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Study Claims U.S. Insurers Overcharge, Then Underpay

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By MARCY GORDON, The Associated Press

Published: January 11, 2008

WASHINGTON - U.S. insurance companies systematically overcharge customers and underpay consumers' home and auto claims to pad their already-fat bottom lines, a consumer group said Thursday.

The Consumer Federation of America's insurance director, J. Robert Hunter, said insurance companies have enjoyed robust profits and contained losses largely by "methodically overcharging consumers, cutting back on coverage, underpaying claims and getting taxpayers to pick up some of the tab for risks the insurers should cover."

Hunter's comments came with the release of a study by Consumer Federation and several other consumer organizations that said the industry's overcharges reached an average $870 per U.S. household over the past four years.

The loss ratio for property-casualty insurance companies, or the percentage of premiums paid out to policyholders as benefits, was 54.6 percent last year, according to the study, up from 53.3 percent in 2006 but far below the 75 percent level of the late 1980s.

The study - based on insurance industry data and companies' financial reports - estimates that the insurance industry's net income after taxes in 2007 will be $65 billion, down from the record $67.6 billion set in 2006 but above 2005's $48.8 billion.

At the same time, consumers are receiving less money after filing claims, the consumer group said. A study released a year ago by the organization put forward similar conclusions.

Consumer Federation urged state regulators to require insurance companies to offer a homeowners policy that covers all risks, to prohibit insurers from restricting certain policies by geography and to review policy forms for hidden exclusions.

The insurance industry's biggest trade group defended its members' performance.

"The absence of any major storm or earthquake has allowed insurers to post two modestly profitable years. But it wasn't long ago, 2004 and 2005, when our industry suffered record natural-catastrophe losses," Marc Racicot, president of the American Insurance Association, said in a statement.

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