Cash Flow Underwriting

  

A price slashing tactic used by insurance companies to drum up business when times are tough.

In essence, these companies sell their solid gold policies well below their actual value in an effort to entice new customers to purchase their fancy products (even though these new policyholders might be, well...slightly undesirable).

So...why do business with customers who have stupidly bad driving records? Because the insurance guys are smart. They’ll take the immediate sales capital from these not so perfect policies and turn around and invest the cash back into lucrative investments. And down the road, hopefully these higher returns will offset the amount of money they’ll have to pay out-of-pocket to cover Billy Bob’s frequent fender benders, reckless driving tickets, and DUI’s he so kindly claims.

Related or Semi-related Video

Finance: How is inventory managed for ca...3 Views

Up Next

Finance: What is cash flow v earnings?
17 Views

What is cash flow vs. earnings? Earnings are how much a company has made in profit after they have paid things like taxes and operating expenses. C...

Finance: What is an Underwriter?
82 Views

What is an underwriter? Hit play to find out.

Finance: What is a managing underwriter, and what is a selling group?
1 Views

What is a managing underwriter, and what is the selling group?

Find other enlightening terms in Shmoop Finance Genius Bar(f)