I worked in the insurance industry for 16 years and saw first hand how profitable an insurance company can be. I will not attempt to go into the nitty gritty details but I will give you a pretty good idea in the form of an overview, how profitable a venture an insurance company can be.

Insurance is a form of risk management. It is purchased to avoid the possibility of a large, potential future loss. To compensate the insurance company for taking on this potential future payout, the insured pays the insurance company a certain sum of money known as the premium. In return for the payment of the premium the insured receives a written document, known as the insurance policy, that lays out what events are being insured and what the payment to the policyholder would be if that event actually occurred.

The insurance company collects the premiums of a large group of insureds to cover the few losses they would have to pay out for. They use historical data to figure the probability of losses and then charge premiums to cover them while building in a profit for themselves.

For example, let’s say there were 100 houses each worth $100,000 in a particular area. They would have a total value of $10,000,000. According to the history of that neighborhood, two houses are expected to burn down during any one year. Without insurance all 100 homeowners would have to keep $100,000 in the bank to cover the possibility of the house burning and needing to rebuild it. With insurance, each homeowner would only need to pay $2,000 into an insurance pool to pay for rebuilding the two houses that are expected to burn down.

2 houses burn x $100,000 = $200,000 for rebuilding the houses $200,000 divided by the 100 homeowners = $2,000 premium

That $2,000 premium will then have to be increased somewhat to add a profit margin for the insurance company.

In addition to the built in profit that the insurance company adds in to each premium it takes in, the company would also be subject to the actual experience of the insured group. If it takes in more money in premiums than it paid out in claims then it receives what is known as an underwriting profit. And, on the other hand if it pays out more than it has taken in then it has an underwriting loss.

One way of looking at how well an insurance company is doing is to look at their loss ratio. The loss ratio is calculated by taking the losses they had to pay out and add to that the expenses they incurred to actual pay out the claims and divide that sum by the premiums taken in. A ratio of less than 100% shows a profit and a ratio greater than 100% indicates a loss.

In many cases if an insurance company’s ratio is greater than 100% they can still be profitable. That is because there is usually a period of time between taking in premiums and paying out claims. During that period of time the company can invest the money taken in and they can earn a profit from that investment to offset any underwriting loss and could actually end up with a net profit. For example, if the insurance company pays out 15% more in claims and expenses than premiums it took in, but made a 25% profit from its investments, then it would have received a 10% profit.

So, as can be seen there is more than one way to skin the profitability cat for an insurance company to make money. Two key factors in that regard are how well they can predict their payouts and how well they can invest the money they take in.

Joe Folger with his extensive experience in the insurance industry is the go to guy for insurance questions. For more insurance company information you can go to Insurance Company Info

American values have always given top priority to the right to privacy. But are you aware of the amount of information you unknowingly pass over to your insurance company, when you apply for auto insurance. Most of this information ends up in database companies who make profit out of selling information about you.

Your credit is what most insurance company wants to know. They use this credit data to decide about your auto insurance policy premiums. Use of this practice has expanded drastically because through your credit information they get a clear picture about your history with your previous auto insurer. Even before you approaching them they have already placed you in a category through which they will not end up in the loosing side. To be fair, they precisely know what type of claim you are likely to make and not to make and what is the best premium for you.

Every auto insurance company scrutinizes your credit history acquired from the database company and gives you a rank, of which you are unaware of. The rank will categorize you under preferred, standard or high-risk. Next they look is your payment history. If you are a timely payer you will move towards the preferred category. But if you have a bad history of payment then you move the opposite direction. This entire ranking, which takes place without your knowledge, is due to the information you have passed over to your earlier auto insurance company. An odd activity the month before you buy your new auto insurance will put you under the high-risk group. The odd activity might even stop an auto insurance company from selling you the policy.

