Insurance companies go to great lengths to tell consumers that the company is on their side. If you buy a policy, they want you to think they have your back. If you get injured, they’ll be there to help provide you with the compensation you need, allowing you to get through this difficult time with more financial security.
But this is really just the image the insurance company is trying to create. In reality, that company isn’t on your side. Like other companies, they’re focused on earnings, and there are three main components they consider:
Revenue from premiums
First, the insurance company makes money by collecting premiums. Everyone with a policy pays a certain amount per year or per month, and the insurance company takes in this money, some of which may be invested.
Operating expenses
The insurance company also has certain expenses, many of which may be unavoidable. For instance, they must pay employees and cover real estate taxes or rent on office buildings.
Claims paid
Finally, the insurance company considers the amount it has to pay out in claims. The total the company can earn is the amount collected from premiums, minus the expenses and claims paid.
If the insurance company has little ability to reduce expenses and doesn’t want to raise premiums, its main way to increase profits is to pay less for every claim. This could involve reducing the value of a claim or denying a claim outright to avoid payment. Both tactics can increase the company’s revenue over the course of the year.
Because the insurance company is focused on making money, you may feel they are operating in bad faith if they deny your claim. If so, make sure you know exactly what legal steps to take to get the compensation you deserve.