What does insurer liability refer to in insurance terms?

Insurer liability specifically refers to the obligation that an insurance company has to compensate claims made by policyholders under a valid insurance policy. This means that when a covered event occurs, the insurer is responsible for paying out claims up to the limits defined within the policy terms. This concept is fundamental to how insurance operates; policyholders pay premiums in exchange for this promise of coverage, making it essential for the insurer to fulfill its duty to pay claims when they are warranted.

The other options focus on different aspects of insurance. The cost of premiums reflects the financial commitment of the insured but does not describe the liability of the insurer. The total assets of the insurance company pertain to its financial health but not to its specific obligations to policyholders. Finally, administrative costs are operational expenses the insurer incurs while managing its business, which do not directly relate to an insurer's liability regarding claims payments. Thus, understanding insurer liability as the commitment to fulfill claims is critical for grasping the fundamental responsibilities of an insurance company.