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Sour Lemonade

lemonade

We’ve endured an unseasonably hot Memorial Day weekend here in Michigan.  A nice, refreshing drink of lemonade would seem to be ideal for the early arrival of July-like heat.  Right on cue, my personal email inbox included a message from insurtech firm Lemonade this morning, announcing that their refreshing brand of homeowners and renters insurance is now available in Michigan!  Woohoo!

Being a naturally curious insurance geek, I took the bait and began navigating Lemonade’s “easy” process for obtaining a quote.  Indeed, it is easy.  A few clicks and without many mental cycles consumed on my part and I soon had my monthly premium quote.  Then again, loading a gun is easy.  In the case of a Lemonade insurance quote and a loaded gun, the real danger lies in what you do next.  The untrained and uninformed can do great unintentional damage to themselves and others.

Now hold on… Yes, I realize that no one is going to die from obtaining or acting on a Lemonade insurance quote.  The comparison to a loaded gun is purely metaphorical for the financial harm that can result from making naive insurance purchase decisions.  I am admittedly painting an extreme analogy here.  I also should point out that I am no insurtech neophyte.  My resume is replete with RMI technology consulting experience – so I am by no means anti-technology or anti-innovation, especially when it comes to the insurance industry.

So how did my Lemonade quote experience go?  As I said earlier, it was easy.  In fact, it was fun.  The results, on the other hand, were underwhelming and alarming.  After watching the Lemonade engine at work (it took only a few seconds to “crunch the numbers” as it checked various “municipal databases”), I noticed that it rated my property pretty low for fire protection.  And yet, I am only 2.5 miles from the fire station and have a fire hydrant literally in my front yard.  Lemonade also suggested an insurance limit to “reconstruct my home” that I know to be woefully inadequate.  It also suggested a liability limit of only $100,000.  Far less than I currently carry, and truthfully far less than any middle class homeowner should have in this litigious era.  All of this for a premium 75% higher than I currently pay for my much broader homeowners insurance policy with a well known A++ rated insurance carrier.

Yes, I can manually adjust Lemonade’s offered limits upwards, but the cost goes up accordingly.  How many unwitting Lemonade buyers would do that?  Most of the insurance consumers attracted to Lemonade’s simplicity and slickness are likely to accept the suggested limits, implicitly trusting Lemonade’s obviously flawed artificial intelligence to have their best interests at heart.  After all, Lemonade (unlike those greedy legacy carriers) is the insurance carrier with a heart and a social mission, right?  And how do I go about adding my trust as a named insured since the home is actually owned in the name of my trust?  It also looks like I can add my scheduled property (e.g., jewelry, electronics, collections), but it is clearly a more convoluted process.  Over the years, I have invested time in conversations with my insurance agent, asking questions and discussing coverage options in order to assemble insurance protections that fit my unique risk profile.  I have purchased coverages that others have not, and removed coverages that I did not need.  What the general public (and hype-laden insurtech startups) often misunderstand is that insurance is not a commodity and individual risk profiles are not cookie cutter.  You simply cannot automate the nuances away with artificial intelligence – at least not yet.  And Lemonade, for all its slickness, still has a long way to go.

In the meantime, Lemonade’s marketing hype preys on the blissfully ignorant  insurance-buying public (and smartphone-dependent Millennials in particular) who are lapping up (no pun intended) the Lemonade platitudes.   How many others “take the bait” and without having an insurance background as I do, they bought the Lemonade policy and left themselves insufficiently protected with inadequate limits and perhaps inadequate (or unnecessary) coverage?  If my experience is typical for Michigan, then perhaps the overpriced, inferior coverage result will prevent many from buying the Lemonade insurance product.  But perhaps my quote was an anomaly and other Michiganders are out there today, receiving attractive prices from Lemonade and switching their insurance protection without the benefit of any professional insurance knowledge or assistance – except for “Maya” the friendly and spunky automated “agent” in the Lemonade emails and website.  Sorry, Maya – your Lemonade is way too sour for me.

 

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Back to School

We’re back.  Summer was great, but the academic year is officially underway and there is no shortage of events and topics to consider.  Of course, the devastation and tragedy brought about by Hurricane Harvey is heart-wrenching.  Coincidentally, it was almost exactly one year ago that I blogged about flood insurance and the Louisiana floods.  Harvey leads us back to many of the same issues that I wrote about last year.

