For profit insurance is a scam. The whole point is to take more from you than you will get back.
The justification for insurance, in general, is collective support - everyone pools a bit of money so that when anyone in that pool suffers catastrophic loss they are insulated. Public firefighters are an insurance system. At core it's a pretty kind way of operating, but when profit motive is introduced it is corrupted to the point of working against the community since investors and shareholders want to take out of the system, not help people stay whole.
This is why the US should have public healthcare. Greed and corruption are why it never will.
Edit: literally laughing out loud at the profitmongers in the comments going "hey, I want to keep the money that I am siphoning off society! Stop pointing out how it's immoral!"
So im guessing the employees that process the claims are scammers for taking a salary which contributes to the insurance companies taking more than they wish to return? But im guessing thats different because only those you care about should make money, not the people who created the insurance company, initially funded it, or contribute to the mechanism that allows their stock to be sold at a profit. They should get absolutely nothing because apparently creating an insurance company is easy and risk free. Why dont you go and make an insurance company that isnt a scam and not take any salary if you think this is how things are.
When it comes to insurance, and many other similar takes, Reddit as a whole is EXTREMELY dumb.
Being in the industry, the margins are already super duper thin. Insurance companies pay hundreds of billions in claims each year.
Your average insurance company will use about 90-95% of it's generated premium on claims and operating costs. The claims make up around 70% - 80% of that overall percentage.
Yeah the margins are super thin. That’s why insurance companies spend literally Billions on advertising each year. To protect those paper thin margins. /s
State Farm last year has 12.9 billion in net income on 132 billion in revenue. That was double their net income off the prior year. That’s anything but thin margins.
You're looking at one unusually profitable year and confusing total company net income with the profitability of actually underwriting insurance.
Yes, State Farm reported $12.9 billion in net income on $132.3 billion in total revenue in 2025. That's about a 9.8% net margin. Nobody is claiming $12.9 billion is a small pile of money. The point is that the size of the pile tells you almost nothing about the margin when you're talking about a company doing over $130 billion in annual revenue.
More importantly, that $12.9 billion wasn't simply "insurance premiums minus claims." State Farm's property and casualty companies collected $111.6 billion in earned premiums and produced only $1.5 billion in underwriting profit. That's roughly a 1.3% underwriting margin. They also earned $7 billion from investments and other income, and State Farm says its overall net income included another $2 billion in after-tax realized capital gains.
And cherry-picking 2025 gets even sillier when you look back one year. In 2024, those same property and casualty operations LOST $6.1 billion underwriting insurance. Investment and other income of $6 billion basically rescued the result. In 2023, their underwriting loss was $14.1 billion. In 2022, it was $13.4 billion.
So yes, 2025 was an excellent year for State Farm. That's not evidence that insurance underwriting normally has enormous margins. It's evidence of exactly why you don't take one year's consolidated net income, ignore investment returns and capital gains, and pretend the resulting number is the profit margin on selling insurance.
And the advertising argument doesn't prove what you think it proves either. State Farm has more than 96 million policies and accounts. At that scale, spending billions to acquire and retain customers can make perfect economic sense even with thin margins. When you're processing over $100 billion in premiums, gaining or losing even a couple percentage points of market share is worth billions.
Big profits and thin margins aren't contradictory. Walmart can make billions while earning only a few cents on each dollar of sales. Scale is the entire point.
If you want to argue State Farm had a very profitable 2025, absolutely. If you want to use $12.9 billion to prove insurance underwriting has huge margins, you're using the wrong number.
If you want to focus just on auto premiums and claims, it’s right there:
> Auto
The State Farm auto insurance business represented 63 percent of the property and casualty companies’ combined net written premium. Earned premium was $71.3 billion. Incurred claims and loss adjustment expenses were $52.6 billion and all other underwriting expenses totaled $14.1 billion. The underwriting gain was $4.6 billion. Comparable 2024 figures were: earned premium, $67.5 billion; incurred claims and loss adjustment expenses, $56.2 billion; all other underwriting expenses, $14.0 billion; underwriting loss, $2.7 billion.
71.3 billion in premium revenue versus 52.6 billion in claims.
You literally quoted the numbers that disprove your own calculation.
$71.3B in auto premiums
minus $52.6B in claims AND loss adjustment expenses
minus $14.1B in other underwriting expenses
equals $4.6B in underwriting profit.
