Friday, December 21, 2012

Will The EU’s New Insurance Gender Equality Laws Affect Women’s Driving Behavior?

While supposedly making EU insurance laws more or less gender neutral will the latest EU court decision on gender equality geared EU insurance laws affect women’s driving attitudes in the EU?

By: Ringo Bones

Unfair stereotype or not, the statistical correlation of young women drivers aged 18 to 25 being safer than their male counterparts is not easy to overlook. But will the latest European Union Court ruling to make insurance premium pricing laws gender neutral across the EU eventually change current safety-conscious attitudes of EU citizen drivers?

The new EU law outlawing gender discrimination in the pricing of insurance premiums in the vehicular / car / driving insurance front could make women drivers in the EU face a sharp jump in the cost of their driving insurance premiums by as much as 40%. And according to Aidan Kerr of the Association of British Insurers, the sharp rise in car insurance premiums of women drivers in the EU would certainly affect their safety conscious driving attitudes down the road if they now pay the same insurance premium rates as their male counterparts.

Not only driving insurance premium rates will be affected. The latest European Union Court ruling on gender neutral insurance premium pricing will also affect life insurance and pension annuity premiums. Women in the European Union will be paying up to 30% more on their life insurance premiums despite recent scientific studies showing that women in the EU tend to live longer than their male counterparts in a statistically significant manner. Whether it is due to genetics or due to an inherently risk averse behavior, anyone – male or female – who live longer and pay for their life insurance premiums for much longer due to their longevity do deserve lesser premium rates. 

On the “losing” side, EU men now could face to collect 10% less on their retirement income of their pension annuities due to the new EU insurance gender equality laws. Although, the policymakers that legislated the new EU insurance gender equality laws seems to be silent on how all of this will affect the inherently safety-conscious attitudes of EU women drivers who now have to pay the same increased car insurance pricing premiums as their male counterparts in the near future. Is it just an unjust law that defies current scientific findings?

Tuesday, November 27, 2012

Are The World’s Fast Growing Economies Underinsured?

Given that they are prime investment destinations during the past few years, are the world’s emerging economies really underinsured for long-term economic viability?

By: Ringo Bones

A recent report by the Centre for Economics and Business Research shows that recent actuarial figures had shown that emerging economies – especially the fast growing economies of India and The People’s Republic of China – are just too underinsured for long-term economic viability. Given such sobering facts, does this report serve as a “caveat emptor” to all prospective investors?

Richard Ward, CEO of Lloyd’s of London had been concerned on the recent report because in most underinsured economies – it is the government who spend a disproportionate amount of money in terms of compensation and disaster relief in times of natural disasters. Given that the cost of natural disasters had increased by 870 billion US dollars since 1980, prospective investors should probably do their due diligence first before doing business with such countries – especially given such countries still consider climate change mitigation schemes as an “iffy luxury” only rich Western countries can afford.  

Even though 2011 was still the costliest year in terms of insurance payouts due to natural and man-made disasters, the future might even be more costly especially if the potentially disastrous effects of climate change risks are taken into account. And given that the world’s underinsured fast growing / emerging economies will surely be skimping on “iffy luxuries” like climate change risk insurance and/or weather derivatives, it could undermine the “investment attractiveness” of these potential investment destinations.

Monday, November 19, 2012

Weather Derivatives: The Big Business Side of Climate Change Risk Insurance?

Even though its been freely traded on the Chicago Mercantile Exchange for awhile now, are weather derivatives now represent the big business side of climate change risk insurance?

By: Ringo Bones

Many of us cope with life’s risks in a myriad of ways. Those who are more financially savvy tend to monetize those risks and cash in the name of financial compensation. Given that its been exchange-traded with its corresponding options on the Chicago Mercantile Exchange - or CME – since 1999, are weather derivatives now representative of the big business side of climate change risk insurance?

To many of us not yet part of the richest 1 per cent may be abhorred of such a wealth manipulation scheme being used to monetize the risk posed by climate change, but from an actuarial perspective, such complex derivatives does play such a vital role in making the agricultural industry in the United States and the rest of the industrialized world be able to cope with risk and other catastrophic uncertainties posed by climate change. For the benefit of the uninitiated, here’s a brief discussion on what are weather derivatives.

Weather derivatives are financial instruments that can be used by organizations or individuals as part of their risk management strategy to reduce risks – mainly financial – associated with adverse or unexpected weather conditions. Weather derivatives’ difference from other forms of derivatives is that the underlying asset – namely: rain / temperature / snow – has no direct value to the price of the issued weather derivative. Weather derivatives are more often than not classified under “exotic derivatives”.

