07 Jun 2019
If insurance companies are borrowing money to pay off claims, aren't they basically a sort of ponzi scheme since the claims of one generation rely on the premiums of the next? ?
Whether it is a ponzi scheme, to me, it is not important. What is crucial is you need to know what they are doing with your money. The insurance companies are investing your money to generate higher returns so that they could pay out the money during a claim and still makes a decent profit. That is why AIG (Parent company of AIA) runs into financial trouble and needs to be bailed out during the 2008 financial crisis. Just my humble opinion.
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The thing is, insurance company have all the claim experience and data numbers. They would not price themselves to make losses since they are a business.
Even if they did, only one segment is making loss, while they are earning more in other segments. Insurance companies also have their own buildings, so it's a lucrative business for insurers themselves (at least for the past 100 years).
Edit: Also, they function like the bank segment. They have to set aside a portion of the premiums (which they projected) which cannot be used to do investment or other items. This pool is used first, before income from other business units.
Technically not since everybody is contributing in the same generation, but the odds of a person nee...
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