insurance

Considering that the insurance industry uses the government to force people to buy their product and frequently advertises on TV, it doesn't seem like a very high percentage of premiums are paid out. Does the insurance industry pay out even half of its revenues in claims? A quarter? 10 percent?

Wait, you're confusing two things - REVENUES, which means, total income, and PREMIUMS, which is income derived from selling policies.

Here's the industry average payout, on $1 of PREMIUM dollars:

Health insurance - $.99

Auto insurance - $1.12

Homeownrs insurance - $.87

Workers comp - $1.42

Property insurance (nonhomeowners, nonauto) - $.67

Life insurance - $.65

MOST of it's "revenue" is made from investment income on the reserves - NOT from selling the actual policy.

It's more than 50% and sometimes it exceeds 100% (depends on the type and time frame). In a free market if they were actually only paying out 10% then someone would lower their prices. Also, consider that many of them are public companies and if they were the money mongers that you're suggesting then their stocks would be the best performing. It's a legit industry and you should thank them for protecting everything you own.

In addition to having many examples of people getting wiped out from not having insurance, I also have many examples of people who weren't thanks to insurance companies.

Oh yes. Most companies pay out more than half of its revenues in claims. Claims are the biggest expense for an insurance company. There are several ratios that are used to gauge the profitability of an insurance company.

Let's assume that you give $100 to an insurance company. Below is how the insurance companies will use your $100:

LOSS RATIO: A loss ratio is a percentage based on how much they pay in claims. If an insurance company were to break even (no profit or loss) the loss ratio would be between 60-65%. This means about $60-$65 dollars from your premium would pay for claims. Many major insurance companies have loss ratio's in the 60-65% range.

EXPENSE RATIO: Essentially, this is the cost of doing business. Salaries, claim expenses (like attorney fees, appraisals, NOT including a loss payment), overhead all factor into an expense ratio. Most insurance companies operate at a 35% expense ratio, meaning that about $35 from your premium will go towards covering the operation of an insurance company.

COMBINED RATIO: Add your expense and loss ratio together and you get a combined ratio. The combined ratio represents the overall "underwriting profit" of the company. This ratio does not take into consideration any profit the insurance company may have gained from investments. The combined ratio indicates how much money the insurance company made from the collection of premiums minus expenses and losses. So let's say that your insurance company ran a loss ratio of 60 and an expense ratio of 35. Your insurance company would have a combined ratio of 95%, meaning your insurance company profited $5 from your premium.

Most state insurance departments closely monitor premiums and if the state discovers that insurance companies are overcharging their policyholders, the company can mandate that excess premiums are returned.

Hope this makes sense.

They pay out over half of their revenue in claims. It's called the Loss Ratio.

In 2008 - Texas insurers paid out $1.27 in claims for each dollar of premium paid. http://www.chron.com/disp/story.mpl/hurricane/ike/6335449.html

Here's some stats for Min. :http://insurance.mo.gov/reports/lossratio/

Claims are just one expense. Insurers also have standard business expenses that every other business has- (buildings, supplies, grounds keeping, building maintenence, training, pensions, health insurance, other employee benefits) that have to be paid. Plus, insurance companies also have to pay insurance premiums of their own for re-insurance. That is a very big expense for insurance companies.