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Insurers Fleece the Public Consumer Groups Say

Posted by Jane Akre
Friday, January 11, 2008 1:08 PM EST
Category: On The Road, Major Medical, Protecting Your Family
Tags: Defective Products, Property Owners Liability, Bad Faith Claims, Managed Care and Insurance Companies


The insurance industry charges too much for what it delivers consumers groups say.


Consumers are paying too much and getting too little from their property insurance at a time the industry is enjoying major profits according to consumer groups.  

The average American household was overcharged an average of $870 per household over the past four years. Meanwhile the insurance industry took in nearly record profits in 2007of about $65 billion.  And that is after taxes. 

Consumer Federation of America (CFA) is a watchdog organization that used the insurance industry’s own data and financial statements to come to these conclusions.  The group was joined by several state and national consumer organizations in issuing its report.   

Over a three year period from 2004 to 2007 the industry recorded profits at more that $253 billion. 

Robert Hunter, the director of insurance for CFA is the author of the study.  "Consumers ultimately pay the price for the unjustified profits, padded reserved and excessive capitalization that exist right now in the insurance industry” he says.  Hunter is also an actuary, a former state insurance commissioner and worked as a federal insurance administrator.

The insurance industry says his numbers are wrong.

Bob Hartwig, president of the Insurance Information Institute, tells the St. Petersburg Times that if all of the costs associated with writing an insurance policy had been considered, the numbers would show that the industry actually paid out more in claims than it took in. 

But the CFA report shows that the trend is for insurers to pay out less in claims. 

Twenty years ago insurers paid out about 72 cents of every $1 of premium  In 2007, the pay out is down to 55 cents for every dollar. There have been no major natural disasters that would account for that.

The report concludes, “Insurance is a Low-Risk Investment” when compared to the stock market.

While the common misperception is that the insurance industry amasses wealth through charging premiums, the industry actually invests that money in financial markets.  Hartwig says the industry is investing heavily in bonds but at the same time has access to its money in case of a natural disaster. 

The largest ever loss by the insurance industry was Hurricane Katrina, which represented an after-tax loss of $26.7 billion.  The September 11th attacks amounted to half of that loss or two percent of the industry’s surplus.

Even with those catastrophic losses, the industry is overcapitalized, the report says and is confirmed by the Insurance Information Institute (III) estimated to be as much as $100 billion.

But Hunter says the industry reaped record profits in 2004 and 2005, the years of significant hurricane activity.   2006 and 2007 profits “rose to unprecedented heights and 2007 may set a fourth consecutive profit record,” according to Hunter.

In order to protect consumers, the report urges the industry to rely on factors other than credit score of employment to ascertain premiums.  The industry to stop denying full payment of legitimate claims, a practice resulting from computer-based claims settlement procedures.  

Consumers are urged to contact the state insurance department to get information on which companies have sharply raised rates and cut back on coverage. 

Hunter says overcharging consumers, cutting back on coverage and underpaying claims accounts for the profits as well as an increasing number of state legislatures that allowing taxpayers to pick up some of the tab for risk. 

In Florida, insurers are increasingly having homeowners and commercial insurance pick up risk while coverage is being eliminated for tens of thousand of Americans in coastal areas.   The report urges a policy of state-based insurance, such as Citizens in Florida, to spread the risk and assure coverage for everyone.

The Florida Office of Insurance Regulation is holding a two-day public hearing with insurance industry executives, specifically from Allstate which wants a 42 percent rate hike. 

 The state’s Governor Charlie Crist has appointed three lawyers to investigate whether the state will file a class-action lawsuit against the industry for collusion.  #


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