Quote:
Originally Posted by Noah930
?!
In principle, I strongly disagree with that statement. Insurance companies already hold all the cards when it comes to the balance sheet of income versus liabilities/payout. I don't think they need encouragement to increase premiums.
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The insurance industry, like any industry, needs to earn a reasonable and sufficient return on its invested capital, to remain healthy in the long-term. Otherwise investors will not provide the industry with capital.
My understanding is that insurers get their earnings from two sources: premiums received, and investing those accumulated premiums.
For decades to come, insurers will be taking less risk and thus earning less from their investments. At least, that seems very likely, after the industry has seen AIG implode.
If the resulting lower investment earnings are "too" low, then what are their options to earn the necessary return on capital?
The general options I can think of are (1) charge higher premiums, (2) reduce expenses and payouts, (3) exit less profitable lines of insurance. But (3) really means (1), since when there are fewer insurers remaining in those lines, they will charge higher premiums.