Private Health Insurance

Private Health Insurance may be obtained on a group basis.  A company may choose to cover its employees.  On the other hand private health insurance may be purchased by individuals for their own account. According to the United States Census Bureau, about 60% of Americans are covered through an employer.   Approximately 9% purchase private health insurance directly.

Employer-Sponsored

As part of an employee’s benefit package, employers pay for private health insurance on behalf of their employees. Most private health insurance in the United States is therefore employment-based.  Employers in general pay about 85% of the insurance premium for their employees and 75% for their employees’ dependents. The employee pays the remaining part of the private health insurance premium due.

Regarding private health insurance in the United States, the range of products is similar to those provided through employers. However, average out-of-pocket spending is higher in the individual market. Examples are higher deductibles, co payments and other cost-sharing provisions. A major medical health insurance policy is the most commonly purchased form of individual health insurance.  It is primarily a catastrophic plan. However, qualified preventive benefits are still covered at 100% without any waiting period or copayment.

Most consumers in the individual market do not receive any tax benefits. Self-employed individuals receive a tax deduction for their private health insurance for additional tax benefits.

Age and health status affect premiums significantly in states that allow individual medical plan underwriting. The Patient Protection and Affordable Care Act, which came into effect in 2014, prohibits any discrimination against or charging higher rates for individuals based on pre-existing medical conditions.

The Hartford Courant, the largest daily newspaper in the U. S. state of Connecticut, reported in August 2008 that competition was increasing in the individual health insurance market. More insurers were entering the market with an increased variety of products as well as a broader spread of prices.

New Types of Private Health Insurance

High-deductible health plan (HDHP)

These plans primarily provide for catastrophic illness.  They thus have higher deductibles than traditional health plans. Very little coverage is provided for everyday expenses.  Therefore they have potentially high out-of-pocket expenses. Various forms of savings plans are coupled with these plans.

Tax-preferenced health care spending account

In 2003 President George W. Bush signed into law the Medicare Prescription Drug Improvement and Modernisation Act.

This law created:

Health Savings Accounts (HSAs) which are tax-deductible. In order to deposit pre-tax funds in an HSA, a consumer must be enrolled in a high-deductible insurance plan. There are a number of restrictions on benefit design. The minimum deductible is $1200 for individuals and $2400 for families.

Untaxed private bank accounts for medical expenses, which can be established by those who already have private health insurance. Withdrawals from HSAs are only penalised if the money is spent on non-medical items or service. In order to deposit pre-tax funds in an HSA, a consumer must be enrolled in a high-deductible insurance plan.

There are a number of restrictions on benefit design. The minimum deductible is $1200 for individuals and $2400 for families. In order to deposit pre-tax funds in an HSA, a consumer must be enrolled in a high-deductible insurance plan. There are a number of restrictions on benefit design.
To deposit pre-tax funds in an HSA, a consumer must be enrolled in a high-deductible insurance plan. There are a number of restrictions on benefit design.

Limited benefit plan

These plans pay for routine care and especially relevant do not pay for catastrophic care.

Discount Medical Card

This option is becoming more popular. These cards are not insurance plans but provide access to discounts from participating healthcare providers. While some offer a degree of value, there are serious potential drawbacks for the consumer.

Due to the higher prices of and limited access to private health insurance, discount medical cards are growing in popularity. After private health insurance price hikes, some small businesses and individuals drop their private health insurance.  They then obtain discount medical cards.

A person with a pre-existing condition may find the card attractive as the pre-existing condition may make them only eligible for high-priced policies. No medical examinations are required. All people regardless of age or pre-existing condition pay the same cost.

Unfortunately there are consumers who are under the wrong impression.  They believe that the cards are insurance policies. There is no data on how many people have a discount medical card. Promoters of discount cards are generally not regulated or licensed. This results in few standards that apply to sales or sales methods. Marketing materials that are used include scare tactics, misleading information and exaggeration to attract buyers.

Short Term Health Insurance

These plans have a short policy period (typically months) and are intended for people who only need private health insurance for a short time period.  Temporary health plans offer individuals and families an affordable solution.  The application process is quick and easy.   There is peace of mind that comes with knowing you have health insurance should an accident or unexpected illness occur.

This type of coverage helps protect your health and finances when you are in between major medical insurance plans. Because temporary health insurance plans are not intended for the long term, their benefits are less robust than major medical plans. They are not considered qualified plans under Obamacare and, therefore, do not include the essential health benefits. A temporary health insurance plan will not prevent you from owing a tax penalty for going without minimum essential coverage. Additionally, temporary plans may still deny applicants or limit coverage based on pre-existing conditions.

Health Care Sharing

A health care sharing ministry is an organisation that facilitates sharing of healthcare costs between individual members who have common ethical or religious beliefs in the United States. Twenty eight states have laws that recognise health care ministries as distinct from health insurance organisations.  240, 000 Americans participate in health care sharing. Among those 240, 000 participants, more than $180 million are shared per year to pay for one another’s medical bills.

Perpetual Home Insurance

Perpetual Home Insurance is quite a rare option that a homeowner would choose over and above traditional home insurance. This policy is written to have no term, or date, when the policy expires. From the effective start date, the coverage exists for perpetuity.

