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Comment by jimbob45 | Hacker News Reader

Side question: are the car insurance paybacks not a canary that they’re hitting their max possible profit? Aren’t they doing extremely well?

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I work in DS for a car insurance company, from the inside the returning of premium seems more of a 'pr goodwill' type of thing than anything else. As soon as one company did it, they sort of all wanted to follow suit in order to preserve optics.

There really isn't a limit to profits such as, 'we can only make $500 off of this policy anything over that we would have to refund'

What is DS? If I google it, I get "Diplomatic Security" and that can't be right.

Data science?

Nah, no one uses an initialism to refer to Data Science! I'm betting it's Direct Sales.

I'm curious as well. Maybe it's Direct Sales?

Data Scientist

Direct Sales

I was under the impression that in some states there is a percentage profit rule, is that not the case or a better interpretation of how that works?

So I am not an actuary so I'm not super familiar with all the rules, but i believe there isn't a hard and fast profit rule for auto insurance. Now that being said, a lot of the times we use the observed loss ratio as rational for changes to plans so if we were 'too profitable' i would imagine it would open us up to a lot more scrutiny from the DOIs.

Apparently car insurance companies are regulated in the sense that they can only charge based on the risk they are taking. since accidents are down, they might be charging too much and have to refund. So I guess profit margins are more or less constant.

That doesn't however stop you from acquiring more customers and increasing absolute profit.

It's already happening in US:

https://www.npr.org/sections/coronavirus-live-updates/2020/0...

Also in France one big insurer started paying people back, with government asking the other companies to do the same.

https://www.lemonde.fr/economie/article/2020/04/02/coronavir...

This pretty of close, but a little off. You are correct that they are heavily regulated because auto insurance is mandated by law, but mainly pertains to what they are allowed to charge for. In the US, each state has a DOI that checks over models that car insurance companies use to charge people. There are a lot of rules about what can and can not be rated on. T̶h̶e̶r̶e̶ i̶s̶n̶t̶ r̶e̶a̶l̶l̶y̶ a̶ l̶e̶v̶e̶r̶ f̶o̶r̶ 'I̶ w̶a̶n̶t̶ t̶h̶i̶s̶ m̶u̶c̶h̶ p̶r̶o̶f̶i̶t̶' o̶t̶h̶e̶r̶ t̶h̶a̶n̶ t̶h̶e̶ b̶a̶s̶e̶ r̶a̶t̶e̶ t̶h̶e̶y̶ c̶h̶a̶r̶g̶e̶. Edit: (The comment below me is correct. I was getting a little hand-wavy. In general every part of a insurance plan will be scrutinized and has to be well supported. Insurance companies need to justify why there is a surcharge for some characteristic of a policy, this is what stops companies from just raking in money) They have to make an argument to the DOIs for why their base rate is what it is, so they cant really increase it for no reason.

The other comment in response about loss ratio is correct

Close, but not quite. Most states have a statute which says "rates shall not be inadequate or excessive". Pretty much all rate filings I've seen include a return on equity (ROE) in their analysis, and states review that in light of above statute.

States have pretty broad powers and I could see them forcing a disgorgement if they felt so inclined.

Source: I was a state insurance regulator for the Alaska Division of Insurance for a few years

since you said you were a regulator, hope you don't mind another question.

This model seems to be doing a fairly good job keeping auto insurance costs under control. Is this regulatory model also being applied to health insurance ?

If yes, why isn't it controlling healthcare costs ?

If no, why not ?

Will let the parent reply but at a high level (at least for comprehensive insurance) there is a) a fairly competitive market (and comparison shopping is possible) for car repairs and b) a limit to the cost of a repair (the value of a new comparable car) that we don't / won't place on human lives.

I focused on property & casualty but yes, the statute usually applies to health insurance, and I think the ACA further codified it as a requirement.

While I haven't done a deep dive recently, I doubt health insurance administrative expenses and profit are the main driving factor in health insurance costs. Losses (utilization multiplied by price) are the main driving force. You can look up rate reviews at https://ratereview.healthcare.gov/ and probably view the entire filings on the state DOI website, altho these filings are usually not really as accessible as they should be.

thanks

I recall getting partial refunds from health insurance for a few years after the ACA was first enacted due to regulations about how much they can charge.

Yep, that's about it. Or even worse, from the carrier's POV, regulators would take the higher profits from this year to regulate rates for the future (carriers file their target "loss ratios" with states, and if it deviates substantially, prices have to be adjusted).

The California DOI is requiring that companies issue some sort of "reasonable" refund, which has to be justified to the department in some way. Other states will likely do something similar.

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