A NEW APPROACH TO REGULATION
Denenberg, Herbert S.
A NEW APPROACH TO REGULATION HERBERT S. DENENBERG In 1921 the Pennsylvania legislature denied the state's Insurance Department regulatory authority over life insurance rates, granting it power...
...At the present time about forty per cent of our insurance commissioners, who came out of the insurance industry, think more like insurance executives than consumer advocates...
...Editorial praise and consumer response more than offset the criticism...
...The public desperately needs legislation like nofault...
...Only overwhelming and sustained public pressure brings about reform in the face of such special interest groups as the insurance industry or the medical and legal professions...
...In Pennsylvania, the Insurance Department has tried to overcome the inordinate power of the trial lawyers' lobby by a hard-hitting public education campaign...
...The Library of Congress asked for extra copies for distribution to members of Congress...
...It took half a century, but in 1972 the Department finally brought life insurance rates under its control...
...There are already some hopeful signs in Pennsylvania...
...Public pressure on governors from consumer advocates to appoint more consumer-oriented commissioners might turn this around...
...But they don't do the public any good when they slumber in the Library of Congress or in the performance statistics of the industry that is supposedly regulated...
...other companies are preparing to reduce premiums...
...For example, our question-and-answer pamphlet on no-fault was reproduced and widely circulated by the million-and-a-half member Pennsylvania AFL-CIO...
...The Insurance Department, saddled with statutory authority grossly inadequate to implement its consumer-oriented programs, and unable to obtain legislative reform, has begun to regulate the insurance industry through public opinion and education, as well as by statute, through the public airing of facts and figures, in addition to administrative hearings...
...The bulk of the criticism came from the high-cost insurance companies that looked bad in the guides...
...After a column by syndicated consumer writer Sylvia Porter mentioned that guide, enough people demanded it to exhaust Blue Cross's first printing of 5,000 copies...
...Why didn't medical societies beat us to the punch...
...Most regulatory agencies are content to twiddle their bureaucratic thumbs...
...There were attacks on the guides as "misleading," "unnecessary," or even "libelous...
...But obtaining new and meaningful regulatory authority from a Congress or state legislature is an obstacle-ridden course, and in some cases a hopeless undertaking...
...Why not a series of guides on health facilities from the state health department...
...For example, many other insurance commissioners have had extensive media impact by duplicating the remarks and analysis of the Pennsylvania Insurance Department on the mail order health insurance scandal, which I analyzed in the September issue of The Progressive...
...The Bureau of Motor Vehicles, for example, recently issued a "Shopper's Guide to Automobile Inspection...
...A Harrisburg, Pennsylvania, television reporter asked the president of the Pennsylvania Medical Society, Dr...
...This new method of regulation may call for a new breed of government administrators...
...An attempt has been made to take consumer protection out of the hands of government alone and restore it to its logical repository—the consumer and his marketplace...
...Pennsylvania's "Shopper's Guide to Life Insurance" is generating pressure for billion-dollar premium reductions...
...Regulatory laws already on the books, customarily drafted with the assistance of industry, are, by design, usually insufficient to accomplish their avowed purposes...
...Ralph Nader best exemplifies the media impact of telling it as it is...
...A NEW APPROACH TO REGULATION HERBERT S. DENENBERG In 1921 the Pennsylvania legislature denied the state's Insurance Department regulatory authority over life insurance rates, granting it power over only property and liability insurance rates...
...The insurance departments of New York, New Jersey, and Florida have already published at least one guide of their own...
...Even now, consumer requests for free copies of the guides keep pouring in, as many as 5,000 requests a day, ranging from the President's Office of Management and Budget to an anthropologist in New Zealand...
...The policing effect of the Guide has been remarkable...
...It made news from coast to coast...
...Even when an occasional agency seeks to protect the public interest, it finds itself hamstrung for authority and short-changed in manpower and budget...
...It requires consumer-oriented commissioners...
...The best way to overcome the veto power of special interest groups is through intense citizen pressure developed by campaigns that educate the public and mobilize public opinion...
...The news media, I believe, will be so astounded by a government official who lays it on the line that headlines will be guaranteed...
...Behind all of this activity, headlines, and angry prose from the insurance industry, stands an emerging theory of government regulation that may make present methods obsolete...
...Opponents of regulation will be shocked into inaction or, better yet, corrective action...
