Hartwig Hits Profit Critique

CFA plans to release new data it contends will show that overcharging and shifting costs to consumers helped insurers reach record profits and surplus levels in recent years.

In addition, CFA said it would provide detailed information on the strategies insurers have used to shift their costs onto consumers, along with recommendations for state and federal policymakers to limit such practices.

Robert P. Hartwig, president of the Insurance Information Institute, took strong exception to the CFA's assertions. "It's unfortunate that the CFA would find it necessary or appropriate to release a report that is effectively a complete fiction," he said.

Indeed, Mr. Hartwig noted that the industry's return on equity "at best meets and likely falls short of" that of Fortune 500 companies, which he contends is a better gauge of financial health than consolidated profits.

In addition, Mr. Hartwig questioned whether CFA was, in effect, taking advantage of a good year for the industry. One of the reasons for 2006′s good result for companies "was obviously the lack of major catastrophe losses," he said, adding that CFA did not speak out when insurers were in more dire straits.

"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.

Beyond looking at profits, Mr. Hartwig noted that CFA does not follow the old Washington adage of "follow the money."

If it did, he said, CFA would see that a majority of profits generated is reinvested in the industry to increase claims-paying capacity. "These profits are earned, and the vast majority is reinvested," he said. "And it needs to be reinvested because we know that even greater disasters are lurking around the corner."

Beyond the insurer perspective, Mr. Hartwig also described this as a "great moment for insurance consumers," noting that rates are falling or remaining flat for nearly all coverage outside of hurricane-prone areas. In 2007, he said, the average expense of auto coverage will fall for the first time since 1999.

"Almost every driver is seeing their rates fall," he said, noting that businesses are seeing the costs of commercial coverage decline as well. "Consumers are also seeing a more competitive market."

For CFA to suggest that insurers are charging too much, he said, is "misguided and even dangerous." Were companies run the way CFA appears to want them to be, he said, it would mean going out of business for many and a severely diminished ability to cover significant losses.

Callout:

CFA will accuse insurers of price-gouging and shifting costs to consumers in its Jan. 8 report