Insurance is making the headline news on a near daily basis. A few weeks ago there was the Burwell v. Hobby Lobby decision. This week there are contradictory rulings by federal appeals courts over the legality of subsidies under Obamacare. While these and other legal battles are important decisions playing out in the high courts, none address the structural problems with the delivery of insurance to consumers. To address the structural problem, let's start by going back in time to the breakup of AT&T.
Forty years ago, the U.S. Justice Department filed a lawsuit, United States vs. AT&T. Looking back on the AT&T divestiture with an historic perspective, the company was a prolific innovator with inventions including the transistor, solar cell, satellite communications and fiber optics, all things that affect our daily lives in positive ways. Equally important, AT&T provided a reliable product. Quality was paramount at AT&T, and a qualified service team was available 24 hours a day, seven days a week to fix the telephone system when human error or Mother Nature inflicted damage.
In 1974, when the U.S. Justice Department filed the lawsuit, AT&T was $26 billion in annual revenue. Customers had a choice of whether to buy AT&T's products, but they did not have a choice of who to buy them from since AT&T monopolized the market. Nevertheless, customer service was good and the products performed as advertised.
Now let's contrast the AT&T situation with the insurance industry of today. Insurance is a much larger industry with a trillion dollars in annual revenue and an industry from which consumers are required to purchase products. Services from this industry are continually decreasing and product quality is declining yet prices are increasing.
Health networks continue to become "skinnier" requiring customers to pay out of pocket for an increasingly large number of services. Auto insurance prices continue to rise even though the nations fleet of cars is at an all-time record age and driving miles are down (according Department of Transportation statistics) more than 70 billion miles per year from the peak in 2005. In the home insurance market insurers collectively refuse to cover floods, forcing the government to offer this coverage, while also excluding many other events that could cause home damage, including wind, rain, animals, etc., yet prices are increasing.
In terms of product quality, the insurance industry does not publish metrics for product quality. As any person trained in management or quality control knows, what doesn't get measured and published, doesn't improve. Therefore, to stop the long-term decline in product quality for insurance products, the industry needs a metric that is reported to the state insurance departments and published to the public.
Whether taken individually or collectively, these trends are an indicator of an industry that has lost sight of its purpose, a promise to protect people. Insurance is defined as an equitable shift of risk from insured to insurer, but the equation is changing. It is becoming less equitable and the scale is tipping strongly in favor of the insurance company.
This dire situation has been caused through the insurance industry's exemption from federal anti-trust laws, the very same laws that were cited as the reason for divesting an efficient, highly productive AT&T. While insiders claim that state regulation is effective, most know that only a few states effectively regulate the insurance industry within their borders. In many states, rate increases go into effect without prior approval by the insurance commissioner and industry funded organizations collect information from all companies then file the rates with state commissioners -- a process akin to the fox guarding the chicken coop. Unlike competitive industries, insurers maintain and share databases of customer information. In short, competition as known throughout industry in America, does not apply to insurance.
How did we get into this situation?
The McCarran -- Ferguson Act of 1945, 69 years ago, granted exclusion from federal regulation and anti-trust laws for the insurance industry. Anti-trust laws exist for a reason, which is to force companies to compete rather than cozily coexist while driving prices up and delivering fewer services. As a direct result of the exclusion from anti-trust laws, we are all paying higher prices and getting less service. Unlike the AT&T case cited at the opening of this article, the FTC cannot take action against the insurance industry as a result of the McCarran-Ferguson Act.
In addition to enforcing anti-competitive regulations, the FTC has an excellent record of policing consumer protection violations. Unfortunately, when it comes to matters of insurance, this powerful consumer advocate is relegated to the sidelines, again because of the McCarran -- Ferguson Act. They can only sit and watch while state by state the powerful insurance lobby wins legislative battles that continually limit the rights and protections of the consumer. The result is an insurance industry that is becoming increasingly abusive, bullying people already damaged by an accident, a health problem or a storm into settling for inadequate compensation, and often needing to hire an attorney to get any compensation at all.
"We the People"
'We the People' need to demand Congress repeal the McCarran-Ferguson Act. We also need to create a competitive market by only buying insurance that has a proven history of compensating consumers for their losses. That means we need a way to measure the quality of each insurance company, and their products. This is what my organization Injured Money, an advocacy group focused on bringing competition to the insurance industry, is working to do. When the insurance industry starts being measured, something that has never happened before, it's not only going to enable consumers to know who to buy insurance from, but it's going to force the poor insurance companies (the ones shareholders love and policyholders don't) to improve the insurance they sell.
Americans can reign in this renegade industry -- but it's not gong to happen until people start taking a stand. Request your congressman to repeal the McCarran-Ferguson Act.
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