Tag Archives: insurance coverage

Important Perspective for Insurance Agents

By pure chance, at a completely non-insurance event, I found myself seated next to a deputy commissioner of insurance for a prominent state. This deputy commissioner, when he learned through the pleasantries of exchanging minor personal information around the table that I consulted for insurance agencies, let me know in no uncertain terms that he thought agents were mostly scumbags.

It was a wonderful way to embark on a two-hour dinner with strangers. His perspective was that he saw so many cases of agents selling the wrong coverages, purposely selling inadequate coverage and leading clients to believe they had far more coverage than they had. Honestly, through all the E&O work I do, I cannot disagree. It happens every single day. I do not know that I agree agents do so from an unethical basis as much as an incompetency basis, based on my E&O audits, but the issue is real. And I understand from a department’s perspective that only sees the problems and never hears about the good outcomes (how many insureds call their department of insurance to exclaim how great their agents are?) that their perspective would be highly biased. I get that.

The examples are plentiful. An industry newsletter that often lists new E&O cases recently included cases for a multimillion-dollar coverage shortfall, failure to disclose a major exclusion, an agent arguably not providing realistic client expectations and an agent advising a client they didn’t need more than $x liability limits. A separate recent list of E&O claims followed a natural catastrophe, and, while the data I reviewed was limited, it suggested strongly that most of the situations were caused by agents not selling the right coverages or coverage limits. Some of the situations were truly massive incompetency on the part of the agent. An example might be something like advising someone flood was not necessary when the house was on the water or that the client had coverage for a business in the home when the policy specifically excludes such coverage unless the endorsement was purchased. I am not suggesting these are the claims, but these are the types of claims.

See also: Agents, Brokers Are Dead? Not So Fast!  

I can understand the insurance department thinking agents are scumbags, although I truly prefer thinking these agents are just incompetent. Idiocy feels better to me than the connotations of a scumbag.

Insurance departments have a role in this because, as one Michigan judge ruled not long ago, the licensing requirements for an agent are less than that of a beautician. Insurance departments could always raise the licensing standards.

Insurance associations and their members are at fault, too. I have heard for decades how agents want to lower the standards of care, so they are less likely to be sued and, if sued, more likely to win. I have heard E&O attorneys and instructors pound into agents’ heads to not increase their standards of care. This is truly the epitome of cutting off one’s nose to spite their face. If agents want licensing standards far less stringent than someone who paints nails (I am not saying painting nails is not a difficult profession that requires considerable training to avoid injuring a client’s fingers or toes) and if agents and their associations want standards of care so low the agent is basically not responsible for much of anything, then in reality who needs a licensed insurance agent? My conclusion is: Absolutely no one.

Which brings me to two new legal developments. The first is legislation whereby only “natural” persons will be required to carry a license but non-natural persons, i.e., artificial intelligence computers selling insurance, will not be required to carry a license. This is real and likely to pass. Think about this just for a moment or more. The computer will have no standard of care because it won’t be licensed, and, with no offense, though it may be offensive, an incompetent but licensed human cannot compete with an unlicensed supercomputer that actually probably is fairly competent.

Another development is a recently passed law that requires insureds to “understand” their insurance. How any reasonable person could vote for a law that requires a consumer to “understand” their insurance is beyond me. That is an impossible standard, but it negates a standard of care for agents and companies. In fact, it makes agents mostly irrelevant because companies can then sell whatever to consumers, and the consumer loses the middleman agent, the good ones of which are fantastic protectors of clients from insurance companies and incompetent and scumbag agents.

That law might be applauded by agents who want no responsibility for selling clients the coverages they truly need. It probably is being applauded by certain companies, especially those that like to cut corners. (As an aside, I wanted to ask the deputy commissioner about his department’s efforts to prohibit some companies’ filings of policies that actually provide almost no coverage, but that seemed pointless.)

I hate it that insurance commissioners and others think of agents as scumbags. These perspectives make it so hard to create trust for those who do their job well and with pride. Someone else at the table asked me if all agents are scumbags, and I explained that in my interactions with thousands of agents over 30 years a large percentage of agents are absolutely the best. They take to heart their clients’ coverage needs. They are extremely well-educated in the coverages clients need. They work hard to protect clients from companies, especially when a company is not interpreting coverage correctly after a claim. These are good, hard-working, ethical people who make a positive difference in people’s lives.

