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How Insurance Companies Work

Insurance is a business that involves pooling funds, or premiums, from a large group of people to pay for the losses that a few may incur.

Like any business, insurance companies work by bringing in more money than they pay out. Their main expenditures include payouts to customers, and insurance companies operate under the statistical principles that predict larger collections of premiums in any given year than payouts.

Statistically speaking, in most years, insurance companies are in a position to make large profits. But when disaster strikes, if the insurance company has not planned ahead to manage claims or its cash reserves, then policyholders may be hung up in the system or denied claims that they rightfully deserve.

Even though insurance is a heavily regulated industry, insurance companies do not always act ethically or in a timely manner.

Nevertheless, insurance companies are supposed to act in compliance with strict laws, and in utmost good faith in the interpretation of their policies. It is unlawful for an insurer to:

  • Engage in unreasonable delay; to put their financial interests ahead of the financial interests of the policyholder; or to lowball (underpay) claims
  • Use deception or trickery in sales or claims handling
  • Compel an insured to hire an attorney in order to be paid what they are owed
  • Treat the policyholder unfairly

Just as statistics don’t always predict reality, insurance companies don’t always act in compliance with the law or in good faith. Many people who have paid their insurance premiums faithfully for years or decades are stunned by the lack of response by the insurance company after they make a property damage claim.

Policyholders may become frustrated and angry because little information is given to them on how to actually ensure that their claim is expedited. They are not told how to maximize their claim because (with due respect to the insurance company), the insurance company has little interest in volunteering information that will enable you (the insured) to get the most money.

If your insurance company has left you high and dry or is giving you the run-around, talk to us. We’ll be glad to help you get the attention – and payment – you deserve.