Tag Archives: wilson

New Message From Lemonade

In August, I wrote about “Lemonade’s Bizarre New Self-Service Approach.”

This “self-service” approach is pitched by Lemonade as a benefit to customers who can apparently delete coverage for spouses, mortgage companies and others unilaterally — something that could create serious problems for consumers who are not counseled on the possible repercussions of such actions. In other words, Lemonade is reducing its workload, increasing consumers’ risks of loss and making customers thank Lemonade for it.

Earlier this month, I posted on LinkedIn about “Lemonade’s ‘Zero Everything’ Policy.”

Again, Lemonade touts something that largely benefits… Lemonade. And it does it in a way that makes consumers think they are getting the benefits.

See also: Politics of Guns and Workplace Safety  

Just this week, I learned of yet another odd Lemonade decision regarding a new coverage stance on guns and gun owners. This is from their web site blog: “Guns, And Why Lemonade Is Taking A Stand

According to the blog post, Lemonade’s next policy form revision will include the following:

  1. “We will exclude assault rifles altogether. We simply don’t understand why civilians need military-grade weapons, and we prefer not to insure them.
  2. We will add requirements that firearms be stored securely and used responsibly, upon penalty of voiding coverage. We believe guns should be treated mindfully and soberly, not as a plaything, a status symbol or an ideological prop. Reasonable people, we believe, can agree on that.”

On the first point, Lemonade did not elaborate on how “assault rifle” will be defined, nor did the company indicate whether the exclusion will be for loss of the rifle itself or, more likely, liability claims for BI to others. If the latter, this policy sounds like it punishes victims as much as gun owners.

Lemonade’s HO policies already exclude liability coverage for intentional losses like the recent Las Vegas shooting. So even if the perpetrator had an HO policy with the company (or most other insurers), the policy wouldn’t cover victims’ claims. However, what about an accidental negligent shooting or BI that arises when someone takes a gun owned by someone else and the owner is sued? Most HO policies would respond to such claims. However, it doesn’t sound like Lemonade wants any part of that.

On the second point, Lemonade says that its revised policies will require that all firearms be stored “securely and used responsibly” or else there is no coverage. How do you determine what “securely” and “responsibly” mean if these terms are the ones actually used in the revised policy language? And, again, if such an exclusion is invoked, who is the loser? It sounds like the victim(s) of such negligence now have no insurance proceeds to access.

So, who is potentially the primary beneficiary of these changes? It sounds like Lemonade is because it would not be paying claims to innocent victims of the negligence of their insureds. Insurance policies sometimes exclude BI or PD that arises from illegal activities, though most auto policies, for example, don’t exclude BI or PD that arises from driving under the influence. The reason is that one of the primary purposes of liability insurance, from a social aspect, is to benefit innocent victims of such careless actions.

See also: Examining Potential of Peer-to-Peer Insurers  

However, what we could be seeing with this change from Lemonade is that its insurance products may base coverage on what LEMONADE thinks is morally right or wrong. The company’s blog post says it is being upfront about what it thinks is “good” and “not good,” and that Lemonade is not into “gun worship” or “vigilante” gun owners and is doing its part to “solve gun violence.”

Sounds like what Lemonade is doing is simply taking away a victim’s source of financial recovery for the negligence of Lemonade’s customers. Does that benefit society, or does it benefit Lemonade?

Catastrophes and ‘Do Little’ Syndrome

Cliff Treese of Association Data brought some statistics to my attention involving earthquake (EQ) insurance in California. Going back as far as 2001, the percentage of properties without EQ insurance were:

Homeowners       84-88%

Dwelling               95-97%

Commercial         89-93%

So, only about 15% of homeowners, 10% of business owners and 5% of dwelling owners buy EQ insurance. Why? Lots of studies and surveys have been done. It’s too expensive. It doesn’t pay much, especially for partial losses, because of percentage deductibles. “It’ll never happen to me.” The government will take care of me. “I thought my regular insurance covered this.” And on and on.

One of my favorite quotations is from Gen. Jimmy Doolittle, who said, “The problem with Americans is that we’re fixers rather than preventers.” This is so true in so many ways. Following Hurricane Harvey, it was widely reported that only about 15% of flooded properties had flood insurance. We’ll see what happens, if anything.

