Do some insurers protect their interests or yours?

We have all experienced the personal withering feeling that accompanies the rising fuel prices at the pump.  The news reports a 40 percent fuel price increase for the last 12 months, and the outlook predicts prices will increase to $4 per gallon by peak season this summer. The oil companies report the rising cost is due to increased consumer demand and the high cost of recovering new crude.

At the same time is a huge increase in the cost of our food. Some attribute the skyrocketing cost to the increase in production of ethanol as an alternative fuel which will reduce our dependence on crude oil.

Others counter production of ethanol is a ridiculous proposition because it takes a disproportionate amount of crude oil to produce ethanol, thus defeating the purpose of grain based alternative fuel altogether.  One critic says we are simply taking food off the table and putting it in our gas tanks.

If you are like me, you don’t know who to believe or simply just do not understand, but in the end we must pay the freight. So, I’ve hedged my bet and moved some of my retirement portfolio into petroleum and grain crops just for good measure.

There is, however, another consumer sector flying lower under the radar which is reporting increasing costs with a corresponding decline in value and protection.

A 2007 study reported by the Consumer Federation of America shows property and casualty insurers have, over the past 4 years, continued to charge too much for premiums while underpaying claims.

The author of the report is J. Robert Hunter, a former commissioner of insurance for the state of Texas.  His report, based on data dating back to 1980, confirms insurers’ premium gouging has resulted in higher profits. 

By year end 2006 insurance companies realized record profits for 3 consecutive years while paying lower amounts in claims.  This window of time includes the immediate pre and post Katrina disaster, a time when insurers were justifying premium increases to underwrite their risk.

Former Commissioner Hunter’s study shows for the year 2007 the nation’s 10 largest insurers paid claims valued at 50 percent of premiums received which industry experts refer to this as the “loss ratio.” Hunter’s report confirms the loss ratio for these insurers dropped from 67 cents per premium dollar in 1987 to an all time high of 53 cents in 2006.

To mask these trends, insurers repeatedly unstated their returns on equity.  Hunter’s data showed, during the same time period, some insurers had returns much greater than Fortune 500 companies while minimizing risk by coverage caps, increasing deductibles, canceling polices and increasing rates based on short-term predictions of an increase of future adverse events.

According to Hunter, “the bottom line is that insurers are charging consumers too much. Competition, such as it is, has not protected consumers from excess prices and unfair rating schemes, including the growing reliance on ‘black box’ technologies used by insurers to set rates that are not transparent to the public or accountable to policyholder.”

Springfield attorney Steve Garner sued Allstate on behalf his client who is an Allstate policyholder. Garner’s case alleges Allstate acted in bad faith when it refused to settle a claim being made against its policyholder by a person injured in a car accident. The accident was the fault of the policyholder, but Allstate refused to settle the case within the limits of liability coverage when it had the opportunity to do so and protect its policyholder.

Allstate, the case claims, was attempting to protect its own interests while gambling the personal assets of its policyholder, all of which resulted in judgment being entered against the policyholder far in excess of the insurance coverage.  

“For people involved in suing insurance companies for ignoring their insureds, it’s been clear for 20 years that the insurance companies have been abandoning their duties and using their claims units as profit centers at the expense of their insureds,” says Garner.

This has been my experience with many insurance companies during the course of my 30 years of practice both representing and suing insurance companies. In fact, 15 years ago I refused to represent insurance companies any further because of their lack of concern for their insureds. 

Garner’s case against Allstate is pending in the circuit court in Independence.

The judge has ordered Allstate to produce a manual entitled the “McKinsey Report” which purportedly shows how the company profited on the backs of policyholders. There must be some truth to the allegations because Allstate is being fined $25,000 per day for contempt of court for refusing to hand over the McKinsey Report and the total has reached $4 million and is counting.

Jay Angoff, former commissioner of insurance for Missouri, says Hunter’s report makes clear of the importance of pro-consumer state insurance commissioners and private rights to sue insurance companies.  But strong lobbying efforts and big insurance money make it difficult to even the playing field between consumers and their insurers. 

Angoff points out, “most state insurance commissions have the authority to prohibit unfair practices prospectively but have no authority to order refunds. So it is essential that consumers themselves have the right to sue for statutory violations: otherwise, they have no practical remedy.” 

The strength of insurance companies in our state legislatures throughout the country has resulted in a “catch us if you can” approach to premium gouging leaving a consumer’s private right to sue the only meaningful method to keep them in check.  And, enforcing consumer rights comes at great expense and risk to the insured.  Thus, think of the unfair practices that fall through the cracks and never see the light of day. 

Remember too, it was the insurance industry that was a huge driving force and the big money behind tort reform legislation in 2005 which limited, in many cases, the amount injured people can recover in medical malpractice and workers compensation cases, and which dictates the counties in which people can enforce their private rights.

Hmmm…., all of this kind of puts a different spin on the “goods hands people” and all the others insurers, don’t you think?