Legal Studies Meets Real Life

So, my insurance agent retired and handed his clients over to his partner.  I have never met his partner, so he called and asked if I would come in to meet him and go over our insurance needs.  I am an agreeable sort (and, if my house burns down, I want my insurance agent to know my name and face) so I say sure.

So, I arrive – prepared to be sold more insurance.  At the same time, I had been thinking about an umbrealla liability policy.  So, I am ready to up my homeowners and take on an umbrella liability policy for all lawsuits.  At the same time, when the dude proposes it, he breaks it down into monthly payments, shows me the number and says, “As you know (I love how they think we know everything about all areas of law), this is less than one hour of a plaintiff’s attorney’s time.” 

It takes all the restraint I have (and, dear reader, I do not have much) not to say, “yes, and don’t forget that you are in this for a profit also!!  So part of that represents your salary!!!!!”  But, I resisted.  Note my restraint.

So even though I know that the likliehood of my being sued is super low.  Why do I seek an umbrella liability policy even though I know overall I will not need it?  Am I paying for security?  That wonderful feeling of knowing my trees can fall over on people and I am covered? 

If Bob Kagan were here (maybe we should get him here), he would say I am employing a mini-max strategy.  I am minimizing my risk of maximum liability.  So, to buy it or not to buy it?  And, is my insurance agent a lawyer red-baiter (what color should lawyers be if ocmmunists are red?)? 

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3 Responses to Legal Studies Meets Real Life

  1. jeffaregularworkinglawyer says:

    Lawyers are usually risk-averse. If they were risk takers, they’d be clients instead of lawyers. I place a high value on sleeping at night; I have insurance.

    Here’s the question, LB. Let’s assume the one in a million chance bad thing happens — you reach for the baking soda for the brownies you are baking for the church bake sale, and you grab the rat poison, instead. (Or, slightly more likely, you are at fault in a fatal car accident). Your home owner’s or auto insurance carrier offers the plaintiff the policy limits, whatever that may be. The plaintiff’s lawyer thinks he could probably get a much higher judgment, but asks himself whether he could collect it from you and your spouse. If the answer is “you betcha”, then maybe an umbrella would be a good idea. Again, I like to sleep at night — you may feel differently. On the other hand, if your collectible assets aren’t significantly greater than the limits of your existing coverage, then what do you need it for?

    As long as I’m selling you insurance, here’s another question — do you have supplemental disability coverage? I actually feel pretty strongly about that one.

    BTW, just because I like insurance, that does not mean I like insurance companies.

    Here’s a link to a detailed study of the Good Hands People by the Consumer Federation of America.

    http://www.floridapirg.org/uploads/0L/QQ/0LQQLqynJWDIyJi3OHK80w/cfa—allstate-the-g103B22.pdf

    Here’s an excerpt that caught my eye:

    An obvious question that arises from this analysis is that, if personal auto insurance and
    homeowners’ insurance markets are competitive, as insurers often claim, how can a major national insurer charge excessive rates and reap unjustifiably high profits over an extended period of time? In a truly competitive market, insurers would compete at least in part on the basis of price. A company that charges excessive prices and realizes unreasonably high profits should find itself losing business to companies willing to charge less. The reason for this illogical market behavior is that competition for personal lines of insurance is not sufficiently robust to force insurers to eliminate excessive pricing. The failure of competition to discipline insurance prices and profitability arises from a few factors. First, insurers are legally allowed to collude to coordinate pricing. Insurers are exempt from antitrust laws and are permitted to participate in “advisory organizations,” which calculate industry-wide loss costs (estimates of future losses) that member insurers can use to set rates. Since loss costs are the major component of the premiums that insurers charge, collective decision-making through advisory organizations discourages price competition.
    The use of credit scoring to set premiums has also impeded competition because it has increased the complexity of pricing and limited the ability of consumers to compare rates. Insurers claim that credit scoring is revenue neutral, meaning that it is simply a tool for more accurately charging premiums to classes of consumers based on their risk. However, as the use of insurance scoring has become almost universal for auto and homeowners policies, insurer loss ratios have declined, indicating greater profitability instead of revenue neutrality as tiers and other complexities makes shopping for price more difficult. Another reason for the lack of true competition in this market is the very small percentage of consumers who change their insurance companies each year: less than 10 percent for virtually all insurers and less than 5 percent for many. Few consumers enjoy shopping for auto and homeowners’ insurance. As insurers raised prices and cutback coverage in many regions in recent years, many policyholders have been advised not to file any but the most serious claims to avoid rate hikes and policy cancellation and have come to fear giving up existing coverage because they might not be able to obtain new coverage. These factors mean
    that a key characteristic of competitive markets, the ability of consumers to select among different sellers and products, has become more limited.

  2. laurabethnielsen says:

    Supplemental disability coverage is another one of the things I had been thinking about before I went in because I recently saw my disability policy at work in a new light (through the eyes of someone who needs to use it) and decided it is not enough — I will be buying that too.

    It is interesting to note the hidden nature of this market. And, my reluctance to buy insurance from a reptile.

    This is just a high insurance time of life — young kids.

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