Insurance Law

I just saw a post by Claire Wilkinson at the I.I.I. about the 2008 property-casualty industry profits.  It made me think about past disagreements with the Center for Justice and Democracy and other consumer advocate groups.

Profits are down... substantially from an all time high the previous year. While the industry eked out a slightly positive profit, it is just a hair above zero according to the ISO.

Because the dramatic change in profitability, should we not expect the consumer advocates to claim that the industry needs to raise prices?  Of course when profits were high we saw claims of price gouging. If the industry is now just breaking even does this mean that it is no longer price gouging?  Did it become a saint in just a year?  Were are the forty page reports demanding higher insurance prices?

I also saw claims that the industry was holding too much capital. Capital is expensive and its costs are passed onto the premium.  But, substantial capital holdings implies that the firm is safer from bankruptcy. Were the consumer advocates arguing that the industry was too safe and that consumers did not benefit from that safety? I never saw it put that way.  it was always in terms of prices.

In fact a well known consumer advocate, Mr. Robert Hunter stated

Another major conclusion of [his] report is that the property/casualty insurance industry has inflated the surplus [capital] it holds, by as much as $100 billion beyond the level needed to back up the underwriting risk they face.

Others argued that capital levels should be reduced to the bare minimum required by law.  This would have put the industry in a precarious position.

There was never an explanation as to why insurers held capital in the first place.  Making capital evil was a way of making the industry look inefficient and bloated.  I think many consumer advocates would agree with me and wish banks were better capitalized.