Category Archives: Specialty Insurance

Insurance protection for a rainy day

I snapped this picture in southern Georgia. No outdoor weddings that day.

June weather in New York City can be fickle. As the I.I.I.’s own Brent Carris reported, this fickleness can lead to chaos for the city’s outdoor music festivals, like the recent fiasco at this year’s Gov Ball. Carris noted that event organizers will often have event cancellation insurance to protect themselves financially.

But this got me thinking: is there rain insurance?

Weather insurance

The answer: yes, actually. It’s usually called “weather insurance” – and covers financial losses resulting from adverse weather, including rain. Typically, weather insurance is useful if you’re planning an outdoor event, like a wedding or a bar mitzvah. Commercial events can also buy this insurance, like fairs or festivals.

According to Trusted Choice, weather insurance is often tailored to a specific event’s needs. For example, a sailing regatta in San Francisco might want to be covered for excessive fog, whereas a baseball tournament in Arizona might want to be covered for extreme temperatures. Of course, these covered perils can be combined: it gets hot in southern Florida and rains a lot, so you might want to cover your golf tournament for both high temperatures and precipitation. Plus, you know, hurricanes.

How the coverage gets triggered also depends on the event: one-day events might want their policies to kick in if a certain amount of rain falls over a certain amount of time. Other events that last multiple days or weeks might want the trigger to be if rainfall or temperatures exceed their averages during the policy period.

Special event insurance

Okay, cool, that means I can protect myself in case I have to cancel my invitational street hockey tournament. But what if I have to cancel or postpone for non-weather reasons? That’s where “special event insurance” comes in. It’s broader than just plain weather insurance and will cover other causes of cancellation.

In the case of a wedding, special event insurance can cover cancellation due to, among other things: death or illness of a key participant, or if the bride or grooms is suddenly called to military duty. You can also cover your gifts in case they’re stolen or damaged. You can even cover your losses if one of your third-party providers can’t uphold their promises to you. For example, you could be covered if the bridal salon goes out of business and you have to get a dress somewhere else, or the photographer fails to show up and you need to deputize your cousins to take pictures with their smartphones.

Ticket insurance

It’s not just event organizers who can get insurance protection, though. There are also products to protect attendees. For example, Allianz calls its product “Global Assistance Event Ticket Protector Insurance,” which roughly translates into English as “ticket insurance”.

According to the Ticketmaster website, this insurance will reimburse you 100 percent of your ticket (including taxes and shipping) if any of a long list of things happens that prevents you from enjoying your event. Illness or serious injury, for example. Military duty is also covered (who knew there was such a high risk of someone being whisked away to military duty on short notice?). You’ll also be covered if a traffic accident keeps you from getting to the venue, or if your plane is delayed getting in.

However, being lazy is not a covered cause of loss: “Please note that no benefits will be extended for cancellations due to simply changing your mind.”

Human-wildlife conflict insurance: the next frontier for microinsurance?

AB Consultants and IIED at a consultative forum, Kenya

Most wildlife in New York City is of the insect or rodent kind (though a peregrine falcon did once hang out on my air conditioner for a few minutes.) Not so in many parts of the world, including Africa, Asia and parts of North America. And as human populations continue to expand into natural habitats, there arise the inevitable clashes between humans and wildlife.

There’s even a term for this phenomenon: “human-wildlife conflict” (HWC). The World Wide Fund for Nature (WWF) notes that this conflict includes wild animals destroying crops, killing livestock, damaging property – and even attacking (and injuring) humans themselves. Humans will often retaliate by killing wild animals to prevent future attacks.

One way to help communities at risk of wildlife conflict is (drumroll please) insurance. To learn more about this kind of insurance, I spoke with Barbara Chesire-Chabbaga, director and lead consultant for AB Consultants, an organization that aids in the development of microinsurance and digital financial services across Sub-Saharan Africa. Her company is actively working to develop a microinsurance product for human-wildlife conflict.

Human-wildlife conflict: deadly and costly

HWC is a reality of daily life in many places with high populations of both humans and wildlife. Take Kenya: more than 65 percent of wildlife lives outside protected areas, which means human-wildlife interaction is inevitable in communities that live near those protected areas.

Unfortunately, death and injury (for both humans and wildlife) are not uncommon outcomes of HWC. But crop damage is the most frequent cause of loss from HWC. Chabbaga noted that, in Kenya “close to 3,000 cases of crop damage were recorded between the years of 2015 and the first 2 months of 2017, compared with 148 death and injury incidences.” And these numbers probably underreport the frequency of HWC crop damage.

Furthermore, crop damage can have significant ramifications for communities that depend on farming and livestock rearing. A single attack that leads to crop damage could impact that year’s harvest, which can result in a financial domino effect that reverberates long after the attack.

Compensation schemes as financial mitigation

Chabbaga did note that compensation schemes for HWC are not a new idea, especially in areas with high rates of human-wildlife interaction. Indeed, financial mitigation for HWC has long been believed to yield significant benefits, by offsetting the actual losses themselves and by reducing wildlife retaliatory killings. Some of these schemes include the Big Life Foundation, the Amboseli Trust for Elephants and the Maasai Wilderness and Conversation Trust.

A typical compensation scheme will reimburse farmers for certain amounts if a wild animal destroyed their property, subject to certain conditions (like making sure that their farms are well-enclosed, and animals are well herded and away from protected areas, for example).

But straight compensation schemes have their limitations. They can be expensive, and often rely on donations, which leads to issues with financial stability and sustainability. Chabbaga cited a compensation scheme in the Mwaluganje elephant sanctuary, in which farmers yielded farmland for conservation purposes and were compensated yearly. But the scheme collapsed when funding ran out.

That’s where insurance comes in. “Microinsurance has the ability to pool larger numbers, employ technology and manage the entire client journey from registration to claim settlement in such a way that client value and the business cases are well-balanced,” argued Chabbaga.

Human-wildlife conflict insurance: better compensation, more sustainable?

“Human wildlife conflict is a new risk that has previously not been considered by insurance companies, but there is a general optimistic overview that HWC is an insurable risk worth exploring,” said Chabbaga.

AB Consultants is currently working on developing just that kind of HWC microinsurance in partnership with the International Institute of Environment and Development (IIED) and funded by the Darwin Initiative. Referred to as “Livelihoods Insurance From Elephants” (LIFE), the project is currently focused on two regions in Sri Lanka and Kenya, to determine how best to design an insurance product that can reduce losses for small-holder farmers and other low-income households from HWC. As you can probably guess from the name, the project is currently focused specifically on human-elephant conflict.

The LIFE project is still in the development phase and Chabbaga said that they’re still toying with the specific details of how to structure the policy, but she did give some idea of what the insurance will look like. “With microinsurance, the idea is to bundle as many risks as possible. With that in mind, it is possible that the scheme will include a majority, if not all, HWC related risks i.e. crop and property damage, death and injury.” Microinsurance typically has minimal exclusions, but for HWC insurance an important exclusion would be to deny coverage to a loss incurred by illegal activities such as poaching or trespassing into protected areas.

Consumers in the two pilot regions have so far expressed positive attitudes towards this insurance. The plan is to begin product rollout in January 2020.

For more information about microinsurance more generally, check out our webpage.

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

istock

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.