Posted On: October 18, 2004, 7:34 am CDT

Posted By: JSJAG

" anti-competitive practices in the insurance industry."
How amazingly slow the hands of justice work? For 19 years I have been complaining about the lack of open competition in the P&C industry. A societal compact exists in the P&C industry and because of it, they have been given great legal privileges. Privileges such as averting anti-trust laws.

In the United States Microsoft's antitrust case dealt it some hard lessons and is being dealt a harder lesson in Europe. The P&C industry may be poised to learn a lesson. I've always wondered if the P&C insurance suppliers were in the business of accepting risk or managing agencies? The long held hallow claim of "profit" can only be obtained from large commitments given to large agencies / brokerages is about to be brought into the open. I've always thought it is not about "profit" but it is more about control and power.

I have an anecdotal story:

Recently I was talking with an insurance company that (in the world of the consumer) is an unknown company. I was amused when the marketing person said that their commitment is now 1 million dollars. One of my questions was this: with a 1 million dollar commitment, how can you offer and serve the smaller rural areas of my State? There is not much of a possibility that the smaller agencies in the rural areas of my State, can meet the 1 million commitment. If they do meet the commitment, that agency will only have one or two companies available that can offer insurance to the rural customer. The marketing person said, the agent can join a cluster. I asked her, so the onus of finding a way to distribute your insurance is left up to the agency. She said yes. I told her if they had open brokerage arrangements the consumer would benefit from a broader availability of insurance markets. She said that she couldn't disagree with my point.

I told her about my neighbor the Federal Senator and that he has told me the government is aware of a problem with insurance distribution; that there are discussions in committees about competition problems. Her response was, "well the companies will just pull out of the State or they will go into a hard market. That's a novel answer to the problem of insurance availability, "if you try to make insurance more available they will make it even more unavailable. Now I doubt if that is a good way to solve the problem and I'm sure that would not make friends in the Congress.

All of this could end if the insurance companies had a tiered distribution system. They can have their agency distributions, a system that will have a higher commission structure with commitments. But they should also have a brokerage open system. Experience would replace the dollar commitment and as an open brokerage arrangement that distribution would pay a lower commission. This lower commission would offset the insurance company claim of "profit" can only be found with high commitments. This would also make more insurance available in the rural areas of States.

The life and health industry became an open brokerage type of distribution arrangement and long gone are the days of agency only distributions of the product. It's ironic that the same has not happened to the P&C industry because P&C insurance is more important to the businesss community then life insurance. The P&C insurance business is unlike almost any other business and without it, most of America stops. The insurance agent knows that without E&O they are out of business, the cabinet maker knows without liability insurance, they are out of business and the same goes for most other American businesses. Therefor, to keep the American economy preforming, P&C insurance has a social compact and needs to step forward to change. If they do not change on their own, there is a great chance that they will change by way of legislation.