How do insurance companies make money?

No one has given you a full answer but Mr. Enright is the closest thus far. People seem to be focused on premium vs. claims; however, this is pmost definitely NOT how insurance companies make money. 

Most insurers try to price their policies such that the total premiums collected each year are equal to the total amount of claims paid + expenses (we call this the combined ratio - claims+expenses:premium). 

A combined ratio of 1 is seen as ideal because it means they are not over or under pricing their policies; meaning that they are underwriting the risks they want as pricing models are designed to attract what a company identifies as their target market. 

With regard to automobile insurance, most insurers actually run a loss on premiums, normally paying just over a dollar for every dollar of premium (combined ratio >1); whereas, they normally run just under a 1 ratio on property insurance.

 Ultimately, very little, if any profit is made through underwriting (premiums) alone; rather, the reason for writing policies and collecting premiums is to build an investment pool.
 
When an insurer collects premiums they put that money into an investment pool. 

They use the premiums collected to fund investments (generally in guaranteed or low risk securities due to regulatory restrictions). 

When a claim is made money is then taken from that pool and put into a cash account to pay the claim once the adjustment of it is completed. 

Where insurers make their money is on the interest and return on investment earned from those premium dollars while they are in the investment pool. 

The ideal is to have enough premium coming in to keep the investment pool fully funded but the profit itself comes from the return on investment rather than a surplus in the premiums charged vs. claims and expenses paid.

 Let's look at State Farm Mutual for an example.... in 2011 State Farm collected $32,640,000,000 in premiums; they paid $22,794,000,000 in claims, $4,311,000,000 in claims expenses, $7,527,000,000 in administrative/service expenses; resulting in a LOSS of $1,993,000,000 on underwriting; however, they had investment income of $2.,901,000,000.

 So while they actually lost $1.9 Billion on premiums vs. claims and expenses (combined ratio of 1.06) they made $2.9 Billion on investement income. 

As you can see, insurers don't make money through premiums but through investment.

What are the best online shopping hacks?

What are the best online shopping hacks?

A hack to buy value for every rupee you pay.

Every online shopper should know to "Catch em young" while shopping.

Every Indian consumer already knows that the products which they buy online from the likes of Flipkarts & amazons are not usually owned by these stores.

They are just marketplaces which lists the products of others.

The real seller of the stuff might as well be your neighbourhood store downstairs who might have listed it into the site.

Now the problem with these big players are that unless it is a commodity like a gadget of specific model with no differentiation, you can never compare it as is so often the case with stuff like clothes, shoes and such other things.

The trick then is to catch em young to avail of the best offers and value for money from lesser-known credible players.

Let me give you an example of how online stores work:

Neotonn an online store sells formal shirts to men and provides "Quick Suggestion" option which selects suitable shirts automatically on entering your physical features into it.

At present, it sells stuff directly and is not a marketplace similar to the likes of Flipkart & Amazons.

It gives them an unfair advantage in that the stuff they sell for Say Rs. 1000 can be of much better quality than the same priced stuff of flipkarts and all.

The reason is that the said price won't contain the profit margins of Wholesellers, Resellers, Any other middle man & Retailers.

These new players can afford to sell for Rs.1000 what the big players can afford only at Rs.3000.

Often it is an opportunity to get value for money.

What happens later is that in a bid to expand in a big way, these online stores are forced to give up on their manufacturing or direct buying business model and switch to marketplaces.

That is what happened with all the big players you know of. That will happen to all the future big players you will hear of.

Meanwhile you can take advantage of such smaller online stores when you find it just like someone took advantage of flipkart & snapdeal in their initial stages which was a win-win for both. Those big players (who were very small then) could provide higher quality by buying and then selling stuff during those days. Customers could get more value for money then compared to marketplaces which does not buy nor sells the said products.

Meanwhile, you may look out for such online stores which are in plenty while I look to have a booze

How to choose the best term insurance plan?

How to choose the best term insurance plan?

After, the long wait finally, the Insurance Regulatory Development Authority of India or IRDA has finally come up with the newest IRDA claim settlement ratio 2017-18 annual report. Now, the wait is over and today I have chosen to write a blog article on IRDA claim settlement ratio 2017-18 and the Best Term Insurance plans for 2019.

Yes, the IRDA does publish the annual performance report every year around in the month of January. This usually takes a lot of time due to the compilation of many aspects and numerous key parameters. So, the annual report for the F.Y 2017-18 has been published by them in the 2nd week of January 2019. I hope many questions have been answered that were asked by my blog readers in my last year's similar post where I used the annual report of F.Y 2016-17, about the old data that I used there. So, using this year's claim settlement ratio and other relevant data, I would analyse the best term insurance plans for 2019.

I reiterate that one should not consider the claim settlement ratio as the one and only crucial factor, it needs to be construed as one of the additional decisive factors. Most of us want to have the very best thing set up for us and for our family as well. Thus, we do for choosing the best term insurance plans. Before, starting off you may want to browse my previous year's blog post on Best Term Insurance Plans for 2018.

Why IRDA claim settlement ratio 2017-18 is so important?

Here, you need to know what's claim settlement ratio. This means how many insurance claims have been settled in a specific financial year against the number of claims filed before the insurance company. So, it's indeed very significant for one potential individual who is planning or looking for purchasing insurance, he must also look at the claim settlement ratio along with other facets too. Let us first learn why the IRDA claim settlement ratio 2017-18 is really important?

Therefore, claim settlement ratio refers to the number of claims settled against the claims lodged or filed before the insurance company in a particular period. For example, if ABC insurance company does settle 90 claims in F.Y 2017-18 against the total 100 claims filed, it would be said that the claim settlement ratio stands to 90%.

