The insurance industry is regulated through various means, but there are some fundamental principles that all policies must follow. The insurance industry is subject to regular “underwriting cycles,” which fluctuate between a soft and a hard market. The soft period is characterized by low premiums, while the hard period is characterized by higher premiums and fewer coverages available. The most recent “hard” period was the liability insurance crisis, which led to an increase in rates and coverages. Since then, the commercial property and casualty markets have become more rigid.
The insurance industry is made up of companies that provide risk management services, which are usually in the form of insurance contracts. These contracts promise to reimburse an insured, or policyholder, for losses that they incur due to a covered event. The insured pays a lower premium to the insurer, who in turn assumes the risk of paying out a larger amount if the policyholder experiences a loss.
Insurance brokers are paid a commission for their services. The fee is a percentage of the insurance premium. This commission creates a conflict of interest. However, brokers have contracts with many different insurers, so they can shop around and obtain the best rates and coverage for their clients.