Monthly Archives: December 2014

Underwriting Santa Claus

santa_down

As we glide into the holiday season, I was weighing whether to post about the U.S. Congress and its failure to extend the Terrorism Risk Insurance Act (which expires in less than two weeks), or to go with a bit of levity in the spirit of the holiday.  I chose the latter.  There will be plenty of time to post about TRIA and other matters in 2015.

So for today, I send my best wishes to you for a happy and safe holiday season, and would like to share this creative and amusing view of the insurance risks associated with the enterprise of one Mr. Santa Claus.  Enjoy!

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Inland Marine and Macbook Computers

broken_macbook

Inland marine is one of those insurance terms that creates considerable confusion and consternation among the majority of the population not working in the insurance industry.

Consumer: “Inland marine? Huh?  What, you mean like insurance for boats on rivers and lakes?”

Insurance Agent:  “Well, no.  I’m talking about property that floats around like portable equipment and tools and such.”

Consumer:  “So only property that floats in the water of a lake or river?”

Insurance Agent:  “No, it doesn’t have to literally float in water.  In fact, it has nothing to do with water.”

Consumer:  “So ‘marine’ has nothing to do with water?”

Insurance Agent:  “Not in this case, because we’re talking about inland marine insurance here.”

Consumer:  “You insurance people are strange.”

The inland marine terminology harkens back to the early days of insurance when most of the insurance protection was for seagoing ships and cargo shipments.  Marine insurance.  Then people became interested in insuring property moving about on dry land, so naturally the insurance professionals of the day took the common insurance term of the day – marine – and added “inland” in front of it.  Voila.

Inland marine insurance is actually a very common commercial insurance coverage that provides insurance protection for wide and varied risks including the likes of contractors equipment, builders risk, transit, and electronic data processing equipment.  What many insurance consumers fail to realize is that inland marine insurance has useful application for their personal risks.  Case in point – my college student daughter’s Macbook computer.

A typical homeowners insurance policy may have some coverage for electronic equipment such as computers, but any coverage that exists is limited in terms of covered causes of loss, dollar amounts covered (i.e., sub-limits), and is subject to deductibles.  This typical coverage does not suit a family of multiple notebook computers, which are portable and subject to a variety of hazards including accidental breakage or mysterious disappearance.  The solution?  Have your homeowners insurance agent add these high value specific items of property to an inland marine coverage endorsement on the policy.  There will be an additional premium charge, but it can be well worth it for the added coverage.  With each computer (or smartphone or tablet) specifically scheduled (that’s another insurance term – I could just say “listed”) on the insurance policy, each now has its own insurance limit, broader coverage, and often no deductible.

My daughter called me last weekend with her tale of woe.  In the icy and snowy state of Wyoming (Go UW Cowboys!), she fell on the sidewalk outside her apartment building with her Macbook in her arms.  Despite her best efforts to protect the Macbook from the fall, it suffered a cracked screen and some unknown internal damage that now causes it to spontaneously power itself off at random intervals.  I contacted my homeowners insurance agent, gave her the serial number of the broken Macbook to verify that it was indeed one of the computers scheduled on my policy, and explained the incident.  She filed the claim and as of this morning the insurance company is issuing a check to cover a replacement of the Macbook.  No muss, no fuss.  No Macbooks floating on an inland river or lake.  Just insurance coverage properly matched to the loss exposures of one family with a fleet of Macbooks, half of which are in the hands of clumsy college-age daughters.

Terrorism Risk Insurance Act

terrorism

The Terrorism Risk Insurance Act of 2002 (TRIA) is set to expire in 26 days, and today’s Wall Street Journal opinion page editorialized about the measure.  The gist of the editorial is that TRIA was supposed to be a temporary measure in the aftermath of the 9/11 attacks, but it now seems to be becoming a permanent government program.  The WSJ suggests that the insurance industry have had ample time since 2001 to develop actuarial models for the terrorism risk, and points out that the government would certainly step in (as it did in 2002) once again if a truly catastrophic event were to occur.  Therefore, why should taxpayers continually be on the hook for the TRIA backstop more than a dozen years after the 9/11 terrorist attacks?

Those arguing in favor of extending TRIA include powerful business interests who fear that economic damage will result from an absence of insurance capacity for the terrorism risk.  They suggest that without the government backstop provided to the insurance industry by TRIA, there will be little to no appetite for providing any insurance protection whatsoever against terrorism losses.  Given the current volatile state of affairs in the world, that may well be true.  But what about the notion that the private insurance industry can and should develop actuarially sound rates for this exposure?  Perhaps the most sensible solution is a compromise suggested by Reps. Hensarling and Neugebauer whereby TRIA is extended for five years but the threshold of the government backstop is gradually raised.  This would force the business-world and specifically the insurance industry to handle a gradually increasing portion of the risk.  Structured this way, everyone can plan accordingly and the economic disruption can be minimized.  Sounds like a reasonable approach to me, and I’m no fan of permanent government programs for any industry.  What do you think?