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Why an insurance company’s small margins are a problem for you

On Behalf of | Oct 20, 2021 | Residential Homeowner's Insurance Litigation

Insurance is a multi-billion dollar industry in the United States. The amount of money changing hands is staggering. When homeowners have to pay what they often feel are high premiums, they assume this means that the insurance companies are just making a considerable amount of money off of them. They assume the profit margins are huge.

However, these profit margins are actually very small, often from 2% to 3%. That can still be a lot of money for the larger companies, but it’s not as if they’re making 50% profits.

As a homeowner, though, these small profit margins can be an issue for you, and you may find yourself wishing they were larger. Why is this?

Reducing and denying claims becomes more attractive

The issue is that a company operating on a very thin profit margin has extra incentive to deny claims outright or to at least attempt to reduce the value of those claims. It is one of the easiest ways to increase profits. In some cases, the company may even see it as a necessity if they don’t want to lose money.

In other words, they count on denying claims. If they paid out as much as everyone wanted, the model wouldn’t work. It only works when they can cut their own costs by refusing to pay what homeowners believe that they need.

As you can imagine, this mindset can lead to some serious disputes between homeowners and their insurance providers. If you find yourself in this position, it is very important for you to know as much as you can about your legal options.

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