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The Rules That Are Right

It is open season on regulations with Donald Trump’s inauguration this month, and various industries will be pushing at the gate to get at their most detested rule.

The heavy burden of regulation is a mystery to people who haven’t tried to start or operate a business, but just ask them how they like dealing with a government entity — perhaps the department of motor vehicles or the Internal Revenue Service. Anyone who has bought real estate and has sat through the scribblefest of closing knows the absurdity of disclosure. Now imagine interacting with that entanglement regularly rather than once a year or so. And add fees upon fees on top of that.

Then they might have a sense of how even the most public-spirited people could turn into opponents of regulation. Multiply that kind of experience over thousands of industries and millions of entrepreneurs and you have a good idea of how much pent-up frustration there is.

The insurance industry saw regulations gone awry with the Department of Labor’s fiduciary rule. The DOL’s initial argument had no solid evidence of a problem. The government’s report to justify the rule did not even cite insurance industry data. The report’s writers did not support their case, but they did reveal bias against commission-based selling, calling it a conflict of interest.

Rule proponents loved to ask, “What’s so hard about looking out for the client’s best interest?” But why would the rule guarantee that? The worst scams in history have been conducted under the fiduciary standard. Meanwhile, the worst violations by life insurance agents are unsuitable sales, for which the suitability standard still applies. The financial schemes stole billions of dollars while the insurance cases involved thousands.

The argument for the fiduciary rule was not always clear, but some of the motivations were. A key argument was the predatory behavior of some agents and companies that targeted vulnerable, older consumers for sales that were borderline or clearly unsuitable.

It is easy to conclude that the agents were chasing the commission rather than looking after the client’s best interest. The industry has cleaned up this practice substantially. Some say there are still too many marketers competing on commission rates rather than on service, but the balance is tipping toward holistic advising.

The market already was shifting in that direction for a number of reasons, and certainly the pull of the financial industry had a role in that. It is an example of the free market at work.

But that does not mean regulations are bad. They are a necessary part of civilized life. Self-interest, even enlightened, does not ensure the public good is protected or that accountability is assured.

Laissez-faire roamed freely in the 19th century, when workers and the environment had no protections. Child labor was OK, as was dumping industrial waste into waterways. The merely wealthy grew into plutocrats, and working people were ground into broken discards. As gilded mansions grew on Fifth Avenue, the Lower East Side became one of the most densely populated places in world history.

That imbalance caught the attention of another Republican president from New York City who was instrumental in changing it — Theodore Roosevelt. Although he was born into wealth, he didn’t believe in a laissez-faire approach.

He saw that companies ballooning into conglomerates were unhealthy for American business and citizens. His work to break monopolies earned him the name “Trust Buster.”

As police commissioner in New York, Roosevelt pushed for housing regulation to remedy the living conditions that he saw in the Bowery. He called for better transit and parks to make the city more livable.

Roosevelt managed to do something about housing when he became New York’s governor by getting tenement laws passed. He also was responsible for factory inspection requirements, the first of many regulations to come when he became president.

In fact, you could say that he was the father of regulation, creating the basis of the larger federal government that we have today. As president, he got a railroad regulation bill, the Meat Inspection Act, and the Pure Food and Drug Act, with which the federal government assumed responsibility for protecting consumers. Roosevelt also pushed for the regulation of insurance companies.

One of his enduring legacies is the national park system, which grew out of land he set aside for preservation as public land. Much of the 230 million acres were in the West, a land he came to love when he retreated to the Dakotas to mourn his first wife.

Today, almost all of that legacy is vilified by many Americans, often in his own party. But Roosevelt set the stage for American exceptionalism, whether in ensuring equal opportunity or adventuring around the world. He possessed a greatness that he could barely contain. His energy and relentlessly good spirit is still a model for us.

The structure Roosevelt helped build supported the healthy, robust growth that established modern America.

As we push off into this next era, we can derive some wisdom from something Roosevelt said in his first inaugural address as he stood at the threshold of the 20th century:

“Much has been given us, and much will rightfully be expected from us. We have duties to others and duties to ourselves; and we can shirk neither. We have become a great nation, forced by the fact of its greatness into relations with the other nations of the earth, and we must behave as be seen as a people with such responsibilities.”

Steven A. Morelli is editor-in-chief for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers, magazines and insurance periodicals. Steve may be reached at [email protected] Follow him on Twitter @INNSteveM. [email protected].

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