Insurance companies
Posted: Wed Jan 26, 2005 8:01 am
No.
How on earth would an insurance company "incite mayhem"?
Here's a quick, practical run-down on how insurance companies work:
You are quoted a premium based on many factors - your prior history, your prior claims, current concerns about your future claims...and the remaining factors deal with the amount of funds available to the company - via investments, reinsurance, etc. These factors are also calculated against the type of policy you want, and the potential liability of the company.
Premiums do not cover the cost of claims. Insurance companies must gain additional funds from other sources (see above).
In addition, insurance is one of the most highly regulated industries in the US (I am assuming you are writing from here). There is a special kind of filing that must be done every quarter. This filing is designed to offer the worst case scenario...
If the insurance company closed today, how much money must be put into reserves to pay for all claims which are pending, and which haven't happened yet. The insurance company must honor the term of all policies, whether they are in business or not.
So, insurance companies must file these worst case scenarios, which are examined by external auditors, the state of domicile, the insurance commission, and so on. The insurance company must be able to prove they have the necessary amount of reserves on hand to pay claims - not creditors.
It does not pay for any insurance company to encourage claims. Quite the opposite.
I don't think the same could be said of hospitals, or mechanics, or auto body shops. :p
How on earth would an insurance company "incite mayhem"?
Here's a quick, practical run-down on how insurance companies work:
You are quoted a premium based on many factors - your prior history, your prior claims, current concerns about your future claims...and the remaining factors deal with the amount of funds available to the company - via investments, reinsurance, etc. These factors are also calculated against the type of policy you want, and the potential liability of the company.
Premiums do not cover the cost of claims. Insurance companies must gain additional funds from other sources (see above).
In addition, insurance is one of the most highly regulated industries in the US (I am assuming you are writing from here). There is a special kind of filing that must be done every quarter. This filing is designed to offer the worst case scenario...
If the insurance company closed today, how much money must be put into reserves to pay for all claims which are pending, and which haven't happened yet. The insurance company must honor the term of all policies, whether they are in business or not.
So, insurance companies must file these worst case scenarios, which are examined by external auditors, the state of domicile, the insurance commission, and so on. The insurance company must be able to prove they have the necessary amount of reserves on hand to pay claims - not creditors.
It does not pay for any insurance company to encourage claims. Quite the opposite.
I don't think the same could be said of hospitals, or mechanics, or auto body shops. :p