What is one key role of the Security Fund in insurance?

What is one key role of the Security Fund in insurance?

• A. To lower premium costs for all policyholders
• B. To settle claims in cases of company insolvency
• C. To support marketing efforts for insurance products
• D. To cover administrative expenses of the insurance company

Answer: (B)

The key role of the Security Fund in insurance is to settle claims in cases of company insolvency. This fund is designed to protect policyholders by ensuring that they receive compensation even if their insurance provider fails financially. When an insurance company becomes insolvent and is unable to fulfill its obligations to policyholders, the Security Fund steps in to pay out valid claims. This serves to maintain consumer confidence in the insurance market, as individuals know there is a safety net in place to protect their interests. This function is crucial because it helps to stabilize the insurance industry as a whole by mitigating the impact of an insurer's failure on policyholders. In contrast, the other options focus on unrelated aspects of insurance operations that do not pertain directly to the fund's core purpose of protecting insured parties from insolvency risks.

The key role of the Security Fund in insurance is to settle claims in cases of company insolvency. This fund is designed to protect policyholders by ensuring that they receive compensation even if their insurance provider fails financially. When an insurance company becomes insolvent and is unable to fulfill its obligations to policyholders, the Security Fund steps in to pay out valid claims. This serves to maintain consumer confidence in the insurance market, as individuals know there is a safety net in place to protect their interests.

This function is crucial because it helps to stabilize the insurance industry as a whole by mitigating the impact of an insurer's failure on policyholders. In contrast, the other options focus on unrelated aspects of insurance operations that do not pertain directly to the fund's core purpose of protecting insured parties from insolvency risks.