Risk and insurance headlines continue to debate the future of auto insurance as the reality of driverless automobiles draws closer.  Cyber-security, ransomware, and data breaches still demand considerable risk management attention.  AIG has a new CEO with considerable industry chops and he’s already making big moves.  Drones are playing a large part in the claims process following Harvey.

Contrary to popular belief, risk and insurance is anything but boring.  These are just some of the weighty issues that Ferris State University RMI students will be exploring in the months ahead.  This is going to be fun.

RIMS 2017 – Here we come

Bright and early Sunday morning, I depart with four Ferris State RMI students to attend the 2017 RIMS Annual Conference in Philadelphia, Pennsylvania.  I confess that at this stage of my career – having endured 30 years of planes, trains, and automobiles – business travel has little appeal to me.  Yet, I am enthused to accompany four students to this very large and impressive industry event.

It’s difficult to convey the vast scope of the RMI industry within a classroom.   Some things just have to be experienced and witnessed firsthand.  The immensity of the RIMS conference, with its thousands of attendees and vast array of exhibitors that includes many household names of the insurance industry, certainly drives home the point with students.  The educational sessions show the students that there is much more for them to learn and a cornucopia of career opportunities awaiting them.

My first RIMS conference was 26 years ago, and I still learn something new every year.  I am truly excited for the opportunities awaiting my four students.  I know that they will meet new and interesting professionals at the conference events, learn of concepts that will spark their interest, generate new ideas for their careers and personal ambitions, and yes, have some fun.

It’s going to be a great week and I will relish the opportunity to watch my students take it all in.  It may even make the planes, trains, and automobiles tedium of business travel worthwhile.  Maybe.

Heads in the Sand

Are U.S. homeowners burying their heads in the sand when it comes to their homeowner’s insurance coverage?  A 2016 survey commissioned by Trusted Choice and the IIABA seems to suggest that they are.  The three big conclusions from the survey results are that many homeowners have inadequate insurance coverage for their loss exposures, do not understand the coverage they do have, and lack enough personal savings to cover the uninsured costs of a disaster that may force them from their homes for a month or more.

It seems that a large portion of homeowners have very high expectations for the homeowner’s insurance policies they are purchasing, and very limited understanding of what it will actually cover and to what extent.  This creates a false sense of security, which relieves the homeowner of any sense of urgency toward establishing their own savings plan to get through the uninsured or under-insured aspects of a disaster.

For example, many homeowners fail to understand the difference between replacement cost and actual cash value coverage, and blindly accept what is typically the default (and less expensive) option: actual cash value coverage. Similarly, many policies provide a limit for off-premises living expenses following a covered event, but that limit is usually only 10% of the dwelling limit.  That could be woefully inadequate if a homeowner had to live elsewhere for 2-3 months after a major fire or storm damage.  Lastly, flood insurance is not even considered by many homeowners who think it cannot happen to them or believe that they have no flood exposure.  Last year, I wrote about the Louisiana floods which included this amazing statistic for a state that has a long history of floods: “…more than half (55%) of the state’s residents living in high-hazard flood zones did not purchase flood insurance.  Even worse, 88% of those living in low-to-moderate hazard zones (which were affected by this particular flood) did not buy flood insurance.”

So what’s the problem here?  Are homeowners just burying their heads in the sand, and adopting the “ignorance is bliss” approach to their most valuable asset?  Or is the insurance industry not being diligent enough in our role as personal risk managers to these homeowners?  I know many insurance professionals who are very dedicated to their clients and genuinely want to make sure these clients are adequately protected.  But I also know that there are three harsh realities:  (1) There are only 24 hours in each day, (2) there are clients who simply don’t want to know (or pay), and (3) there are a minority of insurance agents who have stopped caring, probably as a function of the first two realities.

Therein lies the rub.  The limits of time and the limits of client interest/attention-span/willingness-to-pay can cause even the most dedicated insurance professional to become cynical.  We’ve all had clients who don’t want to understand.  It’s either too complex or too scary for them, and they mentally shutdown and hope for the best.  Many Americans are taking a similar approach to their retirement savings, but that’s another story.  Alternatively, some clients understand the coverage concepts and ramifications but then choose the cheaper coverage option. Better. At least they made an informed choice… or did they? Can we be sure that the client fully grasped the magnitude of the self-insured exposure they just accepted and have a plan in mind to prepare for it?  The TC/IIABA survey suggests otherwise because few take that next step of establishing personal savings to get them through the disaster costs that they just decided to self-insure.

