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Welcome to High Deductible Health Insurance…Ready or Not!

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Our company recently joined the ranks of employers switching from traditional health insurance plans to high-deductible, HSA compatible plans. We switched from our HMO plan for two reasons: First, the fourth or fifth consecutive year of double-digit premium increases was driving our benefits expenses beyond the palatable. The new model allows us to reduce our premiums. We plowed the savings back into assisting employees with their health care expenses (more about that later).

Second, the high deductible plan encourages us to be more informed consumers of  medical services. In the past, we paid a co-payment for every office visit or prescription, regardless of the real cost of the product or service. Because we’ll be paying 100% of the first $2,500 per person for “sick office visits” and prescriptions, we’re bound to pay more attention to the cost of these things. I know I’ll be more likely to see if there’s a generic alternative to a brand-name drug for example.

Even though I’m in the insurance business, my experience with health insurance is strictly from the consumer side. And, I’m quick to admit that I don’t quickly grasp the concepts of embedded deductibles, co-pays and maximum out-of-pocket expenses. It gives me more sympathy for our clients trying to understand insurance terms that we carelessly toss around every day.

Going from a plan with a $500 deductible to one 5 or more times higher was  a bit scary for me. It took a while to get my head around. As one of the decision-makers, I was also concerned that the plan would work well for our employees. Fortunately, our agent was very patient in explaining the plan repeatedly, and in answering our (ok, mostly my) questions.

How does one absorb such an increase in deductible? Plan participants establish Health Savings Accounts (HSAs), into which they can deposit pre-tax dollars for medical expenses. We decided to deposit $750 in each participant’s account at the beginning of the year, to front-end load their expense account. To further encourage employees to fund their own accounts, we agreed to match the first $750 that they deposited via payroll deduction. So, if they contribute $750, they’ll have a total of $2,250 in their HSA. That goes a long way towards the $2,500 deductible.

My HSA debit card arrived in today’s mail. The plan starts on January 1. I’ll post more occasionally during the year to explain how the plan’s working, and how I’m adjusting to having a high-deductible plan.

Beware: More Uninsured Drivers on the Road

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M.P. McQueen reported in Wednesday’s Wall Street Journal on the national trend of more drivers are letting their car insurance lapse because of the faltering economy. Doing this puts themselves and others – including you – at risk.

McQueen did a good job highlighting the irresponsibility of not carrying liability insurance, and the importance of matching  your own liability insurance to the value of your assets.

Are Minimum Auto Liability Insurance Limits Enough?

Maine law requires all drivers to carry at least $50,000  per person / $100,000 per accident of Bodily Injury coverage, and $25,000 of Property Damage coverage. It doesn’t take much imagination to picture this limit as being inadequate to handle even a moderately severe accident, or replacement of even a mid-priced late model car.
Once you blow through your insurance coverage, your assets are fully exposed.

How to Protect Yourself from an Uninsured Driver

Most people don’t realize that the flip side of liability coverage is Uninsured/Underinsured Motorist coverage. This covers your injuries if you’re struck by an at-fault driver who has no insurance, or less than you do.
There’s the rub: if you and the other guy both have state minimum limits, your UIM coverage doesn’t apply, because you didn’t have more than he did. If you suffer more than $50,000 of medical expenses (it doesn’t take all that much – trust me), you’re on your own.
Although we’re in the business of selling insurance, we understand that people have to live within their budgets and prioritize their expenses. If the economy forces you to cut your auto insurance expenses, we suggest:
  • Look at your deductibles first. It might sting to pay the first $500 or $1,000 of repair costs after an accident, but at least it’s a known cost, with a maximum out-of-pocket.
  • If you really need to cut auto insurance to the bone, consider removing physical damage (comprehensive & collision) coverage. If you have a loan or lease on the vehicle, you’re not going to be able to do this. Also, if you don’t have physical damage coverage on at least one car, you don’t have that coverage if you rent a car either. But, desperate times call for tough decisions.
  • If you have more than one car, think about “laying one up”. You can suspend coverage for the time it’s stored. Just remember to call your agent before  you drive it again, because it has no coverage.
  • Try to pay your auto premiums on time. Paying late can jeopardize your coverage, especially if you slip up and your policy actually cancels one time. The Maine Insurance Dept. has an excellent set of FAQ, one of which offers the same counsel.

If you’re fortunate, and in expense-maintenance vs. expense-slashing mode,  make sure that your liability coverage protects your assets, and your UIM coverage is adequate.  And regardless of the law, don’t count on the other driver having insurance.

