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Special Right Allows Insurance Industry to Rig Markets and Hurt
Consumers
Senate Takes Important Step Toward Eliminating Anti-Trust Exemption
(Thursday, June 29, 2006 -Washington DC)—The Senate Judiciary
Committee took a step toward badly needed insurance reform Tuesday
by conducting a hearing on a proposal that would deprive the industry
of its ill-considered anti-trust exemption.
The special right enjoyed by the multi-billion dollar insurance industry
permits CEOs to engage in price gouging and price fixing, tie unrelated
products and set geographic territories.
"The exemption allows the insurance industry to engage in anticompetitive
behavior, resulting in higher premiums for the public and massive
profits for the companies," said Ken Suggs, president of the
Association of Trial Lawyers of America.
The insurance industry was accorded its anti-trust exemption in 1945
under the McCarran-Ferguson Act. While insurance commissioners in
every state retain the right to review rates, state regulation has
proved to be no substitute for antitrust enforcement.
New York Attorney General Eliot Spitzer, testifying before the Senate
Governmental Affairs Committee in November 2004, reported his office
had uncovered widespread wrongdoing within the insurance industry,
noting that "a small group of brokers and insurance companies
essentially control the market, having created a network of interlocking
connections and secret payments which ensure that the bulk of business
goes to certain insurers and that profits remain high. The bottom
line is the consumer pays more for coverage."
The consequence of the exemption is on full display along the Gulf
Coast where residents of Mississippi and Louisiana continue their
effort to recover from Hurricane Katrina. J. Robert Hunter, director
of insurance for the Consumer Federation of America, testified Tuesday
that hundreds of thousands of residents are having their homeowners
insurance policies cancelled and prices are skyrocketing as a result
of the coordinated behavior permitted under the law.
According to the Miami Herald, Allstate announced it would drop 120,000
Gulf Coast home and condo policies while State Farm dropped 39,000.
"Congress should end the long history of insurance industry
collusion and anticompetitive behavior,’’ Hunter said. “This
behavior routinely costs consumers more money than a competitive market
would because insurers can cooperate in price setting."
While consumers are losing coverage or paying steep premiums, the
exemption is permitting the insurance industry to rig the marketplace.
The Los Angeles Times reports that companies providing Americans with
their homeowners and auto insurance made a record $44.8 billion profit
in 2005, even after accounting for the claims of policyholders wiped
out by Hurricane Katrina.
"The insurance industry is benefiting from this special treatment
at the expense of consumers and homeowners,’’ Suggs said.
“It was a bad idea in 1945 and it’s even worse today."
[Below are facts about the insurance industry]
Should the Insurance Industry Continue to Have an
Anti-Trust Exemption?
Today, the Senate Judiciary Committee held a hearing on the McCarran-Ferguson
Act – the 1945 law that exempts the insurance industry from federal
antitrust statutes. This is the first Congressional hearing on the
act since 1994. And in the 12 years since this hearing, we have seen
a number of insurance companies engage in conduct that begs the question
whether their anti-trust exemption is justified. Some companies have
dramatically increased premiums, even while claims payments have dropped.
One company even used the 9/11 attacks as an excuse to increase premiums
for a blueberry farmer by 500 percent. Other companies have been accused
of cheating victims of natural disasters. Some have even been found
guilty of engaging in fraud. And after all of this, the insurance
industry reported record profits last year. It’s about time Congress
finally took a serious look at insurance reform.
Insurance Companies Increasing Premiums
- Insurance Company Used 9/11 Terrorist Attacks as Justification
for a 500 Percent Premium Increase for Blueberry Farmers. Croswell
Berry Farm's decision to close their doors after three decades in
business wasn't made because of a bad crop or a lowered demand for
the fruits of their labor - but was made after they found out their
liability coverage would skyrocket 500 percent if they stayed in
business, a growth their insurance agent attributed to wariness
after the September 11 terrorist attack. [Times Herald, 7/18/02]
- Study Shows that Skyrocketing Premiums Are Actually the Result
of Medical Malpractice Insurers Price-Gouging Doctors. A 2005
study conducted by former Missouri Insurance Commissioner Jay Angoff
found that insurance companies have been price-gouging doctors by
drastically raising their insurance premiums, even though claims
payments have been flat, or in some cases decreasing. According
to the annual statements of the 15 largest insurance companies,
the amount malpractice insurers collected in premiums increased
by 120.2 percent between 2000 and 2004, while their claims payouts
rose by only 5.7 percent. Thus, they increased their premiums by
21 times the increase in their claims payments. [“Falling Claims
and Rising Premiums in the Medical Malpractice Insurance Industry,”
Jay Angoff, 7/05; http://www.centerjd.org/ANGOFFReport.pdf]
Allegations of Fraud Committed by Insurance Companies
- Columbia/HCA Fined $1.7 Billion for Fraud. In 1997 the
FBI launched nationwide raids on HCA offices as part of an investigation
into allegations of massive systematic Medicare fraud. Within 5
years HCA had pled guilty to 14 criminal counts and agreed to pay
$1.7 billion to settle the case. The fraud in question was described
as “secret set of books that detailed reimbursement claims
made on cost reports that the companies knew were improper.”
Employees were specifically told not to share the information with
government auditors. HCA also admitted that it had paid kickbacks
to doctors who steered patients to its facilities [“HCA, U.S.
Agree to Fraud Settlement,” Washington Post, 12/19/02]
- Former State Farm Employee Testified that Company Agents Forged
Waiver Documents to Avoid Paying Earthquake-Related Claims.
