On a related note: >===== Original Message From mongiovg <mongiovg@stjohns.edu> ===== >I see in today's NY Times that President Shrub and Congress are contemplating >legislation that will protect insurance companies from losses due to the Sept. >11 attacks, and possibly due to further terrorist attacks for some open-ended >period of time. > >Hmmm. The picture is kind of murky. The discussion of this issue hasn't made >clear how much of a financial hit the insurance companies are likely to take. >An insurance company fixes its premiums on the basis of actuarial estimates of >payouts. It's clear that miscalculations were made regarding the likelihood >of a disaster of the magnitude that occurred. But surely the WTC was not >ensured up to its full replacement value; nor I would imagine were any of the >buildings that were destroyed or damaged. Five or six thousand life insurance >payouts shouldn't bust a large insurance company with any sizable share of a >market of 270 million people. I imagine that litigation insurance payouts >might be problematic. I'm not denying that the companies will take huge >losses. What is not clear to me is that these losses will inevitably bankrupt >the industry. If the problem is that insurance shares will take a hit on >their income statements and on Wall Street, I don't see why Washington should >care as long as the indsustry remains solvent enough to provide enough >insurance coverage to keep the economy functioning. > >I don't buy this business about insurance companies not being prepared to >offer insurance against terrorist attacks unless they get a bailout. They >insure against loss of property or life. The conditions under which >beneficiaries can be denied benefits are usually specified by law and >contract. Beneficiaries are not denied benefits if their spouse is murdered >or if the building they own is destroyed by an act of arson. SO I don't see >why insurers cannot be legislatively barred from denying benefits on damage >caused by acts of terrorism. It don't see that the likelihood of buildings >being totally destroyed is greater today than it was five weeks ago. I've >seen no reason to think that a recalibration of premiums won't be enough to >deal with the current situation. If that means low profits for a few years, >hey, that's capitalism.... If insurers try to charge extortionary premiums, >there is always the option of regulating their rates, as we sometimes do with >automobile insurance. > >I guess what I'm asking is whether there is an economic rationale for >preferring a bailout over regulation in this case? > >It's now clear that the airlines sold legislators a bill of goods to obtain a >sweetheart deal that won't benefit consumers or airline employees. Now >Washington appears to be ready to do the same thing for insurance companies. >Insurance execs like to say that their profits are a reward for taking risks. >Well, OK, sometimes when you take a risk you get burned. It's precisely the >possibility of getting burned that is supposed to justify the profits. Is >this another instance of "privatized profits, socialized risks"? Or am I >missing something? > >I might add that this story appeared directly above another one which >described how HMOs are jacking up their premiums by 15-20%, after promising to >keep health care costs down. > >I'd be interested to hear from anyone who understands this situation better >than I do. > >Regards, > >Gary
This archive was generated by hypermail 2b30 : Fri Nov 02 2001 - 00:00:04 EST