See also: Use Insurtech to Help, not Replace, Agents

The high road is always the hardest road. By definition, the high road means climbing, working against gravity and working hard. The low road goes downhill. You know what rolls downhill. With the new laws being passed and promulgated, with many companies working to push aside agents, with the “scumbag” perspective many important people have of agents and the industry, with how insurtech and AI are working to replace agents in some venues, understand all these forces are aimed at eliminating incompetent agents. Incompetent agencies are paid too much, and their extinction creates a cost savings. The low road leads nowhere good.

The high road is the ethical, positive legacy and financially beneficial road. If you want to learn more about the high road and if you do not already know where that road is and how to counter all the negatives, let me know. I have created a special path for those wanting to develop a high road that makes their clients’ lives better and ultimately rewards them financially and in their hearts.

More Opportunities for Reinsurers in Health

As insurers and regulators address uncertainties in connection with risk-adjustment, transparent health reinsurance emerges ever more forcefully as a marketplace solution for managing risk in connection with healthcare costs.

The immediate instance animating fresh reconsideration of health reinsurance is the early July Trump administration decision to desist from administering risk adjustment. The decision followed a federal court decision in New Mexico that found that the Centers for Medicare and Medicaid Services was being arbitrary and capricious in its risk adjustment.

There is nothing inherent in risk adjustment that makes rational and neutral implementation impossible. It is simply that CMS wasn’t doing that in New Mexico in the court’s determination, so the judge sided with Land of Enchantment insurers and rapped CMS’s knuckles.

Risk adjustment is a permanent element of the Affordable Care Act, or Obamacare, to transfer risk among insurers. Transitional reinsurance and risk corridors, elements of Obamacare that expired at the end of 2016, worked well… and badly. Transitional reinsurance had pooled enough money, coupled with $5 billion of Treasury subsidies over three years, to pay claims. Risk corridors, by contrast, paid but 12.5% on claims and put a number of insurers in the lurch. They had entered Obamacare markets on the supposition that risk corridors would pay vastly more.

Administration decision making on risk adjustment leads inescapably to uncertainty because of the potential for adverse selection, an escapable element of insurance.

Nicholas Bagley, a scholar, says that, “in one sense, the furor over the risk adjustment program may be overdrawn. The 2019 rule has been fixed, so we’re really talking about accounts receivable at this point. They’re big accounts receivable, amounting to hundreds of millions of dollars, but most insurers can handle a short delay in getting paid.

“In another sense, however, the needless suspension of the risk adjustment program is a signal that the Trump administration remains intent on sabotage. Already, insurers were stiffed on their risk corridor money. Then the cost-sharing payments evaporated. Now, even risk adjustment money may go up in smoke. What’s next? This is no way to run a health program, and no way to run a government.”

One practical solution is to embrace transparent health reinsurance, a proposal that ITL published in anticipation of fade-outs for risk corridors and transitional reinsurance just over two years ago.

If anything, conditions are more propitious now.

See also: Reinsurance: Dying… or in a Golden Age?  

This past fall, the president placed the foundation for association health plans. Last month, the Department of Labor issued implementation guidance, which will go into effect later in August, so associations of enterprises could jointly negotiate and purchase health care coverage. DOL says: “As it has for large company plans since 1974, the department’s Employee Benefits Security Administration will monitor these new plans to ensure compliance with the law and protect consumers. Additionally, states will continue to share enforcement authority with the federal government.”

Similarly, the Trump market liberalization for short-term, limited-duration insurance opens another market for reinsurers. As with association health plans, CMS says that, “in the final rule, we also strengthened the language required in the notice and included language deferring to state authority.”

The market liberalization initiatives, coupled with Department of Labor, CMS and state regulatory oversight, present signal opportunities for reinsurers.

For instance, in the emerging private flood insurance market, “market growth to date has largely been driven by the interest of global reinsurers in covering more U.S. flood risk,” the Wharton Risk Management and Decision Processes Center reported in July 2018.

Issuers would mitigate adverse selection.

Associations and issuers of short-term, limited-duration insurance would mitigate risk.

State legislators and regulators could enact statutes and set standards, their domain competencies.

Mandatory, state-based reinsurance is wholly feasible, particularly in densely populated states, for each marketplace offering.

