The insurance industry employs several methods for rate setting. The most basic method involves estimating the expected payouts for insured perils. Another method is based on past loss data. Insurance companies collect prior losses and compare them to their expense load and premium collected in order to calculate loss relativities. Other methods involve performing more complex multivariate analyses.
The global insurance industry is estimated at $5 trillion. The insurance industry is undergoing a ‘digital first’ urgency, spurred by the new generation of consumers, big data, and automation. Using this technology to combine human and technological capabilities will increase efficiency, improve customer satisfaction, and spur growth. However, the industry is not immune to disruption.
The insurance industry has long been a subject of study for economists. These experts have developed several theoretical models to understand the dynamics of the industry. One popular theory says that consumers purchase insurance even when they should not. In addition to covering administrative costs, insurance companies also need to provide a competitive return to shareholders. Therefore, it is a good idea to only purchase insurance if you are absolutely sure that you will incur a large loss.
The insurance industry is divided into two major categories: property and casualty and life/annuity. The former category covers insurance policies for auto, home, and commercial properties. The last type, life/annuity, includes health and accident coverage.