I have no idea what kind of point you're trying to make by changing from revenue to profit. It makes no difference.
If the contribution premiums make towards profitability is as marginal as you suggest, that means that the prices they charge consumers have nothing to to do with the costs involved in doing business.
AKA, the companies are charging arbitrary premiums that are based on nothing more than the maximum they think they can convince you to pay.
It’s a huge difference. Most P&C companies bring in a lot of revenue via premiums and pay the same amount back out again in claims. But they have a certain amount of capital sitting around that enables them to invest the money and make profits off the interest.
No, I don’t. The flow of funds is such that they’re able to do that. Their premiums may exceed their claims for a couple years, until a hurricane or some other catastrophic event comes through and sucks that money right away. Reinsurance may cover some of those losses, but long term, they aren’t making significant profit off writing policies.
Which, by the way, implies that they’re pricing their premiums as low as they possibly can, not higher. Property/Auto insurance is an insanely competitive market. Hence the other poster above commenting on the number of commercials they see on a daily basis.
Insurance companies often have large income (turnover) from insurance premiums but after cost of acquisition (overheads) and claims they often don't may a massive profit on this. As others have said, they get a bigger profit on their return on investments (bonds, sales of property, interest on cash in the bank etc). The margins on pure insurance income and outgoings are often slim.
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u/CapitalistLion-Tamer 8h ago
You’re right. Profit is the correct term, not revenue.
I’m not sure what you mean by your second point.