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Sunday, October 25, 2009

Fact Checking Congress

The AP has a lot of faults. However, I give them credit for their FACTCHECK series of articles that they've been running. They've been pretty balanced, and gone against the grain of the MSM of late and been critical of President Obama and Congress.

The latest, a fact check on insurance profits shows something that Nance Pelosi, Harry Reid, and "The One"© don't want you to know, insurance company profits aren't that high.

WHAT!!! Wait, I was told they are making scads of money, and dead people are piling up so they can do it, how does that work?

It's actually pretty easy. If you only talk in dollars, and not percentages, it sounds like huge profits. When you actually look at the returns on investment and growth rates, the insurance industry is pretty far down on the list.

In fact, if you were writing a portfolio, most insurance companies would be in the sustainable growth category, an area you park money to keep up with inflation and mitigate risk, not to make a big profit.

Right now it might not even get into that category, with profits equalling only two percent of revenue. If you listen to the folks trying to demonize the industry, you'd think expenditures are only two percent of revenue, the rest going into some fat cat's pocket.

The other way the numbers are getting skewed is when someone wants to paint an insurance company as greedy they lump all profits, not just health insurance, into the equation. Companies that provide homeowners, health, life and auto insurance do have higher profit margins. Most of those profits come from the other products though. In fact, if you want to get mad, start looking up the profit to revenue margin on auto and life insurance, and ask why Congress isn't concerned about those.

So who makes more than insurance companies? Railroads, the folks who give you Tupperware, network and communications equipment makers (1ox insurance company profits), Coors brewing, Yahoo and others.

How come they aren't being demonized?

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