Somebody please tell me I’m wrong (and apparently there‘s plenty of you out there who‘d like to), because what I found in my investigation comparing the inflow and outflow of money concerning auto insurance has me flabbergasted.
In my former life I was an associate highway engineer for 22 years. Fourteen of those years were spent specializing in traffic engineering. It was then that I first became suspicious about just how much auto insurers were profiting from that business. One of the tasks I carried out was calculating cost/benefit ratios for safety enhancement projects. I began to notice that the number of accidents and the typical costs of those accidents didn’t seem to add up to what people were paying for auto insurance. But I never did an in depth study into the matter.
About 4 years ago during my radio days I was a traffic reporter for Metro News Network, a subsidiary of Reuters. In the mornings I rode in the back seat of a Cessna as Spokane’s eye in the sky. In the afternoons I monitored 3 police scanners and posted accident information on a computer. Again I began to notice that the number of accidents happening each day did not seem to add up to what people were paying out for insurance. And again I did not conduct an in depth study and kept my mouth shut.
But now as a Politics Correspondent for Gather I decided it was time. And what I found still has me blinking my eyes in disbelief. In fact I want to challenge everyone to go and check this out for themselves. It was fairly easy to do and I really want someone to, because I’m still scratching my head. I’m still feeling like I must have missed something because what I found out was so outrageous, it’s hard to believe it isn’t the scandal of the century.
What I did first was access my states Department of Motor Vehicles web site. The best data I could get was for the year 2005 so I used that for my comparison. I looked up the number of registered passenger vehicles for my county. Then I looked up the total number of traffic accidents for the same period. Then I did a search and found the web site of the National Association of Insurance Commissioners (NAIC). There I looked up the average annual expenditure for auto insurance for my county for the year 2005. Then I looked up the average dollars paid per claim for the same year.
First I calculated the total amount paid to insurance companies for my county for 2005. In 2005 my county had approximately 385,382 registered passenger vehicles. The average annual expenditure for my county in 2005 was $790.00. So, the total dollars paid to auto insurers in my county for 2005 was $304,451,780.00. That’s three hundred and four million, four hundred and fifty one thousand, seven hundred and eighty dollars. Now that’s a mouthful.
Then I calculated the total number of dollars paid to motorists for accident claims for 2005 for my county. According to the DMV there were 2,622 traffic accidents that year. And according to the NAIC the average amount paid per claim for my county in 2005 was $3,970.00. Giving them the benefit of doubt, I calculated 2 claims per accident. So, the number of traffic accidents times 2, times the average claim payment gave a total of $20,818,680.00. That’s twenty million, eight hundred and eighteen thousand, six hundred and eighty dollars.
So, when you subtract the amount paid out compared to the amount taken in, there is a difference of $283,633,100.00. That’s two hundred and eighty three million, six hundred and thirty three thousand, one hundred dollars. Now I want you to stop right here and soak that in. Because this is where I start blinking my eyes and scratching my head. And the weird thing was that the NAIC site claimed that on average only 8% of insurance companies income was profit. Huh?
I couldn’t believe my eyes. I thought I must have missed something. So I sat back and pondered the numbers I’d seen. And I’ll be damned if I can see what I could have missed. So, by all means please check this out and prove me wrong. Because if we are actually being fleeced the way I think we are, we have a revolution to plan. And if you project those numbers to include the whole United States, were talking hundreds of billions of dollars, and that’s just the auto insurance business. Just imagine what the entire insurance industry is taking out of our pockets. It boggles the mind.
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Devin Barber, Politics Correspondent
Devin’s column, “Left Of The Right” published every Tuesday and Thursday to Gather Essentials: Politics is a Blue Collar Democrats take on current political news.
Devin was raised by proud Roosevelt Democrats. Being the son of parents counted among the throng of Americans displaced by the Great Depression has given Devin a deep rooted passion for causes dealing with the poor and the working class.
You can find all of Devin’s columns at http://gather.com/leftoftheright
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Comments: 8
Yes, the figure you have calculated for the amount they're taking in and not paying out in claims does sound exorbitant, but it's not all profit.
1.) You only selected data about 'passenger vehicles'. Where I live, trucks and other commercial vehicles share the road with cars. How can those vehicles be left out of the equation?
2.)No one who knows anything about statistics used averages.
3.)From what I know about finance, the auto insurance business is not high margin.
Looking at raw dollars is not valid. You are ignoring a lot of the expenses involved the business. Besides paying claims, insurance companies will get involved in litigation on behalf of their customers. You are ignoring this rather expensive aspect of the business, along with other facets of a highly regulated industry.
"I think your numbers are highly suspect." Before you impugn my honesty, I suggest you go and check the numbers for yourself like I challenged everyone to do twice in my article before you take that plunge.
1.) I think I gave them a great deal of latitude. I counted only privately owned vehicles which includes pickups and RV's. Premiums for commercial vehicles are much higher but figures for them were unavailable. Despite that I went ahead and counted ALL accidents in calculating the dollars paid out in claims by insurance companies, a percentage of which obviously came from revenue collected from commercial policies which would actually reduce the amount paid from private vehicle revenue, leaving the insurance companies with even more profit.
2.) Having been a Traffic Studies Analyst, are you nuts?
3.) Poppycock, Insurance is among the highest margin industries in existence and everyone knows it. And even with any imaginable expenses and we'll include your fantasy that insurance companies would be stupid enough to enter into any litigation that they can't win; and I don't see how anyone can justify a 93% margin after claim payouts.