Insurance companies make money by investing your premiums in the open market. When you pay a monthly premium, the insurance company can then use that money to grow more money by investing it. But they can’t use all of it. In order to ensure they’ll have enough money handy to pay claims, they are required by law to set aside a certain amount when they are notified of a claim. Those set-asides are called reserves.
Money put into reserves cannot be used to grow more money. The insurance company must have money tied into reserves intact and available to pay settlements and judgments. The reserve money is essentially stagnant. Because of this, insurance companies are usually pretty eager to pay fair value for valid claims when a reserve has been set.
In times of economic recession or depression, an insurance company’s investments may do poorly. They may also not be getting as much money from premiums because their insureds might have a hard time paying them. When this happens, insurance companies typically want to free the money from their reserves. This way, they can use it to reinvest in the market or pay their expenses.
We handle personal injury claims in the Kansas City area. Most of our clients’ claims are covered by the negligent party’s insurance company. We’ve therefore been seeing many of these carriers wanting to settle to free up the money that’s been tied up in reserves.
It may be the last thing on your mind during this pandemic, but if you’ve been hurt because of someone else’s negligence, now’s the time to make a claim. It may be the insurance carriers for the person or business that hurt you will be willing to settle sooner rather than later to avoid having to tie their money up in a reserve.
Contact us for a free consultation at (816) 867-8611.