Monthly Archives: September 2010

(Fraudulent) Claim of the Week: Glass-eating scam busted

Not much I can add to this AP report, via Insurance Journal:

A Massachusetts woman admits that she and her husband intentionally ate glass particles, then submitted false insurance claims.

Mary Evano pleaded guilty Tuesday to a 23-count indictment charging her with fraud, conspiracy and other offenses.

The indictment alleged that between 1997 and 2005, the couple collected more than $200,000 in compensation after filing insurance claims that they had been injured by restaurants, hotels and grocery stores that had served them food containing glass particles.

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Milliman, S&P to publish health care trend index

Quoth Business Insurance:

The indices will attempt to reflect per capita changes in total allowed claims costs incurred by patients—through their copayments—and health care benefit plans for services provided by hospitals and physicians.

Sounds like an index to cover increases in ground-up claim costs, instead of measuring rate changes.

When launched, details will be at http://www.standardandpoors.com/indices

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EU may ban gender-based insurance rates

The EU may ban underwriting based on gender, the Wall Street Journal reports.

An advocate general for the EU courts has determined that charging men and women different rates violates anti-discrimination codes. The treaty that created the EU bans discrimination but there is an exemption for insurance products. The AG proposes overturning that exemption.

But the exemption is there for a pretty good reason – the discrimination is actuarially appropriate. For life insurance, women live longer than men. In auto insurance, women are in fewer accidents, and those accidents tend to be less serious. And rates are adjusted accordingly.

The advocate general’s opinion doesn’t mean a ban is in place. The opinion is advice to the court, somewhat like an attorney general’s opinion in the United States. Often courts follow the advice, but they don’t have to.

It would be smart for the court to turn away from this opinion.

In the U.S., actuaries learn (frankly, we must memorize over and over) that prices must not be unfairly discriminatory, emphasis on unfairly. And gender is a very good rating variable. It is objective and not subject to manipulation (except at the extreme – doubting that many guys will go under the knife to get a better deal from the gecko). It is a good predictor of behavior.

Remove this variable, and insurers could look for proxies that align closely with gender, an absurd example being whether the customer prefers to watch Monday Night Football or Glee?

(This article is behind the WSJ firewall, but if you want to read the whole thing:

  • Call up the partial article.
  • Copy the url link
  • Open google.com
  • Paste the link into the search box. The search engine will find one article.
  • Follow the link to that article.

Don’t know if the Journal does this on purpose or if it’s a glitch, but it has been there for months.)

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More slow-go on Solvency II

Only a few months ago, S-II implementation was pushed back to year end 2012. Now European regulators are hinting the new capital regulations will be phased in more slowly. Reuters:

Regulators may prove agile on timing, [top EU insurance regulator Gabriel] Bernardino said.

“What we envisage to be possible is to have some kind of transition period, where some areas can be implemented (gradually over time),” he said.

“Solvency II as a whole, as framework, we believe could and should be implemented in 2013.”

The problem, of course, is the dislocation the new standards will cause. Larger firms, in general, are well set. Smaller companies lack the capital they will need. They can rent it (reinsurance) or get new investors, the latter being problematic for mutuals, whose capital comes from policyholders.

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Lloyd’s results: not so bad

A lot of buzzing the past day or so about Lloyd’s of London’s first-half profits. Business Insurance was typical:

LONDON—Lloyd’s of London said its pretax profit fell by more than half during the first six months of this year due to significant claims and reduced investment returns.

Lloyd’s said Tuesday that its pretax profit was £628 million ($994 million) for the first six months of this year compared with £1.32 billion ($2.09 billion) for the first half of last year.

Lloyd’s, remember, is not an insurance company. It’s a consortium of independent underwriters – these days usually backed by a major insurer or reinsurer. The results are a pro forma aggregation of those underwriters, meaning all the results are added together to show how Lloyd’s would be performing were it a single company. (Lloyd’s releases on results are here.)

But are those results really so bad? Reactions, in one of its always welcome free articles, does the sanity check:

OK, profits were halved but otherwise the important numbers were as good if not better than their peers. Compare the Lloyd’s market’s results to the Aon Benfield Aggregate for example. Aon Benfield’s index of reinsurers saw their combined ratio lift to 100 from 89.8, where Lloyd’s managed to keep theirs under the psychologically critical break-even point.

I’d add that the first six months were a tough time for international catastrophes. So far this year, Lloyd’s has been hit by:

  • Chilean earthquake: $1.4 billion
  • Deepwater Horizon oil rig disaster: $300 million to $600 million.
  • Winter weather in Europe and the United States: $100 million.

