Quote:
Originally Posted by Noah930
If insurance companies made a killing from the latter half of that income avenue (investing), do you think they would lower premiums such that their payouts would exceed the premiums? You know, pass their good fortune onto the customer base?
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I can tell you first hand: YES.
During the late 90's, most auto insurers were charging less than it cost them to service claims (taking an underwriting loss) and making up the difference in investement income. That practice effectively ended on 9/11/01 as the stock market took a prolonged beating. Up until 2005 (with Katrina and Rita), this was SOP for homeowners insurance--up until then, I can guarantee you never paid a premium on homeowners insurance that matched the risk you presented.
The problem with this model is a regulatory one. State insurance regulators won't let insurers raise rates rapidly when claims go up or investment income goes down, so they have learned that they need to keep premiums relatively high so that they have the money when they need it. Insurance and oil are the only two industries where politicians routinely utter the phrase "excess profits".