[31835843]

This would be true if there were a reasonable amount of market understanding by customers and the friction to switching were low. Neither are the case. Most of the time, it takes a qualifying life event or open enrollment (once a year) to switch. And then, understanding the trade offs between plans, which are difficult to understand on a good day, is another barrier.

[lotsofpulp]

Then why are insurance company profit margins so low? Why wouldn’t they just jack up premiums irrelevant to their competitors and ignore negotiating pricing and see increasing margins?

Low profit margins/multiple sellers indicates a highly competitive field, which means the businesses must be doing something stay in business.

[jjoonathan]

Yeah, but "something" could be advertising, kickbacks, cherry picking, lemon dropping, making comparison difficult, selectively optimizing visible metrics while balancing with dirtbag fine print, etc etc.

Competition != Productive Competition

[lotsofpulp]

Then the competition who does not do that crap would offer lower premiums and steal business. Just like any other business that wasted money cannot compete with a business that does not waste money.

[31835843]

And this is only true in a markets that are easy to enter. Starting an insurance company isn’t easy.

Why are profit margins only 5%? Could be many reasons, including collusion. Insurance companies have teams of lawyers whose job it is to navigate existing regulation, lobby for new ones and to push for ones that hurt competition.

Given how shady and complex the entire industry is, we don’t really have a reason to believe that 5% is an accurate number.

[lotsofpulp]

Stating that SEC filings for an entire industry are fraudulent across 7+ large companies with tens of thousands of employees each is a pretty serious accusation that I cannot entertain without proof. The other option is I stop trusting in the whole system.