Volume 11, Issue 1 (Fall 2013)
FRAGMENTED RISK: AN INTRODUCTION
Jay M. Feinman
Consider two potential paradoxes about the breadth and limits of insurance, one in property insurance and one under the Commercial General Liability (“CGL”) policy. Most homeowners have only the vaguest sense of the extent of coverage provided by their homeowners’ insurance policy, particularly the breadth of coverage it provides. Using as an example the HO-3 policy, the most widely used policy, most homeowners would not be surprised to know that it covers physical damage to their home and its contents and their tort liability for accidents to visitors to their home. More likely they would be surprised to learn that it covers damage to their personal property “while it is anywhere in the world,” medical expenses to visitors to the home or other persons injured “by the activities of the insured” even in the absence of the homeowners’ legal liability to the visitors or other persons, and the homeowners’ liability for personal injury for accidents unrelated to the home at all. View More
THE BALKANIZATION OF CAT PROPERTY INSURANCE: FINANCING AND FRAGMENTATION IN STORM RISKS
Donald T. Hornstein
After a catastrophic weather event (“CAT”), such as a hurricane, there inevitably arise disputes over the cause of property damage, with losses attributable to flooding assigned to policies issued under the National Flood Insurance Program, and losses attributable to wind assigned to policies issued by private insurers and/or by various state-based residual risk pools. Despite the fact that this “wind versus water” allocation has been occurring for almost half a century, it is still used as a symbol of arbitrariness and dysfunction in society’s ability to deploy insurance in situations where it is most needed. Often, it is the point of contrast between the fragmented American approach to CAT property losses and more unified approaches found in the “code des assurances” in France (mandatory disaster coverage), coverage for bundled natural-disaster losses adopted in Belgium between 2003-2005, and the California approach to earthquake coverage adopted in 1994 in the aftermath of the Northridge earthquake. View More
À LA CARTE COVERAGE. UNBUNDLING GRANTS TO ALLOW CONSUMER-INSURED SELECTION
Harold Weston
Would having insureds select each coverage for every peril and exposure available result in better insurance selection and better customer satisfaction? In theory, it should, because it will allow insureds to select the coverages they want at the total price they want to pay, and allow both parties to the insurance contract to be clear about what their intent is. That should also reduce errors and omissions claims against insurance agents and brokers. In practice, however, it will probably still be a task too much for most consumers and thus cause different dissatisfaction. More likely, regulations to set new minimum coverages for homeowners policies will be needed, and adjustments to the insurer-agent relationship will help further. View More
THE HIDDEN CONFLICT: THE SECRET INSURERS DON’T TELL INSUREDS
Michael Childress and Daniel Loucks
The insurance industry operated for centuries under certain fundamental principles. An insured, looking to minimize its own risk, looks to purchase an insurance policy. The insurer issues the policy and remains profitable by spreading risks over as large a population as possible. In the event of a loss, the insurer and insured give effect to the policy terms. In recent years, however, insurers have employed a cornucopia of cost saving tactics that have turned this elementary understanding of the insurance process on its head. Brokers work to benefit the insurance industry while insurers analyze risk only after issuing policies and shift that risk back onto the insureds. The supposed camaraderie and commonality of interest touted by insurers gives way to an increasingly adversarial process that treats the insured as a foe. Following a loss, insurers lowball and coerce vulnerable insureds into signing releases and waivers. Insurers cry wolf following a natural disaster and claim that bankruptcy is inevitable if they are compelled to pay claims on a large scale. View More
FRACTURING AND BUNDLING RISKS: THE COVERAGE EXPECTATIONS OF THE “REAL” REASONABLE POLICYHOLDER
James Davey
The market for residential property insurance is well established within most Western States, and beyond. Within the United Kingdom (“UK”), it is the second largest personal line, behind motor insurance. The two dominant products are buildings insurance and contents insurance, although other forms are now appearing, such as ‘Home Emergency’ cover. In the UK, a majority of adults hold both, with a slightly greater proportion buying contents cover than buildings cover. Although at first sight these might appear as property insurances covering real property (buildings) and personal property (contents), in reality they are an amalgam of real and personal property and liability insurances. There is no neat divide between land and chattels, as might be attempted in an undergraduate law class. Moreover, there is often no neat geographical divide between ‘home’ and elsewhere. Insurance cover often extends to personal property used beyond the home. Instead, these contracts have evolved over time to meet the disparate needs of home owners, landlords, property financiers and tenants. The process by which the risks have been assimilated into the form of “contents” and “buildings” insurance is in itself worthy of attention. However, even starker are the legal consequences of subdividing these risks into the two distinct contracts. We now face not only the inevitable difficulty of rationalizing the internal conflicts between positive statements of cover and exclusion clauses within a single legal document, but also the possible interactions between two contracts which in practice will be need to be read together. Moreover, the products are normally available separately. This raises the distinct possibility that an insured will have contents cover from one provider and buildings cover with another. This provides genuine difficulties for lawyers and regulators: how to ensure the required synergy across two separate markets. View More
REDISCOVERING THE SAWYER SOLUTION: BUNDLING RISK FOR PROTECTION AND PROFIT
Jeffrey W. Stempel
One of the fascinating, but disheartening aspects of history is the manner in which some persons or events are continually trumpeted, even if overrated, while others are too quickly forgotten. Everyone knows about Bunker Hill, but the Battle of Saratoga was more important in turning the American Revolution in favor of the colonies that would become the United States. Generals George Smith Patton, Jr. and Douglas MacArthur continue to survive in everyone’s collective memory, while George C. Marshall, and increasingly his Marshall Plan that essentially saved post-War Europe, are often overlooked. Babe Ruth remains a household name, while Lou Gehrig is most associated with a terrible disease, even though Gehrig was a comparably valuable baseball player. View More