Insurance Companies – Not “On Your Side”
Feb. 22, 2018 - THEPOPTORT.COM
And they’re not a “good neighbor” either. And they don’t have “good hands.” (I could go on.) But you probably already knew that.
One awful example of this has been the relentless effort by LA-based Mercury Insurance, as well as other big companies like State Farm, to undermine the most effective (actually, the only real) insurance regulatory law in the nation, known as “Prop. 103,” passed by voter initiative in 1988. The law has saved California motorists over $100 billion “by regulating insurance companies to limit price gouging, profiteering, inflated executive salaries and other unjustified expenses.” Yet this week, the U.S. Supreme Court was forced to deal with yet another industry challenge to Prop. 103. Fortunately the Court rejected it. Writes Consumer Watchdog, whose consumer advocate-founders wrote Prop. 103:
The nation’s highest court refused a request by Mercury Insurance and lobbyists representing State Farm and other insurance companies to review a 2013 decision rejecting Mercury’s request for an 8% increase in its homeowners insurance rates and ordering the company instead to lower its rates by 8%. The insurance companies argued that Proposition 103’s rate setting rules violate their constitutional right to earn a fair profit.…
“Fair profit.” In other words, pocketing illegal windfalls and price-gouging customers while fighting them in court:
Los Angeles-based Mercury Insurance is also fighting before the California Court of Appeal in Orange County to escape a $27 million penalty for overcharging motorists for their auto insurance 183,957 times over a decade, in violation of Proposition 103.
Meanwhile, State Farm, the nation’s largest insurance company with over $168 billion in assets, filed suit in San Diego Superior Court in 2016 to block $250 million in rate reductions and refunds, claiming it can’t afford to lower its homeowners insurance premiums, which the Insurance Commissioner determined were excessive. …
Farmers Insurance was in two courts at the same time – Los Angeles Superior Court and the Court of Appeal – to stop state regulators from holding a public hearing on charges that the company is using algorithms to overcharge motorists in violation of Proposition 103. After losing its motion to block the California Department of Insurance from investigating Farmers, the company is dropping its litigation.
But let’s broaden this problem out a bit. Guess who’s in line for major windfalls from the Trump tax cut? Yup, this new law reduced the corporate tax rate to 21 percent from 35 percent creating an absolute profit bonanza for the entire insurance industry. For example, as was reported on January 10, 2018, “[t]hanks to tax law changes enacted by President Trump, Berkshire Hathaway … may see its book value grow by US $37 billion.” Moreover, the “lower tax rates could increase Berkshire’s earnings power from its more than 90 operating units (such as the BNSF railroad and GEICO auto insurance) by 12%.”
The fact is that the insurance rates we’re all now paying were calculated based on the old tax law, so unless something is done, this tax cut is going to lead to windfall profits for insurance companies on our backs.
Fortunately, some consumer groups have stepped in to try to do something about this. They have requested that every state insurance commissioner in the nation “act quickly to ensure insurance consumers – and not shareholders – benefit from the recent changes to the federal tax code and major reduction in the corporate tax rate."
The groups explained that, absent action by state insurance regulators to force insurers to lower rates, the tax-related profit windfall of $25 billion or more would not benefit insurance consumers. A copy of the letter is available here. …
“When insurance companies develop their rates, the amount of premium they need to earn is increased by the amount of tax they pay on profits and investment income,” explained J. Robert Hunter, CFA’s Director of Insurance and former Texas Insurance Commissioner. “When their taxes go down, they need less premium, so their rates must come down. But unless commissioners ensure that companies lower their rates, drivers, homeowners, and businesses will be stuck overpaying for coverage.”
Now watch this, however. A blogger at industry-friendly RAND has begun making the seemingly “puzzling” argument that auto insurance rates will have to go up as a result of the tax cut because the new law kicked so many people off health insurance. Rates will go up, they say, because more health care will “wind up on the auto insurer's tab.”
Can I just say, if auto insurers who will receive an enormous windfall profit from this tax cut, start using that same law as an excuse to raise rates on policyholders, we should just take to the streets. Who’s with me?