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Consumers Benefit from a Financially Strong Industry, Says I.I.I.

INSURANCE INFORMATION INSTITUTE
Contact: Press Offices
New York: 212-346-5500; media@iii.org
Washington, D.C.: 202-833-1580

NEW YORK, January 10, 2008 - The increased claims-paying ability of the property/casualty insurance industry is a benefit to consumers in an era of increasingly severe natural disasters and rising costs for the items that are covered by auto, home and property insurance, according to the ̽»¨¾«Ñ¡ Information Institute (I.I.I).

"The Consumer Federation of America study is fatally flawed and grossly distorts the financial position of auto, home and business insurers," said Dr. Robert Hartwig, an economist and president of the I.I.I. "A healthy and strong insurance industry is vital to consumers because it enables insurers to pay claims when major catastrophes occur and stimulates greater competition among insurers. Increased competition promotes more choices and savings for consumers."

Hartwig pointed out that the CFA study criticizes private auto and home insurers but actually includes data from government run insurers that sell, among other things, workers compensation insurance, thereby artificially inflating its figures for industry retained earnings or policyholder surplus. More serious is the fact that the CFA compounds this error by double counting tens of billions of dollars in surplus on the books of individual insurers. Consequently, it overstates the industry's 2007 claims paying capacity by approximately $160 billion. Specifically, the CFA estimates that policyholder surplus in 2007 totaled $687 billion when the actual figure is approximately $530 billion-a difference of 30 percent.

Not only is the CFA study fatally flawed statistically, but so too is the basic premise of the study. Insurer profitability is necessary in order to maintain high financial strength and credit ratings, said Hartwig. "An improved capital position will help insurers to pay future large-scale catastrophe losses, which already set three record highs this decade in 2001, 2004 and 2005, and to meet the higher capital requirements imposed on them by ratings agencies in the wake of storms like Hurricane Katrina (which produced $41 billion in insured losses). These requirements oblige insurers to demonstrate an ability to pay claims arising from more than one major catastrophe per year in order to maintain and improve financial strength ratings."

Hartwig also challenged the notion that insurers were paying less out to consumers. "Insurers are protecting more cars, homes and businesses than any time in U.S. 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," he added.

Hartwig noted that the price of many types of insurance fell in recent years, including auto insurance and most types of business insurance. ̽»¨¾«Ñ¡ also remains affordable. "The price of homeowners insurance today is just 0.4 percent of the median home's value or less than $900 per year," said Hartwig.

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The I.I.I. is a nonprofit, communications organization supported by the insurance industry.