Consumer Group Claims Insurers in Collusion to Hike Rates

A report issued by the consumer group Center for Justice and Democracy at New York Law School claims that carriers are planning to price-gouge buyers of insurance, particularly commercial lines insureds. The report, “Repeat Offenders: How the Insurance Industry Manufactures Crises and Harms America,” asserts that insurers are in collusion to create a hard market in which commercial lines insurers can target their customers with large rate increases.

“This country has been in a ‘soft’ insurance market since 2006, with rates stable and dropping in every state whether or not ‘tort reforms’ have been enacted. However, since early 2011, the insurance industry has been trying to push the country into a new hard market,” says the report.

Using Hurricane Irene as the example, report authors, J. Robert Hunter and Joanne Doroshow, state that the August 2011 catastrophe was hyped by the Weather Channel “but wasn’t nearly the catastrophe that was expected,” and instead has been used by insurance industry representatives to push the country into a new hard market.

“This is despite the fact that the industry is perfectly able to handle those claims in addition to having stored away excess profits for decades so that today, it is in an all-time safe position. Creation of a hard market now would be purely for the purpose of price-gouging buyers of insurance, particularly commercial lines insureds,” notes the report.

Dr. Robert Hartwig, president of the I.I.I. and an economist, takes issue with the report. "To say we are manufacturing a crisis and in that the industry is in some sort of violation of antitrust law is absolutely preposterous," he tells INN. 

In fact, Hartwig says, commercial lines of insurance prices fell for 30 consecutive quarters – from early 2004 to the middle of 2011, even in the 2nd half of 2011 are up only maybe 1 percent. Over the last five years premium growth in the industry has been negative on net, in large part because of declining prices. "Most of this [report] is a rehashing of ancient history," he says. "The report falls short in its accuracy of more recent events, such as a drop in surplus that we’ve seen so far in 2011. It doesn’t include 2011 data."

Cliston Brown, director, Public Affairs at Property Casualty Insurers Association of America (PCI), also finds fault with the report. “The reckless and irresponsible allegations in this report are not just inaccurate, they are utterly false and demonstrate an absolute disregard for the facts,” he says. "It is true that the industry has seen the need, given the current economic climate, to see that it has adequate capital, and this has helped insurers weather the storm better than other financial services industries did during the recent economic crises—to the benefit of consumers by providing stable markets and pricing."

In its coverage of the report, the greater media does not differentiate between personal and commercial lines, instead, blanketing the entire industry in its report. In particular, the Huffington Post published a story this morning that states, “the rate hikes will fall more heavily on businesses than customers with personal insurance, but the costs would still be substantial for both groups. Doroshow told The Huffington Post that, in line with past "hard market" cycles, "these rates could be going up 100 or 200 percent for businesses.”

The Post article notes the industry’s reliance on its antitrust exemption under rust exemption under the McCarran-Ferguson Act as fueling the planned increases. The Center for Justice and Democracy, meanwhile, says it will encourage legislators to increase its regulatory powers and repeal the industry's antitrust protections. Previous attempts at repeals have failed. The group also plans to send its report to all 50 state insurance commissioners, key members of Congress and the new Federal Insurance Office.

Responding to the report's inference that the industry holds a monopoly, thereby able to pass on premium increases at will, Hartwig added, "The reality is that (the authors say) they want to repeal anticompetitive laws and yet they want stronger regulations. Insurance markets are among the most competitive that exist. For most types of insurance, buyers have dozens if not hundreds of options as to who to buy any type of insurance from."

PCI's Brown agrees. "While the industry does have an antitrust exemption, it does not allow insurers to collude It is not only illegal for competitors in the insurance marketplace to collude, but illegal even to discuss pricing." 

Insurance Networking News will publish updates to this story as it receives comments and responses from various industry organizations.