There is continuing evidence that the skyrocketing insurance rates of 2000 to 2003 have led to record industry profits, but commercial insurance rates have stabilized or dropped in almost every sector, including medical malpractice, according to an analysis of the Council of Insurance Agents and Brokers’ quarterly survey of market conditions by a national consumer advocacy group.
According to J. Robert Hunter, director of insurance for the Consumer Federation of America, co-founder of Americans for Insurance Reform and former Texas Insurance Commissioner and Federal Insurance Administrator, “this drop in prices has been underway for three years as the country experiences a sustained soft market.”
The current soft market (falling rates) follows a hard market (large price hikes) that hit most lines of insurance in the early 2000s, particularly medical malpractice.
“It now appears clear that the industry’s record profits in 2004 and 2005, and the exceptional record profit about to be reported for 2006, are due in large part to the years of huge rate hikes in the earlier part of the decade, which were not caused by any accompanying increase in claims or payouts,” Hunter said. “In fact, inflation-adjusted payouts and claims never increased at all during this period. Rather, this is all part of a well-documented cyclical phenomenon for the property/casualty insurance industry.”
According to Joanne Doroshow, AIR co-founder and executive director of the Center for Justice & Democracy, “Americans for Insurance Reform and consumer rights organizations have long maintained that the ‘crisis’ of skyrocketing insurance rates for doctors and other policyholders would end when the insurance cycle stabilized, and that this would occur whether or not ‘tort reform’ laws were enacted.” Doroshow said this is exactly what is happening now, because what drives rate hikes has little, if anything, to do with the legal system.
Doroshow and Hunter said that according to the third-quarter Council of Insurance Agents and Brokers’ survey of market conditions, commercial insurance rates are now dropping significantly across the country, “irrespective of enactment of tort reform.” Even medical malpractice insurance rates have dropped 1 percent this quarter, as they did in the first quarter of the year.
The pair indicated that U.S. property/casualty industry’s underwriting profit for the first half of 2006 was $15.1 billion — 31.8 percent higher than the first six months of 2005.
“Rates stabilize during the soft market, in which we are now, irrespective of insurers’ losses — such as the large hurricane losses of 2004 and 2005 during which time record profits were earned and most rates in the nation declined,” Hunter said. “And rates spike during the hard market, which ended three years ago, despite flat claims experience. Those odd patterns are driven by the same thing: the insurance industry’s economic cycle.
Hunter added that the data shows that “no matter how much insurance lobbyists like to complain about claims, payouts, jury verdicts or the legal system, losses do not determine the rates that insurers charge.”
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