I.I.I. Response to Americans for Insurance Reform Report
December 15, 2011
In their new report, “Repeat Offenders: How the Insurance Industry Manufactures Crises and Harms America,” co-authors Robert Hunter and Joanne Doroshow claim that that the property/casualty insurance industry “manufactures” crises in order to justify raising rates and that the industry is “anti-competitive” and in need of more regulation. Even to people unfamiliar with insurance markets, the authors and Americans for Insurance Reform (AIR), which issued the report, could not possibly come across as more oblivious to the risks associated with devastating natural disasters and global economic volatility.
Insured losses from catastrophes around the globe totaled an estimated $108 billion in 2011, the second highest year in history. More than $30 billion of those losses occurred in the United States, likely the fifth or sixth most expensive year on record. Since 2004, storms like Katrina, Rita, Wilma and Ike, combined with other events have resulted in nearly $200 billion in catastrophe claims paid to millions of home, business and vehicle owners.
Over the same period of time, insurance premiums charged to businesses, actually fell by 40 percent between 2004 and mid-2011. Indeed, the cost of business insurance fell for 30 consecutive quarters before edging up by just 1 to 2 percent in the second half of 2011. In short, while near-record catastrophe losses are a challenge, they have by no means precipitated a “crisis” as AIR alleges. Insurance and reinsurance markets remain competitive, capacity is available and coverage remains affordable.
Strangely, the AIR and its authors, argue in the report that the industry’s strong capital position is evidence of excessive profits. AIR’s claim is both dangerous and factually incorrect. Buyers of insurance are the primary beneficiaries of a financially strong, stable and secure insurance industry. Millions of victims of catastrophes would no doubt agree. The fact that insurers and reinsurers entered 2011 with record capital on hand to pay claims is unambiguously a good thing for all policyholders. Moreover, over the past four years, while the Great Recession and its aftermath forced hundreds of thousands of businesses to fail, including hundreds of banks—not a single traditional property/casualty insurer failed as a result of the financial crisis and not a single valid claim went unpaid.
AIR’s implied argument that insurers should carry less capital in this era of mega-disasters and unprecedented financial market volatility is irresponsible. In addition, the suggestion that the build-up in capital is the result of excessive profits is unsupported by the facts. Indeed, the average return equity for the property/casualty insurance industry from 2000 through 2011 is 6.7 percent, barely half the 13.1 percent for the Fortune 500 group over the same period.
The bottom line is the property/casualty insurance industry is a financially strong, highly competitive, resilient and essential industry in the United States and around the world. Buyers have the ability to choose from a wide range of products offered by a multitude of competing carriers while having the confidence that their insurer will be there for them in their time of greatest need.