How insurance companies make money
From Progressive's 2025 annual report · Updated
The short answer
Insurance companies make money two ways: charging more in premiums than they pay out in claims and running costs, and investing the premiums until the claims come due. Through one insurer, Progressive, which says it's the second-biggest car insurer in the US by premiums: drivers and businesses paid it $81.7B in 2025.
After claims and costs it kept $12.60 of every $100 in premiums, and the money it held for future claims earned $3.6B on top.
Our example number here is $100; the others come from the sources below.
Source:sec.gov ·2025
Key numbers
- $81.7B
sec.gov ·2025 Premiums earned in a year
- 87.4%
sec.gov ·2025 Combined ratio: claims and costs as a share of premiums
- 25.2%
sec.gov ·2025 Of profit before taxes from investing the premiums
- $11.3B
sec.gov ·2025 Net income in a year
Premiums in, claims out
Customers pay first; crashes, stolen cars and hail come later. Out of every $100 Progressive collected in 2025, $65.90 went to claims and settling them, and $21.50 to selling policies and running the company.
Our example number here is $100; the others come from the sources below.
Insurers track this with the combined ratio: claims plus running costs, as a share of premiums. Under a hundred percent, insuring made money. Progressive's 2025 ratio was 87.4%. Its goal is to grow as fast as it can while staying at or below 96%, and its report says hitting that profit goal comes before growth.
- Claims, and settling them: $65.90
- Selling policies and running the company: $21.50
- Left from insuring: $12.60
Where an example $100 of premiums went at Progressive, using its 2025 averages.
This number is our example.
Sources:sec.gov ·20252
The money in between: the float
Premiums arrive before the claims. At the end of 2025 Progressive was holding $43.3B for claims that had happened but weren't paid yet, plus $25.2B of premiums for coverage it still owed. People call money like this the float.
Progressive invests it in the meantime: it had $97.4B of investments at the end of the year. Car claims get paid fairly quickly, about 50% of the claim money within a year, so it's held mostly in bonds that come due soon. In 2025 investment income was $3.6B, about 25.2% of Progressive's $14.2B of profit before taxes. Insuring itself made $10.2B.
Source:sec.gov ·2025
Good years and bad years
Claims don't cost the same every year. When repairs, used cars and medical bills got pricier, Progressive's combined ratio crept close to its goal, and in 2022 its net income fell to $722M. It raised personal auto rates about 13% in 2022 and about 19% more in 2023, and slowed down for a while.
Once prices caught up with claims, it spent to grow: advertising went from $1.6B in 2023 to $5.1B in 2025, and it ended 2025 with 38.6 million policies.
Storms are the wild card. Progressive's losses from hurricanes, hail and tornadoes fell from $2.5B in 2024 to $1.5B in 2025. To keep one huge storm from sinking a year, insurers buy reinsurance: insurance for insurance companies.
- 2021: 95.3%
- 2022: 95.8%
- 2023: 94.9%
- 2024: 88.8%
- 2025: 87.4%
Progressive's combined ratio, year by year, against its goal of 96%: lower is better. Under the goal every year, but only just from 2021 to 2023.
Sources:sec.gov ·20252sec.gov ·2023
Common questions
What is a combined ratio?
Claims plus running costs, as a share of premiums. Under a hundred percent, the insurer made money from insuring; over it, it paid out more than it took in. Progressive's was 87.4% in 2025, against its goal of 96%.
Sources:sec.gov ·20252
Why do car insurance rates go up?
Because claims cost more. A claims bill is how many claims times what each one costs, and pricier repairs, car parts and medical bills push it up. Rate changes also go through each state's rules: Progressive's report says state insurance departments oversee its rate levels.
How much profit does Progressive make?
$11.3B of net income in 2025. Before taxes it was $14.2B: $10.2B from insuring and the rest mostly from investing the float.
Source:sec.gov ·2025
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