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Incentives and Profit for Insurance & Drug Companies

Pharmaceutical companies are routinely called out for supposedly holding on to suspected cures because there’s no money to be made. Sometimes drugs are available but because the condition is comparatively rare is costs thousands of dollars for one treatment you’ll need the rest of your life.

How do they get away with it and why does it happen?

From a drug company’s perspective the issue of what to product and research is far more complex than arbitrarily holding back cures. For example, the research required to come up with an approved drug can run into the hundreds of millions. There’s also no guarantee the drugs will in fact be effective, sometimes R&D produces a dud, so that’s millions lost.

It’s no surprise that when a drug is approved drug company’s will want to have a lot of sick people for a long time buying the drug. So this isn’t necessarily a case of having no incentive to produce drugs for problems, but a need driven by the market to find drug treatments that will in turn product a profit.

Profit is the motive. The incentive is more cash, not healthy people. This doesn’t mean they act to degrade people’s health by not putting forward treatments, but they certainly have no incentive to invest in things like prevention. Ultimately, the name of the game is the bottom line and whom the corporations are accountable to–the shareholders.

Shareholders want higher profits. Admittedly this is changing somewhat as social welfare policies become more popular in corporations, but for the most part incentives are purely cash related.

The same thing goes for insurance companies. You have all sorts of insurance protection: home, stuff in your home, car, expensive items, health, business, your life.

Sometimes we can get caught up in the falsehood that because we’re the customer purchasing these products the supplier should be acting in our best interests.

Again, if you follow the line of incentive there’s no reason for insurance companies to treat even their own customers with upmost attention. In these cases the customer is not always right. Yes, insurance companies will feign interest in you, but once you make a claim you’re doing something–costing them money.

Insurance is a hedge game of change. The more payouts required the less profit is made. Less profit also means increases in premiums. It is therefore in the interest of the insurance company to attempt to pay out the lowest common denominator to injured people. It’s certainly much easier to try to nickel and dime clients from other insurance companies, but at the end of the day you’re just a number to your own insurance agency. They will attempt to settle your claim for the least amount as possible as well. This becomes more evident as claims increase in value. The more expensive the more incentive the insurance company has to find a way to mitigate you as an expense.

Some people are OK with this and have received great service when in need. But I’m sure everyone knows someone who’s be screwed by insurance who refuse to cover whatever problem/issue/malady that arises for whichever fine print reason.

If you’re unhappy with how things are going you’re usually left with the option of hiring legal counsel. Unfortunately this can be costly (either in the short run or in a lower settlement for you), but the avenues available to you for a fair settlement when you require payouts from insurance are few.

Ultimately, insurance companies don’t have an incentive to get you the highest payout, if that was the case they’d be out of business. Conversely, a litigating attorney will work on your behalf. They’ll put your interests number one and will opt to maximize your compensation to the maximum you’re entitled to.

Of course, that service doesn’t come cheap, you’ll make more but the fees for legal representation can be very high, usually greater for more complex cases.

So do your homework and decide whether the situation you’re in really points to you as being the primary incentive to get the result that will benefit you the most. Usually it’s the money trail and not the customer that’s making decisions at the end of the day.

Note: Some notes from Calgary injury lawfirm Taylor Conway.

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