Sunday, November 19, 2006

Got Insurance, or think you do?

Entry for September 09, 2005

I've finally started hearing some statistics that I've been curiously pondering - what percentage of people in New Orleans had flood insurance? Apparently the answer is only 25-40%. Ironically, the people whose homes caught on fire and burned to the waterline will end up better off that people whose homes were innundated. Regular homeowner's policies do not cover flood damage in any way. And I'm wondering how many insurance companies will claim the wind-damaged homes were mainly water damaged. I'll bet quite a few.

The insurance companies have lost sight of their point for existing. These days they worry about shareholder's profits, not covering their policyholder's losses. This is true of other corporations as well, by the way. But that's a topic for another day.

I have worked as a transcriptionist off and on since I was 18 years old. I have worked for legal clients, academic clients, government clients, business clients, and yes, insurance companies. Secretarial work can be enlightening at any company, but doing that plus transcriptions at an insurance company is a truly fascinating experience, in a morbid sort of way. When you buy a policy, you think the company's job is to cover your losses. They think their job is to take as much of your money as they can and give you as little back as is possible. Insurance companies, like most for-profit publicly traded corporations, have a built-in moral hazard. They originally tried to serve two masters. Now they only serve one - and it isn't their policyholders.

This disaster was so public and profound that it is possible that excessive scrutiny by the press will inhibit some of the worst insurance company excesses. This is one time when screwing the clients is liable to be published and shown on national TV. But most people's tragedies are private. You might hear of it as a brief blurb on the news, but after that interest is lost and you never hear about the outcome of the mishap. Insurance companies are free to slice and dice their customer's policy and invoke legalese mumbo-jumbo to avoid paying their policyholder's claims. And unless you are wealthy enough to afford a lawyer, you have no recourse. (And, of course, most policies contain a clause requiring a lengthy and complicated arbitration process before you can even go to court.) The entire process is designed specifically to not pay you what you should receive for your damaged property and repairs.

Insurance companies should be re-classified. They are like a cartel - your "claim history" is made available to any "competing" company that you might wish to try, so that there is really no competition. They all have the same "guidelines" and they trade your information for the express purpose of preventing you from obtaining better rates or better coverage from a "competitor." They call this "risk assessment" but it really amounts to "cherry-picking" their clients. Those who don't make the "guidelines" are relegated to the sub-prime market where they pay higher prices for the exact same coverage for no reason other than that they somehow got an insurance company to pay them something in the past. Can't have that, now can we, class?

Even better (or worse, for us) is the new trend of using your credit report as a basis for denying insurance coverage or raising your rate. I fail to see how this information could possibly be relevant, but relevancy is not the criteria. They are trying to eliminate people whose income level is such that they can't afford to have a loss and not have insurance pay for it. Wealthy people will often pay for medium or small losses out-of-pocket so their insurance rates aren't raised on them later. The poor, and those with iffy credit, have no such option. They have to file a claim for their small and medium losses. The original intent of insurance was to spread the cost of claims over a wide population so that individually, people didn't have to pay very much. In any given year, some people have claims and the vast majority of people do not. That was the whole point of insurance. Now, because insurance companies are for-profit, they are trying to find ways of eliminating people from their rolls who even might file a claim in the future. That way they get to keep all the money. If you think this isn't ethical, class, you're right. But no one ever accused greedy blood-sucking corporate CEO's of giving a rat's rear end about any theoretical moral duty to their customers.

Obviously, since mortgage companies require insurance, some government programs require insurance, and most states or localities require insurance on your home or car or both, the insurance market is not a free market. People are not free to choose not to buy the products, and "shopping around" is a joke. As a captive audience industry, the insurance cartel - like any monopoly - should be required to be non-profit. Not one dime of policyholder's money should be taken out of the pool and used to pay profit to investors. The moral hazard of the insurance cartel needs to be eliminated.

Until this is done, people will continue to be screwed by insurance companies. The publicity of hurricane Katrina may protect a few policyholders, but I honestly doubt it. They will just point to the policy and say with a straight face that the policyholder has paid them for years for nothing. Of course, they won't put it in those terms, class. But that's what they mean. And they know it.

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