Monday, December 21, 2009

Reputational Risk Insurance for Celebrity Product Endorsement

Given the recent “transgressions” of Tiger Woods had made his sponsors backing away en masse, would a reputational risk insurance of celebrities endorsing their sponsors’ products be a good idea?

By: Ringo Bones

The recent high-profile “transgressions” of G-Rated family-friendly golf megastar Tiger Woods not only sent the tabloid press community into their trademarked coverage frenzy, but also made Tiger Woods’ sponsors – whose products he’s been so busy endorsing for more than ten years – backing away en masse. As one of the golfing world’s top cash cow who managed to earn over a billion dollars during his career that might yet still to reach its prime. Is Tiger Woods not only unnecessarily endangering his own golfing career, but also the long-term economic viability of the sport of golf as well?

High-profile celebrity product endorsers whose reputation leaves much to be desired has been de rigueur in the Rock and Pop music world for a long time now. Remember W. Axl Rose, the mercurial frontman of Hair Metal era Rock outfit Guns N’ Roses? Despite of his reputation, Axl’s “unique” singing style made every live concert sound engineer notice the frequency response band limitations of Shure SM57 Beta microphones that made them better “plan” on how to use these idiosyncratic microphones on stage in live Rock concerts. Thus making such dynamic microphones a mainstay in Shure’s product lineup despite of a non-flat frequency response. Even someone like Paris Hilton, who’s name is unlikely to be ever used with the phrase “moral turpitude” on the same sentence manages to endorse top of the line beauty products from the world’s top cosmetics manufacturers.

Although in the multi million dollar endorsement contracts world of professional sports, the established “overlords” are not so forgiving when it comes to “transgressions” and “improprieties”. A few years ago, a promising basketball superstar named Kobe Bryant who’s sporting career has yet to reach its prime also has his sponsors moving away en masse after his own “transgressions” became supermarket tabloid fodder. And now, the problem plaguing Tiger Woods not only threaten the famed golfer’s bottom line, but also the bottom line of the golfing world whom his golfing career has seemed to prop-up since 1996. Can the establishment of a form of reputational risk insurance be of help on the fiscal aspect of this debacle?

Reputational risk insurance could be modeled after occupational health insurance or permanent health insurance where a reputational risk policy provides the policyholder with a source of income akin to “disability benefits” when the policyholder can no longer make money from the high-profile celebrity who endorses their products. Instead of just “abruptly” terminating their fiscal obligation with the celebrity endorsee in a fiscally unjust manner.

Reputational risk insurance might also be used to provide benefits when the high-profile celebrity is no longer able to perform substantially all of the contractual acts that he or she signed when endorsing the product(s) of his or her main sponsor. This could be either due to marital “transgressions” or other “impropriety” of reputational nature. Maybe it is high time that the product endorsement world should find ways to insure themselves against vagaries such as these in order to maintain fiscal stability.

Thursday, December 17, 2009

Creativity Disability Insurance

As a viable part of the global economy, should folks with creativity related jobs be provided an insurance system against creativity disability?

By: Ringo Bones

Picture this scenario: a very lucrative crime fiction writer whose works so far – lets say 20 of them – managed to crack the top 5 of the New York Times bestseller list, eleven of them even reached the number one spot. Not only that, his or her books managed to become a required reading of every major law enforcement agency around the world – akin to Tom Clancy’s The Hunt for Red October becoming a required reading for US Navy’s cadets-in-training. Thus making the writer a veritable cash cow. Then imagine our writer out of whim joining some “maverick” Evangelical cult that made him or her no longer able to write those gristly but fictional ways of committing murder. Thus resulting in the loss of his or her multi-million dollar a year livelihood. If this happens, what does his or her financial estate do? Sue the cult or collect some form of insurance?

Even though there might have been a legal precedent with regards to this scenario, as of late, I’ve been too lazy to check out the current US Supreme Court docket about legal and / or financial liabilities when it comes to persons affected by creativity disability. Especially if creativity is the main source of livelihood of that person in question. But the question now is, is some kind of creativity disability insurance economically viable enough to be underwritten by today’s insurance providers?

After checking on existing insurance policies on offer, I think for it to be economically viable, creativity disability insurance could be modeled after occupational disability insurance. Unfortunately, occupational disability insurance – also called permanent health insurance – is quite a complicated subject that often grabs the news headlines upon claims refusals. Your typical occupational disability insurance policy provides the policyholder with a source of income in the form of disability benefits when the policyholder is no longer able to perform substantially all of the material acts of his or her occupation, as designated in the policy. Should disability benefits also be applicable for those working in the creative fields like novelists and songwriters?

But it can easily get complicated from the point of view of the disabled – even the creatively disabled – claimant. Imagine the claimant having a firm belief of the Protestant Work Ethic and has a moral perception that receiving easy money is morally reprehensible. In other words, the claimant wants to retain the ability to engage in a sure form of employment while collecting disability insurance benefits. Might this prove in the end to be economically essential, in which the insurance company could make a creativity disability insurance with such proviso at a much lower premium – thus making it widely available?

Returning to the scenario I’ve mentioned, could this be resolved or eased by the existence of some form of creativity disability insurance; or is the existing civil court systems around the world could easily handle this as a “mere” torts and damages compensation settlement case? Given the rarity of such cases, its safe to say that I don’t know – yet. Maybe, the only really viable solution to this dilemma is for anyone who works in the creativity fields to become more empowered with the assistance of their friendly neighborhood broker in selecting the right insurance products. Thus, enabling them to make appropriate decisions with respect to benefit design, understand the policy’s wording and how it will impact them in the event of a claim arises.

Friday, December 4, 2009

Do Pessimists Make Good Insurance Company CEOs?

Given that the primary business of insurance companies has been on dwelling on what’s the worst that could happen, does this make pessimist prime candidates for insurance company CEOs?

