Insurance Questions
Don Boudreaux
Tom Wilson, CEO of Allstate Insurance, wants Uncle Sam to regulate his industry more strictly.
Is Mr. Wilson a public-spirited businessman who is proposing a policy that he believes might well harm him and his company but one that will also, in his view, be worthwhile for the public at large?
Or is Mr. Wilson a keen businessman who understands that, in this case at least, stricter national regulation of his industry will benefit both his firm and the public at large?
Or is Mr. Wilson a duplicitous businessman who understands that, compared to the current regime of heavy reliance upon regulation by state governments, a regime of stricter national regulation can more easily be captured by himself and other insurance-industry insiders -- and, hence, is a ticket to higher industry profits extracted from the wallets of customers who will buy insurance in a less competitive market?
I truly do not ask these questions rhetorically. I know too little about the details of insurance-industry regulation to offer a firm assessment. I suspect that Mr. Wilson is not knowingly proposing a policy that will harm his company (so the answer the the first question is likely 'no'). But beyond that, I'll not venture a guess as to what's going on in Mr. Wilson's mind.
Your thoughts?
cafehayek.com
Comments
I think that's the right way to take this - I'm not sure either, and I don't think we can presume to know. All sound very likely. The first sounds somewhat unlikely to me. I think you're point about state regulation in the third option is precisely why the second option could potentially be true. Framing it in terms of regulatory capture is one likely possibility, but you can also think of it simply in terms of transaction costs - which are almost certain to go down when you move from 50 regulatory structures to one regulatory structure. In other words - the state regulations point is an excellent one, and it has significance far beyond questions of regulatory capture.
Posted by: Daniel Kuehn | Apr 16, 2009 2:53:30 PM
I'll go with explanation c, but he probably sleeps at night by diluting himself into thinking he's purely motivated by a little bit of a & b.
Posted by: Matt | Apr 16, 2009 2:58:47 PM
For years, many insurers have favored a so-called optional federal charter. The idea is that for insuers who operate in many states it would be less costly to deal with a single federal regulator than to deal with 50 state insurance departments. Here's a friendly Q&A that the Competitive Enterprise Institute put out supporting the idea: cei.org. Not sure if that's what Wilson is referring to in his piece (he doesn't name any specific legislation), but the optional federal charter's an idea Allstate's supported for some time. Looks to me like this is just putting a different spin on it.
The idea of allowing insurers to opt in and out of federal regulation -- being able to play state and feds off against one another and try to get the best deal -- seems interesting. Whether they'd be able to keep it "optional" for long seems doubtful, though.
Posted by: Kevin B. O'Reilly | Apr 16, 2009 3:27:18 PM
I think he'd like to keep his market share and minimize risk and competition. Federalizing insurance regulation would effectively make it like banking, with its own FDIC to underwrite huge but rare insurance losses, like from major hurricanes, earthquakes, terrorism. etc. It would keep new, innovative players out of the market, by setting standards that discourage innovation.
Frankly though, if you live in a state like California, where insurance regulation is downright oppressive, federalization would be more than a coin flip toward net benefit for companies and consumers. Even the choice of realistic buying out of state policies would provide a great deal of competition to the status quo.
Posted by: BoscoH | Apr 16, 2009 3:43:33 PM
I like the cartoon with all the guys tied with the rope. The rope is government. Cut it, and when the big guy falls, the little guys just learn from his mistake, and press on.
Posted by: Randy | Apr 16, 2009 3:49:26 PM
I would guess that many insurance companies that operate on a national scale would like to see national insurance regulation. Dealing with one set of regulations (at the federal level alone) would probably be easier for many of them than dealing with 50 separate sets of regulations as is currently the case.
Posted by: cvd | Apr 16, 2009 3:58:02 PM
...
cafehayek.com |
