Archive for June, 2007
Hey, good news! I’ve been upgraded:
So there you have it, kids: Curse all you want, but try not to discuss the Vice President in public. OK?
Michael Moore’s newest documentary hype-machine, Sicko premieres this Friday. In the movie, Mr. Moore is going to tell us, through rather dramatic footage and hand-picked testimony from industry whistle-blowers that insurance companies are evil and exist only to screw over the American people. He was on The Daily Show tonight and told Jon Stewart that insurance companies are profit making businesses, and that the only way they can make a profit is by charging huge premiums and then not paying claims.
Well, before this turns into a “story with legs” and it becomes impossible to say anything about insurance that contradicts the movie, please allow me to share some of what I learned from five years of working in the insurance industry:
1) Insurance Companies Rarely Make Money Selling Insurance
Most of the time, insurance companies pay out slightly more in claims and operating expenses than they take in from premiums. Here are some facts:
Combined Ratio is the ratio of losses and associated expenses to premiums, reflecting the overall underwriting profitability of the company. If it’s below 100 (i.e., losses + expenses < premiums), then the company is making money from its insurance policies. If it’s more than 100 (losses + expenses > premiums), they’re losing money. You’ll note above that as of 2004, the industry average had remained above 100 since the 1970′s.
The Motley Fool:
The industry’s average combined ratio in 2005 was 106.2%.
Carinsurance.com (speaking about all Property/Casualty insurance, not just car insurance):
The 93.2% estimate for 2006, if accurate, would represent the industry’s best underwriting performance since the 93.3% combined ratio recorded 70 years earlier in 1936 [and only the second underwriting profit since 1978].
So how do they make money? Glad you asked:
2) Insurance Companies Make Money Investing Their Premium Dollars While They’re Waiting to Pay Claims
This is called the “float.” Basically, the insurance is an excuse to hold onto your money and make a return on it, until you hurt yourself, crash your car, or damage your home, at which time the insurance company has to give the money back to you (plus, on average, a few dollars more). Note the second and fourth columns in the chart above. While losing 5-10% on their insurance policies, these companies make more than 10% on the cash their holding (in more recent years, this number is typically more like 15%). Here’s Wikipedia:
An insurer’s underwriting performance is measured in its combined ratio. The loss ratio (incurred losses and loss-adjustment expenses divided by net earned premium) is added to the expense ratio (underwriting expenses divided by net premium written) to determine the company’s combined ratio. The combined ratio is a reflection of the company’s overall underwriting profitability. A combined ratio of less than 100 percent indicates profitability, while anything over 100 indicates a loss.
Insurance companies also earn investment profits on “float”. “Float” or available reserve is the amount of money, at hand at any given moment, that an insurer has collected in insurance premiums but has not been paid out in claims. Insurers start investing insurance premiums as soon as they are collected and continue to earn interest on them until claims are paid out.
In the United States, the underwriting loss of property and casualty insurance companies was $142.3 billion in the five years ending 2003. But overall profit for the same period was $68.4 billion, as the result of float.
So you see, Mr. Moore, denying claims is not the “only way they make money.” In fact, it’s one of the worst ways…
3) Therefore, the Path to Profitability for Insurance Companies is in Writing and Keeping More Policies, Not in Paying Less Claims
This is the hard part for many people to understand, which is what Michael Moore is counting on in his movie. The Insurance Company’s biggest concern is that you go get insurance from someone else, not that the frequency and size of your claims. Of course, they’d prefer that you make less claims, but if you feel like they’ve screwed you over, you’ll go somewhere else, and some other company will get to invest your premium dollars instead of them.
4) Everyone Who’s Ever Had a Claim Denied Feels Like They Were Screwed by Their Insurance Company
It’s an unavoidable fact of life. And yes, there are insurance companies out there (particularly small ones that don’t have access to the investment vehicles that the larger ones do) who think they can turn a profit by screwing over customers. But for the most part, insurance companies are setup to attract and retain customers. There are three groups:
Underwriters: These folks are basically lawyers. They write policies with very specific legalese language in them. The intent here is not to screw over the customer, per se, but to avoid a catastrophic loss on the policy. In other words, they write the policy with loopholes that prevent them from having to pay an exorbitant amount of money on a single claim or event. This is the closest thing to “screwing the customer” in the company.
