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Service is Not Servitude
Insurance Industry Debacle Reveals Problems in America's "Service Economy"

by Keith Burton - GCN  Filed 2/18/07   Updated 2/21/07

The insurance industry is involved in almost every point of a person’s individual and business life. From home ownership, health, to whether or not you can stay in business. The same forces that have forced nearly half of all Americans to do without health insurance from the high costs, are now at work to drive Americans from their ability to own their homes and take their jobs as employers shutter their businesses and move overseas where insurance costs are not a factor.

Perhaps a review over foreign participation in the ownership of insurance companies needs to be examined. For if there was a better way to undermine our nation, the activities in much of the insurance industry is a good example.

Individual states, who are supposed to regulate the industry are clearly overwhelm by the insurance industry’s ability to talk among themselves. When state’s negotiate with one firm, they are only dealing with just one tentacle of the same octopus. States are myoptic over their own situation, whereas the insurance industry sees a bigger picture as a result of their sharing of information among each other.

What people seem to be  forgetting everywhere, is that there is a difference between service and servitude. Almost in every enterprise today, major companies no longer act as if they are providing a service to people, but instead, are trying to find ways to place consumers in servitude. If you do not comply, you cannot buy a house, afford a car, health care, or find work. If you become sick, companies are laying off people to keep their insurance costs down. This why so many companies are laying off people over 40 due to their increasing health needs amid ever increasing insurance costs and the crass bottom line of excessive profits.

The Insurance companies are making money like an oil company.

Despite the series of disaster the country has experienced in recent years, the insurance industry is in no danger of financial collapse, or even losses.

"The financial performance of the property/casualty insurance industry during the first nine months of 2006 was generally excellent," reports a recent article by the Insurance Information Institute.

According to the institute's report, "profits (net income after taxes) increased by $15.1 billion, or 50.1 percent, to $44.9 billion in the first nine months, from $29.7 billion during the same period in 2005. While the ebb in catastrophe losses is commonly cited as the primary reason for the surge in profits, strong underwriting results are being reported in virtually every key line of insurance, including those not significantly affected by catastrophic loss such as automobile insurance, workers compensation and commercial liability coverages. Consequently, as noted above, profitability measured in terms of return on average surplus is up sharply to 13.4 percent for nine-month 2006, compared with 9.8 percent a year earlier."

The report by the Insurance Information Institute goes on to say:

"Though profits measured in dollar terms will set a new record in 2006, aggregate dollar amounts of profit (or loss) are not particularly meaningful statistics for comparative purposes. The standard measure of financial performance across all industries is known as return on equity (ROE). ROE is the ratio of profit to a company’s average net worth (sometimes referred to as “owners’ equity” in publicly traded companies). Net worth in the world of insurance is often referred to as policyholder’s surplus and is simply the difference between a company’s assets and its liabilities. Net worth is money (capital) that belongs to the company’s owners. In an insurance company, the owners could be shareholders (in a publicly traded company) or policyholders (in a mutual insurance company). Owners of capital expect a rate of return on their investment that is commensurate with the risk they assume. Insurers that fail to maintain adequate profitability may also suffer downgrades from ratings agencies and could be seized by regulators." (http://www.iii.org/media/industry/financials/2006firstninemonths )

This seizure is a result of actions typically against small, poorly financed companies, not giants like State Farm or Allstate.

The National Association of Mutual Insurance Companies (NAMIC) is already pushing the envelope in a full court defense. This comes as Congress begins to look at insurance reforms stemming from the industry's response to Hurricane Katrina.

There is also pressure being put on the news media suggesting that criticisms over the insurance industry reflect media bias and ignorance of the free enterprise system to redirect the public's attention on the industry. Facts are also cited to show that in the aftermath of Katrina that insurance companies have paid nearly 94 percent of all claims. What the facts don't say is that vast numbers of people with severely damaged homes and businesses had no choice but to accept claim solutions at less than the value needed for recovery, or face expensive and exhaustive litigation. Residents and businesses then are faced with sharp, often unaffordable, rate increases.

The insurance industry is an oligarchy.

An oligarchy occurs when people become ruled by a few members of a community or group. Unlike nearly every other business enterprise, the insurance industry benefits from an exemption to many of the anti-trust regulations that control major business activities. This allows the insurance industry to discuss among themselves issues that affect their decisions on policy and coverage. This power makes the insurance industry a formidable opponent to consumers and lawmakers who see the industry as hurting people and the country.

Amazingly, the insurance industry sees its intermingled cooperation with itself as a benefit to consumers. Especially now that some in Congress are seeking to bring about reforms to America's insurance oligarchy. The recently introduced "Insurance Industry Competition Act of 2007 is stirring the insurance industry up like never before.

In an article from the InsuranceNewsNet.com titled, "Legislation to Modify Antitrust Exemption for Insurers Could Hurt Consumers and Small P/C Carriers, NAMIC Official Says," the authors write:

“The Insurance Industry Competition Act of 2007, as introduced by Sens. Lott, Leahy and Specter would introduce a system of dual regulation to the insurance industry, ultimately leading to federal regulation of insurance,” said Marliss Browder, NAMIC Senior Federal Affairs Director. “This could threaten the viability of small insurers and lead to reduced competition, higher insurance costs and less availability for some high-risk coverages for consumers.”

