MANAGEMENT

Detailed explanation-1: -If premiums and investment income exceed the cost of claims and expenses, the rest can be reserved as profit. In seeking profits, however, insurers must take certain risks. Poor underwriting can lead to losses if the estimates of future claims and expenses were used to price a policy.

Detailed explanation-2: -Most insurance companies generate revenue in two ways: Charging premiums in exchange for insurance coverage, then reinvesting those premiums into other interest-generating assets. Like all private businesses, insurance companies try to market effectively and minimize administrative costs.

Detailed explanation-3: -Insurers use the premiums paid to them by their customers and policyholders to cover liabilities associated with the policies they underwrite. They may also invest in the premium to generate higher returns. This can offset some costs of providing insurance coverage and help an insurer keep its prices competitive.

Detailed explanation-4: -Once the insurance company sends an adjuster and evaluates the damage to your home, they’ll pay a settlement amount in either replacement cost or actual cash value. Replacement cost gives you funds to cover the costs to rebuild your home or repair damages using similar materials.

Detailed explanation-5: -Insurance companies make money in two main ways: Charging premiums to the insured and investing the insurance premium payments.