This approach could go a long way toward creating foundations for accountable health organizations.

See also: The Dawn of Digital Reinsurance  

Innovators like Amazon Web Services could bring one element of available technologies, cloud computing, to provide fresh applications boosting asset values and volumes and increasing probabilities for effective service.

Associations, enterprises and individuals would experience greater healthcare security and quality.

How to Create Resilient Cybersecurity Model

As data breaches increase in type, severity and number, more companies plan to purchase cyber insurance. While cyber insurance premiums in 2016 in the U.S. were $5 billion, projections indicate they will increase to $20 billion by 2020. Complex cyber crimes mean insurers find themselves facing contentiously complex relationships with their insureds. To create a resilient business model, both of these parties need to communicate effectively and understand the overt and hidden risks they face.

The Underwriting Communication Gap

Information forms the basis of strong underwriting. With traditional general liability policies, insurers can easily gather information on a company’s financial solvency by reviewing publicly available documents such as annual financial reports or credit ratings. With cybersecurity policies, attack vectors extend in a variety of directions, making information less tangible for underwriters.

With a compounded annual growth rate of 41%, cyber insurers need insight into the full range of their insureds’ risks. The present model relies on questionnaires from applicants; however, when insureds misrepresent or misunderstand their risks, insurance companies suffer billions in losses. Often, the cost of a breach exceeds the limits of a policy’s liability, meaning that even those companies with insurance find themselves underinsured. Because courts generally agree that general liability policies do not cover cyber loss, business continuity plans require appropriate insurance aggregates to fully cover losses.

Even the most sophisticated companies find themselves unaware of their biggest cyber risks. When insureds lack data, underwriters cannot effectively write policies. Thus, the communication gap poses a risk for both the insureds that remain underinsured and the insurance companies that may be overextending their books of business. Security ratings act as a tool that allow better communication between insurers and their insureds when establishing a cyber security policy relationship, similar to credit ratings in the general liability arena.

See also: Roadblocks to Good Customer Relations  

The Claims Communication Gap

Insureds use insurance to protect their internal and external stakeholders. However, the communication gap creates a claims problem for insureds. Coverage litigation costs and a sense of betrayal ruin relationships between companies that share the economic ecosystem.

The Equifax breach offers a contemporary example. Most recent estimates place Equifax’s breach costs at $275 million, but the company retained only $75 million in cybersecurity insurance. A single employee’s failure to patch a known vulnerability in the Apache Struts Java application created an opportunity for hackers. Equifax’s failure to understand its own patching cadence led to its underinsured status and, ultimately, its severe losses.

Information Enables Resilience

The information security community focuses on resilience. When a distributed denial of service attack causes a company to shut down services for days or weeks, the company lacks cybersecurity resilience.

An insurance company’s resilience requires setting aside financial reserves to cover claims costs. Because cyber policies often cover business interruption costs, businesses that lack cyber resiliency too often claim losses and file insurance claims. Security ratings provide insight into an insured’s resilience. Because data breaches are inevitable, even companies with strong security ratings may be hacked, but their continued attention to their environments means they will have strong disaster recovery protocols limiting business interruption. To remain financially stable and resilient, insurance companies need to adequately estimate potential losses so that premiums adequately align with their risk acceptance.

Insurance companies and their customers need shared visibility into the protected cyber ecosystem. Otherwise, insurers continue to dissuade financial safety by overestimating premiums while companies risk their solvency by underinsuring their business. This business model promotes neither economic stability nor resiliency.

Continuous Monitoring Builds Continuous Relationships

Remedying the information and communication gap between insurers and insureds provides the only solution to the current resilience problem. Companies often prove, through audit reports, that they engage in information security, yet those documents show proof of only a single moment in time. Insurers need tools providing visibility into their insureds’ ecosystems on a continual basis, such as security ratings.

Organizations face data security threats from both their IT environments and those of their vendors. One breached vendor creates a domino effect of cyber insurance claims as the damage travels through the supply chain. Insurers and insureds need to be able to communicate both visible and hidden cyber risks. Security ratings continuously monitor insureds’ endpoint security, IDS and antivirus, while also providing a shared language so they can effectively communicate with insurers. Insurers, conversely, can use the shared language of security ratings to communicate to insureds the impact that security vulnerabilities have on insurance premiums and coverage.