Nearly identical legislation is being introduced in the House of Representatives by Reps. Gene Taylor, D-Miss., Pete DeFazio, D-Ore., and Bobby Jindal, R-La.

The McCarran-Ferguson Act, that was enacted in 1945 gives states  the authority and responsibility to regulate the business of insurance. The act puts states in the role of regulating insurance companies, the largest of those companies are multi-state businesses whose affairs are not visible to individual state regulators. Still, the Act puts most aspects of insurance, from licensing, to market practices, to financial solvency, in the state's hands.

The reality is that many states, such as Mississippi, do not have the resources, the investigative power, or the will to monitor what is going on in the insurance industry that could detrimentally affect their states. As a result, the regulators are nearly entirely dependent on information provided by the very industry they are to regulate.

The article goes on to say:

"The existence of the exemption promotes competition in the insurance marketplace by allowing companies to exchange critical data regarding losses and other factors, allows development of standardized policy language, facilitates participation and oversight of state guaranty funds, permits state control over liquidations and enables the development and operation of assigned risk plans. It establishes a careful and well working balance between regulation and antitrust enforcement for the state regulated insurance industry and ensures parity with other financial services industries."

"The Act does not include a blanket exemption from antitrust laws, but provides a targeted exemption for certain limited insurance activities. The Act has been subject to extensive court interpretation over the past 60 years. Altering it would put the effective functioning of the industry in jeopardy."

“Specifically, changes could curtail insurers’ ability to exchange critical data, endangering market participation by smaller insurers and making it more difficult for carriers to enter new markets,” Browder said. “Threats to standardization of policy language would make it more difficult for consumers to compare policies and prices. Barriers to operation of assigned risk plans and guaranty funds would undermine the functioning of insurance markets.”

As a result, the insurance industry routinely threatens states over the loss or withdrawal of coverage, often citing that they are expending money on claims in excess of collections in that state, when all the time the money flows into a big single pot that is never in any danger, regardless of the claims filed.

“Congress should be wary of the unintended consequences of changes to the current limited antitrust exemption,” Browder said. “Any change to the existing antitrust regime could decrease market stability, reduce affordability and availability of products, stifle innovation and expansion, diminish industry efficiency, and ultimately, inhibit rather than increase competition in the insurance marketplace.”

Insurance companies tout their cooperation on information as a way to encourage competition, but if it was done by any other enterprise, it would be called racketeering and their people would be in jail.

Even after Katrina, and State Farm was paying out claims, they never lost money, the company never had to dip into their reserves. Why? Because they refused to pay and they raise rates. The insurance companies are at risk for nothing. The current method that they operate puts these companies at no risk for losses. If they have a huge payout, they raise rates and deny claims, or return payout on claims at less than a dollar paid for a dollar covered.  The American insurance industry has been able to get away with what is a racket. It is legal, but that is the result of their influence with lawmakers and their protection under their exemption from anti-trust laws.

What happens if a major earthquake hits the west coast? Will the insurance industry just walk away? But then again, they already have exclusions for that.

What the insurance industry seeks to do is pass the coverage of catastrophic events to to taxpayers through the government, to further distance themselves from liability and responsibility. It has become an industry whose sole purpose is to make profits, not to provide a service.

These days, many people fear making a claim on any aspect of their policies will result in rejection. In auto insurance coverage, even if the accident is not the individual’s fault, people often experience a rate increase, while the insurance company’s bottom line is not even effected.

Many people in state’s not affected by catastrophic events are critical of those people that do, saying that people shouldn’t live in those areas, and if they do, they should move or bare the costs. But what state does not have catastrophic events? Where are these states?

From Hawaii’s volcanoes, to the west coast’s earthquakes, to the tornadoes across the great plains, to the winter storms of the northwest, to the floods of New England and hurricanes of the south; there is no such thing as a safe place. That’s why people buy insurance, or so they thought.

It seems more likely that insurance has become a scam to provide profits for insurance company investors than to actually provide a service. There are horror stories nationwide over insurance companies failing to pay claims. But the scope of these stories rarely reach outside the area that it occurs.  There is no centralized archive of stories to reflect the problems people have with insurance companies except those in the hands of the insurance companies themselves. That is what is different about Katrina. Everyone is hearing about it now. And unlike the gaming industry, where regulators make sure the games are not rigged, the insurance industry has arranged an environment that in almost every circumstance, benefits them.

The insurance industry likes to blame many of their problems on attorneys and lawsuits, but the reality is that they are in a symbiotic arrangement where both are profiting from the hard work of the American people. And as a result, they are stealing the lives, and the future of our children, from everyone.

This arrangement is not a service, but a road to servitude.


The Tyranny of Big Business - GCN

GMA Anchor Robin Roberts Slams Insurance Industry Profits Stemming from Katrina - newsbusters.org

ABC Puts Emotionally Involved Reporter on Hurricane Insurance Story - businessandmedia.org

Good Neighbor Policy: Punishing Mississippi - Sun Herald Editorial

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