So-Called "Tort Reforms" Unnecessary, Lawmakers Should Focus on Rate Regulation
Santa Monica, CA -- The insurance industry registered a 320% increase in net income for the first nine months of 2003 as compared to 2002, according to a recent study by the Insurance Services Office (ISO) and the National Association of Independent Insurers. Throughout the year insurance companies have argued that they cannot be profitable unless lawmakers around the country limit the rights of consumers to file insurance claims. This new profit data proves that the industry can be wildly profitable without further limits on the legal rights of injured consumers.
"The insurance industry has told every lawmaker in the country that it cannot be profitable without restrictions on the legal rights of consumers, but this data showing a 320% increase in profit proves that the industry has been lying," said Douglas Heller, senior consumer advocate with the nonprofit, nonpartisan Foundation for Taxpayer and Consumer Rights (FTCR). "This information should put an end to all talk of so-called 'tort reform' and open up a new discussion about regulating insurance rates."
Consumer advocates have called on lawmakers around the country to implement a system of insurance rate regulation based on California's 1988 voter initiative known as Proposition 103. That law requires insurance companies to justify rates to the Insurance Commissioner prior to implementing any rate hikes. It also allows the public to participate in the ratemaking process and scrutinize insurance company books. The law has been a major success, with auto insurance rates, for example, declining over the past 15 years in the state, even as they've risen everywhere else in the nation.
According to FTCR, there are two primary reasons for the recent jump in profits nationwide: massive rate increases and an improved investment climate. Insurance rates, which have been increasing at an unprecedented clip in recent years, far outpaced the increase in overall claim- related costs, according to the study. Some of the most dramatic data were in the area of investments: the value of insurers investments swung dramatically in the industry's favor during 2003.
"The real story the insurance industry has faced recently has nothing to do with claims and lawsuits, but with investment income. The past few years have been very tough on anybody with investments, including insurers. But unlike most Americans, who had to tighten their belts during the economic downturn, insurance companies refused and instead tightened the noose around consumers to squeeze huge profits out of policyholders," said Heller.