How Does Farmers Insurance Make Money?

Answer 1

Same way other insurance companies do . .. by investing in the markets. They take your premium dollars and bunch them with everyone elses, and invest it.

They do NOT make money off the actual insurance - last I saw, Farmers paid out about $1.10 in claims for every $1 they took in. They'd go broke if they couldn't invest the reserves. Or your premiums would double.

Answer 2

Farmers Insurance makes money by investing in the stock market wisely and diversifying themselves from the competition with innovation, new products, cutting edge technology, and highly educating their agents to be the top performers in the field backed by a superior claims handling service like I have never seen coming from one of the largest independent agencies in the country. Their growth is phenomonimal in areas they want to branch out in. I have seen markets where the company has prospered and where it has been oversaturated by too many agents. With the proper balance, the company vision is great and the company performs very well. Unfortunately, I have also seen areas where agents are stacked on every corner and virtually put each other out of business by trying to compete with each other in addition to other companies because Farmers is growing so fast. There is nothing in writing to stop another Farmers agent from opening an office down the street from you even though there is an unwritten "5 mile radius" rule for opening an office next to an existing one. Competition is strong all around. The company reported double digit growth rates for 2005 & 2006!

Answer 3

Most people think that their insurance premium is where insurance companies make their money. However, this is not quite correct. Most of your premium dollars go back out to pay claims. Insurance companies call this the "loss ratio" - dollars in (premium) to dollars out (claims).

But paying claims is not the insurance companies only expense - although it is a big one.

Insurance companies also purchase re-insurance. This is insurance the company purchases to kick in when a catastrophe happens. This is how the insurance company protects itself from going bankrupt. As a customer, this is important to you because if the insurance company goes bankrupt and you have a claim pending, your claim does not get paid.

Just as your insurance premiums go up when there is an active hurricane season - the insurance companies premium for reinsurance goes up. Insurance companies spend millions each year on reinsurance premiums. In recent years, these costs have sky rocketed - especially in areas with coastal exposure.

Insurance companies also have to pay salaries, maintain office buildings, employee benefits, equipment gets obsolete and has to be updated frequent, training for employees - the same costs as any other company or business.

Your premium dollars are no where near enough to cover all of this.

Therefore, insurance companies invest. Most of the non-claims expenses and profit are from investments. Just like your investment portfolio, insurance company investments also go up and down.

Why do insurance companies have to make a profit? Same reason any other company does - if you don't you go out of business.

Answer 4

Insurance companies are the biggest gamblers on the planet.

There are much more people paying in than filing claims.

You say "I'm a good driver, I am not gonna get in a wreck. But as a hedge, I am going to get insurance just incase something freak weird happens."
Farmers says "according to our actuarial tables, you're a low risk for car wrecks, we'll take the hedge".

You pay them, you don't get in a wreck, they keep the money. You've bought a 1 year safety cushion.

Answer 5

Insurance companies make a big chunk of their money in the stock market and other investments. If they did not do this the amount of money they pay out in claims dollars would far outweigh the amount of money they receive in premiums.

Answer 6

your question sounds like you think they give such deals that they can't make money.

Based on a documentary I say about them, they have a long way to go to be a farmers advocate. same with AARP. They exist to MAKE money not to be an advocate and help seniors.

If that isn't the reason for the question, then the other answers apply.

Answer 7

Just like all the other insurance companies (not in claim savings, but in investments of your premium dollar that is not placed in reserve to pay claims).