1. From the time when the insurance company receives the insurance money to the time when the insurance company pays the indemnity, the insurance company can invest the insurance funds and earn income. The return on investment is an important source of profits for insurance companies. It can be said that for most insurance companies, the return on investment is the only source of profit.
2. For example, if the indemnity that the insurance company has to pay exceeds 10% of the premium income, and the return that the insurance company gets through investment is 20% of the premium income, then the insurance company will get a profit of 10%. However, because many insurance companies think that investing in risk-free treasury bonds or other low-risk and low-return investment projects is a prudent choice, it is very important to control the percentage of indemnity expenditure exceeding insurance premium income below the investment return rate, because then insurance companies will not lose money.
In the insurance industry of most countries, it is very rare to make money through underwriting. In the United States, the insurance business of property insurance companies lost 2.3 billion yuan in the five years before 2003. But the total profit during this period is 400 million yuan, which is because of the investment income. Some people in the insurance industry pointed out that insurance companies cannot always rely on investment income instead of insurance business income.
4. In China, the main profit source of life insurance industry is personal accident insurance business with one year or less. Life insurance companies often realize this by controlling the payout ratio of their branches. Although investment income is one of the profit sources of life insurance industry, the investment channels are not very wide, and the financial environment, especially the investment field, is not very standardized, so the contribution of investment income to profits is not very considerable.