How Home Insurance Companies Profit from Your Money (Before Paying Your Claim)
Imagine this: You’ve paid your homeowners insurance premiums on time for years. Then disaster strikes – a fire, a burst pipe, a hurricane – and you file a claim expecting swift help. Instead, you encounter delays, lowball offers, or outright denials. Frustrating? Absolutely. But it’s not always an accident or “red tape.” In many cases, U.S. home insurance companies have a financial incentive to slow-walk or shirk claims. It all comes down to something insiders call the “float.” This blog post will explain what the insurance float is, how it makes money for insurers, and why it can lead companies to delay, deny, and defend claims in bad faith – often at homeowners’ expense. We’ll also look at real examples of how these tactics impact everyday people.
What Is the Insurance “Float”?
In simple terms, the insurance float is money that an insurance company holds onto between the time you pay your premium and the time it pays out your claim. Until a claim is paid, those funds technically belong to policyholders, but they “float” on the insurer’s books. Think of it as an interest-free loan you (and thousands of others) have given the insurer: the company gets your premium now, and if a covered loss happens later, they’ll use that money to pay – but in the meantime, they can use it for other purposes.
Critically, insurers don’t let that float sit idle. They invest it. Premium dollars are pooled into massive investment portfolios – typically conservative assets like bonds or index funds – generating returns for the company. All the while, the insurer hasn’t yet spent a cent on your claim. This practice of investing premium reserves is so common and lucrative that investment income is often the second-largest revenue source for insurance companies, right behind premiums themselves. In 2020, major U.S. insurers (from Allstate to State Farm) all reported substantial earnings from investing the float.
To put it in perspective, famed investor Warren Buffett has long praised the value of insurance float to his business. His company, which owns GEICO and other insurers, held a whopping $168.9 billion in float in 2023 – money available to invest until needed for claims. Buffett once told shareholders that in a single year, “We were paid $2.8 billion to hold our float.” In other words, Berkshire Hathaway earned nearly $3 billion in 2008 just from investing premium dollars before paying claims. No wonder insurers love the float.
How Delays Turn into Profits
Now, here’s the troubling part: the longer an insurance company holds onto your claim money, the more interest it earns on those investments. This creates a powerful motive to delay paying claims. Every day that your payout is postponed is another day the company’s “float” is fattening their bottom line. One legal analysis bluntly noted that “delaying claims is one of the most effective ways insurers boost their profit margins.” It’s a stark conflict of interest: insurers advertise peace of mind and prompt help, but internally, paying quickly cuts into investment income, whereas paying slowly makes them money.
This hasn’t always been the case. Decades ago, insurance was more straightforward – companies mainly profited by investing premiums while still aiming to pay valid claims fairly. But starting around the 1980s and 1990s, consultants showed insurers how to treat claim departments as “profit centers.” Even a few extra weeks or months across thousands of claims translate into huge aggregate gains. As one industry veteran observed, “Claims has been converted into a money-making process.”
By holding onto money that rightfully belongs to claimants, insurers earn millions in additional interest. Those “few days of delay” on each file can add up to billions in profit across the industry. Importantly, this profit from delay is pure profit – it doesn’t come from providing any extra service or value, just from not paying out money as quickly as they could. Little surprise, then, that some companies push the boundaries of timely payment.
Delay, Deny, Defend: Tactics of Bad-Faith Insurers
Insurance executives will never admit they’re delaying or denying valid claims for profit – at least not publicly. But internally, the strategy even has a name: “Delay, Deny, Defend.” This refers to a pattern of practices insurance companies use to maximize the float and minimize payouts, often at the expense of desperate homeowners. Here’s how it works:
Delay
The insurer drags out the claims process as long as possible. They might stall investigations, take weeks to return calls, repeatedly ask for “additional documents,” or delay sending an adjuster. All of this is by design: the longer a claim drags on, the longer the company holds onto your money and earns interest on it. These delays also wear down policyholders. One attorney notes that such tactics are built-in – they want you frustrated. If you’re tired and financially strained waiting for help, you might be more likely to accept a low settlement just to get something.
Deny
If delaying isn’t enough, insurers may simply deny your claim (or a big part of it) – even if it’s valid. They’ll hunt for technicalities or exclusions to justify not paying. Wrongful denials force policyholders to either abandon their claim or fight an uphill battle. From the insurer’s viewpoint, a denied claim is money they never have to pay out, which means they keep those funds invested for profit.
Defend
What if you challenge the insurer? Then companies often shift into the “defend” mode – essentially, fighting you tooth and nail. An infamous example is Allstate’s “Good Hands to Boxing Gloves” strategy: consultants from McKinsey & Co. advised Allstate in the 1990s to get much tougher on claims. If a customer didn’t accept the first low offer, Allstate would aggressively litigate to make the process “so expensive and so time-consuming” that people would drop their fight. The company’s internal slides even stated: “Allstate gains – others must lose.”
Real-World Consequences for Homeowners
These profit-driven tactics have real, painful impacts on people’s lives.
After Hurricane Ian (Sept 2022) in Florida, thousands of families whose homes were wrecked found their insurance claims stuck in limbo for months. By March 2023 – more than five months later – over half of Ian-related home insurance claims were still not fully resolved. Many were either closed without payment or left open with no payment yet, leaving homeowners in despair.
Take the case of 80-year-old Carol Jackson and her daughter Kalindi. Their roof caved in and the home was left uninhabitable. After filing a claim, they waited weeks for a response. When they finally reached an adjuster, they were told the insurer had “not yet determined they were hit by a hurricane.” Eventually, the insurer sent a small partial payment – far less than the repair estimate – and the family spent months living in a FEMA trailer while fighting for a fair payout.
Two whistleblower adjusters working for Florida insurers revealed that legitimate storm damage estimates were often slashed behind the scenes before being shown to homeowners. One example: an estimate for $40,000 in damage was reduced to $2,600 – major repairs simply deleted. These tactics help the company keep claim payments low and profits high, even if homeowners are left struggling.
Homeowners outside of natural disasters experience this too. In one case, a homeowner had to sue their insurer for delaying payment after a fire. The court not only awarded the money owed, but also punitive damages to punish the insurer for its bad-faith conduct. In another case, a company denied tornado damage based on a false claim of “pre-existing” issues. The court sided with the homeowner – but the long legal battle was grueling and expensive.
Knowledge is Power
It’s important to note that not every claim turns into a nightmare, and not all insurers are equal. Many claims do get paid promptly and fairly. But this post is here to educate you on a structural issue: U.S. home insurance companies are wired to prioritize profits, and the “float” gives them a perverse incentive to delay helping you.
This system rewards insurers for holding your money longer and paying you later, if at all. It’s a design flaw that many policyholders don’t realize – until it’s too late. Knowing this gives you power. Document everything. Push back. Contact your state’s department of insurance if delays are unreasonable. And if needed, consult a public adjuster or attorney to protect your rights.
The more homeowners understand this system, the harder it becomes for bad actors in the industry to abuse it unchecked.