Farmers can use weather derivatives to hedge against poor harvests caused by failing rains during the growing period, excessive rains during harvesting, high winds in case of plantations or wild temperature swings in cases of greenhouse-enclosed crops. Theme parks now also use such derivatives to insure against rainy weekends during peak summer seasons and gas and electrical power companies may use heating degree days (HDD) or cooling degree days (CDD) contracts to smooth their earnings. A sports event managing company may wish to hedge their earnings losses by entering into a weather derivative contract because if it rains the day of the sporting event, fewer tickets will be sold.

The first weather derivative deal was in July 1996 when Aquila Energy structured a dual-commodity hedge for the Consolidated Edison, Co. The transaction involved Con Ed’s purchase of electric power from Aquila for the month of August. The price of the power was agreed to, but a weather clause was embedded into the contract. This clause stipulated that Aquila would pay Con Ed a rebate if August turned out to be cooler than expected.

After that humble beginning, weather derivatives slowly began trading over-the-counter in 1997. As the market for these products grew, the Chicago Mercantile Exchange introduced the first exchange-traded weather futures contracts – and their corresponding options – in 1999. The Chicago Mercantile Exchange (CME) currently trades weather derivative contracts for 25 cities in the United States, 9 cities in Europe, 6 cities in Canada and 2 cities in Japan. A major early pioneer in weather derivatives was the Enron Corporation through its Enron Online unit.

There is no standard model for valuing weather derivatives similar to the Black-Scholes formula for pricing European style equity option and similar derivatives. That is due to the fact that underlying asset used in valuating weather derivative contracts is non-tradable which violates a number of key assumptions of the Black-Scholes Model. Typically, weather derivatives are priced in a number of ways: via business pricing, historical pricing or burn analysis, index modeling, physical models of the weather and a more superior approach through a mixture of statistical and physical models. 

Tuesday, October 30, 2012

Tropical Storm Sandy: Every Insurance Companies' Nasty October Surprise?

Had been dubbed as the “Frankenstorm” since it arrived in U.S. territorial waters, does the exorbitant insurance payouts of Tropical Storm Sandy’s devastation be the nasty October Surprise for all insurance companies concerned?

By: Ringo Bones

As Tropical Storm Sandy, despite being classified as a “mere” Category I Hurricane since it arrived in U.S. territorial waters, it had since been dubbed Frankenstorm by the press and is fast becoming the meteorological phenomena of the decade as it sparked scientific interest as the preexisting weather in the East Coast of the United States conspired to create a thousand-mile-wide “perfect storm” hitherto unseen since meteorological records began. While the “famed” storm is still strengthening, will Tropical Storm Sandy be the October Surprise to the insurance companies concerned currently still ill prepared to cough-up monstrous pay-outs?

“Super-Storm” Sandy’s devastation had indeed been unprecedented so far in the U.S. East Coast. Though tragic deaths in such natural disasters is considered one death too many, Sandy’s death toll had reached 20 in the United States as it claimed 69 lives when it hit the Caribbean last week – with Haiti, Jamaica and Cuba being the hardest hit. Even Cuban president Raul Castro is still visiting the other far-flung areas in Cuba devastated last week by Tropical Storm Sandy. And don't forget the actuarial cost of those hundreds of commercial scheduled flights in the US East Coast that had to be cancelled in the wake of  Tropical Storm Sandy. Though from an actuarial perspective, the frequency of occurrence of such once-in-a-lifetime "perfect storms" / "Frankenstorms" are still exceedingly rare.  

With insurance payouts via flood insurance and storm damage insurance claims alone projected to reach well over 20 billion US dollars, Tropical Storm Sandy managed to close the New York Stock Exchange for two days now. The last time the NYSE was closed for this length of time was back in 1888. In terms of infrastructure damage, the state of New York could be the hardest hit so far as the New York City’s subway system are now flooded by as much as 4 feet of seawater and most of its power grid had been shut down by Sandy. It even caused a fire in Queens, New York that destroyed 50 homes while neighboring states, like New Jersey, had been brought to a virtual standstill when storm surges flooded main roads making them impassable by conventional road vehicles.  

Thursday, October 18, 2012

Does Your Professional Group Health Insurance Cover Internet Addiction Therapy?

Even though the sheer usefulness of the internet had brought us good things like e-commerce and closer social connectivity, but should we be protected from the negative effects of “internet addiction”?

