How Do Insurance Companies Make Money and How Do They Work

Night in Boston and we may well be right but if we look back to see how the industry began it isn't that appear from swashbuckling Pirates to a ferocious fighter that ravaged the world's greatest City.

Insurance have had a colorful past but how do those gray suits who sell insurance really make money and how did the inner workings of one of the most complicated physical models really work if these questions.

What your curiosity then stay tuned to today's episode of the infographics show why do insurance companies make money and how do they work what is Insurance well.

Insurance is a financial vehicle that helped spread Risk by taking a risk from an individual and spreading that wrist around the community the individual is able to go about their personal or business level and spreading that risk from Financial ruin in the simplest term.

Let's look at two people one is named Bob and the other Bob says the gym I'll give you $10 but if I lose my cell phone you'll have to buy me a new one if Jim agrees then that's Insurance write, their insurance companies make money because they evaluate their and decide whether it is worth the gamble.

Jim believes that Bob probably won't lose his phone and he'll therefore be $10 richer if Jim finds 100 more people who are willing to give him ten bucks each to cover their phones has $1,000 if one of those 100 people losing their phone and Jim pays $100 as compensation he still has nine hundred bucks.

The insurance idea has been floating around since the ancient Chinese and the Babylonians spreading their shipping risk but it wasn't until around the 17th century in London than Modern Insurance really took off merchants and Traders off and hung out in coffee shop in the business district of London and while drinking copious amounts of coffee the idea of modern-day insurance was born Lloyd's of London. 

The heart of Worldwide Insurance was developed inside one of these coffee houses and here's how it work first you have a client say the client has a ship that he is nervous about losing to Pirates offshore or perhaps The Vessel will be destroyed in bed whether the client approaches an insurance broker the broker what type of ship or pay someone to look at the ship and they decide how much the total value of that ship is worth the broker than assesses the risk he asked the client where he is traveling to and what cargo he will be carrying all this information you drove up and insurance policy which she shows to the third person in the chain the underwriter for a cheaper premium the underwriter makes gluten few risks and for a few more he may include some extra rest now there are normally lots of Underwriters approached but what will be the lead and the lead underwriter like Jim will normally take the largest proportion of the wrist and sign his name first on the policy document the writer has he writes his name under the risk on the insurance policy. 

He lead underwriter make the major decisions when it comes to accepting the policy and will be the main man to agree to any claims on the policy once the terms of the policy are legal and the client is happy and the ships that sells but not before paying the insurance premium to the broker who will take about 10% and pass the rest on to the underwriter.

But what should happen if pirates board the ship build a cargo and Bernadette's eat well the client if he is still alive if not a representative of a client will speak to the insurance broker and the broker will visit with the lead underwriter and tell him the bad news the rest of the underwriters there may well be as many as twenty on a big policy or told the news and then the broker must negotiate the best claim settlement for the client or his or her representative.

Underwriters pay the money to the broker passes it on to the client without deducting any car the broker makes his money once the premium is paid and will help negotiate the best plans for his clients through gentlemanly honor and the prospect of future business.

Now it may not be all bad news for the underwriter if he is wise and not greedy he may have reinsure the policy, reinsurance put the underwriter in the position of the client underwriter some the policy on to another underwriter or firm of Underwriters while retaining a share of the premium confused you think back to Jim and his phone insurance if we sold his $10 phone policy for $9 rather than the $10 you received when he gets to keep a dollar each for each of his 100 client meeting he has $100 completely risk-free similarly.

Much of the modern-day insurance that flows through Lloyd's of London is reinsured out of the building to smaller insurance companies all across the world so what stores is a simple agreement between the client and the broker or Jim and Bob is spread across a River Community East stand to profit from the premium or taker caught of any losses this is how Insurance.

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