Word: transitional
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Dates: during 1990-1999
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...from California? Look at your auto insurance bill. You'll see that 1% is earmarked for the insurance guaranty fund. Right now, that's enough to cover the occasional insolvency. But what if Transit Casualty proves to be an omen rather than an isolated incident? Here was this little company that never earned more than $60 million in net premiums in any year -- peanuts, in the insurance industry -- and then went broke. How much of a problem can that be, one wonders? How much can a company like that lose...
About $3 billion, by current estimates. To understand how that's possible is to understand the ineffectiveness of insurance regulation, the inefficiency of the insurance industry, and the possibility that Transit Casualty is a harbinger of big trouble ahead...
...most of its life, Transit specialized in insuring municipal bus lines, cab fleets and reasonably predictable things like that. It made money. But in the late 1970s, the same winds that were beginning to upend the boring old savings industry -- high inflation and high interest rates -- were blowing across the insurance fields as well. As interest rates rose, insurers began competing ruinously for customer premiums to invest at those high rates, especially in the lines of insurance that had "long tails" -- decades, often, between collecting premiums and paying claims...
...industry has resisted the creation of reasonable regulation," Dassenko told a group of the reinsurers from whom Transit is now trying to collect. "As a result, dishonest, unethical and incompetent competitors play on the same field with honest businessmen who exercise good judgment." In effect, the bad guys charge too little for insurance, living high on the hog and then just putting their companies into bankruptcy when the claims come due. "The end result," says Dassenko, "is that the good businessmen suffer twice: first by losing business to the bad guys whose rates they can't match; and then again...
...mention that the year before Transit went broke its chairman, George Bowie (whose criminal fraud trial begins Jan. 4), was paid a $650,000 bonus? Way to go, George...