The Consumer Federation of America has released a new study finding that insurance companies are gouging consumers. The study concluded that automobile and home insurers’ profits have surged in recent years — despite billions of dollars in damage from Hurricane Katrina and other storms — in part because the insurance companies have overcharged for insurance and shifted more costs to consumers and taxpayers. The overcharges are self-explanatory, but the shifts in costs to consumers and taxpayers are more subtle. These shifts in costs have included sharp limits on coverage and availability of insurance and the use of programs, such as Colossus, to systematically underpay claims. The insurance industry has also been successful in getting parts of its coverage subsidized by the federal government, and in turn, the taxpayer.

The changes in coverage are particularly a concern of Texas consumers. Until a few years ago, homeowners’ insurance companies largely offered form HO-B policies. Each policy provided identical coverage, and it was easy to compare rates between companies. The insurance companies were successful in lobbying the insurance commissioner to allow them to offer different polices. Now the companies offer a wide-range of policies with wide ranges of coverage. As a result, when consumers shop for homeowners’ coverage it is difficult for consumers to know whether they are comparing apples to apples. Fortunately, the Office of Public Insurance Counsel has created a website to assist in those comparisons. An article from Texas Watch discussing the homeowners' insurance rate increases with corresponding decreases in coverage is here.

For a copy of the Consumer Federation release discussing the study, click here. An AP article on the study, including the insurance industry’s response, is available here.

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