Category Archives: Specialty Insurance

How to insure your college tuition

The most tangible benefit of insurance is to make someone whole after a loss. Sometimes that means paying for a new roof. Other times that means cutting a check after a car is totaled.

If you have “tuition insurance,” it could also mean refunding your college tuition if you have to withdraw during the semester.

To learn more about this kind of insurance, I spoke with Paul D. Richardson, Liberty Mutual’s managing director for tuition insurance distribution. The 2018 – 2019 academic year is Liberty’s first foray into offering tuition insurance.

Refunding tuition in case the unexpected happens

Tuition insurance is a simple concept: it will refund college costs if a student has to withdraw from school at any point during the semester because of an unforeseen event, like an illness, accident or mental health issue. Those costs include tuition, room and board, and any mandatory fees assessed on the student.

The student (or, more likely, parents) just needs to buy the coverage before the semester starts. Premiums are usually about 1 percent of the total costs. Not a bad deal if you can recover $25,000 for $250.

Richardson pointed out that this isn’t really a new concept. But traditionally, tuition insurance was only available through a few select universities. Parents might not have even known it existed. And if they did, they were often under the (incorrect) impression that the university would refund their costs if their kid withdrew – so why buy insurance on top of the already-exorbitant cost of college?

University refunds are not guaranteed

“A lot of parents and students are unaware of how university refund policies work,” Richardson said. “Usually they operate on a sliding scale.” But if the student has to withdraw a month or so into the semester, in many cases they might not get any money back at all.

That’s where tuition insurance comes in. “Tuition insurance covers the gap,” Richardson said. Whatever the university doesn’t refund gets picked up by the policy to make sure that reimbursement is 100 percent. It’s a relatively affordable way to protect a significant financial investment.

The nitty-gritty details

Obviously, it’s not that simple. Like any policy, there are terms and conditions to tuition insurance. A key aspect is that the student has to withdraw entirely from the academic semester. “To qualify for reimbursement, they can’t earn any academic credit as a result of the withdrawal,” said Richardson. Tuition insurance wouldn’t be needed if a student misses a few weeks of class and then returns to pass their final exams, since they would not be out any tuition dollars.

It also doesn’t apply during summer break. “The policy period is the first day of classes and ends the last day of classes,” Richardson said.

Tuition insurance also comes with exclusions. For example, while pre-existing medical conditions are generally covered, there are some situations where coverage would not apply.  Poor academic performance is not covered, unsurprisingly.

Sports injuries are probably covered, since they’re usually within the scope of a student’s academic life. But there is no coverage for professional sports, like if you’re getting paid to participate in an intramural Ultimate Frisbee tournament.

And not all recreational injuries are covered. “Activities that come with an upfront serious potential for a major accident are often excluded,” Richardson said. “We look at each case individually but generally we draw the line at something that would cause an accident that is an extremely high risk. Like skydiving, that’s actually a named exclusion in the policy.”

Customizable coverage

Every student’s needs are unique. That’s why the Liberty Mutual tuition insurance product is highly customizable. Living off-campus? Then you’ll probably get a cheaper premium that doesn’t cover room and board. Have a scholarship? Depending on the terms of the grant, you may be able to cover that as well. “We’re trying to allow students and families to customize their price point based on their financial needs,” said Richardson.

You can learn more about Liberty Mutual’s program here.

Offshore wind farms: what’s the insurance angle?

In January 2019, wind power accounted for about 7 percent of net energy generation in the United States. While that doesn’t sound like much, wind power has been a significant contributor to new electricity generation over the past few years (though natural gas still leads the pack).

While most wind farms are onshore, wind farms on large lakes and oceans are becoming increasingly popular. Most notably, offshore wind speeds are much faster and steadier than on land. The U.S. Department of Energy estimates that wind off U.S. coasts offers a technical resource potential of about 7,200 terawatt-hours of electricity generation per year – which basically translates to double the country’s current electricity use. Even if just 1 percent of this potential is tapped into, that can end up powering nearly 6.5 million homes.

What’s the insurance angle?

