No Minimum Wages Here!
National consumer organizations and the Consumer Federation of America released a study in January stating that the property/casualty insurance industry has dramatically increased profits and surplus in recent years, in part by systematically over-charging for insurance and shifting costs to consumers and taxpayers. The groups say that the report provides extensive data demonstrating that property/casualty insurance companies are paying out lower claims in relationship to the premiums they charge consumers than at any time in decades. The combined ratio, the study contends, appears to be the lowest on record in 50 years. Profits, on the other hand, were high.
“We saw record profits in 2004 and 2005 despite significant hurricane activity,” said J. Robert Hunter, the Director of Insurance for the CFA and author of the study. “Profits in 2006 rose to unprecedented heights, with pre-tax profits likely to increase by over $30 billion for property/casualty insurers, a jump from the previous record of more than $100 for every man, woman, and child in America. Meanwhile, the amount that insurers paid in claims and expenses as a percentage of the premium collected in 2006 plummeted to a 50-year low.”
The study estimates that after-tax returns for 2006 are $60 billion. Profits for the record years of 2004, 2005, and 2006 are estimated to be $149.2 billion. The loss and loss-adjustment expense ratio for 2006 is estimated to be 68.3 percent, the lowest in 27 years studied. The years 2003 through 2006 represent four of the six lowest loss and LAE ratios in the last 27 years.
In 2006, the study estimates that stock insurers will earn a return on equity (ROE) of about 20 percent. The study estimates that retained earnings for the entire industry are $600 billion as of the end of 2006.
The study further states that the largest loss ever suffered by the insurance industry, Hurricane Katrina, represented an after-tax loss of $26.3 billion, or 4.4 percent of current surplus. The $12.2 billion in after-tax losses experienced by insurers after the September 11th terrorist attacks amounts to about two percent of surplus.
The Property Casualty Insurers Association of America issued a rebuttal, saying that “the report mischaracterizes the facts involving the profitability of the insurance industry,” and insurance companies and profits are “just good friends.”
OK. They didn't really say the second part. What they actually said was, “rates, as of December 2006, were down eight percent on a composite basis for all business property and casualty coverage placed in the United States. In addition, the November 2006 consumer price index for personal auto insurance was up about one percent over last year – less than overall consumer inflation. Generally speaking, insurers do not make money through underwriting insurance. Over time, premium income is entirely paid out to cover claims. The charge that insurers are over-charging can not be substantiated by the facts.”
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