Car insurance companies are a specialised form of insurance company (see
insurance company). They typically provide
short term insurance policies for vehicles
and homes. Car insurance is one of the most popular forms of insurance and the industry
generates premium income of several hundred billion Euros in the European Union
alone.
Car insurance companies work in the following way:
- The company collects sells policies and collects premiums from thousands of customers.
- It pays out this money to customers who make a claim. Some years car insurance
companies incur major losses when catastrophes like earthquakes, floods and other
unforeseen disasters inflict damage on numerous policy holders.
- They also need to cover internal costs associated with the administration of policies
and claims handling expenses.
- If the company collects more from premiums than it pays out to claims it makes
an underwriting profit.
- Underwriting profits aren’t the deciding factor over whether the car insurance
company makes a total profit. Many companies make their profits by investing the
premiums that they collect and making a positive return on these investments. This
is called ‘the float’ and is usually where these companies make most of their money.
Car insurance companies sell their policies via 2 main channels:
Insurance Brokers: They are independent
companies or individuals who sell insurance policies, but don’t write them. They
work on a commission basis and do most of the marketing and sales on the insurance
company’s behalf.
Selling Direct: The car insurance company sells its policies directly to
the public. The need to cover the expense of sales and marketing staff is incurred,
but the company saves on commissions that would have had to of been paid to independent
brokers. The company also has greater control over its marketing strategy.