Insurers heavy with profits, light on payouts, study finds

WASHINGTON — A consumer group blasted U.S. insurance companies Monday for charging motorists and homeowners more for coverage while paying out less, at a time of record-setting profits.

The Consumer Federation of America's insurance director, J. Robert Hunter, accused the biggest players in the industry of "gouging" the public on their way to an estimated combined after-tax profit of nearly $60 billion in 2006.

Hunter's comments followed the release of a federation study that showed auto and home insurers' profits have surged in recent years — despite billions of dollars in damage from Hurricane Katrina and other storms — in part because they have shifted more costs to consumers and taxpayers.

The portion of premiums paid in benefits by the largest insurers has dropped from 75 percent in the late 1980s to about 60 percent today, the study found.

"It's a combination of gouging" and being too conservative, Hunter said.

But an insurance-industry trade group countered that the companies' profits and their high rates of return for investors is healthy for a risk-based industry that could lose investment capital without an occasional solid year.

The study estimates the insurance industry's profit after taxes in 2006 will be $59.9 billion, shattering the 2005 record of $48.8 billion and 2004's $40.5 billion.

Those profits have been achieved at the same time consumers are receiving less money from claims.

For the first nine months of 2006, Allstate's loss ratio, or the percentage of premiums paid out to policyholders as benefits, was 43.5 percent, the lowest since at least 1987, according to the study.

During the same period, the study found, American International Group's loss ratio was 50.9 percent; St. Paul Travelers' was 46.8 percent; Progressive Insurance Group's was 53.1 percent; Berkshire Hathaway's was 56.1 percent; and Hartford Insurance Group's was 53.2 percent.

Storms not factor

Hunter acknowledged that 2006 profits were somewhat inflated by the lack of a significant hurricane, but he said the companies would have achieved a new high even with storms. He added that rate drops announced recently by some insurers in areas not near the nation's coasts were "too little and too late."

Marc Racicot, president of the American Insurance Association, defended the industry.

"Last year was a fortunate anomaly given that in virtually every year over the past two decades, insurers lost money on their core business operations," Racicot said in a prepared statement. "Healthy balance sheets better prepare insurers to face future catastrophes and greatly benefit consumers."

Still, the Consumer Federation study estimates that retained earnings, or surplus, for the entire industry was $606.7 billion at the end of 2006, up from $551 billion in 2005 and far greater than it says is needed to guarantee a solid and safe industry.

"The largest loss ever suffered by the insurance industry, Hurricane Katrina, represented an after-tax loss of $26.4 billion, or 4.4 percent of current surplus," the report found.

The Consumer Federation reserved its harshest language for Allstate, which last week said it was dropping more than 100,000 additional property insurance customers in Florida.

Following billions of dollars in losses from the 2005 hurricane season, the property and casualty insurer said it would need to shed hundreds of thousands of policies and has since shifted more than 200,000 to other insurers in the state.

Allstate spokesman Mike Siemienas said the company is managing its homeowners-insurance business "for the benefit of all policyholders and believe it is unfair for auto- and life-insurance customers to subsidize homeowner customers as is suggested by the report."

Consumer Federation officials also argued that Congress should let the federal Terrorism Risk Insurance Act expire.

The group estimated insurers have received about $7 billion in subsidies since the act took effect in November 2002 after insurers' costs from the Sept. 11 attacks reached about $32 billion.

Break expires this year

Under the act, which is scheduled to expire at the end of the year, the government agreed to reimburse insurers up to $100 billion in the case of another attack by foreign terrorists.

The federation also urged states to improve their regulatory systems to better control excessive insurance rates, and recommended coastal states create tax-free reserves to cover all wind risks.

"What's best for the American insurance consumer," said Siemienas of Allstate "is a free and competitive marketplace and not one that would be regulated in the way this report suggests."