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  • Why Lawsuits Aren’t the Reason Your Insurance Premiums Are Rising.

    Posted on August 19th, 2011 Edward A. Brutscher No comments
    Is Your Money In Good Hands?

    Is Your Money In Good Hands?

    USA Today is reporting that Allstate Insurance Company is suing Goldman Sachs saying more than $122 million in mortgage-backed securities the insurance company bought beginning in 2006 were fraudulent.  According to the article; “Allstate says it purchased more than $122 million in mortgage-backed securities from Goldman Sachs and affiliates in 2006 and 2007.  The value of those securities plunged as the housing market bubble burst.”

    Still think that lawsuits by personal injury lawyers are the reason your auto insurance premiums keep rising.  Think again.  Think a $122 million dollar hit in a bad investment by Allstate didn’t effect its bottom line?  The truth is that insurance companies don’t really make most of their money from premiums.  While accidents due play a part in an insurance company’s risk analysis and in the premiums people will pay, their increase year over year is tied more to a company’s investment portfolio then to actual losses.

    There is an excellent article over on Weakonomics that discusses how an insurance company’s investment losses in the stock market effect your premiums.  So, you can imagine what a $122 million loss did to Allstate and its decision on whether or not to raise premiums for its customers.  You can also imagine why it is now moving to recover some of those losses from Goldman Sachs.  Of course, none of this is related to the claims Allstate had to pay out on its policies of car insurance.

    Remember the next time someone tells you that car insurance rates are going up because of lawsuits, that such a statement simply isn’t true.   In fact, such a statement was probably perpetrated by the insurance companies, their lobbyists, or their politicians as part of a campaign to influence public opinion in their favor.

    The next time your premiums rise don’t be too surprised to find out that your insurance company took a hit on its investments or the stock market suffered some loss.  Don’t blame it on the victim of a car wreck or his lawyer.


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