Friday, September 29, 2006
A Measure of Sanity in Oregon?
Insurance companies can use a person's gender and age--not only things like driving record, the number of tickets, accidents, or arrests for driving under the influence--to determine what they pay for insurance. Oregon voters will decide in November if insurers should be able to use a person's financial history, too.
In 2003, the Oregon State Legislature prohibited insurance companies from using credit scores to set premiums or cancel policies for existing customers. This year's ballot proposal, Measure 42, expands this protection by prohibiting insurers from using credit scores or credit worthiness to set premiums for new customers. The measure applies to medical, health, accident, automobile, fire and liability insurance.
A growing number of consumer advocacy groups support Measure 42 because credit scores can be based on inaccurate information and can therefore be unfair when used to price insurance. A 2002 study by the Consumer Federation of America estimated that tens of millions of Americans are unfairly penalized for incorrect information in their credit reports. More recently, a 2004 survey by the U.S. Public Interest Research Group found that one in four credit reports contained errors serious enough to cause consumers to be denied credit, housing, or even a job. Other studies suggest that the use of credit scores for insurance has a disproportionately negative impact on low income and minority families.
Insurance companies have kept their scoring formulas secret, preventing an independent, public review of the actuarial soundness of their scoring models. There is no single mathematical model for how insurers use credit information to influence insurance decisions or for how they derive insurance scores from credit information. It’s hard for consumers to gauge what they can do differently to increase an insurance score, or even to know what factors are viewed more favorably by different insurers.
The insurance industry has argued that drivers with low credit scores are more likely to get into an accident, even though there is no evidence to support such a claim. Insurance companies also maintain that there is a correlation between a low credit score and a higher chance of filing a future claim; the current practice of using credit histories to help calculate rates allows 60-70% of Oregonians to enjoy lower rates. If Measure 42 passes, they claim, responsible consumers would be forced to subsidize higher risk consumers through the payment of higher premiums.
In 2003, the Oregon State Legislature prohibited insurance companies from using credit scores to set premiums or cancel policies for existing customers. This year's ballot proposal, Measure 42, expands this protection by prohibiting insurers from using credit scores or credit worthiness to set premiums for new customers. The measure applies to medical, health, accident, automobile, fire and liability insurance.
A growing number of consumer advocacy groups support Measure 42 because credit scores can be based on inaccurate information and can therefore be unfair when used to price insurance. A 2002 study by the Consumer Federation of America estimated that tens of millions of Americans are unfairly penalized for incorrect information in their credit reports. More recently, a 2004 survey by the U.S. Public Interest Research Group found that one in four credit reports contained errors serious enough to cause consumers to be denied credit, housing, or even a job. Other studies suggest that the use of credit scores for insurance has a disproportionately negative impact on low income and minority families.
Insurance companies have kept their scoring formulas secret, preventing an independent, public review of the actuarial soundness of their scoring models. There is no single mathematical model for how insurers use credit information to influence insurance decisions or for how they derive insurance scores from credit information. It’s hard for consumers to gauge what they can do differently to increase an insurance score, or even to know what factors are viewed more favorably by different insurers.
The insurance industry has argued that drivers with low credit scores are more likely to get into an accident, even though there is no evidence to support such a claim. Insurance companies also maintain that there is a correlation between a low credit score and a higher chance of filing a future claim; the current practice of using credit histories to help calculate rates allows 60-70% of Oregonians to enjoy lower rates. If Measure 42 passes, they claim, responsible consumers would be forced to subsidize higher risk consumers through the payment of higher premiums.
Saturday, September 02, 2006
Grapes of Wrath
Some California vintners are up in arms over what they consider to be "loopholes" being used by their insurance carriers to deny losses due to a Napa Valley warehouse fire late last year. At issue for several wineries wrangling with insurance companies is what are called "site-specific" clauses. Claimants paid premium costs to insure all of their wine, but their policies required them to specify how much wine would be kept in their winery and how much in the storage facility--an inconvenient requirement for businesses that move product between their winery and storage all year long.
"We paid the insurance and now they're finding little tiny loopholes to get out of paying us the money," claims Allan Christensen, one of the vintners. He and others who lost wine late last year in the Wine Central warehouse blaze feel that they are being victimized.
George Wallace, an attorney and author of the Declarations and Exclusions blog, argues that a simple change of location can have an enormous impact on the risk an insurer is agreeing to assume. Location clauses, he argues, are not "loopholes" but rather essential defining features of the contract between insurer and insured. Wallace also notes a pertinent question not raised or answered in other posts--the extent, if any, to which management at Wines Central is responsible to provide insurance to protect their customers' stored inventory.
The Specialty Insurance Blog (an insurance industry source) observes that "there are good underwriting reasons for property policies to have insured location provisions, but these provisions make the policies more complex."
"This shifts the difficulty of properly assessing and communicating coverage needs to the agent," that blog continues, "and as complexity increases so does the chance of error."
What can we learn from this real-life problem?
First, most agents should have some sort of a review or checklist process which will address these questions. As the complexity of insurance increases, the public has a right to expect agents to be more thorough in articulating potential problem areas, and it should be good business for the providing companies.
