Part 3 of 10
If insurance companies benefit from the float then why do insurance companies offer quick and easy settlements to motor vehicle accident and premises liability victims before they can retain a good personal injury lawyer?
Also see: Part 1 of 10: Why Insurance Companies Delay, Deny & Objectify Injured Victims as “Float”. Hate the Player & the Game. http://insurancelawhelp.com/car-accident-claims/
Also See: Part 2 of 10: http://insurancelawhelp.com/injured-victim-accident-settlement/ “Injured Victims Loaning Settlement to Insurance, Tax & Interest Free?”
An insurance company often attempts to settle a motor vehicle crash or slip and fall claim for a low amount when the victim has no leverage and the indemnity company can exploit and take advantage of the victim before they obtain representation from a motor vehicle crash lawyer. This payment is not made with the intent of helping the injured victim. It is purely a cost benefit analysis on the part of the automobile liability company.
Pathetically, Insurance companies pretend to care about the plight of the victim, all the while knowing that they are attempting to snooker an injured victim to take pennies on the dollar. A victim without leverage is a person who has not retained a car accident attorney and may be desperate for a few thousand dollars.
Insurance companies often try to exploit these unrepresented auto collision victims by offering them a few hundred or thousand dollars to sign a release and get lost.
Clearly, this is a wise move for the insurance company since these payments to unrepresented claimants are typically far less than the reserve set aside for the injured auto accident victim.
Any benefit from tax fee money (the float) that they could invest and earn Income from would be clearly less than the amount saved by the well under fair market value accident settlement.
Insurance wins because they throw some breadcrumbs to the injured accident victim so they do not retain a premises liability attorney. If Insurance pays pennies on the dollar, to pay off an automobile accident victim then they no longer care about the float since they are settling the case far less than the reserve. Also, the benefit of investing the reserve and earning income off the float is less than the savings generated by the cheap, miserly settlement.
Example: A man is injured in a rear end whiplash truck or motorcycle accident. An unscrupulous insurance adjuster offers $3,000 to make the claim go away. The reserve set by the indemnity company is $16,0000. Insurance pays the 3,000 plus the tax immediately. The cost to insurance company (including the tax now owed on the premium income) is approximately 3,300 and it saved over $12,000.
Every payment made by an insurance company to an auto accident injured victim is a cost / benefit premised on weighing the crucial concepts of “Leverage”, “Out of Pocket Costs” and “exposure” (LOE) versus the benefit of the “float”.
The float is the reserve that insurance companies are required to set aside by regulators from policy holder premiums to pay outstanding auto accident and liability claims. These reserves are essentially a liability in accounting parlance. In the prior parts of this article, it was explained that insurance obtains the reserves from premiums tax deferred and they earn income by investing the reserve.
It is an important point to note that insurance can invest the reserve with compounding interest. If a court later issues a judgment and statutory interest is tacked on, such interest is simple interest. Again, big insurance benefits by delay.
Why do Insurance companies delay processing claims, confuse the issues and drag their feet so long before litigation is filed?
Prior to litigation filed in Court, insurance spends the least amount of money on the case. They have some of their staffers / adjusters who work on hundreds of cases each and those staffers are on payroll. These adjusters have a toolbox of delay tactics.