See also: Harvey: First Big Test for Insurtech 

While we can’t prevent earthquakes and hurricanes, we can prevent, to a large extent, their financial impact by buying catastrophic insurance. Private insurers sell EQ coverage and, underwritten by the NFIP, flood insurance. Yes, in many cases, it’s expensive, but what are the alternatives when the exposure is so real? As I posted last week, is it time that such coverage was mandated and included, with a federal terrorism-like backstop, in standard policies covering property damage? Such a solution would be complex and difficult, but what are the alternatives?

And, while Gen. Doolittle’s quotation is so often true, it may be even more true that, increasingly, the problem with Americans is that we’re not preventers OR fixers. In the meme I used for last week’s post, I used another quotation from the German philosopher Hegel, who said, “History teaches us that man learns nothing from history.” This may be illustrated in a recent USA Today story about repetitive flood properties with this excerpt:

“Instead, NFIP embraced a “flood-rebuild-repeat” model that has spawned an almost $25 billion debt. The National Wildlife Foundation estimated in 1998 that 2% of properties covered by federal flood insurance had multiple damage claims accounting for 40% of total flood insurance outlays, and that more than 5,000 homes had repeat claims exceeding their property value. A recent Pew Charitable Trust study revealed that 1% of the 5 million properties insured have produced almost a third of the damage claims and half the debt.”

NFIP paid to rebuild one Houston home 16 times in 18 years, spending almost a million dollars to perpetually restore a house worth less than $120,000. Harris County, Texas (which includes Houston), has almost 10,000 properties that have filed repetitive flood insurance damage claims. The Washington Post recently reported that a house “outside Baton Rouge, valued at $55,921, has flooded 40 times over the years, amassing $428,379 in claims. A $90,000 property near the Mississippi River north of St. Louis has flooded 34 times, racking up claims of more than $608,000.”

See also: Time to Mandate Flood Insurance?  

Wow. Fully 2% of properties insured for flood account for 40% of all flood insurance payments. A $120,000 home was rebuilt 16 times in 18 years at a cost of almost a million dollars. Another home has allegedly flooded 40 times and still another property 34 times, racking up combined payments in excess of a million dollars. WHY? Apparently because we’re not fixers OR preventers AND we learn nothing from history.

Lemonade’s Bizarre New Approach

In its latest effort at self-promotion, industry “disrupter” Lemonade has posted an article on multiple web sites. Here is the article from one source:

Lemonade: World’s First Live Policy

Below are some excerpts from the article and some observations and questions of my own.

“Then, customers would need to pay for some changes, and probably get a new policy sent to them in the mail (snail mail, of course). That’s where the red tape and long wait times come in….”

So, the changes listed in the article that Lemonade will allow their insureds to make without customer service assistance wouldn’t in some cases result in additional premium? And what carrier mails an entirely new policy for changes as described in the article? This is nonsense, and it is not an accurate nor an honest statement.

“As far as we know, no other insurance company allows its customers to modify their coverages or even cancel their policy on their own.”

This is disputed in one comment at the bottom of the article linked above. More important, if anyone actually CARES about the customer, why would they want to facilitate an untrained person to make a change that, unbeknownst to them, could create a serious exposure gap? So, Lemonade would allow, with no questions asked and no intervention by customer service, one spouse to remove another spouse even if both are named insureds on an insurance CONTRACT?

The insured, without question or counsel, can remove a landlord as an additional insured on a policy even if the lease contractually requires the landlord to be covered? How many insureds read their leases or insurance policies? How many would know the potential liability they’re incurring? Do the people at Lemonade understand this?

This is why knowledgeable insurance agents serve a purpose. Most insurance agents are required by law to pass examinations and engage in state-approved continuing education to provide counsel to consumers for these types of decisions. How is a consumer who knows pretty much nothing about insurance supposed to make coverage decisions on her own without the training that state regulators require of agents? What do regulators think about this practice?

“Even if you buy renters insurance directly from the likes of GEICO or Progressive, the only part that’s direct is taking your money and sending you a policy. Everything else requires customers to contact customer service — which we all know can be… painful. That sucks.”

What can be far more painful is the inability of an uneducated, ill-informed and unsuspecting consumer to contact customer service to obtain the counsel and advice of a properly trained and knowledgeable insurance agent.

