What method do commercial insurers operate on?

Commercial insurers primarily operate on the indemnity method. This approach is based on the principle of indemnity, which is designed to restore the insured to the financial position they were in before a loss occurred. Under this method, the insurer pays for covered losses up to the policy limit, ensuring that the insured does not profit from a claim but is instead compensated for their actual loss.

The indemnity method helps maintain fairness in the insurance market by discouraging individuals from intentionally causing losses to benefit financially. It emphasizes the need for accurate loss assessments and claims processes, which are critical for the sustainability of insurance operations.

The other methods mentioned, such as cost-plus and reimbursement, may apply to specific situations or types of insurance but do not represent the overarching mechanism utilized by commercial insurers. For instance, reimbursement might refer to situations where one party is reimbursed for expenses they've already incurred, which is more typical in healthcare policies than in broader commercial insurance practices. The fixed premium method describes how premiums may be calculated but doesn't reflect the operational approach to claims handling.