How do insurance companies profit?

Question

How do insurance companies profit?

In: 2

Answer 1

Two ways

Underwriting. You insure 100 people’s car. You expect there to be 10 crashes a year. You charge them each 11% the cost of a crash, so you have money to pay for 11 crashes. After paying off the crashes, you have money left over

Float. You charge people insurance at the begging of a 6 month period. Crashes happen over the 6 month period, so you have 3 months worth of money that your customers have paid and have not been used to pay for the crashes. You earn money from investing that float.