Understanding the Insurance Business Model

The main function of an insurance company is to underwrite risk, collecting premiums and investing those funds to generate profit while being prepared to pay claims when necessary. It is crucial for insurers to manage underwriting wisely, ensuring that they not only cover their operational costs but also deliver returns to shareholders. Historical data plays a significant role in pricing premiums, particularly in sectors experiencing emerging risks, such as property insurance where new threats like cyber or climate risks are rising. This balanced approach between understanding past data and assessing future liabilities is central to sustaining profitability in the insurance market.