How do insurance companies earn money?

But for any business to be profitable, income must be greater than the expenses. Have you ever wondered how the insurance companies operate? If what you pay to your insurance company is just a small fraction of what they pay you when you file a claim, how do they even make money? read more

There are three main ways insurance companies make or save money: Investments. Many people think insurance companies make money solely on charging more in premiums than they intend to pay out. This isn’t the case. Most insurance companies actually try to price their plans at just enough to cover payouts. read more

Auto insurance companies make money through a combination of managed risk and the strategic use of money. Insurers associate together large swaths of their policyholders into"groups" via the risk-assessment criteria discussed earlier -- type of car, driving record, and so on. read more

The percentage of money paid out in claims as a percentage of premiums earned is the loss ratio, and the percentage of premium income paid toward expenses is the expense ratio. The lower these"combined" ratios are, the greater the net underwriting income. read more