Ten years ago, on August 29, 2005 Hurricane Katrina made landfall on the U.S. Gulf Coast and changed everything.  The aftermath of the storm was shocking.  I remember attending a RIMS conference in New Orleans many, many years before Katrina when I was still a risk management “newbie” and hearing seasoned risk professionals talk about the city’s vulnerability.  Local residents described, with what seemed at the time to be a form of daring pride, how the city is actually built within a “bowl” that is below sea level and surrounded by bodies of water.  I marveled at the levees and the cemeteries’ elevated tombs around the city.  Risk managers spoke in hushed tones of the inevitability of a major hurricane scoring a direct hit on the vulnerable city.  It’s not a matter of if, but when, they said.

The “when” turned out to be August 29, 2005.

There are many articles and videos available to describe both the horror of the storm and the power of the human spirit to overcome.  History.com provides one such overview here.  From a risk and insurance standpoint, Katrina brought several hard lessons.  Presumably, many large businesses with full-time risk managers and dedicated insurance brokers had a decent handle on their disaster preparedness and risk financing programs.  After all, they’ve been talking about the inevitability of a “Katrina” for decades.  Although I’m sure that even the larger firms had a few unexpected developments, nothing compared to the chaos and turmoil that the storm left for small businesses and individuals.

Despite admonitions to “read your insurance policy” and “plan for disaster” many people caught up in the struggles of daily life and keeping a small business running simply did not do either.  Frankly, the insurance industry itself must accept some of the blame as well.  Insurance agents and brokers catering to small business and individuals in a market such as New Orleans had a professional duty to anticipate the aftermath of a “Katrina” and advise their clients accordingly on their coverages.  Many Gulf Coast policyholders were shocked to discover that storm surge was not covered by their insurance policies, or that their business interruption coverage included fiscally untenable waiting periods or didn’t extend on a contingency basis to key suppliers.  Yes, the policyholders should have read their policies and asked questions.  Yes, the policyholders should have thought through the scenarios more proactively and discussed their greatest fears with their insurance professionals before the storm.  That’s the hard lesson taught by Katrina.

Another hard lesson from Katrina – we need to be better as an industry before the next Katrina strikes.  As risk professionals, we know what can happen.  Katrina has shown us many of the worst possible outcomes and the insurance coverage gaps left in the aftermath.  Let’s make sure that we share this professional knowledge with our policyholders, large and small, and take the time to counsel and teach them.  Risk professionals live and breathe insurance policy language – our policyholders do not.  This is the professional expertise we are paid to deliver.  Let’s make sure we do it – before the next Katrina.

Cyber Risk’s Dirty Little Secret


Meh, not so much.  I’m speaking of the “100% Secure” in the accompanying AshleyMadison.com image.  I apologize in advance if my chosen image this week may be a little risqué for some readers.  I just couldn’t resist.  Apparently, neither can many married folks who were clients of the AshleyMadison.com website whose marketing tagline is, “Life is short. Have an affair.”

News broke a few weeks ago that AshleyMadison.com had been hacked and that the hacker(s) threatened to release the site’s user data if the company didn’t fold up its online tent and shut itself down.  Engaging in illegal hacking activity in order to take a morality stand isn’t what I would consider the moral high ground, but the irony is apparently lost on the hacker(s).  Anyway, AshleyMadison.com called the hacker(s) bluff and the cards were laid on the table this week.  Thousands of cheating (or wanna-be cheating) spouses have been publicly outed.  I’m betting that this is a good time to be florist, jeweler, or divorce attorney.

As much fun as it is to revel in the misfortunes of unfaithful spouses, this event provides another perspective on the ever-evolving cyber risk front.  Risk managers and insurance professionals have been largely focused on things like stolen credit card data and corporate espionage.  Consumers of Target, Home Depot, Anthem Healthcare, et. al. have been largely mollified with free credit monitoring service in the wake of data breaches at those firms.  But how does a firm address cyber liability for a destroyed marriage or soiled reputation?  There are plausible defenses:  AshleyMadison.com customers were knowingly engaged in risky personal behavior and never should have expected that their actions would not be discovered.  On the other hand, if AshleyMadison.com boasted that it was “100% Secure” it would be reasonable for customers to assume that their extramarital activities were at least safe from moralistic hackers, even if they still had to find a way to lie and deceive their way around the actual, ahem, activity of the affair.

Oh my.  This blog post could go on and on, but let me just close by stating that cyber risk and cyber liability is the wild, wild west of the risk and insurance industry right now.  Begging forgiveness from Mrs. Crandall, my high school English teacher, we ain’t seen nothin’ yet.

Environmental Destruction Agency


It’s been a bad week for the EPA.  And an even worse week if you’re a fish or other wildlife living in or near the Animas River of southwestern Colorado.  A mine cleanup project being conducted at the direction and under the control of the EPA resulted in a massive breach that caused millions of gallons of toxic crud to spill into the Animas River.  Some perspective on the staggering impact of this “oops” can be found here.  But don’t worry folks, EPA chief Gina McCarthy says she’s sorry.  Now let me think… how did an expression of remorse from BP’s ex-CEO Tony Hayward work out after the 2010 Deepwater Horizon oil spill?

