As the RISK TAKER in the insurance industry, your profit is directly linked to utilization, and a fraction of a percent could mean the difference between a profitable block and a non-profitable black.
Mr. Buffet, if you find this…I believe we can put $1B back in your pocket. Please call us 972-800-6670
Jeff CLine Founder VRTCLS
Just like our process works for leads for agents, it will also work for insurance companies. We have built technology that will allow us to use predictive analytics, machine learning, big data (From our Hight Intent Network) and ACTUAL utilization data to decrease HEAVY UTILIZATION USERS which we believe is over $1B a year in profit to the industry!
We all know how insurance companies make money, but for those who are not 100% sure.
How insurance companies make money:
- How Insurance Companies Make Money After Paying Commissions: After paying commissions to agents, insurance companies primarily make money through various revenue streams, including:
- Premiums: Insurance companies collect premiums from policyholders. These premiums represent the payment for insurance coverage and are the main source of revenue for the company.
- Investment Income: Insurance companies invest the premiums they collect in various financial instruments, such as stocks, bonds, and real estate. The income generated from these investments adds to the company’s profits.
- Underwriting Profit: When insurance companies set their premiums appropriately based on actuarial calculations and risk assessment, they aim to generate underwriting profit. Underwriting profit is the difference between the premiums collected and the claims paid out. If an insurance company effectively manages risks and experiences lower-than-expected claim payouts, they can achieve underwriting profit.
- Reinsurance: Insurance companies may cede a portion of their risk to reinsurance companies. In exchange for sharing premiums and potential losses, the insurance company reduces its exposure and may earn additional income.
- Policy Fees and Charges: Some insurance companies charge policyholders fees or administrative charges in addition to premiums, contributing to their revenue.
- Other Services and Products: Some insurance companies offer additional services or products, such as risk management consulting or financial planning, which can generate extra income.
- Investment Gains/Losses: The performance of the insurance company’s investments can result in gains or losses, affecting overall profitability.
- Miscellaneous Income: This category includes various sources of income, such as licensing fees, referral bonuses, or income from partnerships.
After accounting for agent commissions and other expenses, the remaining revenue is the net income or profit earned by the insurance company.
- Block of Business: In insurance company terms, a “block of business” refers to a specific group or portfolio of insurance policies that were sold during a particular period or share common characteristics. It represents a segment of the company’s overall insurance policies and can encompass various types of coverage, such as life insurance policies, health insurance plans, or property and casualty insurance policies.
Insurance companies manage their blocks of business collectively, assessing their performance, profitability, and risk exposure for that particular portfolio. Analyzing blocks of business helps insurance companies understand the dynamics of each segment, identify trends, and make informed decisions about product offerings and pricing.
- Utilization: In insurance, “utilization” typically refers to the extent to which policyholders use their insurance benefits or services. It is a measure of how frequently policyholders submit claims or utilize the coverage they have paid for through premiums.
For example, in health insurance, utilization can be measured by the frequency of doctor visits, hospitalizations, or medical procedures claimed by policyholders. High utilization rates may impact the insurance company’s profitability, as it could lead to increased claim payouts and higher costs for the insurer.
- Cash Reserve: A “cash reserve” in insurance terms refers to the amount of money set aside by an insurance company to cover future claims and liabilities. It serves as a financial cushion or safety net, ensuring that the insurer has sufficient funds to pay out claims promptly and meet its contractual obligations to policyholders.
Insurance companies are required to maintain adequate cash reserves as mandated by regulatory authorities to ensure their solvency and financial stability. The size of the cash reserve is determined based on various factors, including the type of insurance, risk exposure, and regulatory requirements.
Having a robust cash reserve is crucial for insurance companies to maintain the trust of their policyholders and withstand unexpected fluctuations in claims or financial markets. It is a fundamental aspect of an insurance company’s financial strength and ability to fulfill its promises to policyholders.
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