Tag Archives: Insurance

Gulf Coast Shrimping Insurance

Re Q’s insurance situation for shrimp farmers in the Gulf: Is the shrimping livelihood insurable against foreseeable manmade disasters?

There’s a market for what’s called aquaculture insurance, and I’m sure there will be some significant claims on those policies (most of which are held through the Lloyds of London market.) It’s not quite as significant as the claims BP and other refiners will put in on their energy insurance policies (I’ve seen estimates of about $1.5 billion in energy insurance claims) but that’s largely because most shrimpers probably don’t have much in the way of insurance on their stocks of shrimp.

Instead, they’re more likely to take out general business interruption policies, which would pay off in the case of any prolonged cessation in income. So, yeah, the spill would be covered, but they’d have been thinking more of hurricanes and such when they took out their policies.

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Krugman Provides the Numbers

Thanks, Krugman, for weighing in w/ the numbers.  Here’s what Everyone’s Favorite Keynesian predicts for public insurance stats:

DESCRIPTIONKaiser Family Foundation

Guys, this is a major program to aid lower- and lower-middle-income families. How is that not a big progressive victory?

For people in the center who worry, as my colleague David Brooks puts it, that there may be unintended consequences if you “centrally regulate 17 percent of the economy”: um, it’s a little late for that.

First of all, government insurance programs — Medicare, Medicaid, and smaller programs like the VHA, already pay more bills than private insurance companies:

DESCRIPTIONCenters for Medicare and Medicaid Services

And even the private insurance is overwhelmingly provided through employers — and employment-based insurance is only tax-free unless it obeys extensive regulations. Not coincidentally, those regulations resemble, in a qualitative sense, the goals of the new health reform: employers have to offer the same policy to all their employees, which in effect rules out discrimination based on medical history and subsidizes lower-paid workers.

The point?  There’s no free market now, so why are conservatives screaming?  And the answer, of course, is: Everything happens at the margins.  If there’s no free market now, let’s move towards healthy competition, rather than away from it.  Every step away from competition is a step restricting liberty, kids!

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Aetna Cancer

My name is Kat, and I love Insurance law.

I realize it’s unhip to buck the hue and cry trend over reform, but I keep thinking about reforming what we’ve already got, on a market level. The operative premises are:

1. The goal is not to get as many people insured as possible; it’s to get as many people care as possible.  That lawmakers keep framing the debate as the former represents, I think, a major oversight.

2. Market evolution suggests that what exists is exactly what we want.  “Reform” is to throw a stick in the spokes of a bicycle the entire market is riding in tandem.  It’s dangerous and foolish, but #1 prevails so this thought experiment is about doing something.

3. This experiment is strictly about insurance, which is to say the articulation of finance and law.  Obviously (!) the answer to health care reform is tort reform.  But I will save torts for another day.

So.  The thing that makes Insurance fascinating is that it’s a) private; and b) a sophisticated contract between sophisticated parties.

Insurance has nothing to do w/ outsourcing one’s well-being.  W/ issues like public safety, we blithely outsource decisions regarding protection to Big Government, and we squirrel away military bases largely away from metropolitan areas, but we rely on that protection just the same.

Insurance is not outsourced; it is not unseen.  We make an active choice to join a private network.  We pay frequently, and big bucks for that safety net.  It’s a contract and a long-term commitment.  From the start we know that if we break that contract we’ll be faced with risk, uncertainty, and we’ll likely have to pay dearly for our own accumulated liability when looking to replace that K relationship.

The way the safety net works is that we all pay in and hope we never have to pull out.  When we pull out it’s because we’ve had a problem, an illness, an accident.  Everyone’s certainty and well-being is bolstered by this paid-in community.

Problems can arise, of course.  If the community itself quakes, as in the aftermath from hurricane Katrina, then the entire safety net falters.

