Insurance companies make money from two primary sources: ensuring that the premiums received exceed the claims paid out (and the costs of running the business) and from the return made by investing those premiums until the claims are paid out. In order to protect their balance sheets, insurance companies also purchase their own form of insurance – called reinsurance – to ensure that a single loss does not end up bringing the company down.
Key learning objectives:
Outline the differences between technical and non-technical profit
Identify the differences between written and earned premiums
What is the difference between insurance and reinsurance?