Financial services (2 of 5)

Insurance

About 8 minutes to read in full, or 1 minute for the short version belowFacts checked 30 September 2026

In one minute

Insurers take a small, certain payment (the premium) from many people and promise to pay the few who suffer a loss, such as a car crash, a fire, an illness or a death.

The big idea: An insurer is paid first and pays later. It profits if premiums cover claims and running costs (an underwriting profit, shown by a combined ratio below 100 percent), and it also earns investment income on the money it holds between collecting premiums and paying claims (the float). Because claims are by far the biggest cost, a few points on the loss ratio decide the year.

One unit, in numbers: One motor insurance policy for one year in Saudi Arabia: SAR 2,000 comes in, and SAR 100 (5%) is left after its own costs.What is left is the unit's contribution, before the costs of the whole company. See the worked example
Typical margin: Underwriting result often minus 5 to plus 10 percent of premium, plus about 3 to 10 percent from investment incomeRoughly how much of every 100 of sales (or income) is left as profit after the running costs. More on margin
Capital intensity: MediumA fair amount of money is tied up, in things like stores, stock or equipment. More on capital intensity
The number to watch: Combined ratioClaims plus expenses divided by premium; below 100 percent means the insurer makes money on underwriting before investment income.

Ask this first in a case

Which line: life, property and casualty, or health? And which country?

Words used above (5)

Premium:: The price a customer pays for cover.
Claim:: A request for payment after a loss, such as an accident or a death.
Loss ratio:: Claims divided by premium.
Combined ratio:: Loss ratio plus expense ratio; below 100 percent is an underwriting profit.
Float:: Money collected as premiums and held until claims are paid, which the insurer invests.

The industry's other words are explained in Words to know (12).

On this page (17 sections)

How money is made

Underwriting profit: premiums minus claims and expenses, positive when the combined ratio is below 100 percent.
Investment income on the float, the money held for claims that have not been paid yet.
Life insurers earn a spread between what their investments earn and what they credit to customers, or a fee on the assets in unit-linked plans, plus a margin on death cover.
Takaful (Islamic insurance) operators earn an agreed fee for running the participants' fund (wakala) or a share of its investment profit (mudaraba).
Reinsurers earn premiums for taking the largest risks; brokers earn commissions and fees for placing cover.

Worked example: one unit

Unit economics means the money in and out for one unit of the business. Start from the revenue, take away the unit's own costs, and what is left is its contribution. More on unit economics

The unit: One motor insurance policy for one year in Saudi Arabia. Illustrative, rounded figures.
Line	Amount	ShareShare of revenue
Premium paid by the driver	SAR 2,000	100%
Minus Expected claims and claim handling (a 72 percent loss ratio)	SAR 1,440	72%
Minus Commission to the agent or broker (10 percent)	SAR 200	10%
Minus Administration and other running costs (13 percent)	SAR 260	13%
What is left (contribution)	SAR 100	5%

Check: SAR 2,000 minus SAR 1,900 of costs leaves SAR 100.

So what: The policy earns SAR 100 on underwriting, a combined ratio of 95 percent. Investment income on the float adds roughly another SAR 120 (about 4 percent a year on money worth about one and a half times the premium, held until claims are paid), so it is more than half of the profit. The loss ratio is the lever that moves it most: 5 more points of claims (SAR 100) wipes out the whole underwriting profit.

Key measures(10)

Key measures (also called KPIs, key performance indicators) are the numbers people in this industry track. Ask for the first one or two early in a case.

Combined ratio
Claims plus expenses divided by premium; below 100 percent means the insurer makes money on underwriting before investment income. Glossary: Combined ratio
Typical: US property and casualty insurers 92.9 percent in 2025 (96.6 percent in 2024); EU non-life median 95.4 percent in early 2026[2]
Loss ratio
Claims and claim handling costs divided by earned premium: how much of each premium goes back out as claims. Glossary: Loss ratio
Typical: Often about 60 to 75 percent in property and casualty (66.5 percent for US insurers in 2025, 71.2 percent in 2024); health insurers often run higher[1]
Expense ratio
Commissions and running costs divided by premium. Glossary: Expense ratio
Typical: Often about 20 to 35 percent in property and casualty; 25.8 percent for US insurers in 2025[1]
Solvency ratio
Capital the insurer holds divided by the capital the regulator requires; at 100 percent it just meets the rule.
Typical: EU medians in early 2026: about 210 percent for insurance groups, 247 percent for life insurers and 218 percent for non-life insurers[4]
Gross written premium (GWP)
All premiums from policies sold in the period, before passing any to reinsurers: the size of the business.
Net earned premium
Premium kept after reinsurance, for the cover actually given in the period.
Investment yield
Investment income divided by the assets invested.
Typical: EU life insurers' median return on investment was about 2.7 percent in 2025, excluding unrealised gains and losses[4]
Claims frequency and severity
How often customers claim, and how much an average claim costs; the two parts of the loss ratio.
Persistency (life) or retention (general)
The share of customers who keep paying or renew; Indian life insurers report 13th month persistency.
Value of new business (life)
The expected profit, in today's money, from the life policies sold this year.

