Insurance: The Essential Guide to a Bewildering Industry
A Loss is Not a Loss

Crying All the Way to the Bank


How do insurers make money? By pocketing and investing the premiums you pay them.

Insurers make their money primarily from investment income, investing the premiums they receive from policyholders. In fact, in only a quarter of the last 50 years have insurers achieved an underwriting profit (i.e., when premiums taken in are more than “losses” and underwriting expenses). In many lines of insurance, an underwriting profit would produce a wildly excessive overall profit because the investment yield is so great. Today’s strong stock market has pushed up the industry’s massive insurer investments to create a record-breaking surplus – the money held above whatever is already reserved to pay claims.



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