Many of these quakes are fascinating (see the operative payout system from the World Trade Center’s layered insurance K’s for a great example).  But as with any market system, the key is to create a strong core.  Insurance law is about creating incentives for insurance companies to cement solid financials.  This way, when disaster strikes, companies can and will pay out, and they will do it properly.

Because we’re pursuing a single goal — getting as many people care as need it, and getting that care properly — we need to examine the problem.  First, most uninsured Americans aren’t uninsured bc they can’t afford it; they’re uninsured bc they choose not to keep insurance.

Not keeping insurance is a perfectly valid choice.  Perhaps not the most sophisticated choice, but it’s a valid choice nonetheless.  Indeed, for those healthy or wealthy enough not to fear uncertainty, those thousands of dollars a year saved on unrealized insurance premiums can certainly fund any problems encountered later in life.

It’s for those endgame problems that insurance companies collect such high premiums.  Yes, it sounds expensive to pay in now, but consider the cost of therapy later on.

When a patient undergoes chemotherapy, for example, one incidental cost covers daily vials to replenish or replicate lost immunity when white blood cells falter.  Each vial costs over three thousand dollars.  Add to this the other major non-incidental costs, and insurers’ high premiums come into stark perspective.

It makes sense that insurers would be so diligent about keeping pre-existing conditions out.  But what if there were some provision to cover cancer patients, rather than simply dropping them at the first loopholed opportunity?

The way the system works now is that an insured keeps paying roughly similar premiums over the course of his insurance.  Those premiums rise under certain conditions, but by and large insurance companies simply let patients pay a deductible up to the cost of a treatment.  Insurance companies pay strict attention to which treatments patients pursue, and the companies govern when and how patients may try a given route.

What if insureds had an option to switch from, say, Aetna to a wholly-owned subsidiary, like Aetna Cancer, upon diagnosis?  Patients would pay much higher premiums upon switching, but they would also gain a huge array of better options.  Treatment centers closer to home, for example, or a more permissive range of experimental treatments.

Would companies go for this?  Financially it likely makes sense.  If I know Aetna allows me to switch and maintain this option if I get diagnosed, I may well choose this company over one I know will keep me on a strict plan if I get cancer.  So the market would likely respond favorably by buying more regular Aetna, and possibly paying higher premiums all along, to preserve that right to Aetna C.

What about preexisting conditions?  I can’t help but think I’d pay more for Aetna, to preserve switchability, if I know cancer runs in my family.  The entire market response may well correspond to each respondent’s anticipated risk.

How would this change Aetna’s screening diagnostics for hopeful insureds?  Aetna would have to consider the fact that each insured will have the option to pay more later in life and get a better range of choices.  May Aetna change the point at which a condition becomes “preexisting”?  Can a company do that, legally?

Do insurance companies ask for detailed family history now?  Is it harder for adopted folks to get insurance?  If someone has an insuppressible family history and is denied insurance because of it, does that constitute discrimination?  If a healthy person w/ a family history of heart disease and a predilection for beef is denied, is that discrimination on a too-loose definition of “preexisting condition”?

The major benefit of letting people switch to better subsidiary coverage is that doctors would still get paid.  This wouldn’t accomplish the same sort of wave to better care that we’d get w/ tort reform, but it would slightly loose our grip on doctors’ shorter hairs such that they wouldn’t be quite so unwilling to touch a patient — or, perhaps more insidious, to medicate a patient rather than treat.

More to come.  This is interesting.

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Washington’s Treacherous Trains

Can you tell someone at the WaPo isn’t thrilledwith WMATA’s decision to close three critical stations in Northern Virginia this weekend, including the one at Reagan National?  What does Metro think we are, Maryland?

Washington’s Metro ranks among the best in the world.  In the New York subway, bums routinely cordon off huge train segments to use as their makeshift hobo abodes (“hobodes”; you’ll repeat it).  In Caracas, Venezuela, unionized subway cleaners paid by the job nudge unsuspecting riders onto the tracks to create a gruesome mess on otherwise-clean, non-paying days.  DC’s high prices and strict control over food and bag policies keep the metro commuter-friendly and safer than almost any other system on earth.