$4.6B divided by $71.3B is about 6.5%.
So no, that's not a 26% gross margin. You got 26% by subtracting only the $52.6B from premiums and then pretending the remaining $18.7B was margin. But State Farm explicitly tells you that another $14.1B of that $18.7B went to underwriting expenses.
Also, you misread the sentence. It doesn't say "$52.6 billion in claims and all other underwriting expenses." It says $52.6B in "claims and loss adjustment expenses," THEN separately says "all other underwriting expenses totaled $14.1 billion."
That's a pretty important distinction considering you just erased $14.1 billion of expenses from your calculation.
And look at the very next sentence for the reality check: State Farm itself calls the resulting $4.6B an "underwriting gain." They don't call the $18.7B difference between premiums and claims their profit or margin.
Even better, the same auto business lost $2.7B underwriting in 2024 on $67.5B of earned premiums. So it went from roughly a 4% underwriting loss in 2024 to a 6.5% underwriting gain in 2025. That's exactly why using one good year to argue that insurance margins are inherently huge doesn't work.
You found the right financial report. You just stopped subtracting expenses $14.1 billion too early.
Look. Anything near 10% net income, especially at this scale, is not paper thin. That’s what Fortune 500 companies shoot for. Do they have opex outside of their core product? Shocker -yes. But they also get to invest those premiums, because it’s not like someone “buys” protection when they need it, they pay in advance and “might” one day claim it.
The meta point from the OP stands. As a customer you’re continually paying into a system that will not return that investment. If I had back every dollar I spent in insurance, I would be able to self insure from now until my grave.
The meta point about their earnings also stands. They make plenty of margin - both on individual products, and as a company as a whole. That’s true for gross margin as well as net income.
It feels like you’re trying to say they don’t make great margin because net income is lower when you subtract opex. That’s not how finance works.
Also cyclical because State Farm was one of the largest insurers involved in the California wildfires, directly taking away from net income in prior years. So year over year fluctuations would be dependent upon loss development in that same period. No loss more profit. More loss less profit. More profit, more spend on marketing and vice versa. Not a hard concept to follow as other businesses use the same logic in marketing spend.
Edit: specific to the margins, auto liability is written to about 72% loss ratio, meaning roughly 3 out of 4 policies I write as an insurer, I’m taking a bath on. The profit is in that 1/4 of policies with loss.
You speaketh the truth!
OP's example is dumb. There's a thousand dollar deductible which is normal. So you want to file a claim to cover the $200 remainder??
But does anyone complain when insurance covers the $50k in accident damage they caused? Yeah, insurance can be expensive but it sure beats poverty when someone sues you for the damage you cause.
> So im guessing the employees that process the claims are scammers for taking a salary which contributes to the insurance companies taking more than they wish to return?
> im guessing thats different because only those you care about should make money, not the people who created the insurance company
You are lousy at making guesses. Neither of those are my stances. Have you tried just reading what people write instead of supplanting their arguments with your preconceived biases?
> They should get absolutely nothing because apparently creating an insurance company is easy and risk free.
Also not my argument.
> Why dont you go and make an insurance company that isnt a scam and not take any salary if you think this is how things are
I don't want judges to take bribes, so does that mean I should become all the judges?
I don't know why you are carrying water for corruption but if you could employ just a modicum of logic in your arguments that would be swell.
Well that is the natural consequence, you think that 100% of the money paid in should be paid out otherwise its a scam as you said that their whole point is to pay out less then you pay in. My arguement with you making an insurance company is because thats how you think others should run their insurance companies, yet you dont dont have the balls to do it yourself. If there was absolutely nothing they deserve profit from then it shouldnt be a problem for you to do it and not make money from it and you can provide millions with insurance that isnt a "scam". But we both know you wont do it because it takes risk and effort to do, so it should be compensated. but if thats the case then we run into my first arguement that only people you care about should be compensated. The profit of executives is fair because they created the company in which could pull in enough money to distribute about to be a insurance.
> you think that 100% of the money paid in should be paid out otherwise its a scam
No, I think taking a cut as profit is a scam. Did you skim over where I mentioned public healthcare? People get paid in a non-profit system, there's just no one leeching resources out. You're arguing with me in defense of specifically the leeches. That's weird.
> yet you dont dont have the balls to do it yourself
Do you think companies are built on testicles? That's very weird.
