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Can someone explain the point of insurance companies?


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45 replies to this topic

#1 of 46 DeathStar1

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Posted March 26 2006 - 02:37 AM

All I hear are stories of insurance companies never wanting to pay out the damages acquired when you need them the most. So, why bother having them in the first place?

A friend had a car wrecked recently. The driver of the truck that hit her had stolen the vehicle and the cops are looking for it. But while she can't come by money easilly these days, and was injured on the job...the cost was around the $300 mark. Only recently it was found out that it was above that, so the insurance will pay for most of it, but she still has to fork out some of that bill..

So can someone tell me what the point of an insurance company is, if they don't pay for all of it? Any interesting insurance horror stories to tell? Maby I'm missing something..

Later..

#2 of 46 Guest_Eric Kahn_*

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Posted March 26 2006 - 03:38 AM

The point of insurance companies is for them to make money
you can buy no deductible insurnace, it is just really expensive compared to 200 or 500 deductable

#3 of 46 alan halvorson

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Posted March 26 2006 - 03:41 AM

I worked for a small insurance company for 16 years. You must understand why insurance exists so I won't get into that. You can get insurance that pays 100% but then your premiums will be at the highest level. By accepting a small part of the risk yourself (called the Deductible), your premiums are reduced. It's a gamble and sometimes you lose, but for most people, over time, premium saved will far exceed the risk assumed, so deductibles, I think, are a good idea.

That's about as simple as I can make it.
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#4 of 46 RichP

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Posted March 26 2006 - 03:46 AM

Quote:
So can someone tell me what the point of an insurance company is, if they don't pay for all of it?


Uh... so you don't pay for all of it? You're seriously questioning the need for insurance?


#5 of 46 DeathStar1

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Posted March 26 2006 - 05:17 AM

You must understand why insurance exists so I won't get into that.>>

Yep, I get the basics of it. Even though I don't drive that much, I let my parental units handle the insurance side, otherwise I'd take care of my side...

But what I was questioning is, if it clearly falls under the insurance companies ability to pay for the damages, do most people really have alot of trouble getting them to still pay it?

Or do they usually pay it instantly? Just curious Posted Image

#6 of 46 RobertR

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Posted March 26 2006 - 05:41 AM

Quote:
But what I was questioning is, if it clearly falls under the insurance companies ability to pay for the damages, do most people really have alot of trouble getting them to still pay it?
You're still sounding like you don't understand the concept. What does "ability to pay" have to do with not meeting the deductible?

#7 of 46 andrew markworthy

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Posted March 26 2006 - 05:47 AM

Quote:
Or do they usually pay it instantly? Just curious

In more intemperate moments, I have the following argument. At the end of the day, insurance companies are betting syndicates, pure and simple. Casinos pay up with good grace, so why can't insurance companies?

To which the calmer part of me replies - because there are so many dishonest customers out there. Insurance companies have a logical, moral and legal right to check on the validity of claims. I can think of people who without any shame have poured paint over a (perfectly good) carpet so they could claim a new one, or who every vacation contrive to break or 'lose' something so they can in effect subsidise the vacation. Because of pond scum like this, anyone honest pays through higher insurance fees and longer claims processes. As is so often the cse, the honest end up subsidising the crooks of this world.

#8 of 46 DeathStar1

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Posted March 26 2006 - 06:03 AM

You're still sounding like you don't understand the concept. What does "ability to pay" have to do with not meeting the deductible? >>

Maby I am missing something, wouldn't be the first time Posted Image...the insurance concept is something new to me as I've never had to deal with it before, luckilly.

I guess my thoughts on how an insurance company worked whern't exactly 100% after rereading the above posts..I thought that you payed them a monthly fee, and when something happened, that you can prove wasn't intentional or unavoidable, they payed you back your amount, plus covered the extra cost...

but then they wouldn't make any money that way...

#9 of 46 Joseph DeMartino

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Posted March 26 2006 - 06:53 AM

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thought that you payed them a monthly fee, and when something happened, that you can prove wasn't intentional or unavoidable, they payed you back your amount, plus covered the extra cost...