I’ve written about the terrible risks WMATA takes.  Not only does Metro remain reluctant to replace worn-out cars until they’re objectively dangerous (read: smashed); we’re also looking at pervasive, patterned problems WMATA never fixed in the early 2000’s, which still plague our system as we speak.

Here’s the link to Sunday’s WaPo story about that 2005 near-miss, and here’s the gist of it.

The train’s crash avoidance system indicated that the track ahead was clear, but Mitchell sensed danger in the distance. He decided to override the system and brake manually — then watched helplessly as his train rolled to a stop just 35 feet short of a train ahead.

As a shaken Mitchell radioed Metro supervisors, he was interrupted by the operator of the train behind him, who announced that he had just caught sight of Mitchell’s train and hit his emergency brake. “You could hear the panic in his voice,” Mitchell said. That train ground to a halt 20 feet short of Mitchell’s.

Dear Metro: “Insurance” doesn’t mean you hoard tax-sheltered money so you can pay liabilities as they come due.  Doesn’t it make more sense to fix your brakes, protect your riders, and stop putting the highest concentration of lawyers in the country* — probably in the entire world — in danger!  I’d happily pay higher rates for a better probability of not getting smashed in a pile-up — which, given your recent track record, is pretty firmly on my mind.

Xoxo!

*The relevant Google search term is “attorneys per capita.”  Yes.

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What is Happening to Washington’s Metro?

If you shake a haystack and a needle falls out, it’s safe to assume the haystack is full of needles.  Last month’s Metro crash may have been just such a needle, a symptom of a much greater problem in Washington’s transit system.


Washington Post reports that diagnostics since last month’s crash indicate Metro-wide technical failures.  Four of five lines show large “dark” tracts where circuits cannot detect trains’ presence. Conductors rely on these circuits to maintain safe distances between trains.  When circuits fail, nothing forces dangerously close trains to stop.


Metro chief Dave Kubicek acknowledged dangerous technical “anomalies.”  Federal officials have helped Metro scrutinize circuitry failures.  But no investigators have identified the cause of last month’s crash.  In fact, other than analyze the site where critical equipment was replaced days before the crash, officials have done nothing to determine whether circuitry failures caused the accident.


Nor has Metro replaced uncrashworthy cars responsible for eighty-nine casualties June 22. Private companies provide cars and materials in return for tax exemptions affiliated with Metro’s public utility.  Metro replaces cars only when materials themselves are damaged.  Unfortunately, only severe damage can compel Metro to address the problem.  Officials knew in 2004 that their cars were barely fit for passengers, and received an “urgent” warning from federal officials. But Metro did not plan to replace those cars until 2015.


Transparency is the best strategy.  If the 2004 memos had been public, market forces would have pressured Metro to replace dangerous equipment.  Costs would have been steep at the time, but cheaper than the increased premiums insurers will demand because Metro clearly does not take steps to protect itself from accident liability.


Already Metro denies the extent of its failures.  Rather than fix the problem, Metro maintains a fund for inevitable negligence suits. One wrongful death suit already filed requests $25 million. Metro could have put that money towards safer cars and functioning circuitry.


What a shame that the dollar-and-cent incentives in place direct the Metro to find and share a tax shelter, rather than to protect the very public whose taxes shelter the Metro’s existence itself.

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A tangled web for America’s subway

Sometimes God truly is in the details. Monday’s Metro crash killed 9 people and injured 76. Because the trains allided in DC rather than in nearby Maryland, no damages caps limit payouts in injured riders’ liability suits. Maryland caps the total damages paid to negligence casualties at $200,000.

The first suit filed in this crash requests nearly five times that amount, for injuries relatively minor compared to the victims crushed in the second car.

