Where Does the Money Go?

Occasionally I am asked “where does the premium go that is paid by MTM members?” I could break that down into more than two dozen categories but let me just give you a high-level view. If I took 2023 as an example year, I could put the percentages into three basic categories. No surprise, the number one category is claims including legal expenses with the second being administrative expenses which include company salaries, rent and of course, taxes. Not only are there income taxes to pay but we’re also required to pay assessments to the state and a percentage of the premium as a state premium tax. And the third category are the leftover funds which are paid to members as dividends. Again, going back to 2023, in rounded numbers, 55% of the premium is paid out in claims and claims handling costs with 25% paid for MTM administrative expenses and 20% was returned as member dividends.

Because claims make up the biggest piece of the premium dollar and is therefore the largest impactor of our member dividend, every month we dissect loss numbers and look for trends. There are a couple of interesting numbers to mention. For the first six months of 2024, the claims count compared to the first six months of 2023 is down by 14%. That is great news. I then looked at the total claims costs and found that our claims costs for the first six months compared to 2023, was up by 7%. I would have guessed that given a decrease in frequency by 14% that the claims cost would also be down. But that is not the case. What I found instead is that the cost per claim from one year to the next is up by 24%. Our average claims cost in 2023 for the first six months was $4,380. For 2024, the average claims cost is $5,400 which is a concerning increase. I try not to overreact to any big swings because one or two large claims could impact the total result. In July we complete a midyear actuarial claims review to help our predictive analysis. We’ll present that midyear review at the August board meeting, and I’ll share the results with you.

In the meantime, thank you for your help with the Loss Control efforts. Having a decrease in frequency sure helps offset the increase in severity. The increase in severity is caused by accident type but also magistrates that are more “generous” with settlements than they were in the past. MTM management will continue to monitor these results and update you when we have more information. After declaring dividends for 10 years in a row, the management team is focused to make sure that this member benefit continues.

I hope you are enjoying the summer.