Former State Farm employee Amy Zuniga revealed that State Farm’s
officials routinely defrauded policyholders and lied in court. She
said in sworn statements that in the aftermath of the 1994 Northridge
earthquake State Farm agents attempted to avoid paying claims by
systematically forging signatures to make it appear that policy
holders had declined earthquake coverage. [“State Farm Returns
Documents to Court File,” Los Angeles Times, 6/5/97; Ledger
Dispatch (CA), 6/4/97; Note: The text of Zuniga’s statement
can be accessed on line at: http://www.monttla.com/zuniga.htm]
- Prudential Fined for Defrauding More than 10 Million Customers.
In 1996 Prudential Insurance Company of America agreed to pay a
$35 million fine and set aside money to settle policyholders lawsuits
after an investigation found the company had defrauded more than
10 million life insurance customers. By 1999 Prudential estimated
those settlements would total more than $2 billion. Prudential’s
1996 internal audit conducted after the fine was paid found that
the company was still leaving policyholders open to unauthorized
activity and improper practices. An internal memo said that the
company was not able to always detect fraud committed by its employees
against policyholders, and concluded that the company had underestimated
the incidence of such fraud. In 1997, a federal judge fined Prudential
$1 million after finding that the company had deliberately destroyed
or hidden documents in connection with the very same fraud suit.
[“Prudential to Pay $410 Million For Misleading Policyholders,”
Joseph Treaster, New York Times, 9/25/96; “Prudential Deceptive
Sales Tactics Continued Into 1996,” Wall Street Journal, 12/22/97;
“Judge fines Prudential $ 1 million for document destruction,”
Associated Press, 1/6/97]
- Mississippi Suit Alleges Insurance Companies Engaged in Fraud;
Tried to Trick Hurricane Victims. Mississippi Attorney General
Jim Hood sued five insurance companies in 2005, alleging that adjusters
for the companies tried to trick Hurricane Katrina victims out of
millions of dollars in homeowner claims. According to Reuters, “[a]djusters
for Nationwide Mutual Insurance and other insurers asked policyholders
to sign forms that acknowledged they sustained flood damage, which
is not covered by homeowners' insurance, according to Hood. Adjusters
have cajoled victims to sign the forms, saying they are necessary
to immediately receive a check for living expenses. The companies
can use the sentence regarding flood damage against policyholders
later, Hood said. The difference is important. Damaged caused by
wind or water falling into a structure, like through a hole, typically
is covered by a homeowner policy. Damage from rising water, however,
usually would be covered only by the National Flood Insurance Program,
which is run by the Federal Emergency Management Agency. …
The suit, filed in county chancery court, asks for a temporary restraining
order to stop the use of such forms. Nationwide, identified by Hood
as a lead defendant, did not immediately return a call seeking comment.
Hood also sued Mississippi Farm Bureau Insurance, State Farm Fire
and Casualty, Allstate Property and Casualty and United Services
Automobile Association.” [“Mississippi sues insurers over
Katrina claims” Reuters, 9/15/05]
- Oklahoma Jury: State Farm Acted “Recklessly” and
“With Malice” in Handling Insurance Claims. Earlier
this year, a jury in Oklahoma concluded that State Farm Insurance
acted “recklessly” and “with malice” when handling
claims for dozens of families who owned homes damaged by a series
of tornados in 1999. As CNN has reported, a group of homeowners
brought a class action lawsuit against the company, alleging that
State Farm hired a engineering to internally undervalue tornado
damage to homes: “[a]ccording to the lawsuit, State Farm hired
Texas-based Haag Engineering, which intentionally undervalued damage
to homes or claimed the damage was caused by other factors -- like
faulty construction -- instead of tornadoes. The jury ruled that
State Farm ‘recklessly disregarded’ its duty to deal fairly
and act in good faith with the Watkinses [the lead plaintiffs in
the lawsuit] and that it ‘intentionally and with malice’
breached its duties as the couple's insurance company. The jury
further found ‘clear and convincing evidence’ that State
Farm recklessly disregarded its duty to act fairly and in good faith
with members of the class action by employing Haag Engineering and
its independent adjusters from E.A. Renfro Co. It also said State
Farm acted intentionally and with malice in dealing with customers
in the use of these two companies.” [“State Farm penalized
in suit over tornado claims; Verdict could affect similar lawsuits
involving Katrina,” CNN, 5/26/06]
Insurance Industry Making Record Profits
- Insurance Companies Made a Record $44.8 Billion in 2005; Increased
Industry Surplus by More than $427 Billion. According to the
Los Angeles Times, “The companies that provide Americans with
their homeowners and auto insurance made a record $44.8-billion
profit last year even after accounting for the claims of policyholders
wiped out by Hurricane Katrina and the other big storms of 2005,
according to the firms' filings with state regulators….an 18.7%
increase over the previous year. …Besides boosting profits,
the industry raised its surplus by more than 7% to nearly $427 billion,
according to an analysis of company filings by the National Assn.
of Insurance Commissioners, which represents regulators from the
50 states. The surplus is intended to provide a financial cushion
in times of high claims.” [“Insurers Saw Record Gains
in Year of Catastrophic Loss; They say the profits are a fluke,
but the industry has worked to shift risk to clients and the public,”
Los Angeles Times, 4/5/06]
###
As the world's largest trial bar, ATLA
promotes justice and fairness for injured persons, defends the constitutional
right to trial by jury, and strengthens the civil justice system through
education and disclosure of information critical to public health
and safety. With 60,000 members worldwide, ATLA provides lawyers with
the information and professional assistance they need to serve clients
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