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 innocence.

  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 paid $940,315.