It is believed past times many that insurers brand net from the divergence betwixt the coin they have inwards premiums, as well as the coin they pay inwards claims.
This is true, only it is non the principal source of income for insurers, which perchance causes the misguided notion that insurers brand millions (and billions) of dollars inwards profit, at the expense of those people whose claims are denied.
Insurers are real liquid (or cash rich) businesses, owing to the regular volumes of cash they have for policies they underwrite. Insurers hence accept to laid upwards aside approximately of this coin to pay claims, the minimum amounts of which are laid upwards past times law. This is called ‘regulatory capital’. The residual they invest as well as that is the principal source of an insurer’s income.
If reserves are laid upwards likewise high hence likewise much regulatory working capital missive of the alphabet is held upwards as well as this reduces the insurer’s investment working capital missive of the alphabet as well as their mightiness to brand money. If reserves are laid upwards likewise low, hence insurers may non move able to run into their regulatory working capital missive of the alphabet requirements or satisfy claims.
Therefore, the importance of accurate reserving cannot move underestimated as well as having an #actuary on board makes the whole difference.