Actuaries: The actuary is a number cruncher. He/She sifts through tons of experience data, and based on as much information as he/she can know about you, decides how much premium to charge for the policy, as written by the underwriter. If the actuary does his job, combined ratios stay within the normal range (i.e., right around 100%).
Claims Examiners: The claims examiner is the customer facing person. He/She is judged on his/her ability to maximize payment speed and hence, minimize loss administration expenses. Re-read that last sentence, because it’s important. The claims examiner does not get rewarded for paying smaller claims. He/She gets rewarded for paying claims quickly in order to avoid additional administration costs associated with dragging the process out. This is why a claims examiner on a homeowners claim will generally print you a check when he/she comes to visit your damaged home, or why a health insurance company will automatically pay a doctor a pre-set agreed upon price for a service. It’s all about keeping the customer happy and keeping costs down, so that you’ll stay with the company and they can continue to invest your dollars.
5) Doctors are Motivated by Profits Just as Much as Insurance Companies
A related point that Mr. Moore will make in his movie (and that he made on The Daily Show tonight) is that doctors need to “ask permission” from insurance company representatives before providing you with treatment. Setting aside for a second the fact that this is typically untrue (the company will usually quote a reimbursement rate – the doctor is always free to provide the service at that rate), it ignores the fact that without that kind of check, doctors would be heavily incented to run a full battery of tests on every patient they see, since they ultimately make more money the more procedures/tests they run. Instinctively, no one wants to tell a doctor he/she can’t do a test he/she wants to do, because instinctively we all want to believe that the doctor is ordering the test solely to benefit the patient. But the hard, cold fact is that doctors can be every bit as profit driven and/or corrupt as insurance companies. And if you think health care costs are rising today, imagine what it would be like if we did CAT Scans for the common cold.
I’m not saying I have answer to how this should work, but Mr. Moore’s suggestion that insurance companies “go away” is clearly not the silver bullet.
So, please enjoy the movie. I encourage you to see it. I will probably see it myself, although it might take me a while, owing to the need for a babysitter before I do. But please keep the above thoughts in mind while you watch, and remember – you heard it here first, before it became grossly unpopular to say it.
OK, so Dick Cheney’s assertion that he’s not in the executive branch will rightly receive a ton of airplay over the next few weeks and months (years?), possibly replacing the “shot a guy in the face” line as the most popular disparaging remark about the Vice President. What can I say – he made his own bed on this one…
Instapundit, Glenn Reynolds, on the other hand, points out the funniest thing about the whole affair by far:
IMPEACH CHENEY IF YOU WANT, but do bear in mind that he’ll preside over his own impeachment trial.
No, really. The Senate has the sole power to try impeachments. The Vice President is the President of the Senate. He presides. The Constitution provides for only one exception in cases of impeachment: “When the President of the United States is tried, the Chief Justice shall preside.” That’s because of the obvious conflict-of-interest of having the VP preside when the President is tried. But there’s no similar provision for having someone else preside if the Vice President is impeached.
(Hat tip: Scalzi)
A “G” Rating? FUCK!!!
Quite a bit to comment on from Simple Tricks & Nonsense tonight.
Jason thinks Dr. Jones looks pretty good in this picture, taken this past week on the set of Indiana Jones, Part IV:
Oh yeah? Take a look at this eerily similar picture from 1989:
Arthritis. Why did it have to be arthritis? I HATE arthritis…
(still looking forward to the movie, though…)
OK, a new internet quiz (hat tip: Jason Bennion)
Find the International Space Station in this picture:
Answer in the first comment below. No fair peaking!
Back in February, I bought myself a new PC which included the ultra-nifty 2407FPW 24″ widescreen monitor. When I get back to posting entries in the ISBS Tech Guide (shut up, I will so…), I plan to do an entire entry on this monitor. It is just that cool.
Anyway, last Friday, I’m on the phone with my wife and she says, “Oh, by the way, there’s a grey stripe down the middle of the monitor. You should take a look at that when you get home.” Turns out the grey stripe was a series of alternating 2″ lines of black pixels and working pixels running the entire height of the monitor, just to the right of center. Possibly dead pixels, but more likely some kind of power problem in the monitor itself, since the odds of so many pixels blowing out all at once (and in a repeatable pattern) are fairly low.
