What happens with the increased insurance premiums collected when there are no major catastrophes?
A couple of years ago, Florida was hit by several hurricanes in close succession. Lots of people made insurance claims, and not long after that, insurance premiums went up.
Same with Hurricane Katrina – the Gulf Coast is paying much more for insurance coverage after Katrina.
But last year and this year (so far, it’s early) have been VERY quiet years for hurricane damage in the South. (Yes, there was Sandy in the NY/NJ and mid-Atlantic areas, but those are not in the South.)
The insurance companies have been collecting gobs of increased premiums in the South to ostensibly pay off people who have suffered in the area. Fine. But in a benign hurricane season, the insurance companies are collecting a sizable surplus.
Since insurance rates are supposed to (in part) be based on locational risk, should one expect rates to do down (or at least stay flat) in areas where hurricanes have not hit?
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More profit to the insurance companies.
And what may happen is that somebody gains enough profit that they realize they can improve market share by dropping rates just a little bit, and rates begin to fall all over. And the rates go down until there is another disaster.
The rates stay high though if people rebuild in a dangerous location, like Biloxi, Miss. or Mobile, Ala. And a year without a huge devastating storm doesn’t mean there haven’t been pay outs. And part of the rate rise is to cover increased reconstruction costs.
I have USAA and we receive money back at the end of the year if their capitol savings is over a certain amount. Or, that’s the way I understand it anyway. Here’s a link.
If the insurance company is a for-profit, it goes to the company coffers, ultimately to end up in the pockets of company officers.
If the insurance company is a mutual company (like USAA @JLeslie), It would go back into the mutual fund and redistributed per policy (as in USAA,s rebate).
@JLeslie – do I have to be a veteran to have USAA?
I wonder if there are any insurance companies run like USAA that don’t have restricted membership?
Maybe some state run policies are like that? I have no idea, just guessing private insurance companies are less likely, although I have seen commercials for refunds for good driving on vehicle insurance.
@elbanditoroso No, you don’t have to be a veteran, but you do have to have some sort of relationship to the military. My father was an officer for the Public Health Service and I am allowed to have insurance through them because I am his daughter and my husband is covered as well. I think all enlisted men can get it also, but they have to sign up while in the service or within a year of leaving, although the rules very well could have changed. USAA is very specific with who is eligible, but their rules are sometimes surprising who can get coverage.
Here’s a comment on the Berkshire Hathaway (Warren Buffett) Insurance company, the largest one in the country “how much exposure Berkshire’s reinsurance operations have to the Fukushima nuclear disaster in Japan. Luckily, Buffett keeps $20 billion in Berkshire’s sock drawer to cover such unforeseen emergencies”.
Not all of the profits go to the company officers, some of it goes to the investors/stockholders, and some of it is paid out in taxes.
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