Insurance rip off?

[Markymark]

That is just hilarious. Can you tell me where these magic money printing investments are.

My company is making about 2% and is very typical amongst it's peers.

Your company is only making 2% on its capital? I can do better than without a team of investers myself.

 

[Paul99]

Your company is only making 2% on its capital? I can do better than without a team of investers myself.

Really? Are you a millionaire? You should be if you are that good.
Insurance companies can't put all their money into high risk investments as that money has to be kept to pay any claims. So unlike you they can't take a punt on the stock market, or on the 3.15 at Sandown and most of the money must be kept liquid so that they can pay claims quickly. You have no idea what you are talking about.

 

[Markymark]

Really, so insurance companies don't invest the millions they sit on? And you think investing to get above 2% is akin to betting at the races?

 

[Paul99]

Really, so insurance companies don't invest the millions they sit on? And you think investing to get above 2% is akin to betting at the races?

Of course they invest, but the majority is in secure investments such as government bonds. You don't get huge rates of return on secure investments. If you had to abide by the capital regulatory requirements that an insurer has to, you wouldn't be able to better those sort of returns.

 

[slowmotion]

http://www.thompsons.law.co.uk/personal-injury/car-insurance-companies-huge-profits.htm

 

[srw]

But they make handsome profits by investing the money they hold from you. The actual insurance arm is a loss leader to effectively borrow money interest free to invest. Not unlike car showrooms losing money selling cars to make the profit from servicing.

For insurers a 3% loss on the insurance side is nothing compared to say 10-15% return on investing the millions they hold.

Tell me where I can get a 10-15% return on an acceptably low risk investment and I'll be recommending it to my boss. At the moment getting a 3% return is doing well. Yes I know Warren Buffett uses his insurance company as a cash generator for his other businesses, but the rules are rather different in the US compared to Europe.

 

[srw]

http://www.thompsons.law.co.uk/personal-injury/car-insurance-companies-huge-profits.htm

Well yes - you could believe a superficial study of reports and accounts (which are PR documents as much as anything else) undertaken by a claimant solicitor firm who isn't exactly qualified for the job. Or you could look at an analysis by a bunch of actuaries (who do this sort of thing for a living). Their data, by the way, is based on returns to the regulators which are (a) audited and (b) standardised so they're not PR-led. They're also public - you can write to any insurance company and they've got to send them to you.

http://www.theguardian.com/business/2014/jun/09/uk-car-insurers-first-profit-20-years
http://www.actuarialpost.co.uk/article/ey-reports-on-uk-motor-insurance-market-6183.htm

OK, I was wrong - the market combined ratio for 2013 turns out to be 98.5% rather somewhere north of 100. But as EY point out, that's heavily propped up by prior year releases and also in some cases based on what have turned out to be rather optimistic assumptions about the impact of law changes last year.