How Does An Insurence Company Operate?
There is a delicate balance to the system insurence companies work within. They collect premiums, invest those premiums and payout on claims with those premiums. No matter when you have a claim, your insurance company must have the money available to pay on that claim. Your insurance company cannot just pay for claims when the stock market is up – no they have to be ready to pay out at any time. Insurance company’s have to make sure that their investments grow so that they have enough money for you when you have a claim.
Insurance companies have to make sure they collect enough premiums so that they stay profitable. If your insurance company becomes unprofitable then they may not be in business when you do have a claim.
In addition to economic conditions, when reviewing premiums, insurence companies have to also consider whether losses and catastrophic losses – which they nor the policyholder have any control over – but these losses still increase claim activity, and can have an effect on premiums.