ACC, the anti-concurrent cause issue, is burning up my head again. With health care insurance all the rage, it don’t hurt to remind ourselves how Big Insurance grew to be cracked-out body slammers. Most people don’t know that way back in 1945 the McCarran-Ferguson Act exempted Big Insurance (“Big-I”) from federal anti-trust law so long as long as the states “regulated” insurance. What a farce. Big-I and ISO hand out cash Tootsee Rolls to puppet commissioners and presto, before you know it, we’ve got regional, full-blown monopolies. Take health coverage: Wellpoint controls 71% of the Maine market; Blue Cross controls 90% of the North Dakota market and 100% of the Alabama market. All that said, keep your fingers crossed, the House Judiciary Committee (Senator Leahy) introduced an amendment to the health bill which would strip Big-I’s anti-trust exemption.
But, let’s revisit the magnolia ACC a minute. In prior posts, I talked about how Nationwide (probably with ISO’s help) quietly slipped the ACC into Mississippi in the ’80’s. By “slipped,” I mean they submitted a new policy form to the Commissioner for approval. Natch, it was instantly accepted. Recall, Mr Commissioner was indicted in ’94 for taking bribes from Big-I, but never went to trial. Undaunted, a mere 5 years later the legislative PEER committee caught him approving rate requests for State Farm, Allstate, Nationwide et al without any actuarial review. Over 380 rate requests, 59% of all, weren’t even looked at by actuaries.
Some of you may recall that Dale’s deputy commissioner was the one who incessantly chatted with sycophantic law clerks overseeing Katrina, and probably caused the so-called “MID mediation plan” to be crammed down the throats of Katrina homeowners. Using Dale to the fullest, State Farm employed this sham mediation procedure to defraud hundreds and perhaps thousands of insureds. Evidence was produced showing State Farm staged the mediations in advance and actively concealed material evidence from homeowners during the “mediation” process. Nonetheless, the federal court eventually ruled the settlements were mutually consented to, and binding. Bam Bam readers en garde! You don’t need a law degree to see through this nonsense. A person can’t consent to something he doesn’t know exists. When one party withholds material evidence from another, there is never mutual consent. Don’t ever let anyone tell you different.
So, given this refresher on Big-I, ISO and the puppet commissioners, no one should be surprised that Dale rubber stamped the ACC policy form. And, I just bet ya’ if you went digging you’d find there was no rate reduction when the first ACC policy form was approved.
Second, we all know the story of why Big-I came up with the ACC – to nullify the efficient proximate cause (“EPC”) rule, and overwrite state law. Mississippi, like most states, followed the EPC rule. Now, if you or I tried to write a contract that violated Mississippi law, like making the statute of limitations a single year instead of 3, it would be struck down as violating public policy. The ACC policy form should never have been approved because its sole purpose was to overwrite Mississippi law, a clear violation of public policy.
With no actual state regulation, and 100% anti-trust exemption, the 900 lb. body slamming gorilla was about to come of age. Once Big-I realized it could manipulate puppet commissioners through ISO, and hijack legislatures with boatloads of lobbyist cash, there was simply no reason to let a carload of state court judges “rule” the day. Big-I reasoned: “look, just because the courts in a particular state claim “x” is the law, doesn’t mean we have to follow it. We control the market place, not them. With the stroke of a pen, we can put 15,000 contracts in the in the market tomorrow, saying whatever we want them to say. So, why should we cower to a gaggle of state court geezers just because they say “x” is the law? Hey, maybe we think it ought to be “y”. . . and guess what Yo Honors . . . we write the policies.”
Now to be sure, there was a calculated risk in this because those days intellectually honest courts were the norm, and America hadn’t yet succumbed to the third world practice of “purchasing” judges. (This really upticked in the Bush/Rove reign). But when Big-I considered the odds that a single case would reach the supreme court on an ACC issue, and also result in a bad ruling, vs. putting thousands of ACC policies in the market before anyone even noticed . . . hell, this risk was well worth taking.
So if Big-I could get the ACC policy form approved by Mr Commissioner, the idea was to scatter ACC policies all over creation before anyone caught on that it violated state law. ISO’s job was to shuttle the new ACC policy form to virtually every state, and see how many puppet commissioners they could get to approve it.
Some readers may pause and wonder . . . what was the EFC bugaboo anyway . . . why was Big-I so worked up over “efficient proximate cause?” Suppose heavy snowfall causes a roof collapse, but on inspection, the rafters were rotten too. What “caused” the loss – snow or bad timber? If snow was a covered cause and defective timber an excluded cause, we got ourselves a problem. Courts called this “concurrent cause” and decided if snow was the “efficient cause,” i.e., the one that set everything in motion, the whole loss was covered. McKinsey consultants told insurance execs that killing concurrent cause would singlehandedly result in windfall profits.
So, the ACC was designed to eliminate the concurrent cause rule. As to Katrina, this meant doing away with coverage for water damage. Given that the entire P&C profit model is driven by Cat (catastrophe) cycles – not the number of house fires in Des Moines – excluding water damage would bring massive profits for insurers. There’s no badder ass Cat event than a hurricane. Hurricanes are packaged wind and water cyclones, delivered as a smack down, single loss event. Fire is another single loss event made up of flame and smoke. McKinsey had a red hot idea: “who says a hurricane can’t be split up into multiple loss events . . . he who wields the pen, rules all.” With the ACC working to exclude water damage, a hurricane could be artificially cut into two losses, one wind, one water. And, by excluding water damage, a huge part of the loss could be sloughed off on somebody else. (Either the insured pays from his own pocket, or, if he has federal flood coverage, the US Treasury takes the hit). Wait, there’s more . . . guess who decides the payment of flood coverage?
I think Bam Bam is done here, my bonnet’s clear, but you gotten be awestruck by all this. Just we consider the societal cost of ignoring a kept man and herd of free ranging predators running a risk transference racket . . . oh crap, there goes my head again.