By: Ringo Bones

Maybe that bloke named Murphy who they named Murphy’s Law should have started his own insurance company, who knows, he could have made a bundle – or what about Friedrich Nietzsche? Just a few historically famous “pessimists” who would have made top notch CEOs for today’s insurance companies. A will to power ones investment portfolio? Or is it just a routine risk management as usual?

After reading Bright-Sided by Barbara Ehrenreich, a pet theory of mine has been renewed once again. A theory pertaining to why people with a naturally pessimistic disposition are better suited to be insurance company CEOs compared to their cheery, chirpy counterparts – especially ones that practice unnecessary discrimination when it suits them while maintaining a happy disposition. Despite the howls of protest of those cheery CEOs that ran their company to the ground during the Bush Administration over the accuracy of Barbara Ehrenreich’s pet theories on why Wall Street buckled only proves Ehrenreich’s insights on this contentious issue to be self-evident. Even though recent findings in cultural anthropology and archeology had always tried to tell us that too much positive thinking – especially when combined with leaving things to chance – could be humanity’s undoing.

Humanity’s earliest ancestors manage to survive through a series of supposedly insurmountable challenges like climactic extremes, super-volcanic eruptions and earthquakes that would make those catastrophic tragedies that happened within our living memory seem tame in comparison. Thanks to humanity’s intelligence and wit – largely driven by constantly worrying about the worst that’s yet to come. In other words - pessimism. Could it be that Natural Selection is Mother Nature’s very own risk assessment strategy? If humanity manages to survive through the worst aspects of climate change that is yet to come, it is safe to bet that it is because we finally took action on the most pessimistic ramblings of Al Gore over the dangers of climate change.

Unfortunately, corporate America has a habit of firing overtly cautious employees with pessimistic disposition. The very same people who could have warned the impending subprime mortgage crisis that can trace its roots back in 2006. The Wall Street overlords have no use for such folks, favoring instead to “yes men” too spineless to point out to their very own mistakes and shortcomings. Sadder still, this corporate oversight grew in popularity during the time when Ronald Reagan ruled the Free World where Wall Street amassed huge profits during the “Decade of Greed” of the 1980s.

Bright-Sided by Barbara Ehrenreich really did point out the culture of a “happiness delusion” that undermined the true potential of corporate America. An overtly positive thinking without a safety net, or worse still – using the ideology of happiness delusion as a safety net, really did almost destroy America. During the 1980s, this happiness delusion became an industry in itself with books, office accessories, posters, etc. and it did become mandatory in the corporate world – especially Wall Street. I just hope that an overtly positive thinking won’t be used as a fairy-dust against failure anymore. Folks that worry so much in working out solutions in making good out of worst situations now need the much-deserved commendation they were once ignored. Maybe somebody should hire Barbara Ehrenreich as a risk assessor.

Friday, November 20, 2009

Should Rock Stars Get Professional Indemnity Insurance?

As our contemporary society gets more and more litigious, should Rock Stars – scapegoats du jour since Ronald Reagan ruled the free world – have professional indemnity insurance?

By: Ringo Bones

For those of us old enough to remember the PMRC Rock Music censorship debacle and the “frivolous” wrongful death lawsuit against Judas Priest, We – the music loving public - managed to reach a consensus back then that Tipper Gore’s PMRC is nothing more than a US Government scheme to misdirect the American public’s ire against Sen. John McCain, Charles Keating and the rest of the folks that brought us the Lincoln Savings & Loan Scandal of 1989. But does the “Parental Advisory Explicit Lyrics” warning label still hold enough political clout to protect Rock Stars against any liability pertaining to professional indemnity related lawsuits? After all, as professional singers / musicians they do fall under the legalese purview of professional indemnity, right?

Professional indemnity insurance is usually used to protect you – the practitioner of your chosen profession – from legal action taken for losses incurred as a result of your professional advice – i.e. what you say regardless of whether it is based on opinion or fact. Under existing law, professional indemnity insurance provides indemnity cover if your client (do fans and audience members count?) suffers a loss - either - material, financial or physical – directly attributed to negligent acts. Frivolous lawsuit or not, does this mean that Rock stars should be held accountable for what they say / preach?

But this does raise problems – especially when it comes to the fidelity of the playback medium that the artistic works of these so-called Rock Stars are delivered. Did Lady Gaga really said “F-F-F_ Her Face” when heard through a lo-fi audio playback system – especially when the medium is a highly compressed and somewhat not-so-pristine MP3 download? This is probably the reason why an overwhelming majority of record label executives are not so gaga when it comes to sound quality. Maybe it is all down to liability? – enough said.

Should Audio Gear Manufacturers Get Product Liability Insurance?

Given everyone’s much greater awareness of the health of our hearing, should audio gear manufacturers avail themselves of product liability insurance in case of future class action lawsuits?

By: Ringo Bones

For some years now, the tobacco industry had been experiencing it first hand after a series of class action lawsuits put forth by cigarette smokers now suffering from lung cancer and other related diseases. Suing them for failing to fully warn against the full extent of the dangers of tobacco use. Given the relative ”success” of these lawsuits from the standpoint of the plaintiffs, will similar class action lawsuits will soon be besetting audio gear manufacturers after legions of Generation X-ers figure out why they can’t hear anymore?

If you happen to sell, supply or deliver goods – even in the form of repair service – you may need coverage against claims of goods causing injury, death or damage. Product liability insurance covers you if any of these events happen to another business or person by the failure of your product or the product you are selling. From a legalese standpoint, product liability is the area of the law in which manufacturers, distributors, suppliers, retailers, and the rest who make products available to the public are held responsible for the injuries those products cause. Usually, there are three major types of product liability claims: manufacturing defect, design defect, and the failure to warn – also known as marketing defect.

