What the insurers don't tell you


By Tom Blackburn, Palm Beach Post Editorial Writer
Monday, October 28, 2002

The insurance industry -- you may be pleased to hear, as you recover from your premium notice -- is on "The March to Profitability."

That's the title of an eight-page advertising feature the industry paid for -- ultimately with your premiums -- in the Oct. 28 issue of Business Week. I usually pass over sections of puffery that advertising departments write with the help of advertisers. But I read this one, and then couldn't wait to pass on the message to those who pay insurance premiums and those who wish they could find a company to cover their home or condo.

The industry, the puff says, "staged a remarkable recovery" from the events of 9/11/01, surviving "the stock market decline that has hurt so many other sectors over the past 12 to 18 months." Insurance company stocks are up again after falling only 1.9 percent for 2001, compared with declines of 12 percent in the Standard & Poor's 500 Index and 21 percent in the Nasdaq." Message for investors: Happy days are here again.

That message isn't for policyholders.

How did the companies avoid "what could have been a catastrophe of even greater proportions than it was"? The section explains.

First, they said they would pay claims from the terrorist attacks, and they did. That's like an automaker saying its cars will run or Coca-Cola assuring us that its cans always contain Coke.

A "more important factor" is reinsurance. Not only did insurance companies pay customer's claims, but the companies with whom they reinsure themselves paid their claims. Hooray for free enterprise! But there isn't enough reinsurance, they say. The government needs to reinsure the reinsurers. Do that, and profits could go on forever.

Finally, the industry is addressing its "most serious problem" and one "that appears to be of its own making." Ready for it? It's "underpricing." That's right, you weren't paying enough, but "like a sharp student, the insurance industry has learned from its mistakes quickly."

By the April-June quarter of this year, commercial insurance rates had risen by 20 percent, to as much as 50 percent since Sept. 11. "In addition to raising premiums, insurance carriers 'continue to tighten terms and conditions with much tighter underwriting,' according to the Council of Insurance Agents + Brokers." Examples include not paying for mold or pollution damage. A survey showed that "fewer than half of all commercial customers held any terrorism coverage at all."

So, while property insurers wait for government to take the last of the risk off their hands, they bask warmly in five pages of congratulation for being great managers.

That is how the insurance industry wants investors and other businesses to see it, not lawmakers and customers. When the industry talks to lawmakers, it's to say that companies are about to be driven out of the state by the impossibility of making money. I can't remember a time in a life spent in several states when the price of some kind of insurance was not soaring skyward because of something that could be fixed only with new laws the industry wanted. When I moved from New Jersey to Florida in 1984, I left a crisis in auto insurance and came to a crisis in commercial liability. Lately, the universal cure is abolition of lawyers.

Legislatures pay attention because insurance occupies a privileged position in the grand scheme of things. In this land of the free, rich and poor alike can decide which meals to skip to pay for prescription medicines, but they can't choose to skip premiums on property or auto insurance. Banks insist on the first before giving a mortgage, and the state demands the second before it renews auto tags.

It's only obvious, not surprising, that property insurance companies can make money by raising prices and cutting what they pay out. Banks, in this case, hold the gun to customers' heads.

No other business enjoys such helpful assistance. Every American is free to swallow his or her loss and not hire a hated lawyer if somebody does him wrong. All are free not to seek medical aid or make repairs. But they are required by law to insure themselves against many possible wrongs anyway.

So commercial property insurance could increase by up to 50 percent at the same time as prices for computers dropped by 21 percent, airline fares by 4 percent, clothing by 2.2 percent and new cars almost 2 percent.

Taxes fell, too, but if I could trade in what I saved in four years of Bush Brothers tax cuts for the premiums I used to pay for homeowners insurance, I'd come out ahead. You, too?

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Email the author: tom_blackburn@pbpost.com