Insurance

One of the more annoying messes in the wake of Katrina was, at least among those homeowners who had flood coverage, how claims settlement could be delayed by wind and flood coverage being provided in two policies, each with somewhat different terms.

Some Gulf Coast politicians would have this, as well as many other wind vs. water issues, resolved by expanding the National Flood Insurance Program to provide wind cover as well.

However, in a Times-Picayune blog post made over the weekend, comes word of an idea being circulated by Adam Scales, an associate professor at the Washington and Lee School of Law:

Rather than having homeowners buy two policies — a flood policy from the government and coverage for fire, theft, liability and wind from a private insurance company — Scales advocates making companies sell policies that would provide all the coverage people need and having the government reimburse the companies for flood claims.

The idea is that changing the flood program from a retail venture to a reinsurance program operating behind the scenes would allow consumers to collect one insurance check and start rebuilding their homes and the broader economy while leaving any disputes for the companies and the government to resolve. Mandatory coverage would also solve the problem of not enough people having flood insurance, and would put the program on better financial footing.

“It would push disputes up one level to the wholesale level. Now you would have an argument, say, between State Farm and the federal government about how to deal with the aggregate loss,” said Scales, who began studying the flood program after watching New Orleans fill up with water on television. “It clearly makes the wind-water distinction meaningless to the average consumer.”

Part of that sounds quite a bit like an idea I floated post-Katrina.   If coverage exists, then the insured’s claim ought to be paid, with the question of how much of it is wind versus water pushed to the back room for lawyers and accountants to deal with without interfering with the customer’s recovery.

Of course, that would require that some of the differences in coverage terms in flood versus traditional homeowners insurance be smoothed out.  For example, the maximum amount of coverage available under the NFIP is lower than what can be obtained in your typical homeowners program.  And even if limits were the same, the nature of what personal property or ancillary structures are or aren’t covered can vary between the two contracts.

But we’ve known that updating the NFIP standard contracts to fit modern personal insurance needs is one of the items on the flood insurance reform agenda…albeit further down the list from near-insolvency and questions of rate adequacy….and from the foolishness of expanding the program to cover wind.

Aside from trying to cover the internet bill, one of the main reasons I carry ads on this site is just pure, geeky curiosity — a desire to dabble a little bit with the optimization techniques professional ‘net types do, as well as wondering what sorts of ads would appear given my eclectic range of interests.

I have to say that the nature of some of the ads that have popped up have been somewhat disturbing.    I’d expect a few questionable items to leak through, despite Google’s efforts to the contrary…but an ad I saw on my front page is disturbing…especially considering the source:

It takes a little more than just a degree to qualify as an actuary, folks.  And while I’ve been rather vocal in the past in transitioning the actuarial exam process away from self-study exams into something more interactive, taking advantage of distance-learning techniques…. I’m pretty sure this isn’t that.

But what troubles me…it’s a Washington Post-sponsored ad?  Come on now!

I’ve put in a filter to keep that ad from appearing again.  On the off chance anyone was deceived by it, I apologize….and I am extremely disappointed in WaPo for associating with such a scam.

Found via an Actuarial Outpost thread:

Surely, this can’t help the actuarial branding campaign going on. 

Behind the very public calls for universal health care to be The One True Solution to the American health care crisis, and my own Cassandra-like observations that underlying inflationary patterns are being ignored, some folks have pointed out that another piece of the puzzle might be found by looking at how medical professionals are compensated.

Oversimplifying, compensation seems to be driven by how many “things” a care provider does, multiplied by the relative trendiness of those things.   That math appears to be driven in part by ripples from Medicare reimbursement schedules.  And, if those schedules are prescribed by bureaucracy, rather than emerging out of free market forces, a logical consequence is that you’ll find more medical professionals interested in doing a lot of trendy things, while professionals working in a more mundane mode will see their income suffer.

This concept, I have to admit, I hadn’t really thought much about.  But, a recent Wall Street Journal article (subscriber link) has started to remedy that.   Quoting from the article:

A discipline built on spending time with patients to gather clues for a diagnosis, neuro-ophthalmology could become another casualty of a medical payment system that favors high-tech procedures over low-tech exams. The median income of a neuro-ophthalmologist at a teaching hospital is $200,000, according to the North American Neuro-Ophthalmology Society. That’s a third less than most general ophthalmologists, who undergo less training but can see more patients, and do more pricey procedures, in a given day.

Many in health-policy circles have focused on how the current health-care payment system is helping create shortages among primary-care doctors, internists and others on the front lines of medicine. But often lost is how the system is endangering some of the country’s most highly trained specialties as well.

