subject: How Do Insurance Companies Earn Money [print this page] How Do Insurance Companies Make money is a query that has been on my mind.
How do insurance corporations make moneyIt's a query on a large amount of people's lips : How do insurance firms make cash?
Whenever there's an accident, a burglary, a death, an emergency all you seem to hear about is how much the insurance corporation has been forced to shell out. So if they are always paying cash out, then how do insurance firms earn cash?
Here, I have assembled a list answering the issue of 'how do insurance companies make money', to offer you an idea of the way in which the insurance industry works and why insurance companies are such a success.
How Do Insurance Corporations Make cash
- The Steps involved :
How do insurance companies earn cash Step One : Cost Research. No matter what is being insured, whether it is a vehicle, a home or alternatively, the insurer will first evaluate how much it'll cost to fix the damage.
How do insurance firms earn cash Step Two : Risk Analysis. The next stage is to work out the chance of whether they are going to need to pay out any damages on such an insured item.
How do insurance companies make money Step Three : Profit Research. This stage is critical in answering the issue of 'how do insurance companies make money'. The insurance firm will take the price of potential damages into account, set it against the risk of such damage occurring, and then set an amount that will make them a little percentage on top.
The way that it works, is that while some buyers who pay their insurance will unavoidably state a claim, costing the insurance corporation more than they have paid, there are far more customers who won't.
' How do insurance firms make money? ' An Example
Ok, so let's say there are Ten clients who all take out insurance one their cell phone. If the insurance company has to pay for a newer one, lets say it will cost them $150 bucks. In this example, if the chance of having to replace the customer's cellphone is 10%, it means that out of Ten consumers, they have to bring in more than $150 greenbacks in order to make profit. Therefore for one year the company may charge each customer $20 to insure their phone, meaning that the company will take $200 in total, with the statistical data showing that in that same year they're going to have to pay out $150 in damages leaving them with a nice profit of $50.
Naturally, this is simply an example, and the facts and numbers will vary dependent on what kind of product is being insured and how much the damages will cost compared to the danger, but fundamentally, this example outlines the answer to the issue of 'how do insurance firms make money' it's all down to probability.
Now, some may say this is just a huge gamble wrapped up in pretty packing. And to some degree it is but with the level of market analysis open to them and the mark-up they place against the risk, insurance companies always ensure they come out on top.
by: tim9uhmxiz
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