There is a difference between unemployment insurance (part of the New Deal's Social Security Act) and “wage insurance,” apparently a little-known private coverage sold by banks and some insurers (“IncomeAssure”) that applies to the difference between what a worker over 50 was earning before his or her job was eliminated by technology or sent overseas, as long as that job had been paying $50,000 a year or more.
The insurance money can be used to re-train the employee for different work, or simply pay the difference in wages, reported Robert J. Shiller in the March 13 New York Times, citing a study by Lori G. Kletzer of Colby College and Robert E. Latan of the Council on Foreign Relations. As state unemployment benefits are limited, such policies can pay up to 50 percent of a higher income worker's prior wages before unemployment.
It is a form of financial guarantee insurance. The insurance industry was badly burned in the “credit default swap” coverages it wrote before the sub-standard mortgage bubble burst in 2008. The unemployment peril (like all the social insurances offered by government, including, unfortunately, flood insurance) is uninsurable. The maximum exposure cannot be defined, there would be adverse selection, and in a real economic disaster — something akin to the Great Depression — there would be no way to control or reduce loss.
If (or some say “when”) such a financial disaster strikes, it is not only going to be the guy at the car wash who loses his job, it will be people like adjusters and claims executives who will be replaced by computers and Asian telephone answering services. “Joe” in Bangalore may be able to take over your computer electronically and get it to work, but is he going to be able to settle the claim of the pedestrian you just ran over, who is already on his way to see a lawyer?
|Social work or adjusting
Having spent many years in the field of social work before getting into the insurance claims business, handling a “wage insurance” claim seems, from the NYT article, to be more in the line of social work than claims adjusting. Suppose Jennifer Jackson, a mid-level executive with the XYZ Company, has purchased a “Wage Loss” policy with M&M Indemnity Company. The limits of the policy are $500,000. She was earning $125,000 a year, plus $50,000 worth of additional employee benefits. XYZ has decided to move Jennifer's division to Manila, and because she has a husband and three young children in New York, Jennifer declines an offer to move to Manila. The claim assignment hits the adjuster's desk.
How would the adjuster go about handling such a claim? First, it would be necessary to review the policy. Can she turn down the transfer and still collect? Are benefits included in the loss? Is the full amount of wage loss covered, or just the amounts over $50,000? Can taxes be deducted or are insurance benefits taxable? Is job-retraining included, and if so, for how much and for how long?
Maybe Jennifer wants to go into real estate and elects Trump University to learn negotiation. Maybe it would be cheaper to pay to transfer Jennifer's family to Manila, and if she refuses, limit her claim to that amount of costs. Maybe M&M could find her a similar executive position in Chicago; would the coverage pay the cost of moving the family to Chicago? But what if Jennifer's job was in Birmingham, Alabama, not New York and the new job is in Los Angeles, where comparable housing is 500 percent or more than in Birmingham? Will the policy pay the difference?
When I first entered the insurance business examining old deeds, mortgages and liens for a title insurance company, no one had ever heard of “computer insurance” or “credit default swaps.” There was no federal flood insurance or many other kinds of insurances with which adjusters now deal. This has always been the case, and new coverages will constantly be created to meet new and unusual needs. Adjusters, if they are to avoid becoming victims of technological replacement themselves, will need to prepare to handle new and different types of claims.
Ken Brownlee, CPCU, is a former adjuster and risk manager based in Atlanta, Ga. He now authors and edits claims-adjusting textbooks. Opinions expressed are the author's.
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