Group: Insurance profits show federal terrorism backstop unnecessary
The CFA said that within the last within the last 10 years the industry has suffered losses only in 2001, which was a result of the Sept. 11 terrorist attacks. Robert Hunter, director of insurance for the group, argued that payouts for claims continue to drop and that the industry is overcapitalized, forcing some insurers to engage in stock buybacks.
"Profits and a solid insurance industry are a good thing, but unjustified profits and excessive capitalization harm consumers," Hunter said. "Unfortunately, a major reason why insurers have reported record high profits and low losses in recent years is that they have been methodically overcharging consumers, cutting back on coverage, underpaying claims, and getting taxpayers to pick up some of the tab for higher risks."
The issue of insurance company profits will be a focal point as Congress gears up to tackle reauthorization of the federal government's terrorism risk-insurance programs. The industry already faces skepticism in Congress, as Senate Minority Whip Trent Lott, R-Miss., and Rep. Gene Taylor, D-Miss., have sued State Farm, alleging that the company denied their own wind damage claims from Hurricane Katrina -- which the companies would have to cover -- and instead registered them as water-damage claims to be covered under the National Flood Insurance Program.
CFA supports only a limited extension of terrorism risk insurance, for only nuclear, chemical and biological attacks.
"This law is getting in the way for building private capacity for terrorism coverage," said Travis Plunkett, legislative director for the group. It also opposes a proposal by Allstate and State Farm to create a federal reinsurance fund for natural disasters in the wake of the 2005 hurricane season, which resulted in $80 billion in insurance losses.
The Insurance Information Institute, an industry-supported group, said that 93 percent of insurers' profits from 2006 would be set aside in reserves to pay for future claims.
Marc Racicot, president of the American Insurance Association, noted that home and auto insurance rates are falling across the country, but not for coastal property insurance, another major concern to lawmakers. "This makes sense, given that insurance rates are set according to the risk of loss in each state," Racicot said.