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Insurers Set Record Profits

April 8, 2006 by Jonathan Stein

This may come as a surprise to some. After all, we had hurricanes (two), other disasters, storms like crazy, and your average, everyday claims. But, despite all this, the insurance companies had record profits for last year.

How can that be? And if this is the case, why are they so gung ho to reform our current system? Two excellent questions.

First, how is this possible? Insurance companies use “re-insurance” to limit their exposure. In other words, Allstate, for example, will buy insurance to pay for claims in certain areas or certain types of claims. Thus, if they have claims, they may recoup some of the money. Insurers also make money on investments. This is why they want to hold on to their money for so long. If they owe you $10,000, but they can delay that payment for 1 year, they may earn $1,000 on the interest. Multiply that by 1,000 claims, and they earn $1,000,000. That is not a bad profit.

Second, why do they want to reform our current system? Simple. If they can limit payments to people injured in car accidents, they make more profit. The insurance company’s goal is to make money for its shareholders. The less they pay, the more profit for the shareholders.

So, next time people tell you about skyrocketing insurance rates, remind them how much money the insurance companies made last year!

Categories: Current Affairs, Insurance Operations

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