Tag Archives: california

An Early Taste of Climate Change Disrupting Insurance

There’s a line that I first heard only a few months ago but keep running across: You may think you have a 30-year mortgage on your house, but you really just have a one-year mortgage.

Why is that? Because you have to renew your homeowners insurance every year, and your house is only affordable if your insurance is.

In the vast majority of cases, homeowners have nothing to worry about. Their premiums will change modestly from year to year. But those on the front lines of climate change — along coasts, where water levels are rising, and in parts of the country where wildfires are escalating and violent storms may become more frequent — may face sudden changes that could even force them out of their homes.

California, the bellwether for so many things in the U.S., is again in the lead on this insurance issue, showing how very complicated it will be.

Wildfires have burned more than 2 million acres in California this year. That is already an annual record even though September and October are historically the worst for wildfires.

The possibility of wildfires has put some 800,000 homes at risk of becoming uninhabitable because of soaring insurance premiums or of having insurers simply decline to cover them. State regulators ordered insurers not to cancel policies on those 800,000 homes, which are in or near dangerous areas, but the ban expires in December and can’t be renewed. As this New York Times article details, insurers, regulators and customers are all working to solve the problem — but not having much luck.

Data suggest that, in other areas, insurers are canceling policies or pricing homes out of the market. As the Times reports, “The number of households buying coverage from California’s high-risk insurance program, a costly and bare-bones alternative for people who can’t get private coverage, has increased by more than 50% between the start of 2019 and June 2020, to almost 200,000 households.”

And even that program is becoming less accessible: The article adds that the program “has asked the state for permission to raise its rates by 15.6%, after initially seeking an increase more than double that amount.”

Obviously, insurers need to be able to price based on the risk associated with each home, but it’s not that simple. People demonize insurance companies that pull out of a market or that jack up rates after a disaster — and people vote. So, regulators — at least, those who want to be reelected or reappointed — tend to limit rate increases and may block cancellations.

California has a further wrinkle (as it so often does): Insurers are only allowed to use historical data when underwriting policies. So, even though projections are for the fires to keep getting worse as the climate heats up, that information doesn’t count — it can’t be used in pricing.

State lawmakers attempted a compromise that would have let insurers use projections and incorporate some other costs into pricing, if insurers would make coverage more widely available and provide incentives for measures that would reduce fire risk. But consumer groups argued that the deal was too favorable to insurers, and it eventually fell apart.

Economics has to win. There’s no alternative. Assuming that climate change continues to worsen the wildfire threat in California and elsewhere, insurers will have to increase rates a lot or drop coverage, and homeowners in endangered areas will have to harden their properties to greatly reduce risk, pay those higher rates or move.

As I noted in last week’s Six Things, some 43,000 homeowners have already taken buyouts from the federal government and relocated rather than continue to fight nature in areas being inundated by coastal waters. A similar shakeup will have to account for wildfire and perhaps other types of storms, such as the derecho that damaged millions of acres of Iowa farmland last month and will reduce this year’s harvest by 25% to 50%.

But economics won’t necessarily win any time soon. The failure to reach a compromise in California suggests that the state will muddle along, with consumer groups and insurers at odds and with regulators caught somewhere in the middle.

Muddling along is hardly ideal. A clear vision that could lead to an actual plan would be far preferable. But the best I can suggest is that those of you who don’t live in California and don’t have to experience the dysfunction directly should keep an eye on what we go through. Lots of insurers, regulators and homeowners will likely have to confront issues related to climate change, so you might as well learn from the mistakes by those of us in California so you don’t have to make all of them yourselves when your turn comes.

Stay safe.

Paul

P.S. Here are the six articles I’d like to highlight from the past week:

How ‘Explainable AI’ Changes the Game

AI often performs its magic with little insight into how it reached its recommendations. “Explainable AI” makes all the difference.

The Future Isn’t Just for Insurtech

The new promise — the modern concept of insurtech — is a strategy driven by collaboration and innovation rather than disruption.

‘Virtualizing’ Your Customer Service

For the insurance industry, meeting increased customer demands with excellent service requires the right combination of technology and training.

New Operating Model for Insurers (Part 1)

Taking a few key steps will enable an insurer to resolve its operational challenges and lay the foundations for future success.

