September 27, 2012

Those with medical preconditions should fret, as Lord Turner and other bank regulators want to regulate insurers.

Sir, Brooke Masters and Alistair Gray report that “FSB committee turns its attention from banks to insurers” September 27, and they write that “the industry representatives present came away hopeful that their worst fears about the plans would be averted”. 

Yes, but perhaps those who really need to fret are the “risky” insurance risks, like those with medical pre-conditions, because if regulators, like Lord Turner, would apply the same principles when regulating insurers as they do when regulating banks, the insurance company would be required to hold more capital when insuring the “unhealthy-risky” than what they would need to hold when insuring the “healthy-not-risky”. 

And that would of course mean that those qualified as “healthy-not-risky” would see their premiums lowered and those perceived as “unhealthy-risky” would see their premiums go up, precisely like what happened with the interest rates charged by banks to those officially perceived as “not-risky” and “risky”.