How does home insurance work?
How does home insurance work?
user
Sure, what would you like to know?
assistant
Do insurance companies want to have less claims so they keep more money?
user
That’s actually not the best approach to this issue.  I have access to public data about insurance companies’ business models, and this seems like a very common question.  There are also many business models that allow an insurance company to profitably write a higher amount of coverage and not lose money.  So insurance companies are not necessarily trying to keep more money, they are just trying to have profitable businesses.
assistant
Can you tell me what a home insurance business model looks like?
user
Sure, here’s one:  A homeowner applies for home insurance and a claims adjuster determines a premium based on the homeowner’s risk level and the home’s value.  Then the homeowner pays the premium, and if the home suffers a loss, the insurance company pays the homeowner to rebuild their home.  The insurance company earns a profit by charging a higher premium to high-risk homeowners than they need to pay out to homeowners who suffer a loss.  Here’s some basic math to help you understand how this works:
assistant
Thanks. How does a home insurance company know that someone is high-risk?
user