COVID-19 and Need for Analytical Insurers

Stronger analytics can assist insurers through the COVID-19 crisis, and create building blocks for longer-term business benefits.

Of Independent Agents, Heirloom Tomatoes

Direct vs agency is a silly fight. Neither channel maps cleanly to customer preferences. Both have advantages and disadvantages.

Are Sharknados Next?

Many years ago, when I watched “Biloxi Blues,” the Neil Simon play about a young draftee suffering through basic training in Biloxi, Mississippi, I laughed hard at the way actor Matthew Broderick whined the line, “Man, it’s hot. It’s like Africa hot. Tarzan couldn’t take this kind of hot.”

I’m not laughing now. I can’t swear that Tarzan couldn’t take the “kind of hot” we’re experiencing in California, but I’m certainly struggling. The high temperatures in the Central Valley have exceeded 110 for several days now and are expected to be between 100 and 110 for as far as the eye can see on weather forecasts. Even in the Lake Tahoe area, where I’ve spent many a pleasant summer, temperatures are so high and wood so dry that four fires have produced the Reno, Nev., weather station’s first report of fire tornados — the fires literally produced tornados of flame and laid waste to tens of thousands of acres.

What’s next? Sharknados? And what, if anything, can we do?

Well, there certainly doesn’t seem to be a break coming any time soon, and not just in California. While I whine about highs of maybe 113 in Northern California and the rolling brownouts and blackouts, Death Valley recorded 130 degrees down south, thought to be the world’s highest temperature since 1931, and forecasts are for the heat wave to be unrelenting. Meanwhile, in Iowa, a derecho — a wide line of fast-moving storms characterized by winds that can reach hurricane force, by tornados and by heavy rains — devastated 12.4 million acres of soybeans and corn early last week. A city council member in Cedar Rapids, Iowa, said trees are piled six to 10 feet high along streets — “It’s like driving through a tunnel of green.” The East Coast is facing its 11th named tropical storm so far this year, forming in the Atlantic, even though the 11th storm usually isn’t named until well into October. (Storms are named when they reach a certain threat level.)

While the U.S. gets most of the focus just now, Siberia has had a crazy heat wave of its own. A town named Verkhoyansk just recorded a temperature of 100 degrees. That may not seem that extreme, but the town is in the Arctic Circle. It was previously known for tying the lowest temperature on record, at minus-90.

You can decide for yourself just how severe climate change will be and how quickly it will occur, but trend lines on heat certainly suggest to me that this won’t be the last summer when I complain about Tarzan-level heat and when my friends on the East Coast have to batten down the hatches in the face of a string of hurricanes.

The only thing I know to suggest is to prepare. We had authors predicting a bad hurricane season last spring, such as in this article from May 10. We’ve also published extensively on better ways to understand wildfire risk, including in a three-part series whose first piece, dated July 6, is here. The articles describe what seems to be a promising way to correlate various risks, even when the areas involved are not near each other.

I’d love to be able to offer ways to head off the sort of devastation that, say, Iowans are facing, but I don’t imagine it’d do much good for me to tell the sun not to shine and the winds not to blow. So, better preparation is about all we can do for now.

The sorts of improvements in modeling described in those articles on hurricanes and wildfires can help. So can better sensors. Tiny, inexpensive weather stations dotting the countryside might pick up the signs of a derecho or other major storm faster than we can now.

Technology is also starting to help us react faster once tragedy strikes. Reports from the devastation in Iowa came in quickly, thanks to aerial surveys by drones, so recovery can started promptly. Parametric insurance policies or provisions written into standard policies can make a certain percentage of a claim available almost immediately, helping the insured get back on his or her feet faster.

There are even the beginnings of hope on prevention. Strings of small satellites that various companies are launching will monitor the Earth in real time and spot blazes when they are far smaller than most are when identified now. But that’s mostly theory at this point. It’ll take some time to implement.

This will be a slog. We’ll do our best to keep you updated on promising developments and hope you’ll pass along any ideas you have.

In the meantime, stay cool, stay dry and stay away from those fire tornados.

