In personal finance as well as business, you are always advised to consider having insurance cover. Being able to protect yourself from risk is usually a smart move. But have you ever wondered or wanted to know how insurance companies make money?
Having insurance cover or policy is a way of ensuring you are compensated in case of the risk materializing.
To have the risk covered, you pay an insurance company some money. Insurance premium, on a monthly or any other agreed upon schedule.
The idea is that your insurance provider will compensate you when a liability or damage occurs. All the details are covered in your insurance contract.
While it is good to have someone looking after you in case of a problem, it is good to remember that insurance companies are for-profit businesses.
They are in the business of risk, and have every intention of making money from their operations.
So how do insurance companies make money today?
If this is something you would like to know, then this is the right place for you. You are in luck today.
In this article or resource, you will learn and understand how insurance companies make money.
This is your ultimate guide into the business model of an insurance company.
Pick your coffee, tea or whatever makes you tick and let us dive into this.
How Do Insurance Companies Make Money?
Insurance companies are in the business of taking and managing risks and makes money in the following ways;
- Underwriting income
- Investment income
- Re-insurance income
These are broadly the three ways an insurance or a re-insurance company makes money.
In the section below, you will learn in details how the insurance companies generate income or revenues from underwriting, investment and re-insurance activities.
Conclusion
The business model of an insurance company is very interesting, and very exciting to study or understand.
I know you are aware of the importance of having insurance as part of your overall personal or business life.
When you analyze how insurance companies make money, it becomes clear why wealthy investors like the insurance industry.
An example of this is billionaire Warren Buffett.
He does not hide his interest and admiration for the insurance business model.
In fact, through his company Berkshire Hathaway, he has invested heavily in the industry, owning such companies as Geico Insurance.
Insurance companies make money in various ways. However, they generate most of their revenues from underwriting and investment activities.
If you are interested in the insurance sector, or want to invest in insurance stocks, at least now you know how insurance companies make money.
You can leverage this information to make better decisions on how to invest in the stock market, or which insurance product and service best suits your current risk situation.