Property-casualty insurers are getting rich by "methodicallyovercharging consumers," reducing coverage, underpaying claims andhaving taxpayers pay some of the tab for risks that carriers shouldcover, the Consumer Federation of America charged in its latestsalvo against the industry.

Using a number of common measures of financial health, the CFAstudy found that despite the fact "balance sheets forproperty-casualty insurers are in better condition overall than atany time in history," with record profits and low losses in recentyears, prices remain too high for too many buyers.

The report came under immediate fire from insurerrepresentatives as a repetition of old and "misleading"allegations, with Insurance Information Institute President RobertP. Hartwig calling it "fatally flawed."

The report said the industry's "pure" loss ratio--the actualamount of each premium dollar insurers pay back to policyholders inbenefits--was only 54.6 cents in 2007.

"Over the past 20 years, the amount paid back as benefits hasdramatically declined from over 70 cents per premium dollar,indicating a huge loss in the value of insurance to consumers," thereport added.

"Consumers ultimately pay the price for the unjustified profits,padded reserves and excessive capitalization that exist right nowin the insurance industry," said CFA's director of insurance, J.Robert Hunter.

He said his analysis indicates that "over the last four years,the typical American family has paid $870 too much" for their p-cinsurance coverage.

Mr. Hunter's study estimates that insurer after-tax profits for2007 are about $65 billion--just under the record level set in2006. If insurers release even a small part of their swollenreserves as profits, the total for 2007 will exceed those of 2006,he said.

Total industry profits from 2004 to 2007 are estimated to be$253.1 billion, he added.

Meanwhile, he said the industry's loss and loss adjustmentexpense ratio for 2007 is estimated to be 66.7--the second-lowestin the 28 years studied. Five of the seven lowest loss and LAEratios in the last 28 years have occurred since 2003, according toMr. Hunter.

He said CFA's study also estimates that, in 2007, publiclytraded insurers will earn a return on equity of over 19percent--well in excess of what is required by investors, Mr.Hunter contends.

The lower industrywide ROE that insurers report--about 14percent--underestimates the industry's actual return, according toMr. Hunter, who is a former actuary, Texas insurance commissionerand federal insurance administrator.

Insurers, according to CFA's analysis, "have succeeded at beinginsulated from risk" through the "wise use of reinsurance," henoted. But he said profits were unfairly boosted throughanti-concurrent causation clauses, caps on rebuilding costs, limitson compensation for bringing a building up to code, and throughunreasonable price hikes.

He said that while some markets are seeing prices come down abit--mostly away from coastal areas--such reductions are "toolittle, too late," adding that "much more needs to be done."

Insurers, according to Mr. Hunter, have maintained "sharp limitson coverage and availability" while imposing "harsh homeowners rateincreases and using computer-designed programs created tosystematically underpay claims."

Mr. Hunter said taxpayer subsidies have also reduced insurercosts, citing the Terrorism Risk Insurance Act that Congressextended last year. The CFA study estimates that insurancecompanies have received a subsidy of about $4 billion to datebecause they do not have to pay premiums for the terrorismreinsurance provided by the federal government.

"Some insurers have urged Congress to create a similar programto cover natural disasters," Mr. Hunter noted.

Insurers have also received significant taxpayer support at thestate level, he said, through the creation of pubic "insurers oflast resort." The existence of such residual markets allowsinsurers to "cherry pick" by insuring lower-risk householdsthemselves while dumping higher-risk ones on the state carrier, headded.

"Only Florida has taken steps to end this practice," hesaid.

Insurance association leaders lined up to defend the industryand counter allegations of price-gouging and market misconduct byCFA and Mr. Hunter.

Mr. Hartwig, an economist by trade, in a statement called thestudy "fatally flawed" and said it "grossly distorts the financialposition of auto, home and business insurers."

Mr. Hartwig said the study criticizes private auto and homeinsurers but actually includes data from government-run insurersthat sell, among other coverage, workers' comp insurance, therebyartificially inflating its figures for industry-retained earningsor policyholder surplus.

The CFA, he said, "compounds this error by double-counting tensof billions of dollars in surplus on the books of individualinsurers. Consequently, the CFA overstates the industry's claimspaying capacity by approximately $160 billion in 2007."

