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Insurance industry has record year in 2004

Threats of an economic collapse if the federal government didn't bail out the insurance industry for terrorism coverage after Sept. 11 have not materialized and the property/casualty insurance market is stable, according to a study by the Center for Justice & Democracy (CJ&D).

In fact, according to the CJ&D, 2004 was the most profitable year ever for the insurance industry as it easily overcame the fallout from September 11 and four major hurricanes that battered Florida during the summer of ’04. Despite those calamities, the insurance industry profits are booming like never before. The CJ&D sites these supporting facts:

  • The property-casualty insurance industry’s after-tax net income for 2004 was the highest ever: a record-breaking $38.7 billion according to the Insurance Services Office (ISO).
  • Income in 2004 was up 29 percent from 2003, and comes on the heels of an earlier, astounding 997 percent increase from 2002 to 2003, according to the ISO.
  • The property/casualty industry’s surplus also is at the highest level ever, rising 13.4 percent in 2004 to over $393 billion, the ISO says.

In addition, the CJ&D points out that health insurers’ profits have also skyrocketed, as they raise premiums and limit reimbursement to doctors, according to an article in the Investor’s Business Daily.

  • "Despite a weak economy and soaring medical costs, U.S. health insurers have raked in earnings at a far greater pace than the rest of corporate America, with annual profits and margins doubling in the last four years," reported in the Investor’s Business Daily.
  • "Average pay for the five top executives at [the top] health insurers almost doubled [over the last four years] to $3 million a year," reported in the Investor’s Business Daily .
  • Health insurers raised premiums 59% during the same four-year period, according to a report by the Kaiser Family Foundation.

While telling lawmakers that payouts to injured patients are costing insurers too much money, internally the insurance industry has been "celebrating" its rapidly rising profits.

  • "The financial and underwriting performance of the property/casualty insurance industry during 2004 was the best in years." — Dr. Robert P. Hartwig, Insurance Information Institute
  • "The property/casualty industry can look forward to another year of underwriting profits… ‘Despite a softening market, we fully expect that the underwriting profits of 2004 will continue at least into 2005.’" — Conning Research and Consulting
  • "I think the industry should have peak (return on equity) years the next couple of years." — Cliff Gallant, Keefe, Bruyette & Woods.
  • "[W]e see clear indications [in the medical malpractice line] of progress toward profitability…. [O]verall the news is good." — Stephan Christiansen, Conning Research and Consulting.

The study, "Shakedown: How the Insurance Industry Exploits a Nation in Times of Crisis," shows "how the insurance industry freely intimidates lawmakers and creates 'crisis' atmospheres to promote its legislative agenda while at the same time escaping any meaningful public scrutiny or regulatory control," says CJ&D Executive Director Joanne Doroshow.

The insurance industry threatens to pull the rug out from under the U.S. economy in order to get what it wants.

"The property/casualty insurance industry has repeatedly threatened to pull the rug out from under the U.S. economy, state governments, critical businesses and professions in order to get what it wants," says Doroshow. "Today, we are seeing this power used to push for an indefensible federal bailout to cover losses from terrorist attacks, ostensibly in order to cut insurance rates despite evidence showing that such measures won't reduce premiums.

Insurance industry representatives had told Congress, according to Doroshow, that if insurance companies didn't get a federal bailout then "banks would stop lending money, new construction would grind to a halt, and businesses would collapse. The blow to the U.S. economy would be crushing."

Contrary to early insurance industry predictions of $70 billion in losses, the CJ&D study shows that even as early as the end of January 2002, the insurance industry had more money in capital than it did before Sept. 11.

Insurance still available

Although many larger businesses and, specifically, businesses that are considered "terrorist target risks" have to pay thousands of dollars more for terrorism coverage, the CFA says it is still available. Koziol agrees that when coverage is available, the prices are very high.

Hunter says price hikes for consumer premiums from insurance companies appear to be consistent with normal cycles in insurance premiums even before Sept. 11.

The increases, he says, "have been accelerated by the events of Sept. 11 but not caused by them." Hunter doesn't anticipate prices remaining high for as long as they have in past cycles because the industry is already "overcapitalized," having more money on the books than it did before the attacks took place.

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