The insurance industry's net margin in 2017 ranged between 3 and 10.5%. Life insurance had the widest range between quarters, from 3% to 9.6%;  property and casualty insurance were at 3% to 8%; and health insurance had the narrowest range of 4% to 5.25%. The net margin for insurance brokerages in 2017 was higher than that of the insurance industry overall, at 9.27% to 10.5%.

Individual insurance companies also experienced a range of net margins throughout 2017:

Company Q1 Q2 Q3 Q4
Allstate (ALL) 7.37% 6.04% 6.89% 12.69%
Progressive (PGR) 6.71% 5.56% 3.30% 8.09%

Like all other businesses, companies in the insurance sector incur costs and sell products, and they must find a profitable balance between operating costs and the prices the market will bear. Costs for firms in the insurance business include the money the insurer pays to service providers. For health insurers, this would be payments made to hospitals or doctors. In the case of automotive insurance, this includes payments made to repair shops or medical costs if injuries were involved.

Changes in the costs of services rendered, policy price changes and the number of claims received are all factors that can cause an insurance company’s net margin to change from year to year. For the purposes of long-term evaluations of companies in the insurance business, analysts consider annualized net margin data to be the most useful information.

The calculation of net margins is chiefly significant to companies in the insurance sector because the values are so low. Many insurance firms operate on margins as low as 2% to 3%. Smaller profit margins mean even the smallest changes in an insurance company's cost structure or pricing can mean drastic changes in the company's ability to generate profit and remain solvent. (For related reading, see: What is the formula for calculating profit margins?)