Your business: how to open an insurance company
Is it possible to open your insurance business and how much you can earn on it? We understand the basic concepts and formats, analyze the insurance market, calculate investments.
The insurance market of the Russian Federation in recent years is on the rise, especially noticeable against the background of a series of crisis phenomena that affect other areas of Russian business. To enter this market, in our opinion, it is necessary to have already experience and accumulated clients in this field. Providing sufficient profitability, the insurance business will allow an entrepreneur to start his own business with minimal investment.
Basic concepts of insurance business
Insurance is a method of compensation for losses suffered by an individual or legal entity, through their distribution among the participants of the system. There are risks of loss from time to time in business as well as in ordinary life. These could be simple risks, such as a fire or an accident. There may be more complex risks, such as liability for failure to perform a contract or the risk of inadvertent damage. The occurrence of all these risks can cause serious financial damage to both legal and physical persons. Insurance companies can help minimize losses from such risks.
In short, insurance is the relationship between the insurer (the one who provides insurance services) and the insured (those who insure their risks) to protect the interests of both individuals and legal entities in case of insured events, that is, certain events that can lead to financial losses of the insured, at the expense of cash funds formed from the insurance premiums paid by them. The insurance premium is the amount that is periodically paid by the insurer to the insurer in accordance with the insurance contract. It is also called a gross premium or insurance premium.
In simple terms, insurance companies collect contributions from policyholders who, for a certain period, are much less than the insurance indemnity paid by the insurer in the event of certain insured losses. However, since the insurance company collects premiums from many insurers, some of which do not actually incur risks, this difference between the collected insurance premiums from all insurers and insurance indemnities paid out makes up the income of the insurance company. In this regard, the amount of insurance premiums is carefully calculated based on statistical data on the possibility of an insured event, the number of policyholders and the amount of possible compensation for damage.
This is the main difficulty for the insurance company. If the insurance premium is very high, then it will be unprofitable for insurers to insure, they will prefer to bear the risks of financial loss in case of losses themselves, and the insurance company will not receive income. On the other hand, if the total insurance payments will be less than the amount of insurance claims, the insurance company will go bankrupt.
In addition, in addition to the amounts of insurance compensation, the insurance premium should cover the operating costs of the company, provide a certain amount of profit and take into account deductions for the creation of insurance reserves. For exact calculation and balancing of insurance payments and insurance compensation, complex mathematical formulas and methods are developed, which are developed by each insurance company.
By its effectiveness, the insurance market can be called one of the most profitable business areas in Russia. For example, for 2017, insurance companies received more than 1,278 billion rubles of insurance premiums, which is 8.3% higher than the amounts collected in 2016. As you can see, for the current situation in the Russian economy in crisis, such growth rates are very decent.
On the other hand, in 2017, insurance companies spent 509.7 billion rubles as insurance payments. Compared to 2016, payments increased only by 0.77%. Such dynamics characterize the advancing growth rate of income of insurance companies over expenditures. As it is easy to calculate, insurance companies pay less than 40% of the collected funds. There are not so many industries in the Russian Federation that provide more than 60 percent marginality (that is, the ratio of income and direct costs).
The growth rate of insurance premiums in the life insurance segment declined slightly (53.7% in 2017, 66.3% in 2016), but in terms of premium growth, 2017 was a record year – almost 116 billion rubles. In fact, at present, it is life insurance that is the main engine of the insurance market development.
Due to the long-term life insurance, payments under these contracts have not yet entered the active phase, which ensures a special segment profitability. It should be noted that the development of the life insurance segment mainly goes mainly through the banking channel and is focused on investment insurance.