A new study released by the Consumer Federation of America (CFA), a non-profit advocacy, research, education and service association of 300 consumer groups with a membership of 50 million people, accuses the insurance industry as a whole of underpaying its claims and overpricing its policies – to the tune of $870 per household!

Insurers keeping more premiums than ever before

Released in January 2008, the CFA’s study says that the ‘pure loss ratio’, which is simply the difference in what insurance companies receive in premiums versus what they pay out in claims, has continually decreased over the past 20 years. That ratio, which was over 70 cents for every dollar 20 years ago, was only 54 cents in 2007.

Why insurers get richer…

The study suggests that these ratios have continually declined, leaving insurance companies with more money, for several reasons including increased premiums for those homeowners in coastal areas and for receiving other taxpayer subsidies due to terrorism and catastrophe losses. It’s no secret that the insurance industry spends millions of dollars every year in lobbying costs and ad campaigns to help the system go their way. But how rich are they really getting? Very rich.

2007 may be richest year ever

The study estimates that 2007 may be the “richest year” for the insurance industry yet. It provided the following data showing the increase in the industry’s net income (as a whole) for the past four years, which you can see has more than doubled:

Year 2003 2004 2005 2006

Net Income $31.2 M $40.5 M $48.8 $67.6 M

Although 2007 year end numbers weren’t available, researchers gathered data for the first 9 months of 2007 showing net income of $65 billion – nearly the total for the previous year.

Consumer advice

While the average consumer can’t overhaul the insurance industry, there are some things they can do to protect themselves. The study provided the following helpful advice:

1. If possible, do not do business with a company that has a history of anti-consumer behavior. When purchasing or renewing a homeowner’s policy, consumers can contact their state insurance departments to get information on companies in their areas that have sharply raised rates and cut back coverage in recent years.
2. Carefully review policies at purchase or renewal to determine whether high out of pocket costs will be imposed. Consumers should look to separate deductibles for wind damage, anti-concurrent-causation clauses, mold exclusions, limits on replacements costs and other restrictions on coverage.
3. Consumers who live away from coastal areas should actively shop for better coverage rates. Because insurance companies have overcapitalized, they are looking for new business in lower risk areas. Therefore, rate decreases and better coverage are possible.
4. Demand thorough oversight of insurer actions by state regulators. If consumers have a problem with rates or coverage, they should file an immediate complaint in writing with their state insurance agency and follow up for a response. Consumers should also contact insurance regulators to find out what they are doing to require that rates are fair and reasonable and that insurers are not unjustifiably withdrawing coverage (acting in bad faith).

For additional information on the study, go to: www.consumerfed.org/pdfs/2008_INSURANCE_RELEASE_FINAL.pdf