By: Ringo Bones

Back around the middle of August 2012, Time magazine published an article on a recent study revolving around “internet addiction” or “online addiction”. Believe it or not, of the ones’ surveyed, 84% who own internet connected mobile devices can’t go on a single day without checking their various social network updates. While a third of them suffers some form of psychological anxiety attack if they can’t check the status of their social networks on a daily basis. Given that a growing number of us – especially those working for advertising firms – where the information superhighway of the internet is their primary workplace be provided some form of occupational health coverage – i.e. a health insurance policy that provides coverage for internet addiction therapy or rehab?

Though what constitutes internet addiction is still, at present, too broad and somewhat vague to be seriously considered by most occupational health insurance providers, some leading authorities on internet addiction in Europe, like Germany’s Dr. Klaus W√∂lfling who is the current vice leader of the Interdisciplinary Addiction Group Berlin, has already collected enough data to prove that internet addiction – like other substance and behavioral addictions – is a real but treatable psychological disorder. The still fledgling internet addiction treatment center in Charit√© Hospital in Berlin now caters for the rehab of persons in their teens that are hooked on massive multi-player online role playing games.

Even though therapeutic and rehab regimen for internet addiction may still be in its infancy, there are already occupational health insurance policies already in existence that can easily be tailored to accommodate for the costs of internet addiction therapy. As far back as the post World War II economic boom in America and Western Europe, there already exists the proviso of the group accident and health protection insurance coverage in the form of professional group insurance tailored to certain professional groups – such as doctors, dentists, and pharmacists that had since been developed and widely marketed by insurance providers.

Usually such plans are written through the professional association and restricted to members. Premiums are paid by the individual directly to the company and frequently at a lower rate than for individual policies with the same benefits. The group policy may be non-cancellable for individual members but may be cancelled for the whole society if the company finds its experience unsatisfactory. Similar group accident and health policies are issued to unions for their members.

But what about those whose occupations or professions that require surfing the internet on a daily basis, like those in the advertising industry checking out the day’s leading social media trends or those whose are paid to beta test massive multiplayer online roll playing games for bugs, shouldn’t they too have a “professional group insurance policy” that covers rehab for internet addiction psychotherapy? Maybe such professional group insurance with health coverage on the cost of internet addiction therapy already exists out there, but they might be not as widely marketed in comparison to policies that don’t cover internet addiction rehab.    

Monday, October 8, 2012

Telecommunications Security Risk Insurance, Anyone?

Weary of DDOS attacks crashing your nation’s internet infrastructure – what if the telecommunications systems you are currently using is the very one spying on your nation’s top secret data?

By: Ringo Bones

This just in, a US Congressional Panel just issued a draft report warning that two Mainland Chinese telecommunications firms – Huawei and ZTE pose a security risk to the United States’ internet infrastructure. Given that every sovereign country with a beef on the Beijing government’s human rights and Tibet issue has been weary of DDOS attacks by the Beijing 50-Cent Cyber Army for a number of years now, imagine if your country’s telecommunications equipment supporting the internet infrastructure has really, really close ties with the Beijing government. Your government’s most closely guarded secrets could wind up as “Chinese Takeout” to the world’s leading terror groups like Al Qaeda or rogue states like Iran and Syria.

The US Congressional House Security Committee has genuine concerns when the two biggest Mainland Chinese telecommunications firms started making inroads into the United States because Huawei and ZTE were founded by a high-ranking veteran of the Mainland Chinese People’s Liberation Army back in 1987 and Huawei is the world’s second largest manufacturer of data routers. Imagine the Beijing government having direct access to a kill-switch running an enemy nation’s internet infrastructure never mind the very telecommunications hardware itself is doing the spying for the Beijing government.

The draft report of the US Congressional House Security Committee recommends that not only Huawei and ZTE be allowed mergers with US telecommunication firms currently under contract by the US Department of Defense or other very sensitive US government branches with “top secret” data vital to maintaining national security but also bans sale of telecommunications equipment manufactured by the two named Mainland Chinese telecommunications firms. Given that Mainland China excels at manufacturing cut-price electronic equipment, here’s an instance on where penny-pinching could have a very grave consequence. Does your telecommunications security risk insurance cover such eventuality?

Thursday, August 16, 2012

Leasehold Insurance In The Post Subprime Mortgage Crisis World

Given that it is now much harder to make an honest profit in our post subprime mortgage crisis world, should business start-ups avail themselves of leasehold insurance? 

By: Ringo Bones 

Although it is the intention of the standard fire insurance policy to protect against direct losses, protection of indirect losses by endorsement has since been widely developed. Among the forms of insurance that have been developed is the leasehold insurance – which can be a business start-up lifesaver in the austere economic environment of our post subprime mortgage crisis world. 

There may be a lease on the building for a stated number of years. If the lease states that it is terminated by a fire in a given proportion of a building and the amount of rent that would have to be paid for similar quarters is higher than under the lease, then a leasehold insurance may be obtained by the lessee. 

