Minyan Mailbag: Insurance Premiums
Editor's Note: Minyanville is a community of people who share an interest in fiscal literacy. As perspective is an important aspect of our daily routine, we share this exchange with hopes that it adds balance to your process.
Just a quick comment on your statement from yesterday's Buzz & Banter Mini-Minyan Mailbag on insurance premiums: "When insurance companies lose money in their investments, they raise premiums."
My family business is a primary insurance writer in the state of Florida. As a regulated company, I can just tell you that we cannot just raise our premiums because of investment losses. We have to go through a process of premium approval by the state when we want to raise prices. This process involves using statistical models that justify the rate based on our underwriting risks.
Now unregulated E&S writers or reinsurers have more leeway with their rates so they could raise rates. The loss in investments would affect the capacity available in the market (less supply), which obviously with the same or greater demand for capacity would lead to a raise in rates. So if it is an industry issue, it would probably affect rates, but if it was a company specific issue it may or may not be significant in relation to market capacity as a whole and the company affected may not be able to raise rates without pricing out of the market.
I just wanted to point that out b/c your primary insurer may be getting squeezed between losses and a raise in reinsurance rates in the short term. In the long term, rates would rise as inefficient primary players dropped out of the market. Your general point is correct though that investment losses can affect the insurance market and taking outsized risks there like in any business can lead to ugly consequences that can ultimately affect the consumer.
I hope all is well.
And that is my main point, that it is all tied together.
Thank you for the clarification.
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