Insurance companies and the insurance industry may be the most regulated industry of all. How much risk they can take, how much they charge, how much their profit margins can be are all metrics that are closely monitored and regulated. Much of this regulation stems from the fact that insurance companies are actually in partnerships with the government to provide security and/or protect against unexpected or overly burdensome financial loss.
Unfortunately, we have all been conditioned to expect our major medical insurance premiums to go up each year, resulting in so many of us carrying more financial risk personally in the form of higher deductibles, out of pocket maximums and copays. We all like to think that the rate increases are the insurance companies just being greedy. However, you may be surprised to learn that between 2008 and 2019, profit margins among insurance companies in the major medical insurance industry ranged between a near break-even of .6% (2015) and a record profit year of 3.4% (2011).
So how in the world did this extremely regulated industry increase its profit margins in 2020 by more than 20%? The answer is simple really, no one went to the doctor last year. We were all out less, exposed to sickness and accidents less, and postponed all medical visits and procedures except for the absolutely necessary ones. Meanwhile, we paid our medical insurance premiums just as always, resulting in an a very profitable year for this industry. So, will it result in lower premiums this year? While I would not hold my breath in hopes of lower cost, we have seen several of our corporate clients have friendlier than expected renewal rates.
As always, we hope you find the Weekly Market Review both informative and interesting. Have a great week!
Trevor N. Coe, CFP®