According to the Financial Times Lexicon, the insurance market is simply the "buying and selling of insurance." Consumers or groups buy insurance for risk management from insurers offering coverage for specific risks.
Individual Buyers
Individual consumers purchase insurance coverage to protect against risk. Common insurance market products including homeowner's, auto, life and health insurance. Monthly premiums are paid to the insurer in exchange for a commitment of coverage according to the policy.
Group Buyers
Group insurance buyers are typically businesses or organizations that buy group policies to cover all members of an organization. Some companies pay all premiums for employees while others pay partial premiums and employees cover the remainder. Group members benefit from broader protection and more affordable rates, and higher-risk members usually get coverage that otherwise might not be affordable or available. Health insurance is a common example of a group product.
Insurers: Premium Income
Premium costs are a primary driver of revenue for insurance providers. Insurers collect monthly premiums from a large number of customers to help offset the cost of payouts on insurance claims. Customers who rarely use their insurance benefits are profitable to insurers and help cover the losses created by higher-risk customers.
Insurers: Investment Income
A less obvious form of income derived by most insurance companies is investment income. Insurance companies invest the revenue they receive from policy premiums in order to increase profits and hedge against high payouts and claims. In essence, they borrow your premiums to invest in exchange for the possibility of paying a significant amount to you in claims.