HIH is not a bad applePublic calls for a full-scale royal commission into the collapse of failed insurance giant HIH are mounting. And so they should be it's high time that the insurance industry was dragged kicking and screaming into the light of day.
There's every chance that Prime Minister John Howard will torpedo any such plan he fears it will only make him look worse, and more culpable, than he already does.
But if it does happen, a royal commission is likely to provide hard proof of what most of the public has suspected for years: that insurance companies are a law unto themselves, that they play with other people's money and other people's lives with reckless abandon and that they have no fear of ever being held to account.
The HIH collapse proves four main things. The first is that the insurance industry is based on fleecing people.
HIH's troubles began in late 1998 when it buried itself in debt in order to successfully take over Rodney Adler's FAI insurance company.
Those troubles were obvious from last May, when HIH's increasingly desperate chief executive, Ray Williams, went looking for a buyer for HIH's most profitable arm, its retail insurance division. From that point, the company's shares began their 90% slide.
Insiders knew that the company would eventually go into receivership, which it did on March 15 Rodney Adler, for instance, resigned his directorship a convenient one month before that date. By that point, HIH's debts exceeded its assets by a massive $4 billion.
Nevertheless, HIH continued to hock its wares on an unsuspecting public, telling them nothing was wrong and that their premiums were totally secure. Its auditor, Arthur Andersen, joined the cover-up: signing off an audit in October that said everything was fine.
As a result, two million policy holders were denied the opportunity to pull their money out and put it elsewhere, and have now lost the lot. They bought insurance to provide them, well, insurance, some measure of security for the future, little knowing that the gravest threat to that security was the company selling it to them.
Secondly, government regulation and industry self-regulation are a complete joke.
The insurance industry, like many others, has spent years prevailing on the government that tight regulatory regimes only add to the cost to consumers and unnecessarily tie up policy providers in red tape. Far better, they have argued, for government to rely on industry self-regulation and keep its regulatory authorities for last-resort investigations.
The collapse of HIH proves that claims that insurance companies, or any other companies for that matter, can protect consumers by self-regulating are a deliberate lie. Self-regulated companies do what they like in the confidence that no-one is watching them.
The same goes for the supposed industry watchdogs, the Australian Prudential Regulation Authority and the Australian Securities and Investments Commission, which were both well aware of HIH's difficulties but chose not to investigate.
These bodies, and those like them in other industries, are in the pockets of the people they're supposed to be watching (as is the whole government, in point of fact). These regulators exist not to regulate, but to give the public the appearance of regulation while letting the companies do whatever they like.
Thirdly, the fat cats always escape scot-free.
The federal government has announced a $1 billion package, paid for by all taxpayers, to cover the 28,000 policyholders that it assesses are at risk of real hardship. The other two million policyholders will have no redress. The people who presided over HIH's collapse will escape scot-free, however, as such people always do.
Ray Williams, for example, was paid more than $1.1 million last year. He loses that salary, of course, and his share portfolio in HIH is now worthless, but he gets to keep his $7.5 million home in Mosman, his $2.5 million country retreat and the rest of his share portfolio.
Some shareholders have threatened to sue the company's directors, as has the NSW government but bankruptcy laws have been designed to prevent rich people being made to pay for the failure of their companies, and plaintiffs won't have a snowball's chance in hell.
Fourthly, HIH is not a bad apple. This particular insurance company, and this particular board of directors, is no worse, no greedier, no more stupid than any other. HIH could just as easily have been any other insurance company, because all of them are on the make.
And, while the insurance industry has a well-deserved reputation for being shark-infested, so too does banking, so too does real estate, so too does any industry you can name.
This is capitalism, this is what it's all about: cheating, robbing, lying, then buying governments so as to get away with it. And then they pretend to be surprised when people blockade the streets in front of their offices.