MANY PEOPLE HAVE an instinctive feeling that they are being ripped off by their insurance. The policies range from difficult to impossible to understand. The agents speak in a different language (paid-up additions, surrender values). The usual signposts for evaluating a financial product--audited financial statements using generally accepted accounting principles, disclosure statements mandated by the Securities and Exchange Commission--are not there.
Proving that insurance is a bad deal is another matter. For the same reason people get an uneasy feeling when they deal with the antediluvian terminology of their policies, penetrating the $677 billion industry is like solving a Rubik's cube. And once you solve it, you may not be able to explain the solution.
In The Invisible Bankers, Andrew Tobias says the industry that insures lives, health, autos and property is inefficient, overpriced and uncompetitive. In making his case, Tobias resorts to what may be the only way to deal with his admittedly too-vast undertaking: humor. ("There are only two things as complicated as insurance accounting and I have no idea what they are.") The approach has produced an entertaining and understandable book about an industry that consumes, when employer contributions are included, 10 cents of the average American's dollar after taxes.
Tobias is the outsider who keeps asking nagging questions when everyone around him pretends to know the answers. He compares buying insurance with buying sugar at the supermarket and finds the former purchase wanting. With sugar "you are not required to try and guess the weight of the bag." He brings the behemoth industry down to human size. "One life insurance company not long ago had no fewer than five agents surnamed Patel."
The subtitle aside, Tobias has not written an expos,e. The book fails repeatedly to support its points with specific examples or documentation.
"There are, for example, thousands of near messianic life insurance salesmen who would be astonished to know what a poor value they are selling relative to other policies available," Tobias writes. But there are no interviews with life insurance agents to support the claim.
The insurance industry wants you to think insurance is boring, he writes. But no insurance executives are quoted on that point. Whole-life insurance, which has cash-in values, is not as good for young families as term insurance, which is pure insurance, Tobias says. But he never compares the two types of policies in a meaningful way.
Tobias quotes an unidentified source as calling the industry "the last vestige of totally obscured power," but gives no specifics to back that up. Insurance regulators are notable for their closeness to the industry. But Tobias does not cite an example of how the industry influences legislation, nor does he quote even one chummy regulator.
Indeed, there is an absence of interviews with the people most affected--the consumers who buy insurance and the widows or widowers who receive death benefits. Are people deceived by the advertising claims and arcane terms? One never hears from them. Do widows get enough insurance benefits? They are not asked.
There are more serious flaws. Tobias repeatedly returns to the theme that banks offer better rates of return than insurance companies. "For every dollar we collectively 'deposit' with an auto insurer, for example, only 65 cents or so is available for our collective withdrawal. . . . Some bank! Deposit a dollar, withdraw 65 cents," he writes. But banks do not have to pay out insurance losses.
One gets the feeling--perhaps unfounded--that Tobias ensconced himself in his home and flipped pages from the companies' annual reports. Yet flipping pages and marveling at what he sees is where Tobias excels. He tells us demolition derbyists are charged standard rates for life insurance, while skydivers pay extra. You are more likely to be kidnapped than killed in a plane crash. In a year, Equitable Assurance Society of the U.S. generates a paper stack six miles high.
Tobias is at his best when scrutinizing an offer by Gerber Life Insurance Co. Tobias wrote about it in New York magazine, and that article prompted his book. He demonstrates that the "low premium" offered by Gerber in late-night television commercials was actually as much as double what competitors were charging.
Tobias does not lose his perspective. He concedes Gerber Life is a "mere peanut" in the context of the industry but says, "What's important is that most consumers, reading Gerber's offer or any other, are ill-equipped to make good buying decisions."
"Shop around," Tobias repeatedly counsels, but despite a lot of common-sense advice, he never explains the cost indexes commonly used for comparing life insurance prices.