A lessee of a certain business property may have obtained a lease at a very favorable rental, for example, annual rental may be 15,000 US dollars for 20 years. However, if the building is destroyed by fire and the lessee had to obtain other similar premises, he or she might have to pay 18,000 US dollars annual rental. Leasehold insurance is available for a lessee to protect him or her against the additional cost that he or she would have to pay under such circumstances. 

Monday, August 13, 2012

Completion Insurance: A Hollywood Movie Industry Necessity?

Given that the commercial viability of a movie script – never mind its box office earnings potential – is still a hit-and-miss affair, is completion insurance a true Hollywood movie industry necessity? 

By: Ringo Bones 

The falling out between Mel Gibson and famed screenwriter Joe Eszterhas a few months ago had cast the light yet again on how Hollywood would make money in the austere fiscal environment of our post global credit crunch world. Earlier this year, Mel Gibson and Joe Eszterhas collaborated to make a big-budget epic Maccabees movie – i.e. about the origin of Hanukah of a historical Jewish figure often referred to as the “Jewish Braveheart”. The irreconcilable differences between Eszterhas and Gibson that eventually scrapped the proposed big-budget epic were due to Gibson’s insistence to rewrite the script in order for the film to convince Jews to convert to Catholicism. And completion insurance policies are created for such an occasion. 

Completion insurance – more often referred to as completion guarantee or completion bond – is a form of insurance offered by a completion guarantor company in return for a percentage fee based on the movie’s budget guaranteeing that the producer will complete and deliver the film based on an agreed script. This is often used in independently financed films to guarantee that the producer will complete and deliver the film based on an agreed script, cast and budget to the distributors thereby triggering the payment of minimum distribution guarantees not just to the producer – but also to the banks and investors who cash flowed the guarantee, as a discount, to the producer to trigger production.  

The Hollywood movie industry’s necessity for completion insurance was probably born by changes on how movies were made a little over 60 years ago. By 1951, all major studios had diversified themselves of their theater holdings, retaining instead their distribution organizations. Once this was done, the producers were suddenly freed of the obligation to maintain a flow of films merely to keep their affiliated theaters in operation. 

This practice, the basis of the “factory system” of production that had dominated the 1920s and 1930s had invariably sacrificed quality for quantity; but because the films were sold long before the first camera turned, there had been a certain economic stability in the industry. When pictures began to be bought on the basis of quality – or at least of presumable box-office appeal – the studio heads panicked. They cut back on production and looked for ways to effect economics in their studio operations. One way that occurred to them was to close out their contracts with their high-priced stars. 

Further complicating the production scene is the steady decline in the number of films made in the United States. In 1961, only 10 of the 39 pictures before the cameras were filmed in Hollywood; the rest were filmed elsewhere in the United States and abroad. The major studios, once geared to turn out as much as a picture a week each, can now barely muster two hundred a year among them – a figure, incidentally, which includes their releases of independent productions. As a result, more depends on the success of every picture. No longer can losses on one film be amortized by the success of a dozen others.

With production costs having spiraled from an estimated average of 400,000 US dollars per picture in 1937 to over 1.5-million US dollars in 1962, thus the studios simply cannot afford to take chances. Thus, a low-budget “original” by an unknown writer, with an actor that no one ever heard off, is certainly less attractive to studios than a hit play with a bevy of costly stars. Such “insurance” is considered necessary as a hedge against the hundreds of thousands of dollars that must be invested in such “below the line” costs such as settings, costumes, raw stock, laboratory processing, etc. A case in point was the 5.5-million US dollars that Warner Bros. reputedly paid back then for My Fair Lady would be considered good business. 

It protected the studio’s investment with a pre-sold commodity so far as the audiences were concerned, and offered the banks (the ultimate financiers of most movies) the kind of securities that they would be willing to advance money on. The net result is that whereas the soaring costs of production have caused alarm throughout the movie industry, most producers believe that the only way to stay in business is to - paradoxically - spend more money.  

Monday, June 11, 2012

Wedding Insurance: Luxurious Necessity?

Given that the average wedding now costs 25-thousand US dollars these days, are wedding insurance now fast becoming a “luxurious necessity” in this day and age? 

By: Ringo Bones 

Imagine your local governor announcing everyone should batten down the hatches and stay indoors because of a major storm will hit your neck of the woods. This is just what happened several months ago in New Jersey, where Governor Chris Christie’s warning that everyone should batten down the hatches and move indoors had caused the cancellation of scores of weddings to be held in the state’s picturesque and historic boardwalks. Given that weddings in this day and age now cost an average of 25-thousand US dollars, is it high-time for prospective couples to secure wedding insurance before they officially tie the knot? 