Er, NO. Posted Image Insurance is a mechanism for sharing risk. You buy a policy that pays you a stated amount maximium amount, less a deductible you agree to for various events, up to and including hundreds of thousands of dollars in liability and medical expenses. Each month you and I both pay a tiny fraction of the amount we are covered for in premiums. If neither of us ever has an accident we never get any of "our" money - but we paid for the service of having that safety net in case something went wrong. On the other hand, if you have a covered accident, you'll get paid the repair cost or whatever, less your deductible, without regard to how much you have paid in premiums. If you have an accident your first day on the road you still get paid. Part of the way this happens is that you get paid with my money, and the money of other insured drivers. That's the how shared risk works. We all pay in small amounts and the relatively small fraction of us who actually get into accidents then get the pooled money.

After the hurricanes came through last year my car was one of thousands that suffered damage from flying debris. As soon as I could after things started getting back to normal I drove over to my insurance companies local office, where dozens of extra adjusters had been flown in from out of state. I had my car examined, photographed, a repair estimate was written up, I got a list of approved body shops in the area and they cut me a check on the spot for the portion they were paying for. (I carry a high deductible in exchange for lower premiums, so my "bet" lost and I had to pay for more of the repair out of my own pocket.)

In the case of accidents involving several vehicles the insurance companies will (rightly) be more careful and take more time investigating the circumstances, ditto claims involving injuries. Given the amount of fraud out there, they simply have to be careful. If they weren't, they'd be doing a disservice to their honest customers.

Regards,

Joe

#10 of 46 David McGough

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Posted March 26 2006 - 09:08 AM

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#11 of 46 MarkHastings

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Posted March 26 2006 - 12:20 PM

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I thought that you payed them a monthly fee, and when something happened, that you can prove wasn't intentional or unavoidable, they payed you back your amount, plus covered the extra cost...
As Andrew mentioned, in order to have the company work in your favor, a lot of things have to fall into place the right way. When it falls into place (on your side) you make out, but if one of those things doesn't - you're screwed.

Example: A car bumped into the back of my car during rush hour traffic. I got out and didn't see any damage, so I didn't call the police. Later on, I realized there was a small chip out of my bumper. I got a quote (to have it fixed) from my insurance co. - Luckily I had written down the womans license plate #, but when my insurance co. contacted her, she denied the accident. Since I didn't have a police report, I got nothing.

That's what I mean about having things falling into place. I deserved that money because that woman was in the wrong, but since I didn't go through the proper procedures, I got screwed.

#12 of 46 ChristopherDAC

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Posted March 26 2006 - 12:54 PM

To my way of thinking, a major problem is that many insurance companies these days are commercial rather than mutual — that is to say, they have shareholders (to whom the managers are responsible) as well as policyholders. Anyone can see that an ordinary casualty insurance company (to be distinguished from a maritime insurance company) has no need of outside investors to supply working capital, and the tendency is to induce the company, from profit considerations, to deny accomodation to the very people for whose benefit it was formed, viz. the insured themselves.

#13 of 46 Steve Schaffer

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Posted March 26 2006 - 02:00 PM

The car dealership where I work has an in-house body shop.

Normal procedure followed by most people whose cars are in an accident is to claim any and all pre-existing problems they were having with the car prior to the accident are the result of the accident. Funny how a mild tap to the rear bumper can destroy an AC compressor, cause the steering rack to leak, and make all 4 struts leak.
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#14 of 46 Yee-Ming

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Posted March 26 2006 - 07:58 PM

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I deserved that money because that woman was in the wrong, but since I didn't go through the proper procedures, I got screwed.

Ouch. I got rear-ended last year: stopped at a red light, the lorry behind me couldn't stop in time and hit me. It wasn't that bad, but still enough to cause around S$2,500 worth of repairs. I didn't claim against my own insurance precisely because I'd have to pay the deductible, and also I'd lose my "no-claims bonus" which was already around 30% (each year no claim is made against your insurance, you get a 5% discount, which rewards careful drivers who don't get into accidents I suppose).

