You buy a Band-Aid. You get a scrape. You use your Band-Aid. And the next time you go to the drugstore, you're told that you have to pay more for Band-Aids. Or maybe they won't sell you another Band-Aid at all.
That, in essence, is what seems to be happening in the insurance business.
This week we've had two stark reminders of how screwy this industry has become. First, of course, there are the fires that have devastated parts of Southern California.
As I reported Wednesday, any claims filed will end up in vast, privately run databases and result in "insurance scores" that could influence rates paid by homeowners for years to come.
Then there's the matter of health insurers canceling coverage for people after they submit claims for medical treatment. The practice has become so prevalent that state regulators this week announced measures to crack down on what they termed acts of cruelty by insurers against patients.
Spring Valley resident Sal D'Anna says he knows all about that. He took out a health insurance policy with PacifiCare Health Systems Inc. in February 2006. D'Anna, 35, was subsequently diagnosed with kidney cancer and had to have one of his kidneys removed.
In August 2006, he was informed by PacifiCare that his coverage was being canceled.
"They said I knew I had kidney cancer when I applied for insurance and didn't tell them," D'Anna said. He said he applied for the insurance before learning of the cancer.
Tyler Mason, a PacifiCare spokesman, responded that as the case proceeds through arbitration, "it will become clear that our actions related to Mr. D'Anna's case were appropriate."
As for the fires, it's too soon to say whether the blazes will result in higher rates for policyholders. But with damages estimated to be running north of $1 billion, you've got to figure that insurers will seek to recoup that money somewhere.
State Insurance Commissioner Steve Poizner declared an "insurance emergency" this week but said he believed insurers had enough cash to pay all claims.
Statistics, however, suggest that policyholders aren't getting as much bang for their buck as they used to. At issue is what's known in insurance circles as a loss ratio -- the relationship between the amount of money paid by consumers in premiums and the amount paid out by insurers to address claims.
According to the
Department of Insurance, the average loss ratio in 2000 was nearly 52%. That means insurers paid about 52 cents in claims for every dollar spent by consumers on premiums.
The loss ratio rose to almost 64% in 2001 and was about 59% in 2002. In 2003, the year Southern California's horrific Cedar Fire destroyed more than 4,800 structures, the loss ratio jumped to nearly 74%.
Just a year later, though, the loss ratio plummeted to about 31%. In other words, insurers were suddenly paying out just 31 cents for every dollar in premiums.
The loss ratio was 34% in 2005 and about 33% last year.
Andrew Barile, a Rancho Santa Fe insurance industry consultant, said the plunging loss ratios reflect higher premiums charged by insurers after the Cedar Fire and reduced payouts for claims.
He said the loss ratio should increase this year as claims spill in for the current fires, although this could be mitigated by even higher premiums.
"After every catastrophe, there's always been a rise in rates in the area that had the problem," Barile said. "That's how the industry survives."
Insurance is a risky business -- no one disputes that. But that's always been the case.
These days, it seems like insurers are doing everything they can to minimize risk by increasing premiums or lowballing claims. Or they're cherry-picking customers to avoid those who pose the greatest threat to their bottom lines.
"The private insurance business is a business, first and foremost," said Fernando Torres-Gil, acting dean of the UCLA School of Public Affairs. "As a business, the goal is to minimize payouts and maximize profits."
Yet the insurance industry always has been predicated on risk. Why are things different now?
"There's less regard for consumers and more emphasis on profits," Torres-Gil replied.
Robert Hartwig, president of the industry-backed Insurance Information Institute, said this was an unfair characterization of insurers.
"I don't know where that idea comes from," he said. "The insurance industry honors every claim under its contracts."
Hartwig said premiums were dropping in California and policyholders were being fully compensated for their losses.
"There's absolutely no substance to the argument that there's less bang for the buck."
As long as it's not your home, or kidney, that's on the line.
Consumer Confidential runs Wednesdays and Sundays and frequently in between. Send your tips or feedback to