...In July, Newsweek reported that nine insurance commissioners were working on similar publications...
...A few thousand trial lawyers who thrive on auto accident cases have more influence in the New York legislature than the other eighteen million citizens of that state...
...George P. Rosemond, why his organization didn't publish a guide of its own...
...This is easy to do...
...Hundreds of millions of dollars in savings for consumers can safely be predicted as life insurance premium rates, which are determined on a nationwide basis, are reduced...
...Within four months after the appearance of the Guide, nine of the ten companies involved had withdrawn their gimmick policies...
...Some insurance companies claim the guides will have no impact, but their actions belie their claims...
...Ralph Nader, in his nationally syndicated column, has asked insurance commissioners of other states to issue comparable guides...
...The result has been to transform the Pennsylvania Insurance Department, operating on a shoestring budget of $3.4 million a year, into one of the biggest bargains in the consumer's budget...
...The relationship between the regulators and those they regulate is close and cozy...
...And they will be right...
...Government agencies elsewhere can, and should, be preparing analogous Shopper's Guides...
...Well, the Department has asked the Pennsylvania Medical Society and other professional societies to put out guides in their areas of responsibility...
...Bankers Life of Iowa, the lowest-cost company listed in the Guide, advertised that fact on the Dick Cavett show...
...Herbert S. Denenberg, Pennsylvania insurance commissioner, was appointed by Governor Milton Shapp in 1971 with the directive to "transform the insurance department into a consumer-protection agency...
...All too often the public's concerns go unrepresented...
...Other newspapers have guides in preparation...
...various citizens' lobbies have yet to redress this imbalance...
...Other insurance companies have also advertised and distributed the Guide...
...A former professor of insurance at the University of Pennsylvania's Wharton School of Finance and Commerce, Mr...
...the other on hospital costs in the Philadelphia area...
...The Pennsylvania Insurance Department recently published a "Shopper's Guide to Surgery," listing fourteen rules on how to avoid the estimated two to four million unnecessary operations performed in the United States each year...
...Public opinion has to be informed and mobilized...
...The essence of consumer education is still publicity...
...Government might well be called the "number one consumer fraud" in terms of its failure to deliver...
...The basic rule is for regulatory officials to give the public the facts...
...He replied: "No one asked us...
...It did so not with legislation but with an innocent looking twenty-one page booklet entitled "A Shopper's Guide to Life Insurance...
...Legislators are frequently tied to the very interests they are called upon to police...
...The Hart-Magnuson no-fault auto insurance bill was returned to the Senate Judiciary Committee for further study and a quiet death after almost a decade df national study and discussion...
...The facts go to work for the public when they make headlines that reach the man in the street...
...Libraries and schools are also making heavy demands for them...
...Bargains are not easy to find in government agencies...
...Name names and prices and premiums...
...Government can order or persuade private industry to prepare its own guides, just as we ordered Blue Cross of Western Pennsylvania to issue an expanded hospital guide, which it did...
...We did it all with a little booklet that costs about ten cents apiece to print...
...Our standard reply to criticism of the guides is, "if you don't like our Guide, put out a better one of your own...
...Travelers Insurance Company, the sixth largest in the nation, has already cut the rates for its straight life insurance about seventeen per cent as a result of pressure from the Guide...
...The facts are not hard to find...
...Two other guides had already been published: one on automobile insurance...
...The slow progress of no-fault legislation, aimed at providing insurance settlements in auto accidents without extended and costly litigation, can be attributed in large part to the number of trial lawyers and insurance industry personnel sitting in state legislatures and the inordinate influence of the lawyer lobby...
...If we tried to attack these policies in the courts, it would take a platoon of lawyers and years of litigation...
...It takes headlines to apply pressure to legislators who resist reform...
...What is necessary is a massive de-mystification of the marketplace...
...The Camden Courier Post has published its own Shopper's Guide to hospital costs in the South Jersey area, using our Philadelphia Hospital Guide as a model...
...The Insurance Department is planning more guides of its own...
...We are still waiting, without much hope, for that legislation to be enacted...
...Although not styled as "Shopper's Guides to No-Fault," the reams of material we have put out on the subject have been important factors in swinging the public to no-fault advocacy...
...In no sector of government is this betrayal so prevalent as in the numerous Federal and state regulatory agencies...
...More than 311,000 guides have already been requested from the Department by the public, and more than a million, including publishers' reprints, are in circulation...
