Who’s Paying the Price for a Historic Windfall?
In our recent series on insurance companies, we reported that property and casualty insurers were on pace this year to shatter a record-breaking $88 billion in profits recorded in 2023. Well, the numbers are in and even more jaw-dropping than previously imagined. Through just the first three-quarters of 2024, insurance companies posted $130 billion in profits, according to AM Best.
Now, the whiplash for consumers:
Despite enjoying the two most profitable years in history, these same companies are blasting home and auto owners with double-digit increases in premiums. Premiums for property and casualty insurance are projected to hit nearly $1 trillion in 2024 — marking a 19% increase since 2022. Auto insurance rates alone saw their steepest hike in 45 years, adding to inflation and placing even greater financial strain on American families. Homeowners and commercial insurance rates didn’t escape unscathed either, with significant increases across the board.
How can this be, you might ask an industry executive?
They claim rising claims costs, inflation, severe weather, and even their own policyholders are forcing their hand while downplaying the historic profits. But the numbers tell a very different story. While companies cite underwriting losses — saying they paid out slightly more than they took in — those losses barely made a dent in their massive investment gains. Insurance stocks have outpaced the broader market, reflecting the industry’s unchecked growth and influence.
Here’s how it works: The insurance industry operates differently from most businesses. Companies collect premiums upfront and invest that money before paying out claims — a strategy called “float.” In a letter to Berkshire Hathaway shareholders, Warren Buffet discussed the advantage of the business model, saying, “This collect-now, pay-later model leaves P/C companies holding large sums – money we call ‘float’ – that will eventually go to others. Meanwhile, insurers get to invest this float for their own benefit.”
Consider it this way: a semi-retired couple earned $70,000 last year and spent $72,000. Separately, their 401(k) investment increased by $50,000. Would you consider that a $2,000 loss, or are they in great shape financially because their overall wealth increased by $48,000?
That’s what the insurance industry is doing. They howl about their small and temporary underwriting loss and hope that nobody notices what’s happening on the investment side of the business. And just when families need coverage the most, insurance companies are cashing in instead of stepping up.
As the debate unfolds, one question remains: Are insurers facing a genuine financial crisis, or is this a calculated strategy to boost profits?
Let’s be clear. We need a strong, stable, and, yes, profitable insurance industry. But we also need fairness and accountability. Families shouldn’t have to shoulder rising costs while insurers enjoy record-breaking profits and plot to limit consumer protections. Nor should lawmakers yield to proposals by the insurance industry to deny their policyholders a day in court based on a lie that lawsuits are driving premium hikes.
For the average policyholder—whether a retiree living on a fixed income or a family struggling to make ends meet—these hikes feel anything but justified. It’s time to spotlight these profits and demand transparency and accountability from an industry that’s raking in record profits while crying wolf.