Next, we all have a responsibility to be thorough, and to volunteer information that might be critical for your insurer to know. Why the vintners mentioned in this case did not tell their agents that they were storing large amounts of wine in someone else’s warehouse is not clear; if the information was withheld to save money on premiums, then the savings were far outweighed by their eventual losses.
It seems most likely that the losses of Allan Christensen and others in the California vineyards were the result of ignorance on their part and lack of initiative from their agents. How can we all do better before the next big loss occurs?
Wider dissemination of potential loopholes and more attention to possible pitfalls are great first steps. That's the purpose of this blog.
"We paid the insurance and now they're finding little tiny loopholes to get out of paying us the money," claims Allan Christensen, one of the vintners. He and others who lost wine late last year in the Wine Central warehouse blaze feel that they are being victimized.
George Wallace, an attorney and author of the Declarations and Exclusions blog, argues that a simple change of location can have an enormous impact on the risk an insurer is agreeing to assume. Location clauses, he argues, are not "loopholes" but rather essential defining features of the contract between insurer and insured. Wallace also notes a pertinent question not raised or answered in other posts--the extent, if any, to which management at Wines Central is responsible to provide insurance to protect their customers' stored inventory.
The Specialty Insurance Blog (an insurance industry source) observes that "there are good underwriting reasons for property policies to have insured location provisions, but these provisions make the policies more complex."
"This shifts the difficulty of properly assessing and communicating coverage needs to the agent," that blog continues, "and as complexity increases so does the chance of error."
What can we learn from this real-life problem?
First, most agents should have some sort of a review or checklist process which will address these questions. As the complexity of insurance increases, the public has a right to expect agents to be more thorough in articulating potential problem areas, and it should be good business for the providing companies.
Next, we all have a responsibility to be thorough, and to volunteer information that might be critical for your insurer to know. Why the vintners mentioned in this case did not tell their agents that they were storing large amounts of wine in someone else’s warehouse is not clear; if the information was withheld to save money on premiums, then the savings were far outweighed by their eventual losses.
It seems most likely that the losses of Allan Christensen and others in the California vineyards were the result of ignorance on their part and lack of initiative from their agents. How can we all do better before the next big loss occurs?
Wider dissemination of potential loopholes and more attention to possible pitfalls are great first steps. That's the purpose of this blog.
Friday, September 01, 2006
Welcome to 'Loophole--Claim Denied!'
An emotional fight continues over billions of dollars in losses along the Gulf Coast. Many homeowners, believing that their insurance would cover damage from hurricanes, have found their claims denied when providers concluded that water damage from floods--not high winds--was primarily at fault for losses. Attorneys for the claimants have also countered that insurance agents were given free reign to interpret policies too broadly for their customers, who are now suffering.
Insurance is now a major concern for almost every adult American, and the only thing that seems to be expanding faster than the price is the appearance of loopholes and exclusions. Most of us never read the pages of fine print that accompany our homeowner, automobile, and health insurance policies, and even if we do read them--well, they are more than a little difficult to understand.
If you haven't recently purchased insurance, or have never purchased it before, you may be in for a surprise. Like finding that your credit score may factor as heavily now as your driving record when a compnay sets your auto insurance premium.
Even more surprises can await you when you file a claim. Like relatives of ours whose homeowner's claim for damage to electronic devices from a lightning strike was denied because the bolt hit the ground before hitting their house. Wouldn't you like to know these things can count against you before the score is tallied?
That's where we hope this blog can be of service. Our mission, beginning tonight, is to collect information about loopholes, exclusions, tricks, and omissions that make insurance companies money at the expense of the insured. It's not about getting the companies as it is about helping all of us purchase insurance with greater understanding, avoid bad deals, and introduce more accountability for those bad apples that are consciously out to get us.
We're looking for your experiences, appropriately documented, that we can then share with the rest of our readers. Caveat emptor!
Insurance is now a major concern for almost every adult American, and the only thing that seems to be expanding faster than the price is the appearance of loopholes and exclusions. Most of us never read the pages of fine print that accompany our homeowner, automobile, and health insurance policies, and even if we do read them--well, they are more than a little difficult to understand.
If you haven't recently purchased insurance, or have never purchased it before, you may be in for a surprise. Like finding that your credit score may factor as heavily now as your driving record when a compnay sets your auto insurance premium.
Even more surprises can await you when you file a claim. Like relatives of ours whose homeowner's claim for damage to electronic devices from a lightning strike was denied because the bolt hit the ground before hitting their house. Wouldn't you like to know these things can count against you before the score is tallied?
That's where we hope this blog can be of service. Our mission, beginning tonight, is to collect information about loopholes, exclusions, tricks, and omissions that make insurance companies money at the expense of the insured. It's not about getting the companies as it is about helping all of us purchase insurance with greater understanding, avoid bad deals, and introduce more accountability for those bad apples that are consciously out to get us.
We're looking for your experiences, appropriately documented, that we can then share with the rest of our readers. Caveat emptor!