The double standard that exists when it comes to mistakes made by private enterprise compared to those made by government is staggering.  I actually caught some video of the Democratic governor of Colorado, his own state being damaged by the EPA’s incompetence, expressing unbelievable forbearance explaining that this was a “human event” and that humans are not perfect.  The Governor also made some reference to differences between environmental damage caused by profit-seeking ventures and those from well-intentioned clean-up efforts.  Huh?  Tell that to the fish, wildlife, residents, and business owners along the Animas River.  I don’t think they care who pulled the plug on the mine sludge nor what their intentions were.  To be fair, the Governor has declared the disaster to be “in every sense, unacceptable” and then in a bit of political theater he drank water from the Animas.  The Wall Street Journal opinion page took this disaster up a few days with a clever Ghostbusters spin.

What is most troubling to me is that the EPA has been empowered like never before under the current administration, even to the point of crossing the line and being rebuked by the Supreme Court a few times.  At the intersection of growing bureaucratic power, incompetence, and lack of accountability lies disaster – witness the Animas River destruction at the hands of the very agency charged with protecting it.  The crux of the issue is our irrational faith and trust in the competency and altruism of government agencies juxtaposed with an equally irrational distrust of profit-seeking private enterprise.  Why?

The incentives of government bureaucracies are so screwed up that accountability does not exist.  Who has been held accountable for the debacle at VA Hospitals? For the politicization of the IRS?  On the other hand, BP paid dearly for its sins, primarily from its own coffers as a largely self-insured corporation, and BP’s CEO resigned.  Who will pay for the Animas River disaster?  I’m guessing you and me… the taxpayers.

So let me get this straight.  EPA Director McCarthy has a high paying government job with what I’m sure is a generous pension.  Her agency is actually responsible for destroying what it is charged to protect, and who will bear the burden of the damage done by Ms. McCarthy’s incompetent agency?  The same people paying for her salary, benefits, and pension.  The worst possible outcome for Ms. McCarthy is that she may eventually have to escalate her apology to a resignation (though I’m not betting on it) and move on to collecting her pension without having to deal with those messy politics anymore.  Maybe she and Lois Lerner can share a beach somewhere.  What a great gig.  Now, tell me again why do we have so much faith in government?

Renter’s Insurance


Last week I was in Laramie, Wyoming helping my daughter move into a new apartment.  This afforded me an opportunity to teach my college-student daughter a little bit about renter’s insurance, an often overlooked and misunderstand insurance product.  Many college students mistakenly assume that all their “stuff” is still covered under their parents’ homeowners insurance but that is no longer true once they move off campus and into their own apartment.

I found a local independent insurance agent in Laramie and took my daughter to meet the agent and explore the renter’s insurance products they could offer.  The agent was professional and thorough as she reviewed the coverages and price for two different renter’s insurance products.  While most renter’s insurance products are very similar in terms of their coverages, there were two distinct differences for my daughter to consider in this case.  First, one carrier offered only a $500 deductible whereas the other offered a $250 deductible.  For a poor college student, a $250 deductible sounds much more manageable than $500.  Second, the $250 deductible carrier also offered loss of use coverage for the actual loss sustained up to 12 months, whereas the other carrier offered a fixed limit of $3,000 for loss of use.  The agent explained the purpose of the coverage to my daughter:  If you’re unable to live in your apartment due to a covered loss such as a fire, this coverage will pay for your alternate living arrangement.  My daughter nodded in understanding, and understood the benefit of having  12-month actual loss sustained coverage rather than just a fixed $3,000 which might cover only 4-6 months of living in another apartment while hers was being repaired.

In the end, my daughter selected the renter’s insurance policy with the better coverages (i.e., lower deductible, 12-month actual loss sustained limit for loss of use) even though it was $38 more expensive.  Even with these coverage advantages, the entire renter’s insurance policy cost her only $163, or less than $14 per month.  Understanding the realities of college living, which is that bad things can happen and property sometimes goes missing, renter’s insurance is a prudent purchase.  In fact, many landlords now require tenants to purchase renter’s insurance as a condition of the lease agreement.  This is probably more for the liability coverage that is also included in the insurance policy, but it also avoids unpleasant misunderstandings with tenants who may incorrectly think that damage to their “stuff” is covered by the landlord.  That’s an expensive bit of ignorance.

The moral of the story is that renter’s insurance is a very affordable insurance product that all renters should purchase.  My daughter learned some basic insurance principles (e.g., deductibles, coverage purposes, loss limits) that will serve her well as she becomes an independent adult.  Finally, I enjoyed spending a week in the beautiful 70-degree, no-humidity weather of Laramie, Wyoming, 7,200 feet above sea level and nestled in a valley between the Laramie Range Mountains and the Snowy Range Mountains.  And yes, the mountain hiking was exquisite.



Hiking along Lookout Trail at the base of the Snowy Mountain Range, 35 miles west of Laramie, Wyoming.


