Flaming Insurance

No, we’re not talking insurance for damage or loss to property because of fire. This type of flaming insurance helps businesses recover when unflattering information that hurts their brand or image goes viral online.

Asia Insurance Review reports that Sompo Japan has started selling “enjo” insurance (flaming insurance) coverage to compensate a target of “enjo” (widespread flaming of a target due to negative rumors or scandals.)

Sompo’s new product – a first of its kind in Japan – will compensate any target of “enjo” whether or not the rumors are groundless or based on fact.

In the event of a viral outbreak, Sompo will cover expenses for a positive media campaign, research into why the negativity began, and the cost of public apologies if needed.

Coverage could be useful for businesses suddenly the target of unwanted social media attention. For example, as RocketNews24 reports, McDonald’s Japan had to deal with a long-burning enjo after a tainted chicken scandal.

What’s the cost of this coverage? Premiums will run from JPY500,000 to JPY600,000 ($4,343-$5,213).

Whither the Grand Bargain?

Insurance Information Institute chief actuary James Lynch reports from the final session of #WCRI17:

The Workers Compensation Research Institute’s annual conference saved the best for last, a provocative look at comp and the Grand Bargain.

That bargain, that workers sacrifice the right to sue for workplace injuries in exchange for a predictable set of benefits irrespective of fault, is threatened, some say, by a decades-long winnowing of those benefits. The rebuttal: comp is a resilient system changing with the times.

John Ruser, WCRI president and CEO, led the discussion. Panelists were Dr. David Michaels, a former assistant secretary of labor at OSHA; Bruce Wood, former general counsel at the American Insurance Association; Emily Spieler, a Northeastern University professor specializing in workers comp and labor issues; and David Deitz, a consultant with more than 20 years’ experience designing claims management systems in both workers comp and group health.

I have some background on the debate, presenting at a symposium on the Grand Bargain last year in Camden, N.J. I’ll oversimplify a bit here by calling it a faceoff between lawyers and insurers.

The lawyers say that reforms over the past 20 years or so have continually whittled away at worker benefits, so much so that the Grand Bargain is, from the workers’ point of view, no bargain. Insurers note that both medical and indemnity benefits have been rising faster than inflation for decades and that many of the supposed benefit cuts are controls on medical costs that have little if any effect on the actual treatment that the injured worker receives.

That debate is of long standing, but Wood pointed out that the discussion used to be fairly narrow.

Several states have debated whether employers should be able to opt out of the workers comp system entirely and provide a supposedly parallel set of benefits. Opt out passed in Oklahoma (but was found unconstitutional last year) while at least two other states (Tennessee and South Carolina) have kicked the idea around.

Wood compared the changes in the debate to a football game. The old discussion shuttled between the 45-yard lines, he said. Opt out “takes the debate between the goal lines.”

 

 

Diversity And Inclusion In Insurance

Insurers are committed to recruiting to create a diverse and inclusive culture and as we celebrate International Women’s Day our industry is one of many striving to attract, develop and retain female talent.

Some 78 percent of large organizations around the world are actively trying to recruit more women, according to PwC, and we’re now seeing competition for female talent escalate to a whole new level.

“As employers enter this talent battle, they need to recognize they won’t just face competition from other would-be employers when hiring female talent. As employer demand for female talent rises over time, it will be critically important not only to attract female talent, but also to be able to develop, engage, progress and retain female talent once inside the organization.”

Establishing gender diversity recruitment targets is a key practice at employers whose diversity efforts led to increased levels of female applicants and hires, PwC found.

The Insurance Information Institute (I.I.I.) reports that in 2015, there were 1.6 million women employed in the insurance sector, accounting for 59.4 percent of the 2.7 million workers in the insurance industry, according to the Bureau of Labor Statistics.

To find out more about diversity and inclusion efforts across the insurance industry, check out the I.I.I.’s new webpage.

Some Facts About Medical Marijuana

Insurance Information Institute chief actuary James Lynch reports from last week’s Workers Compensation Research Institute (WCRI) conference: 

I shock no one, I hope, by saying the nation’s attitude toward marijuana has loosened. More than half the states allow marijuana use, either as a medicine or just for fun. The federal government still forbids its use.

It’s a tough spot for insurers. Auto insurers worry that high drivers will cause auto accidents. Workers compensation workers are concerned that high employees will cause work accidents. Insurers want to obey the law, but federal law conflicts with the law in most states.

There are also questions about using marijuana to treat pain, as an alternative to opioids.

Not surprising that weed was the topic of conversation several times at last week’s WCRI conference in Boston.

Alex Swedlow of the California Workers Compensation Institute noted the following:

  • Six states require workers comp insurers to reimburse injured workers who use medical marijuana: Connecticut, Maine, Massachusetts, Minnesota, New Jersey and New Mexico.
  • Six states forbid insurers from reimbursing for medical marijuana: Arizona, Colorado, Michigan, Montana, Oregon and Vermont.
  • The federal laws against marijuana mean it is illegal to use the banking system to purchase marijuana. So an insurer can’t write a check against to pay for the drug. They use cash.

