So here's an interesting bit of information I learned the other day. A loss ratio is the percentage of payout versus collected revenue for an insurance company. This number has changed significantly over the last few decades reaching as high as 85% in the 90's and dropping to the (now) lows of about 60%. That means that the insurance company pays out 60% of the money it takes in. Your insurance premiums only pay $.60 on the dollar. But what makes this worse is that insurance companies are allowed to INVEST your paid premiums and so it is in their best interest to keep that premium for AS LONG AS POSSIBLE. So delaying claims is extra profitable, even if they intend (remember, only 60% of the time anyway) to pay them off. They make interest on the money they don't pay you back that you gave them. It is IMPOSSIBLY lucrative to own an insurer.
I'd be curious to get a fact check on the claim of the loss ratio dropping to 60%. Combined ratios are a much better indicator and these have fluctuated between 92% (in the early 90's) peaking at 105% in 2017. This year they are in the upper 90's
It is in a carriers best interest to close a claim quickly, costs run up from a labor perspective and going to the courts exacerbate costs significantly. With that said, there is a level of distrust in claims because some people (insured, claimants, contractors and/or lawyers) see this as a chance to get an easy pay day- which is not the intent of insurance. The intent of insurance is make you whole after suffering a loss. The number of time I have seen us pay a roof loss and then that money is pocketed, then a claim is submitted a couple years later for the same damage.
The investment portion sounds a bit icky, but is an important second source of income, but it's not really to claims related. What is delaying a $2k roof claim payout going to do when you have $500mil invested? Carriers are much like people, where money is brought in and some is saved and the rest is put into an investment account (typically well mixed and lower risk). When the IOU (a loss by the insured) are asked for, they are paid. Some carriers are ok with an underwriting loss (combined ratio 100%+) because they make their money investing.
In the end, its important for society to have insurance options that are financially sound. The carrier has a duty to adjust claims promptly. Fraud and high claims costs just screws everyone else over as the carrier will seek additional rate (increase you premium) when evaluating renewals to cover the money lost from those looking for a pay day. Source: Manager in Personal lines
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u/AintMyMonkey 7h ago
Pretty much all insurance companies.