Your humble correspondent hamming it up for the photographer – on the Turtle Rock Trail 15 miles east of Laramie.

The Iron Triangle


The health insurance industry has a new high-profile employee.  Marilyn Tavenner was the chief bureaucrat running Medicare, Medicaid, and the Obamacare exchanges.  Now she’s the CEO of the health insurance trade group America’s Health Insurance Plans.  No doubt, her deep connections to the Washington political class and the federal government’s new and deep role in our country’s health care system makes her an appealing hire.  It’s also a stark example of the “iron triangle” that is common in the top echelons of American political power.

Color me skeptical that this is a good thing for America’s individual health insurance providers, let alone consumers.

ACA Legal Challenge, Part 3


Just two weeks ago I wrote about the Supreme Court’s ruling that upheld nationwide federal subsidies and preserved the Affordable Care Act.  In my closing paragraph I said that the legal challenges now seem to be exhausted and its time that we accept the ACA and move on.  Personally, I am not a fan of the massive health care reform law but as a businessman and insurance professional I’m growing weary of the uncertainty surrounding the law.  Well, as it turns out, I was wrong about King v. Burwell being the final judicial word on the ACA.

There looms another potential judicial dagger aimed at the heart of the ACA in the lesser-publicized case of Sissel v. HHS.  The case lost at the D.C. Circuit when the three-judge panel applied logic that resembled a mental version of the game “Twister.” The plaintiffs are now seeking an en banc review of the case at the D.C. Circuit, and the next stop could be the Supreme Court.  [sigh] Here we go again.  What is an insurance professional attempting to help their clients with health insurance and benefit plans to do?

At its core, Sissel’s argument is that the ACA violates the Origination Clause of the Constitution which requires that all taxation bills must originate in the House of Representatives.  In the murky legislative mechanics that gave us the ACA, the bill originated in the Senate.  When the original 2012 Supreme Court (SCOTUS) ruling came down, it upheld the individual mandate because SCOTUS ruled that the monetary penalty for not purchasing health insurance was actually a tax.  Chief Justice John Roberts took a lot of heat for that tortured legal conclusion, just as he did for last month’s interpretation of the law’s language regarding subsidies.  The two milestone SCOTUS rulings on the ACA have seemed to give incredible deference to the ACA and its intentions, more than its language.

If Sissel v. HHS makes it to the SCOTUS in the near future, things will get very interesting.  The biggest problem for SCOTUS is that its 2012 ruling that proclaimed the ACA’s penalities to be taxes now gives Sissel an opening to challenge the entire law as a violation of the Constitution’s Origination Clause.  On its face, I wonder how Chief Justice Roberts will reconcile what appears to be a slam dunk argument.  How can SCOTUS possibly rule that the law includes taxes as the justification for upholding the individual mandate, and then not rule the entire law to be unconstitutional on the grounds that it violated the Origination Clause?

What happens next will be very interesting.  SCOTUS could refuse to take up the case and let the D.C. Circuit’s ruling against Sissel stand.  The problem with that is that the D.C. Circuit’s ruling essentially obliterates the Origination Clause, and SCOTUS may not be able to stomach that precedent.  If SCOTUS does take up the case, all bets are off.  Personally, I thought the plain language at the core of the issue in King v. Burwell was a slam dunk and I was wrong.  I am actually somewhat intrigued by the notion of a trifecta ruling in favor of the ACA and especially the judicial acrobatics that would most certainly come out of such a ruling on Sissel v. HHS.

I can anticipate a few such legal gyrations… SCOTUS might rule that the ACA bill did actually originate in the House because there was some monkey-business with “empty shell” bills from the House that were filled with the ACA language by the Senate.  That’s a political game that the nation’s Founders certainly did not intend but SCOTUS seems to be willing to give more weight to certain intentions than others these days (see King v. Burwell).  Another way out could be to somehow massage the D.C. Circuit’s logic that declared the ACA’s taxes were not intended to raise revenue but to expand health insurance.  So the ACA included a tax in order to uphold the individual mandate but it’s not a tax in the sense that it is not a revenue-raising bill that must originate in the House.  Huh?  What is a tax if not a means for government to raise revenue?  Good luck John Roberts.

One thing is certain… I do not envy my insurance industry colleagues who specialize in the health insurance market these days.  Does the ACA cover whiplash?


Happy Independence Day


The July 4th weekend typically marks summer’s midpoint as we gather on the beaches and campgrounds of our land to enjoy the great outdoors and celebrate our country’s independence.  The celebration is punctuated by the liberal use of pyrotechnics and fireworks, which pose some inherent danger.  Adding to the minor danger of exploding firecrackers and multi-colored rockets is the news that terrorist chatter has been on the uptick in recent days.

The celebratory use of fireworks and the possibility of terrorist attacks intruding on our nation’s holiday represent opposite ends of the risk spectrum but both require prudent risk management all the same.  Let’s all practice good personal risk management as we celebrate this weekend.  Be careful as you celebrate, and be vigilant for those who would attempt to harm us.  Let’s all be risk managers as we celebrate our freedom and independent this weekend.

Be safe out there.  Happy Independence Day.