CFA, Mr. Hartwig, said, estimates that policyholder surplus in2007 totaled $687 billion, when the actual figure is approximately$530 billion--a difference of 30 percent.

An improved capital position, said Mr. Hartwig, will helpinsurers pay future large-scale disaster losses, as well as meethigher capital requirements imposed on them by rating agencies inthe wake of storms like Hurricane Katrina--which, he noted,produced insured losses of $41 billion.

Mr. Hartwig also challenged the notion that insurers were payingless to consumers. "Insurers are protecting more cars, homes andbusinesses than any time in U.S. history, and have been anessential component of the country's economic growth engine fordecades," he said.

"The insurance industry has paid out hundreds of billions ofdollars in insured losses over the past few years, and insuranceproceeds constituted the single largest source of critically neededfunds contributing to the stabilization and recovery of the GulfCoast's economy after Hurricane Katrina. So to say claims payoutscontinue to drop is absurd," he concluded.

"Predictably, Bob Hunter and the Consumer Federation of Americaare once again ignoring the facts and using the same old, tiredarguments to mislead the public into believing something that isn'ttrue," said Marc Racicot, president of the American InsuranceAssociation.

"Each year, the CFA issues another report with essentially thesame allegations, and its most recent claims of market misconductare no more reflective of the actual market conditions than theywere when they issued a similar report a year ago," said DavidSampson, president and chief executive officer of the PropertyCasualty Insurers Association of America.

"A healthy and strong insurance industry is good for consumers,because this enables insurers to have sufficient capital to payclaims when major catastrophes occur and spurs greater competitionamong companies," he added.

PCI said that according to data compiled by MarketScout--anonline market out of Dallas that produces a monthly "MarketBarometer" survey--rates as of November 2007 were down 15 percenton a composite basis for all U.S. commercial coverage.

PCI also noted that the November 2007 Consumer Price Index forpersonal auto insurance was up only about 0.2 percent--much lessthan the 4.3 percent increase in overall consumer inflation.

"Profits for 2007 are in large part due to a year that has beenabsent of major catastrophe losses, and only offsetless-than-stellar returns achieved in previous years," PCI said ina statement.

Despite the financial health of the industry as a whole, PCIofficials noted that industrywide figures are for all lines ofbusiness--from auto to workers' comp, and in all parts of thecountry.

"The national numbers demonstrate that through investment gainsand sound risk management in states not exposed to the extremes ofhurricane losses, the industry is performing well," said PCI'schief economist, Genio Staranczak.

Franklin W. Nutter, president of the Reinsurance Association ofAmerica, focused on the CFA report's comment that "in recent years,insurers have reduced their financial risk by the wise use ofreinsurance."

Indeed, he said, reinsurers have made "extraordinary financialcontributions in response to the most significant series ofcatastrophic events in U.S. history," adding that "since 2000,reinsurers have paid roughly $20 billion for 9/11 claims; $3billion in claims for the 2004 hurricane season; and $27 billion inclaims for Hurricanes Katrina, Rita and Wilma in 2005."

However, such losses cost the industry dearly, he said, notingthat "reinsurers did not make an underwriting profit in the U.S.for over 20 years, until 2006 and 2007, when no major hurricaneshit U.S. soil."

Indeed, he added, "in 2001, reinsurers paid $1.40 in claims andexpenses for every dollar of premium," and $1.26 in 2005.

"It is curious," Mr. Nutter said, "that the CFA report wouldrecommend more state government reinsurance funds, like Florida's,yet soundly criticize government and taxpayer-backed subsidies forinsurers, upon which the Florida fund is based. What is the logicof more state taxpayer-funded reinsurance to insurers in thecontext of criticizing insurer profits?"

Calls for "actuarially" sound state reinsurance, per the CFAreport, "defy experience and political logic," according to Mr.Nutter.

Pointing to broker reports for the Jan. 1 reinsurance renewalsthat highlight abundant reinsurance capacity for catastrophe risk,dropping rates and a "buyer's market," the CFA is correct about onething, he added--the reinsurance market wants to write catastropherisk.

Thus, suggested Mr. Nutter, "encourage [private reinsurance],don't displace it with expanded taxpayer subsidies to insurersthrough state reinsurance programs."