The insured deposits money, called a deposit premium, with the insurer.  It is many times larger than the cost of a non-refundable annual premium for a traditional home insurance policy. When you no longer need the coverage, the deposit premium is returned to you.

The deposit required for perpetual home insurance is usually 15 – 20 times the annual cost of a traditional insurance. The perpetual home insurance company invests the deposit.  It uses the proceeds of investments (interest and dividends) to cover claims, administrative costs and of course profits. Since the insurance company has your deposit, you lose the ability to invest in alternatives like stocks bonds and savings accounts.

The best reason to choose a perpetual home insurance policy is for the tax benefits.

Payments for traditional home insurance are not deductible. That is to say, if you pay $1000 per year for insurance and you are in a 25% marginal tax bracket, you must earn $1, 333 to pay the insurance plan. (25% of $1, 333 is $333 – the portion that is taken by the government). The non-cash insurance benefit from a perpetual home insurance company is, however, not taxed as income to the recipient.

All things being equal, a perpetual home insurance plan is the fixed rate? $1000 of insurance that often accompanies a perpetual home insurance policy. This allows you to purchase additional insurance as your property value increases at a predefined purchase rate.

WHAT ARE THE RISKS?

While it may at first seem that the $15, 000 deposit premium is the most significant component of the risk, it is not. As with any insurance decisions, the most important question is whether the company is prepared to pay in the event of a substantial claim.

This is the question that should be asked of all insurance companies, both traditional and perpetual. It would serve a purchaser well to investigate the company as well as its financial performance before signing up. Fortunately, in the United States, there are considerable capital retention regulations placed on most insurance companies where you are only at risk in the event of a claim. With a perpetual company you constantly have the deposit premium at risk.

Essentially you are gaining the tax and fixed purchase-rate benefits at the expense of increased risk.

EVALUATING PERPETUAL INSURANCE INVESTMENT PERFORMANCE

If we assume perpetual home insurance costs 16 times an annual insurance policy, that means an average tax-free return of 6.25%. If you are in the 25% tax bracket, this is equivalent to an 8.31% return.

You can then compare this with other taxed and tax-free options (like mutual bonds) to determine whether the investment makes sense. Of course, the 16 x assumption is important. If the number rises, say to 25 X, it may be better to invest in something else and simply buy the traditional annual option.

PERPETUAL HOME INSURANCE vs TRADITIONAL INSURANCE

Given that you are investing a sizeable lump sum of money into a single company, we think perpetual insurance makes sense only for the people who have:

More than $100, 000 in non-home, non-retirement investment assets;

Are in a tax bracket at least 25% (the higher the bracket, the bigger the advantage);

View their perpetual policy as a component of an overall coordinated investment strategy;

Have no high interest credit card or other debt;

Are willing to put in the effort to evaluate the insurance company.

An example:

As of the end of 2013, Baltimore equitable had assets of $156, 000 million, nearly all of it liquid, and liabilities of $47, 000 million in the form of deposits. It means they could refund every dollar of deposit they hold 3.3. times.

A few companies that offer the coverage:

Mutual Assurance
Cincinnati Equitable
Baltimore Equitable
Philadelphia Equitable

BOE Insurance

The ability to continue business operations while the business is  disabled can be reassuring to your customers, creditors and employees. Without BOE insurance, you might find yourself using personal funds or taking on debt to meet business expenses.

You might even be forced to close the business. With this coverage, you will be able to keep your business afloat, at least for a period of time. And if you decide to sell your business after becoming disabled, the benefits paid under such a policy can keep your business operating and give you some breathing space to find a suitable buyer.

Business overhead expense (BOE) disability insurance also known as Business Expense Insurance, pays the insured’s business overhead expenses if he or she becomes disabled. A BOE policy pays a monthly benefit based on actual expenses, not anticipated profits. It is designed for businesses that rely on a small number of people (or one person) to produce a revenue.

The owner is reimbursed for existing overhead expenses incurred while he/she is disabled, keeping the company up and running while the owner recovers.

The following business overheads are typically covered by a BOE disability policy:
Rent
Interest payments on some business debts
Utilities
Employee’s salaries and payroll taxes.
Postage and stationery
Equipment maintenance
Rentals, leases, or depreciation of office equipment
Taxes on the business property
Insurance premiums for Workers’ Compensation, employee medical and liability
Accounting fees
Professional membership and subscriptions

Policies do not typically cover the salary of a temporary employee hired to do the duties of the disabled, unless a substitute salary expense or similar rider is purchased with the policy. Income taxes and the cost of inventory are some expenses that are not covered.

Benefit periods: BOE insurance policies have short benefit periods that do not usually exceed two years.

Elimination period: BOE policies typically have short elimination periods; either 30, 60 or 90 days.

Maximum benefits: BOE insurance policies offer a maximum monthly benefit, but only reimburses the policyholder for actual overhead expenses incurred if they, are less than or equal to the maximum benefit. With some insurers, any unused benefit can be applied to increase future monthly maximums or to extend the benefit period.

Taxation: BOE insurance benefits are reportable as income and the premiums are tax deductible as a business expense.

Rates: BOE insurance rates are based on the insured’s age (at time of purchase), occupational duties, health status, optional riders selected, benefit period and elimination period.

