Interest Rates and Payout of Insurance Claims

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Insurers make money on the collection of premiums, but they also make big money on their investments. Typically, an insurer can use funds collected from policyholders to invest in any number of investments, including governmental obligations, real estate buildings both during and after construction, preferred shares, secured obligations, personal property, foreign investments, subsidiaries and derivatives. The regulations in place for such investments are done so to protect the solvency of the insurer.

Because of years of fiscal mismanagement by governmental leaders, let’s face it, those investments are not doing well. I recently received a notice from the bank in which I have established a trust for my grandchildren. The notice informed me that over the last quarter my investment has earned around $5. Due to government debt, regulations and paralyzing interference in our free market economy, the system has become so out of whack that everyone and every company – with the exception of those who received bailouts and handouts – are left with close to nothing. Many insurers are unable to reap the income that should be expected from their investments.

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No question about it, interest rates are in the tank. You can get a mortgage for 2.4 percent and many financial institutions are boasting that they will pay 0.57 annual interest to depositors.

Insurers are feeling this drop in income with small returns on their investments and like all of us, except for the politicians who have given us a deficit heading toward $21 trillion, these same insurers must tighten their belts. How do they do this? They cut back. It is certainly a no brainer to cut back when concerned about income versus outgo.

Unfortunately, the best place for insurers to find money to maintain their lifestyle, in my humble opinion, is to look for ways to cut back on the payout of claims. In that respect, we could say that low interest rates equal difficulty obtaining fast and fair claim settlements. I am watching the most creative ways insurers have reduced their claim settlements. Would you believe for the first time in my life I am seeing offers of claim settlements showcasing depreciation in excess of 100 percent on personal property claims? This is not just one insurer trying this. Two attempts to extract the entire value of the personal property value of an item showed up on my desk today from two separate and distinct, non-related insurers!

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I feel sorry for insurers. Unless insurers were beneficiaries of a friendship or relationship with Obama, such as AIG or General Motors Acceptance, when bailout money was awarded, these insurers must be very concerned with their income verses outgo. However, when the policy of insurance was written with the policyholder, insurers made a promise to pay claims regardless of how much money these insurers had in the bank. I believe that claims should be paid fairly and promptly. I am doing everything I can to assist and counsel insureds to help fulfill those promises. David E. Young

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