What Does Cash Flow Underwriting Mean?
Cash flow underwriting is a type of underwriting in which an insurance company will price premiums lower than usual in order to generate more business. It then invests a higher amount of money than it would to make up for any gaps in monetary reserves needed to pay out claims.
Insuranceopedia Explains Cash Flow Underwriting
Cash flow underwriting is a strategy that insurance companies often use when when the market is "soft," and when there is a high level of competition. Lower premiums are naturally appealing to policyholders, so companies who lower their premiums often see an influx of business. If these premiums are invested correctly, it can still be very profitable despite the bringing in less money in payments. However, if they are not invested correctly, then it could lead to serious financial problems by the combination of reduced earnings and shrinking assets.