How do insurance companies make money supporting worker's compensation when claims cost 21% more than premiums paid by employers?
by 
Psycho the kid
ANSWERS: 3
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They don't. I would recheck your data.
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As I understand it, there are 2 ways insurance companies make money: underwriting profit and float profit. Underwriting profit refers to the amount of money that insurance companies make when the amount of premiums collected is greater than the amount of claims paid out. But, a lot of insurance companies (like the one in your example) end up paying more for claims than the premiums they receive. This is called a underwriting loss which is what you are referring to. Float profit refers to the amount of money that insurance companies make by investing the money insurers give them. Since many premiums are paid and not collected for some time, this gives the insurance companies a large "float" of cash that they can invest with until they have to pay claims out. The reason insurance companies are profitable is because the float profit is greater than the underwriting loss.
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As I understand it, there are 2 ways insurance companies make money: underwriting profit and float profit. Underwriting profit refers to the amount of money that insurance companies make when the amount of premiums collected is greater than the amount of claims paid out. But, a lot of insurance companies (like the one in your example) end up paying more for claims than the premiums they receive. This is called a underwriting loss which is what you are referring to. Float profit refers to the amount of money that insurance companies make by investing the money insurers give them. Since many premiums are paid and not collected for some time, this gives the insurance companies a large "float" of cash that they can invest with until they have to pay claims out. The reason insurance companies are profitable is because the float profit is greater than the underwriting loss.
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