Insurance companies assume a large risk for a comparatively small premium by pooling the money of a large group and promises that if one of the groups suffers a loss, then the company will repay the loss. In the same line insurance companies profit from i

Insurance companies assume a large risk for a comparatively small premium by pooling the money of a large group and promises that if one of the groups suffers a loss, then the company will repay the loss. In the same line insurance companies profit from investing their income by taking large quantities of money in insurance premiums and invest it. Insurance companies take into consideration losses and expenses when computing premiums. Insurance companies collect enough money to pay for business expenses. Insurers try to avoid operating a loss by making profit applying probability concepts. The insurer tries to anticipate how much it will pay for claims and expenses, and charge a commensurate premium that allows for a profit. Therefore, insurance companies are concerned with the number that independent event happened to measure the expectancy of an event to occur. Credibility is another factor that insurance companies rely on to prove their past experience in predicting risk and together with probability help insurance companies assume a large risk for a small premium.

 

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