Will your insurer pay up?

By Liz Pulliam Weston

There have been enough headlines, lawsuits and regulatory concern in recent years to give us pause. Here's just a sample:

• Nearly two years after Hurricane Katrina inflicted a record-setting $66 billion in insured losses -- more than the toll of Hurricane Andrew, the Sept. 11 attacks and the Northridge, Calif., earthquake combined -- thousands of policyholders who thought they had full coverage are still bickering with their insurers over whether wind or water destroyed their homes.
• Blue Cross and Kaiser Foundation Health Plan were both recently assessed regulatory fines for "wrongful rescission" -- illegally withdrawing individual insurance coverage from people after they got sick. Critics say the companies scoured the consumers' applications for minor errors or omissions to use as an excuse for ending their coverage.
• Unum Group reached a settlement with 40 states after a flurry of lawsuits accused the disability insurance provider of unfairly denying claims. A California jury awarded a $7.67 million verdict to one of the victims, a single mother of two who lost her home and went on welfare after losing her benefits. In upholding the jury verdict, a federal judge ruled the company had used biased medical examiners and destroyed medical reports in its efforts to deny or cut off checks. A federal judge in Maryland said in a separate case that the company's behavior "bordered on fraud."
• Claims payouts by property/casualty insurers have dropped sharply in recent years, despite huge catastrophes, according a Consumer Federation of America review of figures from rating service A.M. Best. The percentage of premium dollars insurers collect that is paid out in claims fell from an average of 81% in the 1980s and 79.8% in the 1990s to just 68.3% last year, the lowest level in at least 26 years and perhaps the lowest since the 1950s. At the same time, property/casualty insurers have been posting record profits.

Year	Payouts*	Net income
2000	81.4%	$20.5 billion
2001	88.4%	-$6.7 billion
2002	81.6%	$9.1 billion
2003	75.1%	$31.2 billion
2004	73.1%	$40.5 billion
2005	74.8%	$48.8 billion
2006	68.3%	$59.9 billion

*Includes claims paid and the cost of adjusting claims as a percentage of premium dollars collected

Source: Consumer Federation of America, based on A.M. Best figures

Insurers say they're investing smarter

The insurance industry insists policyholders aren't being systematically stiffed. Fights over payouts are the exception, said industry spokeswoman Loretta Worters, rather than the rule. For example, more than 95% of the 1.2 million homeowners insurance claims from Hurricane Katrina in Louisiana and Mississippi were settled within one year of the storm, Worters said.

"Despite the attention focused on lawsuits filed following this catastrophic storm, the number of claims in litigation accounts for a very small percentage of the total number of claims filed," said Worters, vice president of the Insurance Information Institute, a trade group. "Estimates show that fewer than 2% of homeowners' claims in Mississippi and Louisiana were disputed either through mediation or litigation."

Insurers say they are simply getting better at assessing risks and are using their profits to strengthen themselves against future catastrophes.

"The idea that insurers are boosting profits by denying legitimate claims is a just a lot of claptrap," Worters said. "Excellent underwriting results, the substantial drop in catastrophe losses and strong investment performance enabled insurers to reinvest billions of dollars in 2006, allowing claims-paying resources to reach an all-time record high estimated at $481.5 billion."

Methodic lowballing

Robert Hunter understands the need for strong insurance companies and doesn't begrudge them profits. But the former Texas insurance commissioner, now insurance director for the Consumer Federation of America, believes the industry is "methodically" lowballing and denying legitimate claims in addition to overcharging policyholders, avoiding risk, trimming coverage and seeking taxpayer bailouts from catastrophe losses.

Hunter and other consumer advocates want to see tighter regulation of insurance companies, including more scrutiny of their rates.

I think their concerns are justified. Without strong supervision, insurers are likely to keep cherry-picking their risks. Instead of providing broad pools of protection, insurance coverage could become divided between well-covered clubs of haves and the exposed have-nots. We're already there in the health-insurance arena, with 45 million uninsured and 16 million more underinsured, or exposed to catastrophic losses because of inadequate coverage.

How to protect yourself and your family

We consumers also have a role. We must try to avoid companies that play hardball with their customers. One indication: a company's complaint history, which you may be able to find on your state insurance regulators' Web site.

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