Once BOE insurance is owned, coverage cannot be increased without providing evidence of medical insurability, unless a future increase option or similar rider is purchased at the time of policy issue.

You may apply for coverage if you are between ages 18 and 60.
The plan is non-cancelable until you reach the age of 65. After age 65, it is conditionally renewable, as long as you remain employed full-time (minimum of 30 hours per week) and are responsible for the expenses of maintaining an office or business.
Benefits can be paid over a period of time of either 15 or 24 months.
Benefits may start after as few as 15 days of disability.
Premiums may be tax deductible as a business expense.
Various options are available, including the ability to increase your coverage at a later date.
If appropriate, return to work assistance may be provided to support your transition back to work.

THE COST OF BOE INSURANCE

Cost of the insurance will be based on several variables, including your age, sex (women pay higher rates because statistically, they live longer but are more prone to become disabled). The risk category of your profession, your medical background, whether you smoke, and, of course, the coverage you need. Obviously, you will pay more for a policy that pays $15, 000 a month for two years than a policy that pays $5, 000 for six months. Your payments will rise as you age. The policy that is dirt cheap in your 30s could cost you a fortune in your 60s.

Premiums run between $2, 000 and $10, 000 a year, for coverage between $50, 000 and $75, 000 a year.

The best policies on the market are those that are noncancellable and guaranteed renewable. With that policy the carrier can never ever change any provision of the policy regardless of how many times an insured person files a claim. If the policy is only guaranteed renewable, you cannot be dropped, but the insurance company can raise the premium.

Casualty Insurance Part 2

Part 2 of Casualty Insurance covers five important categories:

Umbrella Liability
Excess Liability
Workers’ Compensation
Professional Liability (Medical malpractice)
Environmental liability

EXCESS LIABILITY

There is a distinct difference between an Umbrella and Excess Liability policy.  They come under the heading of casualty insurance.

Umbrella Liability provides excess limits of liability above your underlying policies.  It may also provide protection when no underlying insurance applies. This also broadens your businesses’ insurance program in order to help close gaps in coverage.

WORKERS’ COMPENSATION

In 1855 Georgia and Alabama passed Employer Liability Acts; 26 other states passed similar acts between 1855 and 1907. These acts permitted injured employees to sue the employer.  They then  had to prove a negligent act or omission.

Workers’ Compensation is a form of casualty insurance. It provides  wage restoration and medical benefits to injured employees.

Almost every business whether large or small in the United States that has employees has to handle the problem of Workers’ Compensation. Most states essentially require employers to buy a casualty insurance policy. The purpose is to manage their obligations to workers who are injured or become ill as a result of workplace hazards.

Beginning in 1911, an historic compromise solution was devised by the various states. Wisconsin was the first.   Other states quickly followed, enacting a “no fault” system. This was intended to make sure workers received fair and speedy medical treatment and financial remuneration for injuries and illness at work. The compromise system also established limits on the obligations of employees for these workplace exposures.

Today, modern Workers’ Compensation laws provide fairly broad and specific benefits to workers who suffer workplace injuries and illnesses.

These compensations include lost income, medical expenses, death benefits and job-related rehabilitation. Employers who do not carry workers’ compensation insurance and comply with a state’s requirements, leave themselves vulnerable to paying these benefits out of their own pockets as well as facing penalty charges by the states.

The states differ in that most jurisdictions employers can meet their obligations by purchasing a casualty insurance policy from an insurance company. However, five states and two U. S. Territories (North Dakota, Ohio, Puerto Rico, the U. S. Virgin Islands, Washington, West Virginia, or Wyoming) require employers to get coverage exclusively through state-operated funds. If you are an employer doing business in any of those jurisdictions, you need to obtain coverage from the specified government-run fund. These are commonly called monopoly state funds. A business cannot meet its workers’ compensation obligations in these jurisdictions with private insurance.

PROFESSIONAL LIABILITY (MEDICAL MALPRACTICE)

Medical malpractice insurance covers doctors and other professionals in the medical field. It is for liability claims arising from their treatment of patients.

The cost of medical malpractice insurance began to rise in the early 2000s after a period of essentially flat prices. Rate increases were due in part to the growing size of claims, particularly in urban areas. Among the other factors driving up prices was a reduced supply of available coverage.  Several major insurers exited the medical malpractice business because of the difficulty of making a profit.

The frequency of claims has fluctuated. In the 1980s, the number of medical malpractice claims filed appeared to increase. Reasons for the increase are not entirely clear, but several contributing factors have been suggested. In addition to the fact that people became more litigious than in the past, the crisis of the 1970s which was extensively reported by the media, may have made people more aware of the possibility of suing for damages. Other factors were the loss of an intimate relationship between families and their doctors and the use of medical experts to testify in malpractice cases. Physicians have also accused lawyers of being excessively eager to bring malpractice suits because of the high fees the lawyers can collect when their clients win.

The cost of defending a medical malpractice lawsuit continues to climb, as does the cost of liability insurance premiums for some specialists according to a report by the American Medical Association (AMA). The average expense of defending a physician against a medical liability claim in 2010 was $47, 158 – an increase of 62.7% since 2001.

