This insurance discussion is for you to better understand exactly the business of insurance and how insurance companies are the benevolent caretakers of you that their incessant, false advertising promotes them to be.
Much of what you hear about insurance companies is their own advertising of what “good” deeds they door how they “fight” fraud, paid for, of course, with your premiums. Corporate media, as we all know, will put any advertisement out for which it is paid, so what we American citizens constantly hear, about insurance companies is what they pay for and comes from their own publicity departments.
This advertising is false for the most part, like most commercials. They contain a mixture of facts with embellishments and exaggerations. What they don’t tell you is all the money they spend on CEO and upper management salaries, the advertising that they do, and the money they pay lobbyists to pass laws that make it easier for them to make money. Oh, boy do they spend money on lobbyists. In the years 1998 to 2017 the insurance industry spent a whopping $2,537,291,781 on lobbyists. Read that very carefully, that 2.5 TRILLION dollars to get laws to favor the insurance industry. What’s outrageous? That’s your premium money they are spending to have legislatures write laws that favor the insurance industry. Do you have a problem with that?
The truth is: insurance companies are not your neighbor, are not a watchdog, are not a cute girl in a white outfit with gaudy make-up boxes in an all white store selling goofball, “no-nothing” consumers white boxes that make those consumers smile broadly. And, just like all corporations anywhere, an insurance company is dedicated to one thing and one thing alone, above all else, above any good deeds, before any community service, before taking care of it’s employees or it’s customers and that one thing is to make a profit.
And make a profit they do. Insurance is an extremely lucrative industry. It is essentially a business built on the gamble you are injured or injure someone or something else. Indeed, as an “industry” it had a gross income of $519,800,000.00 (that’s BILLION ) in 2015 United States alone according to the Insurance Information Institute.
When I say “they,” taking about insurance companies, plural, I mean all they, as in “multiple” insurance companies, not “they” as in a group of humans in an office treating other humans with respect and dignity. An insurance company, like all corporations, is an “it.” It does not breath. It does not sleep. It does not eat, love, cry, have babies, or care for humans. It has no father, no mother, no spouse, no children or grandchildren. It has no life. It is a dead thing driven only by the desires to make highest profit at any expense. If you wish to make it akin to some sort of a living thing, you might consider it like a horror movie “zombie.” However, instead of a constant search for brains, the insurance company is on a constant search for profits.
Historically, a corporation is a collection of individuals who have banded together for a venture formed for a specific reason and are authorized and controlled by a government of the people. The purpose of the corporation is to protect the individuals from losing all their money if the venture proves a bust. However, those days are long gone. Insurance companies have amassed such power they are stronger than our governments, especially state legislatures. Insurance companies and other corporations now presently control our government to such an extreme degree that the United States government passes a majority of laws for the profit and protection of corporations, including insurance companies. (Know the industry has re-branded itself as “financial services” corporations) Did you know, that though every other business in the U.S. is controlled by Federal laws of interstate commerce and anti-trust, insurance companies are exempt? After the Supreme Court ruled in United States v. South-Eastern Underwriters Association that the federal government could regulate insurance companies under the authority of the Commerce Clause in the U.S. Constitution, the insurance companies contacted their lobbyists to write and instructed Congress to pass the McCarran–Ferguson Act in 1945 (15 U.S.C. §§ 1011-1015). Demonstrating the power of insurance companies over “our” (alleged) representatives in Congress, it passed quickly because lots of money was paid to politicians’ campaigns. Although anyone who knows the U. S. Constitution may find this unbelievable, this law federal law that exempts insurance companies from federal control and passes back control to weaker State legislatures that can be more easily influenced with money and lobbyists from insurance companies. This the massive power insurance corporations hold over our government.
International American Corporations, in the past two centuries of American history have shown an astonishingly extensive influence over our armies of United States. A good discussion of this can be found in the book by the decorated general of the Marine Corps., Snidely M. Butler, War is a Racket. Throughout General Butler’s career, American soldiers under his command were sent in, fought and died in constant campaigns at the behest of American companies throughout the globe. This was particularly under the McKinley and Theodore Roosevelt presidencies. His American soldiers were not exerting America’s influence on behalf of the United States but corporate influence on behalf of corporations. These wars were the Banana Wars in South America, the And today is no different.
