NU Online News Service, Dec. 16, 2:43 p.m.EST

A hard market now would be “purely for the purpose of pricegouging buyers of insurance, particularly commercial-linesinsureds,” according to an Americans for Insurance Reform reportthat says the industry's “little understood economic cycle” hasbeen used to victimize policyholders for 35 years.

The report, “Repeat Offenders: How the Insurance IndustryManufactures Crises and Harms America,” authored by J. RobertHunter and Joanne Doroshow, says insurers publicly deny theexistence of market cycles and try to use rising prices during hardmarkets as a vehicle to pursue agenda items such as tortreform.

But the report states the hard markets are never caused by jumpsin claims, and tort-reform laws do nothing to prevent hard-marketcycles. “Unfortunately, public officials tend to turn to medicaland insurance lobbyists for explanations rather than to objectiveexperts and data,” says the report.

The report goes on to say that because the industry is exemptfrom anti-trust laws under the McCarran-Ferguson Act, “it cancollude on important components of insurance prices, ananti-competitive practice that is illegal for otherindustries.”

The authors say an example of this practice is being seen nowwhere insurance companies at the bottom of a cycle are pressuringtheir competitors “to stop competing for premium dollars and toraise rates and reserves as an entire industry.”

For the current cycle, the report says the industry is trying touse Hurricane Irene and other 2011 weather events to suggest thatit is in financial trouble. “Hurricane Irene in late August 2011,which was greatly hyped by The Weather Channel but wasn't nearlythe catastrophe that was expected, has been used byinsurance-industry representatives to push the country into a newhard market,” the report says.

It adds, “However, surpluses today…put the industry in anall-time safe financial position, far safer than required, and onemight even say that today the industry is overcapitalized.”

The report urges government action to:

• Require increased data disclosure to state authorities that canbe used to refute allegations about the financial health of theindustry.
• Enact stronger regulations to give insurance departments a “farmore active role” in controlling insurance rates.
• Repeal McCarran-Ferguson, or at least allow the FederalInsurance Office to review its impact.

The report drew criticism from Insurance Information InstitutePresident Robert Hartwig. He says, “While the report says insurersmanufacture crises, the report, in fact, is manufacturing a phantomproblem.”

He says there are no problems in the market today with respectto price or availability, and adds that the report's suggestion torepeal McCarran-Ferguson is a “solution without a problem.”

He questions the report's assertion of collusion among insurers,noting that prices have fallen for 30 quarters in a row until the2011 second half. “It's hard to see evidence of collusion,” Hartwigsays.

Regarding the 2011 weather events and their impact on theindustry, Hartwig says insured losses from catastrophes areexpected to reach $108 billion. But he says while the catastrophesare a challenge, “they have by no means precipitated a 'crisis' as[the report] alleges. Insurance and reinsurance markets remaincompetitive, capacity is available and coverage remainsaffordable.”

Hartwig suggests that over-regulation, rather thanMcCarran-Ferguson, is the real barrier to competition, noting thatjurisdictions that dictate prices, such as the Florida homeownersmarket, have the biggest issues.

He also challenges the report's claim that hard markets arenever caused by jumps in claims. Hartwig says it is “demonstrable”that higher prices result from higher underlying losses.