Insurance Companies and Bailout $$

This is what I would respond to Chubb, the property and casualty insurer that last week objected to government bailout money being used for SOME insurers.

Of course it's only my opinion. The text of the letter is cited all over the place and you can confirm it using one of the references in the margins.

The letter is From JOHN J. DEGNAN, VICE CHAIRMAN AND CHIEF OPERATING OFFICER OF THE CHUBB CORPORATION and is TO SECRETARY OF THE TREASURY, HENRY M. PAULSON JR. (October 28, 2008 letter)

In the letter, Mr. Degnan identifies the purpose of the bailout dollars as to "immediately provide authority and facilities that the Secretary of the Treasury can use to restore liquidity and stability tot he financial system of the United States."

Chubb does NOT think that insurance companies should get bailout money. I agree. But why is Chubb angry?

Insurance as usual...why should we pay for someone else's poor choices. First, it appears that Chubb does not believe it would be one of the insurers to get some of those federal dollars. As a property and casualty insurer, Chubb's representative asserts that giving federal dollars to some companies would "be particularly unfair to the companies such as Chubb and other insurers that, as a result of prudent business practices and conservative investing, do not need to avail themselves of the government bail-out." Why? Because for years you benefited from the dollars and legislation and industry wide behaviors that made you your money. The basic flaw in insurance company reasoning is that it ignores those who have paid in during years when they didn't have "problems." I will happily pay increased premiums from here on out IF I get a refund for all the times I DIDN'T have to use my insurance and DID NOT use it. The same is true for Chubb...stop whining, you benefit from being part of the insurance company industry.

But after all this is the insurance industry we're talking about. Chubb's real objection is that companies that get bailed out will get money put into their businesses for less money than it would cost Chubb to obtain the same money. Chubb doesn't object to legislation and policy that makes insurance companies richer, it just objects to money and legislation that promise to make SOME companies richer.

You, CHUBB, are part of a group that is exposed to risk from financial conditions in our country. Just because you as an individual company have not yet been impacted by this risk does not mean that those who were, whether through their own bad judgment or not should not obtain every dollar they can. I argue the same for all insurers. You have reaped the benefit of being part of a group that has singlehandedly raised premiums, gambled on investments with insured's dollars and worked to make the financial environment work for you by using your group power (in support of lobbyists). You have and continue to reap the benefits of that membership, you cannot opt out just because in this instance your "group" is not working in your favor.


The "FREE" Market Myth: The Chubb representative continues using the myth of the "free" market and argues that "the significant anti-competitive implications ...in the CPP must be considered." This is the usual insurance industry approach...the free market should be free for us and we're willing to lobby in the billions to influence government to enact laws (regulation) that benefit our freedoms and forget about anyone else's. That's right, insurance companies are not against regulation (just look at what laws they want passed) and they're not against big government (they want the laws made federal), they just want those laws to be favorable to them. The Chubb representative cannot resist putting in a plug for FEDERAL RULES LIMITING THE AUTHORITY OF STATES TO IMPOSE LEGISLATIVE MANDATES ON INSURANCE COMPANIES. Huh? Read carefully:

"A more urgent need for the property and casualty industry is regulatory modernization. Our industry would operate much more efficiently without the constant changes to products, prices and practices foisted upon us by 50 separate state legislatures and 50 regulators. As Secretary of the Treasury, you have championed this type of positive change and we urge you to continue to focus on this effort as the primary source of Treasury assistance to our industry."

Does this persuade even the most stubborn among us that the insurance industry has grown to its mammoth proportions not through the free market but through government influence and legislation protecting their primacy? I hope so. Does it sound like small government and state's rights for Chubb to seek FEDERAL assistance in taking away State rights to regulate insurance companies doing business in their states? C'mon.

Chubb is mad. It isn't getting a piece of the federal dollars from the bailout. I agree, I don't think any insurer should be able to double dip into consumer pockets, first through premiums and then through handouts, but Chubb doesn't care about that. Chubb wants special treatment as a healthy company, much like the "healthy" want special treatment from the rest of us. Unfortunately, this spirit of independence for the healthy Chubb didn't arise during the years of benefits it received by being part of the insurance group, any more than "healthy" Americans who paid insurance premiums for decades heard any objections to those taking and sharing their money until they actually needed to use some of the benefits they had contracted for.

If Chubb wants special treatment and believes that breaking away from the group is its best approach, it should first opt out of lobbying efforts by the insurance industry, should then continue to behave fiscally responsible and see whether it can make the market work for itself, and finally should expect no assistance when its own financial health is in jeopardy...works for me.