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My understanding of insurance was that they don’t double the premium vs risk as per the article. Traditionally it’s much closer to money in equals payouts. But
by dhsysusbsjsi 5y ago
My understanding of insurance was that they don’t double the premium vs risk as per the article.
Traditionally it’s much closer to money in equals payouts. But because they have hundreds of billions in funds sitting in a float (required by regulations), they earn interest on the float by putting it in low interest (safe) markets such as bonds. And only a few percent premium on the actual insurance delta.
- notdan 5y agoYes this is true. They often lose money on the premiums, actually, and then make money on the float. A very simplified example: You pay $1,000 per year for 10 years on home insurance. Then a hail storm ruins your roof and it costs about $10k to replace. So they end up paying out the $10k in premium they collected over 10 years, but were able to make money on the interest they made while they held it.
- mint2 5y agoWell the payout to repair the cars and pay medical bills or whatever maybe around 66% of the money customers in aggregate pay them, the other 33% mostly goes to pay the claims adjusters, hire lawyers to defend against fraud, and do a ton of other stuff. At the end of the day they’re going to have just a couple percent of profit directly from the actual premium payments if they are lucky. But then the investment returns gets them more profit.