Posted On: July 9, 2008, 1:34 pm CDT

Posted By: Gill Fin

What causes an insurer to lose business?
Poor claims service. What causes poor claim service? Squeezing every cent out of the premium dollar paid by insureds.
What happens when an insurer starts to lose business because of poor claims. Expense ratio goes up. What happens when expense ratio goes up? Premiums go up.
What happens when premiums go up? Less business. Its a predictable cycle. Remember, its one pie. Cutting a smaller piece here only means a bigger piece there. But its the same pie. As for other industries surviving on a minus one or two percent profit up to maybe a plus one or two percent profit, most businesses cannot survive on that return.
Insurers can because they experience a return on reserves. What other business has 35% to 45% of their income (premiums) held in reserves, thus creating passive income from interest earnings? Banks and brokerages earn a return on reserves (our loans, savings and retirement accounts). Our business is, among other things, predictable and well regulated. If someone pays less here, someone is paying more over there. We cannot make the expenses and overhead disappear just because we think we pay too much. The next big opportunity for insureds to save money is tort reform.
Liability remains the single most expensive insurance line item for most insureds, and it continues to get more and more expensive each year. Buy Progressive stock. Knock yourself out. Just don't have a claim with them or you'll be shopping (again). Heres a novel idea! Why not pick a good carrier, with a good rating and solid numbers regarding claim satisfaction. You could even try showing THEM some loyalty.