By DAN REYNOLDS, senior editor of Risk & Insurance®
The most compelling argument for why we don't need an Office of National Insurance are the operations of the many insurers who manage their risk appropriately and who are fulfilling their corporate missions and helping their clients manage risk.
The truth is that the list of major insurers who are doing well is much, much longer than the list of insurers who are currently unwell. Zurich, Berkshire Hathaway, Chubb, Travelers and Liberty Mutual have all performed fairly well in the past two years and we're not hearing many complaints from the corporations they cover about the rates they've been paying in this free market.
If you want to lay blame for the wreckage we have had in the financial sector these past two years look no further than Washington, D.C. the U.S. Congress and former Senator Phil Gramm of Texas and U.S. Rep. Jim Leach of Iowa and their Republican henchmen who voted in 1999 to repeal the Glass-Steagall Act, which had stood unmolested for 66 years.
The act was meant as a firewall between financial institutions whose mission it is to engage in risk management and the pitfalls of wide speculation that would increase their risk exposure. The Republicans in Congress wolfed down those nice steaks and lobster tails bought for them by insurance industry and banking lobbyists and tore that wall down in the form of Gramm-Leach-Bliley.
Here's what Washington should do now instead of creating more bureaucracy which will cost honest taxpayers more and more money. Restore the Glass-Steagall Act and forget about creating new institutions under the U.S. Treasury's Financial Regulatory Reform proposal.
Yes, as reported by A.M. Best in June, losses in the insurance of mortgages and other financial guarantees will continue to plague the insurance industry throughout 2009. But that's those companies just doing their jobs and paying off insured losses.
Despite the extremely challenging financial environment in this country, the U.S. property casualty sector has $1.43 trillion in admitted assets and has a combined ratio that would be below 100 if it weren't for the mortgage mess.
The issue of the proper governance of insurers has less to do with Pennsylvania Avenue and Wall Street than either of those smug and self-important locations would care to admit. Much of the current crisis, in those insurance companies where there is a crisis, stems from the inability of people on Main Street, not so much the higher rent districts in Washington and New York, to manage their household finances and themselves in an adult manner.
Is it too much to ask people in their forties and fifties who were born in a country where they had every advantage to buy only what they can afford and save the rest? Are so many of us such intransigent juvenile materialists?
Here's something I think we should focus on instead of more bureaucracy from a government that is already drowning itself in debt. Let's start seeing a few less housewives motoring up to Whole Foods and Neiman Marcus in SUV's they can't afford and which were designed more for the invasion of small countries than they were suburban beltways.
Let's start seeing a few less kids walking around chained to electronic gadgets, getting fatter and fatter as they get better at playing mindless, violent games.
Honestly, if U.S. consumers haven't learned their lesson and started to govern themselves from taking out loans on McMansions and other things they can't afford, there isn't much anyone's going to be able to do for the financial sector anyway.
An Office of National Insurance is just another example of Washington D.C. trying to create more of itself in the effort to address its past failures. It's window dressing meant to mollify tax payers who are retching over the tens of billions paid out to AIG and it's not a wholesome idea.
(Read the other side of the Office of National Insurance issue as argued by
Managing Editor Cyril Tuohy.)
August 1, 2009
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