How To Insurance Companies Earn Money?

How To Insurance Companies Earn Money?

I'm here to explain the difference of how insurance companies make their money
and how much of it you are paying for so real fun fact actually learned a few things I've been doing this for about six seven years now license in 38 plus states I sell insurance in just about
all of them it's pretty basic when it comes to insurance there's a lot of set guidelines and then each state has a little specifics with things but the profit of an insurance company looks huge if you really look at them and it really is they make a lot of money but how much are they actually taking out of your pocket one of the biggest things that people think is insurance companies
are out to get you,

they're not they're just like any other company they're trying to make as much money as they can so what they're doing is they're trying to make as little claims as possible insure it the highest possible value that you're willing to pay for in competition with all these other companies each department has a different section so what an insurance company does is they take their product line and they have actual people that check the prices they say okay one of our competitors doing how much can we do and how much can we earn what type of business are we going after are we going after the high risk people that only do you know that have a higher chance of get an accident there are no probably a little worser area as far as claims go more natural disasters could happen there or do we want to go more of a confident planner do we want to stick with just the people that we know want insurance they see the value they want to talk to the company it's going to take care of them for life they don't want to have to worry about it so there is different types of insurance however most companies in have different companies that do both so like you have farmers insurance they have Bristol West
 hat's their higher risk company you have Geico who naturally is a higher risk company although they've got pretty good margins but you also have all state who have assurance so that's more of
they call it a direct model it's a little different but it's more of a higher risk that's the type of person that you're pulling in you're confident,

play

typically wants to talk to a specific agent the way an insurance company makes their money is they invest the money that you've paid into the stocks they put stocks and bonds and anything that's
more liquid dateable so if there is a major claim that can pull that money out and pay those claims they take the amount you're paying for the premium subtract the amount that the estimate could possibly happen so the odds of you causing a claim or filing a claim and then that's that your combined loss ratio they want to be 0.9 seven cents of ninety seven cents per dollar is what their averages that is tiny you have a thousand dollar policy they're making $30 on that thousand dollars that risk for them taking you on is so much greater than that profit that they're making but here's the trick see they're going to take that money that you're giving them for the service and they're going to invest it into bond stocks the market anything that's growing something that will earn them interest so if they can make six percent eight percent on that thousand dollars that's where their money comes from just to give you an example, I'm going to read this right from my cell phone here I had to look this up myself just to make sure I was right so this is from 2011 it doesn't matter because it hasn't changed there's not a different way that they invest they invest how much they invest and that's the thing however much premium they take in they put as much of it in the investment and then take out to pay any shareholders if they have a shareholder ship this is an example from 2011 in 2011 State Farm collected thirty two billion six hundred and forty million in premiums they paid twenty two million seven hundred ninety four billion in claims they lost 1 billion nine hundred ninety three million dollars that's crazy they lost almost two billion dollars but here's the
kicker they actually earned or made two point nine billion dollars in revenue so even though they paid out almost two billion dollars in claims they actually made almost three billion dollars for that year see when you take that money invest over time and it grows it's like that snowball you see whenever you're watching those investment channels it grows and it grows and now they've got billions of dollars growing and it's just massive and so they just keep investing it keep investing it taking little pieces out for their investors or for the you know for the different things when there's a major claim or major loss that's where it hurts that's also why you see the insurance prices go up because if the stock market goes down who the money starts disappearing and then the claims go up boom you could be completely out of business

so in reality when somebody says hey we're only making five cents on this policy that's not
where they're making their money so the insurance companies aren't necessarily trying to take advantage of you they're going to earn the money with or without you they're just praying that you guys don't file a claim because the more claims that go in there the lower their profit margin the lower the stock market goes the lower their profit margin if both of them go bad opposite then they're done they're going to close the doors because you can't make money when the stock market is dead and you're paying out all these claims and you took in the low ink the low money paid out a lot and it's done as long as the stock market is good which it's pretty much always been if it fluctuates so that's why insurance companies go crazy in 2017 into early 2018 there was a little bit of shift now because the economy has kind of flipped around a little bit a lot of companies are getting more claims not because there's more accidents but if there is but what's happening is a lot more people can afford newer cars nice your cars so there's a lot more people driving a lot more people purchasing cars the gas prices have been down lately there's a lot more activity in the insurance companies there's not really a way to track that they're trying to put it in their bubble so they can you know figure out how much to pay you I mean the government regulates what the insurance company can do so they can't come out and take advantage of you whenever you take a policy you purchase that premium what's happened is the the agent or the person that quoted you it might be a direct sales person so what they did is they typed in all your information in the computer and they had created an algorithm or ax or a worst-case scenario with all of your discounts if you're not smoker if you're you know married if you own a house go look at my other video for discounts if you match all those criterias you're a lower risk that means the premium is going to be lower for you there's something called underwriters and what their job is to do is to underwrite the business so if you have your estimated claims so we expect that you're going to file a claim for $600 in the next five years we want to underwrite that business just a little bit below just so you're not you know it fits the premium that you can pay for the risk they're not going to lose their shirts and they're going to be within usually a 3% difference that's why they say every 90 cents every dollar that they take in 97 98 % goes out some companies go really aggressive and they just need new customers so some of them plan on being overpaid out so they expect to take in a dollar pay out a dollar 10 they're trying to pull in customers and then hope that the risk is that high that way they don't lose out it's a risky way to do that so if you ever see a company having a higher lossratio then they're taken in that's a good indication that things are going to change pretty quickly the best way to check this if you guys want to find out where the stability of a company is there is a website it's called am best you just type in Google am best and they're a company that rates other companies so if you want to see what insurance company is doing well which one has the best loss ratio then go check that out it's really simple they're rated an A to B form so an A+ or an A+ plus I believe is the max if a company is an A+ or higher that means they're stable they're not likely to fluctuate as much as prices if you guys.