Consumer Federation: Insurers Increase Profit Levels by Overpricing Policies

January 8, 2007

  • January 8, 2007 at 7:27 am
    wudchuck says:
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    i think not! insurance made a good profit based on risks that were assessed due to claim frequency and catastrophe. this year, the insurance industry got lucky. in many cases, insurance only wants to make a small margin of profit. lloyds of london have been doing insurance for many years – and they are still the company to emulate.

    but if your so afraid of the insurance and making them react, then why are we sitting on gas prices? do u remember when the gas companies said, that prices had to be high due to cost of fuel and production? did you remember seeing the tale of profit exceed during that time period? price of gas still remains high. have you ever noticed that when its time for all to travel, how quickly price of gas changes (higher)? we do not complain during that timeframe.

    it\’s like the ballplayer that asks for millions of dollars, and knowing that the owner of the team is willing to pay. remember what happened to hockey because of that? do you think it will happen to the other various sports teams? remember, if the owner is willing to pay the price, he might raise your ticket price. do you complain? only when they lose, but do you see the price lowered when they move that high price player from the team? NO!

    back to the industry of insurance – remember risks are assessed by the area and anything from previous years that show trends. number of accidents, weather related, castrophe just a few predictors to assess risk and price. in the end, we as a consumer just need to shop not only for a great price — but a great quality of the product/service i am getting.

  • January 8, 2007 at 8:41 am
    Hal says:
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    Last year after Katrina, the OFFICIAL WORD from all those smart people was that global warming caused Katrina. There was more warming coming and this year – 2006 – would be the worst ever. Didn\’t you watch Al Gore\’s movie, too?
    SO. The insurance industry used that word from the smart people and priced their property insurance accordingly.
    Well the worst ever hurricane season produced exactly 0 hurricanes for the U.S. But we had been warned. If the industry didn\’t respond to what those self annointed smart people were saying then the company officers would be in trouble for letting their companies become insolvent. The worst thing for a consumer is an insolvent insurer when claims are due. If there is a villain, who is that villain?

  • January 8, 2007 at 9:42 am
    bye says:
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    Rob, that is the dumbest comment I have ever read on any message board — there is no such thing as tax-free profits. If insurers lower their reserves, the amounts not used in claims are taken into earnings and income taxes, et al are paid on the profits. Why don\’t you stick to the entertainment section and keep oogling those Brittany Spears photos.

  • January 8, 2007 at 1:25 am
    media mogul says:
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    Remember when prices had to go up because of 9-11 losses? Because those losses were going to be of such and such unprecedented size? Bob Hartwig and his III said they were really going to be BIG, REALLY BIG (although in his defense some thought they might be even bigger).

    Lurking in the background was that insurers had really been doing well for a number of years before that–what with the failures of Aetna, Continental, Highlands, Home, later Kemper, Legion and a number of other brand names on through the alphabet.

    Well, prices were raised. They were really raised and everyone went along with it. And 9-11 loss costs appear to have come in a lot less than estimated due to some great (and fair) BI/life earnings settlements by the court appointed master. Did Hartwig or anyone else ever provide a final, all lines cost including IBNR and development for 9-11 and then compare it with the projections that served as justifications for those post-9-11 increases? (I think that would be legitimate Insurance Information owned to us by Bob\’s Institute. If so please provide a reference.

    Shoot, it was like everyone\’s patriotic duty to sell and to buy higher premiums to protect America and its risk capacity and solvency and ability to fight terrorism.

    And about this time, the mold lawyers struck in several states, running up HO costs along with, of course, the windstorm activity throughout the nation (hurricanes in the south, tornados in the middle ranges of the country, weight of snow and ice collapsing buildings in the North–we all have our little weather problems in our little areas). And then mold was excluded but premiums did not come down all that much.

    And so now insurers are doing reasonably well and took on several hurricanes not to mention tornado swarms and hail storms without missing a beat these last few years.

