Insurers ‘float’ their way to profits over protecting policyholders
If you have a mortgage or drive a car, then you are required to purchase insurance. Insurance is a mandated product everyone is familiar with, and we all understand how it works – or so we think.
Insurers write policies that cover our assets and liabilities, and policyholders pay regular premiums for that coverage. The policyholder hopes to avoid the calamity that accompanies accidents and storms but rests easy knowing the insurer will cover their losses if disaster strikes. This is the basic promise of insurance.
The collapse of this core promise is at the heart of Louisiana’s insurance crisis. Insurers are denying nearly half of all claims in Louisiana, according to company data Weiss Ratings analyzed from 2023 and 2024. Meanwhile, premium rates continue to soar, which threatens the purpose of insurance itself: protecting policyholders.
People think insurance companies make most of their money by writing policies, but that’s not the case. They generate most of their profits through investments. You pay regular premiums, and insurers hold those premiums until you file a claim, giving them access to large sums of cash – called the float – that they can invest.
Warren Buffett owns and operates several insurance companies under the Berkshire Hathaway umbrella, including GEICO. According to Buffett, insurers “invest this float for their own benefit.” And the benefit is great.
According to AM Best, property and casualty insurers turned a record $89 billion in investment profits in 2024. For comparison, 2024 was the best underwriting year since 2006 for property and casualty insurers. They posted a $25.4 billion underwriting profit, still a fraction of the profit generated through investments. In Louisiana, Weiss Ratings reports that insurers have made $55 in investment profits for every dollar they have lost since 2004, which includes hurricanes Katrina, Laura and Ida.
