What happens to the insurance premiums you pay before you make a claim? They float.
Many insurance policyholders are familiar with two terms insurance companies use. A premium refers to the money paid toward a policy. A claim denotes the money that an insurance company pays out to a policyholder. However, the term float is often only known by those who are inside the insurance industry.
Float refers to the money that insurance companies have which has been paid by customers as a premium but not given as a claim. Insurance companies use their float to make invests and profit from premiums before they are paid out. Essentially, float is the money that insurance companies don’t own but use to make their profits through investing.
Why Are Claims Delayed?
Insurance profits have evolved. In the past, insurance companies only made their profits from unclaimed premiums. Though they still desired to make money, insurance companies focused on their clients because they had no immediate interest in holding on to people’s money. However, when insurance companies began investing the money they hold, they discovered that they could make considerably more profit if they held on to premiums for as long as possible. Insurance companies maximize income from float by delaying claims as much as possible.
One of the industry’s most successful figures has admitted that holding on to float is crucial for profits. In a 2009 address to shareholders, Warren Buffett stated that “We were paid $2.8 billion to hold out float in 2008.” This quote reveals that not only does more float make more money, but insurance companies also strategically cling to float to make that money. So, delaying claims allows insurance companies to hold on to money slightly longer and to squeeze as much interest out of it as possible before paying claimants.
Insurance companies now use float in a way that has shifted their focus away from serving payors. Instead, they’ve discovered that they can increase profits and make shareholders happy by delaying claims and making slightly more money. After all, the law does not always specify that insurance companies must pay out a claim within a certain amount of time—it only dictates that they must respond to their claimants.
If your insurance claim is being unfairly denied, you do not have to be forced to suffer while your insurer is profiting. Call our New Orleans insurance claims attorneys today at (504) 608-3211 for a free consultation of your situation!