These days, a wedding insurance with a premium of 200 to 300 US dollars can recoup you of almost your entire 25-thousand US dollar wedding plan if ever it gets cancelled by a major storm or other inclement weather.  I mean insurance companies had been insuring against rain-outs of public events for years, right? Some “fancier” wedding insurance policies even cover force majeure. But will it cover the unused tins of up-market beluga caviar? 

Wednesday, June 6, 2012

Comet Insurance, Anyone?

First offered by insurance providers over a hundred years ago in anticipation of the Halley’s Comet return back in May 13, 1910, can insurance companies today be able to “peddle” comet insurance?
 By: Ringo Bones

 Unlike meteorite strike insurance, which offers to compensate the policyholder against the damage a meteorite impact’s kinetic energy may inflict on his or her property or person, comet insurance – when first offered to the public over a hundred years ago by insurance providers in anticipation of the May 13, 1910 return of Halley’s Comet – was, believe it or not, not for compensating policyholders against a kinetic energy type devastation to one’s person and/or property, but to protect one from what astronomers had previously found out before about comets thru spectroscopic means. As Halley’s Comet came near enough to Earth for spectroscopic analysis months before the May 13, 1910 return, astronomers found out that the comet contains vast amounts of cyanogen – a colorless, flammable and poisonous gas that is also present in simple and complex cyanide compounds.
 Experts at the time believed that “comet insurance” might be handy to compensate the typical policyholder in case the large amounts of cyanogen drifts into the Earth’s atmosphere and cause widespread damage to crops and livestock. Strangely enough, as opposed to what Walter and Luis Alvarez previously hypothesized about a sizable meteorite or comet impacting the Earth releasing huge amounts of kinetic energy that wiped out the dinosaurs a little over 65-million years ago, comet insurance was created to compensate the widespread damage that the large amounts of spectroscopically detected toxic cyanogen gas might cause widespread cyanogen gas poisoning.  And yet, when May 13, 1910 arrived, Earth passed through Halley’s Comet’s tail without any ill-effects.  So is “comet insurance” just something born out of our ignorance of comets?
 Back around 1986, during the scheduled return of Halley’s Comet – given its 76-year orbital period, Hollywood capitalized everyone’s fear and ignorance about comets by releasing a movie titled Maximum Overdrive. A science fiction movie where every mechanical contrivance started autonomously to kill humans after planet Earth passed through a rogue comet’s tail. So, does anyone still think paying premiums for comet insurance still make fiscal sense?

Monday, January 23, 2012

Japanese Hole-In-One Insurance: Over The Top Insurance?

To those folks knowledgeable about Japan’s golfing scene, would you consider Japanese golfers – even casual ones – paying for a monthly premium for a hole-in-one insurance rather over the top?

By: Ringo Bones

Question: “Why do Japanese golfers, even casual ones, buy and pay monthly premiums for a hole-in-one insurance?” The answer is, is that established Japanese golfing tradition requires them to share their good luck when they get that rather rare hole-in-one shot by giving gifts to all their golfing buddies. It is a Japanese tradition that can cost the (un) fortunate hole-in-one shooter as much as 10,000 US dollars or around one million yen depending on the prevailing FOREX rate of the US dollar to the Japanese yen. Is this dedication to the game or what?

When it comes to their dedication of Western-sourced hobbies and pursuits, the Japanese have always been blessed (or is it cursed?) with a healthy disdain for – as Robert Frost puts it: “Playing tennis without a net”. The Japanese understands and appreciate the challenge of creating something within a strict set of guidelines. You know someone really enjoys a hobby when they are willing to pay (a somewhat steep?) monthly insurance premium to afford to give gifts to friends – as in golfing buddies.

By contrast, golfers in America who hit a hole-in-one are traditionally supposed to buy drinks for everyone in the clubhouse, and this seldom cost more than 500 US dollars. At Cherokee County golf tournaments, a golfer can often win a new car by making a hole-in-one on a specific hole. And it is the car dealers who provide the insurance to pay the cost of giving away the brand new car to the lucky golfer who is lucky enough to have made that hole-in-one shot.

Sometimes I do wonder what a Japanese golfer actually gets for the (mis) fortune of getting a hole-in-one shot? A better afterlife? If it doesn’t equal or exceed the 10,000 US dollars that he or she gives away in gifts, then: “What’s really the point other that sharing their good fortune from a golfer’s perspective?” Probably you have to be Japanese too to answer such an existential question satisfactorily? Golfing insurance, anyone?