Why do banks and insurance companies make so much money?

I think the basic principles of how they make money are simple and worth going over first. As stated previously - banks take deposits and build a base of money. They can then use that money to lend, invest etc to make more money. They give some back to the customers in the form of interest on the original deposits. read more

So, when you ask about why they make so much money, you need to switch your measurement from the net profit to a return on equity. Technology, pharma, media, football players etc have far higher returns on equity (and take higher risks) than banks and insurers. read more

So it was long ago that large company CEO pay made its huge gains, and such compensation has now become the norm. But this does rile some folks. After all, when a hired CEO makes more in a single workday (based on a five day week) than the worker does in an entire year, justification does become a bit difficult. read more

It is at first difficult to understand how a life insurance company makes money. If you buy a $500,000, 30-year term life insurance policy and pay a $1,000 annual premium and pass away after year 25, the insurance company has collected $25,000 but must pay out $500,000. read more

Insurance companies generally make money if they manage to an Underwriting Profit, control Expenses and realize Investment Income. Insurance companies make money if they manage three main disciplines. read more

Banks and insurance companies are both financial financial institutions, but they don’t have as much in common as you might think. Although they do have some similarities, their operations are based on different models that lead to some notable contrasts between them. read more