Today those corporations who are in power now are the oil companies, the military weapons makers and suppliers, the Wall Street financiers, pharmaceutical industries and the insurance corporations.
The insurance companies influence extends to the basic right of Americans to be healthy. Ask any, including your doctor: “Who is the most important person in your office?” The answer isn’t “the doctor” it will be the person who files the insurance claims to get the doctor paid: the insurance person. America, has the highest quality of health care that has the lowest distribution among it’s population. Only the rich can afford our health care because of the added costs insurance companies create as middlemen between the sick and our health care professionals. Our infant mortality rate (death) rate is equal and lower to many third world countries.
Historically, insurance companies used to refer to themselves in England as “assurance” companies. As business evolved, the name got changed to “insurance.” Even now, as their power gets greater, they are abandoning that name in favor of calling themselves “financial services company.” This is a more accurate description of what insurance companies do, since they never sell a product. You can’t eat, sleep, play with or drive insurance- it’s just a piece of paper which contains the promise of the insurance company to pay if something happens. It is a product that does not improve your situation in life, but only to preserve it if something happens. In fact, some have likened an insurance company as nothing more than a gambler on your life, health or good fortune.
Insurance, as we now know it, began in Scotland in the 1700s according to the excellent book, The Ascent of Money: A Financial History of the World, by Niall Ferguson of Harvard University, Boston Massachusetts. Insurance first began as a businessman’s way to make a profit on his or his colleague’s sea voyage for trade. The guarantor (person providing the “insurance”) would guarantee that the goods would arrive in exchange for a share of the proceeds. If they did not, the colleague would still get paid for the goods and the businessman pay. In the early, primitive version of insurance, first seen in the 1300s, a businessman would receive 15% of the goods from a successful shipping venture. As it evolved over the years, this arrangement changed into a promise to pay for the loss of the ship, crew and provisions. This business agreement promoted commerce because business men could attempt profitable but risky voyages without risking the loss of their wealth.
Insurance became sophisticated when the companies started using government death statistics, to determine what their level of risk was. This happened in the 1800s. When the this predictability became well known to the insurance businessmen, insurance companies spread like a plague because of the lucrative nature of the gamble. The risk was not longer a guess but had predictability with the death statistics.
The all-powerful combination of the “no-liability” corporation and the insurance gamble we know today did not come together until the 1800s. With the development of the insurance company’s “in-house” statistics department (actuary), insurance companies could now determine what its risk was for any type of policy. Insurance companies engaging in gambles on human misfortune started to infect all levels of commerce and government. Beginning in the 1900s to the present we have the plague of being able to “insure” any thing: “love insurance” policy in case your dream girl gets married, “happiness policy” purchased by a model to pay out if she developed worry lines, insurance in the 1960s to pay off if you die from falling Sputnik parts, “Immaculate Conception” insurance in case an unlucky/lucky (depending on your view) young lady gets pregnant by a god, “Alien Abduction Insurance,” “Paternity Suit” to protect a rock star against paternity lawsuits, “Buttocks” insurance for pop star Jennifer Lopez, and “kidnap” coverage, very popular with many wealthy families are all for sale. All forms of insurance provide a tidy profit to assume a risk, real or imagined. Many times the risk is so remote for the insurance company, it does not even plan on a reserve.
If you look at the business of an insurance company, why would you not invest in such a business? There is no inventory to lose to fire, flood or theft? There is no warehouse cost for storage. There is no long distance transportation costs to move the product as there is no “delivery.” There are no complex arrangements with supplier and far off places for handling of the product. There is no theft of the product off the store shelves by employees. An insurance company sells a piece of paper with a promise on it. That’s it, nothing more at all.