See also: The New Agent-Customer Relationship  

In the cyber insurance space, increased claim complexity degrades the symbiotic relationship. As insureds shop around for better premiums, insurers lose valuable business. To promote continued business relationships, the two parties can both benefit from automated tools that enable continuous communication about continuous monitoring. Tools to facilitate visibility help establish metrics for the appropriate pricing of risk to cover potential losses and set reasonable premiums.

Insureds must communicate with their insurance companies; however, companies focusing on the daily tasks of conducting business lose track of communication and time. Therefore, insurance companies need to protect themselves by monitoring their insureds. Security ratings are poised to help promote resiliency between, as well as within, industries by offering publicly facing data. With the right continuous monitoring metrics, SaaS platforms can enable continuous relationships that reinvigorate the insurer-insured symbiotic relationship.

industry predictions

4 Technology Trends to Watch for

We enjoy many technological devices that used to be pure science fiction — mobile phones, video chat, Bluetooth speakers, touchscreen tablets,  driverless cars and so on. So what’s next?

Here are four of the coming insurance technology trends:

  • More online tools to attract millennials. Millennials are the new Holy Grail group of customers for insurers and agencies. Many of these young people are just now venturing into adulthood, and over the next few decades they’ll be on the receiving end of the biggest transfer of wealth that we’ve seen. This newly intensified focus on millennials will likely mean greater efforts to improve online customer services and mobile-responsive sites. Some of the online tools we’ll see in the coming years—probably sooner than later—include millennial-focused financial planning and educational resources, specialized social media tools and online customer service and policy change options.
  • The development of subscription insurance coverage. Insurers will begin offering suspension of coverage options for certain lines to accommodate people who have increasing or decreasing risk. Insurers will need to be prepared by having a flexible front- and back-end system that can keep up with these changes and minimize or automate underwriting efforts as coverage is turned on and off.
  • The increased adoption of digital solutions for claims processing. To increase efficiency and accuracy while also lowering costs, claims departments will become more open to embracing digital solutions for both accumulating and analyzing data. Digital solutions help claims in many of the same ways that they help underwriting. They can flag suspicious situations, process more information, help insurers better analyze their underwriting and approval process and pay policyholders faster, thus attracting even more business.
  • Insurers will create more apps and tools. Tools allow insurers to collect data on driving habits and health and fitness metrics, thus helping to attract and retain clients, improve policy rating and reduce risks. The app revolution is just beginning. There are still legitimate concerns on privacy and tampering. Some of the recent announcements are marketing with first-mover publicity. Once that is sorted out we will see many more insurance companies offering web apps.

There’s no question that adopting new technology is what’s going to drive our industry and insurers forward. Now is the time to make sure your infrastructure is ready to adopt what’s coming.

Jurors and Questions on Insurance Coverage

For most potential jurors, questions of insurance coverage do not usually arise in common conversation. Seldom cut and dried, usually subject to numerous definitions and intricacies, coverage issues can be boring and puzzling for even an experienced adjuster. Asking a lay person to try to classify an “occurrence” as defined by a policy, or whether a third party is covered as an additional insured, may prompt, at best, glazed-over eyes or, even worse, a negative commentary about insurance companies. While it may be best in some situations for a judge to determine the issue of insurance coverage, this is not always possible. Sometimes, coverage questions arise in litigation, and those interpreting policy language and determining the outcome are jurors. If jurors are deciding the issues, certain challenges then arise, such as how to clarify policy language, present a clear and concise argument and overcome negative preconceptions about the insurance industry.

Can the Judge Decide Coverage Issues?

In Louisiana, general rules regarding issues that are triable by a jury are set forth in Louisiana Code of Civil Procedure articles 1731 – 1736. These establish the general rule that a demand for a trial by jury will result in a trial by jury of all issues. However, exceptions to the general rule exist when: (a) the parties stipulate that the jury trial shall be as to certain issues only; (b) a party in his demand specifies the issues to be tried by a jury; or (c) the right to trial by jury as to certain issues does not exist. Where a jury trial has been demanded by one or both parties, the case must be tried by a jury unless both parties consent to trial without a jury or the trial court finds that a right to a trial by jury does not exist.

