veritas
OBKB
- Aug 6, 2009
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Co-ops were how insurance started in the first place. Ancient civilizations had insurance co-ops for lots of different things. It is the purest form of socialism there is, pooling assets for potential risks. Many of the small mutual companies started out as co-ops. That's why they have mutual in their names. A small vignette of this type of socialism is like what the Amish do when a barn burns down, they all pitch in and rebuild it. This sort of micro-system probably wouldn't work for most of the country though. The Amish deal in lumber and nails and skilled labor, so rate of exchange is not part of the picture. They are stationary.
Larger more modern versions of co-ops would include electricity generation and water & sewer systems. Again, these set ups are geographically stationary. Most hospitals were set up in this way as well, by charitable or civic organizations, much the same as fire departments. Again, stationary. The older mutual insurance companies, even some still in operation, are still stationary; ie., they operate within a state or part of a state only. These are finite examples of co-ops. The regular sense of the word that co-op might conjure is a grain co-op or food co-op, all stationary again, serving a finite area with finite assets to be pooled together for a certain benefit of the group participating. It's a socialistic construct. None of these enterprises mentioned are in place for profit, simply maintenance of their structure and the more members they can acquire the safer and more efficiently they can continue to operate. They can be employed through voluntary participation or through local taxation as in the case of water & sewer and the electricity generation co-ops.
Then comes for-profit insurance which is not concerned with the stationary infrastructure it seeks to operate within. It is not stationary, deals only in currency and seeks to gather assets through premiums and then reinvest the proceeds to grow those assets, ostensibly to be able to make good on any future claims. It's basically an investment scheme: Identify a pool of money that can be harvested and then reinvest it and take a percentage off the top. This is not unlike what investment bankers do, except they don't have risks/claims to deal with. So the larger and more spread out the pool becomes, the better the for-profit insurer is going to make out. So it can take its money and go to other areas and reinvest and start all over again and grow another pool. Naturally, operations that are most palatable would include areas with the best conditions and the lowest risks. At some point the pool has expanded so the insurer can non-renew to protect his asset pile so he can offer it to persons with less risk.
Meanwhile, the insurer should be carefully and wisely reinvesting his premium income so it can keep expanding and take his profits and honor his obligations. He should safely care to collateralize his principle and grow it in stable instruments or tangible assets.
That's the bland and oversimplified way of looking at it. The reality is not that boring. Sometimes the insurer made bad investments, sometimes he suffered catastrophic losses. But not to fear, through the wonderful vehicle of international currency he is re-insured to spread his risk. That's right, the insurer took out a policy so that should he be hit with a big payout situation, he has insured himself with another and different insurer, and in turn the re-insurer has insured himself and on and on like an old Breck commercial. So pretty soon you have an international scheme set up whereby the risk is spread all over the globe. [Europe mainly, the Dutch especially, they insured the Mayflower and have been quietly and surely gobbling tangible assets and real estate ever since].
So all of that is fine and good and most investments continue to grow and losses are handled and claims are paid and the markets are full of capital and trading shares goes on. Except we now know it wasn't. The investment part of the scheme became so top heavy, the risk side was sought to be shaved to a cat's whisker. Insurers pulled out of areas where they promised insurance and when huge risks were going to cut into their money pile, they just left [see: Texas and Florida and NO]. That's right. They left. Sorry we are just going out of business in this particular state and we'll keep a presence in Maine and Idaho but screw you. So how does this affect health insurance you ask? All insurance is the same, it's all interrelated. Don't be fooled. All the money is woven together regardless of the type of risk covered and reinsured and then reinsured until there is a veritable daisy chain binding the entire system. Insurers have both ends of the deal, they have doctors pay malpractice premiums and insureds pay health insurance premiums. They have borrowers take out policies to protect the loan for mortgage companies, and to insure against the loss of their house, they insure both sides, all sides, sides that are dead as in the case with title attorneys that provide insurance for both the borrower AND lender in case some Indian chief didn't sign a deed 100 years ago, something so obscure the risk is almost nil, but premiums are mandated by the mortgage companies. Which is funny because the mortgage company's pool from which they were able to lend the money was probably provided by an insurer looking to grow a particular block of premiums. And of course when he gets the mortgages sold on that block of money he will sell the entire block or batch of blocks on the secondary market......
