Protect Me, Oh My Gov!

Some recent headlines cause me to wonder if our political friends are overly worried about our ability to make independent decisions.  I am beginning to resent this surge toward protectionism.

The first was the arrest at a Texas airport of an officer of an Internet gambling operation, as the United States government self-righteously tries to prevent its citizens from wagering funds electronically through an operation resident outside this country.  This sanctimonious effort to save us from wasting our money smells on all counts.  This operation pays no taxes and is not accountable to our regulators.  More important, it takes dollars away from the casinos and lotteries run in and by 47 states, the legalized gambling run rampant here in the past thirty years.  I acknowledge that gambling is an atrocious waste of money, hardly contributing to the growth of the economy, but this abominable habit has been a part of the human species for thousands of years.  We can’t abolish it or make it illegal, but we can educate people on its defects.  Above all, federal, state and local governments should not be in the business of promoting or, based on this arrest, trying to protect its resident manifestations.  This latest federal effort is simply protectionism cloaked in the hypocrisy of saving us from ourselves.

The second case involves those benighted organization servants called “insurance buyers” (also inaccurately known as “risk managers”).  The House Financial Services Committee of the U. S. Congress is considering legislation to create a new system for regulating and taxing the surplus lines insurance business, insurance companies not admitted to do business directly in this country.  Part of this legislation would require a “risk manager” to meet two of these three criteria:

• Hold an advanced degree is risk management from an accredited university or college,
• Have at least five years’ experience in commercial property or casualty insurance, etc., and,
• Hold a designation of CPCU, ARM, CRM or RIMS Fellow.

Here is blatant protectionism again, masquerading as an effort to keep “pernicious oversea insurers” from taking premiums away from our own insurers and reinsurers, and, at the same time, endorsing the “qualifications” of local associations.  It says that a CFO of a corporation does not have the capability or experience of making a buying decision on insurance from any company other than those domiciled and regulated here in the United States!  Are the holders of GARP or PRMIA certifications unqualified?  Why not tell a CFO to use only a domestic bank?  Are we regressing to the standards of the medieval guilds of Europe?  Here again the government, in its own wisdom, tells us that the old dictum of caveat emptor is dead and that we should rely on the omnipotent knowledge and experience of government to protect us from mistakes!  This only protects an inefficient domestic insurance industry and is to our ultimate disadvantage.

That leads to my third comment on protectionism.  As I’ve stated too many times, the insurance industry in this country is regulated by the 50 states and the District of Columbia, an anachronism from the 19^th century, set up in 1871.  While other countries and regions, principally Europe, have modernized their regulatory structures to this century to reflect the realities of a global economy, the United States persists in “this absurdly complicated system,” “this blatantly protectionist rule,” (The Economist, August 12, 2006) for the world’s largest insurance market ($1.1 trillion).  The costs of this absurdity fall on the individuals and organizations that buy coverage from more than 4,500 (do we really need that many?) domestic insurers and reinsurers, coverage that is often unreliable and whose costs are volatile as well as inflated by excessively inflated regulation.  Foreign insurers trying to enter this market (plus domestic groups trying to reform an antiquated system) must meet the separate requirements of all these jurisdictions, an expensive and time-consuming process.  At least this Congress is considering an optional federal charter for insurers and a revision in the capital requirements for foreign companies.  I hope that sanity prevails and restores real competition to the market here.