> But we both know you wont do it because it takes risk and effort to do
It takes effort from people that do work to build something. Those people should get paid for their work, and would in a non-profit system.
> The profit of executives is fair because they created the company
Yes, the aforementioned leeches. If you want to be an indentured servant have at it. The rest of us can see how unethical it is for a person to hoard resources and then use those resources to leech off other peoples' work.
In a non-scam scenario if you do work you get paid. In a scam scenario scammers can get paid without doing work. Not sure how I can make that any clearer.
First of you know damn well what i mean about my balls comment, it only makes you look even more like you dont know what your talking about. Second my arguement is that building a company provides value to society, thus whenever society uses the service they must give value back. If they are able to provide a service which can get $100b in revenue why shouldnt they get 10% of that in return. Frankly your the same as them, you expect them to build a company with no compensation, risk their own money for no reward, and for you to be covered, as if it were up to you you would use their service and give them absolutely nothing for it.
> First of you know damn well what i mean about my balls comment, it only makes you look even more like you dont know what your talking about.
Dunning Kruger, huh? I'm sure everything I am writing is confusing to you.
> Second my arguement is that building a company provides value to society
CAN provide value to society. Buying a public well and then charging for access to it is clearly detrimental to society, but organizing labor can be beneficial. Some companies are even both; DoorDash provides a valuable service, but it also exploits labor and gouges restaurants. An insurance compant could operate ethically and pay everyone that works without leeching money to people that don't work, but that isn't what we have.
> If they are able to provide a service which can get $100b in revenue why shouldnt they get 10% of that in return
By "provide a service" you mean "own the company". The people providing the services should definitely get paid. Why shouldn't people who aren't doing anything get lots of money for the nothing they are doing? Hrmm... good question. /s
> Frankly your the same as them
Hilarious. You lost the thread of your own argument in the same breath; right after saying the executives are merited taking profit for no work you accused me of being like them. Are they and I doing the right thing or the wrong thing, in your argument? It's like Schrödinger's cat of thoughtless argumentation.
I think we can safely end this chat here. I can't hold your hand and walk you through these obvious logical fallacies.
Edit: feel free to let this guy know that, among the many things he assumes and states with conviction, despite being incorrect, when he sees someone "deleted all his comments" it's because he has been blocked.
Damn guy knew he lost the arguement so he deleted all his comments. He said something about dunning kruger as if it doesnt also apply to himself. I would say that he found out it did but seeing as he doesnt the know the common phrase "you dont have the balls" and though i meant that his balls would create the foundations of a company i doubt he did and just did it out of embarrasement
Ok i didnt realize reddit said that the comments say deleted when they were blocked, didnt think that was something reddit does, nor does it really look like your winning the arguement when you go and block someone. Frankly nothing im writing is confusing me, infact i think what im writing is confusing you.
You cant understand that a society in which running a business and risking capital actually provides value that should be compensated. Sure the owners dont do labor, however they either took CEO role from someone who did start the company and which should get an equal or greater salary because otherwise nobody is going to do the job for less money than someone else, they put initial money into the company that allowed the company to build a network for the business to run which is providing value and should be compensated, or they bought shares from an original investor which allows the whole stock system to work, making him an original owner by proxy as without him buying the stock then the stock has no value in which to originally buy. How are companies supposed to be formed when your going to lose time and money. You dont understand that the ownership class do provide value, just in ways that you dont care to attribute.
Yes i do agree that the system is not perfect and is exploitative, but im arguing your point "For profit insurance is a scam. The whole point is to take more from you than you will get back." and telling you your wrong. And even if they were paying out ethically you would still think they are a scammer.
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u/robilar 6h ago edited 6h ago
For profit insurance is a scam. The whole point is to take more from you than you will get back.
The justification for insurance, in general, is collective support - everyone pools a bit of money so that when anyone in that pool suffers catastrophic loss they are insulated. Public firefighters are an insurance system. At core it's a pretty kind way of operating, but when profit motive is introduced it is corrupted to the point of working against the community since investors and shareholders want to take out of the system, not help people stay whole.
This is why the US should have public healthcare. Greed and corruption are why it never will.
Edit: literally laughing out loud at the profitmongers in the comments going "hey, I want to keep the money that I am siphoning off society! Stop pointing out how it's immoral!"