Finding Riches on the Insurance Beat

Covering health insurance and its effects on consumers is a given for business reporters today, but the same can't be said for auto, home, life and other necessary lines of insurance.

Major changes in the insurance industry over the last two decades means there are many new and emerging topics for an enterprising business reporter to probe. Among them:

• The age of technology has allowed insurers to use more sophisticated computer analysis to determine which policyholders will be covered and at what price. In turn, this brings up issues of whether all consumers are provided with coverage on an equal basis
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• In an effort to insulate themselves from major catastrophic payouts, insurers have limited their coverage and have even asked the federal government to take over paying those losses.

Reporters can find a wealth of information at the state level because individual state insurance departments regulate insurance companies. The departments maintain a large volume of public records ranging from market conduct reports that determine whether insurers are treating customers fairly in accordance with state law, to financial data which shows insurance profits and losses.

Different lines of insurance present distinct story opportunities. Here are a few of the salient possibilities.

Auto Insurance
Once upon a time auto insurance rates were calculated like plain vanilla ice cream. Motorists were primarily rated on their driving record, the age of their car and the frequency of car thefts in the area where they lived. While those matters are still big factors, the issue of credit or insurance scoring in the auto insurance industry has become an increasing controversy.

Simply put, drivers with poor credit end up being charged higher rates than those with good credit, even if they have a perfect driving record. Insurers say that studies have shown that motorists with poor credit will have a greater chance in the future of filing an auto accident claim than those with good credit. But consumer groups and some state insurance regulators say such practices are discriminatory because they tend to have a disproportionate impact on minority groups. Studies have shown, for example, that African Americans tend to have poorer credit.

Some auto insurers have gone even beyond credit scoring. One major insurer, GEICO, is a big proponent of using educational levels and occupation as a criteria to determine rates. A cleaning person without a college education but a perfect driving record could pay significantly more than an executive with a college degree who has traffic tickets under GEICO's pricing structure. Reporters who explore this topic can use GEICO's own web site to compare rates. GEICO argues that its studies show that occupation and education correlate to claim frequencies, a notion dismissed by consumer groups and some state insurance regulators.

Some insurers even contend that motorists with a high number of road service calls have a higher frequency of auto accident claims. The insurers, which include State Farm, the nation's largest auto carrier, will charge higher rates or refuse coverage to justify that assertion. Ironically, the optional road service towing coverage is pushed by insurers as an inexpensive add-on to the auto insurance policy, yet the consumer can end up being penalized if they actually use the coverage.

Property Insurance
Major changes have occurred in the last few years, but the changes are often in the fine print of the insurance contract. While most people may not read their contract, reporters who can explain that fine print can find a wealth of stories.

It used to be that insurers would pay whatever it cost to replace a house. If a house was insured for $300,000 and the cost to rebuild was $350,000, it wasn't an issue. Now, this is no longer true. Beginning in the 1990's, more and more insurers capped replacement cost coverage. Insurers will pay only to the limits of the policy or cap the maximum they will pay at 120 percent of the policy limits. Bottom line: homeowners whose residence is destroyed by a fire, hurricane or other natural event may not have enough money to rebuild.

Insurers also have excluded or limited coverage in many areas in recent years. A prime example is coverage for mold damage. Following a spat of claims on the issue insurers ended coverage or limited damage to a certain dollar amount, say $10,000 for example. In coastal states, such as Florida, screened pool enclosures that suffered heavy damage during hurricanes are no longer automatically covered or damage payouts are limited to a capped amount.

In the wake of Hurricane Katrina, many insurers have pressured state lawmakers to implement what is known as Anti-Concurrent-Causation Clauses. Insurers can use the clause to refuse to pay for wind losses on homes that had also experienced flood damage. The purpose of the clause is to override coverage for an insured claim if, at or about the same time, an uncovered event occurs. Insurance policies don't cover flood damage so insurance companies can use the clause to deny a claim.

A good way to write about some of these changes is to bring people into the equation. Next time the police reporter writes a story about a house destroyed by a fire, it could be an interesting follow-up for the business reporter to find out if the policyholder had any difficulty in getting paid the right amount to rebuild their house.

On a broader scale, the issue of how much money insurers should be responsible for in the event of a terrorist attack is expected to be a major issue over the next few months. Following September 11th and a $31.7 billion insurance industry loss, Congress enacted a terrorism fund to pay mega losses from a future terrorist event. The insurance industry's liability is now capped at $100 billion with the federal government picking up the tab after that. The current law expires Dec. 31 and insurers are pushing for reenactment. If Congress doesn't go along, insurers have threatened to stop writing of business insurance policies in major cities, especially for high-exposure risks, such as office buildings.

Also expect continuing debate over whether there should be a national catastrophe fund to cover natural disasters. In January the state of Florida expanded its own fund that will reimburse insurers billions of dollars if a major hurricane were to hit. Other coastal states have also toyed with the idea of creating their own funds. Coastal states have also pushed for the creation of a national catastrophe fund that would have taxpayers across the U.S. paying part of the costs to replace damaged homes and businesses. However, the legislation has reached a stalemate in Congress.

Lawmakers from coastal states have been pitted against representatives from other states on this issue. The insurance industry has also been divided over the necessity of the fund.

Life Insurance
An outgrowth of the viatical industry, which saw dying AIDS patients sell their insurance policies to investors for cash to pay medical expenses, is the life settlement industry. In the last few years, a big business had developed around elderly people selling their life insurance policies to investors.

The way it works is that a policyholder's life insurance policy is sold to a third-party investor. The policyholder then receives a lump sum greater than the cash value of the policy. The investor continues to pay the policy premiums and waits until the person dies and then collects the death benefit. This practice can help elderly policyholders in need of cash while they are living.

The most controversial part of this industry involves investors pushing life insurance policies on elderly persons who don't need coverage, even fronting the premium for them. Life insurers, concerned about their own financial bottom line, are attempting to stop these sales. They say this abusive practice could raise the price of life insurance for everyone.

The National Association of Insurance Commissioners, a group representing insurance regulators across the nation, has proposed banning the sale of investor-driven policies for five years while the issue is studied. However, individual states would need to enact their own laws for such a ban to take place.

Randy Diamond is a reporter for The Palm Beach Post in Florida.

Copyright © 2007 Donald W. Reynolds National Center for Business Journalism