Constructing and operating an offshore wind turbine is no stroll on the beach. Start-up costs can be significant (though they have been declining rapidly). And many pieces – both literal and logistical – need to come together before a wind farm can start generating electricity: transporting the towers and blades out to sea on specialized vessels; sinking foundations into the ocean or lake floor; constructing onshore and offshore power substations; laying cable between the turbine and the land. Plus, there’s Mother Nature to reckon with, like hurricanes and lightning strikes (a very common danger facing wind turbines, unsurprisingly).

Offshore wind operations are complex, with many unique risks. But the insurance marketplace is sophisticated and offers coverage for all phases of wind farm construction and operation.

There is no standard “offshore wind turbine” insurance policy. In all likelihood, windfarm insurance policies are a tailored mixture of many different policies to meet an operator’s unique needs.

Let’s walk through some of the coverages that might be made available.

Wind turbine construction

Builder’s risk property insurance: this insurance covers property during a construction project. There is no standard builder’s risk form, so coverage can vary widely, but usually the coverage applies to the building being constructed and any materials being used on site.

Liability wrap-up insurance: Typically all the engineers, contractors, subcontractors, etc. on a construction project have their own general and professional liability insurance. But for big, complicated projects like an offshore wind farm, the project owner might purchase what’s called a “wrap-up”, which basically, well, wraps up everyone’s liability insurance into one policy. This both simplifies the risk management process and offers cost savings to everyone involved.

Delay in start-up insurance: Affectionately called “DSU insurance,” this coverage protects developers and owners of any revenue lost due to a delay in finishing construction. For example, if a wind turbine’s construction is delayed because of a storm, DSU could cover the operator for their lost revenue.

Wind turbine operation

Property/liability insurance: Like pretty much every commercial operation, wind turbine operations probably have a package of property and liability insurance. The former will cover the actual turbine from certain types of losses (like fire); the latter will cover the wind turbine owners from any liability they might incur against others, like if the turbine collapses and hits a nearby boat.

Wind operations might also have business interruption coverage, which could kick-in if a turbine stops functioning and the operator losses money during the downtime. They may also have separate coverage protecting them from any pollution or environmental liability arising out of the turbine’s operations.

Ocean marine insurance

Offshore wind operators may also consider ocean marine insurance coverages, which can include:

  • Hull insurance: insuring a vessel for physical damage.
  • Ocean marine liability insurance: covering liability arising out of a vessel’s operation, including collision damage and, often, wreck cleanups.
  • Ocean marine cargo insurance: covering damage to cargo on a vessel.

Insurance plays a vital role in developing offshore wind farms. Operators and investors already face significant costs just to get a turbine out to sea. Knowing that insurance will protect them if something goes wrong is one of the reasons they’re willing to take on these vital energy projects in the first place.

Insurance can get weird

Yesterday’s post about insurance-related Guinness World Records got me thinking: what other weird insurance policies are out there?

If you know much about insurance, you know that the first place to inquire about weird insurance policies is Lloyd’s of London, legendary clearinghouse for the strange and unusual. (And innovative: they were the underwriters for the world’s first auto policy, the first aviation policy, and soon the first space tourism policy.)

Naturally, Lloyd’s has an entire webpage dedicated to what it (in what I imagine to be staid, Oxford-accented English) calls “innovation and unusual risks.” Some top hits include insurance coverage for David Beckham’s legs (£100 million), Keith Richards’ hands ($1.6 million), and cricketer Merv Hughes’ trademark mustache (£200,000).

My personal favorite is insurance for members of a Derbyshire Whisker Club who wanted coverage for their beards against “fire and theft.” Theft?

“Insurability”, or why we can have insurance for weird things

Weird insurance is an object lesson about “insurability.” Ideally, an insurable risk should have, at a minimum, the following features:

  • “Accidental”: insurability usually requires risks be accidental. Otherwise, an insured could just…burn down their house on purpose and collect the insurance money. That’s called fraud.
  • “Pure”: speaking of fraud, insurable risks should probably be “pure” and not speculative – meaning that an insured shouldn’t stand to gain financially from a loss.
  • “Measurable”: if a loss does happen, an insurer should need to know whether this can be measured in both time (can they tell when a loss happened) and money (how much should they pay out).

Fortunately for our hirsute Derbyshiremen, “beard insurance” satisfies all these criteria. Can a beard be destroyed by accidental fire? Check. The beard-wearer doesn’t stand to gain if his beard burns? Check. If the beard burns, we know when it happened and how much the loss would cost the bewhiskered gentleman? Check, check, and check.