    U.S. insurance is not a \”free\” market, but a regulated one. The pendulum swings back now. Better duck. Expand your income by more sales to new clients–don\’t rely on increases from your existing clients.

    Back to normal. CFA et al. are just doing their part. The truth is out there, but in the middle as always. Don\’t give me no jail-house lawyering about \”free markets.\”

  • January 8, 2007 at 1:28 am
    media mogul says:
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    where I wrote:

    Lurking in the background was that insurers had really been

    meant to write:

    Lurking in the background was that insurers had NOT really been

    I sort of like the irony in the first wording, anyway….

  • January 8, 2007 at 2:34 am
    Ray Balaamababa says:
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    A day without Media Mogul is like a day without moonshine.

    The pendulum will swing, whether it\’s a new congress, or a busier Cat year, but profits are likely to swing back to less profitable territory.

    Lest we forget, the experts were predicting a busy hurricane season for 2006; thankfully that didn\’t happen.

  • January 8, 2007 at 4:31 am
    jjwiedem says:
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    A post from Media Mogul and I did not see the word Dogma once. Amazing!

  • January 8, 2007 at 4:46 am
    Ralph Nader says:
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    And we will continue are fight against corporations until all profits have been eliminated or taxed at 100%.

  • January 8, 2007 at 5:44 am
    Rob says:
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    Marc Racicot, president of the American Insurance Association (AIA) also responded to the Consumer Federation of America (CFA) study.

    \”Insurance is a business based on risk, 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,\” noted Racicot. \”Fortunately for all Americans, the property-casualty industry had a much better year financially in 2006 than in 2005 or 2004, when we saw record losses from natural disasters.

    IF THERE WAS SO MUCH PROFIT – THEN RATES SHOULD NOT HAVE INCREASED. WALMART DOESN\’T RAISE PRICES BECAUSE THEY HAD A GOOD YEAR! CASINO\’S DON\’T \”TIGHTEN UP\” PAY OUTS BECAUSE THEY HAD A GOOD YEAR!!!

    EVERYONE FORGETS THE SICK LITTLE SCAM GAME INSURANCE COMPANIES PERFORM.

    EXAMPLE – WHEN A DISASTER HITS and they HAVE A 1000 CLAIMS. THEY THEN SET A RESERVE @ 50,000 EACH. (THIS COMES FROM THE REINSUREDS ALSO). IF THEY CAN CLOSE THE CLAIMS AT 20,000 EACH +/- THEN THEY HAVE JUST MADE TAX FREE PROFIT OF 30,000 PER CLAIM. THAT EQUALS 30,000,000.00 TAX FREE PROFIT. ****remember they have to have this money ready and available. if they do not use it they do not put it back. HELLO!!! ANYONE GETTING THIS!!!!

  • January 9, 2007 at 10:18 am
    Mjolnir says:
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    First of all Rob, stop yelling at us. Second of all, at what point did profit become a dirty word? You\’d prefer that all business run like the federal government? You scream like my two-year-old over profits in the insurance industry, but you seem to have no problem taking a paycheck and then asking for a raise. If your biggest gripe in the world is that insurance companies manage to turn a profit by selling a product then you should probably move to a socialist country and take advantage of their system. In some countries nobody makes a profit- including you.

  • January 9, 2007 at 12:26 pm
    Rob says:
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    I\’ve seen it applied tax free in several small WYO\’s. The hollywood shuffle.

    Anyway, for all you critics. The process is unethical. FACT! The reserves process has become revenue generators. FACT! That was not the intent and you guys know it! It is not A FAIR market for competition. A different carrier cannot fairly compete against the revenue generated by UNREGULATED reserves. FACT!

