2007 record year for insurance industry.....why are we not surprised?

From John Curry, January 15, 2008
Subject: The next time you hear your insurance company cry "poor mouth" you might want to show 'em this!

I know, it's not STRS but...it certainly affects your wallet! And....what am I doing up at 3:05AM? Well, when you work the night shift you often are up nights...even on your days off! Gotta' work to afford affordable healthcare insurance, don't we? John

ConsumerAffairs.com, January 11, 2008
Another Year of Record Profits for Insurers
Overpricing policies, underpaying claims pays off big

State and national consumer organizations have released a new study concluding that the property/casualty insurance industry continued in 2007 to systematically overcharge consumers and reduce the value of home and automobile insurance policies, leading to profits, reserves, and surplus that are at or near record levels. The study estimates that insurer overcharges over the last four years amount to an average of $870 per household.

The report provides data demonstrating that property/casualty insurance companies are paying out lower claims in relationship to the premiums they charge consumers than at any time in decades.

The pure loss ratio, the actual amount of each premium dollar insurers pay back to policyholders in benefits, was only 54.6 cents in 2007.

Over the past 20 years, the amount paid back as benefits has dramatically declined from over 70 cents per premium dollar, indicating a huge loss in the value of insurance to consumers.

“Consumers ultimately pay the price for the unjustified profits, padded reserves, and excessive capitalization that exist right now in the insurance industry,” said J. Robert Hunter, the Director of Insurance for the Consumer Federation of America (CFA) and author of the study. Hunter is an actuary, former state insurance commissioner, and former federal insurance administrator.

“The insurance industry reaped record profits in 2004 and 2005, despite significant hurricane activity,” said Hunter. “Profits in 2006 rose to unprecedented heights and 2007 may set a fourth consecutive profit record,” he said.

“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 risks the insurers should cover,” said Hunter.

In the last several years, insurers sharply increased premiums for homeowners and commercial insurance and reduced or eliminated coverage for tens of thousands of Americans in coastal areas. Insurers have succeeded in persuading Congress to continue taxpayer subsidies for terrorism losses and are seeking additional subsidies for catastrophe insurance.

Using a number of common measures of financial health, the study finds that balance sheets for property/casualty insurers are in better condition overall than at any time in history.

The study estimates that after-tax returns for 2007 are about $65 billion, just under the record level set in 2006. If insurers release even a small part of their swollen reserves as profits, final profits for 2007 will exceed those of 2006.

Profits for the record years of 2004, 2005, 2006, and 2007 are estimated to be $253.1 billion. The loss and loss adjustment expense (LAE) ratio for 2007 is estimated to be 66.7 percent, the second lowest in the 28 years studied. Five of the seven lowest loss and LAE ratios in the last 28 years have occurred since 2003.

Consumers have experienced a startling drop in the amount of premium paid in benefits by the insurers, from 72 percent in the late 1980s to only 60 percent today when plotted on a straightline trend over the period.

Note from John: Don't believe J. Robert Hunter info from above? Might want to read this and another article re. Mr. Hunter that follows:

Pianet.com (Professional Insurance Agents), February 21, 2007
Florida Hires J. Robert Hunter to Help Set Insurance Rates

Perennial insurance industry critic J. Robert Hunter has been hired by the state of Florida’s Office of Insurance Regulation to determine rate reductions that are required to be adopted by all Florida residential property insurers as mandated by recently passed legislation.

Hunter, an actuary who formerly served as the insurance commissioner of Texas, has 45 years of insurance industry experience and presently serves as the insurance director of the Consumer Federation of America. Hunter’s contract comes on the heels of recent legislation signed last month by Gov. Charlie Crist mandating cuts in Florida property/casualty rates. The new state law also expands the Florida Hurricane Catastrophe Fund by $16 billion.

Florida Insurance Commissioner Kevin McCarty called Hunter’s body of work “legendary” and characterized him as “one of the great minds on issues surrounding the insurance industry.”

“I want to make sure consumers get the full benefit from the reforms,” said Hunter, “while also making sure insurers retain rates which accurately reflect the risk they are bearing. This law is a significant achievement, and I am honored to be asked to help implement the legislation.”

.....and this article:

OrlandoSentinel.com, January 11, 2008
State's insurance effort wins praise
Anika Myers Palm
Sentinel staff writer

A national consumer-advocacy group says property-casualty-insurance companies are systematically overcharging consumers and reducing the value of insurance policies, but it praised some of Florida's efforts to control costs.

The Consumer Federation of America said insurers overcharged customers to the tune of an average $870 per household during the past four years and paid out less to consumers who filed claims.

"A major reason why insurers have reported record-high profits . . . 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," J. Robert Hunter, the federation's director of insurance, said in a statement.

The Washington-based federation lauded Florida's officials and insurance regulators for requiring insurance companies to use catastrophe modeling that uses long-term projections rather than short-term ones, and for providing cheaper state-backed reinsurance to insurance companies.

The Insurance Information Institute, a New York-based insurance-industry advocate, said the study was flawed because insurers must remain profitable to maintain their credit ratings and financial strength.

"Insurers are protecting more cars, homes and businesses than any time in U.S. history and have been an essential component of the country's economic growth engine for decades," Robert Hartwig, president and chief economist of the Insurance Information Institute, said in a written response to the consumer group's report.

Anika Myers Palm can be reached at apalm@orlandosentinel.com or 407-420-5022.