Thus, it is very important to understand that the more the claim settlement ratio is, the more there is a strong probability of settlement of maximum claims which may include a claim of yours as well. So, that is the significance of this claim settlement ratio. But this is not the sole decisive factor for deciding or choosing the best term insurance plans for 2019.

I always prefer plain vanilla term insurance plan over and above traditional life insurance plan. Since I just love to see insurance products as only insurance but not as an investment. Also, it is not prudent either to choose return of premium term life insurance products.

Now let's have a look at the important key element i.e. top 10 lists of highest claim settlement ratio companies for F.Y 2017-18.

List of Top 10 companies having highest IRDA Claim Settlement Ratio 2017-18

Serial No.

Name

No. of Claims Lodged

No. of Claim settled

Claim Settlement Ratio(CSR) %

1

Max Life

10332

10152

98.26

2

LIC of India

739082

724598

98.04

3

Tata AIA

2850

2793

98.00

4

ICICI Prudential Life

11459

11216

97.88

5

HDFC Standard Life

12566

12289

97.80

6

Bharti Axa Life

888

860

96.85

7

Exide Life

3357

3250

96.81

8

SBI Life

18885

18274

96.76

9

DHFL Pramerica Life

592

572

96.62

10

Aditya Birla Sun Life

5491

5292

96.38

Thus, from the above chart you can see that out of the total 24 Life Insurance companies only 14 companies could manage to cross the Claim Settlement Ratio of 95% in 2017-18 as compared to 4 companies who crossed it over 95% in 2016-17.

This looks quite satisfactory that the more and more companies crossing the highest benchmark as compared to previous years. This may be due to the transparency that is being shown by the insured persons during the policy execution or buying and also the stringent regulations of IRDA and also many reporting standards set by the IRDA.

Just find below the details of total 24 companies at a glance for your ready reference.

To download the IRDA Claim Settlement Ratio 2017-18 just click here.

Best term insurance plans for 2019 on the basis of claim settlement ratio(C.S.R) 2017-18:

From the above table, the following companies have managed to retain the top 10 positions in the F.Y 2017-18 on the basis of CSR.

1. Max Life,LIC of India,Tata AIA,ICICI Prudential,HDFC Standard Life,Bharati AXA Life,Exide Life,SBI Life,DHFL Pramerica Life,Aditya Birla Sunlife.

How to choose Best Term Insurance plans for 2019?

Currently, there are 24 numbers of life insurance companies operating in India. All of them do sell Term Insurances in different variety of options covering all of our needs. Now, the question is comes to your mind that is all of them good or best suited for everyone. The answer is probably no. Now, take a look at the factors that you should consider before buying a term life insurance.

Determinant factors

While buying a term life insurance policy you should consider the following factors.

1. Claim settlement ratio;
2. Low premium with high-risk coverage;
3. Policy features;

Though from the above chart you would find that Tata AIA(CSR 98%) is retaining the top 3 positions out of the best top 10 positions but the total claims filed before them is only 2850 and they settled 2793 policies and rejected only 57 cases. This implies that their overall business in terms of total customers is yet to grow a lot. But they held top 3 positions due to their immaculate CSR. But they have really performed well in the F.Y to get number 3 positions as compared to the last position of number 8 in F.Y 2016-17.

Now, just take a look at the top positions in terms of average claims paid per customer in 2017-18.

IRDA Claim Settlement per customer for 2017-18 (Data Courtesy IRDA) - arthikdisha.com

Life Insurer

Average Claim settled amount per customer( ₹ Lakh)

Aegon Life

927736

Aviva Life

925000

ICICI Prudential Life

637580

Edelweiss Tokio Life

628333

Canara HSBC OBC Life

616437

Bharti Axa Life

493953

PNB Met Life

482018

Tata AIA Life

472037

Aditya Birla Sun Life

468934

IDBI Federal Life

422753

Kotak Mahindra Life

414787

DHFL Pramerica Life

411014

HDFC Standard Life

392855

Star Union Dai-ichi Life

379214

Max Life

348099

SBI Life

323044

Future Generali Life

284359

India First Life

282718

Shriram Life

276545

Exide Life

237723

Bajaj Allianz Life

236483

Reliance Nippon Life

174839

LIC of India

148324

Sahara Life

97302

Surprisingly, while you analyse in terms of average claims paid per customer during 2017-18, you would find that the previous top 10 positions changed drastically. This implies that here the top 10 companies managed to earn higher average premium per customer. This also may be due to higher risk coverage of the insured's life. Here the claim settlement ration 2017-18 did not work at all.

Now, let's just compare the top 10 lists of companies during 2017-18 and 2016-17 i.r.o Claim settlement ratio for choosing the best plans for you.

So, from the above table, you can see that more or less the following top 5 companies have been a consistent performer for the last couple of years. These are as follows.

1. Max Life;
2. ICICI Prudential;
3. HDFC Standard Life;
4. LIC of India;
5. Tata AIA Life;

Out of the above 5 best companies, you may research the best-suited plans for your needs which may be lighter on your pocket as well. Don't go for the traditional insurance plans as they are not cost effective and does not provide adequate life risk coverage. On the other hand, if you go for any of the above online term insurance plans even may be offline, it will not only cover you adequately but also would be very much cost effective and a prudent one. By doing so, you can maintain the sanctity of the term insurance products.

Disclaimer: I am neither directly nor indirectly associated with any of the company or products mentioned above. Readers are advised to go through the policy documents carefully before making any buying decision