The Invisible Bankers

Tobias, a financial writer, wrote a critical examination of the American insurance industry, arguing that it collects enormous sums, returns a smaller share of them to policyholders than the public assumes, and is structured to prevent price competition.

His central complaint concerns the share of premiums returned as claims. He documents that in several lines, particularly those sold to individuals through agents, a large fraction of premium goes to commission, marketing and administration rather than to claims. He is hardest on whole life insurance, arguing that combining a savings product with a death benefit conceals the return on the savings component, that first-year commissions consume most of the initial premium, and that a buyer would do better purchasing term insurance and investing the difference. He also attacks credit life insurance sold with loans, title insurance, and small-value policies sold door to door in poor neighbourhoods.

The structural argument is that the industry avoided federal regulation through the McCarran-Ferguson Act, which delegated insurance regulation to the states and granted a limited antitrust exemption, and that state regulators are close to the industry they oversee. He argues that rate regulation frequently protects incumbents rather than consumers.

Tobias also discusses the industry's genuine functions and does not argue that insurance is unnecessary, only that much of what is sold is poor value and that the distribution system rather than the underwriting drives the cost.

The book is from 1982 and much has changed: direct and online distribution has reduced commissions in personal lines, term insurance is far cheaper and more widely bought, and disclosure requirements have improved. The structural points about state regulation and about the economics of agent-sold products remain accurate.