Several years ago while I was reviewing a client’s insurance coverage, he became very agitated about the increase in the premium over the previous year’s cost. I tried to explain the reasons behind the increases but he wasn’t having anything to do with my explanation and continued to harangue me with comments which reached a point where he suggested I was being dishonest and manipulative in our interaction.
I tried to explain to him that as an agent I had no control over the setting of rates or the coverages being provided within that rate structure. I could only present to him what the company would allow me to present. The only control I would have would be to design the policy with the coverages he felt he needed and was willing to pay for.
I tried to explain that my role as an agent afterwards would be to recommend coverages which after consultation with him would fit his insurance needs. It would then be my role to provide services necessary to keep him satisfied as a client as time passed, and as his insurance needs evolved to continue to advise him.
He continued to vent his feelings. Seeing I was not satisfying his needs, I suggested he might want to do some research with my competitors so he would have a benchmark from which he could compare his choices before making a choice. This really set him back when I reminded him under our free market system he was under no obligation to deal with me or with the company I represented. In fact, I would be willing to share whatever information I had that could help him get his “apples to apples” comparison. I assured him I would need his approval before I would divulge anything to the comparison party.
I told him when he obtained his comparative quote I would be willing to sit down with no strings attached to review the estimates and then advise him what I thought he should do. I just appreciated the opportunity to compete for his business.
Ability to Choose
After we finished this portion of our conversation, we both agreed what a wonderful marketing experience we have under our capitalistic system where one company competes against another for our business and we have the freedom to determine who we will do business with.
Automobile Insurance Choices
This ability to choose on the part of a consumer and the ability of an insurance company to compete for that consumer’s business is one of the wonderful dynamics of the insurance industry. Winners and losers are determined by competition rather than by a government agency dictating who will be in the market place and who won’t.
During the 1960’s, the traditional vehicle liability insurance system became the target of public criticism. This criticism centered around the time consuming process of determining who would be legally liable or at fault in vehicle related claims. According to an article at https://www.insuranceguidelocal.com/tort-at-fault-insurance-and-no-fault-insurance-what’s-the-difference, this criticism gave rise to several states in the 1970’s introducing legislation which would allow injured parties to recover financial losses due to hospital and medical expenses from their own insurance company no matter who was at fault.
The state governments saw an opportunity to flex their muscles by dictating the required limits of coverage a person would have to carry and mandating that insurance companies would have to reduce their premiums by certain percents. They also dictated that an injured party would have to give up the right to file a lawsuit to recover pain and suffering claims. Twenty-six states legislated that they would be considered no-fault states with the intent that since liable determination would not have to be determined, medical bills could be paid more expeditiously.
Several unexpected consequences came from this legislation. One was an incredible uptick in the number of medical bills and the monetary size of the medical bills. A second consequence was insurance companies were not able to sustain the mandated premium rate reduction arbitrarily imposed, so the consumer did not see savings commensurate with loss of ability to recoup pain and suffering costs through lawsuit proceedings. A third consequence was due to the rigidness of premium structure, some insurance companies simply quit selling in the no-fault states, thereby avoiding the government intervention reducing the choices for the consumer.
The jury is out right now in some of those no-fault states to determine whether or not to return to the tort system which is more consumer friendly with very little government regulation.
Fire Insurance Companies
On the property side of personal insurance protection, as pointed out in detail in https://www.insuranceguidelocal.com/articles/evolution-of-casualty-insurance/, this industry was conceived by private entrepreneurs in 1666 who saw a need and filled it without government involvement.
In 1666 “The Great Fire of London” destroyed more than 13,000 houses. People realized insurance was not just a convenience but a necessity if they were going to be able to recover from such a devastating event. By 1681 economist Nicholas Barbon along with associates established a fire insurance company “Insurance Office for Houses” to insure brick and frame houses.
Again, without government intervention, these early insurance companies established their own fire departments. They distributed “fire insurance marks” to their customers who would then display those marks prominently above their main door. This was a rather flawed system because rival fire brigades would often ignore burning buildings once they were discovered to have no insurance with the responding fire brigade company.
Eventually the insurance companies agreed to supply money and equipment to municipalities who were charged with providing fire prevention assets and firefighters to all fires. Fire stations evolved from this mutual agreement between municipalities and insurance companies, with the funds to operate them coming from the insurance companies and the manpower and other assets being provided and maintained by municipalities. Most fire departments eventually became a function of the governing body, thus eliminating the favoritism shown by brigades who tended to favor saving insured buildings to those without any insurance at all. Additional information on the evolution of fire insurance industry can be found at “The World’s First Fire Insurance Company” retrieved 2012-12-17.
This morphing has worked extremely well, with insurance companies being able to compete for business by the marketing model of their choice–while government has been able to fill one of its charges to protect the welfare of its constituents. Consumers know if they have a fire the fire department will respond, and they know if they have paid their fire insurance premium the insurance company will reimburse them for their loss.