In 2010, 63.7% of closed claims against physicians were dropped, withdrawn, or dismissed without any payment. Each of these claims costs an average of $26, 851 to defend, accounting for more than one third of the total annual defense expenses.

Of the claims that reached a jury verdict, 8% were in favour of the physician or other medical provider and 0.6% were in favour of the plaintiff.

The average medical liability indemnity payment to the plaintiff in 2010 was $331, 947 – an increase of 11.5% since 2001. The portion of medical liability insurance policies with limits exceeding $1million has increased from 28% to 41% since 2001.

ENVIRONMENTAL LIABILITY INSURANCE

If a company has never in their area of business considered environmental risk mitigation, it is likely that their insurance cover excludes environmental liability. Insurers commonly exclude Environmental Liabilities, also called “Pollution Insurance”. It is cover that is specifically requested. Once in place, environmental liability insurance helps to create peace of mind for all concerned.

Deepwater Horizon created what was said to be the largest, man made oil release into the Gulf of Mexico in April 2010. Called the BP oil Spill, the oil flowed for 87 days and discharged approximately 4.9 million barrels of oil. The well was sealed on 19th September 2010. Experts said that had environmental liability insurance been in place, the accident would never have taken place, due to insurance requirements for robust risk protection measures.

Oil drilling is a risky business, but we need oil to sustain world infrastructure. Mandating environmental insurance could make energy exploration at sea unaffordable due to the high cost of putting precautionary measures in place, in order to meet the safety requirements of the insurer.

 

Chargeback Insurance

In the event that a business has to pay for charges related to a credit card chargeback, there is a chargeback insurance coverage a company can purchase to cover such an eventuality.

When an acquirer (bank) or Independent Sales Organisation (ISO) signs a business up for a merchant account, they are taking on the risk that the merchant will stay solvent and not owe money to various card issuers due to chargebacks, not shipping goods or other reasons.

A merchant may not be fraudulent, but they may have a poor product that results in a lot of refunds. Some merchants may receive a lot of chargebacks from third party fraud.  Some merchants may be fraudsters themselves. There are many risks an acquirer takes on when they underwrite a merchant.

In case a merchant cannot cover the cost of their chargebacks, a Chargeback Insurance policy protects that acquiring bank or ISO.

If a business is unexpectedly hit by many chargebacks in a short period of time and the charges are immediately deducted, a business could become severely cash strapped, while trying to locate documentation. Banks and other financial businesses such as PayPal often charge merchants a penalty or a processing fee per chargeback, to discourage bad business practices.

Additionally, credit card companies such as Visa and Mastercard issue steep penalties to banks that continue to service merchants with frequent chargebacks.   This penalty is usually passed on to the merchant involved. It is not uncommon for merchants that continue to frequently incur chargebacks to be charged in excess of $100 per chargeback. If chargeback frequency continues, the merchant’s bank may discontinue service altogether. A business should check if their bank requires a reserve to cover any future chargebacks. Some banks can demand a reserve as high as $5, 000.

COMMON TYPES OF CHARGEBACKS

Often the merchants themselves cause chargebacks. Hidden system errors could be the problem. Two common merchant errors are:

Recurring payment chargebacks may be filed against specific types of merchants that have a recurring payment system for on-going services such as gym or magazine subscriptions. A cardholder cancels a recurring payment or claims to have done so. Such a chargeback can be filed against merchants that allow for payments in instalments, particularly if the payment plan is not clearly defined at the time of the purchase.  In such a situation, chargeback insurance would be well worth having.

Authorisation errors can occur when the merchant tries to override a declined transaction, particularly if the override is done with voice authorisation. Multiple deposits made to complete a single authorisation can result in chargebacks.

A CARD USED WITHOUT AUTHORISATION

This type of chargeback may be true criminal fraud and it is one of the most common types of chargeback. The cardholder claims that a charge was made on their card without their permission. It sometimes happens that a family member has used the card without the cardholder’s knowledge or permission.

FRIENDLY FRAUD

There is a type of fraud known as friendly fraud. A consumer makes an online shopping purchase with their own credit card. After receiving the goods the consumer asks for a chargeback from the issuing bank. Once approved, the chargeback cancels the financial transaction and the consumer receives a refund of the money they spent. When a chargeback occurs, the merchant is accountable, regardless of whatever measures they took to verify the transaction.

Although chargebacks cannot be completely avoided, steps can be taken to reduce their occurrence.

The business name provided to financial institutions should be a name which customizers recognize. Sometimes customizers do not recognize a business name next to the purchase on their credit card and then think it is a fraudulent transaction.

Receipt signatures on credit and debit cards should be checked against the signature on the back of the card.

If a credit card is declined, one should not continue to run the transaction.

The authorisation obtained should be for a total amount and not broken in several smaller amounts.

If a purchase is made online or by phone, the Address Verification System should be used to ensure that the customer is providing a correct billing address.

A shipper must provide proof of delivery and a customer’s signature if the item is expensive.

A business can get chargeback insurance that reimburses the cost of a product or service and the loss of profit if a chargeback stems from a stolen or counterfeit credit card, signature mismatches or post-purchase shipping address charges.

