Insurance bundling and black boxes - House committee will take a closer look

In a couple of hours, a meeting will convene that privacy advocates and people concerned about "creative" money-management schemes might be interested in - the House Financial Institutions & Insurance Committee at 1:30.

Have you ever heard of a device called an event data recorder (or EDR)? These things can be installed in a motor vehicle, either by the manufacturer when it’s built or by someone else sometime down the road. EDRs can gather a variety of details about what you and your vehicle are doing, including how fast you’re going and where you’re headed.

The devices can also determine what kind of a driver you are (your acceleration and braking habits, for instance, as well as the way you do your steering). You better believe this is a big consumer-privacy issue. Specifically, we’ve got to be asking ourselves, “What the heck’s gonna be done with the information gathered by these black-box type EDRs?”

That's what the committee will discuss, specifically looking into the way auto-insurance companies can use these EDRs.

Chaired by state Rep. Steve Kirby, the House panel wants to know the answer to a few questions including:

• Can the proprietary information gathered by one of these devices ever be used against the consumer?

• What happens if the insurance company determines that the “locations” you and your vehicle are visiting are “risky”?

Sure, we all know that some neighborhoods might be more dangerous than others. But when private insurers can make these types of determinations, we might well expect some very questionable and arbitrary outcomes. Specifically, a company could use the info to announce: “Your premiums will be increasing because we have determined that the places you frequent or live near are a high risk for claims.” How sneaky and unfair is that?

The House Financial Institutions & Insurance Committee will also review the securitizing of asset streams, AKA “bundling” – a growing practice on the part of the big-money folks in the financial world.

In this bundling operation, mortgages and other loans are packaged up and sold to investors. The borrower frequently isn’t even aware of the sale of his or her loan. Insurance-related products, including the right to collect the benefits of a life-insurance policy, are also being sold off in this same manner. Since the states and the federal government have definite regulatory roles in overseeing these securitized products, the Kirby committee wants to keep an eye on this securitization of asset streams.

Now, consider the practice of bundling subprime mortgages that’s been dragged into the spotlight as a result of the current chaos in the financial world. You bet there’s very serious concern that bundling is still happening today on Wall Street.

Even when it doesn’t involve subprime mortgages, the bundling of life settlements and life-insurance policies is also a very grave issue. What the bundler does is get his or her hands on, say, a thousand $1-million life-insurance policies, bundle them all up, and sell the whole package off to someone else. And then voila, he or she can make a “bundle,” so to speak – without the general public (that’s us) ever getting so much as a whiff of what’s going on. As we’re seeing all too clearly these days, it’s not always a happy ending for consumers when the fiscal foxes find a way to game the financial henhouse.