Actuarial Musings

In all the discussion since Katrina on federalization or semi-federalization of coastal storm risk in property insurance I’ve had a few qualms with the idea.  They include:

• My inner libertarian objects to government involving itself in a matter that the free market should be able to address.
    
• Most of the proposals implicitly rely on subsidization from folks who choose to live out of harm’s way.
   
• Virtually none of the proposals address some of the real problems with coastal wind exposure – that storms will be perceived as more damaging as more folks choose to live and own property in harm’s way, that property owners choose to go uninsured (and rely on government support to recover post-catastrophe), and that there are holes in coverage between homeowners/commercial property insurance and coverage offered through the National Flood Insurance Program.

The Courant has an article discussing one carrier’s idea on a more modest middle ground on the subject:

The Hartford’s plan, pitched by Chief Executive Ramani Ayer to media Wednesday, says:

• Coastal homeowners should be required to buy flood insurance, to avoid battles over what kinds of damage are covered or not by regular homeowner policies. The $40 billion Katrina spawned massive litigation concerning wind v. water damage.
• IRA-style savings accounts could be created to help people afford insurance, and states could administer subsidies for low and moderate-income coastal homeowners.
• A federal financial backstop is needed to protect insurers from a catastrophic storm, the kind that is expected to happen once in 100 years.
• States could create their own reinsurance funds, bound by federal guidelines. Insurers buy reinsurance to spread their risk of high claims. The state reinsurance funds would only kick in when the private market seriously deteriorates.
• Costs associated with the federal backstop and any state reinsurance funds would be passed directly to policyholders and identified separately on their insurance bills.
• The federal government would set guidelines involving land-use planning, risk mitigation, and disaster preparedness. States would follow the guidelines, making insurers doing business in a state eligible for help from the federal backstop.

I’m not sure that I necessarily fully agree with the above ideas – the real test would be in the details – but I must give The Hartford props for addressing some of the shortcomings I’ve seen in prior ideas.

Making flood and wind cover mandatory takes care of some of the gaps in the system, for example. 

Providing a mechanism to subsidize coverage outside the insurance mechanism also appeals to me; for quite a while I’ve had the notion that if social interests should dictate subsidization, that subsidization should be handled by the government, outside the standard insurance funding mechanisms, to permit insurers to rate as efficiently as possible.

And, it sounds like someone’s finally thinking that more intelligent coastal development (or non-development) planning might not be a bad thing – a positive development from my point of view.

Add in some harmonization between NFIP coverage terms and those found in standard homeowners and property insurance contracts…and the proposal certainly looks interesting.

Seen on the newswires:

[T]he House Transportation and Infrastructure Committee approved by voice vote a bill that would make the current Federal Aviation Administration and Federal Communication Commission ban on cell phone use during flight permanent.

The committee’s action comes as the European Union is moving to allow airline passengers to talk on their cell phones during flight. Some U.S. airlines are experimenting with in-flight Internet access. And some lawmakers worry that domestic airlines might try to get the cell phone ban lifted so they can charge passengers extra to sit in no-phone sections.

"I do believe this is important that we don’t make what is already a crowded and difficult environment for the traveling public and flight attendants" worse by allowing cell phone use in-flight, said Rep. Peter DeFazio, D-Ore., sponsor of the Halting Airplane Noise to Give Us Peace (HANG UP) Act.

Normally I’d make a little bit of noise and grumbling over over-regulating life, and the futility of legislating good manners.  However, with the FCC having made noises on lifting the ban of cell phone usage in the air, and with the ban having already been lifted in Europe…I’m not too terribly upset.

The potential for being stuck in the back of a sardine can on a long, transcontinental flight trying to ignore half of several cell phone conversations would almost be enough to get me to find a job which required less travel.

When traveling, I’ve been a bit squeamish about the wifi/broadband connections now usually provided by the hotels I stay at.  The lack of security, not knowing who might be listening in…it just makes me feel a bit squeamish.

Perhaps my paranoia might be a teeny-tiny bit justified, based on recent developments in China, ahead of the Olympics.   Seen at The Hill:

Brownback stated that his office had been contacted by lawyers for international hotel chains who informed him that the Chinese Public Security Bureau (PSB) ordered foreign-owned hotels to install Internet monitoring equipment. Brownback provided documents showing that hotels were asked to cooperate with the Chinese government.

“The Chinese government has demanded that these hotels allow the PSB to install software programs and hardware devices on the hotel networks,” Brownback said. “These measures are designed to assist the PSB to spy on the Internet activities of guests and record websites visited, searches entered and even keystrokes. The text alludes to harsh punishment for failure to comply with the order, including loss of license to operate a hotel in China.”

Note to self – when traveling to China, plan to work offline.

Late last week, the New York Times carried an article discussing Senate inquiries into whether disability insurers were gaming their financials by obliging claimants to apply over, and over, and over, and over… for SSDI.

Sick and injured people must often wait more than a year before their claims can be decided by one of Social Security’s administrative law judges, a delay Mr. Grassley called “abominable.”

“The last thing those who rely on Social Security need is for insurance companies to be clogging up the system by forcing ineligible applicants to apply,” he said.

Mr. Grassley told the insurers to report on how many of their claimants they had compelled to apply for Social Security in the last five years; how many appeals they had required people to file; and what methods they had used to screen the people beforehand to make sure they truly had a chance of qualifying for the government benefits.

The New York Times reported in April that disability insurers were making claimants apply for Social Security even when they did not qualify and were cutting off insurance checks if the claimants failed to do so.

