Insurance Transparency Project

InsHeads,

I know you all think insurance is just about glamour and bling, one big Playboy Mansion party DJ’d by the late Biggie Smalls with the Radio City Rockettes forming a kick line on top of a large actuarial table.

I’m going to indulge myself today and write about why insurance matters. Please feel free to leave now (not so fast, Mom!) But knowing that some of you will follow this item knowing it is long and contains fewer (but not none!) yucks helps me form the ideas that I think are a blog, a book and a major motion picture starring George Clooney as myself. This is also one of the last blurbs before I go “public” and start distributing this to the people who love the industry and the people who love to sue it. (I will try to put something funny at the bottom for those making it all the way through.)

EYTEP (Insurance Tranparency Project) grew out of reporting three stories for my favorite newspaper.

The first was A.I.G. The secretive, innovative, mysterious insurance company was created in post-World War I China by C.V. Starr and made wildly successful by the titan M.R. (they’re into initials) Greenberg, who was toppled by Spitzer last year. A.I.G. reminded me (and I think thought of itself) as sort of a private-sector version of the O.S.S., operated by discrete gentlemen who traveled to exotic locales underwriting the riskiest risks — oil rigs in South American jungles, kidnapping, whatever — and made sure they were paid for them. And A.I.G’s Asian connection is intriguiging. It is a leading insurer — foreign or domestic — in places like Korea, China and the Phillippines, and Hank Greenberg was, and probably still is, one of the most influential figures in the Far East, particularly China.

Greenberg’s A.I.G. was, and is, patently weird. One lawyer told a story of a defense-lawyer friend — the head of his local chamber of commerce in North Carolina — who flew to A.I.G.’s headquarters on Pine Street in Lower Manhattan to discuss a case he was defending on behalf of an AIG insured. After waiting two hours, he was led into a empty conference room with a long table, where he waited alone for another 45 minutes. Three men in suits (I imagine them wearing top hats and morning coats) then entered abruptly, and without a hello, interrogated him like he was a murder suspect for an hour, then got up and walked out. He had no idea who they were. And this was a guy on AIG’s side.

Hank Greenberg is, in my view, responsible to a large degree for the way insurance looks today. I don’t think he would disagree.

The second story that got me going about insurance was what was supposed to be a quick and simple feature about a study done by consumer advocates on medical malpractice insurance. Simple? Quick? Hah! As some out you out there, including the Cool Texan, can testify, the reporting touched off a mini-insurrection in the industry featuring many-thousand-word emails from an insurance executive, whose company, by the way, was not in the story, about why the study was bogus, out-of-context and written by someone who may — or may not! — have done something disreputable in Rhode Island, Missouri or both. I wish I had saved those emails. When I got an after-hours call on my cellphone from Bobby Kennedy’s former press secretary, I knew I was in new territory.

But that wasn’t what intrigued me. What got me was what you couldn’t find out about at what I thought was supposed to be the critically important issue — medical malpractice insurance. The advocates’ study looked at whether insurers did or did not actually pay the the massive med mal losses awarded by “runaway juries” during the “med mal crisis” of the 1980s and early 1990s. They didn’t, but what struck me was that a normal human being (that would be me) couldn’t even find out how much malpractice insurance costs. Now, remember, the high premiums required to cover those massive losses were 1. driving doctors, particularly surgeons and OB-GYNs, out of medicine, and 2. wrecking the health care system. So much so, in fact, that we needed to do something called tort reform – that is change the legal system in 50 states to, among other things, cap punitive damages and otherwise make it harder to sue.

Now, as a Certified Professional Reformer, I’m all for reform. But if you’re going to change the legal system on me, you gotta gimme some data. How many medmal suits are filed a year? What’s the average award? Median award? After appeal? How many suits are filed in relation to the number of actual medical injuries. In other words, to what extent do we need to make hospitals safer? Oh, and by the way, how much does medmal insurance cost, anyway?

Well, don’t ask the regulators. When the regulators’ Kansas City, Mo., -based trade group (Their what? Never mind) referred me to a a newsletter called Medical Liability Monitor, based in Oak Park, Ill., ($399/year) to learn how much the stuff costs — the price of which is ruining the health-care system – well, I knew this industry was different. The fact that MLM wouldn’t call me back and I had to get a few pages faxed from a source only reinforced my sense that, as Gene Taylor would say, somethin’ wuddn’t raht hee-uh (honk).

And the last story that got me was Katrina. I’ll admit, I’ve seen only a few extreme cases, former houses where it was obvious that wind had done somedamage — several of which, for instance, a witness had seen “explode” — and where wind claims were denied entirely. And right, I’ll admit it’s interesting to me that wind claims on the beach were denied outright but others were approved in Tupelo, hundreds of miles inland. Or that next-door neighbors in townhouses built the same year got wildly different outcomes, but none were paid to the limit of their policy. Or that independent engineers are complaining in court papers that their “wind” verdicts were changed to “water.” Or or or.

