Hunter, Hartwig Clash Again

Here we go again! Heavyweights Bob Hunter, insurance director of the Consumer Federation of America, is trading blows with Bob Hartwig, president of the Insurance Information Institute, over whether the industry is methodically overcharging consumers and shortchanging policyholders on coverage and claims. Who will win the latest round in “The Battle Of The Bobs”??? (Both Bobs responded to my blog over the weekend. Read on!)

(To read all about the CFA report and industry reaction to it, click here.)

If you recall, back in November, I refereed the first clash of these titans during NU's inaugural Virtual Conference. One of the “rounds” focused on industry profitability.

Armed with a new CFA report, Mr. Hunter hammered the industry for price-gouging and ripping off consumers on coverage and claims. He said his analysis indicates that over the last four years, the typical American family has paid $870 too much for their p-c insurance coverage.

Meanwhile, Mr. Hartwig led the counterattack, with a chorus of industry leaders behind him. He called the CFA allegations misleading and dismissed the report on which their charges are based as fatally flawed.

Who is right? I believe Mr. Hunter is overstating his case when it comes to pricing, but I lean towards his side on coverage and claims issues.

Mr. Hunter charged that with record profits in the past two years, insurers are pricing their products way too high. But I didn't hear him complain during the record hurricane years of 2004 and 2005, with tens of billions paid out in claims, that insurers had been undercharging homeowners in disaster-prone states, in part due to rate suppression by politically-motivated regulators, even though that was certainly the case.

Mr. Hunter claims that in 2007, publicly-traded insurers earned a return on equity of over 19 percent, compared to the 14 percent cited by the industry itself. The ROE was higher than normal for this industry, but certainly not stellar by other industry standards.

In any case, Mr. Hunter argued that the industry's return is well in excess of what is required by investors. Isn't that for the market to decide? The industry is overcapitalized now, and is returning funds to shareholders via dividends and share buybacks.

Mr. Hunter would probably prefer that the excess be plowed back into the market in the form of lower rates, but with premiums already falling, that could be a dangerous strategy indeed for the industry's long-term health.

Mr. Hunter also bases his charges on some faulty assumptions–looking at industry-wide profits, for example, rather than profitability in catastrophe-exposed states.

Mr. Hunter has a litany of other complaints, but the only one that really resonates with me is about industry claims-handling. I am no fan of the anti-concurrent-causation clause, which strikes me as fundamentally misleading in the way it is executed. The industry paid out billions for Katrina losses, but I think thousands of policyholders with both wind and flood damage probably got screwed by carriers conveniently blaming uncovered flood for the total loss in many cases.

There are also obvious problems in other claims areas, with some carriers believing all they are selling is the right to sue. I, for one, am eager to see Allstate forced to turn over its by now infamous McKinsey Company recommendations–which allegedly instruct the carrier on how to manhandle claimants. (If that's not what it says, why won't Allstate release it?)

In any case, once again the industry's already tarnished reputation is taking more of a beating. Give this round to Mr. Hunter, although the fight is far from over.