There are five different “heads” to the multi-headed serpent known as an insurance company. There is the one we are the most familiar with, the “marketing.” This head is responsible for the advertising and incessant propaganda about how good insurance companies are and how much fraud there is by you, me and other consumers against the “helpful, giving” insurance companies. This last bit of propaganda is an insurance industry lie which is repeated constantly to poison the minds of jurors when they sit on a jury. It creates in the public the idea anyone claiming against an insurance company just may be committing fraud. This is used by the ins industry because insurance companies are universally despised by the general public for the business practices they have engaged in year after year. The degree to which insurance companies perpetrate fraud on their insureds far outweighs that of the errant policy holder.
The second head of the insurance serpent is “underwriting.” Underwriting is the section of the insurance company where “actuaries” i.e. the “bean counters” are employed. These individuals are skilled in the art of statistical analysis. They get the numbers from a government entity or from their own research or you use an insurance company service. With these numbers they “predict” what the chances are that the insurance company will have to pay, keep its promise and honor its contract to you, if something its policy covers happens. As you know in Las Vegas, the “house” always wins. There is no difference in the affairs of an insurance companies. It always wins. Again, insurance companies are extremely profitable and therefore, wealthy.
The third head of an insurance company is the accounting division. This head considers the company’s profitability and instructs sales on new goals and the underwriting department on standards when it’s not generating enough revenue to pay what the CEO/upper management want. The claims divisions (discussed below) pays only $1.05 out for every dollar of premium brings in which is actually a very good operation margin. Now if you have ever been in business you might laugh at me and say that’s absurd. You may ask: “How can any business keep its doors open paying out a $1.05 for every $1.00 it brings in?” That’s because there is a hidden, dirty little secret all insurance companies have and that’s why they are pulling the curtain back and beginning to call themselves financial services. Perhaps you remember a pitch in the mail from your insurance company trying to send you a credit card or trying to get you to invest in their bank, use their buying service. Here’s the secret, the third head of the monster is investment. Insurance companies make most of their money through investments. To earn a profit, the insurance company must maximize the time between receiving a payment and making a payment. This spread is the investment period that the insurance company uses to make money. If you pay the company $100 on January 1st and they pay it out on July 1st, it had a six month investment period. If the company had an investment gain of an annualized 10% during that period, it made $5 in profit, before taxes and related expenses.
In every major metropolitan city you will notice many of the skyscrapers have insurance company names on them. This is certainly true in Jacksonville, downtown Tampa and Miami. That’s because these buildings are owned by insurance companies. So next time you hear about the “tort crisis” caused by people injured requesting to get paid fairly and reasonably, remember that those claims of the tort crisis are coming from the offices of the skyscrapers in the major metropolitan areas that are owned by the insurance companies who are “victims” of the tort crisis. Again, all propaganda from an insurance company. This investment arm of the insurance company or financial services is extensive. In addition to stock, which is why we have claims of tort crisis every time they lose money when the stock goes down, it invests in crops, food products (so-called commodities), other businesses, new businesses (so-called start-ups), businesses who sell stock (so-called IPOs) and bonds. Bonds are investments when governments try to accomplish something on behalf of the people, either roads, bridges, community buildings, sidewalks, drains, etc. When the government needs money it sells bonds which are a promise to pay back based on the revenue collected from the citizens governed by that government. These are very stable and insurance companies love these investments. Thus insurance companies like the [inaudible] on Wall Street brought down the world economy with their risky investments have their fingers in the pie of our financial lives here in America and the world.
The last head of the insurance monster is claims. The individuals who work for insurance companies that do claims are generally college graduates who picked a major that didn’t allow them to go into a useful area of work, such as a business major, psychology major, art history. The insurance companies want to hire intelligent people who want to make “good money” but don’t have the degree to do it. An insurance adjuster’s job is difficult. As I mentioned above, the insurance company does not want to pay your claim. If there is a way that its employees could find to not pay you it will find it. That is the job of an insurance adjuster. Fortunately, most of my clients, all of my clients are indeed injured and indeed have losses. Therefore the second job of a claims representative/adjuster is to minimize the payout. There are various clever and deceptive devices. For your property damage they hire “independent” appraisers. They are not independent because they work primarily for the insurance company who evaluate the damage to your property at far less than it actually would. Another scam is the “ACV scam” a little noticed clause in some people’s policy that says you only get the actual cash value. Where the insurance company rather than paying to replace or repair your vehicle with new parts, repairs your vehicle with used parts or gives you a used vehicle. This is taking some extreme steps where an insurance company refuses to pay replacement for a car that is 2 weeks old. I have had several of these happen to me in my career.
