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>> Not necessarily. Most insurers pretty much break even on the insurance, and make their money on investing the premiums. Auto in particular.

>That's surprising to me. I'm not familiar with the industry but logically I'd expect that if the company is breaking even that means that after operating costs they are paying out the rest the money in claims, so what's left to invest?

Well, see http://www.insurancejournal.com/news/national/2015/08/10/377... for example. GEICO had a 99%+ combined ratio. (Combined means it includes other expenses, not just claims). Claim payments would be about 2/3 of that, then costs relating to handling claims about half the remainder, then the rest more typical overhead. GEICO might also be able to get your car repaired cheaper than you could get it repaired if you self-insured as well. So yes, auto insurance is a good deal. That's a "good" year for a very healthy insurance company. if there is a big hurricane and thousands of cars get destroyed, they might have a combined ratio of 120% plus that year. They do try to get 6%+ investment returns on the premiums...which is basically their profits.

>If they're not just breaking even, and are building large cash deposits, surely they would be needed quickly in the event of a sudden burst of claims, so their investment options would have to be a lot of more liquid.

That why the State makes sure they are adequately reserved against loss, and/or reinsured properly.




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