How do insurance companies make their profits?
Historically one person in five has an accident each year. Therefore the insurance company has five premiums to collect to pay for one claim.
The insurance company collects its five premiums and invests the money. The unlucky fifth person, has the accident, on average six months into the year, giving the insurance company an average of six months investment on all five premiums.
For companies turning over hundreds of millions of pounds in premiums, this is an incredibly lucrative and excellent cash flow business.
Insurance companies employ underwriters whose job is to set rates which attract business, but not claims. To do this they need to attract drivers that have less and lower cost claims i.e. young drivers claims tend to be more costly than mature drivers (who drive slower and therefore cause less damage in a bump).
Underwriters often aim just to break even, after expenses and claims, with the actual insurance premium, whilst making their profit from investment, and the extremely lucrative extras below,
• Legal protection policy
• Interest on instalments
• Vehicle breakdown policy
• Amendment fees
• Guaranteed courtesy car
• Investment income
• Protected NCD
• Foreign Use charges
Another phenomenal money spinner for the insurance companies are 0870 type high-tariff telephone numbers, which some insurance companies and most intermediaries make you use to contact them for anything other than quotes.
If you need to contact your insurer for a change of car, a claim, a change of driver or any help or advice on any matter, you can only contact them on these high tariff numbers.
This is in addition to the amendment fee they charge and any further premium levied for additional cover, higher rated cars etc. They receive a payment from the line supplier (B.T. etc).
Comments:
Insurance companies make most of their profit from customers who are either not willing, or unable, to find the best deal.
Save money on the extras listed above and do not hang about on the phone whilst using the outrageously expensive high-tariff numbers.
High-tariff numbers and amendment fees are extremely difficult to justify. |