See also: Lemonade’s Crazy Market Share  

It sounds like Lemonade is adopting a practice that saves THEM a lot of time and lessens THEIR need to hire competent insurance advisers and SELLING it as a benefit to consumers. In other words, Lemonade is reducing its workload, increasing consumers’ risks of loss and making customers thank the company for it. On top of that, because Lemonade is not intervening in the insured’s own bad judgment, is the company also insulating itself from E&O claims such that customers will have no coverage under either their own policy or Lemonade’s E&O coverage?

Who is the real beneficiary here? I think most insurance professionals can answer that question.

Caveat emptor.

Time to Mandate Flood Insurance?

According to this article, only 15% of homeowners in the Houston area have flood insurance:

“As of August 2016, just 15% of the 1.6 million homes in Harris County, where Houston is located, had flood insurance, according to emailed data from the Insurance Information Institute, and only 28% of the homes in ‘high-risk’ areas for flooding.”

See also: Hurricane Harvey: A Moment of Truth 

We all know the reasons why people don’t buy flood insurance. They think, “It’ll never happen to me.” It’s too expensive. They don’t have to. They don’t know they need it. Or, they’re told they don’t need it in idiotic articles like this one that can be found plastered all over the internet:

“Unless you live in a flood plain or an area with a history of water problems, don’t even bother buying flood insurance. If none of the homes in the area has ever been flooded, yours is unlikely to be the first.”

Last month, in a blog post about healthcare, I raised the issue of whether we should explore an alternative system to how we currently insure catastrophic exposures to loss:

I’ve opined for years that we should abolish the National Flood Insurance Program (NFIP) and windstorm pools, mandate property coverage by all owners and tenants and include flood and windstorm damage in standard homeowners, commercial property, auto and other policies. Minimum and maximum catastrophe loadings could be established so that there is some degree of subsidization in more risky areas. CRITICAL, though, would be mandated loss control measures, including zoning restrictions, building codes and so forth. Loss prevention and reduction would be absolutely necessary components of an insurance program, as they should be now.

The reality is that, unless the risk of loss is almost definite or coverage is mandated, people simply will not buy the coverage. And if the risk of loss is high, the cost of insurance is either unaffordable or results in adverse selection and repetitive losses. While the focus today is on flood, this holds true for other catastrophic exposures like earthquake.

Is this doable? Should property insurance be mandated and include catastrophe premium loadings similar to civil disorder charges applied in the late ’60s? Can the risk of loss be spread enough that the private sector can manage it? Can commerce and governments work together to invoke loss control measures to mitigate loss to manageable levels? What are the issues? What are the obstacles? Can they be overcome?

See also: Harvey: Tips to Avoid Claim Issues  

Your comments are welcome below. And, please, no political rants, just rational and respectful arguments, points and counterpoints.

‘Opt Out’ Will Return; Pay Attention

I had the opportunity to participate in a high-octane session at the 72nd Annual WCI Conference in Orlando, FL. With the somewhat imposing title of “The Grand Bargain or Contract of Adhesion: The Ongoing Debate Over Benefit Adequacy, Procedural Efficacy and Blanket Immunity in Workers’ Compensation,” it was a 90-minute discussion about both specific state legal challenges and the future viability (constitutionality) of workers’ comp overall. It featured Florida defense attorney H. George Kagan, Wyoming law professor Michael Duff, Georgia Administrator and Judge Elizabeth Gobeil and me. It was moderated by Florida plaintiff’s attorney Paolo Longo. While we covered a variety of challenges that the industry continues to face, there was one that I regret we did not have the opportunity to address. That one issue is the concept of allowing employers to opt out of workers’ comp altogether.

Since the Oklahoma Opt Out scheme was torpedoed by the state Supreme Court’s upholding of an earlier decision declaring it unconstitutional, many have assumed that this chapter has closed for the industry. We are quite content to put our heads back in the sand and wait for the next crisis before we stir from our slumber. You may pick up from my tone that I believe this to be a mistake. I am predicting here that the “threat” of Opt Out will return, faster than expected, and with an improved concept that will quickly gain traction. I’m telling you, we need to pay attention and be prepared, as this next round will be a more formidable challenge.

