COLUMN RIGHT : Even ‘Deep Pockets’ Can Be Emptied : Overregulation and new Superfund liabilities are sending insurers the way of the S&Ls;.

Will our insurance companies go the way of the savings and loan industry or merely suffer the down-sizing that is hitting the commercial banking business? It is too early to tell, but if government policies stay on their current course, liability insurers may be a vanishing species.

Insurance companies are caught between their bad investments in real estate and rising costs imposed by government. The investment problems of insurance companies are well known, now that some have gone bust and other have had their ratings downgraded. But the threats to their solvency from politicians and the courts have not received the public attention that they deserve.

Politicians are depleting insurers’ profits by forcing them to provide cheap coverage to motorists, and courts have targeted insurers’ capital as the source of funds to pay for environmental cleanup.

States with high rates of accidents and auto thefts have experienced spiraling car insurance premiums. Some states, such as California and New Jersey, have responded to screaming consumer lobbies with oppressive regulation of insurers, expecting “deep pocket” insurers to charge below-cost premiums. Now Allstate Insurance Co., New Jersey’s largest insurer, has said it intends to terminate its business in the state. The company is willing to give up its profitable homeowners’ and other coverage in order to escape from enormous losses on its auto coverage.

New Jersey’s lame-brained politicians have held down premiums for auto coverage and prevented insurers from charging premiums based on accident rates associated with the driver’s sex and marital status. If similar regulation is applied to life insurance, insurers will not be able to charge age-based premiums. The young would be forced to pay higher premiums in order to subsidize the policies of the elderly.

New Jersey has announced that it won’t let Allstate go unless the company pays a big bribe. The company must find alternative coverage for all its policyholders--including its assigned share of the state’s own bankrupt insurance program for high-risk drivers, which is $3 billion in the red.

Insurers are in trouble because state governments are interfering with their ability to set premiums according to insurance standards. In New Jersey the state forced safe drivers to subsidize the assigned-risk category of unsafe drivers. When the surcharge rose to $222 per policyholder, the public revolted, and the state shifted the burden to the insurers.

Liability insurers have also been targeted to pay for environmental cleanup under the Superfund legislation. The federal government passed the law without providing any funds, and the law did not specify who was to pay. It was left to the courts to decide, and on Friday, Sept. 13, a federal appeals court ruled that the insurance companies are liable.

Superfund is a fantastic violation of our legal precepts, because it assigns retroactive liability for actions that were legal at the time. Since many hazardous waste disposal sites requiring cleanup are the results of many different users, the bills are being sent to any “deep pockets” that can be linked to the sites.

Prior to the retroactive law passed in 1980, there was no Superfund liability associated with waste disposal. Since the liability did not exist, it certainly was not factored into the comprehensive general liability policies that insurers wrote for companies.

Superfund cleanup costs have been estimated to total $500 billion--a sum that exceeds the combined capital of the insurance industry. Obviously, the insurers can’t pay, but that won’t safeguard them, as the deepest pockets around, from being bled to death.

Watching incompetent and unjust government working its way through our economy and financial system, we have to wonder what will be left. The S&L; industry is in ruins and commercial real estate is in a depression. Government officials say that $80 billion will be needed next year to pay off depositors of failed commercial banks. Major insurance companies feel compelled to close down statewide operations in order to avoid being ruined by political regulation. And now a federal appeals court has decided that insurers are liable for policies that they never wrote.

It will be an economic miracle if we retain an economy while losing the financial system.