I’m not in a position, myself, to comment on those allegations from an insurance point of view – it’s outside my area of expertise.

However, I have had the misfortune of experiencing the mess that is Social Security from the viewpoint of helping my disabled wife through the process.

I don’t think the problem is (or “is just”) disability insurers clogging the system.  Our experience was that if you weren’t obviously disabled (paralyzed, comatose, missing eyes or limbs) or weren’t near retirement age, your objective was to get through the initial review and the second review as quickly as possible, so that you could hire a disability lawyer and join the 2-3 year long queue to get in front of a judge.

The Social Security Disability standards are rather arcane, and one has a tendency to wonder about some of the civil servants involved.  For example, the first denial my wife received included a regurgitation of her doctor’s opinion about her condition…reversed.  “Cannot bend and pick up 25 pounds” became “is able to bend an pick up 25 pounds”, for example.

Look, if disability insurers have knowingly been forcing non-qualifying claimants into the SSDI system repeatedly, I agree that needs to stop.  However, given private disability insurance is always secondary to Social Security, it’s understandable that insurers would want eligible folks to claim those benefits.

The likely problem arises from Social Security’s definition of “eligible” being so fuzzy in practice, and the SSDI claim process being so onerous that no one in their right mind would want to go through the process, but for desperation, masochism, or duty to a private insurer.

I don’t know whether disability insurers actually aggravate the mess of Social Security Disability.  However, I think there are plenty of other potential areas of improvement in the process that could be tackled which would improve the process tremendously.

Seen in a Reuters story about Senate hearings regarding the Optional Federal Charter concept:

"The insurance industry is very pragmatic in their selection of a preferred regulator; they always favor the least regulation."

Comment made by Travis Plunkett, legislative director with the Consumer Federation of America

Having just been through a wave of filings for a new countrywide product, during which we were asked the same questions over and over by the various states…and also experienced conflicting demands, sometimes even within a given state…I wonder why it might be that insurers favor less regulation.

If you have never had the experience of being on a massive conference call while an earthquake is occurring at one of the call venues, I heartily recommend the experience.

Listening to an east-coast person talk through a lot of background noise from the folks in a tower in Los Angeles as they rode out a 5.8 ’quake was oddly amusing.

While running into a local grocery store to grab a couple of supplies this evening, I had to pause for a moment and wonder if I was in California, rather than Connecticut.

You see, I was stopped heading in by a gentleman looking for signatures on a petition.

It seems that the petitioning has begun in Connecticut to get Nader on the November ballot.

Of course, I signed…not because of any fondness for Nader, but because the folks who write ballot access laws seem to succumb to conflict of interest, and write such pesky legislation so as to maintain the advantages currently enjoyed by the D/R duopoly, and I’d like to do my part to fight against such tyranny.

While I was tied up with work and travel, a couple of interesting stories made it into my reading pile.  Together, they convince me that the concept of personal responsibility must be virtually illegal.

First, I saw this article in the Wall Street Journal (subscriber link):

Ian Perry, a Los Angeles city-council member, is spearheading legislation that would ban new fast-food restaurants like McDonald’s and KFC from opening in a 32-square-mile chunk of the city, including her district. The targeted area is already home to some 400 fast-food restaurants, she says, possibly contributing to high obesity rates there — 30% of adults, compared with about 21% in the rest of the city. Nationally, 25.6% of adults are obese, according to the Centers for Disease Control and Prevention.

While some cities have bans on new fast-food establishments, they typically are for aesthetic reasons or to protect local businesses. Ms. Perry’s initiative seems to be a rare instance in which a major city brings health issues into restaurant zoning. The fast-food ban would last a year, although Ms. Perry hopes to make it permanent. On Tuesday, a committee will make a recommendation on the measure before sending it on to the full city council for a vote.

I have to admit that I’m not particularly opposed to the idea of fewer fast food restaurants around.  The use of zoning laws to support a public health issue is the sort of creativity I appreciate.

But then, we have this story in the New York Times:

Gov. Arnold Schwarzenegger signed legislation Friday that will prohibit restaurants and other "food facilities" from using oil, margarine and shortening containing trans fats.

The intent is certainly admirable…but in the land of the free and the home of the brave, aren’t people permitted to make their own personal decisions?  Doesn’t freedom include freedom to make bad decisions, provided we accept the risk/consequences?

Seen in the Courant:

State police issued a total of 66,864 citations for speeding in 2007. During the first six months of 2008, state police issued 37,615 speeding citations, 16 percent more than the same period for 2007, Vance said.

The article is actually announcing the introduction of newer LIDAR (laser) units with faster acquisition times.  For some reason, the article doesn’t mention the recent expansion in the breadth of vehicles used in undercover speed enforcement, and the potential correlation with the increase in speeding citations.

I’m on a business trip in South Texas, just in time to experience the joy of Hurricane Dolly.

Naturally, there are all sorts of stories in local media hyping the breeziness of the day.  For example, consider this ABC report:

Cities and counties in the Rio Grande valley were preparing Tuesday night as officials feared heavy rains could cause massive flooding and levee breaks.

Texas officials urged residents to move away from the Rio Grande levees because if Dolly continues to follow the same path as 1967’s Hurricane Beulah, "the levees are not going to hold that much water," said Cameron County Emergency Management Coordinator Johnny Cavazos.

So, it’s been almost three years since Katrina..and we aren’t being a bit more proactive about levees and storms?