A customer pays the insurance premium one or more times in a certain period of time, and the insurance company collects the insurance premium paid by a large number of customers. In the event of an insurance accident, the insurance company will pay the agreed compensation. If the indemnity expenditure of the insurance company is always less than the premium income, the difference will become the "underwriting profit" of the insurance company.
For example, a large number of scattered homeowners bought insurance and paid insurance premiums to insurance companies. In the event of an insurance accident, the insurer will perform the insurance liability according to the insurance clauses.
For some policyholders, the insurance premium they get because of the insurance accident is much higher than the insurance premium they pay, while others may not get compensation at all because there is no insurance accident during the whole insurance period. Generally speaking, the total compensation paid by insurance companies is less than the premium income they get. The difference between these two forms is cost and profit.
Investment profit
From the time when the insurance company receives the insurance money to the time when the insurance company pays the indemnity, the insurance company can invest the insurance funds and earn income. The return on investment is an important source of profits for insurance companies. It can be said that for most insurance companies, the return on investment is the only source of profit.
For example, if the indemnity that the insurance company has to pay exceeds 10% of the premium income, and the return that the insurance company gets through investment is 20% of the premium income, then the insurance company will get a profit of 10%. However, because many insurance companies think that investing in risk-free treasury bonds or other low-risk and low-return investment projects is a prudent choice, it is very important to control the percentage of indemnity expenditure exceeding insurance premium income below the investment return rate, because then insurance companies will not lose money.
It is very rare to make money by underwriting. In the United States, the insurance business of property insurance companies lost 2.3 billion yuan in the five years before 2003, but the total profit during this period was 400 million yuan, which was due to the investment income. Some people in the insurance industry pointed out that insurance companies cannot always rely on investment income instead of insurance business income.
In China, the main profit source of the life insurance industry is the personal accident insurance business with a term of one year or less, which is often realized by the head office of life insurance through controlling the payout ratio of its branches. Although investment income is one of the profit sources of life insurance industry, the investment channels are not very wide, and the financial environment, especially the investment field, is not very standardized, so the contribution of investment income to profits is not very considerable.
In China, the cost of life insurance is mainly realized through long-term life insurance.
In the insurance industry, life insurance companies can make considerable profits every year.
Long-term life insurance, or savings life insurance, has different insurance income and payment methods from general insurance, so its profit mode is also different from general insurance. In some countries with mature insurance markets, the loss opportunities of life insurance companies are much lower than those of ordinary insurance companies.
Long-term insurance contracts are like "lump sum deposit and withdrawal" savings deposits. The contract period between the insurance company and the customer may be as long as 20 years, or it may be until the insured is 60 years old or even 100 years old. Both parties draw up the withdrawal amount due; That is, the amount of life insurance (insured amount). The customer makes contributions on time during the contract period; That is, to pay the premium. The insured amount is generally greater than the total premium, and there is a return income. In fact, its long-term average yield is similar to the bank deposit interest rate. In order to ensure the repayment demand in the future, insurance companies have made "deposit" arrangements for customers, and most of the "deposit" is invested in some long-term bonds.
Although different policyholders have made the same commitment to the insurance company for the payment period, some elderly people are more likely to die before the payment is completed because of the different age and life span of each customer when signing the contract with the insurance company. Therefore, insurance companies will impose more surcharges (that is, higher premiums) on older customers to make up for the possibility that the "deposit" (premium) will die before it is fully collected.
Due to the large number of policyholders and the relatively stable mortality rate, it is easier for insurance companies to master relevant data and accurately and fairly calculate the insurance rates of different age groups.
Life insurance companies can accurately grasp the repayment time. Therefore, compared with ordinary insurance companies, they can make adequate insurance rates without taking more risks, and at the same time, they can achieve the expected profits. In order to spread risks, insurance companies reinsurance some large underwriting units to another insurance company. Companies that accept such policies are reinsurance companies, which generally appear in property insurance.
China's "Insurance Law" stipulates that insurance companies can engage in insurance business activities within the approved insurance business scope, and after approval by the financial supervision and regulation department, insurance companies can engage in reinsurance. The reinsurance business of reinsurance.
The liability of an insurance company to each dangerous unit, that is, the maximum loss range that may be caused by each insurance accident, shall not exceed 65,438+00% of the actual existing capital plus the total accumulation fund, and the excess shall be reinsurance according to law.
Except life insurance business, an insurance company shall reinsurance 20% of each insurance business it underwrites.
If an insurance company needs to handle reinsurance ceding business, it shall give priority to the insurance companies in China. When buying insurance, the financial stability and health of insurance companies may be the main issues to consider. Paying insurance premiums is usually to prepare for losses in the next few years. Because of this, the viability of insurance companies is very important. At present, many insurance companies are going bankrupt (for example, the Japanese insurance industry after the Asian financial crisis, the American insurance industry after the 1 1 incident, and so on). ), making their customers lose protection (or relying on the government insurance guarantee fund to get very little insurance money when an accident occurs).
Many independent rating agencies abroad provide financial information of insurance companies and rate insurance companies (such as Munich Reinsurance), but in China, such companies are rare and often rely on the announcement of the China Insurance Regulatory Commission to obtain information.
Further reading: How to buy insurance, which is good, and teach you how to avoid these "pits" of insurance.