Insurance costs
March 31, 2017
Warren Buffett, the “Sage of Omaha,” loves the insurance business, so much so he bought Geico. The appeal: what we call “the float.” That means that the money held to pay claims is free to be invested somewhere else so it’s an opportunity to earn twice. Like any business, it’s not all profit so when the winds blow and cars crash, it’s time to “pay the piper” and profits go down. Not all the money can be invested; some liquidity is involved to pay claims in a timely manner.
Now the word on Wall Street is that premiums are going up. Disasters such as Hurricane Katrina, California flooding, and Midwestern tornado, wind and hail affect us all and as Paul Ryan said of insurance,“The healthy people pay premiums to care for the ill.” Really Paul, really? I think we all know how insurance works.
My dad believed that if you had adequate coverage you were less likely to need it. Wishful thinking, perhaps, but Gil Michaelis, a local agent for many years, said of life insurance, “It’s a hard sell but there is a rich emotional reward for me when I present a check to someone who’s suffered a loss.” Insurance salespersons are sometimes chided like lawyers, but the joking ceases when you need one.
My bus driving school instructor insisted that good drivers don’t have accidents, but recent research shows that your premiums increase when another driver crashes into you. Another example of Catch 22, and we know how that works, too.
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