While the tobacco industry – more often than not – had always resorted to that legal gray area of knowing only the harmful effects - i.e. health risks - of their product only several centuries after they started selling tobacco products to their customers, the warning signs of hearing loss usually manifest itself in very obvious ways. As in pain - hence the threshold of pain part of our hearing. But is this self-evident truth be enough to protect hi-fi and public-address systems manufacturers against future class-action lawsuits pertaining to hearing loss?

Warning signs and legal disclaimers are seldom – if ever – banded about by audio gear manufacturers in their adverts. The only audio gear manufacturer that I know of that warns their potential customers of the dangers of using their products at very high decibel levels is Polk Audio. On the advert of their SRT System, Polk Audio clearly warned that this audio system is capable of extreme sound pressure levels. The said advert even states that SRT Systems are supplied with a sound pressure level meter to help you – their prized client – determine safe listening levels. In my opinion, this is like a cigarette manufacturer providing their loyal customers with a great healthcare package.

As an avid Rock concert patron and sometimes performer, it is probably the sound reinforcement / public-address system side of audio gear manufacturing that should be availing themselves of product liability insurance. Given that contemporary Rock concert sound reinforcement systems can easily deliver clean and continuous 120 to 130-dB sound pressure levels to a relatively large number of people is a recipe for a large-scale hearing loss – not to mention the health-related class action lawsuit.

Will audio gear manufacturers do a Winchester House-like descent into superstition in the face of an impending class action lawsuit? I hope not. After all, the 19th Century firearm magnate William Wirth Winchester managed to ply his wares long before the American society became the litigious entity that it is today. With the use of contemporary American Rock music as a torture device in Guantànamo Bay Prison – i.e. playing American Rock music to terror suspect detainees, I think audio gear manufacturers must now have product liability insurance or get one as soon as possible. Thanks to the malfeasant way that the Bush-Cheney consortium conducted America’s “War on Terror”.

Tuesday, November 10, 2009

Hi-Fi and Audio Video Equipment Insurance Anyone?

Given the recent rise of insurance providers offering coverage of your precious hi-fi, AV, and even Internet-connected computer equipment, is it wise to avail yourself of this type of insurance?

By: Ringo Bones

In my neck of the woods, the electric power, cable and telephone utility companies are recently diversifying their business by offering very reasonably-priced insurance policies that cover hi-fi, audio-video, and even Internet-connected computers against fire, lightning, and damage via electrical surges. With premiums that average at just pennies-per-day, is it wise to get hold of such insurance policies?

Given that most homeowner’s insurance policies – even though they provide coverage against fires – these seldom, if ever, provide coverage against destruction by fire of your irreplaceable high-end hi-fi and other electronic equipment. So it is definitely wise to obtain a separate insurance policy for your hi-fi and other electronic equipment - especially if they are very hard to replace like vintage vacuum tube-based audio gear. Obtaining a separate coverage is far from easy, which is the reason why most people opt not to get one. But for those who decides that their audio-video gear are important enough to warrant insurance coverage, there are tips to follow to allow one smooth processing of their application for them to insure their AV gear.

The problem of proper insurance coverage for high-end hard-to-replace hi-fi, AV, Internet-connected computer and other electronic equipment is rather easily solved. Specifically:
1. Keep a file with all your purchases of the hi-fi, AV, and other electronic gear that you’ve acquired over the years. One usually assumes such a file exists for tax write off purposes, but it is never safe to say never and probably equally unsafe to assume anything!
2. Using a film and / or digital camera (preferably both types of camera), photograph everything you intend to be insured. This serves as a photo documentation of all the hi-fi and other electronic equipment that you own and intend to be covered by insurance.
3. Using a high-quality copier, copy all your receipts and color copy all your photos – especially your digital photos - and keep them in a bank safe deposit box. That way you’ll have records and documentation that will survive any untoward occurrence. I mean what is the point in keeping records in your house - especially if it gets burned together with those items you intend to insure in case of fire. And if possible, have these items notarized by a qualified attorney.
4. Bring in a qualified estimator who will identify the replacement value of your hi-fi and other equipment you intend to insure if the amount and / or scale of your investment demand’s it.
5. You can now safely go to your insurance underwriter armed will all of the information collected above safe in the knowledge of a smooth and speedy processing.
6. Always insure your equipment for “full replacement value” rather than settle for a depreciated figure. Usually the insurance company will tell you that depreciation coverage allows them to sell you a less expensive policy and that you are taking a form of tax write off anyway. However, individual owners of up-market vintage hi-fi gear or other AV equipment seldom, if ever, employ chartered Certified Public Accountants from their local top accounting firms and "bank" their depreciation funds for future replacement. It makes more sense to try and obtain the most complete replacement coverage available to you.

Of all the tips cited above, proper documentation of all the gear that you own that’s intended to be insured is probably the most important. Especially now that insurance adjusters no longer respond as if they are born yesterday concerning privately-owned hi-fi, AV and other electronic equipment. But let us not forget that loss adjustment is still a very difficult matter and requires technical training in which a special group of persons known as loss adjusters perform this work. Loss adjusters typically work for the insured or for the insurance company. Also, if several insurance companies are involved in one loss, it is advantageous to have a single adjustment bureau handle the entire matter.

While many fire insurance policies also have endorsement for extended coverage like vandalism and malicious mischief, nevertheless the properties are only protected for specific perils. Like damage due to lightning strikes and / or the resulting electrical surge / damaging electrical spikes.

There are after all millions of up-marked high-end hi-fi gear around the world that had suffered some kind of calamity. Fortunately, no one I know was unlucky enough to have lost his or her vintage 1950s era Quad II amplifier with the oft-partnered Quad ESL 57 in a fire, flood or a freak electrical surge caused by a lightning strike. If the worst ever comes, it’s nice to know that we can insure our really expensive and hard-to-replace hi-fi, AV and other electronic gear. Especially if they cost on average 10,000 US dollars or more.

Saturday, October 31, 2009

The Great Health Insurance Coverage Debate

Health insurance providers have recently used the flimsiest excuse to deny coverage of their policyholders. Will proposed reforms finally end the injustice?

