Insurers' business model

Underwriting and investing

The business model is to offer more premium and investment because they collect to pay damages, and competitive prices that consumers receive. The result can be reduced with a simple equation: profit = premium + taken over - and loss - the cost of insurance.

Insurers money in two ways:

1. to ensure through the adoption, and sound risk underwriting process to decide how much premium to accept risk-free;
2. By investing the premiums they collect from the insured.

The most complicated aspect of the business of insurance, actuarial science, pricing (pricing) policies that statistics and probability are used to calculate future claims to estimate the specific risk. Once the production rates, insurance companies use discretion to reject or accept the risk through the admissions process.

At the lowest level including the first collective bargaining, the frequency and severity of risks and hazards can see the expected payments on average, generated from the danger zone. So the insurance company will collect historical losses, loss of data on the current value and compares this loss on the premium to the level of solvency ratios to assess losses [8] and the cost .. This analysis consists of a variety of risk characteristics at the lowest level compared with a loss "relativities Loss" - a policy with monetary policy twice since the cost has doubled. However, a more complex multivariate analysis using general linear model is sometimes used when some of the characteristics and results of univariate analysis, to generate confusion. Other statistical methods in assessing the likelihood of future losses can be used.

After completing a particular policy, less the amount of premiums and investment in claims, insurance underwriting profits in politics pay. Insurance underwriting performance is measured in the combined ratio [9] that the ratio of claims and expenses, premiums earned. A combined ratio below 100 percent constitutes acceptance of profitability, while anything over 100 technical losses. A company with a combined ratio over 100%, but still can be profitable because of investment income.

Insurance companies get investment profits on "float". Float or reserves are available, the amount of money on hand at any given time, insurance companies, insurance premiums, but not yet paid on the loan. Insurers start investing insurance premiums as they are collected and paid on interest or other income they earn claims. Association of British Insurers (400 insurance companies and collect 94% of UK insurance companies), nearly 20% of investment on the London Stock Exchange. 

In the United States of underwriting loss of property and casualty insurance companies 142300000000 $ in five years until 2003. But overall profit for the same period was $ 68400000000, because it floats. Some people in the insurance sector, in particular, Hank Greenberg, do not think it is always possible to profit from float without underwriting profits and fixed, but this is not universally held.

Of course, the float method is very difficult to do in time of economic depression. Bear markets do not lead to change insurance and investments to strengthen their underwriting standards so that the poor economy generally means high insurance premiums. This trend between the periods of favorable and unfavorable swing from time to time generally known as underwriting or insurance cycle.