Sucking, or Socking, Away Profits

In Texas, occasionally we have hailstorms, and car and roof damage happens to a huge proportion of us all. The home and property insurance companies have to pay, and that depletes their stash, of course. The state of Texas had put its foot down a few years back, when our insurance rates went out of bounds and there has been a running battle between the state and some insurance companies for several years.

Texas insurers were virtually untouched by the slowing economy in 2007 as they recorded one of their most profitable years of the decade, prompting new calls for tougher state action on homeowner rates.

New financial reports released Wednesday by the Texas Department of Insurance indicated that most companies had another year of solid earnings as they marked their fifth straight year of beating or equaling a standard benchmark for reasonable profits.

Overall, the industry had an average loss ratio of 36.5 percent in 2007, according to the reports. In other words, insurers paid out 36.5 percent of premiums to cover property losses – well below the 58 percent figure often cited by experts as a good measure of profitability.

Industry representatives said a few good years of profits offset the poor years that companies suffered in the early part of the decade and emphasized that insurers need to build up reserves for inevitable losses that will occur when hurricanes or hailstorms hit Texas in the future.

Coincidentally, the investments of insurance companies suffered like other investors' monies during the tech bust of 2002-3 - because of course, the monies are taken in from the insured, then invested by the companies to build up their funds. Payouts are always blamed, but investments lose also. The year that insurance payments in Texas went alarmingly high, and the state cracked down, of course, was 2003.

Watch the stock market and you will have some idea of what is actually happening to your insurance payments. Sorry, I know this is giving you yet another problem to consider along with the increasing prices of absolutely everything else. Your insurance expenses may be losing their coverage as well.

When home insurers raised rates in Texas, there had been a large number of storms, and large loss amounts. Texas, however, was third among the states in total amount of payouts for damages last year, and it made no appreciable increase in premiums.

Next year, after the losses of this year, I predict there will be another premium increase, and we all know the reason will be given that losses were just huge. Losses, indeed, the losses all investments are experiencing right now, in the market, and from investments in AAA rated stocks that are actually not AAA material. The subprime credit crisis has effects still to come, and this one is inevitable.

The concept of insurance is a great one, that a lot of people contribute to a fund that will pay for unexpected expenses for the few who incur them. Sometimes a catastrophe happens, and a lot of payouts all at once make it hard for a single insurance company to survive, as happened in the flu epidemic of 1918. The catastrophe the insurance companies have experienced, though, is not a natural one this year. Unfortunate investments are being passed on the the policy holders, with the excuse that they caused it by collecting for damages.

The insurance business has come to see 'loss' instead of responsibility, something to pass on to the customer rather than do its part in the insurance business. Your premiums have become the object, not the insurance of your goods.