December 20, 2011
This past week, CFIRE Deputy Director (and OOTS editor) R.J. Lehmann and I met with new director of the Federal Insurance Office: Michael McRaith. I had met him only once before, very briefly, so this was my first real conversation with him ever. Initial impressions: he’s a very good choice to lead the office. Our discussion, not surprisingly, was based on the written comments we sent out a few weeks ago. Our major points were these:
- The FIO should do everything it can to make the non-trade secret data it collects open to the public. In the long term, it should maintain something similar to the SEC’s EDGAR.
- State catastrophe funds and residual markets, in a few places (Florida and Texas mostly) present very significant risks to the market. If these risks are not systemic, they pose, at minimum, a significant risk to the market as a whole.
Anyway, McRaith was interested and seemed engaged on both points. He offered a number of his own opinions, but, contrary to some stories I heard, he gave us plenty of time to present our opinions.
To me, the fact we had the meeting alone was a good sign. Although Heartland is non-partisan—and ruthlessly so—a lot of our staff (me included) have worked in staff positions for Republicans, and, in recent history, only one I know has been on a Democratic staff. Someone bent on pursuing a dog-eat-dog partisan view wouldn’t have met with Heartland or a number of other groups that McRaith did. And that shows an openness that’s hugely helpful and needed in Washington.
In addition, I walked away from the meeting believing that McRaith understands insurance and wants the private sector to do more. I would count him as an ally of smartersafer.org and efforts to move more flood coverage into the private sector or, at minimum, expose it to market forces. The FIO has no real say-so over flood insurance but it could be a terrific bully-pulpit for someone to point out that the United States should follow the European model and have the private sector write some or all flood insurance.
Finally, given my numerous problems with the current administration’s regulatory policies, I did have some slight sympathy (in the first blush) to insurers that are working to reduce the office’s power to collect data. These sympathies are totally gone. I’m less and less sure about the wisdom of an optional federal charter (I don’t want one anytime soon), but gutting the office’s powers before it gets started is just a bridge too far. McRaith is a good man to stand up the office and I’m happy he’s doing it.
An interesting story out of Amherst, N.Y. gives me yet another reason to be dubious of government agencies that try to “run like a business”—particularly an insurance business. In fact, it’s a clear example of a government playing hardball where a private company wouldn’t.
The story is long and involved, but, basically, it comes down to the following. A New York State government-run workers’ comp insurer—the not-so-creatively named State Insurance Fund— owes more than $20 million for a legal claim related to an Amherst man’s paralysis-causing fall and has steadfastly refused to pay it. It has lost time after time in court but continues to go to bat against the town government (which made the payment). Meanwhile, more than $6 million in interest has accrued that the fund will eventually have to pay. Since the fund won’t comment or defend itself in the media, it’s possible that there’s some vital detail that isn’t publically known and explains the state’s actions.
But one thing is certainly true. A private company probably wouldn’t go quite as far as the state fund in spending resources to avoid paying a claim. If nothing else, private insurers faced with difficult, time-consuming litigation will very frequently cut their losses and settle even if they think they have a court case. To a certain extent, this is probably a good thing. Insurers would give themselves an even worse name—and do a lot of social harm—if they fought tooth-and-nail over every claim that’s questionable in any manner. It’s simply too risky.
A government-run business—an agency of government that plays in the free market entirely through its own operations—has much weaker incentives to avoid playing hardball than a private firm would. It enjoys a privileged position that actually lets it take more risks than a private firm, since the taxpayers ultimately back it. And fighting rather than paying a claim—particularly when the costs of fighting are high—is certainly a risk that the fund can take but a private company wouldn’t.
Christopher Hitchens, a friend and fellow contrarian, died this past week. My fondest memory may well be the time that he, arguably the world’s most outspoken atheist, joined me, my wife, and some friends of ours for Passover Seder. He was alone, a bit plastered (although that was basically a constant state of affairs), and flirted, outrageously, with my wife and the other women at the table. But he was so obvious and flamboyant about it that nobody (me included) could really take it seriously. We talked a lot about the playwright and film director Terrance Rattigan.
And I don’t think I’ll ever forget that evening. . . or the man. Requiescat in pace.
Filed Under: Insurance