More particularly, La. C.C. P. art. 1562(D) specifically codified the general principle found in La. C.C. P. art. 1736 requiring a stipulation between or the consent of the parties before the trial judge can order that insurance coverage issues be tried separately, with the “court alone” deciding the issue of insurance coverage.

La. C.C.P. art. 1562(D) states:

“If it would simplify the proceedings or would permit a more orderly disposition of the case or otherwise would be in the interest of justice, at any time prior to trial on the merits, the court may order, with the consent of all parties, a separate trial on the issue of insurance coverage, unless a factual dispute that is material to the insurance coverage issue duplicates an issue relative to liability or damages. The issue of insurance coverage shall be decided by the court alone, whether or not there is to be a jury trial on the issue of liability or damages.”

The leading case on the subject is Citgo Petroleum Corp. v. Yeargin, Inc., 95-1574 (La. App. 3 Cir. 7/3/96), 678 So.2d 936, writ granted, remanded, 96-2000 (La. 11/15/96), 682 So.2d 746 and 96-2007 (La. 11/15/96), 682 So.2d 747. There, the court stated that La. C.C.P. art 1562(D) provided that, if principals of judicial efficiency or justice would be served then the court may order a separate trial on the issue of insurance coverage. However, the trial judge’s discretion is not unfettered. The judge’s ability to take the issue away from the jury is severely restricted because, under the article, all of the following conditions must exist: (1) it would simplify the proceedings, permit a more orderly disposition of the case, or be in the interest of justice; (2) the consent of all parties; (3) the non-existence of a factual dispute material to the coverage issue that duplicates an issue relative to liability or damages; and (4) the order must be rendered before trial on the merits.

Therefore, the requirements set forth in the article effectively leave the judge with no discretion, as it requires the consent of all parties. The court further noted that, while the issue of insurance coverage under an insurance policy is a narrow issue of the law between the alleged insured and the insurer, a jury is not prohibited, by statute or otherwise, from deciding this issue. Further, there is no exception to the right to trial by jury for issues that the trial judge may think are too technical or too complex for the jury to understand. Even if the trial judge believes that he is more capable than the jury of deciding the issue of coverage, he cannot take this issue away from the jury once the issue is included within the scope of issues for which a jury trial was requested, unless the conditions of La. C.C.P. art. 1562(D) are met.

As such, if a trial by jury has been requested, but an insurer is presenting technical questions of coverage and believes that a judge would be best suited to decide the coverage issue, a stipulation or the consent of all parties would be necessary before the judge could take the coverage issue away from the jury. Unfortunately, often the consent of all parties to separately try the coverage issue cannot be obtained, and the insurer is left with a jury to decide intricate and potentially costly coverage issues.

Selecting the Best Jury for Your Coverage Case

If coverage issues must be decided by a jury, the persons who make up that jury can make a difference in the outcome of the case. Questioning prospective jurors in voir dire about their current insurance policies and other contracts can provide some insight into how they view insurance companies and the potential for coverage. People often believe that they are “fully covered” under their insurance policies, and that insurers are large, prosperous companies that should be able to “help out” individuals. However, further questioning can reveal that potential jurors do understand that there are limitations as to what is covered under certain policies and what has been negotiated.

Questioning a potential juror about a policy he may currently have in place, whether that policy has a limit and if he understands that the insurance company would not be required to pay more than that limit, can show that the potential juror does understand some limitations to coverage. Additional questions may involve who the current policies provide coverage to and the limitations on that coverage. Even simple, and almost obvious, questions can help illustrate a potential juror’s understanding of coverage limitations. For example, discussing how an automobile policy might provide coverage for certain damage to an owned vehicle but would not cover general maintenance, oil changes or a monthly car payment can help provide insight into whether an individual may be able to understand the issues and be a constructive juror.

Additionally, general questions regarding the potential jurors’ opinion of insurance companies in general, personal claims experiences or inferences regarding insurers that the potential juror has taken from the media can provide insight into whether the potential juror might be favorable or undesirable from the insurer’s standpoint.

Presentation at Trial – Concise and Comprehensible

After a jury has been selected, helping jurors understand and follow the language and logic of the coverage argument is vital. The following tips may help simplify the coverage case and overcome obstacles when faced with presenting coverage issues to a jury.