As insurance professionals, we cannot just dismiss the results of the TC/IIABA survey as the symptoms of our clients putting their heads in the sand.  If they are putting their heads in the sand, it could be because we’re not doing our jobs as risk management advisors as well as we should be.  Perhaps we’re being too scary or ominous in our coverage explanations.  Perhaps our coverage terms are overly complicated.  Perhaps we’re being too cynical or too rushed in our client interactions.  My suggestion is that we take the survey results to heart, look in the mirror, and ask ourselves: How do we fix this?

Rewarding Life

students-with-brutus

What an absolutely ideal week to be wrapping up my mini-series of blog posts on the Ferris State RMI program’s tagline:  Practical Education, Flexible Career, Rewarding Life

We have enjoyed unseasonably spring-like weather for a Michigan February, with abundant sunshine (most days) and temperatures rising into the sixties.  As if that weren’t enough, this was also the week of the Michigan Association of Insurance Agents annual convention, which I attended along with several of my current RMI students.  As we talked with many of the hundreds of insurance professionals at the convention, a common theme was how rewarding their careers have been in the insurance industry.  We talked with a few who said that they’ve only been in the industry since their 30’s and expressed regret that they didn’t discover the RMI career path in their 20’s.  That speaks volumes.

Rewarding Life… I looked up the definition of “rewarding” and found “providing satisfaction; gratifying.”  There are a number of ways that we humans can be satisfied.  Money, security, prestige, service to others, fulfilling experiences, and the list goes on.  Each individual defines their level of satisfaction and gratification according to their own personal values, and most people seem to derive satisfaction from a combination of things in balance with their values.

Over the course of the MAIA convention, my students heard a variety of personal stories from seasoned industry professionals that all boiled down to the same principle:  They’ve had (and have) a very rewarding life in an industry that has been very good to them.  What does that mean? As I wrote in the previous paragraph, it means different things to each person, but I can tell you (based on my own experience) what it means for many who work in the RMI industry.

It is a lucrative career, if you want it to be.  I personally know many RMI professionals who are well into six-figure incomes. I can’t complain in the least about my fiscal rewards over the last 30 years.  It is a very stable industry that has provided job security and stability.  The industry is diverse and always evolving, so RMI professionals are constantly learning, growing, and doing different things each day.  For example, you’re constantly learning about different insureds’ operations – it’s like a neverending episode of the Science Channel’s “How It’s Made” television show.

You meet the most interesting and smart people from all walks of life, and you have the opportunity to attend fantastic events and visit wonderful places.  My own RMI career has given me the chance to spend time in Hawaii, India, and Australia, just to name a few.  In terms of fulfilling experiences, while working on a project in Australia, I spent a Sunday afternoon sailing on Sydney Harbour, passing under the iconic Harbour Bridge and past the Sydney Opera House.  I had no idea that my insurance career would provide such an incredible opportunity when I began as an underwriting intern so many years before.

Last but not least, there is great satisfaction that comes from helping other people.  The insurance industry is entirely about helping people to live securely, and to pick them up when they are down.  Let’s be honest here, the news media loves to cherry-pick the instances when an insurance company denies a claim or there appears to be some sort of injustice.  The reality is that the insurance industry helps millions of people proactively by recommending and providing insurance protections that provide stability and peace of mind, and then gets them back on their feet at the worst moments in their lives.  You ask any insurance agent or claims professional about the most rewarding aspect of their work and inevitably they will share a story about a claimant to whom they delivered a check and provided comfort during the darkest time of that claimant’s life.

Now imagine all of the aforementioned sources of satisfaction aggregated over the course of a 40 year career.  That makes for a truly rewarding life.

 

What a Riot

riot_berkeley

For most of my adult life, riots were such a rare occurrence that the phrase “what a riot” was a way of saying “that was a lot of fun.”  Over the last few years, and especially the last few weeks, the term “riot” has no connotation of “fun” about it.  Well, at least not to sane people.  I’m sure some of the riot participants think they are having a grand ol’ time as they destroy the property of others and inconvenience people.  In fact, as best I can discern, many of the rioters seem to think they are engaged in a noble and patriotic activity.  Were they remaining peaceful and not destroying property, I would likely agree that their protest is noble.

