How to Research Insurance Companies
Before you subscribe an insurance you need to understand how insurance companies work. To help understand that we have provided a detailed explanation of Insurance Companies Business form based on internet research and talking with some friends that are experts and work on the insurance specialized field. Let’s breakdown the form in elements:
- Underwriting and investing
Underwriting and investing
On raw terms we can say that the Insurance Companies business form is to bring together more value in premium and investment income than the value that is expended in losses and at the same time to present a reasonable price which the clients will accept.
The earnings can be described by the following formula:
Earnings = earned premium + investment income – incurred loss – underwriting expenses.
Insurance Companies gain their wealth with these two methods:
- Underwriting, is the time of action that Insurance companies use to select the risk to be insured and chooses the value of the premiums to be charged for accepting those risks.
- Investing the values received on premiums.
There is a complicate side aspect on the Insurance Companies business form that is the actuarial science of price setting, based on statistics and probability to calculate the value of future claims within a given risk. Following the price setting, the insurance company will consent or refuse the risks using the underwriting course of action.
Taking a look at the frequency and severity of the insured limitations and estimated payment average is what ratemaking at a simple level is. What companies do is check all those historical data concerning losses they had and update it on today’s values and then comparing it to the premiums earned for a rate adequacy assessment. Companies use also expense load and loss ratios. Simply putting this we can say that the comparison of losses with loss relativities is how rating different risks characteristics are done. For example a policy with the double losses should charge a premium with the double value. Of course there is space for more complexes calculations with multivariable examination and parametric calculation, always taking data history as it inputs to be used on the probability of future losses assessment.
The companies underwriting profit is the amount of premium value collected when the policy ends minus the amount of paid value on claims. Also we have the underwriting performance A.K.A. the combined ratio. This is measured by dividing the losses and expenses values by the premium values. If it is over 100% we call it underwriting loss and if it is below the 100% then we call it the underwriting profit. Don’t forget as part of the Companies business form there is the investment part which method that the companies can have profit already with the existence of underwriting losses.
The Float is how insurance companies earn their investment profits. It is amount of value collected in premium within a given time and that has not paid out in claims. The investment of the float starts when the insurance companies receive the payments from the premiums and end when the claims are paid out. As it is this time frame is the duration from which the interest is earned.
The insurance companies from the United States that function on casualty and character insurance had an underwriting loss of $142 Billion in the five years ending on the year of 2003, and for the same period had an overall profit of $68 Billion consequence of the float. Many professionals from the industry think that is possible to always unprotected to profit from the float not having necessarily a underwriting profit. Of course there are many thinking flows on this matter.
Finally one important think you should consider when subscribing a new insurance is that in economically depressed times the markets have bear trends and the insurance companies run away from float investments and causes a need to reassess the values of the premiums which method higher prices. So this is not a good time to subscribe or revive your insurances.
The changing on profit and nonprofit times is called underwriting cycles.
The actual “product” paid for in insurance companies industry are the claims and loss handling as we can call it the materialized utility of insurance companies. The Insurance Companies representatives or negotiators can help the clients fill the claims or they can be filled directly by the companies.
The enormous amount of claims are employed by the claim adjusters and supported by the records management staff and data entry clerks within the Companies claims department. The classification of the clams are made on severity criteria basis and allocated to the claim adjusters. The claim adjusters have variable settlement authority according to each ones experience and knowledge. After the allocation, follows the investigation with collaboration of the customer to define if it is covered by the contract. The investigation outputs de value and the payment approval to the client.
Sometimes a public adjuster can be hired by the client to negotiate an agreement with the insurance companies on his behalf. On more complicate policies where the claims are hard to manage the client may and typically uses the a separate policy add on for the cover of the cost of the public adjuster, called the loss recovery insurance.
When managing claims handling roles, the companies tries to steady the requirements for customer contentment, expenses of administrative and over payment leakages. Insurance bad faith usually comes from this equilibrium act that causes fraudulent insurance practices which are a major risk that are manage and conquer by the companies. The argument between the clients and insurance companies often leads to litigation. The claims handling practices and the validity of claims are the escalating issues.
Insurance Companies use negotiators and representatives to begin the market and underwrite their clients. These negotiators are bond to a only company or they are freelancers, which average that they can rules and terms from many other insurance companies. It is proven the accomplishment of Insurance Companies goals is due to dedicated and tailored made sets supplied by the representatives.