Our blog posts this month have focussed on the subject of insurance and risk cover. If you’re a regular visitor to Northwood’s blog and are keen to learn more, we have compiled a list of Frequently Asked Questions about the insurance industry.
How do insurance companies work?
Generally, insurance companies receive funds from their customers in the form of monthly premiums. Their biggest expenses are the insurance claims that constantly flow in from customers on a daily basis.
In order to stay in business, insurance companies calculate the risk involved in insuring each customer, also known as underwriting, using advanced financial calculations. These calculations are used to set the monthly premiums you pay to your insurance company.
The insurers also invest their surplus funds, usually in secure investments that allow them to build their cash reserves and insure new customers on a daily basis.
How did the insurance industry start?
As far back as the third century BC, merchants and sailors in China, Persia and ancient Greece began to understand the concept of risk. They would transport a load of goods by dividing it between several ships, so that if one ship sank they wouldn’t lose all of their cargo.
In more modern times, large insurers like Lloyd’s of London grew out of small companies that were also involved in shipping insurance. The US president Thomas Jefferson encouraged his countrymen to take out insurance as a form of income protection, exactly as people today still do.
How big is the industry today?
Although many large insurance companies downsized during the financial crisis of 2008, the global insurance industry is worth just over $ 4 Trillion today with the largest insurers based in the United States, the UK, northern Europe and Asia. South Africa has the largest insurance sector in Africa, with the greatest number of registered insurance companies on the continent.