The insurance industry has seen a double ‘whammy’ in 2008: a huge decline in sales of insurance products (due to the decline in sales of autos and houses) along with double digit declines in the value of their investment portfolios. For property/casualty insurers (like auto and homeowners insurance companies) these events will no doubt lead not only to higher premiums (when the economy starts to recover), but also to less dollars offered, and offered later, in payment of claims.
In an April statement from the Property Casualty Insurers Association of America, it was reported that sales of their insurance products dropped 1.4% in 2008, the biggest sales decline in half a century. At the same time, losses in the stock market has caused a 12% drop in the insurance companies’ policy holder surplus (the cushion against claims that’s monitored by regulators and ratings firms). Adding to this dismal financial picture was the reality of a year of hurricanes and tornadoes, all resulting in a drop of 96% of the insurers’ net income. The only ways insurers have to replenish the policy holder surplus is to (ultimately) raise premiums and to minimize dollars paid in claims as long as they can.
Consumers should be prepared to confront rising premiums and tighter claims-paying policies as carriers seek to rebuild their finances. Insurers will also seek to delay payment of claims in various ways, for example by always needing “one more” medical note or documentation for the damage claim. Lawyers handling property/casualty claims in this environment need to be aware of the change in insurer practices, moving cases toward lawsuits sooner than before, so the ultimate payment of the claim is not delayed through these claims practices.