Paul

P.S. Here are the six articles I’d like to highlight from the past week:

COVID: Chance to Rethink Workers Comp

As insurers worry that the pandemic is depressing premiums, here is a way to rethink workers’ comp — plus two entirely new product ideas.

Why COVID-19 Must Accelerate Change

According to a survey, insurers are 50% behind consumer demand for service via online chat and 25% behind on service via website.

COVID-19 Sparks Revolution in Claims

The pandemic has pushed workers’ comp toward telehealth, which is revolutionizing the claims process in four key ways.

5 Hurdles to Insurtech Success

Here are five things that stand between insurtechs and success — but, please note, your mileage may vary.

Watch for This 1 Word on Customer Needs

Use this simple technique to uncover customer needs, drive innovation in customer experience and keep your business ahead of the curve.

An Inconvenient Sales Truth

It is no longer enough to show up with a fancy spreadsheet, promises of better service and a capabilities presentation.

Epic Policy Failure on Contractors

“The rest, in swarms, will overrun the boat deck

They’ll lose all sense of right and wrong

It will be every man for himself, all right!

The weak thrown in with the strong!”

Titanic, A New Musical (1997)

On April 30, 2018, the California Supreme Court issued its opinion in Dynamex Operations West, Inc. v. Superior Court (2018), 4 Cal. 5th 903. The court filled a void, in its view, of how to determine whether someone was an employee subject to wage orders of the Industrial Accident Commission.

Even before the ink fully dried on this monumental opinion, the California legislature sprang into action. Assembly Bill 5 (Gonzalez) was introduced on Dec. 3, 2018, to codify this new rule of law and to expand its “ABC test” to unemployment and workers’ compensation. From that effort then sprang a comical – or tragic, depending on your point of view – effort by a multitude of businesses to gain a reprieve from the ABC test, which was adopted by the court without legislative blessing, or even at the urging of the parties in the litigation, in an effort to curb the abuses of misclassification of workers as independent contractors.

AB 5 granted various forms of absolution to a multitude of businesses. Some achieved an appropriate complete exemption from the now-codified ABC test. Others are now compelled to go through various requirements to achieve dispensation, some requirements either being hopelessly ambiguous or impossible (or meaningless) to comply with. Still others were left outside the cathedral doors (also known as the Capitol in Sacramento) in hopes that their petitions for relief would be heard.

The ABC test as codified and amplified by AB 5, now Labor Code § 2750.3, is a complicated set of outright exemptions, quasi-exemptions and – as was seen with the case of various freelance artists and writers – exemptions that were illusory in the face of the reality of such work. The freelancers began an aggressive campaign last fall to get the law changed in 2020. In some respects, their efforts are succeeding.  

When the legislature returned in 2020, there were dozens of bills introduced to delay, modify or outright repeal AB 5. Most were by Republican authors, and most were never heard in policy committees: the Assembly Labor and Employment Committee or the Senate Labor, Public Employment and Retirement Committee. Today, changes to AB 5 will have to come from two bills by the same author, Assemblymember Lorena Gonzalez (D- Dan Diego), who is also the author of AB 5. The first bill is Assembly Bill 1850 (Gonzalez), the second Assembly Bill 2257 (Gonzalez). Both bills are moving in the legislative process. AB 2257 specifically deals with the issues raised by freelancers. According to the analysis in the Assembly Labor and Employment Committee, California Freelance Writers United supports the measure, as do many others in the art, music and content-creation industries who use freelance workers. And, per the analysis by the Assembly Labor and Employment Committee, Assemblymember Gonzalez intends to add an urgency clause to AB 2257, meaning that it would become effective on signature by the governor and not upon Jan. 1, 2021. And so, freelancers achieved their objective.

AB 1850 includes the same language as AB 2257, at least for the moment. It also contains much more. This includes rewriting and reorganizing Labor Code § 2750.3 and adding still more exemptions from the ABC test. 

As proposed in AB 1850, there are nearly 50 occupations or business relationships that are not subject to the ABC test in Labor Code § 2750.3. Some of these exemptions are based on occupations, some on occupations provided that certain criteria are met and some on business-to-business or referral agency relationships. Many of these exemptions will require a careful analysis by a business if they are to be sure of passing muster with the labor commissioner, the Employment Development Department (EDD) and workers’ compensation insurance company premium auditors. The exemptions, in one form or another, maintain the venerable multi-factor test in S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341 or, in the case of occupations where the legislature augmented this standard, what is now called “Borello +.”  

