Remember, insurance companies do not only make money in the arbitrage of spreading risk (which is their stated purpose). In fact, many would tell you that they make very little money selling insurance – relative to their other operations. Insurance companies are really in the game of collecting your premiums and investing those premiums in the stock market, and other investments.
If the car insurance company has a good year – making a killing after investing your insurance premium in the market – do you (the policy holder) see a difference?
Ever get a check in the mail at the end of a good year? Of course not – instead, after that good year, we all look forward to hearing from our insurance representative letting us know how much they appreciate our patronage, loyalty and that we should look forward to a reduction in premium payments for the following year. I’m a safe driver, so I always enjoy that phone call. What?…You’ve never gotten that phone call?
Instead, what we always hear is an earful about how much money auto insurance companies lose due to fraudulent claims – nowadays we’re so brainwashed that we EXPECT to hear this and automatically accept it as true – Its the fraud and frivolous litigation *forcing* your insurance company to increase their rates!
But here’s what’s strange – auto insurance companies are making more money than EVER before. In 2008, State Farm (the country’s largest auto insurer) was worth a measly $53.3 billion dollars. In 2009, when every other industry seemed to be suffering, State Farm increased their net worth by almost five billion dollars! In 2010, another tough year – with an unemployment rate hovering at just under 10%, State Farm AGAIN increased its net worth to $61.2 BILLION DOLLARS!
I am not declaring that fraud has been eradicated from the world of automobile accidents. All I’m saying is: it’s clearly not as prevalent a problem as insurance companies and their mouthpieces would have you believe. Insurance companies rely on statistics cherry picked from studies funded by their trade groups and associations – but the dollars speak for themselves – and the studies, that are not funded by the insurance industry, clearly illustrate that accidents at low impacts can result in serious injuries (I will cite them in later postings).
In tomorrow’s post, I will discuss the proposition that low (visible) property damage does not correlate to a lower incidence of personal injury.