Automobile insurance companies -- and most insurance companies are in business to make a profit.
For example, let's say that an insurance company brings in a total amount of car premium payments of a million dollars - $1,000,000. That would happen if 1,000 households paid $1,000 each for a year - or $500 for each of 2 cars the household owns.
Then, let's say that the drivers have accidents and the insurance company has to pay out $250,000 in claims for accidents that year -- that still leaves them with $750,000. In fact most big insurance companies have premiums in the hundreds of millions or even billions of dollars and they don't just insure cars, but homes and businesses also.
They would pay some of that towards running their business such as wages and expenses, but they would also make a hefty profit. And, of course, they charge more and insure hundreds of thousands of drivers each year.
And, that example doesn't even touch on the fact that they will be investing most of the money that they have coming in. They need to have a certain amount of "capital" available for payments but the remainder can be invested.
Many insurance companies buy insurance to cover themselves if they run into a situation with a more losses than they had counted on. The insurance that insurance companies buy for themselves is called "reinsurance." This way they carry less risks to their own company because someone else will help them out if they need more money to pay claims.
You know how some of your friends' parents may pay much more for car insurance than other people do --- and some people pay a lot less?
That is because each insurance company hires people called "underwriters." They look at all kinds of factors to figure out who is most likely to get in a car crash and who is less likely to get into a crash.
If there are teenagers in the family that will usually cost more. If the teens are on honor role and took a safe drivers course, they may charge less.
If the drivers in the family have speeding tickets or other moving violations that they've gotten tickets for - the insurance company will charge them more or not insure them at all.
If the driver is married and has a record of no accidents for a period of years, and own their own home, they will tend to be charged much less than drivers who don't.
Even the type of car that you drive -- and the color -- can cause you to be charged more money because statistics used by the underwriters show that more of those models of cars get in accidents or get stolen!
Although it may seem as though they paid a lot for your Dad's accident, think about how many years he's been paying insurance premiums. If he's been paying $900 a year for 20 years, he's paid the insurance company $18,000. If he paid $1,200 a year for 20 years, he's paid the insurance company $24,000.
Take 10 neighbors all paying $1,200 a year for 20 years - and the insurance company had $240,000 in premiums-- or close to a quarter of a million dollars just from those 10 neighbors! Take 40 neighbors on a street paying that same amount and that totals close to $1,000,000 - a Million Dollars paid to the insurance companies just from that neighborhood on that one street. How much do you think that they paid out in claims and how much was profit?
It might be worthwhile and helpful to you in the future to ask your Dad just how much insurance costs him. Ask him also about what he has included -- will they fix the car if it slides off the road on ice into a tree if no other cars are involved? What if there is another car and your Dad's not at fault? Does he have a high "deductible" where he pays the first $1,000 of his own car's repair bill?
Ask these questions and if he's willing to share the answers, you'll be getting pretty smart about insurance and in a much better position for when you go out on your own! Plus, you can educate your friends about it!
Insurance is a VERY profitable business. They try to make sure that they will continue to raise their rates and/or remove drivers who are more likely to have claims such as accidents or stolen cars which will cost them money to be sure that they make a very lucrative profit!