I could get all political here, but I won’t. Except to say that it is clearly one particular side of the political spectrum causing all of the chaos right now, and it is supposed to be the side that espouses its belief in tolerance, peace, love, and freedom of speech.  Yet, the latest violent riot in Berkeley, California was intended to (and successfully did) prevent controversial libertarian Milo Yiannopoulos from speaking.  The violence and hate on display among these rioters was truly ironic – and the rioters themselves seem to be totally blind to the irony.

The relevance of the increasing frequency and intensity of riots to risk management and insurance is clear.  Insurance coverage is typically afforded for “riot and civil commotion” in most homeowners and commercial property insurance policies.  Soft markets notwithstanding, insurance underwriters have to be taking a harder look at locations they are insuring and evaluating the potential for riots.  Major population centers and especially colleges and universities are of particular concern these days when it comes to riot loss exposures.  Risk managers in areas where protests may evolve into violent riots have their hands full right now, and need to be talking with local law enforcement about plans to protect property and personal safety.

Whatever happened to the nobility of peaceful, non-violent protests? We just celebrated Martin Luther King Jr. Day to remember his accomplishments that were brought about through peaceful protests and the open expression of ideas as encapsulated in Dr. King’s I Have a Dream speech.  The riots, and the rioters are disgraceful, not noble.  And they are costing us all dearly in the form of increasing insurance costs and even more so in the form of dividing us more deeply as a nation.

Incidentally, it’s been awhile since my last blog post.  It was a busy autumn.  That’s my only excuse.  I’ll try to get back to a more regular posting schedule in 2017.  I’m sure there will be plenty of risk and insurance material to cover.  Stay safe and sane out there folks.

Minimum Wage Thoughts

minimum_wage

Proponents of hiking the minimum wage have been gaining momentum in recent years, and $15/hour is already happening in some cities like Seattle.  The economics arguments for and against are well-known.  Proponents argue that raising the minimum wage is a matter of basic fairness and survival for those at the bottom of the economic ladder.  Opponents argue that minimum wages in general, and especially one that spikes higher suddenly, create market distortions that cause job losses and reduced job opportunities.  Nothing new there.  Both sides  seem to have merit.

Not to take sides here, but there is more to the argument against minimum wage laws than just job losses.  Okay, so maybe I am taking a side.  Personally, I tend toward libertarian thoughts, especially when it comes to economics.  I do not begrudge anyone earning a fair rate of pay for the work they perform.  I have raised three daughters, two of whom are still college students and working in relatively low-paying hourly jobs that pay roughly the minimum wage or very close to it.  Would I want my daughters to work for less than their current pay rate if it were legal to do so?  Not especially, but if the alternative were for them have no job at all, forcing them to extend their dependence on me… Uh uh.

The current push for $15/hour wages nationally raises several concerns… for one thing, it’s inflationary.  The Wall Street Journal published an article this morning which described the tensions created by “wage compression” which occurs when those at the bottom are suddenly thrust ahead on the pay scale and begin earning nearly the same as those who have much more experience and seniority.  Now the employer is faced with some unhappy experienced workers who become less motivated to perform.  The employer may feel obligated to elevate their pay as well to maintain equity in the workplace.  All of this leads to some tough choices… eliminate some positions or raise prices or both in order to cover the added payroll costs.  Inflation ensues.

And what about insurance?  Workers compensation premiums are based on payroll, and workers compensation benefits are based on wage rates.  Higher minimum wages leads to increased premiums and increased benefit costs.  Inflation.  And then there is Obamacare.  How will those folks feel about smaller tax credit subsidies to help pay for their mandatory Obamacare insurance policy once their higher income kicks in (assuming they still have a job)?

When all is said and done, and the political winds calm down, we will likely see a new national minimum wage that could be as high as $15/hour.  The earth will continue to rotate and the stars, moon, and sun will still be in the sky.  But I have to wonder… if $15/hour is going to be so great for the American working class and our national economy overall, then why stop there?  Why not $20 or $25 or even $50 per hour?  If $15/hour is great then a $50/hour minimum wage should end poverty and hardship forever.  No, you say?  $50, $25, $20 are arbitrary and ridiculously high pay rates.

So is $15 for entry-level jobs that were never intended to be a career.