There are several types of adjusters. Generally, you will have an adjuster for each type of coverage you have on an automobile claim. For example, if it is in automobile claim you will have uninsured motorists, personal injury protection (so-called no fault), property damage (covering the other person’s car if you are at fault), collision coverage (covering damage to your car) and medical payments coverage which is insurance that pays what your PIP insurance doesn’t pay.
How this works in practice is simple. Take for example, the “health” insurance company. The industry is driven by two critical numbers or factors: the earnings per share and the medical-loss ratio. The second is the ratio between what the company actually pays out in claims and what it has left over to cover sales, marketing, underwriting and other administrative expenses and, of course, profits. Note waht the health insurance company calls paying claims: medical-loss. It doesn’t look on payment of claims as its duty under your contract, it’s an industry used term “loss.”
The best way to drive down “medical-loss,” for insurance companyes is to not insure unhealtyp people; Healthy people don’t visit the doctor and have bills. This insurance industry accomplishes this through two primary tricks, among others. First, is a trick called “rescission,” After a claim by a sick person, the company adjusters look carefully to see if the policyholder may have omitted a minor illness, a pre-existing condition, on the application. The company “reps” then they use that as justification to cancel the policy. It does not even matter if the policy holder paid her premium promptly each month.
Another trick health insurance companies (and all other insurance companies use) is “purging.” The company reps don’t rescind your policy. Oh, no, you can keep it, but the premiums goes sky high if you make to many claims and you are effectively told “go somewhere else.” This happens usually with young couple whose baby is born with special needs and has several claims, e.g. a heart, liver, lung condition or other common birth anomalies. the practice known as “purging.” This is where insurers rid themselves of unprofitable accounts by slapping them with “intentionally unrealistic rate increases.” One famous example came when Cigna decided to “purge” the Entertainment Industry Group Insurance Trust of California and New Jersey off of its books with an obscene rate increase. The incresase would have left some family plans costing more than $44,000 a year. Cigna only gave the familes three months to come up with the cash.
Frauds like “recission” – claiming pre-existing conditions (which in itself is a fraud) and claiming there is an unlisted driver in the household, claiming that the incident that injured you didn’t cause the injury that you have, claiming that people are not as injured as they are in say an automobile crash and claiming that the condition that the consumer has is not covered and so on. You can see the extent and creativity the usual insurance company uses to weasel out of its obligations for which the consumer has paid.
Let me be clear, an insurance company provides a service and assumes a risk so you don’t have to assume it. When you pay money for something you should get your money’s worth. Hiring a billboard/t.v. lawyer guarantees that you will get whatever the insurance company offers and nothing more. I am providing a service as well. But with an insurance company you have to force the individual with whom you are dealing to recognize that his or her company made a promise and that promise needs to be kept and the claim needs to be paid fully, fairly and reasonably. Otherwise, the fraud and tricks insurance companies use will keep your billboard/t.v. lawyer from getting the full value of your case. Keep in mind that the settlement you get from the insurance company is not something that you are getting for nothing. You paid your premium. A lawyer must make that insurance company to keep its promise.
Sometime recently I was invited to go to a friend of mine’s house. He is a person who owns an insurance company which sells insurance for a major insurance company in the United States. Usually quite reserved after one glasses of wine, he launched into his disgust with the insurance company industry. At one time, he worked in the government as an insurance regulator. He said: “Steele you would not believe how much money the insurance companies make. They’re always crying about how their paying so much in claims. That is not true. The majority of money paid out by the insurance company is for advertising, CEO pay and things that have nothing to do with the insurance company’s primary obligation, to pay claims. If they focused on that, insurance premiums would go down. As it is now, they go up depending upon how the market is doing.
So to answer the question posed at the beginning of this post I would say: “what an insurance company does is make lots of money.” It is up to your trial lawyer to make sure it does the job it’s actually supposed to do, pay claims.
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