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Insurer’s Business Model

The basics of an Insurer’s Business Model is the same as any other business, in the sense that profit is calculated by adding all the different incomes and deducting all expenses and losses. In an insurance business the income is generated by premiums and from investments. The expenses are from underwriting and there are the incurred losses. So the insurer will arrive at his profits by adding up all the premiums of the policies sold and income from investments, and from this figure, losses and expenses of underwriting are deducted.


The Insurer uses a complicated process at arriving at the premium amount that he charges for underwriting a particular risk. A lot of data is collected from various sources and the risk to be underwritten is carefully studied, and the probability of a claim, due to loss is calculated. After all this a premium amount is decided, which will be charged for a particular policy. Premiums are the main source of income for the insurer. These premium amounts are then either used for paying off any claims, and the remainder is known as a reserve or a Float which is immediately invested. Actually the investments are made as soon as the premium amount is received, so that the money starts to earn interest.


In an Insurer’s Business Model, the claims department has the main staff which will record, assess and mange all the different claims. Adjusters are employed whose main job is to assess the loss incurred by the insured and arrives at a settlement amount, and authorizes the payment. Different claims are given different priorities depending on their severity.

Claims can sometimes develop into law suits if the insured is not satisfied with the settlement amount. Apart from the regular underwriting expenses of keeping staff and so on, the legal expenses also are a major drain on the revenues of an Insurance company. Managing different claims efficiently is the major skill required in the Insurer’s business model. The customer has to be satisfied and at the same time the settlements for claims should be reasonable without any overpayments. The administrative costs too, have to be kept at a minimal, without affecting the claim handling process. Litigations are to be avoided and there should be an amicable settlement.


So we see that the Insurer’s business model depends on the premiums received, their investment and the effective handling of claims and administrative expenses. If any one of these elements are not functioning properly, it will affect the profits and growth of the insurance company.

Tags: Income, Insurance, law, Legal, money, policy, revenue, risk

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