PART 1 of 10
Let’s start with the central premise. Insurance companies do not pay claimants in car accident, premises liability, slip and fall and truck accident causes of action because they are legally obligated to compensate the claimant for his or her damages. Insurance Companies certainly do not care about making the injured victim whole for his or her pain and suffering, lost wages, disability and medical bills.
see part 2 of 10: Injured Victims Loaning Settlement to Insurance, Tax & Interest Free? http://insurancelawhelp.com/injured-victim-accident-settlement/
An injured victim is not a human being with real pain and real suffering to an insurance company. They don’t care that you cannot work or that you are disabled as a result of a crash.
The reason you hire a personal injury or motor vehicle collision lawyer is to get someone on your side, who cares about you and your family, someone who will fight to get you the justice and compensation you deserve.
Insurance companies are trying to make as much profit as possible to compensate their shareholders. They are driven by corporate greed not corporate responsibility.
You are just a “float” to the insurance, nothing more nothing less! An insurance company is required to set aside a holdback otherwise known as a ‘reserve’ from the premiums received from policyholders. Tax law does not require them to pay taxes on money they are setting aside to pay your claim! They only have to pay taxes on the premiums when they pay the claim. So they can invest your lost wages and reimbursement for medical expenses tax deferred. They essentially can earn income off the money set aside for you. In accounting parlance this is what they call a “float”.
“The claims reserve is money that is earmarked for the eventual claim payment. The claims reserve funds are set aside for the future payment of incurred claims that have not been settled and thus represent a balance sheet liability.” http://www.investopedia.com/terms/c/claims-reserve.asp “The monetary amount of the claims reserve can be calculated subjectively (using the claims handler’s judgment) or statistically (by evaluating past losses to project future losses).” http://www.investopedia.com/terms/c/claims-reserve.asp
Insurance companies have lost sight of their fiduciary obligations and their core mission and it has come to this: The objectification of the injury victim. The goal of the insurance companies should be to compensate legitimate injury claims, fairly, justly and expeditiously. They fall far short of this goal.
The bottom line is that the insurance company profits if they can (1) settle the claim before you get a lawyer for pennies on the dollar (2) deny your claim (a true score for the insurance company since they get the reserve as profit) (3) delay payment without paying significantly more later (earn more money using the reserve then it will cost them in expense litigating the cause of action with the hopes to pay you less)
And what is a win for the insurance company? Paying less than the low reserve they subjectively determined for clear liability claims or denying the claim altogether. A win is also delaying payment so that they can invest the reserves.
Why do Insurance Companies settle many cases prior to a full negligence jury trial on the merits? The answer is simple. They do not want to be forced by a Court to pay more, later. It is a bottom line business for Big Insurance and it is definitely a leverage game.
An injured victim who has not retained a personal injury attorney is prey for the vulture. He or she has no leverage. Big insurance will throw some peanuts to the seriously injured auto accident victim with the hopes that the victim will not retain a top car accident lawyer.
On the face of it, it seems generous for the insurance company to pay a few hundred or thousand dollars, but in reality, it is exploitive, devious and manipulative. It is exploitive because of the intent of the insurance company, which is to prevent a victim from obtaining legal representation to get full value to compensate the injured victim for his pain and suffering and damages.
It is also exploitation because it takes advantage of people who may be in desperate straits to pay family medical bills or pay the mortgage as a result of lost wages etc. Insurance companies pay a small amount so they will not have to pay full settlement value later when the victim retains a personal injury or auto accident attorney.
When a slip and fall negligence victim or a car / truck crash victim obtains a personal injury lawyer, settlement value increases exponentially. The insurance company realizes that they can no longer exploit the victim who may be unaware of the full value of their motorcycle, truck or boat crash injury claim.
Once the victim has retained a personal injury lawyer, Big Insurance now sees the victim not as prey to re-victimize but as ‘exposure’. What do you mean by exposure? It means that they do not want to pay more later. Exposure could be considered another word for leverage.
Insurance companies pay some claims prior to the attorney filing a lawsuit because if a lawsuit is filed it usually means increased expense for them to pay counsel for representation. Of course, some insurance companies have in house counsel. The threat of a lawsuit by a good automobile accident attorney increases the leverage of the victim because it increases the exposure of the case to the insurance company. A loss to the insurance company is paying more for a wrongful death, premises liability or bicycle accident claim then they set for reserve.
What is float and why it is important? Float is “The ability to invest proceeds on a tax-free basis while it is being accumulated. From a tax perspective, it is important to remember that income derived while assets are in reserve are not taxable until the claim is paid. Insurance companies benefit fully from the untaxed reinvestment of income during this time.” http://www.ehow.com/how-does_4564495_insurance-companies-invest-their-money.html