There are other “ideal” features of an insurable risk, but they’re not deal breakers. They’re more like “nice to haves”. For example, some argue that an ideal risk is one that is common to a large pool of insureds, so that insurers can better project how much they might need to pay out in the event of a loss. Think of homeowners insurance: you’d probably want a large pool of homeowners to a) figure out the likelihood of certain losses and b) spread the risks out over a larger population.

Some underwriters at Lloyd’s clearly don’t think this is a requirement for insurability. After all, there is only one pair of legs belonging to David Beckham.

And it’s a good thing that a large pool isn’t always necessary requirement for insurability. For one, it means I can read about weird insurance policies. But for another, it means that as long as you’re not, say, abetting bad behavior like insuring an assassin or something, you can probably find someone willing to pay the price to cover your risks. Which makes for a better, more protected world.

Insurance Commissioner challenges Guinness record for tallest politician

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On March 27, Guinness World Records named Brooklyn councilman Robert Cornegy as the tallest male politician in the world. But his title was disputed by North Dakota insurance commissioner Jon Godfread who claims that he stands an inch and 3/4 higher than Cornegy’s 6 feet, 10 inches.

Godfread, who played basketball at the University of Iowa, said he didn’t know that “being a tall politician was a thing,” and that he’d probably get in touch with Guinness. A spokeswoman from Guinness said that the organization would be “be happy to receive an application” from Godfread.

Guinness keeps track of a wide range of unusual records. Insurance related records include: The highest ever insurance valuation ($100 million) of a painting for the move of the Mona Lisa from Paris to the U.S. for a special exhibition; Pittsburgh Steelers’ Troy Polamalu highest insured hair ($1 million); and the largest ever life insurance policy ($201 million).

 

 

A brief history of ransom insurance

Did you know that ransom insurance is one of the oldest insurance coverages out there?

People needed insurance because of pirates

Beginning in the early 16th and continuing into the 19th century, state-supported pirates and privateers operating out of North African coastal cities (the “Barbary States”) preyed upon European and colonial commercial shipping.

One lucrative practice was to capture a ship and sell everyone on board into slavery. We don’t know exactly how many people were captured over the centuries, but they probably numbered in the hundreds of thousands. You may have even heard of one particularly famous captive: Miguel de Cervantes, author of Don Quixote.

(Fun fact: some of the first military conflicts for a young United States were the “Barbary Wars” from 1801 – 1805 and again in 1815 – 1816, which were attempts to stop pirate depredations on American shipping. One researcher estimated that the annual costs of Barbary piracy to the U.S., including insurance costs, were equivalent to $10 billion to $20 billion in terms of today’s economy.)

How did ransom insurance work?

Slaves could generally regain their freedom in two ways (if you don’t count mounting a daring escape). One was to convert to Islam – the Barbary States were Muslim and most of their captives were Christian.

A second way was to pay a ransom.

In the early days, churches and families would set up collections to help pay for the release of enslaved captives. That’s how Cervantes was freed in 1580. But starting in the 17th century, cities and states also began to set up ransom insurance pools.

One of the first pools, called the “Sklavenkasse” (literally: “slave insurance”), was established in the German port city Hamburg in the 1620s. That’s over 60 years before Lloyd’s coffeehouse was first mentioned as a proto-insurance shop.

Other places soon followed suit with insurance pools of their own. Individual sailors, churches, and shipping organizations would typically contribute to these pools, which paid out when a participant was captured by Barbary pirates and held for ransom. There were even established rates for how much a ransom should cost: a steersman could fetch 700 Reichstaler (the currency used in Germany at the time), while a common sailor cost a mere 60 Reichstaler.

(For the German speakers out there, you can read more about how the pools worked here.)

Ransom insurance today

Although Barbary piracy faded away in the 19th century, ransom insurance is still available today, usually for important individuals who travel to dangerous regions. Called “kidnap and ransom insurance”, it generally reimburses for ransom payments and other damages, including some medical payments.

And because criminals are creative, we also now have “ransomware” insurance, which covers costs from a ransomware attack. That’s when a hacker freezes a computer system – and will only unfreeze it in exchange for a ransom payment, usually in bitcoin. How the times have changed.