In the early 70's a book was written called Sovereign State of IT&T . It told the story about International Telephone and telegraph company, which at one time was one of the largest (and some would argue most powerful) multinational corporations in the world.
As I remeber, at one point in the book, the author told how IT&T decided that because it ran canteens for its employees all over the world, the most sensible approach would be to buy the company(ies) that supplied product to its food operations and therefore keep the profits paid out to vendors to itself.
It seems that insurers have adopted a similar philosophy and are vertically integrating their traditional role as the provider of an insurance product that provides financial support of the property owner when a claim occurs into the delivery of service to accomplish the making whole of the property owner.
There are some differences in the relationship between the insurer and the insured that make such a trend different than a free market evolution.
As some insurers exploit the advice to squeeze the profits out of the claims side of the insurance contract that were suggested by the McKinsey Consulting Group by ostensibly denying, delaying, and if necessary defending ,efforts to get fair settlements, the conflict of interest that is inherent in the move becomes increasingly obvious.
Insurers have a duty under the law to protect the interests of the public. Practices such as trading the referral of business to captive contractors who are required to use the (below market?) Xactimate database as a pricelist, entering into agreements with material suppliers to skim margins off the purchase of materials by requiring captive contractors to purchase product at a particular supplier where undisclosed discounts are exchanged or acting as contractors by specifying, directing, paying subcontractors directly reward behaviour that is contrary to that duty.
Even without the implementation of the questionable strategies of the McKinsey Consulting.
These practices have led to a dramatic cut in the balance of money paid into insurers for their investment ventures and the money paid out to the public as a result of claims. That balance dropped to a mere 58 Centson the dollar in the last year compiled, historically claims have hovered near a break even proposition. The investment reserves of insurers rose to over $500 billion dollars during the same period.
The McCarron-Ferguson Act, enacted in 1945 exempted the insurance industry from many of the anti-trust regulations that control intersate commerce.
Maybe it's time that congress exercised some of its power under that act to enact regulation to return the balance to the claims equation.