ChoicePoint and the Insurance Services Office (ISO) provide auto insurance companies with all the necessary information they need. Your name, address, phone number, claims, credit report, criminal record if any, and the most curious aspect any auto insurance company would like to hear, your driving history. ChoicePoint has a database called Comprehensive Loss Underwriting Exchange or CLUE. The information they gather from your credit history, gives you a rank. When you apply for auto insurance, the company you applied asks for your rank and they immediately get the answer into what category you fit. The All Claims databases maintained by ISO, mainly looks into fraud. Unusual or suspicious behavior in your credit history will be notified to the insurer. They also maintain a record about the claims that have dragged on to courts.

Apart from this top auto insurance companies also have their own database. The government agencies of your state also have all the necessary information. If you are curious to know about your motor vehicle report you can approach your state’s department. TransUnion, Equifax, Experian are some of the companies who can provide you with your credit history. The CLUE report of ChoicePoint is also available but you have to pay for it. If you have any difference of opinion with the ISO’s All Claims report. You can acquire a copy and dispute it.

So, next time when you approach an auto insurance company keep it in mind that he knows a whole lot of things about you, which you are unaware of.

Ms.Grace Navas is an insurance agent and regular contributor to Super-Value-Insurance.com. Super-Value-Insurance.com helps consumers compare online insurance quotes.

It’s the same with all things in life, we don’t think about things until we need to and it’s the same with health insurance as most people don’t give it any serious consideration until they are faced with a urgent health crisis. Is it any surprise than that the majority of us are caught unawares when an emergency occurs and it is only then we realize the insurance we purchased many years ago is now out of date and doesn’t provide sufficient cover for our present situation.

There are a bewildering array of options available when deciding on which insurance plan but one basic to remember is that all insurance is only as good as the insurance underwriters and the company behind it. Here are 9 points we should all consider before choosing our next insurance company.

1. Tell the truth

Full disclosure of the facts applies whether it’s health, household, auto or personal insurance because withholding vital facts can and does invalidate insurance cover if you fail to reveal the truth with your application. When purchasing an individual health insurance policy for example an underwriter will look at your medical history before offering health insurance cover, see pre existing conditions. In order to make valid comparisons it is vital to note the questions asked on each form as this will enable you to compare like with like. This exercise is also useful in that it can highlight areas of concern to an insurance company and also alert you if one company seems unconcerned by factors other find unacceptable, in that case you may need to ask more questions before making a decision.

2. Pre-Existing Conditions

It is essential that pre existing conditions are fully disclosed as most Insurance companies will not insure a pre-existing condition. You may be able to get cover for some pre existing conditions but only after a lengthy waiting period. Still others are legally mandated to carry guaranteed issue policies. Before signing an agreement clarify what is considered a pre-existing condition, any exclusionary period, and the level of coverage provided once the exclusion period ends.

3. Speak to an insurance agent

Speaking to a fully licensed independent insurance agent can save many hours of fruitless investigation. An insurance agent is able to provide independent feedback from other clients about a given health insurance company and their insurance products.

4. Think to the future

Remember that your needs will change over time so it is essential that any insurance policy can change as your needs and requirements change. A company that has a limited policy growth potential will probably be of little use to you very quickly.

5. It’s your choice

It is important that the insurance policy you choose will work for and with you therefore, you should fully think through your requirements and needs when it comes to coverage. With a health insurance plan for example ask yourself how important it is that you pick your own doctors? Perhaps it doesn’t matter to you in which case an HMO policy may be a cost-saving choice. On the other hand, if you have a favorite doctor and wish to continue consulting this physician rather than picking someone else, you may wish to consider the pricier PPO.

6. Extra’s

It’s not unusual for an insurance company to bundle their products with other offers like short- and long-term disability, prescription drug coverage, dental and vision coverage.

7. Extra Expenses?

Make sure to look at the small print, how much are co-pays and is there an annual cap on the co-pays? Are these caps per calendar year or any 365-day period? In addition to co-pays, what is the percentage of coverage?

8. Contacting the insurance company

It should be an easy exercise contacting your insurance company, do they have extended office hours and a toll-free number. It’s easy enough to check these things out by simply making a call to get a feel for their average hold times, times of operation, and just what services are offered by phone.

9. Insurance company rating

The Better Business Bureau rates every insurance company, any company that has too many unanswered complaints is probably best avoided.

About The Author John Buckle Read more about Insurance services