See also: How to Lead and Collaborate in Claims  

The business-to-business exemption remains inscrutable and should particularly cause persons involved in a franchise relationship great concern even as the applicability of Dynamex to franchises remains the subject of significant litigation. The problem remains that, while the relationship between a worker and a business service provider is governed by the ABC test, the statutory language in Labor Code § 2750.3 refers to the degree of control of the contracting business over the business service provider and not the employees of the business service provider. This seemingly obvious distinction was not clarified by the Sept. 13, 2019, letter from Assemblymember Gonzalez to the Assembly clerk trying to explain on the one hand whether a business service provider was an employee of the contracting business while also stating that nothing in AB 5 was intended to change the laws relating to joint employment.

The claimed abuses of application-based drivers and service providers have frequently been cited as the raison d’être for AB 5. There is a battle in the California courts over the classification status of workers in the digital marketplace. Most recently, on May 5, 2020, in People of the State of California v. Uber Technologies, San Francisco County Superior Court No. CGC20584402, California Attorney General Javier Becerra and several city attorneys stated:

“But rather than own up to their legal responsibilities, Uber and Lyft have worked relentlessly to find a work-around. They lobbied for an exemption to A.B. 5, but the legislature declined. They utilize driver contracts with mandatory arbitration and class action waiver provisions to stymie private enforcement of drivers’ rights. And now, even amid a once-in-a-century pandemic, they have gone to extraordinary lengths to convince the public that their unlawful misclassification scheme is in the public interest. Both companies have launched an aggressive public relations campaign in the hopes of enshrining their ability to mistreat their workers, all while peddling the lie that driver flexibility and worker protections are somehow legally incompatible.”

This lengthy polemic is another way of saying Uber and Lyft (among others) have gone and filed an initiative to deal with the classification issue. Well, shame on them.

On May 22, 2020, the initiative, “Protect App-Based Drivers and Services Act,” became eligible for placement on the November 2020 ballot. If it is not withdrawn by June 25, the voters of California will decide whether app-based workers, such as those for Uber or Lyft, are employees or independent contractors. The issue, as you might assume, is clearly more complicated than that, given the various requirements in the initiative necessary to qualify for an exemption to the ABC test.

See also: 4 Key Changes to WC From COVID-19  

It is safe to assume that the initiative polls very well with the public. It also is likely to pass.

So, by next year, the ABC test, “… whose objective is to create a simpler, clearer test for determining whether the worker is an employee or an independent contractor,” (Dynamex, 4 Cal. 5th 951, fn. 20) will have dozens of exemptions acquiesced to by the legislature and, likely, an exception that nearly overwhelms the rule should the initiative pass on app-based drivers and service providers. 

Why are we doing this? It is an epic public policy failure to suggest the only distinction between an entrepreneurial worker and an exploited one is whether 21 senators, 41 Assembly members and one governor in Sacramento decide to issue a pass. It may be too late to reset the dialogue in California on this issue, between court challenges and, potentially, a successful ballot measure. It is not too late elsewhere, including in Congress.

WC’s ‘Grand Bargain’ Hangs in the Balance

“Existential” is a word used far more often than it should be these days. Its importance has been diluted with its too easy and too frequent use as an adjective to assign far greater weight to events, people or things than are deserved. And yet, this is the adjective most often used when considering the COVID-19 pandemic and the response of governments in the U.S. to the many problems associated with it.

As stated by Joshua Raymond Muhumuza in his blog post, COVID-19 nudges us to rethink our approach to the existential threats of our time (April 28, 2020), Cornell University Alliance for Science:

“The world as we knew it ended a few months ago. What we have now is a seemingly alien muddle that we are all trying to make sense of. Aside from occasioning an unprecedented global public health crisis, COVID-19 is a not-so gentle nudge for humanity to rethink—and maybe reset— several things pertinent for our very existence.”

