Heritage uses AIG as a perfect example why the federal government should not be allowed to go anywhere near health insurance regulation in the name of consumer protection:
The whole AIG debacle is a good illustration of what can go wrong if an insurer is allowed to under-price coverage. What AIG essentially did was to sell banks insurance against their loans going bad. But because it structured what were really insurance policies as financing instruments, AIG was able to avoid insurance regulator oversight and instead have the products regulated by banking regulators who weren’t experts in insurance.
The result was that AIG underestimated the size of its potential liabilities, under-priced the coverage (which made banks even more willing to buy it, since the “premiums” were cheap), and failed to set aside sufficient reserves against claims. When the banks’ loans went bad, AIG was faced with tens of billions of dollars in claims that it simply couldn’t pay. Congress had a choice of either telling the banks, “Sorry, you bought worthless insurance,” or sticking the taxpayers with the tab to bailout AIG so that it could payoff the banks’ claims. In the end, Congress, worried about the collapse of the banking sector, stuck taxpayers with the bill and bailed out AIG so that it could pay off the banks.
A President and Congress that want to regulate health insurance rates, but either don’t understand or don’t care about the potential costs and damage of allowing—or even forcing—insures to under-price their coverage, and who seem to have learned nothing from the AIG experience, is something that all Americans should be very worried about.
And since we all watched AIG, we know what happens when you give children fireworks and matches in the name of "protection".
In related insurance news, of all things Mutual of Omaha is cleaning up on FDIC-failed banks. That ought to turn out interesting (see above: we know how insurance companies do when they start playing too hard in the financial sandbox):
Mutual of Omaha Bank has been in the banking business for about two and a half years and in that time has grown to include $4 billion in assets with 41 offices, including a branch recently opened in Naples.
"We don’t have a lot of legacy problems that other banks have," Hale said.
Marco Community Bank is the fifth bank that Mutual of Omaha has acquired and the second acquired through the FDIC.
Of course not. Clean slate, cheap easy money, a bazillion backstops, what more could a potential bank buyer want?
When does it end? Anyone?
Meanwhile, financials were up Monday and AIG is "normalizing"... I think we managed to get one of the bouncing balls and not the gummy ones. Awww.