The Insurance Journal, which claims to be “the definitive source of information for the property/casualty industry,” reported on March 7, 2007 that State Farm Insurance Company made a record profit of $5.32 billion in 2006. A State Farm press release credited this massive profit on “the absence of a major catastrophe.” State Farm ignores that every dollar of this $5.32 billion profit came from customer premiums and unpaid claims. Of course, every time State Farm or any other insurance company refuses to pay a legitimate claim, it adds profit to its bottom line.
State Farm’s claim that its profiteering is the result of a catastrophe-free year is belied by the facts. Hurricane Katrina struck the Louisiana coast on August 29, 2005. The majority of claims made by its victims were processed in 2006 – the same year that State Farm posted this record-breaking profit of over $5 billion. State Farm itself notes that the year Katrina hit the Gulf Coast in 2005 its profits reached $3.24 billion.
Let’s put State Farm’s profits into perspective. The thickness of a single one dollar bill is .0043 inches. A stack of 5.32 billion one dollar bills, with no space in between, would stretch more than 361 MILES up into the atmosphere, 120 miles beyond the international space station. 5.32 billion one dollar bills placed end-to-end would measure 515,508 miles long. This line of bills would extend around the earth more than 20 times; or stretch to the moon and back with $500,000,000 left over. The annual interest earned on State Farm’s profits at 5% would exceed $266,000,000.
When a company that is supposed to compensate victims of negligence and other disasters makes such profits, what does it do with them? It gives its CEO an 82% pay raise, of course. State Farm reported that in 2006, its Chairman and Chief Executive Officer Ed Rust Jr. took a $5.26 million pay raise, catapulting his earnings for that single year to $11.66 million dollars. This raise may seem exorbitant, but again, put into perspective, Mr. Rust’s increased take is less than 1/10th of one percent of the profits he was able to squeeze out of his customers.
Perhaps the American people should refocus their attention on the real cause of the “insurance crisis.”