Recently released White House price guidelines will allow "windfall profits" for the $150 billion insurance industry, according to warnings from Federal Insurance Administrator Gloria Jimenez.
But R. Robert Russell, deputy director of the Council on Wage and Price Stability, said the FIA comments were dismissed because "it's not our policy to keep profits down. We don't care what the profit figures are. There are a number of industries with high profits. The goal of this whole program is to decelerate price increases, and that's what our insurance guidelines do."
Informed sources have told The Washington Post that chief White House inflation fighter Alfred Kahn, who normally signs off on all guideline proposals before they are published, did not see the insurance guidelines before they went out and, when asked about them last week, expressed surprise that they had been issued already.
Further, the White House acknowledged, COWPS staffers preparing the insurance guidelines met directly only with industry representatives to discuss the proposals. No consumer or non-industry input was sought before the guidelines were issued by COWPS Director Barry Bosworth.
An analysis of the administration's proposed guidelines (before they were issued) by the Federal Insurance Administration in November 1978 warned that the proposed price cap standard would "allow insurance to enjoy excessive profits while the rest of the economy including workers are asked to tighten their belts. Their profits will be more excessive, ironically, the better the president's program works" against inflation.
The FIA report also pointed out that insurance premiums now account for nearly 12 percent of the average American s disposalbe income.
In another memo, FIA Deputy Administrator J. Robert Hunter warned that, under a proposal to limit insurance industry price increases next year to one half of a percentage point below each company's average price increase during 1976-77, "the total industry fares well... too well."
Hunter discounted the effects of another portion of the guidelines that limits any increases to 9.5 percent at most.
Hunter proposed that the guidelines include a profits test that would keep track of industry earnings and allow the government to adjust its price guidelines based on industry performance.
Under the present system, the only time profits are considered is when a company claims that price guidelines are unfair, and can show that its profits have suffered drastically under those guidelines.
Although the FIA played a significant role in writing insurance industry price guidelines in the early '70s, it was not asked to participate in this year's guideline development process.
Neither Jimenez nor Hunter could be reached for comment.
Kahn also could not be reached for comment, but COWPS spokesman Tom Joyce defended the guidelines and the process under which they were developed.
"We consulted with HEW (the Department of Health, Education and Welfare) and their experts on hospital costs to ensure that what we were doing was consistent with our program aimed at hospital cost containment," he said.
Joy also said that HEW had received considerable consumer and labor input, and that the White House had the benefit of that information even though it had no direct contact with those sources.
Further, Joyce said, COWPS did exempt life insurance from the guidelines, because life insurance rates are dropping due to increased lifespans. To include life insurance "would have given the industry an easy standard to meet," he said, by bringing down the average rate increase figure while still allowing other specific areas -- notably property -- to jump considerably.