Washington – Insurance organizations quickly responded to charges of consumer gouging, leveled yesterday by the Consumer Federation of America (CFA), a Washington nonprofit group representing 300 consumer groups.The charges were given voice by J. Robert Hunter, CFA’s director of insurance. Hunter, an actuary, former state insurance commissioner, and former federal insurance administrator, authored a study that concluded that the P&C industry dramatically increased profits and surplus in recent years.
“Profits and a solid insurance industry are a good thing, but unjustified profits and excessive capitalization harm consumers,” he said.
The report estimates that the years 2003 through 2006 represent four of the six lowest loss and loss adjustment expense ratios in the last 27 years, and that in spite of record catastrophe claims payouts, for the top 10 insurers, losses paid as benefits to consumers are an estimated 52% of premium in 2006.
Industry groups such as The National Association of Mutual Insurance Companies (NAMIC), Indianapolis, which represents 1,400 member mutual companies and the American Insurance Association, which represents 400 P&C carriers, were quick to respond.
"The recent positive financial news for 2006 is good for consumers as well as insurers, and is a direct result of the lack of severe storms last year," said, Carol Parks, NAMIC senior vice president of government relations. "It means insurers are starting to recover from the devastating effects of the 2004 and 2005 hurricane years."
While the industry as a whole is reporting economic gains, says NAMIC, some insurers continue to rebound from tougher financial years.
"The fact is, insurance rates for drivers and homeowners in most areas of the country are being reduced," Parks said. "The exceptions are the hurricane-prone areas of the Gulf coast and the eastern coast of Florida, which remain vulnerable to severe weather."
In response to the CFA allegations, Gov. Marc Racicot, president of the American Insurance Association (AIA), Washington, justified the industry’s financial results, stating that insurance company profits are essential to providing insurance coverage relied upon daily by American families and businesses.
“Insurance is a business based on risk, and any risky business proposition must have a relatively high rate of return for investors from time to time, or the investors will take their capital elsewhere, and that business will cease to exist,” noted Racicot. “Fortunately for all Americans, the property-casualty industry had a much better year financially in 2006 than in 2005 or 2004, when we saw record losses from natural disasters.”
Parks added that the last thing policyholders want is for their insurance companies to be unable to pay claims following a major catastrophe. “In 2006, insurers were able to increase policyholder surplus by 13%, thereby improving their ability to sustain losses and pay claims in 2007 and beyond,” he said.
Parks said NAMIC's members are committed to holding down insurance rates wherever possible, especially since the vast majority are mutual companies. "Wall Street does not drive our business," Parks said. "Our members continually strive to do what's right for the policyholders, since they — rather than stockholders — own the insurance companies."
Sources: NAMIC, Consumer Federation of America, Kansas City Star