By: Ringo Bones

Ever since Rocky Mountain Health Plans managed to get themselves in hot water after denying coverage of one of Colorado’s youngest citizens. A four month-old infant, whom Rocky Mountain Health Plans point out as overweight. Thanks to extensive media coverage – thanks to the baby’s father being very influential in their local media / TV network – Rocky Mountain Health Plans later reversed their decision - Not to mention a doctor’s examination which later confirmed that the four month-old baby to have a normal body mass index.

Back in May 2008, a law was passed in the United States that prohibits the firing of employees and insurance providers choosing to hike insurance premiums if genetic testing reveals a certain employee or policyholder to have a higher health risk than the norm. From our perspective, the passing of this law - which the late, great Senator Ted Kennedy was one of the main proponents – might seem like the great health insurance coverage reform that will finally save us all. And also, the former US Supreme Court Justice Sandra Day O’Connor was also very vocal on her campaign against any genetic testing that will be used to disadvantage any health insurance policy holder and employee. Especially if the test data could result him or her having to pay higher insurance premiums just to retain coverage or getting fired from the job due to being a “health risk”.

Unfortunately, unscrupulous health insurance companies – and their numbers are growing – have used the flimsiest excuses to deny their policyholders coverage. One of the flimsiest excuses getting media attention these days is the health insurance company claim – though not all of them fortunately – is that spousal abuse is a preexisting condition that could result in some policyholders a denial of coverage.

From overweight and underweight infants to spousal abuse, as 2009 draws to a close, we’ll probably be seeing more flimsy excuses that would be used by health insurance companies as a reason to deny coverage. Maybe one day, they’ll consider being too smart for your own good a preexisting condition thus leaving you high and dry in your time of need. I mean do we actually lose our value every time we see a doctor if health insurance providers consider us nothing more than “assets”?

Tuesday, October 27, 2009

Will US Bank Closures Bankrupt the FDIC?

As American bank closures now reached the 100 mark, will this eventually bankrupt the Federal Deposit Insurance Corporation?

By: Ringo Bones

As bank after bank in the US are forced to close after stress-test failure compliance which at currently at the 100 mark is the most it had been since the fallout of the Savings & Loan scandal of 1989. But will this eventually lead to the bankruptcy and / or collapse of the Federal Deposit Insurance Corporation or FDIC? After all, if the FDIC gets its funding from the American taxpayer, it can never run out of money because it has always relied on revenues collected from taxes, right?

The Federal Deposit Insurance Corporation (FDIC) began life in January 1934 as part of President Franklin D. Roosevelt’s “New Deal” to make bank deposits – especially savings accounts – as secure as the US Government itself. Banks might and could still fail but depositors will never be left high and dry. All US banks, whether or not they are members of the Federal Reserve System, are eligible for deposit insurance if they meet the FDIC requirements usually by submitting to FDIC examinations and pay an annual assessment based on their total deposits. Virtually all of the American banks now participate in this system of deposit insurance.

Before a new bank can begin operations, it must satisfy the chartering authority on certain essentials. There must be a legitimate need for the bank’s services, it must be adequately capitalized, and it must be under competent management. Banks may not later open branches or change its capital structure without approval by the proper authority. And banks are required to submit regular reports on their condition. Banks are not allowed to pay interest on demand deposits, and the maximum rate it may pay on time deposits are set by the FDIC. It may not underwrite, that is, buy for resale or distribution, security issues other than those of the federal or state governments or their agencies. The bank must maintain reserves against its depositors equal to a specific percentage of its deposits. It may not continue operation if its capital has been impaired. If the book value of the stock (the capital and surplus in back of it) is below the par value, stockholders must pay an assessment to wipe out the deficiency or the bank will be closed.

The elaborately detailed control of banks today – that eventually lead to the rise of the Basel Accord / Basel II regulations about how much capital banks need to mitigate financial and operational risks – gives banking management less room than it once had for the exercise of its own discretion. But these regulations – that date back after the great economist John Maynard Keynes and his team was consulted by President Roosevelt in formulating a “New Deal” – have made an important contribution to the sound condition of modern commercial banking.

The recent American economic crisis has been largely defined by large financial institutions that are supposedly too big to fail that are taking excessive financial risk. Unfortunately, when they eventually – and do – fail, they take usually a number of smaller banks down with them. Thus causing the FDIC to provide pay outs to bank savings account holders. Even though the FDIC only has to pay up to a maximum set account, given the number of bank failures – now and in the near future – this could reach in the hundreds of billions of dollars. Given that American financial firms had always been too profitable thanks to the overly-generous US Government subsidies provided to them from the time when Ronald Reagan ruled the free world, will these financial institutions be always taking excessive financial risks with scant regard of whether it might bankrupt the FDIC? After all, the American taxpayer has always been their insurance underwriter of last resort, right?

Well-formulated financial reforms and regulations – especially ones with teeth – can become harder to legislate the further we seem to move away from the current crisis and into the “apparent (?)” state of economic recovery. Although recently the DOW reaching above 10,000 points is by no means an irrefutable indicator of true economic recovery. As some American financial institutions that are recently bailed out by American taxpayer money readily returned to they’re previous status quo of excessive executive bonuses and risk taking. Especially as the big fat profits slowly rolled in. Most of us will probably be asking who are these financial institutions responsible to - The companies’ shareholders or the state? Given that the US Government is now for all intents and purposes beholden to Chinese bond holders thanks to the Bush-Cheney consortium’s policy of using Chinese money to buy Arab crude oil, legislating effective financial regulations will now be at the whim and whimsy of corporation-owned lobbyists of Capitol Hill.

Monday, September 7, 2009

Can Takaful Insurance Improve Western-Style Insurance Schemes?

Given that Islamic financial institutions had weathered better than their Western counterparts, can Takaful insurance concepts help improve Western-style insurance schemes?