Endocrinologists, rheumatologists and pulmonologists — specialties that also don’t involve performing many procedures — face acute shortages. Many of the severest deficits affect children. Though nearly 300,000 children in the U.S. are diagnosed annually with juvenile arthritis, lupus or other complex rheumatic diseases, there are fewer than 200 pediatric rheumatologists to take care of them, according to the U.S. government’s Health Resources and Services Administration.[...]

For two years, 68-year-old Al Purdon says he searched for a diagnosis for his persistently drooping eyelid. A visit to an optometrist led to a referral to an ophthalmologist and six more doctors, including an endocrinologist and a plastic surgeon. (Optometrists complete a four-year postgraduate program; ophthalmologists have a medical degree.) Several scans, a surgery and a biopsy later, Mr. Purdon says his eye still drooped, his Medicare had spent $10,850 on bills and there was no diagnosis.

Frustrated, Mr. Purdon and his wife went in early 2007 to Dr. Frohman. Dr. Frohman “took one look and said, ‘I think I know what it is,’” Mr. Purdon’s wife, Johannah, says. A series of seemingly basic tests, some questions and a blood sample later, Dr. Frohman diagnosed Mr. Purdon with myasthenia gravis, an auto-immune condition that impedes signal transmission from nerves to muscles throughout the body, but often first in the eyes. Medicare paid $220 for the visit, and Dr. Frohman said he’d continue to monitor the condition.

Mr. Purdon’s prior treatments may pose another risk. Because myasthenia can go into remission, doctors say the eye-lid surgery Mr. Purdon had can sometimes overcorrect the lids and make them appear to bulge.

The subject resonates with me in no small part because of what my wife’s been through in the past several years.   Folks who have read my writing are probably aware that she was in a car accident and suffered a freak brain injury.  However, because of the interrelationship of her symptoms, aggravated by limitations on her ability to communicate, it took us a couple of years to find a doctor willing to sit and take the time to start peeling back what all was going on with my wife until a couple of years later we actually got fairly robust set of diagnoses.

You know, there is something rather intoxicating about living in a society that is exciting, fast-paced, and highly reactive.  Something happens, and we quickly react to it, and hurry on to the next development.

However, there is something to be said for stopping, looking at the environment around us, and taking the time to really contemplate the complexities of what is going on, thereby hopefully gaining better understanding of what is happening.  That is a shame, because reacting without understanding can introduce inefficiencies, or undesirable unintended consequences.

One of my biggest fears about our seeming rush to universal health care is that it seems to me to be a “solution” prescribed without understanding the full problem.  Moving more people into a system where professionals have an incentive to react, rather than to diagnose and to fix, would likely aggravate some of the health care issues the country faces.

I’m enough of a social liberal that I love the idea of ensuring that everyone has access to a basic level of healthcare.  But unless some of the inefficiencies and inflationary pressures are addressed, and until there’s been a good, honest public discussion over the pros and cons of different levels of universal care versus the costs associated with that care…the path political inertia seems to be moving us down is going to have a very ugly fiscal surprise waiting for us around the next bend.

It’s a little crazy at the day job, so I’d expect my posting to continue to be somewhat erratic until a couple of projects quiet down a little.

However, I did want to pop up to mention that Sam Friedman has an interesting article up, written by Charles Chamness, discussing the campaign to get insurers to disclose climate change risk as part of public disclosure.  One section of the article strikes a chord with me:

Earlier this year, the task force released a draft Climate Risk Disclosure Proposal that would require all U.S.-domiciled insurers to answer a lengthy set of “climate risk disclosure” interrogatories–drafted largely by Ceres–to be included in the Annual Financial Statement. The following questions are typical:

• “What actions have you taken to assess the impact of climate risk and global warming on your operations?
    
• What are the results of your assessments of the impact of climate risk and global warming?”

Robert Detlefsen, Ph.D, vice president of public policy for the National Association of Mutual Insurance Companies, said “these highly tendentious questions assume insurers have knowledge of things that are, in fact, unknowable.”

“While many property-casualty insurers face challenges and uncertainties due to the risk posed by large-scale natural disasters, no company is in a position to assess the risk posed by climate change per se,” he added. “Given the current state of climate science, insurers can do no more than speculate about the nature and extent of risks attributable to climate change.”

Amen!

Insurance is risky business, and there are a few of us who spend a lot of time on the job of trying to answer questions like, “what’s the worst that can happen?”   It’s a rather stimulating if macabre sport…and you quickly begin to realize that there’s a heckuvalot we don’t know.  

Sure we can model scenarios and assign probabilities, but such exercise introduces the risk that the models could be wrong or the probabilities could be off.  Also, questions like “what’s the worst that can happen” generally are answered by “the worst thing that can happen is all of these horrible individual events occur at the same time”, which opens up a door to a discussion about correlation and the multiplication of really tiny odds on multiple events….and you quickly begin to appreciate that a nontrivial part of pricing or modeling work really is art.

