how do insurance companies make money?

Answer 1

Mutual companies technically do not make money as they are designed to distribute excess cash reserves in the form of dividends to their shareholders which are they're policy holders. It is a mutual company as everybody is mutually self insuring.

The majority of companies are stock companies and many have demutualized in recent years.

All of the companies are seeing a much higher level of their profits come from underwriting gains as opposed to investment gains which is why you hear so many people complaining about Homeowners rates skyrocketing and health and auto companies denying more claims.

By their nature Investment by insurance companies must be conservative so returns on investment only are below par for the taste of most wall street people and that is driving the tightening iin underwriting, so that the insurance companies can meet their quarterly projections.

Answer 2

dont forget the other insurance companies out there that do not make a profit..... i work for an employee sponsored self insured group health plan. of course, we are the minority out there on insurance plans, only serving our employees, paying their claims. contributions by the employee are minimal. no underwriting, no union, no other Insurance carrier or Plan to make our decisions. just our company. Our funds are from a trust that both the employees and the company put money into.Federally mandated and governed by ERISA. in a nutshell, we do not make a profit at all. but like i said, we are the minority.

Answer 3

2 ways
Underwriting income and investment income.

Underwriting income comes from carefully reviewing risks and charging enough so they can pay claims and still have a bit left over (profit).This wouldi nvolve the usual claims which happen every day,,such as fender benders.


Investment. Companies set money aside for the big claim which might or might not happen,,,(Katrina) These funds are invested, mortgages, cd's, etc etc so they earn money until needed for a claim.

It is not unusual for a co to have an underwriting loss, but an investment profit, or vice versa.

Answer 4

Most of the time, profits are made by investment income from the reserves and premiums they have collected.

That's why companies can charge you rates LESS than the actual rates needed to pay claims - they subsidize with investment income.

Answer 5

By charging more for a policy than the risk of carrying it. Money is also made by investing received premium payments until a covered loss occurs.

Answer 6

Usually with investments. They don't make money on the premiums charged by letting the money sit in the bank

Answer 7

You pay them your money, through premiums. They invest that money & make it grow. Then pay the profit from investments out in claims. Its a bit more complicated, and there are all kinds of formulas & guidelines; but that's the basic flow of things.

Answer 8

You are given a policy and have to pay it monthly.. the company invests those money and assume the risks. You are given also a certain sum of money in case you die meanwhile....your family may get it LOL not you

Answer 9

Whenever you buy a policy and pay your premiums they invest that money and earn money from it. Also, out of 50,000 people that pay premiums for coverage only about 500 actually make claims and get cash!

Answer 10

They invest the premiums