Danger, Will Robinson!
August 9, 2003 2:53 PM   Subscribe

Insurance companies abandon brokerage firms. A brokerage firm would have to have a catastrophic meltdown before insurance would pay the "last" dime to protect investors' accounts, after all other means had been exhausted. In fact, they haven't had to pay a single claim in over 30 years. So why are three major insurers suddenly getting out of the business? (NYT subscription req.)
posted by kablam (3 comments total)
Why insure the brokerage if you can insure each of their incredibly wealthy clients on a case by case basis?

Guess which way is more profitable.

posted by effugas at 6:12 PM on August 9, 2003


Lets say you have a ten million dollar portfolio, and want it insured.

Lets say the insurance company has decided there's a 10% chance your brokerage will collapse in the next decade.

Can they provide insurance cheap enough that it doesn't clue you in that they've got no faith in where you've put your money? In other words, if the cost is high enough that they've decided to pull out entirely, perhaps the per-client cost is so high that brokers would rather the insurance companies go away entirely instead of blasting their customers with doubt-inducing rates.

posted by effugas at 7:41 PM on August 9, 2003

What popped into my mind when I read this was the old trick of creating a shell corporation to underwrite the parent. And while financial institutions have pulled this trick in the past, I've never heard of a brokerage doing it.

Incredibly unethical, I also don't know if they ever did crack down on it and outlaw the practice, or if the one degree of corporate separation was good enough to screw the insured. Anyone know?
posted by kablam at 9:10 PM on August 9, 2003

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