Description: The topic of the article centers on esurance login. The author will go through how insurance companies invest the premium you pay them. The author will also explain what an underwriter’s job is and how it affects how much you pay for insurance.
Have you ever wondered where prices for insurance come from, how much they are charging you and why they are charging that much, you may feel that it’s unfair, I’m here to explain the difference of how insurance companies make their money and how much of it you are paying for.
I learned a few things, I’ve been doing this for about seven years licensed in 38 plus states, I sell insurance about all of them, it’s basic, when it comes to insurance, there are a lot of set guidelines, each state has specifics with things, but the profit of an insurance company looks huge if you look at them.
They make a lot of money but how much are they taking out of your pocket? One of the biggest things that people think is that insurance companies are out to get you, they’re not, they’re like any other company trying to make as much money as they can.
What they’re doing is trying to make as little claims as possible and 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, what an insurance company does is that they take their product line.
They have actual people that check the prices, they think what our competitors are doing, how much we can do and how much we can earn and what type of business we are going after, are we going after the high risk people that only have a higher chance of get an accident?
There are no worse areas, as far as claims go, more natural disasters could happen there, do we want a confident planner? Do we want to stick with the people that 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.
There are different types of insurance, however, most companies do both, you have farmers insurance, they have Bristol West, that’s a higher risk company, you have Geico who naturally is a higher risk company, although they’ve got good margins.
You also have all state who have assurance, they call it a direct model, it’s a little different, but it’s a higher risk, that’s the type of person that you’re pulling in, your confident planner typically wants to talk to a specific agent, the way an insurance company makes their money is that they invest the money that you’ve paid into the stocks.
They put stocks, bonds and anything that’s more liquid dateable, 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 and the odds of you causing a claim or filing a claim, that’s your combined loss ratio.
They want to be 97 cents of per dollar which is their average, that is tiny, you have a thousand dollar policy, they’re making $30 on that thousand dollars, the risk for them taking you on is so much greater than that profit that they’re making.
But here’s the trick, they’re going to take that money that you’re giving them for the service, they’re going to invest it into bond, stocks, the market or anything that’s growing, something will earn them interest, if they can make six percent or eight percent on that thousand dollars, that’s where their money comes from.
To give you an example, I’m going to write this from my cell phone, I have to look this up myself to make sure I am right, this is from 2011, it doesn’t matter, because it hasn’t changed, there’s not a different way that they invest, however they take in much premium, they put as much of it in the investment and take it 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 one billion nine hundred ninety three million dollars, they lost almost two billion dollars.
But they earned or made two point nine billion dollars in revenue, even though they paid out almost two billion dollars in claims, they made almost three billion dollars for that year, you can see when you take that money invest, over time it grows, it’s like that snowball.
Whenever you’re watching those investment channels, it grows, now they’ve got billions of dollars growing, it’s massive, they keep investing it taking little pieces out for their investors or for the different things, there’s a major claim or major loss, that’s where it hurts, that’s also why you see the insurance prices go up.
If the stock market goes down, the money starts disappearing, the claims go up, you could be completely out of business, in reality when somebody says that we’re only making five cents on this policy, that’s not where they’re making their money.
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 praying that you don’t file a claim because the more claims go in there, the lower their profit margin is, the lower the stock market goes, the lower their profit margin is.
Ff both of them go bad, they’re going to close the doors, because you can’t make money when the stock market is dead, you’re paying out all these claims, you took in the low money and you paid out a lot, as long as the stock market is good which it’s always been, the insurance companies are good, if it fluctuates, that’s why insurance companies go crazy.
There is a little bit of shift because the economy has flipped around a little bit, a lot of companies are getting more claims not because there are more accidents but what’s happening is that a lot more people can afford newer cars, there are a lot more people driving and a lot more people purchasing cars.
The gas prices have been down lately, there are a lot more activities in the insurance companies, there’s not a way to track that, they’re trying to put it in their bubble, so they can figure out how much to pay you, the government regulates what the insurance company can do.
They can’t come out and take advantage of you, whenever you take a policy, you purchase that premium, what’s happened is that the agent or the person that quoted you that might be a direct sales person typed in all your information in the computer.
They had created an algorithm or a worst-case scenario with all of your discounts, if you’re not smoker, if you’re married, if you own a house, if you match all those criteria, you’re a lower risk, that means the premium is going to be lower for you.
There are some people called underwriters, what they are going to do is to underwrite the business, if you have your estimated claims, we expect that you’re going to file a claim for $600 in the next five years, we want to underwrite that business a little bit below, it fits the premium that you can pay for the risk.
They’re not going to lose their shirts, they’re going to be within usually a 3% difference, that’s why they say that every 90 cents, every dollar that they take in, 97 or 98 % goes out, some companies go aggressive, they need new customers.
Some of them plan on being overpaid out, they expect to take in a dollar and pay out 10 dollars, they’re trying to pull in customers and hope that the risk is that high, that way they don’t lose out, it’s a risky way to do that, if you ever see a company having a higher loss ratio, they’re taken in, that’s a good indication that things are going to change quickly.
Here is the best way to check this, if you want to find out where the stability of a company is, there is a website, it’s called ambest, you type in Google ambest, it is a company that rates other companies, if you want to see what insurance company is doing well, which one has the best loss ratio, go check that out, it’s simple.
They rate an A to B form, an A plus is the max, if a company is an A plus or higher, that means that they’re stable, they’re not likely to fluctuate as much as prices, if you want more advice, more tips or have general questions, leave them in the comments below, I’d love to answer them and help you out.
I hope that this helps, if you would love to help me out, share the passage with anyone you want, don’t forget to Like and subscribe at the bottom, welcome to my channel, thanks for reading.