Rearview Mirror

There are no second acts in American life,” F. Scott Fitzgerald famously noted. True, he never wrote another novel as wonderful as The Great Gatsby, but generally speaking he was wrong. Second, third and fourth chances are what make this country great. When all seems lost, the road gone wrong, it can be righted once again. Just turn at the next corner and you may be headed back down the road to ecstasy. Even a deathbed sinner can be redeemed.

In that vein, in this issue we offer for your consideration a few revisitations of matters hotly debated in the insurance industry. First comes a story (page N8) by National Editor Andrea Ortega-Wells on a new study by two Wharton School of Business professors who conclude that contingent commissions help align the interest of insurers, producers and customers.

The study, financed by the American Insurance Association, concludes that contingent commissions give agents and brokers an incentive to share more information about the risk characteristics of their clients with insurers, as they may benefit not only from commissions given as a percentage of the premium but from back-end profits. This may seem shockingly obvious, but it could come as news to certain gubernatorial aspirants.

And remember the hubbub over finite risk reinsurance that began the downfall of AIG’s Hank Greenberg? Well, reinsurance specialist Andrew J. Barile explains (page 58) the whats and wherefores of the complex transaction and concludes, “We cannot simply say, under generally accepted accounting principles, payment from a reinsurance company is not a ‘reinsurance’ recovery for accounting purposes unless the reinsurance agreement transfers some risk to the reinsurer.”

Lastly, we offer you an opportunity to reconsider the issue of loss-history database regulation. Last time out, AIA General Counsel Eric M. Goldberg urged regulators and legislators to “think moderation” on the issue and stay away from the approach recently enacted by North Dakota. Insurers have generally given up on the notion that they ought to be allowed to take adverse action against a customer based upon a mere coverage inquiry. However, they’d like to hold on to other practices recently banned by North Dakota, including the ability to count an incident as a claim even if it is closed without payment.

Birny Birnbaum, a former Texas insurance regulator, hails the North Dakota legislation as a model for the nation to follow (page 62). He calls the legislation “common sense” that represents a “a quantum leap from the current situation in every other state.”

To quote Fitzgerald again, “And so we beat on, boats against the current, borne back ceaselessly into the past.”