How Do Insurance Companies Make Money When Paying Out Billions?

Insurance companies such as State Farm, Allstate, Geico, and Progressive operate in ways similar to banks. Everyone knows they make money from premiums, and almost everyone complains about how high their monthly payments are. But how do insurance companies make money if they also pay out billions of dollars in injury claims every year?

Every time someone files an injury claim, the insurance company—or another policyholder’s premiums—is paying out. Surprisingly, most of an insurance company’s profit doesn’t actually come from premiums. Instead, it comes from something called float.

What is Float?

Float is the period of time between when insurance premiums are collected and when injury claims are actually paid out. During this time, the insurance company acts very much like a bank: they invest the money in stocks, bonds, and other financial instruments. This investment income is how insurance companies generate significant profits, even if the total injury claims they pay out at the end of the year equal—or exceed—the premiums collected.

This concept is one reason Warren Buffett has long been a fan of the insurance industry. Float allows insurance companies to make money even when paying large injury claims. The longer they can hold onto the money before paying out, the more it grows through investments.

Why Insurance Companies Delay Injury Claims

Now imagine this on a massive scale. With millions of injury claims, even delaying all payouts by just one day can mean millions of dollars are still invested and growing. This is one reason insurance companies sometimes delay your injury claim. They can also increase premiums, but doing so may annoy customers and drive them to competitors. Other strategies include trying to deny injury claims or delaying payouts as long as possible.

This is why having an experienced attorney on your side is crucial. A skilled lawyer understands how insurance companies operate, how they handle float, and how to apply pressure to ensure your injury claim is processed fairly. At The Kaufman Law Firm, our attorneys are ready to step in if an insurance company is delaying, wrongfully denying, or holding your injury claim hostage. We fight to protect your rights and secure the compensation you deserve.