First questions to ask

When a case lands in this industry, these questions get you to the numbers that matter.

Which line: life, property and casualty, or health? And which country?
What is the combined ratio, and is the loss ratio or the expense ratio moving?
Inside claims: is it how often customers claim (frequency) or how much each claim costs (severity)?
Through which channel are policies sold, and what does each channel cost in commission?
How much of the profit comes from investment income, and what happens if rates fall?

Value chain: where the margin sits

The value chain is the steps a product or service passes through, from the first supplier to the customer. Each step below shows how much of the value it keeps. More on value chains

Step 1: Design and price the product
Medium margin
Insurers' actuaries, who estimate how often claims happen and how big they are
Price is set before the insurer knows who will claim, so pricing skill is the heart of the business.
Step 2: Sell the policy (distribution)
Medium margin
Agents, brokers (such as Marsh, Aon and WTW for companies), banks selling insurance (bancassurance), direct and online sales, comparison sites, and cover sold inside another purchase
Commissions often take 10 to 20 per 100 of premium, so whoever owns the customer relationship earns well.
Step 3: Accept the risk and set each customer's price (underwriting)
Medium margin
Insurers' underwriters, using customer data, car and property details, and health checks
Step 4: Collect premiums and invest the float
Fat margin
Insurers' investment teams and the asset managers they hire, mostly buying bonds
Investment income often adds 3 to 10 per 100 of premium, more when interest rates are high.
Step 5: Handle and pay claims
Thin margin
Claims teams, loss adjusters, approved garages and hospitals, fraud specialists
The largest cost. Controlling repair and medical costs and catching fraud moves profit more than anything else.
Step 6: Pass on the biggest risks (reinsurance)
Margin varies
Reinsurers such as Munich Re, Swiss Re and Hannover Re, and the Lloyd's of London market
Good years are very profitable; a large cyclone, flood or wildfire year can wipe out profits.

Profit pool: who keeps the money

Where in the value chain the profit ends up, which is often not where most of the sales are. More on profit pools

Much of the profit sits with whoever prices risk best and controls claims costs, plus the investment income on the float. Distribution earns steadily too: agents, brokers and banks take commissions without carrying the risk. Reinsurers earn high returns in quiet years and large losses in catastrophe years, and many insurers make most of their profit from investments rather than underwriting, which hurts when rates fall.

Cost structure(5)

The main costs, each as a share of revenue (the money from sales).

Claims and claim handling costs (the loss ratio; shares here are of premium): About 60 to 75 percent of premium; 66.5 percent for US property and casualty insurers in 2025[1]
Commissions to agents, brokers and banks: About 10 to 20 percent of premium; about 11 percent of earned premium across US property and casualty insurers in 2024[3]
Administration, technology and other running costs: About 10 to 15 percent of premium; with commissions, 25.8 percent for US insurers in 2025[1]
Underwriting result (what is left before investment income): Often between minus 5 and plus 10 percent of premium; plus 7 for US insurers in 2025, a strong year[1]
Investment income on the float (added on top): Often 3 to 10 percent of premium, higher when interest rates are high; about 9 for US insurers in 2025[1]

Benchmarks(8)

Typical figures for the industry, to check a client's numbers against.

US property and casualty combined ratio, 2025: 92.9 percent, down from about 97 percent in 2024[2]Helped by unusually few hurricanes reaching land, so not a new normal. Sources differ slightly on 2024: 96.6 percent (Verisk and APCIA) and 96.9 percent (NAIC).
US property and casualty loss, expense and investment figures, 2025: Loss ratio 66.5 percent, expense ratio 25.8 percent, investment yield about 3.6 percent[1]
US property and casualty underwriting gain and premiums, 2025: About USD 63 billion on net written premiums of about USD 971 billion, which grew 4.8 percent[2]
EU non-life median combined ratio, Q1 2026: 95.4 percent[4]
EU median solvency ratio, Q1 2026: About 210 percent for groups, 247 percent life, 218 percent non-life[4]
World premium growth after inflation: 3.9 percent in 2025; forecast 1.3 percent in 2026[6]
Insured natural catastrophe losses, 2025: About USD 107 billion, the sixth year in a row above USD 100 billion[8]
Takaful contributions written in the Gulf (GCC), 2024: About 60 percent of the world total[11]

Typical cases(7)

Case prompts you might hear in this industry.

