consumers are counting on the reform proposals advanced by Richards and state Representative Eddie Cavazos, both considered pro-consumer. In fact, however, under the reform measure, the existing 100-percent tax credit \(which the solvent companies are presently allowed for paying the claims of the while the other 60 percent would be recovered through increased insurance rates. This means that the taxpayers foot only 40 percent of the insurance industry’s bad debts, down from the present 100 percent. But the other 60 percent is picked up, not by the insurance companies, but by the individuals who buy insurance policies. The effect is to shift the cost to the insurance consumers instead of the state as a whole. Such an arrangement is even less fair than the untenable system that currently exists. Consumers should not be responsible for errors and omissions of the SBI, or bad investments by the corporate raiders, particularly since the coverage they buy is often not purchased voluntarily. Insurance policies, by and large, are mandatory: Automobile liability policies are required by state law and any property with a lien is required by the lender to be insured. And even when they do have a choice, consumers seldom have adequate information to make an informed choice. Burdening consumers with 60 percent of the assessments caused.by mismanagement by including it in their rates is no solution to the approaching tide of insolvencies. And the reform package’s proposed $450 million pre-funding would pay off only the $491 million in claims payable at the close of the last fiscal year, according to the most recent SBI Annual Report. The Richards proposal does not provide funding for future insolvencies. In fact, Richards’s “reforms” could backfire politically if they result in large rate hikes before the next round of elections. What Should Be Done? EXAS DOES NOT have to squeeze consumers in order to preserve the artificially swollen number of companies that exist today. The first insurance reform measure passed by the Legislature should be the abolition of the companies’ 100-percent tax credit, coupled with a rate freeze. Insurance industry apologists will argue that the wellmanaged companies will leave the state if they are required to pay for claims against insolvent companies. That argument ignores empirical evidence to the contrary. In New York, insurance companies pay into a special fund for insolvencies without the crutch of a 100-percent tax credit like their Texas counterparts. To date, New Yorkers can still buy insurance. A mass exodus of insurance companies from Texas is an idle threat by the industry, an attempt to intimidate legislators from cracking down on an industry that surely needs it. The second reform needed in Texas is a reduction in and limit on the numbers and kinds of companies which the State Board of Insurance licenses and the contracts it approves. Regulation is meaningless when the number of companies and forms authorized exceeds the agency’s capacity to examine and regulate. And if the insurance industry, rather than taxpayers, is required to pay for insolvencies, then the well-managed companies might become political allies in the effort to remove the at-risk companies \(read: their ket. Reducing the number of companies would enable the regulatory board to do a better job in identifying dangers ahead, since it could focus its limited resources on fewer, healthier companies. Third, the state should better control the kinds of policies written in Texas. The thousands of policies submitted for approval, each with different innovations, special offers, gimmicks, and frills, seldom promote the general welfare. They are time-consuming paper-shuffles which confuse consumers and, doubtless, the SBI. The mass of possibilities approved by the state board baffle even the most informed observers. With the explosion in the numbers of licensees, kinds of contracts, and unaudited data, the liquidation division of the SBI will continue to expand until the supervisions, conservatorships, and receiverships overpower the system handling it. Perhaps it already has. With the exception of risk retention groups, purchasing groups, and the self-funded plans \(none of whose claims are the .State Board of Insurance should implement a policy of “No New Companies,” and for those already licensed, “No New Gimmicks.” And a “Cease-Sales” order should be implemented for those decep tive policies already on the market. UCH CONTROLS COULD start Texas on a path to progress in regulating insurance, reduce the enormous staff presently doing paper-shuffling, and attract more stable segments of the insurance industry to the state. When all players in the field meet the stringent criteria of the most dependable members, none should object to contributing to a fund to protect all and they would not need to be repaid by the taxpayers or add it to the rates to be paid by future consumers. Failures would stop. When confronted with regulatory questions that involve the public interest, the SB1 merely refers to the Texas Insurance Code: “We don’t make the Code; we only implement it.” If the insurance code does not provide the state’s regulatory agencies with discretionary powers to protect the public interest, then only the Legislature can correct the predicament that is leading to the collapse of one of the largest industries in Texas. It should start by amending the present inadequate reform package to truly protect the taxpayers and policyholders of this state. C.1 Disaster Continued from page 3 As vice president, Bush chaired a task force on deregulation. That panel’s proposals were the impetus for the Garn-St. Germain Act which deregulated the thrifts with such disastrous consequences. Bush also chaired a 1985 task group on deregulation of financial services, which suggested many of the “reforms” now found in the administration’s current proposals. Bush’s chief staff person for this task force was none other than Richard Breeden, the current head of the Securities and Exchange Commission. Breeden has lobbied hard for repeal of Glass-Steagall. Democrat Donald Riegle of Michigan, chairman of the Senate Banking, Housing and Urban Affairs Committee, is a sponsor of a set of banking reform proposals in the Senate and has already held eight months of hearing on the subject. Riegle, along with four other senators collectively known as the Keating Five, intervened with regulators to stop them from closing down Charles Keating’s notorious Lincoln Savings and Loan. Alan Greenspan, chairman of the Federal Reserve, last fall allowed J.P. Morgan to enter the securities markets, an act that for most banks would violate Glass-Steagall. Greenspan, like Riegle, was hired by Charles Keating to intervene with federal regulators on his behalf. In a letter to the FHLBB in 1985, after Keating had begun his most egregious projects, Greenspan called Lincoln Savings “an association that has, through its skill and expertise, transformed itself . into a financially strong institution that presents no foreseeable risk to the Federal Savings and Loan Corporation.” The S&L scandal will haunt us for decades to come. With Texas banks dropping like, dung in a feedyard we cannot allow the same cast of characters to repeat the mistakes of the past. S.H I THE TEXAS OBSERVER 9 gave the insurance industry its exemption 1945, America had one life insurance cornpany for every 300,000 people. By the 1960s, it had grown to one for every 120,000. Britain had one life insurance company for every 400,000 people; France, one for 750,000; Italy, one for 2,000,000. Today, with a population of 15 million, Texas has 2,451 insurers, or one insurance company for every 6,120 people. According, to an October 1990 report by State Auditor Lawrence F. Alwin, 283 of those companies are “at risk” with a premium volume of $3.1 billion. GIVEN THIS GRIM picture, insurance
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