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According to the Consumer Federation of America, the insurance industry in America consistently overcharge customers of home and auto insurance, while at the same time paying fewer and fewer legitimate claims. A recent study by the Consumer Federation, Consumers Union and other consumer advocacy groups estimates the average US household has overpaid by $870 in the last 4 years.

The single most significant statistic is the ratio of benefits paid by the customer to claims paid out by the insurance company. The ratio was 54.6% in 2007, up slightly from 53.3% in 2006. However, during the 1980’s this ratio hovered around 75%. There is no evidence that massive fraud is responsible for the staggering decrease in claims being paid, leading to the conclusion the insurance industry is simply not paying valid claims.

Insurance industry profits of $67.6 billion set a record in 2006, and they were down slightly in 2007 to approximately $65 billion. This is still a significant increase from the $48.8 billion in profits earned in 2005. The decrease in 2005 is most likely due to the payment of claims related to hurricanes Katrina and Rita, as those events resulted in hundreds of thousands of people being displaced after their homes were destroyed.

One thing many insurance carriers are doing to reduce premiums is to drop coverage of certain claims. Many insurers will not cover claims for wind, mold or other natural disasters that can devastate an entire region. Following hurricane Katrina, State Farm refused to pay for damage to homes caused by flooding, claiming it was not covered by the policy. The policy holders argued that the majority of the damage was caused by wind, with the water only scattering the debris and not causing the majority of damage. A jury in the Federal District Court in Gulfport, Miss., agreed with the home owners and came back with a verdict against State Farm to pay the policy limits as well as $2.5 million in punitive damages for failing to pay on the claim.

Following the hurricane season in 2005, Allstate posted a loss of $1.55 billion. As a result, Allstate refused to issue policies of insurance to homeowners in the Gulf region. This causes an individuals insurance rate to skyrocket due to the decrease in competition. Without big companies willing to cover homeowners in areas likely to be damaged by natural disasters, homeowners are left with no one to help them pay to rebuild their houses. If an insurance company does provide coverage in an area like the Gulf region, homeowners can expect to pay artificially inflated rates for coverage due to the lack of competition.

The insurance industry is supposed to be there to help people when they need it the most, such as following a natural disaster or auto accident. Instead, the insurance industry is only interested in taking your money and then refusing to pay when you make a claim. It is more profitible for them to pay a defense attorney then to pay you for your legitimate loss. Makes you wonder if you really are in good hands with Allstate, or any insurance company for that matter.

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