Insurance question???

Ya progressive quoted me 27k for 1 truck originally when I got my authority!!! Crazy. I use a company called coastal trucking llc and policy is underwritten by hallmark. Best rate I could find and I shopped around 4 about 3 weeks with everyone.

 

Progressive CEO gets 10 mil a year......

http://www.reuters.com/finance/stocks/officerProfile?symbol=PGR&officerId=89598

How many premiums does it take to cover his salary ??

 

Most property & casualty insurers make 0-10% profit on the underwriting -- the actual cost of claims vs the amount taken in as premiums. And really, a 10% underwriting profit is pretty rare -- stiff competition between insurance companies often results in break-even underwriting.

But the insurance company is still profitable because they get to keep the interest from the investments they make.

For example, say you pay $50/month for car insurance, and in 5 years you are going to submit a $3,000 claim. You will have paid the insurance company $3,000 over 5 years, and they wind up paying it all back to you. But they got to invest your premiums for those 5 years -- which, assuming a 6% rate of return, means instead of breaking even they actually profited $570.

The insurance industry calls this float -- and it, combined with his superior stock picking skills, is what made Warren Buffett a multi-billionaire.

 

The same reasoning is why we use CSA scoring to underwrite. We see similar things in our experience, when broken down into sub groups........like reefers are worse than dry vans.....small fleets made up of leased owner ops Vs company owned/employee driver fleets.....which again is why forum insurance pricing is humorous because there are so many variables in rating a particular risk

 

Funny....I work for Berkshire.....you are absolutely correct on underwriting results.....pure underwriting "profit" is rare, but in addition to the float on the unearned premium we make a good return by investing the "loss reserves".

Let's say we have an incident, and after investigation we come to the conclusion our insured is likely at fault. We KNOW that we eventually will have to pay.....say $ 300,000 to settle the bodily injury and $ 50,000 for the property damage........but given the way the system works the other side will have an attorney and things will settle down into a predicable pattern.....in our tax accounting for the year we will "set aside" (reserve) the $ 300,000....with the expectation that it will ultimately get paid in 24-33 months......the property damage side of the loss get's paid fairly quickly (it's referred to as a "first party" loss).......so where we make money is handing Warren $ 300,000 (times MANY more loss reserves in a given underwriting year) and letting him invest those funds in relatively short term investments.....so at 3-5 % return on investment (VERY conservative) per year invested he generates $ 15,000 or so in investment income before we have to pay the claim and those funds stop earning a return.

Setting reserves is an art......sometimes we guess correct and we pay what we reserve....sometimes we get it wrong, to our advantage, and end up settling for less than we had anticipated.....we then take the difference as income in the current year and pay taxes on it......but most often it works the other way, where we end up paying $ 500,000 instead of the reserved $ 300,000 and now have to take a hit to income in the current year.

Sure insurance companies make a profit.....shareholders wouldn't be shareholders if they didn't expect to have their investment give them positive returns....Economic growth comes from profits....no matter how large or small the company our economy needs companies making profits and expanding the economy and creating jobs.......my office as an example has grown from 10 staff in 2010 to 33 today.....we wouldn't be employing 23 more people if we weren't making a profit.....so don't make profit into a bad word