Today I came across an article from the Los Angeles Times discussing record insurance company profits for 2005. In this article, I learned that profits from homeowner and automobile industry business lines totaled a record 44.8 billion dollars last year. Wow! I found these figures amazing in light of natural disasters which occurred last year such as Hurricane Katrina. Profits increased by eighteen percent and insurance industry surplus capital increased by seven percent to more than 400 billion dollars. What does this profit mean for the insurance industry? Are we going to see lower policy premiums and rebates? Not exactly.
In fact, according to the Los Angeles Times article quoting an insurance industry economist:
“Unless insurers can get relief, you’re going to see a pullback by the private industry,” warned Robert P. Hartwig, chief economist of the industry-funded Insurance Information Institute.
“We’re not being good stewards of our investors’ capital or our policyholders’ surplus if we keep doing business where we can’t make money.”
I guess that an eighteen percent increase in industry profit somehow means that companies are not doing business correctly and that an insurance industry pullback is inevitable. I guess that record industry profits for 2005 means that insurance companies are “not being good stewards of our investors’ capital.” At these levels of profit, without government intervention, it appears that property and casualty insurers will be forced out of business!
After reviewing this article, do you really believe that insurance companies face hard times???? Are insurers really hurting so bad financially that they have to exit the market? Based on what I’ve read in the LA Times about industry record profits and record surplus, I say nonsense. Rather than talking about refunding some customer premiums, perhaps industry representatives instead argue that the sky is falling in order to create sympathy and minimize future payouts. What do you think?