 Auto accident: better to haggle with insurance or get a lawyer? |
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A... |
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A... |
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Nicole | Where do insurance companies get all the money? |
How does an insurance company afford to pay out all that money on insurance claims? |
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mbrcatz
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Before an insurance company is allowed to sell any policies, they have to set aside a large amount of money in a special account, just to pay claims. This is called a "reserve".
The money originally comes from investors in the insurance company, for a private company, or stockholders, in a publicly traded company. People invest, hoping that the stock goes up, and/or pays a dividend - that it will earn them some money.
Insurance companies aren't such a hot investment the past 15 years or so, you can check them out on NYSE if you want to look up some individually.
After the initial reserves are set up, the insurance company hires people (actuaries) to calculate how much they will likely have in claims for a particular class of people. Then they decide how many policies they want to sell, and factor in claims adjustment expenses, litigation expenses, and administrative expenses. They also factor in "investment income" from the reserve account, and likely investment income from incoming premiums. That's how they determine your rates.
Then they sell the policies. They can afford to sell you insurance for slightly less than they calculate they will have to pay out in claims, because of the investment income, and then they will still have a little left over to pay the stockholders/investors. |
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Dave W
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When everyone pays their premiums, the companies keep all that money and invest it so it grows. They pay the claims out of that money. They plan the premiums so that over the long run, they take in more than they pay out and that, plus the profit from investing the money they're holding, is where they make money.
There's a lesson in that for all of us regular people. If we take in (i.e. paycheck) more than we spend and invest the difference so that it grows, we too can be "profitable" and accumulate enough to pay for unexpected problems (car repairs, broken washing machine, etc.) and still have money left over. |
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G.I.R
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because they require people to pay a certain amount every month. lets just say that everyone had to pay $100 a month, they probably have a couple of thousand customers or more so lets just say that they have 3000 customers. in one month they earn $300,000 WoW there is only but what 4 or 5 accidents in a month after a few months they are well over a million dollors, so where do you think, from you of course |
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Custo
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They invest the money you pay them via premiums. Then use that money to pay your claims. There's a crazy formula they use to figure out how much to charge based on the amount of people on a plan. |
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Cabe_Merah
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There are three major things that determine the profits of an insurance company: Premiums: $$ coming in from consumers and businesses (BTW, most of the premiums in the industry are from businesses, not consumers), Combined Ratio: The underwriting expenses (not just losses) as a percentage of premiums... so a combined ratio under 100% equals a undwriting profit, and Net Investment Income: companies invest their capital, usually in bonds because the income is more predictable.
Now, historically combined ratios for the industry are rarely under 100%, so underwriting profits are not where these companies have made their money... rather it is in net investment income. Recently that has shifted, and many believe it is due to tightening bond yields (i.e. the 10-year treasury bond yields about 4.5% now). This means the companies have trouble relying on investment income for sufficient profits, so they are looking to underwriting income as well. |
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nwmohunter207
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Everyone else pays in premiums and most people never file a claim. And then when you do file a claim, they jack up the rates on you. What they also do is invest the money that they are paid. These investments pay big dividends which really helps fund their accounts.
So yes, when they pay out all of these settlements they are affecting the premiums that you pay every month. |
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angel09
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Let's us an example. A company has 10,000 clients. An average of $1,000/person for the year for car insurance. That's about $10,000,000 for the year. If this is a direct company and not a brokerage, it's straight forward. Let's say 200 accidents with an average of $8,000 paid out. That's $1.6 Million. So the profit is obviously large. But take into consideration that some of the extra cash is used for expenses (employees, rent etc) |
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larsgirl
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out of all the claims that are submitted, approx 68% are denied, out of that number, 12% of those should have been denied.. but most people won't argue.. they trust their ins. co.
so you collect $1................. you only pay out less than 50 cents
that's how they make money
During Katrina.... the insurance commissioner for Miss was on TV saying that unless the people along the gulf had flood ins then they had no coverage for the damages that they suffered.
BULLSHIT.... I saw those pictures and I called the state offices of Miss myself, told them why there should be coverage. If you go back and google recent stories.. the state is suing State Farm for failure to pay it's claims related to Katrina.
I finally retired from adjusting, I was getting an ulcer from telling people that they had no coverage when I knew that they did. But I wanted to keep my job.
I told the Gov. Office in Miss to review the films.. you could see the waterlines on the walls.. yes.. those were flood lines.. taake the perimeter.. that was flood damage. HOWEVER, the flood did not blow the roof off, that's windstorm, a standard coverage on the most basic fire policy.. with the roof gone, the rain damaged the remainder of the property. So if 20% of a 2000 sq ft house was damaged by flood and 80% had windstorm damage then why aren't the insurance companies paying???
THAT'S where they get the money.. places like the gulf coast.. hundreds of thousands of premiums paid over the last 5 years. then Katrina..... for every 1 claim paid 30 were denied.
that leaves a lot of money in the bank.
OK, I'm done bitching. |
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Rani K
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Why aren't the insurance companies listed in the stock market? |
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