First, it should subject the insurance industry to the anti-trust laws, thus preventing insurers from acting in concert to raise prices.
Since 1944, the McCarran-Ferguson Act has allowed insurance companies to fix prices while price-fixing in other industries is punishable by three years in jail.
We specifically propose a two- year sunset provision during which time the insurers, the states and the federal government can prepare for the change.
Second, it should create a federal office of insurance to monitor the industry and establish standards for state regulators to follow
. Although insurance is a national, $310 billion business, accounting for 12% of our gross national product — more than any other item except food and housing — only the states regulate the insurance industry.
Because state insurance commissions are often under-staffed (half the states have no actuaries to analyze rate filings) and have a “revolving door” relationship with the industry (state insurance commissioners typically come from and return to the industry), state regulation has not always protected the public.
Third, Congress should repeal the insurance industry’s exemption from Federal Trade Commission jurisdiction.
In 1979, after the FTC published a study critical of the life insurance industry , Congress prohibited the FTC from ever again studying — let alone prosecuting — any sector of the industry.
There is no principled justification for this exemption .
1987 0421, 0428, and 0429 – GOV (House) – Current State of the Liability Insurance Crisis
Testimony – FTC – Daniel Oliver, Chairman of the FTC – p242-260
Letter – FTC to GOV – p290-291
Chairman La Falce has requested information on the circumstances that led to enactment of the 1980 amendment to the Federal Trade Commission Act that prohibits the Commission from studying the business of insurance .
(p288) – Chairman LAFALCE. All right, fine. I would also like you to supply for the record, a statement as to why the FTC believes it lost its authority in 1980, that is, what was the FTC doing in that era?
Mr. OLIVER. I am told that it resulted from a study that the Commission did on how good an investment life insurance was, the staff study.
I understand that it was a staff study that concluded that buying life insurance was not a good investment.
Chairman LAFALCE. The insurance industry did not like that, and therefore they got enough Members of Congress to support their position.
1999 0914 – GOV (House-Report) – Interstate Class Action Jurisdiction Act of 1999 – 47p
1999 0914 – GOV (House-Report) – Interstate Class Action Jurisdiction Act of 1999 — [BonkNote] — 47p
The Committee on the Judiciary, to whom was referred the bill (H.R. 1875) to amend title 28, United States Code, to allow the application of the principles of Federal diversity jurisdiction to interstate class actions, having considered the same, reports favorably thereon with an amendment and recommends that the bill as amended do pass.
39 – Equitable Life Assurance Company, an Iowa corporation, agreed to a $20 million settlement of two class-action lawsuits involving 130,000 persons filed in Pennsylvania and Arizona State courts. The class action alleged that Equitable misled consumers, in violation of State insurance fraud law, when trying to sell ”vanishing premium” life insurance policies in the 1980s. Equitable sold the policies when interest rates were high, informing potential customers that after a few years, once the interest generated by their premiums was sufficiently high, their premium obligations would be terminated. However, when interest rates dropped, customers ended up having to continue to pay the premium in full.49
49 See David Elbert, ”Lawsuits to Cost Equitable $20 Mill,” Des Moines Register, July 19, 1997 at 12 and ”Cost of Settling Lawsuits Pulls Equitable Earnings Down,” Des Moines Register, August 6, 1997 at 10.
1994 10 – GOV (House – Report) – Wishful Thinking: A World View of Insurance Solvency Regulation – John Dingell (D-MI) – 137p
1994 10 – GOV (House – Report) – Wishful Thinking: A World View of Insurance Solvency Regulation – John Dingell (D-MI) — [BonkNote] — [PDF-137p]
(p22-23) – Efforts by the NAIC to arrange a cooperative State response to the solvency problems posed by First Executive ended in acrimony.
The New Jersey Insurance Department sparked the simmering self-interests of each State by demanding in late 1990 that Executive Life post a $500 million deposit in order to continue doing business in that jurisdiction.
This demand irked the NAIC’s working group and the lead regulators in California and New York, who were urging restraint by other States so that· their monitoring activities could permit Executive Life to recover financially for the benefit of all.
As the market situation grew worse and trust among State agencies diminished, the NAIC decided to defend Executive Life by aggressively attacking the New Jersey Department for losing faith in the joint wisdom of other State commissions.
(p23) – At an extraordinary plenary session in December 1990, the NAIC unanimously passed a secret resolution castigating New Jersey for acting unilaterally to preserve the interests of its residents.
The resolution used strong language to cite “the expert opinion” of the NAIC’s working group that “the Executive Life Companies are in no imminent financial danger … “
It went on to call New Jerseys actions “unacceptable” to· the NAIC, and .requested that other States “not take unilateral action” and “not be influenced” by the New Jersey Insurance Department. The primary conclusion stated:
NOW, THEREFORE BE IT RESOLVED that the NAIC believes that the action taken by the New Jersey Insurance Department is irresponsible and contrary to the best interests of New Jersey policyholders and all policyholders of Executive Life Companies …
The resolution was distributed to State insurance agencies with an attached confidential letter, dated December 27, 1990, to all commissioners from the NAIC’s working group.
