The Consumer Federation of America (CFA) has launched an attack on the insurance industry. In a report, the CFA charges that insurers are getting rich by “methodically overcharging consumers,” reducing coverage, underpaying claims and having taxpayers pay some of the tab for risks insurers should cover.

“Consumers ultimately pay the price for the unjustified profits, padded reserves and excessive capitalization that exist right now in the insurance industry,” said J. Robert Hunter, CFA director of insurance, who unveiled the report at a press conference. He said insurers have maintained “sharp limits on coverage and availability,” imposing “harsh homeowner’s rate increases and using computer-designed programs created to systematically underpay claims.” Hunter said taxpayer subsidies have also reduced insurers’ costs, mentioning the Terrorism Risk Insurance Act that Congress extended last year. He also criticized the creation of state-directed “insurers of last resort,” charging that their creation has allowed insurers to “cherry pick,” insuring better risks themselves and sending higher risks into state pools.

Robert Hartwig, an economist and president of the Insurance Information Institute said in a statement that the study is, “fatally flawed and grossly distorts the financial position of auto, home and business insurers.” Hartwig challenged the figures cited in the CFA report in a number of areas; for example, he said the report overstates the industry’s claims paying capacity by approximately $160 billion in 2007.

“Insurers are protecting more cars, homes and businesses than any time in US history and have been an essential component of the country’s economic growth engine for decades,” said Hartwig. “The insurance industry has paid out hundreds of billions of dollars in insured losses over the past few years and insurance proceeds constituted the single largest source of critically-needed funds contributing to the stabilization and recovery of the Gulf Coast’s economy after Hurricane Katrina. So to say claims payouts continue to drop is absurd.”

The American Insurance Association (AIA) and the Property Casualty Insurers Association of America (PCI) issued strong denunciations of the CFA report and Robert Hunter’s assertions. AIA president Mark Racicot said, “Predictably, Bob Hunter and the Consumer Federation of America are once again ignoring the facts and using the same old tired arguments to mislead the public into believing something that isn’t true.” PCI president and chief executive officer David Sampson said, “Each year, the CFA issues another report with essentially the same allegations, and its most recent claims of market misconduct are no more reflective of the actual market conditions than they were when they issued a similar report a year ago.” 

What It Means to Agents:  The important thing to remember here is this: even though our industry can, and does, effectively refute Mr. Hunter’s periodic wild assertions regularly, he is in a much stronger position with the press and the public. That’s because many people believe that if a “consumer group” says something, it is true unless and until proven otherwise.

What the public, and sometimes even some Members of Congress, fail to realize is that such a CFA “study” is, in fact, an analysis as well as an opinion, often just Mr. Hunter’s opinion. It is one point of view. But because a “study” is “issued” by a consumer group, many may accept it at face value. An assumption of truth and impartiality is created when a consumer group comes out with what it describes as a “study.”

PIA has publicly admonished Mr. Hunter on many occasions when he has made inaccurate and incorrect statements. Usually, we do so when his target is specifically independent agents. Here are a few examples:

Statement by PIA National in Response to CFA “Study” (1/27/05)

PIA National Admonishes CFA’s Hunter (11/18/04)

National Underwriter: Bob Hunter Should Just Shut Up (8/23/05)

PIA National supports the comments offered by Dr. Bob Hartwig of I.I.I., Mark Racicot of AIA and David Sampson of PCI in opposition to this latest brouhaha stirred up by J. Robert Hunter and his wrongheaded statements. We join our industry colleagues in their efforts to focus the public’s attention on the truth.

Error Strewn CFA Study Inaccurately Portrays Insurer Profitability (I.I.I. 1/10/08) 

January 15, 2008