Cash Flow
Here is a simplistic illustration that demonstrates the
principles of a purely mutual insurance company.
Purely mutual companies operate on a non-profit philosophy.
There are no payments of dividends to stockholders. Expenses
consist of claims payments plus administration expenses to
operate the company. There are only two sources of income for
a purely mutual insurance company - policyholder premiums and
investment income from the investment of surplus funds. The
simple goal is to provide for the needs of the owning
policyholders while ensuring the mutual remains financially
stable.
Can you see how claims costs affect the amount of premium
needed?
Can you see how changing the rate of flow of any of these
four forces affects the water level?
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