Yes, it’s important to consider what could happen if the climate changed, or if a Katrina-like storm hit metro New York, or both.  We can lobby for preventive action to be taken now, and we can monitor our exposure in to such risks to keep the risk of ruin minimized.  Those are good things, if done early enough.

But one thing that critics of the insurance industry don’t often appreciate is the bureaucracy we live with when dealing with state regulators.  Considering the amount of research and silly-form-filling-out carriers already have to do at the behest of 50 state insurance regulatory bodies…I’m not sure that singling out climate change risk for special treatment is the right approach to take.

Of course, I suppose I could naively hope that if the industry is more communicative about the risks it faces, states which limit insurer profit loads might finally allow the returns that investors demand.

I should have passed this along earlier, but I’ve have a couple of projects at the day job hitting a boiling point.   Anyway, seen on the AP wire, a story regarding minor property insurance reform in Florida:

The bill also is tougher on insurers. It doubles maximum fines for insurers that violate state law. By abolishing arbitration panels it also makes it harder for insurers to hike rates after being denied those increases by state regulators. And it requires insurers to use models approved by the state when setting rates.

Moreover it extends by one year, to January 2010, a provision from last year’s insurance bill that requires insurers to get state approval before raising property insurance rates. Insurers must also notify regulators 90 days before they can drop more than 10,000 homeowner policies in one year.

Yeah, that’s going to invite new capital into the Florida insurance market.

Seen at ABC News:

The Army Corps of Engineers can be held liable for flood damage caused by a “hurricane highway,” a navigation channel that is believed to have funneled Hurricane Katrina’s storm surge into the city, a federal judge ruled Friday.

The Corps of Engineers had argued that it was immune from liability because the channel is part of New Orleans’ flood control system. The law says the federal government cannot be sued if something goes wrong with a flood control project such as a levee, reservoir or dam.

Judge Stanwood Duval dismissed that argument, saying the Mississippi River-Gulf Outlet, or MRGO, was clearly a ship channel and not a flood control project.

You may recall that plaintiffs are seeking $3,014,170,389,176,410 in damages from the Corps.

One of the central themes when it comes to discussing the high cost of property insurance in catastrophe-prone locations is that of whether people who live in harm’s way should bear the financial burden of the risk they face…or is covering such risk seen as a social need sufficient to justify subsidies paid by folks in safer locations, either through insurance rate-setting, or via a government construct.

Interestingly, it seems that a coalition of consumer and environmental entities are questioning the wisdom of enabling folks to live in environmentally sensitive areas…which tend to be highly correlated with “riskiest to insure.” 

Seen in Insurance Journal:

An unusual alliance of insurance and environmental groups is urging lawmakers to focus on policies that encourage property mitigation and environmental protection in catastrophe-prone areas, rather than expanding the government’s flood insurance or “bailing out” Florida’s catastrophe plan. [...]

Americans for Smart Natural Catastrophe Policy said it “strongly opposes proposals that encourage people to build homes in hurricane-prone, environmentally-sensitive areas by creating new programs to directly or indirectly subsidize their homeowner’s insurance.” The group cited proposal to make wind coverage available in the federal flood insurance program as the type of public policy it opposes.

There was, of course, one very important unanswered question in the wake of last week’s announcement of Liberty Mutual’s planned acquisition of Safeco. That question has been answered. Seen in Insurance Journal:

A Safeco Corp. spokesman says the Seattle Mariners’ home field will continue to be called Safeco Field, despite Liberty Mutual Group’s agreement to buy Seattle-based Safeco.

Whew! That’s a relief.

Although, considering how the Mariners’ season has started, maybe Washington state regulators ought to push for a charitable contribution from Liberty to the Mariners as a condition for approving the deal.

Seen in the Wall Street Journal (subscriber link):

After more than a decade of deliberation, the Senate cleared the bill 95-0 Thursday. The same bill is expected to sail through the House early next week — just as a similar measure did a year ago — and on to President Bush, who is expected to sign it.

The legislation would bar insurance companies from denying health coverage or charging higher premiums based on a person’s genetic information. It would also bar employers from using genetic information to make hiring, firing and other job-placement decisions. It applies to people who have genes that carry the risk of disease, but not to those who already have the disease.

I will admit that my initial reaction was one of fears of adverse selection.  However, that was quickly reined in.  Given that everybody who can get health insurance should have some coverage, there aren’t too many folks who would opt out of the system altogether.   And, it’s not inconceivable to imagine how the potential for better diagnosis and more targeted monitoring and early detection of potential health issues could lead to a net savings for the system overall.