We've already provided an income statement. The agent claims that profit is directly proportional to risk. If so, how?
Total Comments: 4
Posted: Wed Feb 02, 2011 11:13 am Post Subject:
profit is directly proportional to risk. If so, how?
You don't indicate what type of business you have, but consider this:
I have a small catering business. If I gross $45,000 in a year, I have served a certain number of meals. If I gross $100,000 in a year, the assumption is I have served more than twice as many meals. That more than doubles my risk of someone being sickened by eating my food (never happened in more than 20 years).
Or . . .
You are a building contractor. You build 5 homes in a year, and your P&L will reflect that. If your P&L doubles in the next year, what else accounts for that other than building more homes? You wouldn't simply double your charges. More profits must result from more activity, which means more risk.
Posted: Wed Feb 02, 2011 07:02 pm Post Subject:
Not to be difficult, but your examples involve income as opposed to profit. Why would an insurance company need to know about profit or expenses?
Posted: Wed Feb 02, 2011 08:17 pm Post Subject:
Why would an insurance company need to know about profit or expenses?
If you are keeping accurate records of income and expenses, perhaps using accounting software such as Quick Books, your P&L statement will show the assorted forms of income/revenue your business has as well as a detailed record of expenses -- such as raw materials purchased, license fees, taxes, employee wages, office supplies . . . all the costs of doing business. If a business has legal expenses (such as fighting a liability claim), there is really no legitimate way to hide that expense without creating a false financial report.
All of this is relevant to underwriting the risk. More risk exposure = higher premiums. You can have income and end up the year with a net operating loss, but you cannot have a profit without income. The insurance company wants to know that it is doing business with someone who has income (1) to pay the premium when due and (2) to prevent accepting a risk that will lead to a fraudulent claim. If you are not profitable, the insurance company may not want to do business with you -- to avoid the possibility that you would submit a fraudulent claim to try to bolster your business operations.
Posted: Thu Jun 02, 2011 10:19 pm Post Subject: wBSouWHYLPKODUai
YouÂ’ve got it in one. CldounÂ’t have put it better.
Posted: Wed Feb 02, 2011 11:13 am Post Subject:
profit is directly proportional to risk. If so, how?
You don't indicate what type of business you have, but consider this:
I have a small catering business. If I gross $45,000 in a year, I have served a certain number of meals. If I gross $100,000 in a year, the assumption is I have served more than twice as many meals. That more than doubles my risk of someone being sickened by eating my food (never happened in more than 20 years).
Or . . .
You are a building contractor. You build 5 homes in a year, and your P&L will reflect that. If your P&L doubles in the next year, what else accounts for that other than building more homes? You wouldn't simply double your charges. More profits must result from more activity, which means more risk.
Posted: Wed Feb 02, 2011 07:02 pm Post Subject:
Not to be difficult, but your examples involve income as opposed to profit. Why would an insurance company need to know about profit or expenses?
Posted: Wed Feb 02, 2011 08:17 pm Post Subject:
Why would an insurance company need to know about profit or expenses?
If you are keeping accurate records of income and expenses, perhaps using accounting software such as Quick Books, your P&L statement will show the assorted forms of income/revenue your business has as well as a detailed record of expenses -- such as raw materials purchased, license fees, taxes, employee wages, office supplies . . . all the costs of doing business. If a business has legal expenses (such as fighting a liability claim), there is really no legitimate way to hide that expense without creating a false financial report.
All of this is relevant to underwriting the risk. More risk exposure = higher premiums. You can have income and end up the year with a net operating loss, but you cannot have a profit without income. The insurance company wants to know that it is doing business with someone who has income (1) to pay the premium when due and (2) to prevent accepting a risk that will lead to a fraudulent claim. If you are not profitable, the insurance company may not want to do business with you -- to avoid the possibility that you would submit a fraudulent claim to try to bolster your business operations.
Posted: Thu Jun 02, 2011 10:19 pm Post Subject: wBSouWHYLPKODUai
YouÂ’ve got it in one. CldounÂ’t have put it better.
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