Is Insurance Over-Regulated or are Banks Under-Regulated?
If you are a regular reader of this blog (you can find my older posts here) then you know that I believe the insurance industry is the most regulated business in America. While I believe that insurance regulation serves an important purpose, I also believe strongly in free markets and see the regulator's roles as ensuring that markets operate properly and step in when they do not. However, I am disturbed daily by the differences in insurance and other industries.
Take banks for example. While today's headlines will scream about the $8.5 billion settlement Bank of America and its Countrywide unit will have to pay, it seems that no-one is guarding the consumer on day-to-day issues such as insurance proceeds held by a lender pending repair of a residential property.
Insurance carriers are required to "protect" the interests of the lien holder (mortgage company) in accordance with the policy. Simply put, indemnity payments that reach a certain threshold - typically a few thousand dollars - have the names of the insured and the lender on the check. This means that in order to fix the damage to their property, homeowners must get the check endorsed by the lender. Herein lies the rub.
Banks are not held to the same standards as insurance companies. While the responsibilities of the lenders are explicitly documented in the insurance code under Title 5 (protection of consumer interest), Subtitle C (deceptive, unfair, and prohibited practices), Chapter 557 (insured property subject to security interest),Sub-chapter A (insurance proceeds held by lender pending repair of residential real property) - in reality lenders consistently act with impunity!
Just yesterday I read that The Texas Department of Insurance announced enforcement actions taken by Commissioner Mike Geeslin that became final during April. Fines and restitution totaled almost $24 million! So I eagerly looked down the list of enforcements to see which banks were punished for their bad behavior - the answer - none!
If you are a property owner and you need to have your indemnity released by the bank and they do not act in accordance with the regulation - where do you go? The Department of Insurance has no jurisdiction. How about the Attorney General - good luck with that one. Keep looking, you will find nothing.
So while I am a strong believer in free markets, I also believe there needs to be a mechanism in place that when regulations are broken regularly, consumers have a way to take the institutions to task. It clearly exists in the insurance business, how about leveling the playing field - lets start with banks!