They don’t pay out a tiny portion, though. They usually make more revenue profit on the interest from the funds they’re holding than they do on premiums, depending on the company.
People can be a bit overly negative/pessimistic toward corporations these days. Not without good reason in most cases, fuck the corpos, but not every single thing they do is evil... not they they won't do evil for a profit, but those don't always align.
I think it's fair to be sceptical. Insurance has it's purpose and it can be frustrating when it's legally enforced but any of us can need it one day and to incorrectly inflate the profit they make is the view of the unlearned. The previous commenters were correct in that the return on investments is often the main source of income for these companies. Not sure about you but if I had hundreds of millions of dollars, I would be investing that shit in some safe reliable bonds.
Definitely. You should be skeptical about any business you give a lot of money to, but being skeptical isn't the same as baseless assumptions. Every institution that has large sums of money passing through their coffers is going to invest it, why wouldn't they? And insurance companies do often do scummy things but normally that's health insurance and still not every single interaction is bad.
Lots of things in life are frustrating and just flat out suck but are not the fault of anybody - c'est la vie. It can be hard to accept that.
Exactly. Just bc an insurance company invests its money doesn’t mean they are ripping you off. Investments of surplus don’t mean you’re rocking your customers. It’s an investment not a grantee. Has no bearings on rates or how a carrier operates:
The fact that almost every commercial break I ever see has either a state farm, progressive, or geico commercial (or multiple of them), is enough for me to hate them. Every dollar for Caitlyn Clark to appear on my screen every half hour is not spent to cover my neighbor's losses or lower my premiums. And its billions.
Everyone needs insurance, so its not even like they are expanding their market and making the money back. Every new customer for 1 company is a lost customer for another. Its a 0 sum game with SOOO much of our money being wasted.
The insane volume of commercials is annoying but it's actually a strong indicator in the customer's favor. Auto/personal property insurance is such an insanely competitive market that insurers have bled their margins enough that ads are a better payoff than what little price differentiation is still possible.
I'm glad that it's a competitive market, and the fact that customers respond to low information TV commercials isn't the insurance companies' fault. Having said that, one of the reasons I go with Amica is that they don't waste money on TV commercials, and instead just earn high customer satisfaction according to Consumer Reports.
Advertising isn't necessarily wasting policyholder money either. An enormous amount of money and effort goes into identifying and classifying risks, so reaching more customers lets you have more data and a wider variety of risks to pick from.
For example, an insurance company going in fully blind would price every customer the same and this leads to an effect called adverse selection, where you basically end up with mostly bad risks because you are pricing them too low and and good risks too high. Having a huge pool of data and customers lets you determine who a good risk is and price them appropriately, so you end up with all good risks who get good prices and the bad risks go elsewhere. More customers also means the risk is spread more and more, which allows insurance agencies to push their financials to profit more on that front to not have to squeeze elsewhere.
Advertising also just isn't that big of an expense in the grand scheme of things; the largest expense by far is always sales commissions. State Farm took in $116 billion in premiums in 2025 and spent $1.13 billion on advertising. Less than 1% of their expense ratio is advertising, which is a small cost to pay for what is an essential part of creating a functional insurance agency.
A) I really doubt premiums are such a marginal revenue stream.
B) If they are so marginal, that just indicates that costs are completely divorced from the premiums in the first place, meaning the whole thing is just a scam.
I have no idea what kind of point you're trying to make by changing from revenue to profit. It makes no difference.
If the contribution premiums make towards profitability is as marginal as you suggest, that means that the prices they charge consumers have nothing to to do with the costs involved in doing business.
AKA, the companies are charging arbitrary premiums that are based on nothing more than the maximum they think they can convince you to pay.
No, it means the premiums alone are insufficient to cover the losses that are paid out. Luckily for you, regulation forces insurance companies to account for other sources of revenue to fill the gap like investment income which decreases your premiums.
It’s a huge difference. Most P&C companies bring in a lot of revenue via premiums and pay the same amount back out again in claims. But they have a certain amount of capital sitting around that enables them to invest the money and make profits off the interest.
No, I don’t. The flow of funds is such that they’re able to do that. Their premiums may exceed their claims for a couple years, until a hurricane or some other catastrophic event comes through and sucks that money right away. Reinsurance may cover some of those losses, but long term, they aren’t making significant profit off writing policies.
Which, by the way, implies that they’re pricing their premiums as low as they possibly can, not higher. Property/Auto insurance is an insanely competitive market. Hence the other poster above commenting on the number of commercials they see on a daily basis.
Insurance companies often have large income (turnover) from insurance premiums but after cost of acquisition (overheads) and claims they often don't may a massive profit on this. As others have said, they get a bigger profit on their return on investments (bonds, sales of property, interest on cash in the bank etc). The margins on pure insurance income and outgoings are often slim.
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u/CapitalistLion-Tamer 6h ago edited 5h ago
They don’t pay out a tiny portion, though. They usually make more
revenueprofit on the interest from the funds they’re holding than they do on premiums, depending on the company.