By: Ringo Bones

Just recently, many financial analysts based in London and New York City’s Wall Street were somewhat amazed to find out that financial institutions that practiced Shariah Banking Laws weathered better during our current global credit crunch in comparison to their credit derivatives obsessed Western counterparts. If this is true, then are there any benefits if Western-style insurance underwriters learn and adapt concepts of Takaful Insurance?

Believe it or not, many concepts behind our contemporary Western insurance underwriting schemes have their origins in the ancient civilizations that flourished in the Middle East. Ancient Babylonian artifacts had been found portraying King Hammurabi receiving the Code of Laws from the Sun God in 1800 BC. These laws contained early references to various types of insurance – namely marine, robbery, crop, and adoption. Back then it is declared by law that an adopted child reared by a family would in return provide for the family in his or her adulthood. Otherwise, the penalties for the failure to care for his or her foster parents are execution or slavery.

Takaful – the idea behind Islamic insurance – is based on the concept of social solidarity, cooperation, and mutual indemnification of the losses of members. The Takaful contract so agreed usually involves the concepts of Mudarabah, Tabarru’ (to donate for the benefit of others) and mutual sharing of losses with the overall objective of eliminating the element of uncertainty. Takaful is by no means a new concept in Islamic Commercial Law. It has been practiced by the Muhajrin (émigrés) of Mecca and the Ansar (supporters or followers) of Medina following the Hijra 2 of the Prophet Muhammad over 1400 years ago as an early form of risk management. Even though it is already been a very profitable business reality for years now, Takaful Insurance – as a profitable business entity – is almost became stillborn.

An overwhelming majority of Shariah Law scholars believe that conventional Western-style insurance – especially life insurance – is unlawful or Haram. Even as recently – relatively speaking - as 1903, some prominent Shariah Law scholars of most Arab countries declared that Western-style conventional life insurance were unacceptable. In 1974, the National Religious Council issued a legal opinion that conventional life insurance is not permissible because it contains elements of risk and uncertainty or Gharar, gambling or Maisir, and interest or Riba. In 1985, the Grand Counsel of Islamic Scholars in Saudi Arabia called the Majma al-Fiqh eventually approved the Takaful system as the alternative form of insurance written and structured in compliance with Islamic Shariah Law. The rational being that the Takaful system is a concept of protection for the good of society, thus approved as a means of co-operation and mutual help by the Grand Counsel.

The first formally established Takaful Insurance company was the Islamic Insurance Company of Sudan that opened its doors for business back in 1979 – six years before the Grand Counsel in Saudi Arabia deemed it okey. Given that the crude oil business is already a very lucrative post World War II industry in the Middle East plus the need of capital to process the “black gold”. The inevitability of Shariah Law compliant insurance industry is too good to pass up – Grand Counsel approval or not – because it represents a good source of much needed revenue for infrastructure development.

The establishment and eventual success of the Takaful Insurance system took quite a long and hard road indeed. Despite of some criticisms of Western financial analysts over the Takaful system like Moody's Investor Service's concerns over unused surplus liquidity. Not to mention still gray area of Shariah Law compliance of the reinsurance version of Takaful – which has still been an area of much debate. It did managed to avoid much – if not all – of its Western counterparts risky financial behavior and excesses. Not to mention the Takaful systems concerns over the sustainability of investment banking, which many see as nothing more than making money out of thin air. In short, Takaful Insurance system could teach its Western counterpart to remember prudent financial practices and risk management .

Monday, August 31, 2009

Everyday PTSD Compensation: Mental Trauma Over Sense?

As PTSD was redefined as something that could occur during peacetime work related activity, will falsified compensation claims be the rule, rather than the exception?

By: Ringo Bones

As Capitol Hill still ruminates over President Obama’s proposed healthcare reforms, the mental health side of healthcare insurance providers could face its toughest challenge yet ever since the DSM – IV definition of post traumatic stress disorder or PTSD as a psychological trauma that could also occur during peacetime related activity. Given the limit resources of most of the worlds mental health providers, could ordinary folks claiming PTSD compensation that they acquire during their 9 to 5 jobs deprive care to those who needed it most – like the returning veterans of our “Global War on Terror”?

Even though “everyday PTSD” or “9 to 5 PTSD” as it is being derogatorily called is still largely a phenomena of the working class of the affluent West. Due to the fact that cultures in other parts of the world that are staunchly clinging to their machismo still define seeking compensation for the “intangible” mental trauma that you got from work as a sissy act. These people’s views could change though given that the number of employees claiming work related PTSD that received monetary compensation is on the rise. Is the latest surfeit of gifted personal injury lawyers to blame?

Receiving a generous monetary compensation for peacetime work related PTSD is still not a piece of cake though due to the adversarial nature of the legal system that oversaw such claims proceedings. So a skilled personal injury lawyer is a must. The claims seeker often endures being presumed as a fraud in a court of law. But given that people who got a somewhat questionable PTSD compensation is on the rise while the true nature and level of trauma experienced in general peacetime society is still an unexamined phenomena. Should health insurance claims adjusters do their “homework” first before shelling out huge cash settlements to work related PTSD claims?

The problem with some overly generous cash compensation to peacetime work-related PTSD claimants - even though the funds are more often than not is doled out via structured settlements – is that there is no legal oversight whether the funds and resources are used to rehabilitate the PTSD claims seeker. Since these claimants are former valued personnel in the workforce, peacetime work-related PTSD claimants are better off undergoing a rehabilitation program – if they are genuinely suffering from PTSD. As opposed to just receiving monetary compensation to avoid being gainfully and responsibly employed, rather than being inebriated all day with their compensation money. Personal injury lawyers could also reacquaint themselves with the art of ethical practice.

Thursday, July 9, 2009

Insuring Michael Jackson

It is a well-known fact that Michael Jackson is one of the top money earners of the U.S. and the global music industry, but how easy – or difficult – is it to insure the King of Pop?

