Wednesday, March 05, 2003

If this is a medical malpractice crisis, why are homeowners and auto insurance rates going up, too? Says one official with the Florida Consumer Action Network:
"I don't want to hear the excuse about medical malpractice or lawsuits," said Newton. "That doesn't explain the rate increases for homeowners or auto insurance. None of those affect auto or homeowners, and frankly there has not been much of a raise in malpractice lawsuits, claims or judgments. The only answer is insurance reform."

While Big Insurance representatives deny the charge and blame the premium rises on pharmaceuticals and malpractice cases,

officials with Sankar Investments, an independent firm of financial advisers based in Chicago, think the insurance industry made poor investment decisions in the 1990s, especially with regards to the energy and telecommunication bonds at Enron and WorldCom.

When accounting scandals sent both corporations plunging into bankruptcy, the ripple effects jolted insurers.

"Because of the lack of choices and diversity these companies had in bond portfolios, when the companies went downhill" so did the fortunes of the insurance companies, said Jay Taparia, a principal at Sanskar Investments and professor of finance at the University of Illinois.

"This is really a systemwide problem," added Taparia. "They screwed up, and now everyone is feeling the effects of that."

The article places a lot of the blame on the well-known but largely ignored fact that Big Insurance, unlike any other industry, is allowed to collude to fix prices. The McCarran-Ferguson Act in 1945, I believe, exempted the insurance industry from antitrust enforcement. There was some effort in 1986, when I was an intern in Sen. Paul Simon's Judiciary Subcommittee office, to revoke this exemption, but the Reagan Administration was basically intent on pretending there was no such thing as antitrust enforcement, so it went nowhere. As far as I know, there has not been any concerted effort since then. Big Insurance is very big.

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