So you see where I'm going with this, don't you? The typical insurer has moved away from mostly tangible assets to trading in currency and shuffling paper instruments around all over the place and taking the fast profits off the top........which works if the tangible assets down the line that were traded upon maintain their value and/or increase, or the monthly income continues to come in. It works for the insurer because he has already taken his money and skedaddled.......but it doesn't. Because we saw what happened with the bogus instruments last fall, didn't we? Mortgages and secondary markets weren't thrilling and lucrative enough and there are soooo many regulations in place to protect the collateralization of all these instruments down the line and well that was not good enough or fast enough and they wanted more and more money........so being the gambling addicts and money grubbers they were, risks were shaved, premiums were raised and they embarked into Credit Default Swaps. Default? Wassat? Default is to FAIL. CDS are an unregulated type of insurance based on betting whether or not certain investments would succeed or not. So you say, ok....different type of insurance, obscure, but these Wall Street types know all about this sort of thing and life is good and I got mine and whatever. BUT it wasn't regulated AT ALL. And by the time it started to alarm anyone, [Royal Bank of Scotland was the only entity that foresaw the collapse] the CDS were interlaced all over the world to the tune of about $60T, yes that's TRILLION, to some estimates of over $1Q, that's QUADRILLION, new word, get used to it or use your exponents. That's pretty much the theoretical equivalent of the majority of the entire planet's worth.
This happened. You saw it. It was on the news, and commentators said things like, "well I don't understand it exactly, so I can't explain it to you and some of the most brilliant guys on the planet don't get it and the few rare individuals that do, say you wouldn't understand it, it's too complicated...............yada, yada, lie, lie, yada". Quantum physics is complicated. Vascular surgery is complicated. The CDS weren't that complicated, you just were deprived of knowing what was going on when declarations of AIG being too big to fail surfaced along with Goldman Sachs having to have their asses pulled out of the fire, amidst Madoff making off with a paltry billion, Big 3 automakers going down, Merrill Lynch absorbed and saved......news glut, misdirection, WIZARD OF OZ!!!
And so it goes. We are down to about 6 major players, nation wide, that deal in health insurance and while that seems like it could be better, I've already shown that it is an anti-trust, no win situation that implies competition, but in reality there is none. It's a farce. When you have to pursue a claim and two insurance comapnies are involved and subrogation [one insurance company assuming the risk] kicks in, they aren't looking out for you, they're for the industry because they probably are insuring each other back and forth and of course the lawyers that specialize is in this are not going to push the envelope because they are all colleagues. Now I know not all lawyers just play utility, but then when one does go out and really fight, like John Edwards, he is blasphemed and the false flag of tort reform!!!! is waved, but it's crap. The fact is, the majority of law is concerned with insurance, it clogs our courts, it clogs our laws and slows down the entire legal system. The insurance industry uses the legal system to delay, delay, delay. You either run out of money, lose hope or die. Then people say: " Let insurance be sold over state lines!!!" Uh huh, sure, have you ever cracked a Reporter [Regional books with citations from appeals from higher courts that contain precedents]? More than half of the cases are about insurance or some insurable interest. You can be sure any and all insurance companies are up to speed on all the laws, in all the states and have formed agreements to attack or lay off of a particular market and know exactly how to play ball, and know the actuarial stats for any given risk pool. It's what they do. Why should they compete when they control everything? They control our financial system and our legal system and in so doing, they control our government.
Verbosity is the key to a great post!
So aside from the verbosity, did you read it? I usually try to be brief, and for the premise put forth, it is about as short as I could make it.
And there is much more to add.
