A question for those knowledgable about the business of insurance

[jogger08152]

Quick question: which is better for an insurance company:

1. Less car theft, resulting in lower premiums but less frequent payouts?
2. More car theft, resulting in higher premiums but more frequent payouts?

In other words, is the greater amount of float garnered from the higer premiums, worth the cost of having to make more frequent payouts? Or is it better to have less total float but hold it for a longer time?

[DesertCat]

[ QUOTE ]
Quick question: which is better for an insurance company:

1. Less car theft, resulting in lower premiums but less frequent payouts?
2. More car theft, resulting in higher premiums but more frequent payouts?

In other words, is the greater amount of float garnered from the higer premiums, worth the cost of having to make more frequent payouts? Or is it better to have less total float but hold it for a longer time?

[/ QUOTE ]

Neither. It all depends upon pricing/competition.

What is probably best is declining car theft over time, so that the actuarial estimates predict your pricing will make a small profit, actually end up making a larger profit and your competition won't undercut your pricing because they use the same historical estimates.

[lgas]

I am by no means an expert, but my understanding is that the whole idea behind the way insurance companies work is that the actuaries do all the math to make sure that pretty much no matter what happens the insurance companies make about the same amount of money.

Obviously things can go better or worse for the insurance company -- if everyone bought insurance but no one ever got in an accident, then the insurance companies would profit the most. But, in the real world, this doesn't happen, and people are constantly buying new policies and renewing old policies and the rates they are getting are constantly being changes to incorporate the current state of affairs.