4 ms·
The article's title is a little misleading. This would shrink the market as a whole. Revenue would go down and earnings would go down as a result. However, i
by elgabogringo 10y ago
The article's title is a little misleading. This would shrink the market as a whole. Revenue would go down and earnings would go down as a result. However, it wouldn't have to affect profitability.
In fact, profitability would probably go up on these policies initially since the safety benefit would be immediate, but the implied risk in the policies would only come down over time as the safety works it's way into statistics.
(Apologies if I'm not using correct terms. Not an actuary.)
- paulmd 10y agoOnly if the insurer in question is solely involved in auto insurance. From the insurance company's perspective, they need enough of a capital reserve to mitigate the risk of a sudden shock in payouts. Spreading across larger geographic areas mitigates that risk somewhat, as does spreading through multiple businesses. Auto insurance is probably a particularly nice gig since it's relatively unaffected by things like natural disasters and would have a relatively smooth cashflow. So, less capital from auto insurance means more capital has to come from somewhere else - more borrowing, if nothing else. That probably translates into either reduced profitability, or higher premiums on other kinds of insurance. I'm not an actuary by any means, but that's my guess.
- ChuckMcM 10y agoI disagree it was misleading. The reasoning is pretty straight forward; cars become safer and so insurers can offer lower premiums when 1/3 of your revenue goes away your earnings are harder to make.