Report: Insurers create crises to raise rates
Sun Sentinel
December 20, 2011

A new study by a consumer group in New York claims insurers manufactured problems at some points the past few decades to pump up profits.
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The report, released this month by Americans for Insurance Reform, a project of New York Law School’s Center for Justice and Democracy, starts with this premise: The time between when insurers collect premiums and pay claims is so long that they mainly make money by investing premiums during the lag time.

The report says it's a myth that the industry needs premiums to outpace claims and other expenses. That only happened during seven years in the past 44 years, according to A.M. Best data cited by the report.
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Insurers justify rate hikes using projected – not paid – losses, or claims expenses. “To an insurance company, the word ‘loss’ is short for the term ‘incurred loss’…When a company has an ‘incurred loss,’ this does not mean the insurer has actually paid out this money. This figure includes estimates of future claims that they do not even know about yet. It is this figure that insurers file with state insurance departments when seeking rate hikes,” according to the report.

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For a copy of the complete article, contact AIR.