My cousin and I are going to try to start a business so we needed insurance. The insurance is a 160 something dollars a month and covers 2 1,000,000 dollars accidents. Where do they make there money?
In: Economics
They make money just like casinos, the odds are stacked in their favor. Insurance companies have insane profit margins. Most businesses are lucky to make 10% net profit. Insurance companies easily make 40-60%.
The fundamentals basis of their business is that in most cases, a client will never make a claim. Even if they do, their premiums are calculated to ensure that by the time a client asks for coverage, there’s a good chance they’ve already paid more than they’re getting. How premiums are calculated is a complex subject but they’re trying to price in the realistic possibility of a claim being made and then a huge safety margin for their sake.
As a second line of defense, just so that they’re not relying only on their math, they create a bunch of rules and stipulations for their contracts that can void coverage, and they always try to get away from paying out if they can. They may also deny to insure someone at actual risk of needing coverage, as in the case of health insurance companies not covering conditions you already have when you sign up with them. They’re really scummy companies and fuck many people over daily.
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