  • January 9, 2007 at 12:51 pm
    Nonwoven Guy says:
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    Screaming fact after a statement doesn\’t make it so. There is no universal set of ethics in all situations, so your first comment is purely opinion. Reserving works itself over time and states will ask to see histories over time. Over reserving now will catch up to you later. So, any benefit from over reserving now unwinds itself in the long run…which is what any insurer must look at. Over reserving and raising rates in the short term will also cost you volume in the short run, unless the industry moves as one. I don\’t see that happening at all. Your last statement is nonsensical in some senses and implies that only some are behaving badly. I thought the whole industry is to blame, but you note small WYO\’s. Not sure what those are.

  • January 9, 2007 at 1:57 am
    ROB says:
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    I AM STUPID

  • January 9, 2007 at 2:09 am
    bob laublaw says:
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    although i agree with most of your post. LOL (Lloyds of London or any London based syndicate) sucks. Their policies exclude almost everything, they deny coverage for everything, they never pay on any claim whether indemnity or expense. LOL actually makes AIG look like a good insurance company. Many of my clients have had to sue (LOL &/or AIG) for payment.

  • January 9, 2007 at 2:10 am
    Misty Meanor says:
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    Maybe the villian(s) are those people that scream the liberals or conservatives are at fault.

  • January 9, 2007 at 2:13 am
    Hal says:
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    Claiming that all the people who work from the London insurance markets are bad people or sell bad policies is like claiming that all the people who live in Milwaukee are crooks. It\’s just a stupid statement.

  • January 9, 2007 at 6:58 am
    Stat Guy says:
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    I just love how simple this all seems but to really appreciate how this REALLY works, why not find out how much the industry is taxed, assessed, and otherwise penalized to PAY for losses that they did not agree to underwrite nor get a premium for. Why do you think so many companies go belly up? Insurance is the single most underperforming segment of our capitalistic system; compare the average ROI against other Fortune 500 companies. When was the last time, GE had to pitch in to help out Westinghouse or Ted Turner paying into a fund to keep TimeWarner in business? But government won\’t let insurance companies compete without \”guidance\” because insurance is too necessary to the nation\’s bottom line…..everyone wants to ***** when insurance companies guarantee to pay losses but keep the money when the losses are light; but no one cares when they have to pay over and above what they were paid for….you pay for the promise of protection and when that protection wasn\’t required, they get to keep the money anyway…..you call that a scam?

  • January 10, 2007 at 7:29 am
    Rusty says:
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    The link to the complete study including charts just links to the CFA home page. Please provide a more complete link.

  • January 10, 2007 at 12:50 pm
    wudchuck says:
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    we keep losing the fact of what insurance is all about. insurance is based on risks associated from the data that we have collected. insurance industry made a big profit due to claims frequence was down and the catastrophic events was nil. the industry wants to make a small profit and usually lowers premium to offset. the industry is not like a gas company which thrives on profit. remember it said it had to raise price of gas. in reality, the report came out — they made a huge profit when the price of gas had been raised to almost $3@ gallon. we did not complain as much as or fight as much about the price of gas. Insurance industry thrives on retention of customers and lowering the premiums based on risks/profit.

  • January 10, 2007 at 2:05 am
    bob laublaw says:
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    maybe you are the stupid one since you can not read. I never used the qualifier \”all\” in my statement at all.

  • January 18, 2007 at 4:56 am
    Brian Francoeur says:
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    The insurance industry is clearly engaging in predatory business practices that ultimately line the pockets of CEOs and major stockholders. I can\’t help but wonder how much more the average American can bear before being bankrupted by insurance costs alone. Furthermore, underpayment of claims/compensation has become so ubiquitous as to make it a virtually universal experience.

    I am compelled to pose the question: How much surplus is enough? $30 billion? $100 billion? $500 billion?

    Those of us who must pay for insurance have limited resources. This may be stating the obvious, yet those who keep raising the rates seem utterly unaware of this fact.

    Insurance is useful only if it fulfills its intended role of recovering losses and/or compensation for accidental injury, death, etc. If anecdotal evidence can be claimed, the insurance industry is failing to take care of these responsibilities to the consumer.

    What good will it do to charge premiums so high that the consumer simply cannot afford it? What will happen to the insurance companies then?



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