Our motor insurer is losing money. Why, and how do we fix it?
Should we sign a bancassurance deal with a large bank?
Should we launch a digital, direct-to-customer insurer?
New business at our life insurer is falling. What is going on?
How much reinsurance should we buy against a cyclone or flood?
Should we launch a takaful product in the Gulf or Malaysia?
A foreign insurer wants to enter India now that full ownership is allowed. How should it enter?

Common traps(5)

Mistakes candidates make in this industry, and what to do instead.

Treating premium growth as success. Growth at a loss-making price makes the insurer worse off.
Ignoring investment income, or leaning on it when interest rates are falling.
Forgetting that this year's claims are not fully known yet: reserves for claims can still rise.
Missing concentration: many policies in one flood or cyclone zone can fail together.
Assuming life and property insurance work the same way. Life is long-term savings and interest rates; property is claims and pricing.

What changed, 2024 to 2026(6)

Recent changes a case could turn on.

Growth is slowing: Swiss Re forecasts world premiums to grow 1.3 percent after inflation in 2026, down from 3.9 percent in 2025, with non-life prices cyclically soft and stickier inflation raising claims costs.[6]
US property and casualty insurers had their strongest underwriting year in more than two decades in 2025 (combined ratio 92.9 percent), mainly because no hurricane made landfall in the US, not because risk fell.[1]
Catastrophes stay expensive: insured natural catastrophe losses were about USD 107 billion in 2025, the sixth year above USD 100 billion, with the Los Angeles wildfires alone about USD 40 billion.[8]
India opened up: in December 2025 Parliament allowed up to 100 percent foreign ownership of insurers, up from 74 percent, making it easier for foreign groups to enter or take full control.[9]
Gulf marine and energy cover is under strain: the 2026 conflict involving Iran, Israel and the United States cut shipping through the Strait of Hormuz, and insurance costs are one reason ships stay away.[12]
European supervisors raised digital and cyber risk to high in July 2026, reflecting frontier AI, geopolitical tension and insurers' growing cyber underwriting.[5]

Players by region(8)

Well-known companies in each region. You do not need to learn them by heart; they help you picture the market.

Global: Allianz (Germany)
AXA (France)
Generali (Italy)
Zurich (Switzerland)
Reinsurers Munich Re, Swiss Re, Hannover Re
Lloyd's of London (specialist market)
Brokers Marsh, Aon, WTW
Europe: Allianz, AXA, Generali, Zurich
Aviva, Legal & General (UK)
Middle East: Tawuniya, Bupa Arabia (Saudi Arabia)
ADNIC (UAE)
Qatar Insurance
Many takaful operators
India: LIC (state-owned, life)
SBI Life, HDFC Life
ICICI Lombard, New India Assurance (general)
Star Health (health)
Southeast Asia: AIA and Prudential (across Asia)
Great Eastern, Income Insurance (Singapore)
United States: State Farm, Progressive, Berkshire Hathaway (including GEICO)
MetLife (life)
UnitedHealth (health)
China: Ping An
China Life
Africa: Old Mutual, Sanlam, Hollard (South Africa)
Leadway (Nigeria)
Jubilee (East Africa)

Words to know(12)

Linked words have a fuller entry in the glossary.

Premium: The price a customer pays for cover.
Claim: A request for payment after a loss, such as an accident or a death.
Loss ratio (glossary entry): Claims divided by premium.
Expense ratio (glossary entry): Commissions and running costs divided by premium.
Combined ratio (glossary entry): Loss ratio plus expense ratio; below 100 percent is an underwriting profit.
Float (glossary entry): Money collected as premiums and held until claims are paid, which the insurer invests.
Reserves: Money set aside for claims that have happened but are not yet paid.
Reinsurance (glossary entry): Insurance that an insurer buys for itself to limit large losses.
Bancassurance: Selling insurance through a bank's branches and app.
Persistency (glossary entry): The share of customers who keep paying their policy.
Solvency ratio: Capital held divided by the capital the regulator requires.
Takaful (glossary entry): Islamic insurance in which participants share risk through a common fund run by an operator.

Business model patterns

The ways of making money this industry follows. Spot the pattern in a new industry and you already know the first questions to ask.

Sources(12)

Facts checked on 30 September 2026. Worked examples are illustrative, shaped by these sources rather than one company's figures.

Go deeper and practise

Go deeper

The full lessons behind this brief, with sources and worked cases.

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Same pattern elsewhere

Industries that make money in a similar way. What you learned here carries over.