Which statement best describes the role of an insurance company?

The role of an insurance company is fundamentally about risk management. Insurance companies are designed to help individuals and businesses manage potential financial losses that could arise from various risks, such as accidents, health issues, or property damage. By pooling resources from many policyholders through premium payments, insurance companies create a fund that can be used to compensate losses when they occur. This process effectively spreads risk among many insured individuals, allowing for financial protection and stability.

In this context, managing and mitigating the risk of losses means that while an insurance company cannot prevent all potential losses from happening, it provides a safety net for policyholders. By offering various products such as life, health, and property insurance, they help policyholders navigate unforeseen events and limit the financial impact of those risks.

Let's consider the other statements. Preventing losses entirely is unrealistic, as it overlooks the inherent uncertainties of life and the various events that could cause loss. The notion that companies simply collect payments without providing benefits contradicts the fundamental purpose of insurance, which is to provide coverage and support when claims are made. Lastly, engaging in speculative trading is not aligned with the primary mission of insurance companies, which focus on providing stability and coverage rather than pursuing high-risk investments. Thus, the correct understanding of an insurance