[Updated: 4/5/2007]In the face of screams for the need for tort reform and claims of skyrocketing premiums in the insurance industry and constant denials there is no insurance cycle and excessive reserves contributing to the physicians leaving the state (whew.... that was a long intro), I found the following story from the Courier-Journal a little "in your face" for the tort reformists and a big "gotcha" too.
Why are the profits increasing? One reason given in the A.P. story is the insurers are placing more risk on the policy holders. Sharing the risk of loss, or spreading the risk of loss, is what insurance is all about, and buying something you hope you don't need is security of mind, and thus the advertising slogans of "Good hand", "Good neighbor", "The Rock", "The Umbrella", "On your side", etc.
But, thrusting the risk on the unknowing for the purpose of increasing profits and profitability when you are a state government regulated industry is a major problem and a black eye for insurance company regulators.
As the story states:
Hunter, a former Texas state insurance commissioner, added that he expects the industry to continue to do exceptionally well because it is pushing more risk and more cost onto policyholders.
"They're making homeowners and business owners take on more of the risk through high deductibles, caps on replacement costs and other limitations," he said. "And they're refusing to renew tens of thousands of homeowner and business property policies, especially along the coasts."
And A.M. Best is no slouch and no slave of those opposing the tort reform agenda which makes this one of those factoids beyond cavil.
Add to this a DOJ report on "Medical Malpractice Insurance Claims in Seven States, 2000-2004" showing that most medical claims files opened are closed without payment, and you get a more complete picture of the money NOT being spent on claims and why profits are up.
And, the chorus continues, (by Warren Zevon):
Poor, poor pitiful me!
Poor, poor pitiful me!
Oh, these boys wont let me be
Lord have mercy on me!
Woe, woe is me!
Oh yes, the subject story of this post!
Insurers' profits soar, but so do complaints [click on heading for entire story]The headline numbers were eye-popping: Allstate reported a record $5 billion profit for 2006. State Farm Insurance's profit climbed 65 percent for the year. St. Paul Travelers' earnings rose sixfold in the fourth quarter, American International Group's grew eightfold. * * *Rating agency A.M. Best estimates that the property-casualty industry earned $68 billion in 2006, up from $49 billion in 2005, and that profits could total $62.2 billion this year if the storm season is relatively benign.
As a result, the policyholder surplus -- essentially reserves to cover future claims -- grew to a record of nearly $500 billion in 2006, A.M. Best estimates.
There also has been a change in how the industry makes its profits.
Insurance companies traditionally made most of their money by investing consumers' premiums, mainly in bonds. But increasingly, they're relying on so-called underwriting profits, which are premiums minus losses and administrative expenses.
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