You're in Good Hands

Or maybe you’re not. A MSNBC article quotes Allstate Insurance president and chief operating officer Thomas J. Wilson II: "Our obligation is to earn a return for our shareholders, not to assume risks from people for a price that is not fair and adequate."

Gosh, I didn’t know that. Maybe you didn’t either. I always believed that insurance was about risk management, and that we paid these people to "assume risks" for us. But Mr. Wilson is on a career track that doesn’t appear to include selling insurance, so maybe the shareholders do count more than the customers to him; shareholders can vote for him. How very political — does he have an eye on a Senate seat?

Of course, the key words are "a price that is not fair or adequate." Yes, that is no doubt a problem. The article’s author, Spencer S. Hsu, writing for the Washington Post, seems to be unaware of insurance actuarial departments whose job it is to calculate the risks. He writes: "For taxpayers, a coordinated system to accurately price and insure against the risk of disasters would create true market incentives …" Dear Mr. Hsu, that’s what insurance company actuaries do for a living, but how is it a taxpayer’s problem, and who does the coordinating?

That is the whole issue in a nutshell. Insurance companies are regulated by law and must apply for rate approval from state bureaucrats who may or may not know what they’re doing, and who have no proprietary interest in the business anyway. Insurance company executives want to protect their bottom line, and want to force the taxpayers across the board to pay for catastrophic damages. In our current paradigm of corporate fascism, or mercantilism, the executive class does not seek independence or freedom from state meddling in their business, they seek more. The hapless consumer is trapped between rapacious thieves.

Want to buy a house on the coast? Okay, buy one for cash, and self-insure it. Haven’t got that kind of money? No problem. The Federal Reserve will print some, float it over to your bank, which manufactures some more, and they will buy your house with their funny money for you if you sign over part of your life-time income and insure the property for them. Now the big primary insurers don’t want to mess with high-risk areas like the East Coast, the Gulf Coast, the West Coast, the New Madrid Fault region, or Tornado Alley. Can’t blame them really, their after-tax profit growth rate was only 12% in 2005, according to Mr. Hsu. This ain’t Halliburton! Yet.

It looks to me like the real estate insurers are trying to follow in the footsteps of health care insurers. They would really like to force people to buy insurance, and then enforce a single-party payer system, via federal taxation, to pay for it. Oh my, wouldn’t that be grand? I imagine that even the shareholders would like it — for a little while, at least.

When insurance companies don’t have a clue about the nature of their own business we’re not in good hands at all.