What comprehensive role does an insurance company perform?

• A. Offer legal counsel to policyholders
• B. Evaluate risk and set premium prices
• C. Manage government regulations
• D. Conduct investigations of insured entities

Answer: (B)

An insurance company plays a comprehensive role in evaluating risk and setting premium prices. This process involves assessing various factors associated with potential policyholders, including their health, building conditions, driving records, and more, to determine the likelihood of a claim being filed. By quantifying these risks, the insurance company can establish premium prices that reflect the level of risk they are assuming. This ensures that they are financially prepared to cover claims while remaining a viable business.

Evaluating risk is fundamental to the insurance industry as it affects not only pricing but also the underwriting process and overall sustainability of the insurer. By accurately assessing risk, companies can create policies that are both competitive in the marketplace and financially sound. This core function aligns with the primary business model of insurance, which revolves around balancing the premiums collected with the claims that may need to be paid out.