It was a small courier company's lorry, and the driver volunteered to pay for the damages, but when I told him what it would cost, he dragged it out a few weeks before finally admitting he couldn't raise the money to pay. I then got the car fixed and lodged a claim against the insurers of the courier company. Initially they rejected the claim, on the basis that their insured's driver wasn't co-operating (which to be fair meant they had no information on which to base their assessment as to whether I was entitled). Around here, no police report is made unless someone is physically injured, or it's a hit-and-run, but I had made a report to my own insurers to cover myself.

"Fortunately" IAAL and my firm filed suit against the owner of the lorry. Within a week the insurance company came back with an offer that covered everything, including some legal costs that my firm earned.

#15 of 46 alan halvorson

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Posted March 26 2006 - 09:05 PM

Quote:
Anyone can see that an ordinary casualty insurance company (to be distinguished from a maritime insurance company) has no need of outside investors to supply working capital


Well - no, this isn't true at all. Each state makes rules governing insurance companies. One rule ensures that an insurance company has adequate capital - called surplus - to pay its claims in case it ceases business. An insurance company that wants to expand must, by state rules, also increase its surplus. This extra money has to come from somewhere and sometimes outside investors are sought. The small insurance company I no longer work for eventually merged with a much larger company largely because they could not find the deep pockets they needed to maintain its surplus ratio (surplus to premium). In insurance, if you don't expand you contract and that ain't good.

Many years ago, a very small mutual insurance company located in Wisconsin (right across the river from my hometown) experienced extraordinary losses from a storm but didn't have the surplus (or reinsurance agreements) to pay all its claims. The result was that each member of the mutual had to pony up a share of the total losses, typically $1,500-$2,000 each. That's a downside of a mutual (but not all mutuals are structured like this).
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#16 of 46 LewB

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Posted March 26 2006 - 11:56 PM

They are legalized odds-makers. They are betting that whatever it is you are insuring yourself against won't happen.
They have a lot in common with casinos. Ever drive past Hartford Ct. ? Lots of big shiny buildings paid for by the 'customers', just like Vegas. You pay and pay and usually never collect anything, just like Vegas. They are publicly traded companies on Wall Street, responsible for turning a profit, just like the Vegas casinos. And heaven forbid you make a claim, your rates go up or you get cancelled.
EXCUSE me for not falling into your actuary's profile of me.
In blackjack there is a bet called insurance. You are betting if the dealer has blackjack if he has an ace showing. It's the worst bet in the entire casino. Wonder why they call it insurance ?

#17 of 46 MarkHastings

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Posted March 27 2006 - 01:58 AM

Well, I think the thing people forget about insurance is, it's not there so you can make money. It's meant to help you out when you need it.

When that drunk driver slammed into my car, I got my car repaired, but I never got compensated for the fact that I didn't get a good deal on a trade in because the dealership saw that it had been in an accident before.

While it sucks...I'm not expecting any insurance company to compensate for that. That's just the suckiness of life. But at least they covered my $14,000 repair bill and rental car.
Quote:
They have a lot in common with casinos.
Very true! For every "Jackpot" (and free stuff) a casino gives away, they've made up in other peoples losses.

My mom falls into this trap all the time with scratch offs. She buys them all the time and gets so excited when she wins $300. I always say "and how much have you lost to make that $300?" Posted Image

#18 of 46 LewB

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Posted March 27 2006 - 02:04 AM

Funny how I just ran across this article.

#19 of 46 RobertR

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Posted March 27 2006 - 03:04 AM

Quote:
Lots of big shiny buildings paid for by the 'customers'
Every "big building" owned by a large company is paid for by the customers, so there's nothing unique about insurance companies in that respect.

Quote:
They have a lot in common with casinos
The crucial difference is that gambling is a recreational activity, and you risk no loss by choosing not to gamble. If you choose not to get insurance, you ARE risking being faced with a loss (which can be very heavy and potentially ruin you financially).

#20 of 46 Kirk Gunn

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Posted March 27 2006 - 03:28 AM

I got my car repaired, but I never got compensated for the fact that I didn't get a good deal on a trade in because the dealership saw that it had been in an accident before.


You can put in a claim for Diminished Value. I am going through this right now.... It's a amazing how faulty/shoddy the repairs are the body shop performed. Nothing dangerous as the vehicle is safe to drive, but the van definitely lost a lot of value.


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