Do You think "Lowering our Insurance Rates" is an attainable Goal?
Candidates running for "Insurance Commissioner" Office, promise us to "lower our Insurance rates". Do you think they will be able to?
Where the money Insurance Companies will have to give up will come from?
Premiums we pay, goes to fund 2 basic cost. 1. Administrative expenses ( Company Profit, advertising, comissions,etc.)
2.To pay for their claims.
Do you think Insurance Companies searching for a method so they won’t get as many claims, or planning to pay less when they get one?
Do you think we may have to give up some coverages or benefits,so we won’t pay as much premiums?
I wish each politician will tell us how they planning to "lower" our Insurance rates, and how they will finance their promises.
Learner
No, they won’t.
What happens to insurers when they get pressure from states to lower (or not raise) insurance rates is that they usually will go along with it for a while and when they realize they are either losing money or not making their financial goals….they will begin to not sell anymore insurance policies in that state.
When companies start to leave the market….usually the lower cost companies go first…..which means that the fewer competitors left all have higher prices….
So, in effect, for those who were with a lower cost competitor which is now gone….the only choice left is higher cost companies.
So consumers who were with a cheaper company now get a big increase in premium costs…..exactly opposite what the politicians said they’d do.
As more and more insurers leave the market….there becomes a shortage of insurance (called a ‘hard’ market)…..if the market gets too hard….states are forced to allow ‘excess and surplus lines’ carriers in to fill the void.
A well known E&S entity is the Lloyd’s of London Syndicate.
The problem with those lines of insurance are that because they are ‘excess and surplus’ lines carriers, they are not state regulated and therefore the state can’t regulate their rates.
So do you think those rates are any lower than what the state had before? Nope…the E&S rates are really high.
And sometimes when the E&S carriers won’t take on the risk….the state will have to form its own risk pool to self insure the rest of the market….
Which means taxpayers end up paying out the claims…..so the politician may have kept premiums down but what happens when claims go up in the state pool……you guessed it taxes have to go up to pay for it.
What’s a better system?
Well, competition has proven over and over again to lead to better products and better prices….
A better solution for lower premium rates is actually less rate regulation….not more.
July 17th, 2010 at 7:37 am
it’s not possible
References :
http://www.insurance-assurance.com/
July 17th, 2010 at 7:58 am
No, they won’t.
What happens to insurers when they get pressure from states to lower (or not raise) insurance rates is that they usually will go along with it for a while and when they realize they are either losing money or not making their financial goals….they will begin to not sell anymore insurance policies in that state.
When companies start to leave the market….usually the lower cost companies go first…..which means that the fewer competitors left all have higher prices….
So, in effect, for those who were with a lower cost competitor which is now gone….the only choice left is higher cost companies.
So consumers who were with a cheaper company now get a big increase in premium costs…..exactly opposite what the politicians said they’d do.
As more and more insurers leave the market….there becomes a shortage of insurance (called a ‘hard’ market)…..if the market gets too hard….states are forced to allow ‘excess and surplus lines’ carriers in to fill the void.
A well known E&S entity is the Lloyd’s of London Syndicate.
The problem with those lines of insurance are that because they are ‘excess and surplus’ lines carriers, they are not state regulated and therefore the state can’t regulate their rates.
So do you think those rates are any lower than what the state had before? Nope…the E&S rates are really high.
And sometimes when the E&S carriers won’t take on the risk….the state will have to form its own risk pool to self insure the rest of the market….
Which means taxpayers end up paying out the claims…..so the politician may have kept premiums down but what happens when claims go up in the state pool……you guessed it taxes have to go up to pay for it.
What’s a better system?
Well, competition has proven over and over again to lead to better products and better prices….
A better solution for lower premium rates is actually less rate regulation….not more.
References :
July 17th, 2010 at 8:34 am
Absolutely, it’s attainable . . . but only through giving up something – coverages, or lawsuit options, or something. The insurance companies DON’T make much money on insurance rates – for personal lines, ie, home and auto insurance, most actually pay out slightly more than they take in in premium. So if you’re going to cut the premium, clearly, they have to cut the payouts, or go bankrupt.
Well, Politicians generally don’t HAVE a solid plan on how to lower rates – they just run on a platform, and hope for the votes! AFterwards they’ll say, oh, well, we tried, it didn’t work! And hope the public forgets. Which they will!!!
IMHO, there are better ways for politicians to save voters money . . . like, how about LOWERING GAS TAXES? Most states charge between $.50 and $.75 PER GALLON in taxes. Ouch! I’d do MUCH better cutting the gas tax in half!!
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July 17th, 2010 at 8:48 am
The Insurance Commissioner has no power to lower rates. The only way this would happen is if politicians pass laws restricting capping medical malpractice suits, reducing mandatory benefits, etc. And the Insurance Commissioner doesn’t have that much influence.
References :
actuary
July 17th, 2010 at 9:03 am
I have been in the insurance business for over 22 years. My former position was in management for a health company. In 2005, our company paid out more money for prescription drugs than hospital expenses. I feel that the 800+% profit that the drug companies are making is ridiculous. Yes, they need to make a profit in order to fund the costs to research for new drugs, but that profit margin is too high, and the costs should be the same for everyone. The good old USA should not have to foot the bill for the R&D costs. Why do you think prescriptions are lower in Canada, Mexico and other countries? I also see the drug reps always spending big bucks on dinners for the doctors, taking office staffs gifts and goodies, all to get the doctor to prescribe their new, more expensive medicines. As long as the cost of staying healthy keeps going up, the cost of health insurance will also keep going up.
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