from customers or policyholders. Funds collected from premiums paid are then managed and invested. The results of the investment are used to lower the amount of premiums and overcome the risks faced by customers.
The insurance corporation acts as an entity that collects funds through insurance premiums or donations of funds periodically over a certain period, under the agreement in the insurance policy.
3. Shared platform
The last function is that the insurance corporation functions as a collective container. In carrying out its responsibilities, the insurance corporation conducts underwriting, which is the process of identifying and selecting risks from prospective insureds who want to be insured by the insurance corporation. The underwriting process aims to determine the appropriate risk limit and determine the premium required to deal with the risk.
To simplify the underwriting process, insurance corporations combine various individual risks into one group consisting of occupational risks, health risks, or neighborhood risks. This grouping of risks uses the principle of the law of large numbers. In other words, the more risks that are similar, the less likely there is a deviation of losses from a given estimate.
If you work in a corporation or insurance agency, you can run the underwriting process more practically with the assistance of Multifinance Core Systems CONFINS from AdIns. Through this service, you can check the customer’s risk level through credit scoring so that you can determine the amount of premium to be paid according to their financial condition. CONFINS also provides other features such as OCR and face recognition needed in the customer verification process. Signing policies in insurance companies has also become easier with e-Sign Hub. Get more information and the opportunity to try the CONFINS demo version by contacting us via WhatsApp!
So, what is an insurance company? In short, an insurance company is a company that provides insurance services as a form of financial protection for customers from all forms of risk in their lives.