There are banks which offer sophisticated chargeback defense systems as part of their merchant services. These electronic dispute systems can allow you to manage chargebacks more efficiently and speed resolution. They also provide online reporting tools that will notify a business quickly of chargeback and retrieval requests.

Drone Use

U. S. companies are urging federal aviation regulators to speed up the use of drones in disaster response and relief operations in the United States.

The consulting firm’s 32 Advisors propose the use of drones for  various purposes.  These range from response planning and damage assessment to supply delivery.

The view from above is key for humanitarian response, which explains why satellite imaging has played a pivotal role in relief operations for almost two decades now. Satellites do however present a number of limitations. These include cost, data sharing restrictions, cloud cover, and the time needed to acquire images.

In contrast drones can capture aerial imaging at a far higher resolution. They move quickly and at a much lower cost. Unlike satellites, members of the public can actually own drones. This means that disaster-affected communications can launch their own drones in response to a crisis.

Groups like SkyEye in the Philippines and CartONG in Haiti are actively training local communities to operate their own drones for disaster-preparedness purposes.

April 24 2015 is the deadline for public comment on newly proposed FAA drone regulations. The 52 page report from 32 Advisors is sponsored by companies that are involved in drone technology.  They hope to use the devices to cope with hurricanes, earthquakes, wildfires and other disasters. The sponsors include Boeing Co, Lockheed Martin Corp, United Parcel Service inc, IBM Corp, Willis Group Holdings Ltd and Zurich North America.

The use of drones for civil and commercial operations is officially banned in the United States. This is unless the operation wins FAA approval under a process that many have found to be too slow. The proposed rules that would lift the ban are not expected to be finalised until late 2016 or early 2017.

More than 1700 migrants are believed to have died attempting to cross the Mediterranean from North Africa to southern Europe this year.  800 deaths occurred in one incident mid-April. The International Organisation for Migration has warned that the death toll could exceed 30,000 by the end of the year. The team conducted test flights at a simulated disaster city at Texas A&M University. Using infrared cameras, the aircraft could spot people trapped in the rubble.  They relayed these images back to humanitarian response teams for more effective delivery of aid.

Drones are used to identify structural damage to buildings.  Victims could be helped with claiming insurance. In addition speeding up the process by which communities can be rebuilt. However, the researchers found that for drones to be effective in such missions, they need to get into the air within 24 hours of a disaster.

Aerial, marine and ground robots have been deployed at 35 disaster events. This includes the 9/11 terrorist attacks in New York and Typhoon Haiyan, which killed over 6,000 people in southeast Asia in 2011.

Small marine machines were used to clear underwater debris after the Haiti earthquake in order to allow aid shipments to arrive.

The use of drones on off-shore oil rigs is also being researched, where machines can assist with raising the alarm when workers fall overboard.

Casualty Insurance Part 1 of 2

The lines of coverage addressed by casualty insurance are:

Automotive liability
general liability
products liability
umbrella liability
excess liability
workers’ compensation
professional liability (medical malpractice)
environmental products liability

Casualty Insurance is often equated to liability insurance of an individual or organisation for negligent acts or omissions.

The term has also been used for property insurance as well as aviation insurance.  Boiler,  machinery,  insurance, glass and crime insurance falls under this category.  It can include marine insurance for shipwrecks or losses at sea.  Also included may be earthquake, political risk insurance, terrorism insurance, fidelity and surety bonds.

One of the most common kinds of casualty insurance today is automobile insurance. In its most basic form, automobile insurance provides liability coverage in the event that a driver is found “at fault” in an accident. This can cover medical expenses of individuals involved in the accident.  Furthermore it can be for  restitution or repair of damaged property.

GENERAL LIABILITY (Under Casualty Insurance)

The number of lawsuits being filed against businesses is both surprising and alarming. General liability is the first line of defense. A business can be sued for almost any reason. Negligence, personal injury, libel, slander, errors, omissions, faulty products, advertising misprints and more.

It can cover things like bodily injury, property damage, contractual liability, damages to property you rent or occupy.  Data Breach is offered as an optional coverage that can help you comply with regulatory requirements.  It can provide guidance on how to prevent and handle a breach.  This can also cover response and liability expenses to quickly restore confidence in your practice or business.

PRODUCT LIABILITY (Under Casualty Insurance)

This is the area of law in which manufacturers, distributors, suppliers, retailers and others who make products available to the public are held responsible for the injuries those products cause.

In the United States, the claims most commonly associated with product liability are negligence, strict liability, breach of warranty and various consumer protection claims. The majority of product liability laws are determined at the state level and vary widely from state to state. Each type of product liability claim requires different elements to be proven to present a successful claim.

There are three major types of product liability claims:
Manufacturing defect
Design defect
A failure to warn (also known as marketing defects)

However, in most states these are not legal claims in and of themselves, but are pleaded in terms of the theories mentioned above. For example, a plaintiff might plead negligent failure to warn or strict liability for defective design.
Manufacturing defects are also those that occur in the manufacturing process and usually involve poor quality materials or shoddy workmanship.

Design defects occur where the product design is inherently dangerous or useless no matter how carefully manufactured.

Failure- to- warn defects arise in products that carry inherent non-obvious dangers which could be mitigated through adequate warnings to the user, and these dangers are present regardless of how well the product is manufactured and designed for its intended purpose.