It’s not clear from what I’ve read whether those losses are gross or net of reinsurance, but $2 billion (£1.33 billion) of claims looks like about 10 points on the loss ratio. And 2009 was a light year for catastrophes. So the disasters almost bridge the difference in 2010 vs. 2009 results. Continue reading

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(Denied) claim of the week: Insurer denies hole-in-one claim

Santa Fe New Mexican reports on a guy who hit a hole-in-one to win an SUV. But not so fast:

… After Robert Gabaldon of Albuquerque sunk his ball with a single stroke, Hole in One International denied the claim because it measured the distance from the tee to the No. 8 hole at 179 yards — while tournament officials had insured it at more than 190 yards.

These sorts of contests (half-court shots for $1 million, kick a field goal for a trip around the world, etc.) are often insured. It’s fairly simple. The insurer underwrites a bunch of these contests and absorbs the risk of the exceptional event.

Now insurance is a contract, not a feel-good proposition. Claims that don’t fall under the contract should be denied. But we’re talking about 30 feet here. I don’t think the shorter distance made the hole that much easier. It’s not like going from Pebble Beach to Putt-Putt.

And the hole may actually have been the length the insured claimed it was, according to Scott Simkins, the manager of Chalmers Capitol Ford, the dealership that bought the policy.

Simkins said he believes the No. 8 hole measured more than 190 yards on the day of the tournament because the tees had been placed at the back of the tee box. But when the company agent measured the distance, he said, the tees had been moved back to the front of the tee box.

The lucky golfer drove away happy, though.

Nevertheless, he said, Chalmers Capitol Ford turned over to [golfer Robert] Gabaldon a nice, used Expedition worth $25,000 “because it was the right thing to do.”

The insurer has reopened the claim, which is a good idea. Denying claims like these doesn’t help your long-term operations. And if you are going to deny claims like these, you should underwrite more tightly – getting the length of the hole measured in advance, so your actuaries can adjust the premium to reflect the risk.

Or maybe checking the internet.

“It’s kind of an ongoing saga,” Simkins said Friday. “In the interim, I’m out $25,000. … We won’t be dealing with them in the future. Unfortunately, they’ve really kind of soured me as being a hole sponsor for golf tournaments.”

(h/t iii.org)

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Keep those deer out of your headlights

I was never a marksman, but every fall my brother would skip a week of school and hunt deer with my dad in Southern Illinois. For Mike this usually meant a prize buck and a bad grade in Electronics class.

Hunting season is in fall because that’s when deer rut. Turns out common sense and testosterone are inversely related. (Who knew?) So fall is when they are most vulnerable to hunters.

They are also more vulnerable to cars. The feds estimate more than 1.5 million car-deer accidents per year, and State Farm puts the annual death toll at 150 – humans, that is. The deer do quite a bit worse.

To help keep them safe, GEICO has this handy quiz. I got seven right. (H/t to my wife, who got nine.)

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Quotable: Risk management edition

Risk management is all about culture and personal judgment. I remember pondering the question, “How high is up” at a Windows on Risk meeting at Citibank. The most senior management were sitting around the table. We came to our answer by asking the following question: What was the amount of loss we would be embarrassed to read about in the WSJ? That number, it turned out, was not very high, at least in the judgment of the people sitting around that table. News of that decision got around and had an impact on the company culture.

That’s one way to assess risk!

The quote is David X. Martin, author of Risk and the Smart Investor, responding in an email interview in the Aleph Blog. Blog creator (and life actuary) David Merkel reviews the book here.

Update: A live interview here.

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Actuarial tidbits

A couple of things I’ve been saving up:

  • The U.S. accounting board, FASB, seeks comment on financial reporting rules for insurance companies. The wonky background: The international accounting board (IASB) is overhauling its rules governing insurance, and the U.S. organization wants to follow along, though there will be some differences. (I wrote about the IASB proposals here.) From an actuary’s perspective, the big difference concerns risk margins. IASB wants separate margins for the risk in the contract and the release of profits from the contract. FASB wants to combine those.
  • I’ve blogged that the New York Insurance Exchange is waiting for political sponsorship to emerge after NY Gov. Paterson’s term ends. Insurance Journal provides another view – that the proposal awaits industry sponsorship. Remember the exchange would basically be a Lloyd’s of London for the Western Hemisphere, providing lots of jobs for actuaries and other enterprising insurance personnel.
  • Strictly personal: Here’s my mom at Wrigley on her 90th – everyone in the section is singing Happy Birthday:

    Happy Birthday, Mom!

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