Americans for Insurance Reform Releases New Study on How the Insurance Industry Creates Insurance Crises Harming Their Policyholders

Thursday, December 15, 2011

For Release                                                                               
December 15, 2011                   

Joanne Doroshow



Consumer Group Calls on Federal and State Officials to Take Immediate Steps
to Prevent a New Crisis, Which the Industry Has Already Instigated


Americans for Insurance Reform (AIR), a coalition of nearly 100 consumer and public interest groups representing more than 50 million people, has produced a major new study called “Repeat Offenders: How The Insurance Industry Manufactures Crises And Harms America.”  The study exposes how the property/casualty insurance industry creates periodic crises where insurance becomes unaffordable or unavailable for everyone from doctors to small businesses to local governments.  These crises are known as “hard markets.”

Written by J. Robert Hunter and Joanne Doroshow[1], Repeat Offenders finds that in the last few months, industry executives have been pushing the industry, including pressuring their own competitors, to start raising rates again for businesses and professionals, setting the stage for a new liability insurance crisis in America. 

“We have asked insurance regulators to stop earlier crises but they have balked and not acted.  This time, they must act to stop unwarranted price gouging,” said Hunter.

Repeat Offenders finds that hard markets, when premiums suddenly skyrocket as they have done three times in the past 35 years, are caused by “a combination of the industry’s own boom and bust economic cycle, anti-competitive (yet legal) underwriting practices, unique and opaque accounting policies, and virtually unchecked power when it comes to regulation of insurance rates.”  Moreover, say the authors, “while the existence of this self-made cycle is clear to insurance industry insiders, insurers often publicly deny the cycle’s existence while their lobbyists try to take advantage of skyrocketing rates to push for so-called ‘tort reform.’” However, they say, “these cycles are national in scope and occur in every state irrespective of a state’s ‘tort’ law.   Because the legal system is not responsible for creating hard markets, enactment of so-called ‘tort reform’ has done nothing to prevent them.”  The authors quote numerous insurance insiders freely discussing this cycle and never referencing lawsuits or tort system costs as a cause for rate hikes.

Co-author Joanne Doroshow said, “Businesses in this country have paid and will continue to pay dearly for this industry’s mismanagement and lack of unaccountability.  Insurance executives get away with pointing their fingers everywhere but at their own actions.  This country has had enough of the insurance industry blame game and the endless cycle and the periodic crises that accompany it.  Remedies that do not specifically address the insurance industry’s practices will fail to stop these volcanic price jumps, which are threatening the country once again.”

Repeat Offenders also finds that:

  • This country has been in a “soft” insurance market since 2006, with rates stable and dropping in every state whether or not “tort reforms” have been enacted.  However, since early 2011, the insurance industry has been trying to push the country into a new hard market. 
  • Hurricane Irene in late August 2011, which was greatly hyped by the Weather Channel but wasn’t nearly the catastrophe that was expected, has been used by insurance industry representatives to push the country into a new hard market.  This is despite the fact that the industry is perfectly able to handle those claims in addition to having stored away excess profits for decades so that today, it is in an all-time safe position.  Creation of a hard market now would be purely for the purpose of price-gouging buyers of insurance, particularly commercial lines insureds.
  • Over the last few months in particular, industry executives – including unregulated foreign reinsurers – have been boldly declaring to the entire industry that it is time to end the soft market (including pressuring their own competitors to start raising rates), setting the stage for a new liability insurance crisis in this country.

Doroshow said that the group is sending the report to all 50 state insurance commissioners, the new Federal Insurance Office and key members of Congress, hoping for urgent action.  AIR is asking for:

  • Meaningful insurance data disclosure to state authorities, allowing officials to substantiate or refute allegations about the financial health of the industry and the civil justice system.
  • States to enact stronger regulation and oversight of the industry and to repeal anti-competitive laws.
  • Congress to repeal the federal anti-trust exemption under the McCarran-Ferguson Act and at a minimum, the new Federal Insurance Office (FIO) to review the impact of the McCarran-Ferguson Act on consumers. 


A full copy of the report can be found here.


[1] Hunter is Director of Insurance for the Consumer Federation of America, former Texas Insurance Commissioner and Federal Insurance Administrator.  Doroshow is Executive Director of the Center for Justice & Democracy at New York Law School.



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