However, in most states these are not legal claims in and of themselves, but are pleaded in terms of the theories mentioned above. For example, a plaintiff might plead negligent failure to warn of liability for defective design. Manufacturing defect are those that occur in the manufacturing process and usually involve poor quality materials or shoddy workmanship. Design defects occur where the product design is inherently dangerous or useless no matter how carefully manufactured.

A basic negligence claim consists of:-

a duty owed
a breach of that duty
the breach was the cause in fact of the plaintiff’s injury (actual cause)
the breach proximately caused the plaintiff’s injury
and the plaintiff suffered actual quantifiable injury (damages)

Rather than focus on the behaviour of the manufacturer (as in negligence), strict liability claims focus on the product itself. Under strict liability, the manufacturer is liable if the product is defective, even if the manufacturer was not negligent in making that product defective.

UMBRELLA INSURANCE (Under Casualty Insurance)

Umbrella insurance refers to liability insurance that is in excess of specified other policies and also potentially primary insurance for losses not covered by the other policies.

Excess insurance is similar in that it pays after an underlying primary policy is exhausted. Umbrella policies tend to provide broader coverage over one or more primary policies. An umbrella policy may cover certain risks from the first dollar of loss or liability incurred, which were never covered under the primary policies. As your wealth increases, so does your attractiveness as a target for lawsuits.  Examples of liability that an umbrella policy may cover that a homeowner’s policy often excludes include:
False arrest
Libel
Slander
Invasion of privacy

Liability settlements and verdicts can exceed $10 million, $20 million and higher. While trusts and other techniques can shield some assets from the court’s reach, prudence suggests choosing coverage at least equal to your current net worth and present value of your employment income stream.

It is also worth considering the moral obligation to be able to fully compensate someone who has perhaps suffered a lifelong debilitating injury for which you are responsible e. g. in a car accident where the driver was at fault.
Umbrella coverage typically costs a few hundred dollars in premium per million dollars of coverage and furthermore the cost per million decreases as the amount of coverage increases.

Cyber insurers

The WannaCry ransom cyber attack started on Friday 12th May 2017. Over 150 countries were infected within 24 hours. As a result, the virus spread to 230 00 computers.

The targeted computers ran on Microsoft Windows operating system.  The hackers encrypted the data and then demanded ransom payments in Bitcoin.

Parts of the United Kingdom’s National Health Service were blocked. The services provided were emergency-only.

A 22 year old web security researcher in England discovered an effective kill switch. He registered a domain name that he found in the code of the ransom ware. This therefore slowed down the spread of the infection. However, new versions have subsequently been found that lack the kill switch.

Petya is a family of encrypting ransom ware. It was discovered in 2016. Petya targets Microsoft Windows based systems. It prevents windows from booting and then demands payment in Bitcoin in order to regain access to the system. On 27 June 2017, a major global attack began utilising a new variant of Petya.

It is the opinion of Graeme Newman, chief innovation officer at CFC Underwriting that a combination of WannaCry’s wide reach and Petya’s destructive force could cost cyber insurers about $2.5 billion in the near future.

Recently the manufacturers of Air Wick fresheners and Dettol cleaners had their manufacturing and distribution channels affected by a global cyber attack.

CFC underwrites approximately $100 million of cyber insurance premiums. It is therefore one of Europe’s biggest sellers of the product.

The global market for cyber insurance grew to about $3.4 billion in premiums in 2016. However less than half of the businesses in the US, UK and Germany are prepared to deal with cyber attacks. This is stated in a report from specialist insurers Hiscox. The report found 53% of the companies assessed were ill-prepared to deal with an attack. Only 30% were thus rated “expert” in their cyber readiness.

In 2016 cybercrime cost the global economy over $450 billion and furthermore over 2 billion personal records were stolen. In the US alone, over 100 million Americans had their medical records stolen.

Wellness vs non wellness insurance

Companies who manufacture and market devices like the Fitbit or Jawbone Up are gearing themselves to play a big role in how individual and group health insurance premiums are decided. This could therefore mean that health insurance premiums could change daily and furthermore not annually, as is the current trend. Wellness could mean lower life insurance premiums.

One in every ten American adults owns a fitness tracker and it is expected that fitness devices will become more widespread over the next decade. Other programs similar to this are available in other parts of the world. People who get up in the morning and jog for miles will get rebates. Individuals who are couch potatoes and can barely make it to the kitchen to fetch a soda will be paying more.

When it all comes to the push, people with higher incomes are hence going to find that they are fitter. They therefore benefit from higher rebates as they are more likely to be in a favourable position to purchase better quality wellness devices. These devices monitor steps, breathing rate, apps that can sense the onset of chronic illnesses or stress.

In addition, some companies are even considering punishment for non wellness behaviour being recorded by a wearable. Fitness wearables would go beyond giving doctors deeper access to your data.

These tracking gadgets play a major role in car insurance for some Americans. Progressive offers drivers a small device that they plug into their dashboards.  The company can monitor driving habits over a 30 day period. Safe drivers are then eligible for a discount.

