The Consumer Federation of America and New York’s Law School’s Center For Justice and Democracy issued a study today, How the Cash Rich Insurance Industry Fakes Crises and Invents Social Inflation. I would suggest readers read this study and also consider my post from last week, How Playing the Float, Taking Depreciation on Labor or Tear Out Is Needed Cheating For Many Insurance Companies, where I had a long quote from Warren Buffet about how insurance companies make big money on the float.

The study noted what we see in legislatures across the country where insurance lobbyists and their publicists try to portray a crisis to get what they want:

Today, this overcapitalized industry is already charging many businesses far too much in premiums while threatening even greater increases, all while attempting to create the perception that it is too financially troubled to pay claims. Yet this is an industry that has stored away so much excess profit that it now sits on more surplus than at any time in history – a record level of well over $800 billion.

For most Americans who do not pay close attention to insurance markets, it is easy to be misled by this industry when it tries to justify rate hikes after years of stable or decreasing premiums. This is exactly the situation in which some businesses find themselves today.

Insurance companies have never been forthcoming about why ups and downs in insurance premiums happen. In these cyclical hard markets, they have internally admitted that the cause is the industry’s own self-made boom and bust economic cycle. But publicly they have attempted to cover up their mismanaged underwriting and accounting practices by blaming lawyers, juries, and the legal system. Today they are making such claims even though both litigation data and the industry’s own loss data show that claims are not spiking and ‘tort costs’ are stable.

In previous crises, the industry pointedly blamed the legal system, but that old attack has been exposed as incorrect in each of the three previous hard market periods. So, in the current run-up to a new hard market, the insurance industry needed a new public relations term to make the case for higher rates. It has settled on a new name to describe its current interest in raising prices: ‘social inflation.’ Over the last several months, insurance industry representatives have begun a seemingly coordinated effort to market the idea that ‘social inflation’ (i.e., lawsuits by injured, harmed, and defrauded consumers and policyholders) are hurting insurers financially.

This study will take time to digest, but I encourage those concerned about the insurance industry and how it operates to fully read this newly published report.