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What 'Crisis' for Insurance?

April 14, 1986

A Times article (April 7) on President Reagan's support for federal legislation to limit pain and suffering damages to $100,000 in personal injury lawsuits and to place limits on the amount of attorney's fees reported that last year the insurance industry showed a profit of $7.6 billion. The question that must follow from such evidence is: "What insurance crisis?!"

We are in the throes of an all-out assault of one of the most cherished institutions in American jurisprudence: the tort system, the system that allows, and always has allowed, people to be compensated for civil wrongs committed by other people.

The proponents of these attacks are themselves being victimized by a so-called "crisis" created by the insurance industry, designed only to drive up profits. Small businesses, cities and others are complaining that they either cannot afford liability insurance or cannot obtain it. The insurance companies are blaming the increased cost of insurance on what they consider unregulated and out-of-control jury awards.

How much sense does this make in the wake of reported profits of $7.6 billion? If the industry reported such profits last year, and the premiums have increased at rates of four, five, even ten times for certain people and businesses this year, it does not take a genius to figure out the amount of profits the industry stands to make or the motive behind the industry's attack on the tort system.

If laws such as those President Reagan is supporting or California's Proposition 51 (designed to eliminate joint and several liability) pass, do you think the insurance industry will refund these current increases to their insureds? Do you think the industry will reduce premiums to their 1983 or 1984 levels? Of course they won't.

The current insurance "crisis" can be compared to the gas "shortages" of 1973 and 1979. After each crisis subsided, did that industry reduce the price of oil/gas to pre-crisis levels? Of course they didn't. The insurance industry is using these same tactics to drive up the cost of insurance and its own high profits, yet diverting the public's attention away from its true motive and placing the blame on attorneys and juries.

The "crisis" is created. It is not real. The insurance companies are not enjoying their prosperous days of the 1970s because of bad management and poor underwriting policies. Toward the end of the 1970s and beginning of the 1980s, when interest rates were at all-time highs, the companies engaged in cut-throat competition to obtain premium dollars any way they could so they could be invested at the high rates of interest. As such, insufficient concern was given to the risks that were being written, and when interest rates dropped and the bad risks began to catch up with them several years later, profits naturally were greatly reduced. Not eliminated, but reduced.

If, in times of bad management and low interest rates the industry can still show a profit of $7.6 billion, how, in a society that prides itself on fairness and individual rights, can we allow this industry to take such advantage of us? Are we to fall prey to this nonsense, or will we stand up and let the truth be known?

The insurance industry has us where they want us; they've created mass hysteria among a large segment of society forced to pay these ridiculously high premiums. But if you believe as I do, that this is a maneuver to raise premiums and profits, you will fight back and stop the attack.



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