Thursday, June 22, 2006

Insurance Fraud Warnings Not Very Helpful?

The New York State insurance superintendent has sent out a 'public service announcement' sort of thing to try to warn the public against fraudulent insurance companies. It stems from the horrible boat accident last October when 20 people were killed on Lake George when a tour boat capsized. Here are several paragraphs from the article in National Underwriter and then I will add why I think this is not very helpful.
"New York ’s insurance superintendent has taken to the airwaves to warn consumers about fake insurance as his inquiry continues into a phony insurance operation that was exposed by a fatal accident, a spokesman said yesterday.

Superintendent Howard Mills announced he had distributed a video to television stations telling consumers how to protect themselves from being hurt by fake insurance companies.

The issue was spotlighted in New York on Oct. 2 when the Ethan Allen tour boat capsized on Lake George, killing 20 people, and it was revealed that the insurance purchased by the vessel’s operator was bogus." Quoted from a National Underwriter article, and here is a link to the full text.

The problem I see here is that the 20 victims were not a party to the fraudulent insurance. They just got on a boat for a nice afternoon ride. I have tremendous respect for Insurance Superintendent Howard Mills, but does he expect that every time we walk into a building, ride in a bus, go on an amusement park ride, stay at a hotel, or whatever, we are going to do some sort of investigation as to the whether the owner has valid and sufficient insurance?? That would be virtually impossible! This is where our government is supposed to design and implement regulations in and for the public interest.

If the people on this boat had even thought of asking whether the boat owner carried proper insurance, at best he probably would have shown what he thought was a valid policy (since apparently they thought they had purchased valid coverage) and that would not have helped.

Yes it's good to be aware and alert to help fight fraud, but in this case there is not much the victims could have done, and I believe it's the regulatory system that could have done a better job.

Tuesday, June 20, 2006

Insurance Industry Developments

Like all businesses today, the insurance industry is facing constant changes and challenges. One day I might see a study of various potential catastrophes. The current 'really bad case' scenario predicts losses over $150 billion in some major act of terrorism (that's double the size of Katrina), and the next day it's the Federal government trying to get involved in the supervision of insurance companies, which right now is done by the states.

That last part might not seem like a big deal, but if you're a State Senator or other official, or a believer in a more conservative interpretation of the Constitution (our country, after all, is a union of states, where the Federal government is supposed to leave matters of commerce to the states except where it involves interstate activities, which much insurance often does not) then you are pretty actively protecting your turf in this sort of battle.

States' Rights has been a huge issue over the years, but on the other hand, technological advances like the Web and computers have made it harder and harder to argue against one uniform set of rules for everybody.

Just yesterday Congress passed a bill that will attempt to make uniform regulations, but for just one part of the industry at this time. In this case, that would be the Excess and Surplus market. Many people will never actually buy a policy in this sort of company, but the best known of them would be Lloyd's of London. It is a vibrant and active market where all kinds of interesting coverages can be bought and sold.

Another HUGE issue these days is reinsurance company financial strength and premium charges. As end consumers of insurance, we never see where the insurance companies go to by their insurance against the big losses, but they do it, nonetheless. And some of them were hit pretty hard in the past few years. Costs are expected to rise 50% or more in the next couple of years and the impact on our rates will be widespread.