 

Improved Maine Workplace Safety Likely to Lead to WC Rate Drop

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The Lewiston Sun Journal reported last week that Maine Superintendent of Insurance Mila Koffman approved a request from the National Council on Compensation Insurance for a reduction in Maine workers’ compensation rates of 7.6%.  NCCI is the primary gatherer of workers’ compensation data.

It’s up to each individual insurer to decide whether or not to follow NCCI’s advice, but most do at least base their rate filings on NCCI’s indications.

This is good news on many fronts. Lower accident rates obviously are good for workers and their families; lower workers’ compensation rates help Maine employers as they compete in the global marketplace; and the reduced costs come at a time when other business expenses are increasing and many industries face shrinking revenues.

Just last month MEMIC, the state’s largest workers comp insurer, returned about 10% of 2005 premiums to its policyholders in the form of a dividend. MEMIC has received well-deserved attention for its efforts to increase workplace safety in Maine.

Whether or how much Maine WC rates decrease in 2009 remains to be seen. What is certain is that the system is much healthier than it has been in a very long time.

Pay as You Drive (PAYD) Car Insurance

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Many Mainers, especially retirees and those who bike, walk,  bus or live close to work, drive less than the average American. That’s one reason Maine’s auto insurance premiums are among the lowest in the country, despite our harsh winters.  Still, many of our clients ask about Maine auto insurance discounts for driving fewer miles.

The idea appeals to our common sense, doesn’t it? Even the Freakonomics guys agreed. Here’s some of what they wrote in their April 20 column in the New York Times Magazine:

Imagine that Arthur and Zelda live in the same city and occupy the same insurance risk pool but that Arthur drives 30,000 miles a year while Zelda drives just 3,000. Under the current system, Zelda probably pays the same amount for insurance as Arthur.
While some insurance companies do offer a small discount for driving less — usually based on self-reporting, which has an obvious shortcoming — U.S. auto insurance is generally an all-you-can-eat affair. Which means that the 27,000 more miles than Zelda that Arthur drives don’t cost him a penny, even as each mile produces externalities for everyone. It also means that low-mileage drivers like Zelda subsidize high-mileage drivers like Arthur.


Every auto insurer in Maine uses the system described above. They ask how you use your vehicle, and give a small discount to those who tell them that they use theirs for “pleasure use” or a “short commute”.

But one insurer, Progressive, has introduced a “pay as you go” system they’ve dubbed “MyRate“.  It promises discounts for driving fewer miles, not driving late at night, and driving defensively. Sounds good, huh? As with many seemingly simple ideas that appeal to our “common sense”, the devil is in the details.
Consider:
  1. The program requires credible monitoring that yields reliable results. Progressive has developed a chip that you plug into your car’s OBD (on-board diagnostic) port. The device monitors your speed, the time of day you’re driving, and how many miles you drive. It’s not a GPS – it doesn’t report WHERE you are – but the amount of data it does collect and send to Progressive has given pause to some who are concerned with privacy in the digital age.
  2. Your insurance rates can also INCREASE if your driving habits change (new job? take up hiking or camping? new long-distance love interest?), or reflect a higher risk profile (kid starts driving?). While you can quit the program, if you stay with Progressive, they may use the data about you that they’ve collected when rating your future policies.
  3. The device costs about $30.00 to buy, and the premium quote you used to evaluate whether to buy the policy was only an up-front estimate. So, even if you thought that your discount would more than pay for the up-front cost, that can change (see #2 above).
  4. MyRate is currently not available in Maine. In fact, it’s only available in 8 states, New Jersey being the closest. And, what we consider the biggest drawback of all…
  5. You can’t buy a MyRate policy from an independent insurance agent; the only channel where it’s available is from Progressive Direct. This means that you’re on your own in dealing with the insurance company if you choose to buy a policy this way.

Maybe MyRate makes sense for you after reviewing the facts of the program. We do like some of the features. It rewards safer driving and less-risky behavior. It also rewards those who choose to drive less, which is good for the environment and for our communities too.

What we don’t like is that Progressive chooses to only sell the product directly to consumers. Of course, part of that is self-interest: we’re insurance agents after all. If we don’t believe we add value to the insurance transaction, then we should just wither away to extinction. But most Progressive customers agree, and prefer to buy from an independent agent. The vast majority of their Maine auto insurance business is produced through local agencies.
Insurance is complicated enough; this new method offers its own twists, not to mention the privacy concerns mentioned above.  We wonder how many people will feel comfortable facing this new insurance model without a local professional to help, advise and advocate for them. Why not allow customers to use an agent to help them vet this model to see if it really makes sense for their situation?

