The Center for Justice Democracy at New York Law School has released a scathing exposé that reveals how insurance companies are price-gouging businesses, misleading regulators, and defrauding the public. The study – “How the Cash-Rich Insurance Industry Fakes Crises and Invents Social Inflation” – explains how insurers use scare-tactics to justify unnecessary insurance rate increases, and to dismantle the American jury system.
Insurance is the vehicle by which personal injury victims and others are compensated for their losses. It’s not just car insurance. Manufacturers rely on insurance to compensate consumers when mistakes are made. When contaminated food and other defective products are sold, insurance companies are supposed to help resolve the resulting conflict, helping the victims while at the same time protecting manufacturers from financial ruin.
But insurance is a for-profit business. They aren’t interested in altruism. They are in it for profit.
In their latest money grab, insurers are claiming that people are suing more than ever, and that jury awards are at record highs. Using a made-up concept called “social inflation,” insurers are arguing that litigation is out of control, that jurors are out of touch, and that insurers’ resources are being exhausted. They are claiming they’ll go out of business unless drastic measures are put in place to protect them.
But it’s a hoax. In reality, lawsuits are no more frequent than they’ve ever been, and jury awards aren’t any higher than historical averages. In fact, in some areas, insurers are paying less compensation to injury victims than ever, despite the fact the insurance industry is sitting on a surplus in excess of $800 billion. But that’s not enough for them. They want more. Using familiar tactics, insurers have been preparing over the last few months to claim more ground in their decades-long fight against victims.
Insurance companies use faulty and misleading accounting practices to misrepresent their revenues. Insurance rates are regulated by state agencies. These agencies have limited time and resources, and rely on insurers’ self-reported “reserves” to evaluate the fairness of insurance rates. “Reserves” are amounts insurance companies predict they need to keep on hand in order to pay future claims. To increase rates or change public policy, insurers artificially inflate their reserve requirements, overestimating the amount of claims they’ll pay in the future. Using these inflated numbers, insurers convince regulators that current premium rates are too low to cover their future liabilities.
After insurers have raised their rates to exorbitant levels, they turn their sights to the judicial system. They convince legislators that “tort reform” is the only thing that will bring rates back down to reasonable levels.
The term “tort reform” is shorthand for measures that take away your constitutional right to have your case decided by a jury of your peers. These measures insulate wrongdoers, prevent redress, and keep victims from receiving fair compensation.
Through a powerful and well-paid network of lobbyists, insurers convince legislatures that “tort reform” is needed to curb rogue juries and prevent frivolous lawsuits. They use fake and exaggerated stories (often reiterated through sponsored media coverage) to suggest American jurors are incompetent, and that victims are illegitimate. Insurance lobbyists promise that, if “tort reform” is implemented, insurance rates will come back down. They never do; when states adopted “tort reform” measures in the 1970s, 80s, 90s, and early 2000s, consumers in those states saw no corresponding reduction in insurance premiums. In fact, many insurers increased their rates after “tort reform” proposals were adopted.
Among the most drastic “tort reform” has been measures originally adopted in the 1970s and 1980s to limit medical malpractice claims. To prevent innocent patients from being compensated for doctors’ mistakes, the insurance industry essentially resorted to extortion. By charging unaffordable premiums to doctors or dropping medical malpractice coverage altogether, insurers held American public health hostage. Insurers forced medical providers to turn patients away. As ransom, the insurance industry demanded new “tort reform” measures, which many states adopted without reciprocal promises from insurers. After the fact, experts reviewed the data and concluded that the whole thing was a scam. There had been no legitimate reason in the first place for the exorbitant rate increases. But by then, it was too late; the insurance industry had won the battle.
Insurers rely on collusion and anti-competitive conduct to perpetuate their fraud. Antitrust laws prevent companies in other industries from conspiring to artificially inflate prices or stifle competition. But through their powerful system of lobbyists, the insurance industry convinced legislators to exempt them from American antitrust laws. As a result, insurers are free to commit acts that would otherwise be illegal. Implicitly or explicitly, insurers form pacts with each other, agreeing that they’ll perpetuate the same misrepresentations, acting more like an organized crime syndicate than legitimate businesses.
The study is available online. The publishers do not address the effect of COVID-19 on insurance premiums and “tort reform.” But undoubtedly, insurers will add the coronavirus pandemic to their reasons for demanding drastic measures to protect them from compensating consumers and victims. At the same time, insurers are filing lawsuits against their own customers, asking Courts to declare that SARS-CoV2 related losses are not covered by policies insurers previously sold.
If you have been injured and are being treated unfairly by an insurance company, the attorneys at Pritzker Hageman are here to help.