Amazingly enough, insurance companies set to outright dispute that belief. Some of the largest insurance companies have had incredibly high rate hikes over the past few years. They regularly appear amongst the top most profitable industries on sites like Forbes magazine. According the American Association for Justice, the entire car insurance industry generates profits of about $3 trillion annually. Yes, businesses deserve to make a profit, but at what cost, and especially when the product is considered nearly essential to daily living? People can choose not to drive, but unfortunately, most Americans do not have access to a lot of reliable alternatives.
While times are getting tougher for the rest, insurance companies are raising rates on premiums, and seeing enough profit to buy their company back from stock investors. Progressive saw its first-quarter profits jump 23%.
What consumers may not realize is that while rates are climbing, so are claims, especially fraudulent ones. According to the Insurance Research Council, an organization that research auto insurance industry data, such fraud claims created an additional $4.8 billion to $6.8 billion in claim payments made in 2007 (their most recent investigation). But according to the Coalition Against Insurance Fraud, the total number is closer to $80 billion, which is equivalent to buying 3 million people brand new cars.
The Association of British Insurers reports that in the UK, such fraud is costing consumers $3.3 billion, or almost an extra $100 per insured person annually.
Even organized crime is in on it. Ron Poindexter, a National Insurance Crime Bureau director in Florida says that especially due to no-fault insurance, many states are virtual beacons for insurance fraud, even to the point of smuggling in people into the country to stage car accidents, with the goal of paying off their debts.
As things have only gotten much worse since economic hardships have increased overall, it’s not just small time criminals and organized crime; Otherwise honest people are reporting, and getting caught, for fraudulent claims they would otherwise not report.
Some people are even seeing their insurance rise by 2x in a single year from an insurer they have been with for many years. Many of these consumers simply shop around to try and remedy that fact.
While auto insurance profits are unbelievably high, its health insurance which gets all the media coverage, partially due to the fact that it’s considered a necessity by many. According to a statement last year by U.S. Department of Health and Human Services (HHS) Secretary Kathleen Sebelius, “America’s largest insurance companies have requested premium increases of 56 percent in Michigan, 24 percent in Connecticut, 23 percent in Maine, 20 percent in Oregon, and 16 percent in Rhode Island, to name just a few states […] Hard-working families deserve better.” Health insurance premiums, which on average increase by 15% – 20% per year, and of which 25% of that being consumers premiums, pegged insurers’ profits at more than 40%. The long term return rate of the richest person in the world, Warren Buffet, is comparable. And yes, he does own a good portion of Geico.