What is an insurance policy?
If you have ever dealt with health insurance, you might have wondered how these companies make money. The truth is, these companies have three major ways through which they make money. These three ways are reduced overall claims expense, investments, and underwriting profits. In this article, I intend to discuss something little regarding how insurance companies in general money and profits from their operations.
Underwriting profits
Insurance companies make underwriting profits when they insure policyholders who have few or no losses at all. When people take out insurance policies, not all of the policyholders actually get compensated or paid for the occurrence of whatever losses/risks they have insured with an insurance company. What this does is that the insurance company takes premiums from policyholders but doesn’t actually pay out money to all of them because the insured events don’t happen to all the insured individuals. Thus, the premiums that are paid by policyholders who don’t get compensated is kept by the insurance company as profit. In order for this to happen, the underwriting department within the insurance company needs to do its job the right way. On the other hand, if the underwriting department doesn’t do its job right, the entire insurance company might end up being insolvent because of huge payouts emanating from too many claims from insured parties.
Investment income
Allianz health insurance in China companies are also at liberty to invest in other financial ventures that bring them money. However, insurance companies are scrutinized closely by government bodies in regard to the kind of ventures they can invest in. This is to ensure they don’t invest too much of their money into risky ventures that might cost them a lot of money to a point that they cannot meet their financial obligations to their clients.