The NewStandard ceased publishing on April 27, 2007.

Companies Insure Less, Profit More, Report Says

by Shreema Mehta

Jan. 9, 2007 – Insurance companies are tallying profits at a record high while paying claims at a record low, according to a report released and endorsed by a range of consumer advocacy groups.

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Written by the Consumer Federation of American (CFA), the report analyzed the profit margins and claim payouts of insurance companies for the past two decades. Though the industry lost profits in 2001, it quickly rebounded, reporting a steady profit-margin increase since then with a record profit of nearly $60 billion in 2006.

Even in 2005, the year that Hurricanes Katrina, Rita and Wilma pounded the Gulf Coast, the insurance industry returned a healthy profit: $48.8 billion.

"Unfortunately, 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 higher risks," said Robert Hunter, director of insurance for the CFA, in a press statement.

But American Insurance Association President Marc Racicot said the profit margins are justified.

"Insurance is a business based on risk," he said in press statement, "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."

But the CFA said the insurance industry has taken many steps to minimize risk, such as investing in construction stocks that would likely increase in value in the event of a catastrophe.

Insurance companies have increased rates and the cost of deductibles in states such as Virginia and Louisiana and refused to renew policies in many coastal states.

Legislation, such as the Terrorism Risk Insurance Act of 2002, has also shifted higher-risk insurance costs to taxpayers. The Act re-insures insurance companies making claims from damages due to terrorist attacks.

The report said state insurance pools for high-risk areas and other government programs allow insurers to "cherry-pick" coverage, "keeping the safest risks for themselves and shifting the highest risks onto the taxpayers of the state, thereby socializing high-risk, potentially unprofitable policies and privatizing the low risk, profitable business."

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The NewStandard ceased publishing on April 27, 2007.

Shreema Mehta is a staff journalist.

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