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One major reason is sometimes insurance companies
are not tight enough on underwriting. This means that they do not
carefully screen applicants, and
then end up insuring people who are too great a risk. If a person is
overweight, has high blood pressure, and smokes, that person may be
a real risk. If they
insure too many people like this, they could end up losing money.
Another reason could be poor administration. Administration adds
cost to all products and
services. If a company is not streamlined or is not seeking to
increase worker productivity, they can end up losing money. Another
problem could be that
they have priced their insurance plans below market value. Often
companies do this to get “market share,” but if their prices are too
low they will not have
adequate income from premiums to pay for their claims. Do all of
these things happen? Sure! Just a couple of years ago two large
insurance companies in
Arizona went bankrupt. What do we get from this? Well, tight
underwriting and plans that are close in price to plans from other
companies are probably signs of a good healthy insurance company.
Although we don’t like not getting a “live person” when we call the
insurance company, we need to remember that they are trying to cut
their service costs. |