The advocates of Opt Out have, quite simply, made a few key changes in their pitch and approach, and the changes, for the sake of argument, have merit. The Achilles heel of Oklahoma Opt Out was “exclusive remedy”; the approach had been allowed to develop a closed and tightly controlled system that maintained the benefits of liability protection afforded to employers within the highly regulated workers’ compensation system. This was found to provide inconsistent benefits to some workers, and, combined with the one-sided controls granted employers within Opt Out, was deemed an unconstitutional restriction on employees’ rights of due process. Today, the backers of Opt Out seem to have learned a lesson and are now proposing an Opt Out scheme that operates without the layer of protections afforded by the exclusive remedy provisions.

See also: What Schrodinger Says on Opt-Out 

In other words, they are saying, “Allow us to accept the risk of full liability and set up our own alternative plans to mitigate that risk.” Although I am known for my opposition to Oklahoma Opt Out and am not a fan of Texas non-subscription, I believe this concept is more intellectually honest than its Sooner State predecessor and therefore worthy of inclusion in the debate about the future of workers’ compensation.

With my involvement with “national conversations” on comp over the last year and a half, one thing has become firmly etched in my mind. There is a feeling of frustration simmering in the industry over the regulatory complexity and paperwork required in helping injured workers. There is tremendous appeal in the idea of bypassing all the oversight and just doing the job that needs to be done. After all, in some systems, treatment of the injured worker now seems to be a secondary goal; we can get to it when all the appropriate paperwork has been completed in triplicate and submitted to the various participants that are required to have it.

By saying, “We accept the risks of open liability and can control those risks by doing the right thing by our employees,” backers change the argument significantly from that where exclusive remedy protected the employer either way. The new approach is going to have tremendous competitive appeal to employers and the legislators whose ears they reach.

There are, of course, concerns with this concept. One of the oft-understated purposes of the “Grand Bargain,” which created a system that was supposed to be no-fault in nature, is that it assures treatment and benefits for the careless and negligent worker. People who represent the injured workers’ interests hate to discuss this, but many accidents occur not because the employer was negligent but because the employee screwed up. The employee may have been simply careless or willfully bypassed safety practices. Either way, the injury is often the fault of the worker who suffers it. Workers’ comp, with few exceptions covers that. Employers who find no liability in an accident may not.

For example, let’s say you run a delivery service. You maintain a strict “no texting while driving” policy for your drivers, even going so far as to install apps on company-provided phones that will not allow texting when movement is detected. However, one of your drivers pulls out a personal phone (banned by company policy), over which you have no control, and drives headlong into a tree while texting his BFF. Were you negligent? If you did not have workers’ comp, would you need to be concerned with the liability of pain and suffering, loss of consortium and all the other threats of a negligence suit? Unlikely. Without the threat of a suit, would you be compelled to provide medical and indemnity benefits to this worker? Equally unlikely, I would suspect, especially in an Opt Out world.

Believe me, there is a real attraction to being released of financial responsibility for things that were not your fault. This really becomes a discussion at a societal level. Are we willing to start assigning blame, potentially placing the burden on taxpayers for injuries that occur while someone is working for the benefit of an employer? Are we ready to return to the days before workers’ comp existed?

Another issue, of course, will be how the concept is actually created in legislative form. Saying you will accept the risk of open liability is different than legislating that element. As with all things, the devil will be in the details of any specific proposal.

These questions will certainly be a part of the debate. In the meantime, the simplicity of bypassing an over-regulated system is going to provide tremendous appeal for some. At our Orlando session, George Kagan observed that Florida legislators have enacted so much legislation for workers’ comp that it would make the “central planners of the Soviet Union proud.” Employers will eventually look to escape an overly complex system where regulators cannot even agree on a simple standardized reporting form.

When the argument can be successfully made that benefits for the injured worker can be improved by leaving a burdensome system, then we will have a real dogfight on our hands.

See also: Debunking ‘Opt-Out’ Myths (Part 6)  

PartnerSource President Bill Minick, who is the primary supporter of the Opt Out concept, and I do agree on a couple things. One of those is that competition is healthy and almost always results in improved service for all. The concept that backers are beginning to put forth represents the opportunity for true competition to a system that cannot seem to respond to other external stimuli.

I remain a vociferous advocate for the workers’ comp system; its importance in stabilizing a contentious area of labor relations has been well proven over the past 100 years. However, I also want to see a vibrant and relevant workers’ comp system for the next 100 years. That means we must address some of our issues head on, and answer the questions about what is important to us as a society.

Opt Out will again soon be an issue we are debating, but with a change in focus on their side. It will be a concept worthy of a larger debate.

It will be a debate that we best be ready to participate in.