how do insurnace companies make money??

[her209]

Ask Warren Buffet.

 

[LegendKiller]

Originally posted by: bobdelt
they make money on the float. They invest it while they wait for you to have an accident. Every type of insurance operates a little differently - so therefore makes money in slightly different ways.

And no, insurance companies are very far from being the largest institutional investor....we have these things called banks that have almost everyones money.

You'd be surprised. In fixed income they often are at the top of purchases. I know that the company I work for did about $20 billion in securitization last year, 40% of it was bought by insurance companies.

They make *some* money on the float, but it isn't that much. While many insurance companies purchase subordinate bonds to get extra yield, it isn't all that much.

 

[Conky]

Insurance companies are evil is how they make money. They only want to collect premiums. If they have to pay claims they cancel the account. Even when they are required to pay they often don't because they will try and claim fraud or simply "forget" to pay. Evil evil business. In addition to owning politicians they own like half of all the assets in this country to give you an idea of their wealth.

I could go on about insurance companies but it's most easily summed up by saying that insurance companies are the devil.

 

[LegendKiller]

Originally posted by: Beachboy
Insurance companies are evil is how they make money. They only want to collect premiums. If they have to pay claims they cancel the account. Even when they are required to pay they often don't because they will try and claim fraud or simply "forget" to pay. Evil evil business. In addition to owning politicians they own like half of all the assets in this country to give you an idea of their wealth.

I could go on about insurance companies but it's most easily summed up by saying that insurance companies are the devil.

Yeah, when my wife had thyroid cancer at 26 she went to a doctor out of network, accumulating more than 80,000 in bills. We ended up paying 2k, even though our actual risk of payment was $30k. They didn't have to accept any of our appeals, but they did.

They aren't "evil" in all cases. Take things as a spectrum and you might save yourself from a heart attack.

 

[JulesMaximus]

Originally posted by: Accipiter22
ok, so say you pay 100 dollars per week for your family's health care. so that's 5200 per year. Now say you break a leg or something...that's probably like 10,000 in costs. Then say your kid needs braces, that's another few grand...etc..etc....honestly how do insurance companies make money. You or your family have even one minor accident over even a 5 year span and they're ******.

You don't break your leg every year. They are betting that you will have lower claims than you pay in premiums.

 

[DrPizza]

Where are you getting a $100 per week figure for a family's health insurance?? That's incredibly cheap for good coverage.

"that means they've pocketed about $12,500 just from my premiums." - you forgot about the amount of premium that your employer kicks in on your behalf.

 

[dxkj]

Originally posted by: Accipiter22
ok, so say you pay 100 dollars per week for your family's health care. so that's 5200 per year. Now say you break a leg or something...that's probably like 10,000 in costs. Then say your kid needs braces, that's another few grand...etc..etc....honestly how do insurance companies make money. You or your family have even one minor accident over even a 5 year span and they're ******.

1) You pay $100 a week, and your work pays the rest
2) My friend hasnt been to the hospital in 5 years
3) When you do need $$ stuff, they get a super cheap rate for being insurance companies
4) I dont think the average family breaks one bone every 5 years?

edit and i broke my arm and it wasnt very expensive, got it set and wrapped at my family doctor.

 

[Matthias99]

However, gambling (on the gamblers side) is seeking risk, not mitigating it. Even if you don't take insurance you aren't seeking risk. ... Gambling is uncalculated risk, insurance is not.

You are defining 'gambling' very narrowly. Also, not all 'gambles' are negative EV or involve unknown odds, as you seem to imply.

Despite anything they may be doing to mitigate and calculate the risks, when it is all boiled down an insurance company is betting that their predictions will be correct and that their total payouts will be lower than their total intake from premiums (and any other sources of income, such as interest/investment returns on their cash reserves). In that sense, they are "gambling", although it is more like the house side of a casino than a player, since they get to set the payouts and fees to "play". If they are wrong in their assessments, or a low-probability event occurs that triggers very high payouts, they may lose a lot of money.

 

[warbean]

Actually the primary way they make money is through investment returns in between the period of them collecting premiums and having to pay out claims.

 

[Vic]

They make their profits by investing the premiums before they have to pay out the claims. This is somewhat comparable to how banks make money, where (in very simplified parlance) they invest deposits in loans.

 

[reitz]

Thus, insurance is not gambling. At least not in comparison to the Vegas type gambling.

I have to disagree. Insurance is very much like gambling, with the insurance companies playing the role of the casino. The biggest difference is that the house odds are set mathematically and over a long enough term, the house will make a profit. The insurance industry isn't quite as fortunate and has to take a lot more variables into question, and so occasionally loses big (see the hurricane Andrew example above).

Buying insurance is akin to the Vegas gambler. The odds are stacked against you...that is, over the long term, you're likely to lose more money buy purchasing insurance than you would if you went without and paid out of pocket. Some people "get lucky", (serious illness, massive car accident, catastrophic house fire) and wind up ahead.

The gambling analogy is very much applicable, when you realize the insurance companies are the house, and not the gamblers.

 

[JS80]

works just like a lottery or casino

 

[WHAMPOM]

Originally posted by: Accipiter22
ok, so say you pay 100 dollars per week for your family's health care. so that's 5200 per year. Now say you break a leg or something...that's probably like 10,000 in costs. Then say your kid needs braces, that's another few grand...etc..etc....honestly how do insurance companies make money. You or your family have even one minor accident over even a 5 year span and they're ******.

Selling policies to people who don't use them and then screwing the people that do need the policy.

 

[Rastus]

Actuarial tables and law of supply and demand.

Throw in the fact that they get to invest the money that is sent in for a while until a payoff.

 

[Lorax]

1. if something catastrophic happens, the government will probably bail out any large insurance company (i think they left the WTC and many new orleans insurers off the hook)

2. most insurance companies make so much money, they can hire celebrities for their annoying commercials.

 

[FrontlineWarrior]

insurance companies make money because they don't pay
1. they collect your premiums, then something happens and you have a large deductable. then either they drop you from coverage for a technicality or...
2. they get billed from the physician and instead of paying they deny paying for a technicality or just hold the money for a few months to invest/collect interest until they finally get off their ass, and even then they only pay like 40% of what the physician bills for
3. insurance companies don't spread risk, they eliminate it. they either deny coverage to risky patients up front, or later when they start utilizing their insurance "too much"

i think the better question is, how do the insurance companies NOT make money?