The Liability Ripoff
It is doubtful whether there has been anything like the present insurance industry’s commercial liability price spiral in American economic history. If you think your auto insurance policy premium is going up fast, take a look at what these policyholders are going through:
- Offshore Boat Corp., a small Miami boat manufacturer had their premium Q0 from $3,900 to $30,000 in one year. The company had never filed a claim.
- Rizzo Pool Co., of Newington, Conn., paid $8,000 last year for a general liability policy; this year the premium was $36,000. The company’s auto fleet policy zoomed from $18,000 to $42,000 in one year.
- Mountain Brook Cottages, Sylva, North Carolina, a cottage rental business, saw its premiums zoom from $1800 to $11,000 a year.
- Kopetz, Inc., a plate fabricator in Decatur, Illinois, was rewarded for never having a single claim on their liability insurance coverage by an insurance bill nearly six times that of 1980.
- Lane Groff, president of the Carolina Fire Equipment Company of Greenville, South Carolina, has never had a liability claim paid over twenty years. His business has just been cancelled out by his insurer with less than two months notice.
- Housing authorities in New York state were faced with an increase in liability insurance premiums from $7.56 per dwelling unit three years ago to $123.00 per dwelling unit this year. In Boston, public housing authorities found their master policies cancelled with the new policies up 280% for half the coverage.
- Southwest Tank Liners, an El Centro, California, preventive maintenance service for underground storage and water tanks, collected $4000 in claims over four years. In one year its liability insurance policy went from $17,000 to $75,000 a year!
These businesses are the lucky ones, compared to firms engaged in asbestos removal, pollution cleanup for industries and municipalities, commercial fishing boats, mass transit systems and local governments and school boards who are increasingly unable to obtain any coverage at any price.
What’s going on here in the past few months? A lot of unanswered questions by the insurance companies, that’s what. Why, for example, don’t the insurance companies disclose the sum of all verdicts and settlements paid out and subtract the number from their premium and investment income, if they want to back up their wild alarms with facts? Why do the insurance trade associations always tell the press how much premium income losses they have, without adding back their investment income gains? If they did, their allegedly big loss in 1984 would have turned out to have been a 3% return on net worth, even accepting their inflated reserve increases for future liabilities.
If their premiums were just 5% higher, the property-casualty insurance industry would have earned a comfortable rate of return on net worth of about 15%. But instead we are seeing increases of 200 to 500% for day care centers, 14 they can get it, 300% to 1000% increases for public transit authorities and so on ad nauseum.
What is also going on is that the casualty insurance industry is bent on manufacturing a crisis to achieve two goals. One is to stampede legislators into restricting your right to sue to compensate for your injuries and damage. The other is to push the pathetic state insurance regulators into approving higher premiums.
Insurance industry strategists, having successfully tried this factor out on a lesser scale in 1974-75, believe that a massive premium and cancellation shock will win because even if they only get one-fifth of a loaf, they can laugh all the way to the bank. Already, stock brokerage firms are recommending purchase of these property-casualty insurance shares based on sharply increasing profits from this shock strategy.
Of course, shakedown premiums are more than a matter of policy-holders having to shell out vast sums of money. Many of these small businesses will have to close down; schools will curtail some of their extracurricular sports and other activities; cancer-producing toxic wastes won’t be cleaned up; negligent or culpable companies will get away without being made to pay for their harm under weaker personal injury laws.
All these consequences and more will be the pattern of the near future unless the people call the insurance moguls’ bluff in four ways. First, those businesses that can get together and self-insure should do so, thereby freezing out the greedy insurers. Second, the business and professional community–lots of clout there–should demand that Congress pass federal reinsurance programs, as it did in past years for flood and center city insurance. – The government made a small profit on these reinsurance services and helped save the center cities from worse deterioration because the private insurers had abandoned them.
Third, both houses of Congress should initiate major investigations. Already Congressman James Florio’s Subcommittee has begun a modest one, but its staff budget is too small. These investigations should highlight the real agenda of this industry, expose how little safety muscle it is applying for injury loss prevention, and make a strong case for repealing a forty year old law that exempts the insurance business from federal anti-monopoly action.
Fourth, if you have been unjustly treated or cancelled by an insurance company, write the details to your member of Congress and send a copy to the National Insurance Consumer Organization, 121 North Payne St., Alexandria, VA 22314. Once again, the sparkplug for public justice begins with your letters and demands. They really do count.