This is not an unreasonable characterization. The loss of life is tragic. The harm caused to families, whether directly through illness or loss of life, or due to the staggering effects on the American economy, deserves sympathy, compassion and remediation. The harm goes well beyond the physical effects of COVID-19.

But this commentary – repeated in one form or another in publications and broadcasts and across the Internet – is also lacking in context. This is not the first pandemic the world has ever faced. In fact, it is not even the first pandemic of this century, which began only 20 years ago. Under the microscope that exists today, the lack of preparation of both the public and private sectors is appalling, but also not unprecedented. In 2009, the California Nurses Association/National Nurses Organizing Committee (CNA/NNOC) and its 16,000 members were preparing for a one-day strike at 34 hospitals in California and Nevada in part due to lack of preparation, including access to adequate personal protective equipment (including N95 masks), for the H1N1 pandemic. The strike was averted. (See: here

Nurses figure prominently in the current pandemic crisis and the public policy debate regarding how the workers’ compensation system is to respond. This debate is the focus of legislative and regulatory action nationwide. In California, Assembly Bill 664 (Cooper), was amended on April 17 to define the term “injury,” for workers’ compensation purposes, to include being exposed to or contracting, on or after Jan. 1, 2020, a communicable disease, including COVID-19, for certain peace officers, firefighters and healthcare employees. The communicable disease must be the subject of a state or local declaration of a state of emergency issued on or after Jan. 1, 2020. The bill also creates a conclusive presumption that the injury arose out of and in the course of the employment and also exempts permanent disability resulting from such communicable diseases  from the apportionment provisions in Labor Code § 4663.

See also: COVID-19: Stark Choices Amid Structural Change  

Gov. Gavin Newsom declared a state of emergency due to COVID-19 on March 4. He subsequently issued a statewide stay-at-home order on March 19. London Breed, the mayor of San Francisco, declared the existence of a local emergency due to COVID-19 on Feb. 25. 

AB 664 also states, “It is the intent of the legislature in enacting this section to fully compensate the peace officers, firefighters and healthcare employees whose lives are placed at risk when they are exposed to or contract COVID-19 or other communicable diseases in the course of performing their duties.”

That last part, “…in the course of performing their duties,” would seem inconsistent with creating a conclusive presumption that would mean, in all cases, that being exposed to or contracting COVID-19 is a compensable injury regardless of whether the injury, as defined in the legislation, occurred arising out of and in the course of employment.

AB 664 is pending in the Senate Labor, Public Employment and Retirement Committee. No hearing has been set.

Also pending in this committee is Senate Bill 1159, written by Sen. Jerry Hill (D-San Mateo), chair of the Senate Labor, Public Employment and Retirement Committee, and Assemblymember Tom Daly (D-Anaheim), chair of the Assembly Insurance Committee. In the California legislature, the Insurance Committee has jurisdiction over workers’ compensation issues in the Assembly.  

SB 1159 is a work in progress. It seeks to create a “disputable” presumption of compensability for certain critical workers whose illness or death results from exposure to COVID-19 during a period in which the critical worker is in the service of an essential critical infrastructure employer. These and other terms will be made more specific during May. Unlike AB 664, SB 1159 has a sunset date, is specifically limited to injuries resulting from COVID-19 and is not retroactive.

The California debate, including whether Gov. Newsom will issue an executive order encompassing many of the issues framed in these two bills, focuses on five issues: (1) whether a presumption of compensability is conclusive, (2) which workers could claim the presumption, (3) whether the presumption is retroactive (and to when), (4) whether the presumption is limited to COVID-19 exposure and illness and (5) whether exposure alone, without contracting COVID-19, is a compensable injury.

How these issues are resolved will, dare I say, have an existential impact on the workers’ compensation system. A conclusive presumption inevitably means that workers’ compensation will provide healthcare and wage replacement benefits for illnesses not arising from an occupational injury. For the public and private sector classifications most often named to benefit from such a presumption, these benefits would be in place of benefits paid through ERISA plans, various state-mandated leave programs and other employee programs such as sick leave or personal or administrative time off. 