By: Ringo Bones

Since the untimely and tragic passing of Michael Jackson back in June 25, 2009, his planned This is It tour seems to have become an insurance company’s nightmare. But given the sums of money involved, will the parties involved in insuring Michael Jackson gain financially in the end? After all, Jackson’s musical talent is well backed by having the ability to earn millions.

Ever since his musical prowess enabled him to earn millions of dollars with relative ease, Michael Jackson has always been designated into the special coverage risk aisle as an insurance coverage client - Not to mention his lifestyle choice. The price of such coverage tends to be high because the broad statistical basis for computing most insurance rates – i.e. statistical analysis that applies to us ordinary folks – does not apply to Michael Jackson’s highly individual risk.

So when the broker who facilitated in insuring Michael Jackson’s This is It tour bends over an underwriter’s box at Lloyd’s of London to discuss an insurance risk tailored to Mr. Jackson’s particular case. It is safe to guarantee that such discussions will be a lengthy one. Although Lloyd’s has for years been famous it’s willingness to underwrite unique risks for which adequate tables of probability are not available. Such as the cancellation of a major event due to the untimely death of an apparently healthy 50 year old man still in the prime of health.

Michael Jackson’s cancelled tour could also become the biggest ticket refund in history add to that the tour promoter AEG Live may have trouble collecting on it’s insurance only complicates matters. Insurers had sold an 18 million US dollar policy through Lloyd’s the famous London-based insurance market that was intended to help AEG Live recoup costs if the concerts the company was staging with Mr. Jackson were cancelled due to accident, according to the insurance company’s actuaries.

The insurance policy also could have provided coverage in case of cancellation due to medical-related issues according to a Lloyd’s insurance actuary. But that part of the coverage was dependent on the results of a physical that Mr. Jackson was scheduled to take. Thus raising the possibility that the coverage might not apply. Although Randy Phillips CEO of AEG Live had witnessed Michael Jackson passing his physical exam with flying colors in preparation for the upcoming tour several weeks before Jackson’s tragic and untimely death.

According to Bermuda-based insurer Validus Holdings Ltd., a group of insurers were covering the This is It 50-date concert series through the Lloyd’s insurance market, including its subsidiary Talbot Holdings Ltd. But Validus said it had less than $3 million at risk. But no matter what the outcome of the insurance pay-outs will be, Michael Jackson’s estate can still manage to cash-in on the cancellation of the This is It tour slated for July 13, 2009. There are even plans to release the video coverage of Michael Jackson’s elaborate rehearsals and full run-through at the Staples Center on DVD. Including the rehearsal footage two days before he died. Thus making it a part of a very good insurance policy from a financial perspective.

Thursday, May 7, 2009

Microinsurance: Credit Insurance for the Little Guy?

Introduced as part and parcel in the financial service of microfinance / microcredit clients, does microinsurance really protect the “Little Guys” – i.e. microcredit-funded entrepreneurs?

By: Ringo Bones

Ever since the runaway success of Dr. Muhammad Yunus’ Banking for the Poor-inspired microcredit and microfinance programs across the globe, many microfinance institutions had began introducing microinsurance services in order to protect the financial successes of microfinance and microcredit clients against the onslaught of the global economic downturn. Given that some established “conventional” economist had always been skeptical of these “extremely subprime loans”, does microinsurance really protect these small business owners against the economic uncertainties of the global credit crisis circa 2009? Or is this just a “brilliant” financial instrument made to extract the maximum amount of profits from the poor microcredit and microfinance clients.

According to some official microcredit and microfinance service providers’ websites, microinsurance is defined as a system by which people, business, and other organizations funded by microcredit and microfinance programs make premium payments to share risks. Access to insurance with low premium rates enables microcredit funded entrepreneurs to concentrate more on growing their business – i.e. reinvesting a significant portion of their profits back into their business – while providing mechanisms that mitigate risks affecting property, health, and the ability to do work. Especially during the fiscal uncertainties of our current global economic downturn where every corporate and business entity of every size, shape or form are affected in a negative way.

The rationale behind microinsurance is to provide a system that will help poor people - especially microfinance and microcredit recipients – cope with sudden expenses associated with serious illness (current swine flu outbreak?) or loss of assets. Studies recently conducted on microfinance and microcredit recipients / clients have shown that merely having access to conventional savings accounts has also proved to be an incentive to save for that proverbial rainy day. Clients who join and stay in microfinance / microcredit programs have better economic conditions than non-clients do – at least from a cash-based / credit-based economic point of view.

The question now is does microinsurance – like it’s well established sibling, credit insurance had done to big business – really help microcredit / microfinance recipients? Though it is yet a relatively new financial scheme, microinsurance – at least on paper – could theoretically provide microcredit and microfinance institutions around the world the ability to provide financial security to their established clients. As an investor in our local microcredit / microfinance provider for almost five years, I’ve noticed that our local fish and fresh produce vendors had been enjoying relative financial security that can’t be found just ten years before. And this was the advent before microinsurance schemes were introduced. From my point of view, it is still way too soon to conclude that microinsurance – in actual practice – is just another useless business expense. Maybe we’ll check it out in a few months’ time.

Monday, April 27, 2009

Of Piracy and Occupational Disability Insurance

Given the cost of the upkeep of the commercial maritime traffic through the dangerous waters of the Gulf of Aden, will sky-high insurance premiums make this area a no go zone someday?

By: Ringo Bones

Occupational disability insurance is a relatively complex issue that often grabs the news headlines whenever a claim refusal happens, but can the various insurance providers still maintain economic viability when their regular customers are increasingly involved in insuring their business activities in increasingly hostile locales. Like the sea-lanes off the coast of Somalia.