The onslaught began Wednesday, when the parents of 15-year-old Davonne Flanagan accused the District of “negligent maintenance” and “negligent operation.” Davonne, who was in the first car of the striking train, broke his leg. His parents are seeking $950,000.

Metro started the post-crash rhetoric with flimsy finger-pointing at Jeanice McMillan, the operator who died in the crash. If McMillan’s negligence hadcaused the crash, Metro would still be liable under agency theory. But the paper trail revealed since Monday provides evidence of a more pervasive, insidious negligence: In plain language, federal officials told Metro these trains were barely fit for passengers in 2004. The feds investigated a crash in Shady Grove in 2004 and another brake failure in Woodley Park a year later and issued an “urgent” warning.

Metro might try to blame the manufacturers who supplied the faulty cars and brake equipment. But the memos alleging over-used cars and too-old equipment mean even that argument is couched in very little credibility. The suits will likely succeed to settlement.

Not so fast. Metro couldn’t replace the uncrashworthy cars. Apparently Metro shares a tax shelter relationship with a private bank, which supplied cars and materials through private companies in return for the tax exempt status Metro itself enjoys as a public utility. Like the incident-requiring nature of the law itself, Metro materials are not ripe for replacing unless the materials themselves are damaged.

Metro has no ability to terminate leasing deals precluding Metro from replacing worn — or even unsafe — cars until the assets themselves are damaged. Metro officials knew in 2004 that their 30-year-old cars were dangerously old. But Metro did not plan to replace those cars until 2015.

The final blow for metro?

Such lawsuits are typically covered by insurance. But Metro’s board learned Thursday the transit system’s insurance policy was set to expire at midnight Tuesday. Normally the agency would have been able to renew the policy with set costs, but Chief Financial Officer Carol Kissal said the crash would end those rates and bring on higher but yet to be determined insurance premiums.

Transparency, once again, is always the best strategy. If the 2004 memos had been public the market — through an editorial-writing, transportation-choosing public — would have insisted that we replace dangerous cars and faulty rail. Costs would have been steep at the time, but cheaper than the increase in premiums after insurers see that Metro clearly does not take steps to protect itself from accident liability they will have to cover.

The market is the best insurance. Keep information transparent and communication free. How many times do we have to learn these obvious lessons before we start changing our behavior?

A more interesting question concerns the incentives this tax structure provides for Metro itself. If WMATA cannot replace the cars it knows are dangerous, does its insurance reflect that? Evidently Metro has reaped huge benefits from its tax-sharing relationships. Its capital gains from this venture will cover new, hiked premiums and settlement fees with crash victims.

What a shame that the dollar-and-cent incentives in place direct the Metro to find and share a tax shelter, rather than to protect the very public whose taxes shelter the Metro’s existence itself.

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Metro Liability Insurance

Sometimes God truly is in the details. Monday’s Metro crash killed 9 people and injured 76. Because the trains allided* in DC rather than in nearby Maryland, no damages caps limit payouts in injured riders’ liability suits. Maryland caps the total damages paid to negligence casualties at $200,000. The first suit filed in this crash requests nearly five times that amount, for injuries relatively minor compared to the victims crushed in the second car.

The onslaught began Wednesday, when the parents of 15-year-old Davonne Flanagan accused the District of “negligent maintenance” and “negligent operation.” Davonne, who was in the first car of the striking train, fractured his leg. His parents are seeking $950,000.

Metro started the crash rhetoric with flimsy finger-pointing at Jeanice McMillan, the operator who died in the crash. If McMillan’s negligence had caused the crash, Metro would still be liable under agency theory. But the paper trail revealed since Monday provides evidence of a more pervasive, insidious negligence:

In fact, McMillan’s train, we have learned, might have had faulty brakes. We have learned that federal officials warned Metro five years ago that 1000-series trains were not safe, had lousy brakes and were “un-crashworthy.”