Insurers could do the same with health care as the $2.6 trillion health care bill is driven by behaviours and bad decisions.  Obesity and diabetes could result in increased insurance premiums. Data points such as BMI (body mass index) are already used by insurers to detect the level of wellness.

Microsoft is working on a smart watch that will measure continuous heart rate over days and weeks. Temperature and blood-glucose monitoring is on the table for wearables as well. Last year Apple lured data scientists from the now defunct company C8 MediSensors.  They had regulatory approval for a non-invasive optical glucose monitor. That raised suspicions that Apple wanted to put a glucose monitor in its forthcoming iWatch.

One large insurer, Cigna, launched a program where it distributed armbands made by bodymedia to thousands of the employees at one of its corporate customers. Early results showed that a number of employees were on the verge of developing diabetes. These employees hence made lifestyle changes and improved their risk profiles.

Autodesk bought fitbit trackers and sold them to their employees at a discount. BP with 14, 000 employees chose to wear a free Fitbit Zip. In exchange they thus let the company track their wellness.  Furthermore, if they crossed one million steps, they gained points that could go towards lower insurance premiums.

Wyoming Medicaid launched a smartphone app for pregnant women in partnership with mobile wellness engagement platform developer Wildflower Health. Wildflower is an app for pregnant women that measures data such as weight gain and other pregnancy milestones. This app helps women keep track of their pregnancy.

It has reminders, weekly ultrasound videos that show how the baby is supposed to look at each stage of the pregnancy. Furthermore it give daily advice. If women have a more immediate question, the app is connected to a free 24-7 nurse line, so they can talk to Wy Health staff. A lite version exists for any woman to use this app, but this version does not have a nurse hotline.

A brief overview of wearable technology:

Pebble Steel: Equal parts fashionable as well as functionable, the Pebble Steel leaps to the top of the smart watch heap, but does so by improving existing tech rather than adding something totally new. ‘
Price: $184.28 – $229.99

Jawbone Up 24: If having a screen is not a priority, the Jawbone Up24’s superb app, clever advice and comfy fit are hard to resist.
Price: $55.99 – $149.99

Garmin Forerunner 15:
Its lack of Bluetooth notwithstanding, the affordable Garmin Forerunner 15 is otherwise a great health tracking wristwatch for runners.
Price: $163.99 – $170.00

Fitbit Charge HR:
Fitbit Charge HR adds heart rate tracking to an already solid fitness band at a great price, but all the kinks however do not feel fully ironed out yet.
Price: $149.95 – $149.99

Samsung Gear VR:
The Gear VR Innovation Edition is a cool and very promising entry ticket for early wellness adopters looking for an affordable taste of virtual reality.
Price: $270.00

Pebble Watch:
New apps and software give the original Pebble a welcome boost.
Price: $149.99

Misfit Flash:
The Misfit Flash is a versatile, easy-to-use and extremely affordable fitness tracker that can be worn swimming, too, and it even kind of works as a watch.
Price: $32.99 – $49.99

LG G Water R:
Although its stark design and beautiful face makes this the first smart watch you might actually be happy to be seen wearing, its Android Wear Software has a long way to go before its anything more than a passing novelty.
Price: $299.99 – $314.99

Samsung Gear 2 Neo:
The Gear 2 Neo offers the best balance of features and price among Samsung’s three 2014 smart watches, but it falls short of must-have status.
Price: $168.99 – $199.99

Catastrophe Bonds

In the aftermath of Hurricane Andrew and the Northridge earthquake catastrophe bonds were first created. These are risk-linked securities that transfer a set of risks from a sponsor to investors.

Insurance companies needed help in alleviating some of the risks they would face if a major catastrophe occurred. A catastrophe that would not be covered by premiums received. An insurance company issues catastrophic bonds through an investment bank which are then sold to investors. These catastrophe bonds have maturities of less than 3 years. If no catastrophe occurred, the insurance company would pay a coupon to the investors, who made a healthy return.

On the contrary, if a catastrophe did occur, then the principal would be forgiven (deferred) and the insurance company would use this money to pay their claim-holders.

Investors include hedge funds, catastrophe-oriented funds and asset managers.  If triggered the principal is paid to the sponsor. The triggers are linked to major natural catastrophes. Catastrophe bonds are typically used by insurers as an alternative to traditional reinsurance.

For example, if an insurer has built up a portfolio of risks by insuring properties in Florida, then it might wish to pass some of this risk on so that it can remain solvent after a large hurricane. It could simply purchase traditional catastrophe bonds, which would pass the risk on to reinsurers.

Or it could sponsor a catastrophic bond, which would pass the risk on to investors. In consultation with an investment bank, it would create a special purpose entity that would issue the cat bond. Investors would buy the bond, which might pay them a coupon or LIBOR (London Interbank Offered Rate) plus a spread, generally (but not always) between 3 and 20%.

If no hurricane hits Florida, then the investors would make a healthy return on their investment. But if a hurricane were to hit Florida and trigger the catastrophe bonds, then the principal initially paid by the investors would be forgiven (deferred), and instead used by the sponsor to pay its claims to policyholders.

Since Hurricane Andrew, which blew through Florida and other southern states in 1992, left insurance firms licking their wounds. Reinsurers were particularly badly hit; capital markets swooped in to provide capacity. Since then each major catastrophe has boosted catastrophe bonds further, from Hurricane Katrina in 2005 to the 2011 Japanese earthquake and tsunami.

