We ALL (or most) used to OWN insurance companies

[alcibiades_mystery]

For a good part of the late 1990's, I worked for a firm that specialized in "insurance demutualization," and I was one of the go-to guys on demutualization deals. What's that, you might ask?

Most insurance companies used to be "mutual companies," which meant that if you owned a policy, you owned a piece of the company. This was the traditional notion of a "socialized risk," and the real origin of insurance companies as such. Essentially, a community gets together and pools resources so that people who get in trouble can be helped, and the cost is spread around. That was the founding idea of insurance. Now, mutual companies were by no means such cozy communities for a very long time, but they retained this idea in their structure: a policy was a piece of the company, not just a commodity sold by that company. But policy changes in the 1990's led to the demutualization rush. In demutualization, the company transforms itself from a mutual company to a publicly traded company. It essentially "buys out" the policy holders with "shares" that sell on the equities markets, presumably to raise capital. This is an important moment in history, since it turns the stakeholders from policy-holders into shareholders: obviously a policy-holder has a different sort of stake and interest in a company than does a shareholder. A shareholder's interest is to increase profits above all else; a policy holder obviously has an interest in efficiency, but understands that fair treatment of other policy holders also redounds to his or her benefit. It is a major conceptual transformation in what a POLICY actually signifies (private commodity or shared commitment).

Every demutualization required public hearings and other such input. All of it went down without much fuss.

And yet, many of the problems we see today (in health care, in the financial markets) stems from insurance company demutualization. So, where does demutualization come from?

That would be Sec. 312-316 of the Gramm-Leach-Bliley Act, here: http://www.insurance-finance.com/files/s900_mhc.htm

So much happens just beneath the radar, and little things (seemingly) have big consequences...

[The Velveteen Ocelot]

1. And the Gramm of the Gramm-Leach-Bliley Act would be none other than

Phil Gramm, the deregulating maniac who says we're a bunch of whiners.

I fervently hope Phil Gramm fries in Hell.

[alcibiades_mystery]

2. That's correct

This is Gramm's baby, pure and simple. Passed under cover of impeachment was the most radical neoliberal undermining of New Deal regulations, and it's led us into a right mess.

[Solly Mack]

3. K&R

[Union Thug]

4. Thanks for this. The broader shift away the concept of shared risk

and all the implications of such a shift are largely ignored by the media. I wish it was being discussed in greater detail outside of the digitals walls of DU.

[Lebam in LA]

5. New York Life is the only

mutual left and is an American company.

[alcibiades_mystery]

7. When we used to do these deals

(as counsel for the underwriter/syndicate), I'd be astounded at the implications. Yet apart from real lefty magazines and such, nobody said much of anything about it. It was truly a weird time.

[RobofSWVA]

9. There are others besides NY life

http://en.wikipedia.org/wiki/Mutual_insurance#List_of_mutual_insurance_companies

Mass Mutual and Northwestern Mutual are competing on the same scale and in the same markets as NY Life. All 3 are good companies.

[Sanity Claws]

6. I remember the old-time marketing of insuance cos.

Prudential used to say, "Own a piece of the rock." It was a mutual insurance company.

I think your find should be more publicized. What about sending it to Keith Olbermann? Or Rachel Maddow? They might want to grab this issue.

[RobofSWVA]

8. private mutual insurance is great

I switched from a public insurance company to one that is still mutual. Best career move ever. I don't have to worry about bonehead moves by management just to inflate the stock price. I feel much better about the products I present to my clients because of the change.

Greed is such a powerful and dangerous thing. Thankfully one of our biggest bragging points is the fact we are still a private mutual company and have been that way for over 150 years. Having worked for both sides, I just don’t see how a public company is the way to go for its clients. There is too much conflict between what’s best for clients and what’s best for C.E.O.s and stock holders. The gap gets even worse when you start looking at portfolio products and dividend payments.
The demutualization should have never been allowed in the first place.

As far as separating securities and insurance companies, I think it’s fine if one company does both. I know I’d rather not be forced to choose between my insurance license and series 6. I think it’s a disservice to the client if someone isn’t able to discuss full financial planning using a goals based approach. I’ve done fact finding and analysis a variety of ways and I think there is more to it than just a simple formula (i.e. insure the debt, 10x salary, etc.) when it’s time to recommend a plan. If you don’t take into consideration a lot of different issues you end up with people over insured (and agents getting rich off them) or improperly insured (ex. term life for young single people when they really needed disability protection). Separation of investments and insurance will lead to plans that are far too heavy one direction or the other. Investment firms will go back to trying to tie everything up in plans without life or disability and Insurance companies will go back to only recommending permanent portfolio products as the only means of retirement savings.

[TahitiNut]

10. The first insurance company, Lloyds of London, began as a mutual company.

It was the model of shared risk upon which the industry was formed.