1. Walk Jurors Through the Basics

Although often complex, insurance policies are simply contracts. They define a relationship between parties and outline who will do what, when and under what circumstances. Presenting the insurance policy as a simple contract, by identifying the promise between the parties and what each may receive in exchange for their promise, may help jurors be less apprehensive when approaching coverage issues.

A good place to start is with the basics of the policy and how it is structured. Discussing the declarations, insuring agreement, exclusions, definitions, conditions and endorsements allows jurors to get comfortable with the policy. After the policy and its purpose are explained, the specific provisions at issue can be addressed. An effective way to do this is by using demonstrative evidence, such as blowups of certain pages or Power Point presentations illustrating specific language and what it means. Presenting the policy through large exhibits helps break down the technicality for jurors and show that it is a logical and consistent contract.

Further, preparing an exhibit naming and listing the experience of all of the individuals who are involved in creating the policy, the claim investigation, adjustment and the coverage decision shows that time and thought of real individuals went into creating a well-organized document and making a well-thought-out coverage decision.

2. Humanize the Issues

Jurors often bring their own experiences to the courtroom and, sometimes, a bad impression of insurance companies. Further, oftentimes coverage disputes are coupled with bad faith claims, exacerbating the notion that insurance companies are malicious. To overcome these perceived notions and prejudices, it is key to humanize the insurer’s operations and show the jurors that real people have drafted the policies and handled the claims. Showing that the insurer is not just a large, faceless corporation, but individuals making decisions and doing their jobs, will help negate the insured’s presented image of an uncaring, profit-seeking business entity. While testimony from a vice president may be impressive, the agent who issued the policy or the adjuster who handled the claim may help put a more relatable face to the company.

Additionally, many insurers have adopted vision statements outlining a code of ethics or a commitment to the community. Using this at trial, and showing how the company is committed to its values or involved in the community, helps dispel negative ideas of an uncaring corporation.

Lastly, insurers should be careful about attacking the insured’s credibility or positions. While it may be necessary, the way this is presented to the jury can have a big impact and can erroneously further the negative ideas about the insurance company.

3. Show All Negotiations

Jurors will generally understand the concept of “you get what you pay for.” They know that if they contracted with their cable company and pay for only the basic channels, they do not get premium channels, such as HBO. It follows that jurors should understand that if underwriting documents or other evidence show what was discussed and understood between the parties, and this is reflected in the contract, this should be what governs. If evidence of negotiations is available, this should be presented to the jury. This concept may be particularly helpful in litigating commercial policies, where there is usually more negotiation, and in showing the application of policy exclusions.

4. Keep It Simple

As a general rule, the simpler the better. It is important to keep the insurance policy language from sounding too technical. Avoid overuse of legal terms and phrases, as this will only confuse jurors and may cause them to fall back on the generally accepted legal principle that “any ambiguity must be construed against the insurer.” A straightforward presentation, relying on only one or two strong coverage arguments, should be used. Presenting every argument possible is not always the best strategy, as this could bog down the jury and cause them to lose focus. When one or two key arguments are made, the case is tight and allows jurors to concentrate on the big picture, rather than trying to follow several moving parts.

Another tactic that may help bring the issues to a comfortable level is to compare the policy to other contracts jurors may have entered into. Outlining the limits and duties imposed by contracts that jurors may be more familiar with, such as a purchase agreement for a car, or a lease agreement for an apartment, may also help jurors realize that there are also limitations and duties imposed by insurance contracts, just like the contracts with which they are more familiar.

Additionally, working backward from the result being sought provides a road map for a streamlined argument and helps create a unifying theme throughout the litigation. Starting from the verdict form or jury instructions helps to keep concentration on the elements that need to be established or explained.

5. Apply Basic Jury Concepts

Basic concepts of persuasion, which apply to all jury litigation, can also be used effectively in a coverage case. Fairness must be stressed and run as a theme throughout the presentation of the coverage case. Jurors want to be fair and will try their best to do so. Additionally, any obvious weaknesses in the case should be addressed. Holes in the case, if not admitted to or explained, will create doubt.

Presenting a coverage case to a jury is sometimes unavoidable, but need not be too difficult or incomprehensible for jurors. Carefully questioning and selecting potential jurors, along with presenting a simple yet logical argument, while humanizing the insurance company, can help achieve a successful presentation of the case in the courtroom and, with that, a successful result.