High Industry Profits: Good or Bad for Consumers?
In case you haven't yet heard, the Consumer Federation of America (CFA) (in conjunction with various national consumer organizations) released a new study yesterday, concluding that the P&C industry has dramatically increased their profits by jacking up premiums and lowering claim payouts. The report also states that the P&C industry has offloaded some costs to American taxpayers.
The findings, which were summarized by Insurance News Net, included these grimace-inducing bits from the study's author, J. Robert Hunter:
Profits and a solid insurance industry are a good thing but unjustified profits and excessive capitalization harm consumers. [...] 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 higher risks.
I couldn't find the full white paper at the URL included in the article, but you can get the five-page gist courtesy of the INN.
Not surprisingly, the American Insurance Association (AIA) issued a rebuttal yesterday, stating that a financially robust industry was good for consumers.
“Insurance company profits are essential to providing insurance coverage relied upon daily by American families and businesses,” according to Gov. Marc Racicot, president of the American Insurance Association (AIA).
Racicot continued, saying:
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. [...] After record losses in 2004 and 2005, the respite provided by 2006 has meant that insurers could replenish the capital that they must have on hand in order to stand behind the policies they sell. Healthy balance sheets better prepare insurers to face future catastrophes, and greatly benefit consumers.
I'm going to weigh the facts a bit more before giving an official opinion, but I can tell you one thing: as a product people don't like to spend money on, consumers are more inclined to gravitate towards the CFA findings than those of the AIA.
