No Minimum Wages Here!

National consumer organizations and the Consumer Federation ofAmerica released a study in January stating that theproperty/casualty insurance industry has dramatically increasedprofits and surplus in recent years, in part by systematicallyover-charging for insurance and shifting costs to consumers andtaxpayers. The groups say that the report provides extensive datademonstrating that property/casualty insurance companies are payingout lower claims in relationship to the premiums they chargeconsumers than at any time in decades. The combined ratio, thestudy 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 significanthurricane activity,” said J. Robert Hunter, the Director ofInsurance for the CFA and author of the study. “Profits in 2006rose to unprecedented heights, with pre-tax profits likely toincrease by over $30 billion for property/casualty insurers, a jumpfrom the previous record of more than $100 for every man, woman,and child in America. Meanwhile, the amount that insurers paid inclaims and expenses as a percentage of the premium collected in2006 plummeted to a 50-year low.”

The study estimates that after-tax returns for 2006 are $60billion. Profits for the record years of 2004, 2005, and 2006 areestimated to be $149.2 billion. The loss and loss-adjustmentexpense ratio for 2006 is estimated to be 68.3 percent, the lowestin 27 years studied. The years 2003 through 2006 represent four ofthe six lowest loss and LAE ratios in the last 27 years.

In 2006, the study estimates that stock insurers will earn areturn on equity (ROE) of about 20 percent. The study estimatesthat retained earnings for the entire industry are $600 billion asof the end of 2006.

The study further states that the largest loss ever suffered bythe insurance industry, Hurricane Katrina, represented an after-taxloss of $26.3 billion, or 4.4 percent of current surplus. The $12.2billion in after-tax losses experienced by insurers after theSeptember 11th terrorist attacks amounts to about two percent ofsurplus.

The Property Casualty Insurers Association of America issued arebuttal, saying that “the report mischaracterizes the factsinvolving the profitability of the insurance industry,” andinsurance companies and profits are “just good friends.”

OK. They didn't really say the second part. What they actuallysaid was, “rates, as of December 2006, were down eight percent on acomposite basis for all business property and casualty coverageplaced in the United States. In addition, the November 2006consumer price index for personal auto insurance was up about onepercent over last year – less than overall consumer inflation.Generally speaking, insurers do not make money through underwritinginsurance. Over time, premium income is entirely paid out to coverclaims. The charge that insurers are over-charging can not besubstantiated by the facts.”