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Group charges insurance sector with creating fake crisis


The insurance industry has created a “fake” crisis allegedly generated by high jury awards, although it is enjoying a record surplus, say two consumer organizations, in a report issued Monday.

Insurers have blamed social inflation, the term used to describe rising jury awards and settlements, as one of the principal drivers behind recent increases in insurance prices.

This “overcapitalized industry is already charging many businesses far too much in premiums while threatening even greater increases, all while attempting to create the perception that it is too financially troubled to pay clams,” says the report How the Cash-Rich Insurance Industry Fakes Crises and Invents Social Inflation, which was issued by the Washington, D.C.-based Consumer Federation of America and the Center for Justice & Democracy at New York Law School.

“Yet this is an industry that has stored away so much excess profit that it now sits on more surplus than at any time in history – a record level of well over $800 billion.”

The report includes a chart issued by Oldwick, New Jersey-based A.M. Best Co., which it said “illustrates that at least since 1999 (the end of the last soft market), Direct Losses Paid never spiked and have generally tracked the rate of inflation and population growth.

“However, during the last hard market (2002-2005) insurers increased their reserves (Incurred Losses) above paid losses. This allowed them to sharply increase premiums beginning in 2002.”       

During a press conference Monday, CFA Director of Insurance Robert Hunter discussed three previous hard markets: during the mid-1970s, in the mid-1980s and from late 2001 through 2007.

“Our study shows that the p/c industry is currently in the process of creating” another insurance crisis where insurance rates will skyrocket, while the industry “has more cash than at any time in its history.”

“We know this because the data shows it, but it’s also because we’ve lived through it three times before,” Mr. Hunter said. 

“Social inflation is a hoax,” Mr. Hunter said.

Joanne Doroshow, executive director of the Center for Justice and Democracy, said while the industry has blamed high jury awards for the hardening market, jury verdicts are rare, accounting for resolution of just 2% of tort cases. 

She said large outlier verdicts make the news, but are almost never fully paid after they are cut down by judges or on appeal or, typically, settled for smaller amounts.                                                               






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