This letter reiterated the group’s expert opinion that Executive Life was OK, provided supporting data, and reminded the commissioners that California, New York, and other States had “carefully monitored” the companies since January 1990.
Concluding that “the companies are capable of meeting all current and projected obligations,” the letter warned that “unnecessary and precipitous regulatory action” could harm their long-term viability.
Four months later, Executive Life was ordered into State-controlled conservation by the new California commissioner, who assumed office in January 1991.
The subcommittee thereafter received copies of the secret resolution and accompanying working group letter from anonymous sources.
1941 – GOV (Senate – TNEC) – Final Report and Recommendations of the Temporary National Economic Committee, Investigation of Concentration of Economic Power – 464p
1941 – GOV (Senate) – TNEC – Final Report and Recommendations of the Temporary National Economic Committee, Investigation of Concentration of Economic Power – 464p
(p269) – Life insurance funds are not venture capital; they are seeking safe, long-term investments, preferably the bonds of well-established enterprises or ….
House - Committee on Interstate and Foreign Commerce - Subcommittee on Oversight and Investigations
(p1) - SUMMARY
The principal purpose of this report is to evaluate the state regulation of life insurance marketing and cost disclosure.
The report results from a Subcommittee inquiry commenced during the Spring of 1978 and is based on the record developed during Subcommittee hearings held on August 7, 14, and 15, 1978.
The Subcommittee's interest in the marketing and regulation of life insurance arose for several reasons.
(p16) - Finally, we recommend that the NAIC, the FTC, or both, study how to encourage (a) the development of professional insurance consultants who would provide advice to consumers for a set fee, and
(p58) - One answer is that agents should charge a fee for their counsel, thus receiving compensation for their efforts whether or not a policy is sold. This approach, of course, is reflected in our "fee-for-advice" recommendation. Practically speaking, however, insurance advisors will be able to serve only those consumers who are out to "buy" insurance.
Consumers who must be "sold" insurance, that is, who buy only after being contacted and affirmatively encouraged by an agent, probably cannot be effectively served except by a commission-funded sales force.249 We observe that such consumers will likely value an agent's service, and are likely to place their business with a company that their agent serves,250 rather than with a company that has lower costs but no agents at all.251 In our view, the demise of the agency system is simply not a likely consequence of cost disclosure.
(p66) - Statement James Collins (R-TX) - Much misunderstanding of cash value life insurance has been caused when people have overlooked the true function of cash value in the life insurance policy and have insisted on comparing it to "investments" and "savings", whereas in fact cash values is primarily an incident of the reserve required by law to support the promise to pay at a later time, having its origin in the excess premiums charged in the early years of the contract to keep the premium level over the life of the policy.
1994 04 - CBO - The Economic Impact of a Solvency Crisis in the Insurance Industry, Congressional Budget Office - 80p
1994 04 - CBO - The Economic Impact of a Solvency Crisis in the Insurance Industry, Congressional Budget Office --- [BonkNote] --- 80p
(pix) - During the past decade, the savings and loan crisis and the problems of the banking industry have focused the public's attention on the financial problems in the insurance industry and their implications for the overall economy.
The life insurance industry suffered from some of the same competitive forces that hurt the savings and loan and banking industries.
(px) - Runs on Life Insurers
Life insurers, whose liabilities are generally more liquid than their assets, are particularly vulnerable to runs by policyholders.
Consequently, some policyholders would try to protect themselves by canceling their investment contracts and policies, withdrawing their cash values, and asking for policy loans.
If left unchecked, a run can drain liquid assets and turn into a solvency crisis as insurers are forced to sell other assets at a discount.
Thus far, state insurance regulators have been sensitive to signs of a run and have stepped in to protect besieged companies by preventing policyholders from redeeming their policies and taking out loans until the threat of a continuing run had subsided.
Nevertheless, insurance regulators may be overwhelmed if runs occur at a greater frequency.
1995 - SOA - What Can We Learn From Company Failures?, rsa95v21n4a25 - Society of Actuaries - 14p
Part 5 - Let me quote Tom Gallagher, who then was Florida's insurance commissioner, in his 1992 testimony before a U.S. Senate Committee talking about Guarantee Security Life:
My initial conclusion is that Guarantee Security was almost from the beginning a massive fraud, aided and abetted by blue-ribbon brokers and licensed professionals motivated by their own self-interest.
The fraud of Guarantee was a carefully-orchestrated bank robbery, but the thieves disguised themselves with the help of accountants, brokers, and lawyers rather than wearing silk-stocking masks.
They operated like early 20th century barons, cloaking their thievery in the guise of a sound business organization.
So it's not all just bad management. Some of it, at least in Commissioner Gallagher's opinion, was thievery.