A few years ago, an article in Business Insider posed the age-old question, “Is there such a thing as too much profit?” Or to put it another way, is it right that companies are allowed to do anything and everything to (legally) increase profits even if those decisions ruin the lives of their employees, customers and communities? As the writer wrote,
I initially thought, "What kind of hippie question is this?" but I was in for a surprise. Regardless of someone's politics or economic point of view, everyone I spoke with reached the same conclusion. Ultimately, the answer is:
His answer was: "it depends," which is honestly a better answer than I’d expected from a Business Insider writer.
This question came to mind the other day after reading news reports of Travelers insurance company’s third quarter 2020 profits, headlines like, "Travelers Reports Strong 3Q with Profit More Than Doubling."
Doubling. During a pandemic, while the company’s own commercial customers (and so the nation’s economy) are collapsing in large part due to the insurance industry's decision to fight claims – especially over “businesses interruption” losses (see here and here) - and at the same time, being forced to pay ever-increasing insurance premiums. And just to fully fill out this picture, insurers are also receiving a direct financial windfall from the pandemic itself, especially in personal lines like auto insurance. The Consumer Federation of America and the Center for Economic Justice have been up in arms about this, most recently last week:
The Consumer Federation of America (CFA) and Center for Economic Justice (CEJ) criticized insurance companies for opposing a proposed regulation by the Nevada Division of Insurance to ban the use of credit information to increase insurance rates for the duration of the COVID-19 pandemic. This rule is modest, but it will help make insurance more affordable and ensure that consumers are not harmed by large premium increases due to declines in their credit score over the past eight months. Yet auto insurers remain steadfastly opposed to the proposal, and even tried to weaken it.
“Insurance companies have reaped massive profits due to the COVID-19 pandemic and its effects, including significantly increased unemployment, which caused a huge decline in driving, car accidents, and insurance claims. Yet they are opposed to any efforts to protect consumers from harmful credit scores resulting from the pandemic,” said Michael DeLong, CFA’s Insurance Advocate. “This proposed rule is limited, but it will protect consumers from insurance premium hikes caused by declines in their credit scores. We are encouraged that Nevada’s Division is pushing back against industry attempts to undermine this badly needed rule, and urge the Division to enact it as soon as possible.”
And there's more. The insurance industry is also taking advantage of people who have been hurt by low-balling settlement offers to exploit trial delays. We covered this problem here.
Back to price-gouging. In early March, the Center for Justice & Democracy and CFA released How the Cash Rich Insurance Industry Fakes Crises and Invents Social Inflation, showing that this industry was, once again, causing a national insurance crisis of skyrocketing rates, while sitting on more cash than at any time in its history. Now months into the pandemic, we see the continuation of ever increasing insurance rates on businesses throughout the country.
Travelers just boasted about sticking almost all of its commercial policyholders with higher premiums. As one Wall Street Journal reporter wrote, the company's excessive third quarter profits have much to do with insurance rates, which they insist on increasing because (they say) claims might go up in the future even though they have no evidence of this, and today claims are in fact way down. Less driving, people aren’t working, the economy is in shambles.
So to sum up, the insurance industry is hoarding money, fighting claims, and dumping risk while making a windfall due to fewer claims, delayed jury trials, and low-balling settlement offers while shaking down their policyholders with price hikes.
So I guess in answer to our first question, yeah. It's a thing.
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