February 16th, 2013
in Op Ed
by Rodger Malcolm Mitchell, www.nofica.com
FDIC is an excellent program that protects bank depositors. Its limits are too low (in my opinion), but otherwise it does what it is supposed to do: Allow people to make deposits without the fear that these deposits will not exist when needed.
I, myself, have owned multi-year CDs in banks that closed several years prematurely, and in each case, I received my money, including interest, within a week.
Insurance companies have some resemblance to banks in that they accept “deposits” (premiums) and provide promises of specific, later payments. Like banks, insurance policies are supposed to provide risk-free investment with many (not all) of their policies. That is why they are called "insurance." They insure against risk.
A fixed annuity resembles a CD in that it guarantees a specific payment, despite inflation, recession or any other economic uncertainty. And, similar to the situation with banks, the long-term, future finances of insurance companies are difficult, if not impossible, for the public to research or predict.
So where is the FDIC for insurance companies?
Accident victims are threatened with cuts in annuities
By Donna Gehrke-White, Sun Sentinel
February 13, 2013
Timothy Culhane was only 29 when he tripped on a high-rise conduit pipe and fell seven floors while working on a New York hotel construction site near the World Trade Center in 1980.
He survived, but since then he's lived through decades of painkillers, surgery and physical therapy. Now totally disabled and living in Plantation, Culhane thought at least he had a regular check coming after he received a million-dollar settlement.
He wasn't counting on a New York government agency going to court to liquidate an insurance firm that for decades has sent out his monthly checks.
Ironically, the agency that was supposed to protect Culhane has convinced a New York court that he and about 1,500 other annuity recipients must give up a substantial portion of their monthly income because the Executive Life Insurance Company of New York doesn't have enough money to pay everyone. In fact, it is more than $1.5 billion short.
Last week, an appeals court upheld the cut in annuity payments.
The New York Superintendent of Financial Services is supposed to protect annuity beneficiaries and should help the victims keep what was promised them. The Superintendent's office first took over Executive Life Insurance in 1991 when its California-based parent company couldn't pay debts. The stressed ELNY was then given to the New York Liquidation Bureau to turn around.
But after more than two decades of overseeing, the liquidation bureau said that low interest rates and the 2008 stock market collapse had made matters worse and ELNY could no longer "support the payment of 100 percent of the benefits."
If changes in interest rates and the stock market can affect the security of an insurance policy, it isn't insurance. It's speculation.
"I didn't think that could happen," Culhane said. He said had turned over his $1 million settlement from the accident in the 1980s to ELNY to ensure he would always have steady income.
"I still need surgeries," he said.
In New York’s defense, it is a monetarily non-sovereign government. It does not have the unlimited ability to pay its bills. By contrast, the U.S. federal government is Monetarily Sovereign and never can run short of dollars.
Though FDIC arbitrarily limits the size of its guarantees, the federal government really could pay any claims of any amount. So the question is this:
Why does the federal government not guarantee fixed payout insurance, just as it guarantees my bank CDs?
The government already has demonstrated it will save large insurance companies and their highly paid executives and wealthy creditors, as AIG can testify.
So the question remains: "Where is the FDIC for insurance premium payers?"