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You can't just compare margins from different businesses, as what's necessary entirely depends on the business. Some business (like insurance) have a fair bit

You can't just compare margins from different businesses, as what's necessary entirely depends on the business. Some business (like insurance) have a fair bit of tail risk they need to take into account. Some are seasonal (like a ski resort) and need to make sure the profits they make in their high season can carry them in the low season. Some are cyclical (like furniture stores) where people buy one piece and don't buy anything else for years. Grocery stores have consistent customers and can generally predict their income and expenses day-to-day for the foreseeable future.

cmdrfred 10y ago
First. I don't know of a more consistent revenue model than something that is often automatically removed from paychecks monthly. Second, a profit margin will take into account risk. So for the ski resort or the furniture store that includes the overhead of keeping the store open while you have no customers. Third, if the risk is so insanely high why are these firms so consistently profitable? Shouldn't we expect to see them coming in and out of existence regularly? Restaurants are a truly high risk business venture, the majority fail to exist after the first year. Perhaps they have longer runways but it's rare to hear of an insurance firm shutting its doors. The large and consistent profit seen on their end of year reports belies the risk claim.
- jsmeaton 10y ago
  I'm not trying to justify insurance company profits. I think it's mostly a load of crap. But the costs of a grocery store are pretty much fixed and easy to predict. The costs for an insurance company are far more complex, because they change with the number and scope of claims. I don't think you can deny there are cost risks for insurance companies that a lot of other markets don't have. However, to back you up a bit, their profits are extremely good which probably means they are largely overstating the risk in order to gouge their customers.
  - ericd 10y ago
    In aggregate, over a large number of subscribers, insurance should be predictable as well.
gleb 10y ago
Fair enough, the comparable number in car insurance is 97%: The personal auto insurance combined ratio rose by 1.4 percentage points in 2015 to 97.3 percent for a group of 10 publicly traded insurers. http://www.insurancejournal.com/magazines/features/2016/03/07/400394.htm http://www.insurancejournal.com/magazines/features/2016/03/0... When interest rates are higher car insurance runs > 100% loss ratio. They stay profitable by earning short term interest on premiums before paying out claims. In a different insurance vertical fixing loss ratios at 80% would be called a cartel, and would put involved executives into prison for a good long time. In healthcare the government forms the cartel, fixes the prices, gives money to poor to become consumers, and then fines everybody who won't become the consumer. said Brer Rabbit. "Only please, Brer Fox, please don't throw me into the briar patch."

cmdrfred 10y ago

First. I don't know of a more consistent revenue model than something that is often automatically removed from paychecks monthly. Second, a profit margin will take into account risk. So for the ski resort or the furniture store that includes the overhead of keeping the store open while you have no customers. Third, if the risk is so insanely high why are these firms so consistently profitable? Shouldn't we expect to see them coming in and out of existence regularly? Restaurants are a truly high risk business venture, the majority fail to exist after the first year. Perhaps they have longer runways but it's rare to hear of an insurance firm shutting its doors. The large and consistent profit seen on their end of year reports belies the risk claim.

jsmeaton 10y ago
I'm not trying to justify insurance company profits. I think it's mostly a load of crap. But the costs of a grocery store are pretty much fixed and easy to predict. The costs for an insurance company are far more complex, because they change with the number and scope of claims. I don't think you can deny there are cost risks for insurance companies that a lot of other markets don't have. However, to back you up a bit, their profits are extremely good which probably means they are largely overstating the risk in order to gouge their customers.
- ericd 10y ago
  In aggregate, over a large number of subscribers, insurance should be predictable as well.

gleb 10y ago

Fair enough, the comparable number in car insurance is 97%: The personal auto insurance combined ratio rose by 1.4 percentage points in 2015 to 97.3 percent for a group of 10 publicly traded insurers. http://www.insurancejournal.com/magazines/features/2016/03/07/400394.htm http://www.insurancejournal.com/magazines/features/2016/03/0... When interest rates are higher car insurance runs > 100% loss ratio. They stay profitable by earning short term interest on premiums before paying out claims. In a different insurance vertical fixing loss ratios at 80% would be called a cartel, and would put involved executives into prison for a good long time. In healthcare the government forms the cartel, fixes the prices, gives money to poor to become consumers, and then fines everybody who won't become the consumer. said Brer Rabbit. "Only please, Brer Fox, please don't throw me into the briar patch."