Insurance company profits soar

Anybody else's blood boiling with this report -

http://www.rte.ie/business/2005/0915/insurance.html

My reading is that all the efforts to reduce the amount of the various types of claims over the past couple of years have gone straight to the bottom line of insurance companies. Of course they tell us (the consumer) that we have never had it so good, but what can justify these levels of profitabilty? Needless to say, when they do have their next bad year, they will plead poor-mouth and lobby for premium increases, notwithstanding the level of profits they make today. Parasites!!!!


On a seperate note, a couple of general questions to ponder -

Is the insurance industry a drain on society?
Are there better risk management models (eg no car insurance as in NZ)?

I'm not employed in the insurance sector and like all consumers I don't paying too much for essential insurances, however I'm sure the insurance industry will argue that one year's good profitability is not an indication of real change in our
attitude to claiming for losses or an indication of improved driver responsibility. If there is a steady pattern of reduced claims then as consumers we can demand and expect such changed behaviour to be rewarded by reduced premia. I'm sure the actuaries would dismiss this years balance sheet an anomaly...

Those big billboard ads they have about false claimants robbing us blind etc really do my head in. Like as if they'd cut the insurance premiums if they were making 2x millions profit instead of x

Could it be that the insurance companies are making their money on the stock exchanges around the world, seeing as all these are on the up (mostly) as well?

Did you hear the premium differentials quoted by the guy on today's 'Last Word'? (same car/same cover - €900 in Ireland vs. €300 in central Paris - you'd buy a fair few crates of out of that change... )

I doubt very much that those profits are down to savvy investment strategies...

They're releasing claim reserves they had built up over the years and distributing them to shareholders. There is still billions in reserves there.
I think the reserves are a tax efficient way of storing profit in the company.

They store reserves and say they need them for accidents but they are storing over 4 times the amount of claims they have at the moment. They had to release the profits as their reserves are absolutely absurdly high at the moment.

Companies in other industries if they want to store reserves retain the profits and have to pay tax on it to the government. Insurers claim they need it for covering claims so don't pay tax on it. If I'm right about what I think is going on then the amount of tax they are avoiding by keeping their reserves artificially high would pay for a major public infrastructure project every year.

Investment income has never been a substantial money earner for the insurers - they have no talent for it. Gouging customers is their speciality. I remember looking at this before and the one thing I can remember from the figures is that they are no good at investing which is funny since some of them also control our pensions.

Insurance is a cyclical business. They went through many years of losses on the underwriting, so that they needed the investment profits to break even and stay solvent. Look at the early days of Quinn Direct, where Sean Quinn had to pump something like €75m into his company to shore it up.

They have cut premiums in anticipation of the effects of PIAB and their campaign on discouraging false claims.

It is a relatively easy business for overseas companies to enter. Mary Harney personally encouraged the European insurance companies to enter the Irish market, but it was simply not profitable enough. A few profitable years is unlikely to attract them. There would have to be some serious changes in Irish claims experience, law enforcement and litigation costs before they will enter the market.

What do you guys want? Unprofitable insurance companies that go bust every so often and leave the policyholders exposed. This happened the PMPA, but the Irish tax payer picked up the bill for an insurance company which was not charging sufficiently high premiums.

Brendan

At 4.3 coverage of claims there is no danger of them going bust.

They were carrying this level of reserve all the time they were poor mouthing.

Don't forget the brokers can't be used by new entrants as their is sharp practice there or at least that is TCA's opinion.

Reserves are held for a number of reasons:

*To cover claims not yet reported but where the incident has already occured

In some classes of insurance business claims can be reported up to 20 years after the incident date - think asbestos and other occupational injuries on employers liability policies. Insurers need to be prudent when setting reserves for these lines of business - US companies were badly hit in the past by insufficient reserving for asbestos related claims.

*To cover claims that have been reported and can be expected to develop adversely over time (e.g. if they are taken to court)

The growing "compensation culture" is not helping this.

*To cover claims which will arise from future periods of cover but for which premium has already been received (e.g. you buy your policy in July - over half of the period of cover remains at year end and the insurer will need to hold this in reserve to cover claims from Jan - July of the next period).

Claims paid to date only account for known paid claims in relation to expired periods of cover. So holding a claims reserve of 4.3 times the claims paid may not be unreasonable if there is a lot of unexpired cover or the business is particulary long tailed. Similarly, if the insurer expects a catastrophe (e.g. floods) they may hold reserves against this.

In reply to Jools

I was replying primarily to Motor Insurance as other types of insurance are elective.
I don't complain about other types of insurance as being rip-offs as I can decide whether to purchase or not.

So with regard to Motor Insurance remember PIAB.
Reduces time to settle, makes future costs predictable and disincentivises fraudulent claims.

No asbestos in brake pads any more : ) and we are talking about Motor insurance here without millenia long claim durations.