Since there is pressure on insurance companies to be profitable so they can meet potential losses–and in the case of stock companies a requirement to pay out a dividend–and, unfortunately, due to unscrupulous practices by some who would game the system, some regulation was felt necessary. Each state has a Department of Insurance with an insurance commissioner overseeing the insurance industry to be sure it is meeting the needs of the consumers.
The property and casualty insurance industry has been around long enough to have established itself as being able to meet the insurance needs of its customers without much governmental infringement or oversight. The marketplace is a good leveling field which determines who stays and who goes. It can be pretty brutal at times, but in the end only the ones who are meeting what the customer demands should be in the market. Companies quickly learn products don’t drive the market for very long, so they must continue to research the market and then provide products compatible with the projected need of the market.
Life Insurance Cash Accumulation
PoliciesIn their eternal and relentless searching for potential tax sources, federal legislators have eyed the life insurance industry with salivating exuberance. They have long felt the cash value build up in permanent life insurance was an unfair harbor for hiding a source of wealth which should be subject to taxation. Where the insurance industry treats the cash value as premium paid in advance so premiums can remain level for consumers, the advocates for taxing those cash values look upon them as a place to hide income from taxation. Even though premiums are paid with after-tax dollars, the advocates feel they should be taxed when they appear as cash value in the life insurance policy.
They also look at dividends which are paid by insurance companies which are not paid out as still another source of income being kept from government taxation.
According to budgeting.thenest.com/average-person-saved-retirement-28301.html, the average American household spends over $40,000 per year in retirement, but the average social security collection is only $17,000; and only 60% of American workers are saving for retirement, while the remaining 40% are not prepared for retirement. Further, in America the average person saves 8-9% of his income which puts the U.S. in 16th out of 28 countries polled for savings. India is at 28%, Switzerland at 32%, China at 51%, with Japan at 8%, to mention a few. (budgetsaresexy.com/united-states-savings-rates-vs-world)
If you look at the median retirement savings of all American households, the amount is only $5,000. If you examine households who do invest, that amount jumps to $60,000.
Where so many are reaching retirement age without sufficient income to take care of their needs; and with our nation being one of the lowest in percentages of people saving for retirement, one would think those who are advocating for taxing any source of cash accumulation would welcome this additional source (life insurance policy) as a way to meet financial needs along the way to retirement.
Health Insurance Options
One wonders with the conversations going on right now at the federal government level regarding the role government plays in our daily personal, social, and economic lives how long it will be before this part of the at-present private insurance industry will no longer play a role in our economic society.
The fear of not being able to access appropriate health care at a reasonable price, having long delays before getting the care required, the possibility of most Americans having to pay higher taxes, elimination of private health plans, and confusion over ability to maintain private health plan as part of the universal care system are all just part of the discussion. Some advocates for ACA (Affordable Care Act) say everyone has to be on this single pay plan for it to financially be viable. A recent study found 70% of Americans feel guaranteed health insurance is a right for all Americans. Only 27% opposed the idea. They also found 55% think they would be able to keep private health insurance under a guaranteed medicare for all plan. Thirty-five percent said no, and 10% were undecided. The uncertainty as to the administration of a universal plan is reflected in finding such a plan would threaten current medicare program–60% say it would, while 32% say it wouldn’t. Democrats want Congress to focus on improving and protecting the ACA rather than on passing a medicare for all system while Republicans favor getting rid of ACA except the pre-existing provision and ability to stay on parents’ policy until age 26 and coming up with something new. (kff.org/slideshow/public-opinion-on-single-payer-national-health-plans-and-expanding-access-to-medicare-coverage.
At the time of this writing, an appellate court was taking up the question of the constitutionality of the ACA so this discussion may soon become mute if found unconstitutional.
Also, oversight and administration of health plans have always been a state right. Strong advocates for the federal government to administer all health insurance scenarios are casting a long shadow over who can best meet the country’s health insurance needs. Tough questions are having to be dealt with over availability of health care and payment for such care. Right now there is just a lot of rhetoric about the need to provide the care but no concrete financially sustainable programs have been proposed.
At the same time, serious challenge is being brought against state controlled health insurance under the guise that if we centralize health insurance coverages and premiums, a centralized government agency can efficiently administer such a plan.
Having the government taking on this mammoth project is scary if not downright frightening. If some of the talking heads are right, the financial magnitude of this project would bankrupt our financial system–while if others are right, this could be the greatest welfare system ever devised. Somehow this has to be taken out of the political arena and placed in the hands of competent financial and health insurance advisors with no personal ax to grind. Good luck!
In our economic system, the freedom to choose who we will do business with and under what terms is a beacon on a hill. How grateful we should be to live in a society where such is the case.