Question

Changes in weather patterns are increasing administrative costs for insurance companies. These added costs often exceed the amount of the premiums coming in and claim payments going out. To address this problem, insurance companies typically

A. increase dividend payments to shareholders.
B. deny weather related claims for property damage.
C. increase their investment income.
D. build up the amount of their reserves.

Answer 1

Answer: The correct answer is D). build up the amount of their reserves.

Explanation: An insurance is a protection from financial loss. It is a hedge against eventualities.

Changes in weather pattern can occur and cost incurred. Having an increased investment income may not necessarily tackle it.

The best way is to build up the amount of RESERVES which is also called retained earnings or ploughed back profit. It forms part of shareholder's equity and can be used in case of eventualities such as changes in weather pattern.

Answer 2

D. build up the amount of their reserves.

Step-by-step explanation:

With the changes in the weather patterns increasing the administrative costs of insurance companies and the added costs often exceeding the amount of premium coming in and claims the payment going out, Insurance companies have developed typically, a way of building up the amount of their reserves as a way of addressing this problem.

Insurance companies are required to have a reserve funds to pay out customers claims, and often insurance companies lists the details about their reserves in order to impress customers and give them a feeling of being more secure than than rivals. It is this reserve that insurance companies develops a way of building the amount inside so as to combat the problem of often changes in weather policies that increase their administrative costs to exceed the premium amount that comes in and claims the payment going out.