What must an insurer have in order to cover claims with premium income?

To cover claims with premium income, an insurer must maintain adequate premiums. This means that the premiums collected from policyholders should be sufficient to cover the expected cost of claims, administrative expenses, and provide for profit margins. Adequate premiums ensure that the insurer can fulfill its obligations when claims arise, thereby maintaining financial stability and solvency.

The calculation of premiums takes into account various factors such as the estimated risk of loss, historical claim data, and the overall expenses of the insurance operation. If premiums are set too low compared to the risk exposure and potential claims costs, the insurer could face significant financial difficulties, ultimately compromising their ability to pay claims. Therefore, setting premiums at an adequate level is crucial for the sustainability of an insurance company.