Comments on: Why the Feds Shouldn’t Regulate Insurance Yet, and Certainly not Own Insurers

By: Mark

Mark — Thu, 13 Nov 2008 19:53:57 +0000

David – I actually loved this post as there is an inherent difficulty in having government bail out insurance since the incentives are misaligned. This is a general problem in “socialist” governments and one of the reasons why they are not as efficient as more capitalist societies. I commented on this a bit on my blog at http://www.crackinsurance.com/2008/11/13/buy-insurance-with-government-backing-aig/

Please take a look. Thanks!

By: gramps2

gramps2 — Thu, 13 Nov 2008 19:51:25 +0000

Why do you think sales people are “producers”, but actuaries are not? Why do the exceptional sales people get to go to a fancy vacation/conference — but the best performing actuaries are simply told “Well, you are just doing your job”?

The U.S. over-valuing of sales people, and complete neglect of all other positions, is a big contributing cause of the current crisis. If Wall Street had placed equal importance on risk management as it did on sales, would they have caused the damage they did?

The Shallowest Generation (to quote another article on Seeking Alpha) has over-estimated the value of sales, and completely neglected everything else. Its not that sales are unimportant — but they are only PART of the picture.

Wall Street failed because they thought sales were important, but risk management was not. GM (and Ford and Chrysler) are failing in spite of having a great dealership / sales network — their products stink because the engineers were told they were unimportant.

Simple common sense here folks: sales people need something to sell. Period. No buts. The Shallowest Generation has completely neglected everything other than sales — we are a nation of spin and promos, with no product substance underneath.

AIG should be canceling their sales vacations– they should be giving fancy trips to risk modelers who can help get the company out of the mess the sales force created yester-year.

The best engineers / risk managers / product development staff in general need to be told, and SHOWN, that they are as important to a company as sales — because they are. AIG and GM are textbook cases of what happens when sales are emphasized at the neglect of everything else.

By: David Merkel

David Merkel — Thu, 13 Nov 2008 17:41:41 +0000

Adam, you are right, and I was wrong. I thought I had checked his second vote, and I didn’t. Thanks for correcting me. I voted for Hargadon — tough sledding for any Republican in the Maryland gerrymander.

By: Adam

Adam — Thu, 13 Nov 2008 17:26:48 +0000

Elijah Cummings did NOT vote against the bailout! He voted against the initial bailout, but supported the second one that passed. I confronted him in person and asked him why he voted for it because it gives Paulson dictator-like powers and he told me that he “hated” the bill. Why vote for it then?

Cummings wants to have it both ways. He voted FOR the bailout and now he acts all indignant about how the money is being spent. As a member of the House Oversight Committee, you would think he’d want to retain some oversight as to how the money was spent, but no, he ceded all that authority directly to the Sec’y of the Treasury.

By: maynardGkeynes

maynardGkeynes — Thu, 13 Nov 2008 14:28:32 +0000

Federalizing insurance regulation is a bad idea for a number of reasons. (1) it would add yet another a potentially gigantic unfunded obligation to the federal deficit; (2) it would raise systemic risk by narrowing the diversity of regulation — – recall that when AIG collapsed, there was considerable comfort in knowing that the traditional insurance subsidiaries — – as opposed to the parent company regulated by OTS — – were well-funded and safe because they were separately regulated by the states. This may have prevented a panicky run by policyholders to protect their cache values and annuities; (3) it would require repeal of the McCarran Ferguson Act, which provides a limited antitrust exemption to insurance companies to the “extent … regulated by state law.” The industry has developed many complex structures and interrelationships under McCarran Ferguson, and repeal at this point would throw the industry into total chaos. For example, it’s not clear how health insurers’s preferred provider arrangements with hospitals and doctors, which have played a crucial role in keeping medical costs down, would be treated if health insurers were subject to the antitrust laws. I’m sure there would be certain advantages flowing from the uniformity provided by having a single federal regulator, but on balance the advantages would be outweighed by these other factors.

By: A. S.

A. S. — Thu, 13 Nov 2008 12:33:00 +0000

Agree completely to the contradictions cited by you.

But why make a fuss over extra incentives in form of fancy conferences, cruises etc? Sure the politicians are playing to the galleries when they point fingers that way….YET: the salesforce gets richly rewarded on insurance products in form of high commissions.

Incentives over and above pay received have a corrupting influence. There is clear and present danger that products recommended to clients will be the ones offered by issuers with the most attractive “bonus”. I’ve seen too much of that in the advisor community and the client is the loser for it.

Maybe incentives work in non-financial industries.
I am totally convinced they corrupt and distort allegiances in insurance, investment advisory, investment banking. It is the one and only area that politicians playing to the gallery get my support.