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Rising Rates, Record Profits, & Investments.

Louisiana's insurance crisis has left policyholders reeling from skyrocketing rates. At the same time, big insurers are reporting record profits. This is a one-sided crisis that's crushing policyholders.

 

Louisiana's insurance crisis has left policyholders reeling from skyrocketing rates. At the same time, big insurers are reporting record profits. This is a one-sided crisis that's crushing policyholders.

What's the solution? For starters, we need to better understand the insurance industry's business model.

Warren Buffett is a legendary investor who runs a multi-national conglomerate that owns the insurance giant GEICO. Buffett knows the insurance business better than anyone, and he spilled the beans on their business model.

Buffett explained insurance "float" and the "collect-now, pay-later" model that makes insurance an attractive and lucrative industry for investors.

Insurance companies are really investment firms. You pay premiums, and insurers pay claims—LATER. In the meantime, your premium dollars go into the "float," a pot of hundreds of billions of dollars that insurers invest to drive their massive profits.

Insurers are reporting record profits while claiming underwriting losses to justify rate increases that boost the float and their investment returns.

Writing policies is the price of admission. Buffett points out that premiums rarely cover eventual losses, resulting in "underwriting losses." Buffett says that loss is table stakes, the cost of float insurers pay to rake in massive profits through investments.

Business is good. The Dow and S&P 500 surged to new heights this week. And insurers are major benefactors: $88 billion in profits and $121 billion in investment income in 2023.

It's clear: insurers fleece policyholders with exorbitant rates that insurers use to multiply their profits through investments.

To make matters worse, the industry's float-driven business model sparks cutthroat competition for market share and premium dollars. Insurers splurge billions on advertising, then slap you with the bill, packing their bloated ad budgets into your inflated premiums.

Solution: Voters elect the commissioner to regulate the insurance industry, not cowtail to big insurance. Insurers sell products consumers are legally and fiduciarily required to purchase. Recent research from a Fed Reserve Board member and business professors from Harvard and Columbia University suggests that higher rates are paid in states where regulators apply less scrutiny to rate increases.

If Louisiana lawmakers want to solve the insurance crisis for policyholders, they must follow the money and stop listening to the insurance industry and their allies. Louisiana needs real reforms that lower rates, increase transparency, and hold insurers accountable while protecting consumer rights.

Source of this artcle: www.realreformla.com