Below are excerpts from a report released Monday by the Consumer Federation of America (www.consumerfed. org), ``Property/Casualty Insurance in 2007: Overpriced Insurance, Underpaid Claims, Declining Losses and Unjustified Profits.''
For policymakers and Americans who do not pay close attention to insurance markets, it would be easy to assume that the property/casualty insurance industry is in financial peril because of the risk inherent in offering insurance in a world where weather events and terrorism attacks seem to be more frequent and more catastrophic.
It is not surprising, then, that when insurance companies petition Congress for federal assistance in covering terrorism or natural catastrophe losses, senators and representatives are often inclined to believe that such assistance may be necessary. When coastal states are asked to create risk pools so that insurers have a place to steer higher-risk consumers, state regulators and legislators often agree. When insurers sharply boost premiums on the coasts, increase deductibles, refuse to renew policies or otherwise cut back coverage, policymakers of- ten accept these steps as necessary to help the insurance business meet the huge challenges it faces.
The perception is that insurance has become an inherently unstable business that generates profits insufficient to compensate for the extraordinarily high risk insurers face.
The financial reality of the industry couldn't be more different than the carefully cultivated perception. Insurers are paying out lower claims, charging higher premiums, reaping greater profits, and are more financially solid than at almost any time in history. Moreover, insurers are poised to continue to reap hefty profits for years.
The industry has been remarkably successful in recent years in maximizing profit through rate increases, coverage reductions, inappropriate claims' practices and the shifting of high risks onto taxpayers. As a result, insurers are underpaying losses as a percentage of premiums. In fact, insurers have significantly abdicated their corporate purpose as risk takers and sentinels for safety.
• States should strengthen weakened regulatory systems to gain control of excessive rates, inadequate coverage and claims abuses.
• Coastal states should consider uniting to develop a coastal weather modeling system of their own, perhaps starting with the model developed by Florida State University. This model should be used to test the accuracy of projections developed by private modelers and to evaluate insurer rate requests.
• CFA and Americans for Insurance Reform have proposed creating a state fund in Florida to cover all wind risk in the state. Such a program could save Florida taxpayers at least $3 billion a year through the more efficient delivery of insurance, the ability to build reserves tax-free and nonprofit status.
• Congress should authorize states to use interstate compacts to create multistate risk pools to cover wind risk.