Welcome to the negotiation dance

By on March 22, 2013

russOur recent insurance stories have generated a few reader comments that caught my eye.

One reader on Facebook mentioned that the 17 percent average rate increase for Dare County was at least “better” than the 30 percent the insurance companies were seeking.

Welcome to the “Negotiation Dance.”

If you’ve ever purchased a new car, you’ve punched that dance card about every five or so years.

Ditto if you ever had a job in sales, except the dance is performed every year.

About October your boss comes to you and asks how much more you think you can produce next year.

You know if you “lowball” the figure, your boss will reject the estimate. Worse, he or she is might think you lack proper motivation.

So you throw a number out and your boss responds with something that is twice as high.

You settle in the middle and breath a sigh of relief because it could have been worse.

After a few years of doing this dance routine, you begin to realize the number you negotiated was actually the number your boss wanted all along.

And you also paid too much for that car.

The problem with both of those scenarios is the same when the insurance companies come calling on our elected insurance commissioner for a rate increase.

That problem is transparency — or rather, the lack thereof.

No matter how much information is out there on the Internet you’ll never know what that dealer paid for the car you purchased. Likewise, you’ll never know the sales figure your supervisor had in mind for you.

So in 2008 the insurance companies wanted 19.5 percent and “settled” for 4.05 precent.

Somehow between then and now the companies managed to stay in business and live with that paltry 4.05 percent rate hike.

This time the companies wanted an average increase of 17.7 percent statewide and “settled” for an average of 7 percent — a much better deal than they got in 2008. It was even higher in coastal areas.

After our insurance commissioner “negotiated” the increase, a quote from Ray Evans, the director of the N.C. Rate Bureau, which represents the entire industry in the negotiations, came across as a man who was almost dejected.

“It was better to get a little now rather than wait a long time for some unknown amount,” the crestfallen negotiator told the N&O.

In the same article, Willo Kelly put her finger squarely on the real issue.

“We still feel that the rates are unwarranted and unjustified based on our loss history; based on our building code standards; based on the deductibles that we have to pay,” she said.

Kelly pointed out that the rate increase, which was negotiated by Insurance Commissioner Wayne Goodwin without a public hearing, left the public and others unable to scrutinize the methodology and formulas the insurance companies use to justify their rate increases.

Goodwin has stated on a number of occasions he favors more transparency, but he almost always adds the caveat that in a public hearing there is always the risk the outcome could be “worse.”

Of course, the commissioner also says he favors public financing for elections to his office, but without those, he would be “unilaterally disarmed,” which explains/excuses some very large PAC contributions from the insurance industry on his 2012 campaign finance disclosures.

In this debate, Kelly and the coastal communities held the high ground.
The Negotiation Dance we witnessed this year gives off the same illusionary glow of fair play it always has.

Somehow, the insurance giants will limp along on the 7 percent increase they “settled” for.

And maybe next time, the insurance commissioner will let us into the dance instead of having us wait in line on the outside, looking in.

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