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Saying no saves insurance companies billions of dollars every year.

Who’s paying the price? Innocent consumers, like you, who pay their insurance premiums every month and expect the insurance companies to be there in an emergency. But as victims of car accidents and natural disasters are finding out, the insurance companies are delivering empty promises, not claims checks. And when they do pay claims, the payouts are often inadequate.

Hurricane Katrina is a case study in how the insurance industry really works. The 2005 hurricane caused more than $135 billion in property damages, mostly in Louisiana and Mississippi, and homeowners are still battling to get their legitimate claims paid. This respresents bad faith insurance practices at their worst.

The insurance companies say they’ve settled 95 percent of Hurricane Katrina claims, but the truth of the matter is that they’re shirking their responsibility. They’ve tried to blame most of the damage on flooding – which is not covered by typical homeowners insurance policies – often using fraudulent and deceptive means. (Reports show that insurance companies changed engineering reports and coerced homeowners into signing away their rights to collect insurance claims. Others have been strong-armed into accepting less than they’re owed for Hurricane Katrina destruction.)

One industry group estimated that insurers would only have to pay $20 billion to $35 billion in Katrina-related claims, only a third of actual losses. This sketchy math adds up to big profits for insurance companies.

This isn’t the first time this has happened. After Hurricane Isabel, which caused more than $3.3 billion in damage in North Carolina, Virginia and Maryland, insurers mishandled claims and failed to pay proceeds that homeowners were entitled.

It seems that after every hurricane — Andrew, Wilma, Charley, Floyd, Fran, Hugo — homeowners are being devastated twice – first by storm damage and then by the insurance companies who they diligently paid and in whom they put their trust.

But the insurance companies have a history of putting profits before people.

In the past 12 years, insurance company profits have soared. Property-casualty insurers, which cover damage to homes and cars, reported their highest- ever profit of $73 billion last year, almost double their 2005 profits.
U.S. homeowners pay more than $50 billion in insurance premiums every year – but insurers are spending less and less of this money to pay claims. Insurers typically pay only 30 percent to 60 percent of the cost to rebuilding a damaged home–even in cases where the homeowner has replacement value coverage.

One of the big three insurance companies pays just 58 percent of its homeowners’ insurance premium income for claim payouts. Ten years ago, the same company paid 79 percent of its premium income in claims. For the industry as a whole, auto and homeowners claims payouts have decreased to 55 percent of the $435.8 billion in premiums collected, compared to a 64 percent payout ratio 10 years ago.

What does this mean? Bigger profits for the insurance companies, who invest the surplus, and less financial help for insurance consumers who file a claim.

“When you slip away all the fancy jargon, all this is a plan for switching money from policyholders’ pockets’ to the shareholders’ pockets,” said David Berardinelli, author of From Good Hands to Boxing Gloves, an expose on insurance-industry tactics.

These tactics date back to the early 1990s when the insurers began looking for ways to improve their profitability and cut claims payments. The change came on the heels of Hurricane Hugo, which caused $9.7 billion in damage in North Carolina and South Carolina and resulted in $4.2 billion in insurance claims.

McKinsey & Co., a New York-based consulting firm, masterminded this new way of doing business, encouraging the insurance companies to deny legitimate claims and use other delaying tactics. The insurers’ goal is to pay the minimum necessary and to play hardball in court with anyone who puts up a fight.

Many consumers think they will receive the money they deserve if they take their fight against an insurance company to court. But in many instances, that’s not the case. In North Carolina, for example, attorneys are forbidden from mentioning the status of an insurance claim in court. Jurors often reach the conclusion that plaintiffs in cases against insurance companies are greedily trying to get more money. But in almost every instance, these plaintiffs are simply trying to get some money – money that is rightfully and lawfully due them.

The insurance companies have spent millions crafting a public image that they’re someone you can rely on in a crisis. But as countless car accident victims and thousands of homeowners in hurricane-ravaged areas will tell you, the insurance industry isn’t looking out for anyone’s interests but its own.

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