Banks & Insurance Company Mergers
The power that will be created once banks and insurance
companies merge is beyond imagination. The resulting synergy (a phenomena devoid of
ethical standards and no capability to distinguish between what is legal and what is
illegal) will be vested in those executives who have already clearly and sufficiently
demonstrated their willingness to engage in business practices which, when exposed,
necessitate the expenditure of vast sums of money to purchase their innocence.
State Farm and Allstate had over 34% of the total auto and homeowner market in
1996. Add in Farmers, Nationwide and USAA and the market share held by these four
carriers is estimated to be in excess of 47% of all cars and homes insured in the United
States. Assuming some proportionality in the fees paid to NAIC by the some 1,400 insurance
companies in the market, it becomes apparent that the association's dependency upon its
income from a few places is in a potentially critical position sufficient enough to
call into question the association's capability of being truly independent.
Mix in the revolving door from NAIC to the insurance industry (9 of the past
11 NAIC presidents took jobs in the insurance industry after leaving the
association), and the concern that the fox may be guarding the hen house mounts in light
of the Journal article detailing a May private dinner meeting at Nick's Fish Market.
In attendance were NAIC's president, Maine Insurance Superintendent Brian
Atchinson, Josephine Musser, Wisconsin Insurance Commissioner, who succeeded
Atchinson, and her successor, Glenn Pomeroy, Insurance Commissioner from North
Dakota. Also present was the Vice-Chairman of the board of the National Association
of Independent Insurers (NAII), Robert Pike, who just happens to be Secretary and
General Counsel of The Allstate Corporation.
One result of this meeting and several follow-up ones appears to have been NAIC's
abandonment of projects to study redlining (as if the redlining activities of the major
carriers has not sufficiently been proven to merit vigorous oversight), the use of credit
in underwriting (near and dear to some companies despite opinions of more than a few that
the use of credit in underwriting is tantamount to redlining), and requiring
carriers to report claims data by zip code which would provide the ability for
closer scrutiny of rates and sales practices.
The incidents examined here are a small sampling of a large and growing number of
outrageous events. They do, however, sufficiently illustrate the real potential of an
emerging pattern that a more detailed, thorough and unconstrained investigation might
confirm: widespread practices of consumer abuse, regulatory systems unable or unwilling to
fulfill their public fiduciary duties, and a growing belief the courts have become
inclined to permit wealthy corporations to escape justice by purchasing claims of
What is to be made of the highly compensated, if not excessively so, senior
officers of these companies who have been seen to frequently engaged in these
practices? Allstate's CEO Jerry Choate earned $542,000 in 1994. A year later, his
compensation increased 170% to $1,400,000. Last year it increased 131% over the
previous year to $2,729,000, not including multi-million dollar stock options.
Meanwhile, over at NationsBank, CEO H. L. McCall was paid $3,000,000 in 1994,
$3,500,000 a year later, and $4,500,000 in 1997, again not including stock options.
Pity the poor CEOs of the mutual companies, State Farm,
Nationwide and American Family. For 1997, State Farm CEO Ed Rust was paid $1,929,151.
And for the same year, Nationwide's CEO D. R. McFerson
received $1,447,040 and American Family's CEO Dale Mathwich was