Insurance Industry State’s High Profits Are Needed
The insurance industry has been taking some heated criticism from consumers, the government and the media over their high profit levels since the disastrous hurricane season of 2005. A spokesman for a leading industry group released a statement detailing that financial strength in the industry is good for the economy and consumers.
“A stable and competitive insurance market is absolutely critical to our nation’s economic health.”
“Policyholders need to know their insurance companies will be there when there are claims because of natural catastrophes. The continued financial strength of the insurance industry assures this will be the case.
“Auto and homeowners insurance rates have declined in most areas of the country. Coastal regions have been the exception, but even in many of these higher risk areas, rates are leveling off, primarily in those states that have adopted responsible mitigation practices. Florida, of course, is the exception.”
Florida’s governor has been inquiring into a possible class action lawsuit against some companies over rates that possibly violate state laws.
There is some truth to the claim that the profit levels are necessary. The 2005 hurricane season was a benchmark for the industry on what level of claims paying ability it would need for a worst case scenario. Damages from Hurricane Katrina have shown that the industry needs to be prepared to pay out $50 Billion for any given catastrophe.
Recently released figures have also shown that while profits have been high, only a small percentage of it comes from the underwriting of actual policies. The majority of the industry’s profits have been from investment income and with the market now entering a volatile phase there’s no guarantee that those profit levels will continue in the future.
