NU Online News Service

WASHIN G TON --The Consumer Federation of America said it will release new data next week showing insurers overcharged and shifted costs to consumers to reach record profit and surplus levels in recent years.

In addition, the CFA said its Monday press conference will provide detailed information on the strategies it says insurers have used to shift their costs onto consumers and will make recommendations for state and federal policymakers to limit these practices.

Robert P. Hartwig, president of the Insurance Information Institute, took strong exception to the CFA's assertions.

"It's unfortunate that the CFA would find it necessary or appropriate to release a report that is effectively a complete fiction," he said.

The profit numbers cited by the CFA in their report are meaningless, he said. Mr. Hartwig said using return on equity, which provides a better gauge, insurers will "at best meet and likely fall short of" other Fortune 500 companies.

In addition, Mr. Hartwig questioned whether the CFA was, in effect, taking advantage of a good year for the industry.

He said one of the reasons for companies' good results in 2006 "was obviously the lack of major catastrophe losses," and the CFA did not speak out when insurers were in more dire straits.

"I did not see the CFA generate a report in 2005, 2004 or 2001 saying that insurers were charging too little," he said, adding that those three years each represented a new record in catastrophic losses for the industry.

Beyond looking at profits, Mr. Hartwig noted that the CFA does not follow the old Washington adage of "follow the money." If it did, he said, the CFA would see that a majority of that money is reinvested in the industry to increase claims paying capacity.

As an example, he said the insurance industry's profits were roughly $45 billion for 2006, but its ability to pay claims was raised to $42 billion.

"These profits are earned, and the vast majority is reinvested," he said. "And it needs to be reinvested because we know that even greater disasters are lurking around the corner."

A study released last month by the Jersey City, N.J.-based Insurance Services Office and the Property Casualty Insurers Association of America, based in Des Plaines, Ill., found that insurers' net income after taxes rose to $44.9 billion for the first nine months of 2006.

The increase compared to the same period in 2005, which totaled $29.7 billion, was substantially greater than between 2005 and 2004, when the industry made $27.6 billion in nine-months, according to the ISO and PCI.

Beyond the insurer perspective, Mr. Hartwig also said the present is a "great moment for insurance consumers," noting that rates are falling or remaining flat for nearly all coverage outside of hurricane-prone areas. In 2007, he said, the average expense of auto coverage will fall for the first time since 1999.

"Almost every driver is seeing their rates fall," he said, noting that businesses are seeing the costs of coverage decline as well. "Consumers are also seeing a more competitive market."

For the CFA to suggest that insurers are still charging too much, he said, is "misguided and even dangerous." Were companies run the way the CFA appears to want, he said, it would mean going out of business for many and a severely diminished ability to cover significant losses.