By Max J. Rosenthal and Mollie Reilly
WASHINGTON -- With the economy still weak, businesses may face a fresh blow from insurance companies next year, according to a new report published Thursday by the Center for Justice and Democracy at New York Law School. The report claims that insurance companies are colluding on major rate hikes that could send premiums skyrocketing for businesses in 2012.
"It's a completely unnecessary, unjustified, and devastating possible crisis that we may be facing next year," said Joanne Doroshow, one of the co-authors of the report, titled "Repeat Offenders: How The Insurance Industry Manufactures Crises And Harms America."
Since 2006, the insurance industry has been in a "soft market" that benefited consumers. Premiums remained low as insurers fought to attract new customers and pad their cash reserves, which they then invested. But industry representatives are now pushing companies to raise premiums and create a "hard market," where rates rise but coverage declines as insurers push for larger profits.
Companies claim that the industry now faces mounting losses from the combination of difficult economic times and years of low rates. In order to stay solvent and provide customers with continued protection, they say, insurers must raise premiums.
But the center's report charges that the insurance industry is simply manipulating the numbers to provide the appearance of financial instability. The losses that insurers use to justify rate hikes include a category called "losses incurred but not reported," which are only estimates of future payouts on claims. Companies then use these hypothetical numbers to ask state regulators for rate increases, demanding more money without actually paying out any more in premiums.
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