N.Y. Consumer Report Accuses Insurers of Needlessly Raising Rates

December 15, 2011

A new consumer advocacy report is accusing P/C insurers of ‘colluding’ and needlessly raising commercial insurance rates at a time when U.S. businesses are still reeling from the slow economy.

The report, released today, is from the Americans for Insurance Reform, a project of the Center for Justice & Democracy at New York Law School. It is written by consumer advocates J. Robert Hunter and Joanne Doroshow. It’s titled “Repeat Offenders: How The Insurance Industry Manufactures Crises And Harms America.”

The report criticizes the P/C insurers, alleging that “in the last few months, industry executives have been pushing the industry, including pressuring their own competitors, to start raising rates again for businesses and professionals, setting the stage for a new liability insurance crisis in America.”

The report says 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.

The authors allege that Hurricane Irene wasn’t nearly the catastrophe that was expected, but that the hurricane has been used by the industry representatives to push the country into a new hard market.

The authors say 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, they argue.

The authors argue that over the last few months in particular, industry executives – including unregulated foreign reinsurers – have been boldly declaring to the entire industry that it is time to end the soft market (including pressuring their own competitors to start raising rates), setting the stage for a new liability insurance crisis in this country.

The group says it is sending this report to all 50 state insurance commissioners, the new Federal Insurance Office and key members of Congress. ( The entire report can be found at: http://centerjd.org/content/study-repeat-offenders-how-insurance-industry-manufactures-crises-and-harms-america )

I.I.I. Calls the Report Flawed

But the Insurance Information Institute says the report is deeply flawed.

Robert Hartwig, a leading industry economist and president of the Insurance Information Institute, said the P/C insurance is a highly competitive, resilient and essential industry in the U.S. and around the world. Insured losses from catastrophes around the globe totaled an estimated $108 billion in 2011, the second highest year in history.

The I.I.I. chief said over $30 billion of those losses occurred in the United States, likely the fifth or sixth most expensive year on record. Since 2004, storms like Katrina, Rita, Wilma and Ike, combined with other events have resulted in nearly $200 billion in catastrophe claims paid to millions of home, business and vehicle owners.

The report ignores the fact that trillions of dollars paid by insurers to millions of claimants in recent years is the single most important source of recovery for individuals, businesses and entire communities in their time of greatest need, he said.

Hartwig pointed out that over the same period of time, insurance premiums charged to businesses actually fell by 40 percent between 2004 and mid-2011. Indeed, the cost of business insurance fell for 30 consecutive quarters before edging up by just 1 to 2 percent in the second half of 2011.

The report erroneously argues that the industry’s strong capital position is evidence of excessive profits, he said. The report’s claim is both dangerous and factually incorrect, he said: “Buyers of insurance are the primary beneficiaries of a financially strong, stable and secure insurance industry. Millions of victims of catastrophes would no doubt agree.”

The I.I.I. president said buyers have the ability to choose from a wide range of products offered by a multitude of competing carriers while having the confidence that their insurer will be there for them in their time of greatest need.

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