Car Sharing Comes to Portland Maine – with Insurance?

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This week, the Press Herald reported that  Portland UHaul plans to bring its U Car Share program to town in the form of four white PT Cruisers. In August, we addressed the issue of car sharing and insurance in this post.

To reiterate: car-sharing services can be a great alternative for those who rarely need a car. They help to reduce parking congestion, greenhouse gases and other automobile-created problems. But don’t forget that when you get behind the wheel, you’re in a position to put all of your assets at risk. You’re relying on the car sharing service’s insurance to protect you. The U Car Share website doesn’t say what extent of liability protection their policy provides. We recommend that you get the answer to that question BEFORE you join.

 

Insurance Service in the 21st Century

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Our insurance agency prides itself on providing personal service. We figure that when people call us, they want to talk to someone as soon as possible. So, we avoid voice mail as much as possible, and give callers options to speak with someone who can help them – even if they're not the person they originally called for. 

But we try to be tech-friendly, too – for those clients who want to communicate that way. We're proud to offer:
  • Real-time chat support. Clients or prospective clients can click on an icon on our home page which opens up a chat window. This is great for those who have relatively simple questions that might take a minute or two to answer: "was my payment received?" or "how much do I owe on my car insurance?", or the ever-popular "can you send me another insurance card so I can register my car?". Clients can work or play on their computer while we research their question. We can even send documents -an insurance card or payment receipt – right in the chat window. It's perfect for multi-taskers. It's also good for those who might be hard of hearing, or who want a written transcript of our answer (one can automatically be emailed after we're done). After business hours, the "chat button" automatically generates an email to us that we can answer later.
  • Extensive email capabilities. We can email virtually any form, application or documentation that we can mail, speeding up the turnaround time by hours or days compared with faxes or snail mail. 
  • Web-based request forms. Our commercial clients can request Certificates of Insurance, and our other clients can easily download forms for discounts, electronic payments or underwriting information.  
  • This blog, which we hope provides timely information on various risk-management trends, tips and topics. There's even an RSS feed, so you can have updates automatically emailed to you. 
  • Text messaging to cell phones and PDAs.  Let's suppose that your mortgage company pays your homeowners insurance premium. Except, they sold your mortgage last year, or changed addresses, and your insurance policy wasn't updated. When the insurance company doesn't receive your payment by the due date, they send you a cancellation notice. The only problem is you're away on an extended trip, so you don't get the notice. Wouldn't it be helpful to get a reminder that your policy is about to cancel tomorrow? That's one example of when text messaging (SMS) to a cell phone can be handy. We have that capability, if you notify us you'd like to be contacted in that way.

Insurance will always be a people business, no matter what the 800 number and web site insurance sales people say. But, technology can help a good agent provide excellent service. Our goal is to be positioned on the busy intersection of service and technology, providing the best insurance experience we can.

Joining the Scooter Parade? Check this Out

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Scooter This summer, I've noticed a LOT more motorcycles, scooters and bicycles on the road. Many Greater Portlanders seem to have responded to higher gas prices by dropping from 4 wheels to two. I'm one of those human-powered commuters, at least when my schedule allows.  

One of the appealing features of scooters for many is that they don't require a special license, unlike a motorcycle. Unfortunately, because there's no license test to study for, there's also a shortage of good safety and information for scooter riders.

We recently came across this excellent booklet  from the Motorcycle Safety Foundation. Whether you're a rider, or just thinking about becoming one, it's worth a read.

Are Insurers the Next Bailout Beneficiaries?

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Recent news reports  indicate that the Treasury Department is considering expanding Congress' recently approved  $700 billion bailout program to the insurance industry. The option currently favored involves buying stock in insurance companies adversely impacted by the current financial crisis and credit crunch. 

The insurance industry has consistently opposed federal government regulation in its industry in favor of state regulation. However, media report indicate that some of the largest companies in the industry, including The Hartford,  Prudential  and Met Life  support – and have even lobbied Congress for – a share in the bailout. 

