Insurance companies are working to deceive businesses, consumers and regulators as they prepare to significantly increase rates, even though they have more cash than ever before, according to a new study by the Consumer Federation of America (CFA) and the Center for Justice & Democracy (CJ&D).

In the past several months, insurance companies have been promoting the idea they need to raise rates because of the cost of litigation they are facing, according to the study’s co-author J. Robert Hunter, the CFA’s Director of Insurance. Insurers say they will not be able to pay claims without raising rates.

Insurance companies say “social inflation” in courtrooms is the problem, even though the problem is economic conditions in the insurance industry that are unrelated to litigation. The data show the insurance industry is responsible for market conditions, as they were 15 years ago when insurance companies raised rates, according to Hunter.

This continues a pattern from insurance companies of creating crises that blame lawsuits. They did this in the mid-1970s, mid-1980s and early 2000’s.

Key Findings from the Study

Here is a look at some of the key findings from the study:

• Insurers’ surpluses are at record levels – The amount of money insurance companies have above what they have in reserve for expected losses doubled between 2004 and 2018.
• Insurance rates have been driven by an economic cycle – Since about 2006, the U.S. has been in a soft insurance market, which means rates are low or have been decreasing. However, the insurance industry is attempting to end this market and start increasing rates. There is no reason for this, given the fact insurers have so much cash.
• Insurers are inflating their losses – Companies have been manipulating their claim reserves at certain times to justify rate increases.
• Payouts from insurance companies have been stable for decades – Generally, payouts from insurance companies are in line with the rate of inflation.
• Losses by commercial insurance companies have declined – For the past 20 years, losses by these insurers have been either flat or gone up a small amount.

“The public has had enough of this endless cycle and the periodic crises that accompany it,” says study co-author Joanne Doroshow, executive director of the CJ&D.  

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