D.C. Del. Eleanor Holmes Norton spoke with National Transportation Safety Board member Debbie Hersman and Metro chief John Catoe on Tuesday and said — with an unfortunate choice of words: “What was striking about my conversations with these two top officials was their agreement that the most seriously damaged car, the striking car, was part of the ‘1000 series’ that had received an NTSB ‘urgent safety recommendation’ for phase-out or retrofitting. . . .”

In plain language, federal officials told Metro these trains were barely fit for passengers in 2004. The feds investigated a crash in Shady Grove in 2004 and another brake failure in Woodley Park a year later and issued an “urgent” warning.

Metro might try to blame the manufacturers who supplied the faulty cars and brake equipment. But the memos alleging over-used cars and too-old equipment mean even that argument is couched in very little credibility. So the suits will likely succeed.

But it seems that Metro couldn’t replace the un-crashworthy cars.  Apparently Metro shares a tax shelter relationship with a private bank, which supplied cars and materials through private companies in return for the tax exempt status Metro itself enjoys as a public utility.  Like the incident-requiring nature of the law itself, Metro materials are not ripe for replacing unless the materials themselves are damaged.

The National Transportation Safety Board recommended in March 2006 that Metro either accelerate retirement of the 30-year-old, Rohr 1000-series railcars or retrofit the cars to better withstand collisions. That recommendation came after NTSB’s investigation into a 2004 collision in the Metro system.

In a Jan. 10, 2007, response to NTSB, Metro officials wrote: “WMATA is constrained by tax advantage leases, which require that WMATA keep the 1000 Series cars in service at least until the end of 2014. The 296 Rohr railcars make up over a third of WMATA’s current rail fleet and have performed well for over thirty years.”

Metro said it would replace the cars in 2015.

Carol Kissal, chief financial officer at Metro, said in an interview that the decision not to replace the cars until 2015, and ignore the NTSB recommendation, was primarily based on the expectation that the cars would be used until the end of their 40-year life, and not because of restrictions from the leasing deals.

She said the leasing agreements didn’t explicitly prohibit Metro from retiring older cars. But most other cars that Metro could have used to replace the 1000-series cars were themselves under leasing arrangements that could not be terminated, Kissal said. “We could have replaced the asset, under most of the tax contracts,” said Kissal. “But we did not have any free, clear, unencumbered assets to replace it with.”

She said Metro had no ability to terminate the leasing deals, unless the assets themselves were damaged.

The final blow for metro?

Such lawsuits are typically covered by insurance coverage. But Metro’s board learned Thursday the transit system’s insurance policy was set to expire at midnight Tuesday. Normally the agency would have been able to renew the policy with set costs, but Chief Financial Officer Carol Kissal said the crash would end those rates and bring on higher but yet to be determined insurance premiums.

Oh, DC. Don’t you know that transparency is always the best strategy? If those memos had been public the market would have insisted that we replace dangerous cars and admittedly faulty rail. Costs would have been steep at the time, but cheaper than the increase in your premiums after insurers see that you clearly do not take steps to protect yourself from accident liability they will have to cover.

The market is the best insurance. Keep information transparent and communication free. How many times do we have to learn these obvious lessons before we start changing our behavior? Be rational — do yourself a favor and respond to incentives!

A more interesting question concerns the incentives this tax structure provides for Metro itself.  If WMATA cannot replace the cars it knows are dangerous, does its insurance reflect that?  Evidently Metro has reaped huge benefits from its tax-sharing relationships.  Its capital gains from this venture will cover new, hiked premiums and settlement fees with crash victims.  But what a shame that the dollar-and-cent incentives direct the Metro to find and share a tax shelter, rather than to protect the very public whose taxes shelter the Metro’s existence itself.

*Grammar lesson du jour: a “collision” requires that two objects both move towards each other, causing crash; if only one object crashes into a still object that is an “allision.”

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