Head's up, folks! Come Monday, the Consumer Federation of America will unleash a broadside attack against the industry for allegedly gouging consumers to reap record profits the past two years. The Insurance Information Institute–whose new president, Bob Hartwig, vowed to proactively "neutralize critics" when he took office this week–immediately went on the counterattack, before the report was even released. Why wait to get bashed over the head when you are confident in your defense?
According to our own Matt Brady, CFA on Jan. 8 will detail the strategies insurers have allegedly used to shift their costs onto consumers, along with recommendations for state and federal policymakers to limit profiteering.
But Mr. Hartwig is ready to counter those who would blame the industry for making a profit in a good year. Its unfortunate that the CFA would find it necessary or appropriate to release a report that is effectively a complete fiction, he said, arguing that the industrys return on equity at best meets and likely falls short of that of Fortune 500 companies.
He slammed CFA for piling on the industry after a good year, but not after the hurricane-ravaged 2004 and 2005 seasons. I did not see the CFA generate a report in 2005, 2004 or 2001 saying that insurers were charging too little, he said, adding that those three years each represented a new record in catastrophe losses for the industry.
What would CFA have the industry do? Rebate premiums in a profitable year? Fine, but then insurers should be allowed to retroactively surcharge policyholders after a bad year, right? Good luck with that one! Insurers have about as much chance of getting that system past legislators as the commissioner of baseball would have convincing players to give back money after a bad season!
Besides, consumers outside of disaster-prone areas don't have anything to complain about, Mr. Hartwig rightly pointed out–noting that rates are falling or remaining flat for nearly all coverages–commercial and personal.
No matter what the facts are (and facts don't seem to count for much in politics these days, if they ever did), insurers have a tough sell ahead of them, as does anyone who makes a lot of money. Still, I maintain that insurers shouldn't complain, either. After all, what would you rather do? Defend profits in a good year against complaints by consumers and lawmakers, or try to explain away massive losses in a bad year to angry analysts and shareholders?
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