Katrina made me realize, however, that insurers could — I’m not saying they did — but could simply deny a legitimate claim or pay a few bucks on the dollar, put the money in its pocket and say “sue me.” And they could — theoretically — do this hundreds or even thousands of times. Or they could — not saying they did – assign hurricane losses to “flood,” and divert their losses onto U.S. taxpayers. And they could — repeat, theoretically – meet in Atlanta shortly before Katrina to decide how they would handle flood/wind claims and do so legally under their anti-trust exemption. (See archives; keep up with me, people!)
What about state regulators, you say? That’s a story for another day (Y’all are greedy. Simmer down!)

I will post snippets of interviews with unhappy policyholders, including the super-litigious carpenter, the ignorant customer service rep, the greedy veterinarian, the irresponsible Mississippi State meteorologist and others, who either don’t understand their policies or are trying to cheat their insurers

But here is a question for the imaginary insurance industry executive who sits my shoulder and reminds me that 97% of Katrina claims are settled, that his independent survey says that 80% percent of policyholders are satifisfied and that of more than 1 million Louisiana claims, only 8,000 people filed formal complaints, a success rate, as it were, of 99.9992%:

Those are good. But instead of metrics that don’t matter, how about disclosing the ones that actually document the industry’s performance?

A. How much did your policyholders demand?
B. How much of that did you pay?
C. How many claims did you deny as a percentage of all claims?

Past performance! What a concept!
Let’s start with that. I could also ask a few others, like why do you count formal complaints but not lawsuits (which, to me, is a more-serious complaint)? Why can’t we tell who paid more of what customers demanded, Allstate or State Farm? Why did an internal survey by Gulf-area independent agents and brokers — these are insurance people — report that 75% of them reported that 75% of their customers were unhappy at some point in the process. What did 175,000 people want from their “informal inquiries” to the Louisiana DOI after Katrina. And why, if you report Katrina losses of $45 billion, do insurance departments report you’ve only paid $24.9 billion, with 97% of claims setttled?

And you know what? These are actual questions. They’re not rhetorical. And even if insurers are right in all cases, the answers would help us know the extent to which people aren’t buying enough insurance or are buying the wrong kind.

Ok, so what? Who cares about a few, or even a few thousand or tens of thousand, belly-achers in the Gulf (or California, Oklahoma, Utah, New York City [think 9/11], Florida, etc.)? Even if it hampers Gulf-area reconstruction or makes taxpayers pick up a bigger burden, aren’t there more serious problems. What about Iraq? And what’s the national story if Florida, New Orleans and South Mississippi are experiencing what they’re calling down there an “insurance crisis” — homes and businesses can’t afford new property rates or can’t get coverage at all? And what if the insurance industry had its highest-ever profit year (until this year) in disaster-ridden 2005, while lawsuits clog Louisiana and Mississippi courts, insurance prices are jumping like Mexican jumping beans and the government is taking on more and more insurance burdens? And even if insurance is the third or fourth-biggest expense for every American household, so people won’t buy another PlayStation. Is that a big deal?

Not really, I guess. But as I tiptoe into the subject, I start to think about health insurance. Now, I’m starting to think this matters. If you think the Katrina insurance industry and the Aetna insurance industry occupy some different commercial universe, operate on completely different logics, have wildly different investor bases and are regulated by completely different people, you, my long-suffering insurance nerd, are wrong.

Here’s a quote from Krugman. I’m not saying I know he’s right:

“Every other wealthy nation manages to provide almost all its citizens with guaranteed health insurance, while spending less on health care than we do. And there’s no mystery why: we’re paying the price for pointless, destructive reliance on private insurers. Medicare, which is a universal health insurance program for older Americans, spends less than 2 cents of every dollar on administrative costs, leaving 98 cents to pay for medical care. By contrast, private insurance companies spend only around 80 cents of each dollar in premiums on medical care; much of the remaining 20 cents is spent denying insurance to those who need it” (or, to be non-opinionated, “on overhead”).
How many trillions do we spend on health care premiums again? Twenty percent of that?

And I don’t think he’s even talking about the 46 million people who have no insurance at all.

But are Krugman’s facts right? I think so, but, again, I’m just getting started. And would greater transparency really help insurance buyers create greater efficiencies that would make more premium dollars available for what they’re there for — paying claims? Or would greater disclosure, instead, wreck the industry?

I don’t know. But here’s a prediction: you will be hearing a lot more about insurance in the coming year, and I don’t mean from me.

Okay, an actuary, an underwriter and a duck walk into an HMO ….