By allowing these changes retrospectively, California would also allow healthcare plans to recoup money paid out in benefits, and prospectively to deny any coverage for COVID-19 from an employee. In essence, workers’ compensation becomes the primary healthcare insurance for any worker subject to the conclusive presumption. It would also allow California’s Employment Development Department (EDD) to recoup money paid under that state’s disability insurance program (SDI) to disabled workers who contracted COVID-19 from community or travel sources. 

The proper role for workers’ compensation in this crisis is to ensure it does what it is intended to do and has done for over a century. Now is not the time to try to lessen the burden on other benefit systems by creating a legal fiction that all exposure to COVID-19 occurs at work for certain employees – even in those occupations that have a high risk for occupational exposure. 

See also: Impact of COVID-19 on Workers’ Comp  

With this observation, however, comes a solemn obligation. This potential existential  risk is more likely to become a reality each time an employer or an employer’s insurer or claims administrator denies a claim without proper investigation or justification. The national debate over presumptions over the past several years strongly suggests that not all actions taken by employers on claims are consistent with the underlying grand bargain of workers’ compensation.

As observed by the Colorado legislature when addressing the question of rebuttable cancer presumptions in 2017, “Nine years of experience has shown that the rebuttable presumption established by House Bill 07-1008 has produced no demonstrable benefit to firefighters but has led to significantly greater costs to employers of firefighters.”

During this critical time in our nation, it’s important for policymakers to understand that the various programs that make up America’s social welfare system should be providing for those who are ill with the benefits both law and contract oblige these programs to provide. The focus should be on the unacceptable gaps in this system and how to close them, not how to shift responsibility from one program to another with all the unintended problems that will cause. 

Keeping an Eye on Consumer Privacy

The pandemic has caused many predictions for 2020 to be spectacularly wrong. One exception is that data privacy and compliance will become even more important, specifically because of the introduction of the California Consumer Privacy Act (CCPA). 

For carriers that work with consumers in California, the legislation created a list of compliance considerations. Californians now have the right to know what information companies have, request that it not be sold and request that it be deleted unless it is in conflict with another law (very important to note that last piece for our highly regulated industry). Businesses must also provide a link that says, “Do Not Sell My Information,” which enables the consumers to make their opt-out request. 

Let’s take a look at three of the many concerns related to CCPA:

  • Data Breaches: Protecting a consumer’s private and sensitive information should be a top priority, as data breaches have become more common and have resulted in damaging headlines and expensive settlements. Given the nature of our industry and the amount of personal information exchanged, insurers are a prime target for cyber attacks, and we will certainly see them fall victim to data breaches.
  • Identify Theft: Insurers need to be certain that they are not responding to these consumer requests without reasonable verification that the consumer making the request is the actual consumer in question and not a bad actor trying to steal consumer information.  
  • Compliance: Carriers should consider hiring a compliance vendor or outside counsel well-informed on CCPA to make these situations more navigable. These partners act as a referee, offering valuable third-party input to verify that a safe and compliant process is in place. This partnership can provide a paper trail (if needed) to document that the required data usage and privacy notices were communicated to consumers. If trouble arises, it can be advantageous to have an independent third party defending you.

See also: CCPA: First of Many Painful Privacy Laws  

Working With Technology Partners

Since CCPA’s initial rollout on Jan. 1, insurance carriers that conduct business with Californians have been trying to reach full compliance before enforcement actions are scheduled to begin on July 1. For most, working with a technology partner, especially a data-as-a-service (DaaS) company, can be monumental in navigating the ins and outs of the new compliance standards. Here at Jornaya, we recently extended our compliance product suite to assist companies in meeting the requirements of the CCPA, as well as potential future state and federal regulations.

As CCPA goes into effect, plenty of other states are looking to it as a blueprint for creating their own data privacy laws. Nevada, New York, Texas and Washington are just a few states where legislators are starting to follow California’s lead by introducing privacy bills.

Creating Better Customer Experience

These laws are trying to provide transparency about what data is being collected on a consumer and how it is being collected and allowing the consumer to be in the driver’s seat as to how that data is going to be used. 

Privacy regulations, like the CCPA, are simply about doing the right thing for the consumer. And the consequences of not paying attention and not doing the right thing by consumers with regard to their privacy can be devastating, not only in terms of potential legal action but also in the loss of consumer trust and associated sales. 

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