Assessing The Risk

The Merriam-Webster definition of insurance is:

…coverage by contract whereby one party undertakes to indemnify or guarantee another against loss by a specified contingency or peril

The steps are always the same whether we are talking about life or car insurance, health or fire insurance, or even if we are insuring whether a ship can load in Viet Nam and successfully deliver its cargo in San Diego.

  • Assess the risk
  • Pool it with like risks
  • Determine the cost to insure the risk based on the known factors plus the administrative costs and potential profit
  • Tender an offer to the potential client to insure the risk

Everything begins with Assessing the Risk.  And to assess a risk you must have good information.  The insurance industry can trace its success to its mastery of asking the right questions, from the right people, to fully understand the risks it has been asked to cover.  Anyone who has ever purchased a meaningful amount of life insurance remembers the health questions, the physical, and the insurer’s request for medical records.  The industry is constantly searching for better ways to develop a more complete picture of its clients.

Information is the key.

The health insurance industry, even in an era where we don’t do health screening questions of most of our clients due to the Patient Protection and Affordable Care Act (Obamacare), still depends on good, complete information to properly assess the risks we hope to insure.  And in the year 2020, information appears to be in short supply.

COVID 19 – How will the Coronavirus impact our health insurance premiums?  Honest answer – Who knows?  Really!  I’ve seen reports that we will eventually have Hell to pay for the outrageous cost of care, the sudden expansion of the ranks of the uninsureds, and the general upheaval in the hospital and business communities.  Others point note that COVID didn’t impact all parts of the country equally, that many non-emergency procedures such as hip and knee replacements were put on hold (which saves money), and the general resilience of the industry as reasons to shrug off the possible impact of the pandemic on our rates.  Both viewpoints are valid.  We don’t have nearly enough information to know how COVID 19 will impact rates for the years to come.  But we’ve never really had enough information on this disease.

President Trump is quoted in Bob Woodward’s new book, Rage, on February 7, 2020:

It goes through air, Bob. That’s always tougher than the touch. You know, the touch, you don’t have to touch things. Right? But the air, you just breathe the air and that’s how it’s passed.

And so, that’s a very tricky one. That’s a very delicate one. It’s also more deadly than your – you know, your, even your strenuous flus. You know, people don’t realize, we lose 25,000, 30,000 people a year here. Who would ever think that, right?

This is more deadly. This is five per- you know, this is five percent versus one percent and less than one percent. You know? So, this is deadly stuff.

This was/is important information.  Millions of Americans, not just insurance companies, could have done a better job assessing the risk COVID 19 posed to our families had we had good, complete information in January or February.  We as a country could have done a better job fighting this pandemic had there been one message, honestly delivered, from the White House on down.  To this day we have people mocked for wearing masks in public, often by people who really should know better.   The insurance industry, like the rest of the country, has been trying to sift through competing narratives in search of the truth, the hardest possible way to assess a risk.

The Texas Lawsuit – The Supreme Court will hear the Texas Lawsuit, the Trump / Republican request to declare Obamacare unconstitutional, on November 10, 2020.  Anyone following the current Senate knows that not only is there no Republican alternative should the case win, but it is unlikely Mitch McConnell could get his caucus to agree on much of anything.  The Texas Lawsuit is the equivalent of driving our entire health insurance system, the way most Americans access and pay for health care, over the cliff and Mr. McConnell has spent most of the last 3 years removing the guard rails.  How do we, as an industry, assess this risk?  What do we do if we are forced to start over?

We are about to enter the 4th quarter of 2020 with more questions than answers and more risk than we’ve known in quite some time.


Picture – Old School – David L Cunix

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