At present, it is still economically viable – in spite of the rising insurance premiums and risk of piracy – for commercial bulk carriers to ply through the treacherous pirate infested waters of the Gulf of Aden to deliver their cargo of low-wage Asian manufactured goods. In order to meet the insatiable demand in European markets. But will that fateful day eventually come that commercial shipping through the Gulf of Aden will become so risky and prohibitively costly. So risky and costly in insurance premium terms that maritime traffic will be rerouted via the Cape of Good Hope as they travel from East Asia to Europe in spite of the additional fuel expenditure and longer transit time?

Currently occupational disability insurance issued to commercial shipping traffic in high-risk areas, like the Gulf of Aden, only cover the risk of injury and death by acts of piracy. But eventually, the occupational disability insurance being issued might someday include proviso for hazardous toxic waste exposure given that on-going preliminary investigation have shown that the Gulf of Aden had been used as an illegal toxic waste dump for over 20 years. Although the proof of the illegal toxic waste dumps that had been contaminating the waters of the Gulf of Aden are yet to be fully vetted and peer approved. Given that there is a clear and present danger that scientists working for the United Nations Environmental Program (UNEP) might be abducted and held for ransom as they collect for evidence of hazardous toxic waste contamination in Somali waters. And with the preexisting United Nations-style bureaucracy, the investigation could take awhile, but in time, it will eventually be proven. But for now, the need for strengthening and legitimizing the Somali government so that it can solve the piracy problem on its own terms has been given top priority.

Occupational disability insurance – also called permanent health insurance – comes in 2 basic types: occupational disability and general disability. An occupational disability policy provides the insured with a source of income in the form of disability benefits when the insured is no longer able to perform substantially all of the material acts of his or her occupation as designated in the policy. While a general disability policy typically provides benefits when the insured is unable to perform substantially all of the material acts of any occupation. Whether an insured under general disability policy satisfies the definition of total disability depends on the policyholder’s training, experience and future ability to secure gainful employment.

Given that the recent high-profile rescue of the Maersk Alabama skipper Capt. Richard Phillips and the US Navy SEAL team that rescued him might or might have been exposed to hazardous toxic chemicals being illegally dumped in the Gulf of Aden. Hopefully their permanent health insurance is sufficient to cover any future ill-effects of their “ordeal” without their insurance providers being dragged into the media spotlight in the near future due to claim refusals because of the lack of evidence of hazardous toxic chemical and radiation exposure. Or perhaps that lone surviving Somali teen pirate currently under FBI custody – Abduwali Abdukhadir Muse – could plead not guilty due to diminished capacity because of his exposure to the illegal hazardous toxic waste dumps in the Gulf of Aden. Looks like Somali piracy won't end any time soon.

Tuesday, March 17, 2009

The 1906 San Francisco Earthquake: Biggest Insurance Fraud Ever?

Given that the corrupt city officials at the time downplayed the actual damages and deaths, was the “famous”1906 San Francisco Earthquake the biggest case of insurance fraud ever?

By: Ringo Bones

It all started at 5:13 on the morning of April 18, 1906. The geological forces that shaped the San Andreas Fault for millions of years caused the ground beneath San Francisco to sway. The tremors of that terrible earthquake lasted for only 48 seconds, but – as widely documented at the time of the terrible tragedy – overturned stoves spilled out burning coal and fuel oil as the numerous wooden buildings collapsed. Thus fires were ignited almost simultaneously in a dozen - or so - place and soon much of the city was ablaze. The widespread fires took three days to burn themselves out, destroying more than four square miles of the center of the city. Even though graft indictments were later brought up against Mayor Eugene Schmitz, and political boss Abe Reuf plus the ousting of the board of supervisors in 1907, was the full extent of the insurance fraud – via fraudulent insurance claims of the 1906 San Francisco Earthquake ever documented?

Though archival evidenced has surfaced years later that “hints” the true extent of the corruption and fraud instigated by city officials during the 1906 San Francisco earthquake. It was common knowledge at the time that San Francisco’s mayor and various city officials instigated the “political spin” that would allow the city of San Francisco to recover in an economically and politically expedient way as to attract investors for the rebuilding effort as soon as possible. Evidence of the airbrushing / retouching of press photos of the disaster with the behest of the San Francisco City government surfaced years later. Proof that the 2005 Hurricane Katrina disaster relief fiasco is not the first incidence of ineptitude by the US Government when it comes to handling major natural disasters.

The assigning by San Francisco politicians of the US Military, local law enforcement and the local militia to protect against looting with shoot to kill orders reminiscent of the Hurricane Katrina aftermath is not the only US Government “shenanigans” committed during the aftermath of the 1906 San Francisco earthquake. The local politicians also actively aided their “rich” constituents to falsify building insurance claims via political spin that allowed them to claim for fire damages instead of earthquake damages. Which at the time established insurance providers didn’t yet issue proviso for insurance payouts due to building structural damage via earthquake. Due to the politically and economically expedient way in which San Francisco was rebuilt after the 1906 earthquake, local building planners lowered building standards with the behest of the city government by as much as 50%. Which the original rigid building standards established before the 1906 earthquake was restored only during the latter half of the 1950’s.

The shadow of the government ineptitude and shenanigans committed immediately after the 1906 earthquake still casts a long shadow until this day. San Francisco’s Geological Disclosure Act was made very easy to falsify and manipulate because of the 1906 earthquake. Some property owners – if not most of them – can easily falsify their insurance claims, especially if they are influential enough to have the proverbial “friends in high places”. Which can be a nightmare for insurance claims adjusters, risk assessors, and building inspectors.

Currently, the Geological Disclosure Act governing San Francisco remains largely unenforced. Especially on buildings built on soft sandy soil that are prone to liquefaction during earthquakes. Some parts of San Francisco still have row upon row of wooden buildings that could easily become a fire hazard during earthquakes. Even though a growing number of buildings are already retrofitted to make them earthquake-proof – including the Golden Gate Bridge and the Oakland Bay Bridge. Many buildings around San Francisco are still waiting to be retrofitted to make them more resistant to strong earthquakes.

