Reform Needed to Get Insurance Rates to Drop

Maybe someone can explain the luck of the insurance industry. It receives 12% of the consumer’s disposable income, making that bill the fourth leading expenditure for Americans after food, housing and personal income taxes. Since 1944, it has been exempted from the federal antitrust laws and state regulation continues to he weak and indentured. Numerous, authoritative reports have shown the huge waste and inefficiency in insurance marketing and how relatively little of the premium dollar returns to the personal lines customer. Tens of billions of dollars down the drain for consumers give concrete expression to these studies.

Now comes Congressman Peter Rodino (D-NJ) and his House Judiciary Committee to the inquiry. Four sets of public hearings are held this year detailing the waste, the price-fixing, and the non-disclosure to consumers of shopping information, among other topics explored by leading observers, scholars and practitioners of insurance selling. Yet neither the New York Times, nor the Washington Post, nor the Wall Street Journal have sent their reporters to report to readers what these hearings are revealing.

Fortunately, some coverage by the wire services (AP and UPI) partially saved the day for the general reader. But without the Big Three newspapers applying ink, the television networks usually pay no heed. Before each hearing, the Big Three would be notified. The relevant reporters knew the time, place and date. Still, nothing in print.

One business editor acknowledged the importance of the stories, then added: “But nobody here knows anything about insurance.” That criterion would disqualify many stories if applied across the board. There were other bizarre allusions to the apparent mystery that Washington editors and reporters ascribe to that industry.

There could be another reason. And that is the media’s belief that the hearings are going nowhere as far as any legislation is concerned. This belief has credible roots — the insurance lobby is batting nearly 1000 in keeping Washington at bay — but that cannot be an excuse for ignoring this immense subject. Ask any policyholder if he or she finds the insurance bill or insurance claims practices a bore. A pain perhaps, but almost never a bore.

At the most recent Rodino hearings, the insurance association witness testified on the value of the insurance rate bureaus which privately amount to a price-fixing mechanism. Why these rate bureaus promote competition, they said. And the moon is made of blue cheese.

Robert Hunter, former Federal Insurance Administrator and actuary, called these property/casualty rate bureaus “cartels”. He testified that “the rate bureau is intended to lessen competition, giving members a forum for obtaining intimate knowledge of the pricing guidance dispensed to rivals as well as the pricing of competitors, without doing the same for buyers.” State Farm Insurance Company vice-president, Donald P. McHugh, agrees. He declared that “when competitors are permitted to come together and produce an ultimate rate, that is price-fixing and it couldn’t be sanctioned in any form under the Sherman (antitrust) Act or Section 5 of the Federal Tread Commission Act.”

The problem is that the McCarran-Ferguson Act, passed hurriedly during World War II without any hearings, exempts insurance contingent upon state assumption of regulating the companies. In a large report, the General Accounting Office of the Congress, recently reaffirmed the failure of state regulation to foster competition, inform consumers or encourage efficiency and innovation.

Efficient insurance services can liberate great sums of money for consumers to use for other purchases in the marketplace. And imagine how much more innovative insurance companies can do to advance health and safety in America, as Allstate and State Farm have tried to do in the area of safety standards for automobiles.

The least Congress should do, given the opposition by the industry to any federal regulatory role, is to charter non-profit insurance consumer groups, open to any policyholder to join for small annual dues, and give these groups the right to insert their invitations for membership right inside the insurance companies’ premium bill. This one simple move would facilitate the banding together of policyholders into a fully staffed organization to seek and achieve consumer justice.