The latest insurance company data reveals that industry cycles–not losses–determine the rates that insurers charge, a consumer advocate announced today
J. Robert Hunter, Director of Insurance for the Consumer Federation of America, said industry figures "provide continuing evidence that the skyrocketing insurance rates of 2000 to 2003 have led to record industry profits, but commercial insurance rates have stabilized or dropped in almost every sector, including medical malpractice."
Mr. Hunter, a co-founder of Americans for Insurance Reform and former Texas insurance commissioner and federal insurance administrator, said the drop in prices has been underway for three years as the country experiences a sustained soft market.
The current soft market of falling rates follows a hard market of large price hikes that hit most lines of insurance in the early 2000s, particularly medical malpractice, said Mr. Hunter.
"It now appears clear," he commented, "that the industry's record profits in 2004 and 2005, and the exceptional record profit about to be reported for 2006, are due in large part to the years of huge rate hikes in the earlier part of the decade, which were not caused by any accompanying increase in claims or payouts."
According to Mr. Hunter, "inflation-adjusted payouts and claims never increased at all during this period. Rather, this is all part of a well-documented cyclical phenomenon for the property-casualty insurance industry."
Joanne Doroshow, AIR co-founder and executive director of the Center for Justice & Democracy, said AIR and other consumer organizations have long maintained that the "crisis" of skyrocketing insurance rates for doctors and other policyholders would end when the insurance cycle stabilized.
She said they had argued stabilization "would occur whether or not 'tort reform' laws were enacted. Indeed, this is exactly what is happening now."
Ms. Doroshow said "what drives rate hikes has little if anything to do with the legal system." Indeed, according to the third-quarter Council of Insurance Agents and Brokers survey of market conditions, commercial insurance rates are now dropping significantly across the country, irrespective of enactment of "tort reform."
She noted that even medical malpractice insurance rates have dropped 1 percent this quarter, as they did the first quarter of the year.
AIR noted that newly released data shows that insurance company profits for 2006 are at record highs. The U.S. property-casualty industry's underwriting profit for the first half of 2006 was $15.1 billion– 31.8 percent higher than the first six months of 2005 which were already record-breaking.
The insurers, AIR said, had "an incredible 2005, where the property-casualty industry's after-tax net income for 2005 was the highest ever, a record-breaking $44.8 billion. 2005 profits were up 18.7 percent over 2004, which had been the record until 2005."
Mr. Hunter said Council of Insurance Agents and Brokers data shows "that no matter how much insurance lobbyists like to complain about claims, payouts, jury verdicts or the legal system, losses do not determine the rates that insurers charge."
"Rates stabilize during the soft market, in which we are now, irrespective of insurers' losses–such as the large hurricane losses of 2004 and 2005 during which time record profits were earned and most rates in the nation declined. And rates spike during the hard market, which ended three years ago, despite flat claims experience. These odd patterns are driven by the same thing: the insurance industry's economic cycle," Mr. Hunter concluded.
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