If you try negotiating for a less-expensive insurance policy by asking your insurance agent to discount his or her commission, you’ll learn about the anti-rebate or anti-discount law. Those laws, enthusiastically backed by the insurance companies themselves, prohibit agents from discounting their commissions. On the books since the turn of the century, these anti-rebate laws in all 50 states are designed to prevent capitalism between consenting adults.
Why? Several insurance company trade association representatives went up to Capitol Hill recently and answered that question. Julius Vogel of the Prudential Insurance Co., representing the American Council of Life Insurance, asserted that repealing these laws would (1) cause discrimination among policyholders, (2) increase the cost of insurance, (3) make accurate comparisons between competing policies more difficult for the consumer and (4) drive out newer or smaller insurance agents.
Sound familiar? Whenever confronted with the prospect of competition, other licensed professions predicted “ruinous competition,” unprofessionalism and irreparable harm for the consumer. Stock brokers did this before the law ended their fixed commissions. Lawyers did this before the Supreme Court ended their “minimum fee schedule” form of price fixing.
Now, if congressman John LaFalce, D-N.Y., some maverick insurance agents and several consumer groups prevail in having proposed legislation passed, federal law would nullify those state anti-rebate statutes.
The savings to consumers, according to LaFalce, could be conservatively estimated at $5 or $6 billion a year. Insurance is a big business, indeed, taking about 12 cents out of every consumer dollar. In 1980, Americans paid more than $190 billion in life, health, property and casualty insurance premiums (individual income tax payments to Uncle Sam by comparison totaled $240 billion.
At his House Small Business subcommittee hearing, LaFalce taunted the insurance industry, noting the “delicious irony that an industry which professes to believe in unfettered free enterprise can arrange to come down on the side of severely restrictive government regulation when it suits their interests.” He added: “The repeal of the anti-discount laws will stimulate and increase inproductive efficiency which in turn will lead to lower prices, greater disclosure and lessened inflationary pressure in this vital sector of our economy.”
The insurance witnesses, for the most part, were not persuaded. But, although the national association of professional insurance agents strongly oppose LaFalce’s bill, H.R. 4497, two insurance agents came out in support. Gordon M. Bowers, CLU, who had developed a discount life insurance service in Richmond, Va., had this to say: “There are many agents who would gladly discount their commissions in order to encourage greater sales. I know this is true because I have talked to agents all over the country who are frustrated because they cannot openly compete in this way.”
Another witness, John D. Regan, CLU, said what some in the hearing room privately knew — that there is surreptitious discounting going on in group insurance. He wants to open it up legally for everyone and allow “fee for service and other alternate distribution arrangements between a willing buyer and a willing seller.
So a rather interesting drama is developing in Washington. Will all those supposed free enterprisers in the Senate and House fight to preserve retail price fixing for insurance policies or will they oppose the awesome insurance industry lobby and let competition prevail?
One wonders where Ronald Reagan and David Stockman stand on this issue — on the side of the consumer and the competitive market or on the side of corporate power. Thus far, there is only silence from the White House.