Question

What are the two major sources of revenue for a Property & Liability insurance company? (explain in details)

Answer 1

A property and liability insurance company provides coverage for property protection as well as protection against a liability that arises against policy holder.A liability cover includes legal costs and other damages for which the policy holder is deemed liable in the event of damage to property or injury to another individual.A property insurance cover provides protection for property from costs arising due to damage the property sustains from earthquakes ,flood and other natural disasters.Some property insurance covers also include theft.A property and liability insurance company just like any other insurance company provides the insurance cover to the insured in exchange for a premium paid by the insured.These premiums received are one source of revenue to the insurance company..Before agreeing to provide cover the insurance company will make a thorough evaluation of the prospective customer and thereby obtains an idea of the risk of of having to settle the claim.The company makes sure the risk is within an acceptable range.In the event of a loss the insured get paid a sum assured as per the contract.The insurance company makes a profit in the difference between the claims settled and the premium received..Another source of income is investment in portfolios.A portfolio refers to a collection of investments in different securities that have different levels of risk.Such investments pay the investor(here the insurance company) a return.When the insurance company receives premiums form its customers (policy holders) the company will invest that money in different securities in the financial market.As a result the premiums they get paid are now generating revenue.These are the two major ways a property and liability insurance company earns revenue.