What's going on? 
The financial crisis affects all Americans: businesses and families. The insurance industry isn't immune. However, life insurance companies are more vulnerable to broad declines in stock prices than property-casualty companies. Here's why:
  • Life insurers collect cash (premiums) which is invested primarily in long-term instruments (e.g. stocks). They accumulate huge stockpiles of cash which they invest and hold for a long time. . Because the companies don't plan to pay claims for several years (when the insured dies), they can invest in stocks, which are more volatile, but tend to outperform other investments in the long run. 
  • Property-casualty companies expect to pay claims much closer to the time they collect premiums (in the event of an accident or loss). So, their investments are much more conservative (usually bonds, t-bills and other secure instruments) and readily converted to cash in the case of a disaster. 

  The companies that are being mentioned in the bailout proposal are those with significant life insurance exposures in their product mix. 

All of this reinforces some of the danger in starting down the slippery slope of government bailout of private businesses. All publicly-held companies compete with one another for funds in the capital market. They sell stock to the public. Their stock prices reflect the level and stability of their earnings potential: the higher the earnings per share, or the more reliable their projections, the higher their stock price. The higher their stock price, the higher their net worth. By bailing out banks, the government artificially boosted the stock price of publicly held banks, to the detriment of other businesses – including insurance companies.

Life companies were hit by both the declining value of their investment portfolios and the comparative disadvantage in raising capital when compared to the government-supported banks. Now, they're next in line with their hands out. 

Financial Crisis May Affect Insurance Pricing, Capacity

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Insurance consultant Towers Perrin reported yesterday that the current financial crisis may have cut the industry's surplus – an important measure of claims-paying capacity or capital – by over 40 billion in the 3rd quarter. The firm also projected an 80 billion reduction in surplus for the year. See a press release about the report here. 

The study cites several reasons for the reduction in capital, including:
  • Stock market losses in companies' investment portfolios.
  • Catastrophe losses incurred during a hurricane season that produced 15 Atlantic storms and 15 in the Pacific.
  • Deteriorating underwriting results during a prolonged period of depressed insurance rates (known in the business as a "soft market").

Now, compared to crises in the banking and investment sectors of the economy, the insurance industry is in good shape. Because its purpose is to transfer risk from its clients, insurers have been held to a much more conservative reserving standard than those businesses. They must have a strong financial safety net to allow them to pay claims, even in the worst of circumstances. 

And the system has worked. The insurance industry successfully weathered 9/11, killer hurricanes Andrew, Hugo  and Katrina  without threat of a government bailout  or late-night fire sales of insurance companies. 

But if Towers Perrin's predictions are accurate, this could be the beginning of a time of rising insurance rates (known as a "hard market"). Property rates, especially in coastal areas, have increased the past few years, but auto and liability insurance rates have dropped significantly the past few years. This trend could reverse quickly in the face of shrinking industry surplus.  Stay tuned!

Bicycle Commuting in Maine: Tips to Reduce Your Financial Risks

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Bicycle commuting is increasingly popular, with over 200 people registered for the online Portland Bicycle Commuting Meetup group. You don’t need a fancy new bike to commute. In fact, many people use older 10 speed or 3-speed bikes. But many others have invested a considerable amount in their commuter bikes.

Of course there are many ways to protect their asset and means of transportation. A good lock is a no-brainer. So is riding carefully and competently to avoid colliding with vehicles. Ditto for dressing brightly and using lights to increase visibility.
But what if the worst happens? What if your bike is stolen, or if you are in an accident with your bike? The good news is that homeowners or renters insurance will cover damage to your bike caused by theft or collision with a vehicle. The bad news is that too many apartment-dwellers (a considerable share of the bike-commuting population) fail to buy renters insurance at all. This stuff is cheap! Covering your “stuff” up to $20,000 often costs less than $15.00 a month. If you own a vehicle, you usually qualify for car insurance discounts if you buy a renters’ insurance or homeowners insurance policy from the same company. Often, the car insurance savings will almost pay for a renters policy.
Losing your bike would stink, but losing everything else, including future earnings, would stink even more. That’s what can happen if you cause an accident. See, you can be liable for an accident just like an auto driver can. Let’s say you make an “Idaho stop”, and proceed through the intersection, failing to notice that oncoming car. The car slams on the brakes, swerves, and misses you, but hits something else. Guess who’s at fault? It would be nice to have some insurance to help you pay the damages and court costs. That’s what your old friend the homeowners/renters policy is for!

Most cyclists take care to operate their bikes safely and protect their property. They invest a lot of time and effort into staying safe. Despite these efforts, bad things can happen. So do yourself a favor: get a renters insurance quote or homeowners quote and protect yourself.

For more information about insuring your bicycle, car, home or other property, contact Noyes Hall & Allen Insurance at 207-799-5541.