...Major consumer organizations, unions, and large employers are distributing the guides...
...But consumers won't exert their power till they get a steady diet of consumer information, names, prices, and other details...
...Why not guides to clothing and foods from such departments as agriculture and commerce...
...Moreover, legislators are far more susceptible to the persuasions of well-financed industry lobbyists than to ill-defined and unorganized public pressure...
...Both consumers and insurance executives knew what to expect when the Guide appeared in April, 1972...
...Until the consumer becomes attuned to using specialized sources, he must get consumer information from his daily newspaper, radio, and television...
...It also builds up public pressure for legislative and judicial reforms...
...That government has strayed from its initial purpose of protecting the public interest to serving special interest groups is an all-too-unfortunate truism...
...Such giants as Prudential and Northwestern Mutual Life have issued official statements to their agents about the Guide...
...A young lawyer usually looks upon a brief stint in government regulation as a mere internship for a lucrative career in industry...
...Denenberg is co-author of Puerto Rico's no-fault insurance legislation and has served as a consultant to government agencies and consumer groups...
...High-cost companies listed in the Guide are under unbelievable pressure from the public, their agents and brokers, security analysts, and others...
...A well-organized lobby can kill a bill like no-fault although the measure is supported by virtually every major consumer group...
...If we had to put through specific legislation to eliminate gimmick policies, it would take years...
...The Department gets more bang from the taxpayer's buck through consumer education than from any other regulatory activity or from attempts to get reform legislation...
...Sometimes new legislation seems to be the only answer...
...Until insurance becomes breakfast table conversation, insurance reform will never be meaningful, and the consumer will not begin to get anything like his money's worth in the marketplace...
...The Miami Herald printed its own Automobile Insurance Guide...
...Each time the response had been impressive—front page headlines throughout Pennsylvania, and nationally in such newspapers as The New York Times...
...Across the country about twenty insurance commissioners now in office have previous employment records with the insurance industry, and former commissioners line the executive suites of insurance companies...
...Billion-dollar special interest groups don't roll over and play dead when someone demands that the public interest be protected...
...Even a potentially effective law is often emasculated by a conservative judiciary...
...Government regulatory agencies—if they had the will to do it—are ideally suited to publicize information necessary for effective consumer decisions...
...Citizens can press their state banking department to put out a "Shopper's Guide to Banking Services...
...The government official who follows this approach of taking the case to the public will be accused of "headline hunting" by his opponents...
...For example, it listed ten gimmick life insurance policies which were both confusing to the consumer and difficult to compare with standard policies in measuring premium costs...
...The guides have been the subject of stories in Time, Newsweek, Parade, Forbes, and other national magazines and major newspapers...
...The new approach of regulation through public education will also require commissioners who are more effective communicators...
...Why not a "Shopper's Guide to Buying Stocks" from the state's securities agency...
...Their personnel are interchangeable...
...Appearing in the "Shopper's Guide to Life Insurance" as a high-cost company is the public relations equivalent of appearing on the FBI's "Ten Most Wanted list...
...It is going to put out a "Shopper's Guide to Buying Automobiles...
...Then it will do its job of protecting the citizen by helping him to protect himself from fraud and exorbitant prices in insurance, health care, and other areas that charge him all that the traffic will bear...
...The new government regulator must be a communicator who can get his message across in the media...
...That is what democratic government is all about...
...Even a small band of operators representing special interest pleaders can often veto critically needed legislation...
...We are asking health care groups to put out "Shopper's Guides...
...The general rule is: Don't make a decision or do anything unless you have to...
...What has been done in Pennsylvania can be done in other states...
...But government officials have also had major impact by merely telling the truth...
...We hope other government agencies and private associations get on the "Shopper's Guide" bandwagon...
...The Insurance Department asked for legislation that would outlaw the gimmick policy...
...Consumer education is a fast and efficient method of generating pressure in the marketplace for lower prices and better quality...
...The best way to communicate that to them quickly is through the mass media...
...The Pennsylvania Department of Education is working on a "Shopper's Guide to Colleges in Pennsylvania" which will show the ten lowest-cost institutions...
...But this and other much needed change can also be brought about without legislative and administrative action...
...Newspapers are publishing their own versions of the guides, or are reprinting the Pennsylvania Insurance Department publications...
Vol. 36 • December 1972 • No. 12