I called Dell Technical Support at around 10pm that evening. Here’s roughly how the phone call went:
Me: My monitor is broken (explains the black lines)
Dell: OK, please unplug it from the PC so we can verify that the problem is your monitor, and not your video card. Are the lines still there?
Dell: OK, is there another computer you can plug the monitor into, so we can verify that the problem isn’t related to the PC at all?
Me: I have a laptop. Hold on. (finds serial cable, plugs in monitor, lines are still there)
Dell: OK, let me confirm your address and we’ll send you a new monitor. It should be there within 5 business days.
That was late on Friday night.
The new monitor arrived at my house at 9:15AM on Monday morning. I plugged it in, tested it, put the old one in the box it came in, slapped the included shipping sticker on it, and called an 800 number to schedule a pick-up. On Tuesday morning, the old monitor was gone.
I was very impressed with this incident. The CSR on the phone asked me two very logical questions, ensuring that a new monitor wouldn’t have shown up and had the same problem as the old one. She didn’t put me through unnecessary tests (diagnostics, virus scans, etc.) that I’ve seen in the past as part of the standard operating procedure for other support desks. She also didn’t suggest that I send the old monitor back to a manufacturer for repair, pay some sort of service/shipping fee, or even leave my house to deliver the monitor somewhere for shipping.
Perhaps my only complaint was the 5-business day estimate, when in fact the new monitor showed up after 15 business minutes. I understand that delivery dates are hard to predict and they’re hedging with their estimates to keep me happy, but if the part in question was time critical (say, a hard drive rather than a monitor), I may have made contingency plans assuming a 5-day outage. Still, though, no one ever got fired for finishing their work early!
Support is typically a thankless business. It’s very easy for people who have had a bad experience to declare the company insensitive to its customers, while folks who have a good experience declare the company a personalized, free business center. Both parties can find supporting anecdotal evidence to reinforce their impressions (especially in the blogosphere).
At the end of the day, though, what impresses me is an efficient, customer-focused process, as opposed to a dedicated, proactive individual (not that both is a bad thing, of course). The former ensures good customer experiences most of the time; relying on the latter leads to a wide breadth of experiences, ranging from amazing to downright frustrating.
UPDATE: Ironically, it turns out there is one company that did announce a personalized, free business center today. :-)
The Las Vegas Hard Rock Hotel & Casino will pay Paris Hilton $800,000 to host her own Get Out of Jail party. Says Us Magazine’s source, “It was in the works and signed before she went to jail.”
But wait, there’s more. NBC will pay her a cool $1 million for her first post-jail interview with Meredith Viera on the Today show. She won’t talk to Matt Lauer, you see, because he made “disparaging remarks” about her. Poor thing…
And here’s the kicker: ABC is pissed off because Barbara Walters spent so much time schmoozing her mother, Kathy, and wound up with nothing for her efforts. NBC’s President & CEO Jeff Zucker sealed the deal with a call to her father, Rick.
I wonder if advocacy groups will be suing The Hard Rock and NBC for equal treatment when their clients are released from jail…
For reasons defying explanation, I get my hair cut at the local salon (where my wife gets her hair done). I’m currently sitting in the chair, waiting for the hairdresser, and listening to the following conversation between three women of, well, let’s say of a certain age…:
Woman #1: Yeah, she gambles so much, all the hotels in Atlantic City give her all this free stuff.
Woman #2: Really?
Woman #1: Yeah…
Woman #3: That’s OK, it’s better than giving all that money to a psychiatrist.
Today is apparently kid-blogging day here at I Should Be Sleeping. Check out this story about a woman in Illinois whose baby monitor has started picking up live video from the Space Shuttle Atlantis:
Since Sunday, one of the two channels on Natalie Meilinger’s baby monitor has been picking up black-and-white video from inside the space shuttle Atlantis. The other still lets her keep an eye on her baby.
Live video of the mission is available on NASA’s Web site, so it’s possible the monitor is picking up a signal from somewhere. “It’s not coming straight from the shuttle,” NASA spokeswoman Brandi Dean said.
Summer Infant, the monitor’s manufacturer, is investigating what could be causing the transmission, communications director Cindy Barlow said. She said she’s never heard of anything similar happening. “Not even close,” she said. “Gotta love technology.”
Gotta love it, indeed…