Report: Insurance Industry Overcharges, Underpays Customers
U.S. property insurers overprice, underpay-report
By Kevin Drawbaugh
WASHINGTON, Jan 10 (Reuters) – The U.S. property/casualty insurance industry systematically overcharges policy holders and underpays on claims, said a report from consumer activists on Thursday that an industry group called “absurd.”
The Consumer Federation of America’s report said insurers paid out about 55 cents in benefits from each premium dollar collected in 2007, up about a penny from 2006, but down substantially over the long haul.
From 1987 to 2005, insurers’ pay-out ratio was at least 60 cents, and in some years as much as 75 cents, the federation’s Director of Insurance Robert Hunter said at a news conference where the report was released.
“A major reason why insurers have reported record-high profits and low losses in recent years is that they have been methodically overcharging consumers, cutting back on coverage, underpaying claims and getting taxpayers to pick up some of the tab for risks the insurers should cover,” Hunter said.
Carl Parks, a lobbyist for the National Association of Mutual Insurance Companies, said: “Consumers are not fooled by these absurd allegations … This report is grandstanding and finger-pointing and has no basis in economic principle.”
The insurance industry is still trying to put behind it the multi-hurricane nightmare of 2005, when it suffered huge losses, complaints and lawsuits about storm damage coverage.
From a financial standpoint, insurers have bounced back. The Insurance Information Institute said in April that property/casualty insurers posted $63.7 billion in profits in 2006, a 19-year record. Results for 2007 are due out in days.
Insurance stocks’ performance has been mixed. The Dow Jones Nonlife Insurance Index — including major stocks such as Allstate (ALL.N: Quote, Profile, Research), Travelers (TRV.N: Quote, Profile, Research) and American International Group (AIG.N: Quote, Profile, Research) — soared in late 2006 to early 2007.
But it fell sharply in recent months to its mid-2005 range, while broad market indices rose strongly in the same period.
On the policy front, Congress has been active. An extension of 2002’s Terrorism Risk Insurance Act (TRIA) was recently signed into law. The TRIA program pledges federal support for insurers hit by massive damage claims from terrorism.
The consumer federation opposed renewing TRIA, calling it a subsidy to the insurance industry. The new report estimated that TRIA has saved the industry about $4 billion to date by allowing it to avoid paying private reinsurance premiums.
“Insurers have been so successful in shifting their risk onto consumers and taxpayers that they have produced record profits during a period of increased storm destruction,” said Hunter, who was formerly Texas state insurance commissioner and a high-ranking federal insurance official.
The industry answers chiefly to state regulators, but insurers will seek to exert their influence this year as Congress moves to update the federal flood insurance program.
David Sampson, president of the Property Casualty Insurers Association of America, an industry group, said the consumer federation’s “claims of market misconduct are no more reflective of the actual market conditions than they were when they issued a similar report a year ago.” (Editing by Maureen Bavdek)
The attorneys at Hardy, Wolf & Downing are trusted by thousands of Mainers to handle auto accident and personal injury cases. We don’t just talk tough, we are tough, and we will go the extra mile to make sure you get the compensation you deserve. Not all Maine attorneys are equal — trust Hardy, Wolf & Downing to take care of you before, during, and after your case.