Tuesday, March 01, 2005

Got another letter

There are few editorial events more satisfying to me than to have something I write prompt someone to write a letter to the editor. The actual content - pro or con, positive or negative - is of little consequence. Reaching someone to the degree that he/she writes something and sends it in is everything a writer could ever want. It validates the editorial process and proves that a free press is the every foundation of a pluralistic society.

Yup, I'm on a soapbox again. Sorry about that.

So it was with glee that I opened up my inbox to a message from my friend and tireless supporter of my wordy crusades, Nat. She said today's paper might be of interest to me. I opened up the letters page to this missive from one Tom Chapman. As you'll see, he didn't much agree with my perspective on this issue (original column / blog post.) But I didn't care. He read. He wrote. The dialog continues. The fact that I get to cross words with readers in this way is very, very cool. Here's his letter:
Insurance 'gouging' a misconception

In his column, Public sours on insurance firms' sweet deal (Feb. 23), Carmi Levy adds his voice to the predictable bandwagon of outrage that followed the insurance industry's profit results for last year. Perhaps the oil industry is the only other business in which a large profit increase is proof positive of gouging. No other explanation is acceptable.

In recent years, insurance saw the worst combination of claims experience and poor investment returns. Profits plummeted to a level representing 1.7 per cent on equity two years ago. Last year, conditions were almost entirely reversed and returns on shareholders' equity rose to 20.6 percent. Is that too high? Is a total of $4.2 billion too high when it's spread among 206 companies? It only takes two of your big five chartered banks to reach that total. They all have returns on equity in that 20-per-cent vicinity. But they do it year after year!

Levy says we'll wait "ages" for rate reductions. I guess he missed it but, in response to widespread complaints and pressure from governments, some reductions actually occurred in 2004. If you didn't see any, try some real shopping around.

"Auto insurance," an agent once told me, "is a unique product. You're required by law to have it. But you're penalized if you use it."

Like the oil companies, insurance is an easy industry to hate. But gouging? No, not really.

Levy's diatribe follows the usual pattern, but it is unjustified and incorrect.

Tom Chapman


Jamie said...

I think it's great, too. And while I NEVER pity anyone making a profit off the sick, I have seen many in my own small town ER take those companies for a long one way ride. And then I have seen them deny claims to parents who brought their kids in after a car accident! We do what we can to help them get their claims paid, but I can't figure out why they continue to pay for nearly daily pain shots in the ER for nonexistent, undiagnosed migraines for drug seekers! That's a good 500$ a pop.

I have also seen the way medical malpractice is handled. Lawsuits settle out of court CONSTANTLY as it's easier to settle than to defend poor documentation. Which is a near constant, due to understaffing, and over worked workers. The companies are stuck in a rut that isn't changing soon, and it sours me to all corporations involved.

Insurance, Healthcare, Lawyers... Sheesh, too much for your comment box! Ack! Have fun with your rebuttal to that guy!

Dean said...

Chapman makes some good points, Carmi.

I haven't looked at the insurance industry, but every year there are the predictable stories about record bank profits, and that is evidence that they're ripping everybody off.

The problem, I think, is that most people don't take the time to think the thing through. The phrase 'record bank profits' rolls off the tongue so nicely, so quickly and easily, that it (like all catchphrases) obviates the need for the listener to think.

If banks make such unholy profits, why don't we all buy shares? If they're gouging and making obscene amounts, they will have to be paying out enormous returns to their shareholders.

They're not. Canadian bank shares are seen as a safe, relatively low return investment.

'Record bank profits' disguises an important fact: banks are really nothing more than brokers for enormous pools of capital, capital which is held in a thousand different ways. It is held in home mortgages, in business loans, in personal loans for schooling and cars and debt consolidation and a million other things. The bank makes a pretty modest return on that huge pool, and pays it out to its investors. If you want a share of the profits, buy bank stock.

The truth is that a healthy number of ordinary people already own bank stock. Pretty much anybody with any kind of pension does: pension funds love Canadian bank stocks, because they're secure. Anybody buying a mutual fund targetted at the low-risk crowd probably gets Canadian bank stock.

Insurance companies, like banks and oil companies, are easy targets. It's just so easy to look at the big number at the end of the year, and say 'record profits'. You have to look deeper.