[StBernard] Underpaid claims cited in insurance profits

Westley Annis westley at da-parish.com
Tue Jan 9 22:42:22 EST 2007

But industry credits quiet storm season

Tuesday, January 09, 2007

By Bruce Alpert

WASHINGTON -- Record profits for the insurance industry one year after
Hurricane Katrina are a result of excessive premiums, reduction of coverage
in coastal areas like Louisiana and underpaying claims, according to a study
by the Consumer Federation of America.
Insurance industry representatives disputed the report Monday, saying
relatively high profits in 2006 reflect a relatively quite hurricane season
that was desperately needed after record payouts from hurricane claims in
2004 and 2005.

In its report, the Consumer Federation said states should step in by
imposing tougher regulations. It also recommends that coastal states like
Louisiana consider filling the void left by companies dropping coverage in
hurricane-prone communities by working with nearby states to create a
wind-risk pool. Such a system would spread risks, and give consumers more
bang for the buck, the report said.

After Hurricane Katrina, many consumers complained that they weren't treated
fairly by their insurance companies. J. Robert Hunter, director of insurance
for the Consumer Federation, said the latest data support the complaints.
The percentage of premiums paid out in benefits continue to drop, he said,
from 75 percent in the late 1980s to slightly over 60 percent in 2005.

"Insurers are paying less and less of the premium dollars they receive in
benefits to consumers," Hunter said. He said that the industry was
profitable in 2004 and 2005, despite an unprecedented number of
hurricane-related claims, and that in 2006 pre-tax profits increased by more
than $30 billion for property/casualty insurers.

Marc Racicot, president of the American Insurance Association, said the
Consumer Federation of America is ignoring one major fact: that without the
potential for high profits in relatively quiet years investors won't put
their money in insurance.

"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 investors will take their capital elsewhere and that business will cease
to exist," said Racicot, the former Republican governor of Montana.
"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."

Robert Hartwig, president and chief economist for the Insurance Information
Institute, said that with elevated hurricane activity predicted over the
next 15 to 20 years, insurers needed a relatively quiet year in 2006. The
institute is a research organization financed by the insurance industry.
Hartwig said insurers are building capital after paying out $80 billion in
insured losses during the 2004 and 2005 hurricane seasons, in part to comply
with more stringent regulatory criteria that require companies to
demonstrate an ability to pay claims arising from more than one major
catastrophe per year.

Hunter of the Consumer Federation said the high profits can't be justified
on any grounds. "Profits and a solid insurance industry are a good thing,
but unjustified profits and excessive capitalization harm consumers," said
Hunter, a former federal insurance administrator.

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