Over $40 billion in cat bonds have been issued in the past decade with $19 billion now outstanding. This is a small fraction of the $300 billion in catastrophe-related payouts that insurers are theoretically on the look out for. But it is up from $4 billion a decade ago and the market could quadruple in the next 10 years.

Investor demand is strong. Pension funds and other institutional investors are on the hunt for assets generating decent yields, particularly if the returns are uncorrelated to stock markets. Large institutional investors buying cat bonds directly or via specialist funds now account for perhaps 80% of the market.

CATASTROPHE BOND MODELING

Also known as cat modeling, this is the process using computer-assisted calculations to estimate the losses that could be sustained due to a catastrophic event such as a hurricane or earthquake. Cat modeling is especially applicable to analyzing risks in the insurance industry and is at the confluence of actuarial science, engineering, meteorology and seismology.
The input into a typical cat modeling software package is information on the exposures being analyzed that are vulnerable to catastrophic risk. The exposure data can be categorized into three basic groups:

Site location information, referred to as geocoding data (street address, postal code, county)

The physical characteristics of the exposures (construction, occupation/occupancy, year built, number of stories, number of employees).

information on the financial terms of the insurance coverage (coverage value, limit, deductible)

Insurers and risk managers use catastrophe bond modelling to assess the risk in a portfolio of exposures. This might help guide an insurer’s underwriting strategy or help them decide how much reinsurance to purchase.

Insurance – Ride share drivers

Ride share services are increasing in popularity. As a result,  insurance policies  to cover these drivers are beginning to hit the market.

A ride share driver has major stress. You have to find your way around town. You deal with drunk passengers. Furthermore, the work hours are not ideal. Being in an accident could cause a loss of income.

Ride share policies can assist in reducing stress. A  driver’s mind can be put at rest by having full insurance coverage while out on the streets.

However, these policies are not available in all states. There is a lack of competition amongst insurance providers. In several states,  drivers have little choice but to accept the price of coverage levels on offer.

Ride sharing is divided into timelines.

Period 1: The app is off. This is the driver’s personal driving time.
Period 2: Driver accepts bid, en route to pickup location.
Period 3: Passenger in vehicle.

Ride share drivers receive significant liability coverage from Uber or Lyft as long as a passenger has been assigned.

However, low limits and coverage gaps are applicable during the rest of the drive.

Collision and Comprehensive are offered during periods 2 and 3, but the coverage is contingent. Therefore these should be covered by a personal policy. Furthermore, the deductible can be very high. $2500 if you drive for Lyft.

The policies vary in price, covered periods and even ride share company. An endorsement is the only way to ensure that you are fully covered while working as a ride share driver.

Some insurance companies offer ride share policies that cover all phases of the driving. Companies like Farmers, offer only a Period 1 endorsement. In comparison to commercial policies for taxis, ride sharing policies are less expensive. However, taxi coverage is usually more comprehensive.

5 Top insurance companies for Uber and Lyft drivers:

Geico :  You have a uniform policy whether you are driving for personal or business reasons.

Erie Insurance:  This policy covers you for the entire trip.

Farmers:  This policy has a constraint on the extent of your personal coverage.  For example, if you logged into the app at 10.00 am but did not accept a ride until 10.30 am, for that half hour you would still be covered under personal insurance.

Allstate:  You are NOT guaranteed continuous coverage when signed into the app.

State Farm:  They do not cover the driver for liabilities while signed into the app.

 

 

 

 

Car safety features lower insurance rates

 Car safety features guarantee lower insurance rates.

Since 1999 inflatable air bags in the front of the driver and passenger have been compulsory. Insurers base discounts on the number of airbags in a vehicle.

Some insurance companies offer about 2% for a driver’s side airbag. Reductions in premiums can rise up to 30% for curtain bags and seat belt inflatables.

Anti-lock brakes were introduced in the 1970s. Many insurers offer discounts for drivers with ABS on their vehicles.

Automatic seat belts connect to the door and fasten automatically when the door is closed. However, major concerns are safety as well as proof of outright danger resulted in a short lifespan for these belts.

Insurance companies like to track how likely your car is to be stolen. The area you live in determines how likely your vehicle is to get stolen.

An alarm reduces the risk of car theft. Insurers are happy to thus offer a discount for an alarm installation.

Adaptive cruise control, collision avoidance systems and lane departure warnings are helping to change the industry.

Electronic stability control is a technology feature that helps prevent sideways skidding. A system of sensors and a microcomputer also prevents spin-out and loss of control. Auto insurance collision losses for cars equipped with this technology are 15% lower than for vehicles without it.

There are additional safety features which will increase your chances of an insurance premium discount.

Dashboards that provide night vision to drivers.

Drowsy driver warning systems which are usually found in high-end cars.

Daytime running lights make you more visible to other drivers as well as pedestrians.

A Blind Spot Detection System lets you know when an object is in your blind spot.

Rearview cameras help you see other vehicles or objects you might not catch in your rear and side-vision mirrors.

The insurance industry takes years to see which safety features provide a safer driver environment. New discounts are thus introduced slowly.