How to Research Insurance Companies

Before you buy insurance, you need to understand how insurance companies work. To help you understand we have provided a detailed explanation of the Insurance Companies Business Model based on research on the Internet and talking to some friends who are experts and work in the professional field of insurance. Let’s break the model down into components:

• Subscription and investment
• Say
• Marketing

Subscription and investment

In crude terms, we can say that the business model of Insurance Companies is to gather more value in premiums and investment income than the value that is spent on losses and, at the same time, present a reasonable price that clients will accept.

The earnings can be described by the following formula:

Earnings = earned premium + investment income – incurred loss – underwriting expenses.

Insurance companies obtain their wealth with these two methods:

• Underwriting is the process that insurance companies use to select the risk to be insured and choose the value of the premiums to be charged for accepting those risks.
• Invest the values ​​received in premiums.

There is a complex side 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 pricing, the insurance company will accept or reject the risks through the underwriting process.

Taking a look at the frequency and severity of the insured liabilities and the estimated average payment is what is drawing rates at a simple level. What companies do is check all that historical data on the losses they had and update it to today’s values ​​and then compare it to the premiums earned for a rate adequacy assessment. Businesses also use expense load and loss ratios. In short, we can say that the comparison of losses with loss relativities is how the different characteristics of risks are evaluated. For example, a policy with double losses should charge a premium of double value. Of course, there is room for more complex calculations with multivariate analysis and parametric calculation, always taking historical data as inputs to be used in evaluating the probability of future losses.

The companies underwriting profit is the amount of premium value collected when the policy ends minus the amount of value paid on claims. We also have the underwriting performance AKA the combined ratio. This is measured by dividing the loss and expense values ​​by the premium values. If it is greater than 100%, we call it a subscription loss and if it is below 100%, we call it a subscription gain. Do not forget that as part of the business model of companies there is the investment part, which means that companies can make profits even with the existence of underwriting losses.

The float is the way insurance companies make their investment earnings. It is the amount of value collected in premium within a specified time and that has not been paid in claims. Float reversal begins when insurance companies receive premium payments and ends when claims are paid. As it is, this time period is the duration from which interest is earned.

Insurance companies in the United States that operate in property and casualty insurance had an underwriting loss of $ 142 billion in the five years ending in 2003, and for the same period they had an overall profit of $ 68 thousand million as a result of floating. . Many industry professionals think that it is always possible to make a profit from float without necessarily having an underwriting profit. Of course, there are many schools of thought on this subject.

Finally, an important idea to consider when underwriting new insurance is that in times of economic depression, markets tend to be downtrends and insurance companies run away from floating investments, causing the need to reassess premium values, which means higher prices. Therefore, this is not a good time to subscribe or renew your insurance.

The change in profit and non-profit times is called subscription cycles.

Claim (es

The real paid “product” in the insurance company industry is claims and loss management, as we may call the realized profit of insurance companies. Representatives or negotiators of the Insurance Companies can help clients fill out claims or they can be filled out directly by the companies.

Claims adjusters employ the huge number of claims and the records management staff and data entry clerks in the Companies’ claims department support them. Clams are graded based on severity criteria and assigned to claims adjusters. Loss adjusters have variable settlement authority according to the experience and knowledge of each one. After the assignment, the investigation continues with the collaboration of the client to define if it is covered by the contract. Value research outputs and customer payment approval.

Sometimes the client may hire a public adjuster to negotiate a settlement with the insurance companies on their behalf. In more complex policies where claims are difficult to manage, the client can and does use a separate policy supplement to cover the cost of the public adjuster, called loss recovery insurance.

By managing claims handling functions, companies attempt to stabilize requirements for customer satisfaction, administrative expenses, and payment leakage. Insurance bad faith often stems from this balancing act that causes fraudulent insurance practices that are a significant risk that are managed and overcome by companies. Dispute between clients and insurance companies often leads to litigation. Claims handling practices and claim validity are growing problems.

Marketing

Insurance companies use negotiators and representatives to initiate the market and underwrite their clients. These negotiators are tied to a single company or are self-employed, which means they may have rules 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 tailor-made services provided by the representatives.

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