As New Orleans residents begin to inch back into the waterlogged
city they used to call home, attempting to find new ways to live
their old lives, the companies that provide Americans with their
insurance are attempting to extract every last dollar from them in
a fashion similar to wringing a wet towel.
“We’ve been told there will be a 35 percent hike (in
our premiums) next renewal,” said a Louisiana woman posting
her anger on the democraticunderground.com forum. “I
don’t know how we will afford this hike. … I’m truly
sick of this highway robbery.” This, of course, is an unfair
metaphor ““ highway robbers don’t pretend like
they’re providing you with some sort of service.
In the insurance industry’s case, however, reassuring
insurance salesmen with briefcases who use important-sounding words
such as “coverage” and “deductible” tell
you how happy they are to provide you and your family with a little
peace of mind as they’re scrawling, “We don’t
cover floods or hail or when it’s real windy outside and the
house blows down” in tiny letters in the margin of your
policy.
This isn’t only important to people from New Orleans. Not
only do private companies in California not cover earthquakes,
forcing the state to shoulder the risk when it is already nearly
bankrupt, but other forms of insurance, including the health
insurance that every student is required to have, act on the same
principle of “covering” you as little as possible.
It would seem, on its face, to be logical ““ there was
$56.8 billion of disaster losses last year, according to an article
in the Los Angeles Times, double the previous record. Perhaps
they’re simply scrambling for more money, like a student
whose parental funds aren’t enough to cover an emergency
expense.
“Unless insurers can get relief, you’re going to see
a pullback by the private industry,” said Robert Hartwig, an
economist for the industry-funded Insurance Information Institute,
in the same article. “We’re not being good stewards of
our investors’ capital … if we keep doing business where we
can’t make money.”
A business not making money! It’s an affront to our
capitalistic sensibilities. It stings the entrepreneurial nostrils
and it leaves a bitter taste on our tongues. Too bad it’s a
load of hogwash.
Companies dealing with auto- and homeowners-insurance made a
record $44.8 billion in profit last year, even including the record
payouts to those with damaged homes, and raised its surplus more
than 7 percent to almost half a trillion dollars, according to The
Times. This profit is partly due to the fact that American
insurance companies often have foreign insurance for their
insurance (meaning that companies overseas actually pay for many of
the claims) and that the big companies make plenty of profit in
their other lines of insurance. And while premiums have increased
by more than half since the early 90s, the amount of loss covered
after Katrina has fallen from near 60 percent to around 30
percent.
But the insurance industry is still quaking in its wing-tips
over potentially not making enough profit. “If last
year’s hurricane season had occurred 10 years ago, it would
have been devastating for the company,” said Allstate Vice
President Fred Cripe. “Last year, it was merely
disappointing.”
I’m sure we can all commiserate with Cripe that the most
devastating disaster in American history was a little disappointing
for Allstate, just like you might be disappointed about a friend
getting hit by a bus because it means he can’t take notes for
you in class anymore.
Having the temerity to call this year’s profits a
“fluke,” as if a bunch of money fell like manna from
the sky into State Farm’s employee parking lot, insurance
companies are trying to shift more of the burden onto consumers by
way of the aforementioned rate increases and by asking the
government to take more responsibility for insuring citizens.
What is necessary is exactly the opposite. It may require Rep.
Cynthia McKinney throwing a cell phone at the CEO of Geico, but the
government must force companies to actually do the service that
they’re supposed to do. Insurance is a different enterprise
from normal sales-oriented companies; the service it provides is
crucial yet often unaffordable, and thus cannot be treated as
simple supply-and-demand. Tens of millions of Americans can’t
afford health insurance, and New Orleans residents who can’t
even afford to rebuild their homes will never be able to afford
homeowners insurance rates that have doubled or tripled.
Insurance companies don’t even provide their overpriced
service reliably. If you have an HMO or even UCLA’s student
health insurance plan, do you feel confident that any affliction
that might befall you would be covered? More likely you wonder if
anything at all is covered. (“Ms. Jones, we know it says in
your policy that broken bones are insured, but it clearly says in
Appendix 3C, in scary-looking and unintelligible language, that we
are not liable for broken bones induced in
undergarment-jogging-leading-to-falling-into-a-fountain
activity.”) Once you graduate and have to start paying all
your different insurance premiums on your own with only an
entry-level salary, the fact that costs are rising while profits
are going up will look even worse.
It’s time for the government to introduce stricter
standards of service for the insurance industry and strict
regulations on how fast rates can rise relative to levels of
profit. That may sound like unwarranted government intrusion into
private enterprise, but students with health emergencies, recent
graduates who need home insurance, and residents of New Orleans who
need disaster insurance need to be covered more than Allstate needs
more money piled in its surplus. We all need coverage, whether we
ever think about it or not. We can only hope that our last
reasonable means of getting it don’t get washed away in a
flood of greed.
Atherton knows he got a little carried away with that last
metaphor. E-mail him with better column endings at
datherton@media.ucla.edu. Send general comments to
viewpoint@media.ucla.edu.