Insurance companies primarily make money through two key methods:
- Underwriting Income: This is the difference between the premiums collected from policyholders and the claims paid out. Insurers employ actuaries to assess risks and set premium prices accordingly, aiming to collect more in premiums than they pay in claims
- Investment Income: Insurers invest the premiums they collect into various assets like bonds, stocks, and real estate. The income generated from these investments contributes to the company’s profits
