Underwriters Are Price Gouging Americans
Last month, Federal Reserve Chairman Jerome Powell attributed lingering inflation to the fact that the American economy is increasingly “uninsurable.”
According to Powell, “Insurance of various different kinds — housing insurance, but also automobile insurance … that’s been a significant source of inflation over the last few years.”
He’s not wrong, either:
Once-affordable coverage has joined American bygones like affordable housing, affordable higher education and a comfortable retirement:
- Auto insurance is up nearly 21% year-over-year.
- Homeowners insurance is worse, with a 23% YoY increase.
- And for flood insurance, FEMA capped annual increases at 18%. How generous of them.
Why Rates Are Surging
Reinsurance. Climate change. Corporate greed.
Pick your poison, but all three are contributing factors to the current insurance crisis in the U.S. States like California, Florida and Louisiana are dealing with a mass exodus of insurers as climate change-induced wildfires, floods and hurricanes increase in frequency and severity.
Insurance companies assert that they’re playing catch-up after multiple years of losses due to increased claims. According to the Insurance Information Institute, for every dollar in home and auto premiums collected last year, companies paid out an average of $1.10 in claims and expenses.
The result? Homeowners without mortgages are gambling on their properties and foregoing coverage assuming the cost of replacing a roof will be less than carrying a policy until disaster next strikes.
Others are fleeing (sorry Appalachia), and in Florida — a state already besieged by uninsured drivers — it’s worsening. According to the Florida Department of Highway Safety and Motor Vehicles, the statewide uninsured motorist rate is 6.46% … or 1,045,458 of the 16,180,012 registered vehicles in the state.
We’re not sure if you’ve ever driven down here, but between ubiquitous octogenarians, hyper-aggressive New York transplants and recently relocated Caribbeaners learning to navigate six-lane highways … it’s already dicey. Now, factor for more uninsured drivers.
Lemons and Lemonade
Last year, when we reported on the burgeoning insurance crisis in Florida, we discussed the 50 most profitable insurance companies. However, choosing just one isn’t an easy task.
So this week, we’re looking at one ETF that provides access to a basket of insurers, thereby diversifying investors’ funds by spreading them across the industry and minimizing risk exposure.
The iShares US Insurance ETF (IAK) is a composite of the worst bloodsucking racketeers insurers in America, including Progressive, Travelers, Aflac, Allstate, Prudential, MetLife and Hartford Financial among others.
Its expense ratio is 0.4% — not great, but certainly not terrible — and its dividend yields 1.36%, or $1.57/share, quarterly. But its performance is telling:
- Year-to-date gain: 16%
- One-year gain: 41%
- Five-year gain: 84%
The current state of insurance is helping keep inflation elevated and delaying the Fed’s plans to cut interest rates.
But as long as these companies are getting away with it — and let’s be honest, nothing’s stopping them from price gouging Americans — allocating some funds to an ETF like IAK that can turn their fraudulent business practices into potential profit for investors makes sense.