April 2013 WAJ President's Column

Insurance Companies Hit Record Setting

Profits at the Expense of the Consumer

By Jeff Pitman, 2013 WAJ President

Auto insurance companies are racking up some impressive profits, record-setting in fact, at the expense of their policyholders. But what may surprise you is how the providers are maintaining that healthy bottom line.

In 2009 the Wisconsin Legislature passed “Truth in Auto Insurance” requiring drivers to have a minimum of $50,000 in coverage for the injury or death of a person, requiring underinsured motorist coverage, eliminating reducing clauses and allowing stacking of insurance coverage. Truth in Auto did not allow insurance companies to reduce coverage by taking away benefits paid by the policyholder.

In 2011 the Republican controlled state legislature repealed every aspect of the Truth in Auto law except for the requirement that all drivers have to purchase auto insurance.  This repeal reversed and restored minimum coverage levels to 1982 levels: $25,000, $50,000 and $10,000.  

In arguing for the repeal, insurers had insisted that the higher coverage would require premiums to rise each year.  However, when the law was repealed in 2011, premiums didn’t go down.  This allowed insurance companies to increase profit while reducing their risk.  Profits are soaring.

To say auto insurers have done well over the last couple of years is truly an understatement. 

Wisconsin-based American Family, the largest insurer of homes and auto in Wisconsin, reported a net income of $360.5 million, a 22% increase over 2011. Nationally, American Family recorded a 4.6% increase in assets bringing the company to a staggering $17.9 billion overall. 

State Farm, the second largest insurance provider in Wisconsin and the largest U.S. home and car insurer, saw profits quadruple as claims cost declined, reporting an increase in net income of $3.2 Billion. State Farm’s net worth climbed to $65.4 billion at the end of 2012 an increase of almost $5 billion from 2011.

AllState Corp, the second-biggest home and auto insurer in the U.S. recorded an annual profit of $2.3 billion in 2012, almost triple the amount from 2011.

Progressive, the fourth-largest car insurer in the nation, also started off 2013 with an increase in profits. Reporting a 9% increase in premiums earned, going from $1.46 billion at the end of 2011 to $1.59 billion at the end of 2012.

You would think with rising profits and a healthy bottom line, auto insurers would be satisfied; not so. In last month’s article I discussed a new piece of legislation regarding the changes to the collateral source rule in Wisconsin (March President’s Column.)

Auto insurance companies are now some of the chief proponents of changing Wisconsin’s collateral source rule.  In Wisconsin, an injured person can recover the reasonable value of the medical care associated with an accident, which is presumed to be the amount billed by the health care provider.  In many cases, your health insurer will cover the initial cost of the medical care, but they often negotiate lower rates than the actual amount billed. The person that caused your injuries is not allowed to benefit from these negotiated reductions by arguing that he or she is only liable for what the health insurer paid.  The proposed law will allow the evidence of health insurance payments into evidence.

The change in the collateral source rule would allow the person who hit you to pay you less money.  In essence, taking the premiums you paid for health insurance coverage and pocketing the benefit paid for by your premium.   That is Premium Theft. Such a change would mean that an injured person who has worked hard, planned ahead, and made sacrifices to obtain health coverage, and other benefits would receive less for the same injury than someone who never bothered to buy insurance. 

By allowing health insurance payments into evidence, the drunk driver who hit you and his or her auto insurance company could save millions of dollars, further increasing insurance company profits.

With auto insurers profits rising each year at the expense of the policyholders, there is no reason Wisconsin legislators should continue to give additional handouts to insurance companies.  Legislators should reward responsible citizens rather than punish them.

The Wisconsin Association for Justice (WAJ) offers a brochure designed to help understand Auto Insurance, which helps you evaluate what coverage you may need, and the benefits of optional coverage.  It also explains the changes in the law and what you should ask your insurance agent when you buy or renew a policy.  It is available at www.wisjustice.org, under “Consumer Resources” or call the WAJ office at 608-257-5741. 

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