Dr. Dean Hashimoto of the Massachusetts Department of Industrial Accidents provided these facts. They are taken from a National Academy of Sciences report published in January, which is itself a summary of all research on the issue:

  • There is conclusive evidence or substantial evidence that marijuana:
    • Improves the lot of adults in chronic pain.
    • Increases the risk of motor vehicle crashes.
    • Increases the risk of developing schizophrenia and other psychoses.
  • There is moderate support suggesting that marijuana:
    • Improves short-term sleep outcomes for people with fibromyalgia or chronic pain.
    • Increases impairment of learning, memory and attention span.
    • Increases dependence on alcohol, tobacco and illicit drugs.
  • It is not possible to determine whether marijuana use is statistically correlated with occupational injuries.

The California WC report is here www.cwci.org/document.php?file=3090.pdf. The National Academy of Sciences report is here.

Minimizing Human Error At The Oscars

One week since we were left scratching our heads following the botched best picture announcement at the 89th Academy Awards ceremony, the liability ripples from an apparent act of human error continue to spread.

Just to recap: the mix-up occurred after a PricewaterhouseCoopers partner mistakenly handed presenter Warren Beatty the wrong envelope for the best picture award.

As the LA Times reported early on, the mistake instantly turned into a public relations nightmare for the accounting firm which has handled the balloting process for the Academy Awards for 83 years.

For its part, PwC quickly moved to mitigate damage to its brand, issuing an apology and accepting full responsibility for the mixup.

Brian Cullinan and Martha Ruiz, the two PwC partners involved, have been permanently removed from all Academy activities. PwC said the partners did not follow through protocols for correcting the error quickly enough.

Whether or not the Academy will terminate its contract with PwC, industry lawyers say there are a number of potential liability issues that could arise, per this article by The Hollywood Reporter.

Others say public perception and doubts about PwC’s expertise could be a costly risk factor going forward.

As the fallout continues, the two PwC accountants involved now need security protection due to the public backlash.

While this human error did not happen in the process of crunching the numbers, it does highlight how important it is for businesses to manage their professional liability risks.

Insurers have developed professional liability policies to meet the unique needs of a wide range of industries. Crisis response and helping businesses to protect their reputation are among the services insurers provide.

Insurers Innovating To Prevent Driver Distraction

The distracted driving epidemic, and its impact on highway accidents and the cost of auto insurance, continues to be all over the news.

A 2016 underwriting loss of $7 billion for State Farm’s auto insurance business, announced earlier this week, prompted the latest wave of headlines (see Bloomberg report).

Smartphones and gadgets and screens installed in new cars are two major sources of distraction, the Wall Street Journal recently reported.

While technology is part of the problem, it is also part of the solution (see earlier T+C post). A number of insurers are already partnering with technology companies to offer solutions to prevent distracted driving.

Digital Insurance features some of the latest technologies introduced by insurers here. The list includes a distracted driving simulator brought into schools as part of Arbella Insurance’s Distractology program, as well as apps that integrate with usage-based insurance programs to curb distracted driving (see here and here).

An Insurance Information Institute (I.I.I.) white paper on how more auto accidents and larger claims are driving costs higher is available here.

I.I.I. advice on how to keep your auto insurance affordable here.

What Does Private Market Flood Insurance Look Like?

In his second post from the Cat Risk Management 2017 conference, Insurance Information Institute chief actuary James Lynch discusses private market flood insurance options:

Florida has opened its market to private flood insurance, and there has been some activity in that area. Most plans have been National Flood Insurance Program (NFIP) clones in that they mimic how the NFIP prices risk but introduce a lot of underwriting rules to try to avoid problem risks.

Other than mimicking the NFIP program, there are two alternative ways to price risk:

    • Develop a refined rating plan, which resembles (to me at least) a traditional classification plan. The company develops a base rate then credits and debits a risk based on factors like:
      • Elevation.
      • Relative elevation (whether a risk is higher or lower than the areas that immediately surround it).
      • Distance to coast.
      • Distance to river.
    • Use a sophisticated catastrophe model to price each risk individually. That approach is more precise, but it could be more difficult to pass regulatory approval.  (The model might be too much of a black box.) It could also be harder for agents to understand the model and explain it to clients.

Much of the industry long-term seems interested in how computer models can price flood risk, but most people recognize the challenges. A big one is how to build in the precision necessary.

Figuring out how far a property is from a river is easy. But it is hard to use Big Data techniques to determine something as simple as whether a property has a basement; let alone knowing the elevation of the lowest vulnerable point in a property. (Hint: It’s probably not the front threshold.)

Private Market Looks Closely At Flood Insurance

Almost all private insurers have shunned covering flood since the 1950s, but that could be changing fast, writes Insurance Information Institute (I.I.I.) chief actuary James Lynch:

At the Cat Risk Management 2017 conference I attended earlier this month, flood was the hottest topic. Here’s why:

  • Insurers have become increasingly comfortable with using sophisticated models to underwrite insurance risk, and modeling firms are getting better at predicting flood risk.
  • The federal government, which insures the vast majority of flood risk, is looking for ways to share the risk with private industry. Key reasons:
    • The National Flood Insurance Program (NFIP) owes the Treasury more than $20 billion (thanks to flooding from Hurricane Katrina and superstorm Sandy). It has no practical way to pay that back, and the government has made it clear that it doesn’t want to fund more losses. So the NFIP is purchasing private reinsurance. More on that below.
    • The number of people who lack flood insurance is distressingly high. I.I.I. surveys show that only about 12 percent of Americans have flood insurance. The government wants people to be protected, and encouraging a private flood insurance market could do that.

