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## How to Research Insurance Companies

Before you become an insurance subscriber, you need to understand how insurance companies work. In order to understand that we have provided a detailed description of the Business Model of Insurance Companies based on internet research and talking to some professional friends and working on the professional field of insurance. Let’s break the model down into components:

• Underwriting and investing
• The right
• Marketing

Underwriting and investing

In crude terms we can say that the business model of Insurance Companies is to collect more value in premium and investment income than the value spent in losses and at the same time offer a reasonable price that customers will accept.

Income can be determined by the following formula:

Profit = premium earned + investment income – loss incurred – underwriting costs.

Insurance companies make their fortunes in two ways:

• Underwriting is the process that insurance companies use to select the risks to be insured and the premiums charged to accept those risks.

There is a complex aspect to the business model of Insurance Companies which is the actuarial science of pricing, based on statistics and probability to estimate the value of future claims within a given risk. After setting the price, the insurance company will agree or decline using the underwriting process.

A look at the number and weight of insured liabilities and the average estimated payout is what a simple rate is. What the companies do is check all that historical data about their losses and update them to today’s values ​​and then compare that to the premiums earned to assess the adequacy of the rate. Companies also use load and loss ratios. Simply put we can say that comparing losses with loss ratios is how to evaluate the characteristics of different risks. For example a policy with double the losses should pay a premium at double the value. Of course there is room for more complex calculations with multi-variable analysis and parametric calculations, always including the data history as input to be used to assess the probability of future losses.

Companies that make a profit is the amount of premium value that is collected when the policy expires minus the cash value on claims. We also have sub performance AKA the combined ratio. These are measured by dividing the loss and expense values ​​by the premium values. If it is more than 100% we call it underwriting loss and if it is below 100% then we call it underwriting profit. Don’t forget that as part of the Company’s business model there is an investment component which means that the company can make profits even with capital losses.

Float is how insurance companies get their investment profit. It is the amount of value that has accumulated in premiums over a period of time and that has not been paid out in claims. Investment float starts when insurance companies receive money from premiums and ends when claims are paid. Because this time is the period from which the interest is earned.

U.S. property and casualty insurance companies had an underwriting loss of \$142 billion in the five years ending in 2003, and a total of \$68 billion in float losses for the same period. . Many experts from the industry think that it is possible to always benefit from a float that does not necessarily have an underlying interest. Of course, there are many opinions on this topic.

Finally, one important thing to consider when signing up for a new insurance policy is that in times of economic depression, the market tends to pick up and insurance companies shy away from float investments, which leads to the need to reassess premiums, which means higher prices. So now is not a good time to subscribe or renew your insurances.

The change in profitable and unprofitable periods are called underwriting cycles.

Requests

The real “product” that gets paid in the insurance companies industry is the claims and claims management as we can call it the materialized profitability of the insurance companies. Insurance Company representatives or negotiators can help customers file claims or they can be filed directly by companies.

A massive volume of claims is handled by claim adjusters and supported by records management staff and data entry staff within the Company’s claims department. The distribution of keywords is based on weighted criteria and assigned to claim modifiers. Claims managers have variable bargaining power based on each individual’s experience and knowledge. After the reservation, the investigation follows with the cooperation of the customer to determine whether it is covered by the contract. The inquiry issues a quote and payment confirmation to the customer.

Sometimes a public adjuster may be employed by the client to negotiate a contract with insurance companies on his behalf. On more complex policies where claims management is difficult, the customer may and usually does use a separate supplement to cover the cost of a general expense, called loss recovery insurance.

When managing claims management functions, companies try to keep up with the needs for customer content, administrative costs and overpayments. Insurance bad faith often comes from this balancing act that leads to fraudulent insurance practices that are a huge risk to be managed and passed by companies. Disputes between consumers and insurance companies often lead to litigation. Claims handling practices and claims accuracy are growing issues.

Marketing

Insurance companies use negotiators and agents to market and write their customers. These deals are tied to a single company or they are independent, which means they can have terms and conditions from many other insurance companies. It is proven that the fulfillment of the objectives of the Insurance Companies is due to the dedicated and regular services provided by the agents.

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