The basic concept of insurance would seem to be pretty simple. Someone pays premiums to the insurance company; the insurance company uses the money received from premiums to reimburse those who suffer a covered loss. You make a claim, they send you a check.
Of course, it must be more complicated than that. After all, if someone pays $1,500 a year in car insurance and then is severely injured in a crash with a drunk driver, the medical bills and other costs could be astronomical. The insurance company would go broke if it happened too often.
Underwriting Income
Underwriting income is one of the primary ways an insurance company remains profitable. If they pay out less in claims than they receive in premiums, they have a profit. Underwriters put people into categories based upon their estimate of the likelihood of claims from the group as a whole (older people with no accidents for years vs. teenage drivers, for example).
If they pay out too many big claims, they can suffer a loss. Insurance company employees are committed to paying out not one penny more than is necessary. Their jobs depend on it. They also know that, in most cases, the sooner their agents can settle a claim directly with the accident victim, the lower the settlement will be.
Investments
Insurance companies also make a substantial portion of their income by investing the money that they receive from premiums. If they pay out too much in claims, there will be less money to invest. Of course, not all investments generate a profit. If the insurance company loses money on investments, premiums may be raised.
When someone is involved in a minor accident and receives an estimate of $800 to repair the dent, it is usually pretty easy to settle the claim. However, when there is a serious accident involving personal injury, the extent of the damages will not be known for some time. Signing an early settlement offer can seriously underestimate future medical bills and other costs.
Anthony Otto has over 35 years of experience as an Insurance Claim Attorney in Port Orchard. He knows how to deal with insurance companies to get the highest and fairest compensation possible for his clients. Before agreeing to the insurance company’s first settlement offer, talk to a dedicated insurance claim attorney in Port Orchard. Don’t fight the insurance company alone.
