The property insurance industry not only racked up near-record profits in 2007 - about $65-billion after taxes - but overcharged American homeowners an average of $870 per household over the last four years, says a new report from major consumer groups.
That study's conclusion - insurers systematically overcharge consumers and underpay claims - was released Thursday by the Consumer Federation of America, Consumers Union and several other consumer groups. The findings blasted a powerful industry about to be challenged anew in Florida on several alleged price-gouging fronts by the state government.
The report by the Consumer Federation, one of the nation's largest and long-standing consumer watchdog organizations, was based on insurance industry data and the companies' financial statements. It estimated insurance industry profits from 2004-2007 at more than $253-billion.
Robert Hunter, director of insurance for the CFA and author of the study, accused the industry of "methodically overcharging consumers, cutting back on coverage, underpaying claims and getting taxpayers to pick up some of the tab for risks the insurers should cover."
Nowhere is that better illustrated, Hunter said, than in Florida, where nearly two-thirds of the property insurance risk is shouldered by the state in the form of Citizens Property Insurance and the Florida Hurricane Catastrophe Fund.
The insurance industry argued that the numbers offered by Hunter - an actuary, former state insurance commissioner and former federal insurance administrator - are wrong. Bob Hartwig, president of the Insurance Information Institute, said that if Hunter included all costs associated with writing insurance, his study would show that for 2004-2005, insurers paid more in claims than they collected in premiums.
One striking finding in the Consumer Federation report is that the insurance industry keepsan increasing portion of the premiums. In the 1980s, insurers returned 72 cents for every $1 of premium charged to policyholders either through benefits or claims. But that figure has steadily shrunk to about 55 cents in 2007, even in years with no major natural disasters.
Hartwig said insurers are investing their available funds heavily in bonds, which offer quick access to their money in the event of a catastrophe. But they are returning smaller and smaller returns to the insurers.
"And if you are getting less from investments," Hartwig said, "you need more from premiums. That the loss ratio the percentage of premiums returned to policyholders is falling because insurers want to increase profits ... that is a total fiction."
Besides writing the CFA report, Hunter helped calculate rate reductions called for by the state Legislature last year. The new law has met with mixed success, and the state is taking several steps to find out why.
The Florida Senate on Thursday created a special committee to address the issue. The Florida Office of Insurance Regulation will hold a two-day public hearing next week with executives of Allstate, which has requested a 42 percent rate hike. And Gov. Charlie Crist last month appointed three lawyers to look for grounds for a class-action lawsuit against the industry for potential collusion.
Insurance companies have found ways around the risk of the business, Hunter charged.
He pointed to 1992, the year Hurricane Andrew struck Florida and insurers paid $1.21 for every $1 they took in.
By 2005, when the Gulf Coast was hit by more costly hurricanes Katrina and Wilma, Hunter said the companies paid back just 72 cents on every $1 of premium.
"They actually made money in the homeowner line," he said of the 2005 hurricane season. "That's pretty shocking."
Not to Charlie Rutz. The Clearwater retiree this month paid his State Farm homeowners premium of $3,200 - nearly twice what it was two years ago.
"Insurance was put together to spread the risk," Rutz said, "and the companies should get a fair return. But billions of dollars? These guys are robbing us. The only thing they don't have is the mask and the gun."
A summary of the report can be found at http://www.consumerfed.org/releases.cfm