Category Archives: Insurance Facts

What is Auto Insurance

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Auto insurance protects you against financial loss if you have an auto accident. It is a contract between you and the auto insurance company. You agree to pay the premium and the auto insurance company agrees to pay your losses as defined in your policy. Auto insurance provides property, liability and medical coverage:

  1. Property coverage pays for damage to or theft of your car.
  2. Liability coverage pays for your legal responsibility to others for bodily injury or property damage.
  3. Medical coverage pays for the cost of treating injuries, rehabilitation and sometimes lost wages and funeral expenses.

An auto insurance policy should at the minumum cover third party liabililty e.g your auto insurance company will cover the cost of the third party in case of accident. Most countries require you to buy at least third party auto insurance. If you’re financing a car, your finance company may also have requirements that you fully insure your auto for retail value.

Insurance Fraud

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Insurance fraud is any act committed with the intent to fraudulently obtain payment from an insurer.

Insurance fraud has been in existence  since the start of insurance as a commercial business. Fraudulent claims account for a significant portion of all claims received by insurers, and cost billions annually.

Insurance fraud occurs in all areas of insurance, like house hold insurance,medical insurance and auto insurance. Insurance related crimes also range in severity, from slightly exaggerating claims to deliberately causing accidents or damage.  Insurance fraud poses a big problem, and governments and other insurance companies are making efforts to deter such activities.

How does insurance fraud affect you ?

Quite simply, all the honest insured people will pay more for their insurance premiums. So if you suspect or know of someone who commits insurance fraud you are helping yourself and others by reporting this. If there was no insurance fraud our insurance premiums would be lower.

How do insurance companies make money

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Insurance companies earn money in two ways.

  • Through underwriting.

Underwriting is the  process through which insurance companies select what risks to insure and decide how much insurance premium to charge for insuring those risks

  • Investing the premiums

Through carefully investing the received insurance premiums in high return investments they will be able to earn money on the invested insurance premiums

The most difficult aspect of the insurance business is the underwriting of polices. Based on a wide set of available data, insurance companies  predict the likelihood that a claim will be made against their insurance polices. Insurance companies  price products according to the likelihood of claims.

 At the end of the insurance, the amount of insurance premium collected minus the amount paid out in claims is the insurance companies  underwriting profit.

Insurance companies  currently make the most money from their auto insurance line of business. Generally better statistics are available on auto insurance claims  and underwriting on this line of business has benefited greatly from advances in computing technology.