Why Insurance Costs So Much: Unveiling the Truth Behind Premiums and Claims

In our latest video, we delved into a question that troubles many: Why does insurance cost so much? It’s a question that hits our wallets hard, and understanding the answer is crucial. Let’s take a closer look at the key points we discussed.

The Balancing Act of Premiums and Claims

At the heart of the insurance business is a delicate balancing act involving premiums and claims. Insurance companies primarily generate revenue through the premiums we pay - be it monthly, semi-annually, or annually. In 2022, claims accounted for over $566 billion, a staggering amount that significantly influences how premiums are set. This amount also reflects the increasing frequency and severity of natural disasters, adding a considerable financial burden to insurance companies.

The High Cost of Advertising and Administration

Another significant factor in the cost of insurance is administrative fees. This includes operational costs like salaries and, notably, advertising. In 2022, major insurers like GEICO, State Farm, Progressive, and Allstate spent almost $5 billion on advertising alone. While executive salaries are often blamed for high premiums, in reality, they represent a small fraction of the total expenses. It’s the advertising costs that have a more substantial impact on your premiums.

Profit or Loss? The Insurance Industry's Bottom Line

The insurance industry’s financial health is not always as robust as it seems. For instance, the U.S. property/casualty sector recorded a $26.5 billion underwriting loss in 2022, compared to $5 billion the previous year. This indicates that many companies underestimated their claims payouts, leaving little room for profit.

Supporting Local: The Value of Independent Agencies

While big insurers spend billions on advertising, independent agencies like ours focus on community and personal connections. By choosing a local agency, your premiums contribute to the local economy and ensure personalized service.

We believe that understanding these elements of the insurance industry can empower you to make informed decisions. For more insights and personal guidance on your insurance needs, don't hesitate to reach out or leave your questions in the comments of our video.

Watch the full video [here] for a deeper dive into the world of insurance costs.

Thank you for watching and reading, and remember, your insurance decisions matter – not just for your pocket but for the community you support.