Monday, February 16, 2009

Spacecraft and Satellite Collision Insurance

Does the recent incident of an active US commercial satellite colliding with an expired Russian military satellite necessitates the reevaluation of existing insurance of space-bound and space-based assets?

By: Vanessa Uy

Last Tuesday – February 10, 2009 – an active commercial US telecommunications satellite had the unlikely misfortune of colliding with an already expired – but still intact – Russian Cosmos military satellite 800 kilometers above Northern Siberia. Both Earth-orbiting satellites apparently tried to cross the same point in space at the same time as they are traveling at the standard orbital speed of 17,380 miles per hour. The collision of two still-intact satellites was the first known accident of its kind in the history of space exploration and commercialization.

The resulting collision created a debris field comprised of a little over 600 RADAR-trackable debris that has the potential of endangering other multi-billion dollar space-based assets. Like the Hubble Space Telescope and the International Space Station – which happens to travel within the same orbit window of the debris field of the recent satellite collision. Putting the long-term operations of these space-based assets in jeopardy.

As the first ever head-on crash of still-intact satellites in Earth orbit could also endanger other still active telecommunications satellites that make our current Internet and mobile phone / cellular phone systems possible. Given the existing and future risks, are existing insurance terms on space-based assets up to the task in providing equitable financial compensation when it comes to dealing with infrequent – but catastrophic – incidents such as these?

After reading Space Debris: Models and Risk Analysis by Heiner Klinkrad, the scientific data that could aid in providing equitable payouts for infrequent – but nonetheless catastrophic- satellite collisions such as these already exists. Klinkrad’s book did provide a comprehensive background in understanding the various sources of space debris and the assessment of associated risks of current and future space debris environment. While non-trackable objects – i.e. fragments too small to be “seen” by current RADAR technology - produced by historic on-orbit fragmentation events and several other sources of space debris are also discussed. Klinkrad’s book also discussed risk assessment models concerning with meteoroids when they turn into meteorite-strike hazards for both space-based assets and those back on Earth. Given that scientific data concerning the risk assessment of the impact and collision hazards of satellites and spacecraft already exists, will other academic research like that done by Heiner Klinkrad eventually shape the future structure of insurance products intended for our commercial and scientific space-based assets?

Currently, there are some 17,000 RADAR-trackable objects scrutinized by NORAD, which by the way also warns NASA’s manned missions of incoming space-debris – if their RADAR can “see” it – so as to take the necessary evasive maneuvers. Though the celestial mechanics of more than three bodies cannot be easily analyzed using the techniques developed by Victor Szebehely – make that the 600-plus orbital debris that resulted from the February 10, 2009 satellite collision. Especially if you take into account the gravitational influences of the major celestial bodies like the Earth, the Moon, the Sun, or whichever planet comes close to us at this time. Given that the cost of space assets from construction to launch can run into the millions, insuring them won’t be cheap.

But as the established insurance clauses on satellite and spacecraft are based on sound science, should the risk assessments be constantly reevaluated since orbital debris are steadily increasing as the years go by? Back in the early 1990’s, there were only 8,000 RADAR-trackable orbital debris in existence, now it is 17,000. Sooner or later, this would result in constant risk-assessment upgrades, or developed space-launch processes that produce lesser orbital debris than current ones.

Monday, January 26, 2009

Better Risk Assessment: Keeping Insurance Premiums Reasonable?

One sure-fire way of selling insurance policies is to maximize your coverage while keeping premium rates reasonably low. Had we now got this down to a science?

By: Vanessa Uy

Back in the good old days – the previous 25 or more years to be exact – insurance company actuarial mathematicians used to statistically assess risk using a figure called the expected loss. They got it by multiplying the probability of an accident occurring times the damage done by the accident.

Henceforth, policymakers and statisticians of almost every insurance company around the world grown content in using the concept of expected loss as the sole measure of risk. But since insurance companies are always in a perpetual search of ways to “streamline” their economic “bottom line”, the quest is on to create policies that are more ambitious than the one that precedes it. An insurance policy that not only provides coverage for “catastrophes” other insurance providers won’t touch with the proverbial ten-foot pole but also can keep the client’s premium rates down to the absolute reasonable minimum (from the insurance providers perspective at least).

That fateful day came around in 1986, when a mathematician from the University of Virginia named Yacov Haimes and his team developed the partitioned multi-objective risk method or PMRM. Haimes and his team argue that insurance company actuarial mathematicians need to account for catastrophes separately from ordinary accidents in order to provide a better-structured insurance policy, one that maximizes coverage while minimizing premium rates. Rare but expensive (in monetary terms) accidents, the team pointed out could have a small-expected loss given their improbability of occurring.

In his book “Risk Modeling, Assessment and Management”, Yacov Haimes discusses the art of risk management after years of being acquainted and gaining expertise on the subject. Especially it’s important applications in such areas as engineering, science, and even the politically tinged vagaries of public policy. Haimes’ writing style equally covers the quantitative and qualitative aspects risk management by emphasizing how to quantify risk via construct probability together with real-world decision-making problems without ignoring the host of institutional, organizational, political and cultural considerations which these days often accompany such challenges.

Since developing his PMRM, Haimes has co-developed an even newer method of risk assessment called risk filtering, ranking and management or RFRM. The usefulness of RFRM in risk assessment is supported by several case studies cited in Haimes’ book. Given that Yacov Haimes has provided a new focus on minimizing the high cost associated with today’s more extensive risk management, how can all of this benefit us, the lowly policy holder, or for that matter, the whole global economy as a whole?

Ever since our on-going global economic downturn slowly – but inexorably – continues to drive all of us into an uncomfortable sense of fiscal austerity. Whoever can provide products that provide the maximum performance for the least amount of money will not only survive, but can even prosper during these times of economic hardship. If insurance companies can manage to provide us with insurance policies that offer more for less, then both – the insurance provider and the “mere” policy holder – can weather out the on-going global “financial storm” with a comfortable margin of confidence.