Here are some of my notes from #catrisk17 on flood insurance:

  • The NFIP reinsurance deal (effective January 1, 2017) means that reinsurance would reimburse NFIP for 26 percent of the losses from an event where losses exceed $4 billion. The maximum recovery is $1.046 billion, and the cost, according to my notes, is $150 million. (If you work in reinsurance it may be easier to think of the pricing this way: NFIP cedes 26 percent of the $4 billion excess $4 billion occurrence layer at a 14.3 percent rate on line.) There have only been a couple of floods that big in NFIP history (Hurricane Katrina and superstorm Sandy), so the cover is in place primarily to protect against storm surge. However, it would cover other major types of flood as well.
  • A significant obstacle to modeling flood risk is the fact that much of the most important data (underwriting and claims information) is in the federal government’s hands. The government wants to share the data responsibly, but its hands are tied by federal rules on sharing data about individuals. The rules are driven both by privacy concerns and cyber security laws. The government will likely be developing a certification process so that professionals could qualify to have access to the data on a limited basis.
  • A live poll found that flood modeling was the most important topic at the conference, cited by 56 percent of respondents – outpacing severe convective (thunder) storm models, cyber insurance models or terrorism models.

Uber Case Highlights Employment Liability Risk

By now you’ll have read the troubling tale of alleged workplace sexual harassment as told by a former Uber employee on her personal blog.

As the LA Times reports, Uber CEO Travis Kalanick has called in former U.S. Attorney General Eric Holder to conduct an independent investigation and claimed that the blog post was the first he knew of the incident.

The allegations are a warning to the tech industry and its so-called rockstar culture, the LA Times notes.

The New York Times goes into more detail here.

In a statement issued following a meeting with Kalanick and staff to discuss diversity and inclusion, Uber board member Arianna Huffington said:

“I view it as my responsibility to hold the leadership team’s feet to the fire on this issue.”

This is not the first time that the ridesharing company has been in the hot seat for behaving badly, as discussed in this earlier blog post.

Charges of sex discrimination, including sexual harassment and pregnancy discrimination accounted for 26,934, or 29.4 percent of all job bias charges reported to the U.S. Equal Employment Opportunity Commission (EEOC) in 2016.

As the Insurance Information Institute (I.I.I.) notes, the number of employee lawsuits has increased in recent years, and any size business is vulnerable to this type of risk.

Employment Practices Liability Insurance (EPLI) provides important financial protection to businesses against claims or lawsuits filed by employees, former employees, or potential employees.

EPLI covers legal costs, settlements and judgments that arise from claims of: discrimination (age, sex, race, disability, etc.); wrongful termination of employment; sexual harassment and other employment-related allegations and lawsuits.

In addition to insurance protection, I.I.I. says businesses should take key steps to reduce the risk of an employee lawsuit, such as creating clear workplace practices on employment practices and educating management and employees.

A recent Insurance Journal article took a look at what to expect in EPLI in 2017.

Conference Shows How Workers Comp Wheels Are Turning

March brings my annual trip to the Workers Compensation Research Institute (WCRI) conference in Boston, writes Insurance Information Institute chief actuary James Lynch:

Workers comp is an intricate dance among regulators, lawyers, employers, insurers and the medical community. WCRI’s annual conference is one of the better places to catch up on the direction the many gears are turning on the workers comp machine.

Agenda items I’m looking forward to:

  • Alternatives to opioids: The opioid epidemic, until recently, was the silent mass killer in America. I first heard about this particular scourge at the 2014 WCRI conference. That year almost 19,000 people died from opioid overdoses, yet I had never heard the term opioid. After the conference, I wrote about how the workers’ comp world grappled with the epidemic for Contingencies magazine.
    This year the conference has an update on those efforts. It also has a session on emerging alternatives like mindfulness and other cognitive approaches. Included in that session is a look at medical marijuana, an issue most insurers are approaching with grave caution.
  • Appraising the Grand Bargain in 2017: Comp, of course, is the result of the Grand Bargain. Injured workers give up the right to sue and employers agree to indemnify the injured, regardless of fault. Most insurers will tell you that bargain holds up well more than a century after it was struck. But some challenge that idea. I attended a conference last year baldly titled, “The Demise of the Grand Bargain.” And a 2016 Department of Labor (DOL) study alleged states were engaged in a “race to the bottom,” scuttling benefits to keep employers happy.
    A new president may send DOL priorities in other directions, of course, but there’s still a discussion to be had. WCRI’s conference will end with a debate among experts representing government, insurers and the legal community.

The conference is, March 2 and 3 at the Westin Copley Place, Boston. Details and registration here.

 

Latest research and analysis