Professor Taylor describes the Gini Coefficent

There is a great deal of talk about the growing distance between the "haves" and "have nots" in the country, with much of the conversation centering on inequality (by way of example see here, here, here, and here.)



In many discussions, the measure for differences in equality is the so-called Gini Coefficient. This is described succinctly by Professor Tim Taylor in his blog, Conversable Economist. He notes that the Gini Coefficient was developed by the Italian statistician Corrado Gini in 1912.* The Gini Coefficient represents a full range of data on income distribution as a single number, making it useful for comparisons.



Taylor points out that the Gini, like any descriptive tool, has its limits. For example, because it distills a single number from the overall distribution of income, it loses some measure of detail. As an example, Professor Taylor provides the following: if the Gini coefficient has risen, is this because the share going to the top 20% went up, or the top 10%, top 1%, or top 0.1%?



You can read the post in its entirety at CONVERSABLE ECONOMIST: What's a Gini Coefficient?



*As Taylor notes, Corrado Gini was, as well as a statistician, a fascist theorist who wrote The Scientific Basis of Fascism. (Go figure.)

Hoping for an enlightened response

Robert Laszewski at Health Care Policy Marketplace Review has an interesting post, the link to which can be accessed below. He notes that "health insurance companies have to submit their new health insurance plans and rates between May 27 and June 27 for the 2015 Obamacare open-enrollment period beginning on November 15th" and that "[a]ny major modifications to the current Obamacare regulations need to be issued in the next month to give the carriers time to adjust and develop new products." He argues that if the current version of health reform is to succeed, the insurance companies need to offer better plans that more realistically fit the middle market. As he states, "health insurance plans that cost middle-class individuals and families 10% of their after-tax income and have average Silver Plan deductibles of more than $2,500 a month are not attractive and people won't buy them any more enthusiastically next fall than they already have." It will be interesting to see how the major carriers react.


Health Care Policy and Marketplace Review: The One Thing That Could Save Obamacare––And The O...: To properly price the exchange health insurance business going forward the carriers have to sharply increase the rates. A senior executive ...

FINRA and the U.S. economy

Please visit RIABiz and check out the new series by Ron Rhoades, the first part of which is titled Why Keeping FINRA from ruling RIAs is critical to these firms, the investor -- and even the U.S. economy. Rhoades includes plenty of links and references to previous articles he has written on the subject. Here is a sample quote from the article:

FINRA’s long-standing protection of its members’ excessive rent-taking has led to a crisis in American capitalism, negative implications for U.S. economic growth, and a dismal personal financial outcome in retirement for tens of millions of Americans.

How to rob a bank: William Black at TEDxUMKC

)

Bill Black -- a U of M Law School alumnus, by the way -- is a premier expert on white collar crime and developer of the "control fraud" concept. He was a major government player in uncovering the S & L scandal of the late '80s and early '90s (remember the "Keating Five?") This TED talk is an excellent overview of what remain our significant challenges relating to the control and regulation of our financial institutions. 

"Attack of the Claim Drones"

We are most used to hearing about drones, or unmanned aircraft, in the context of the military and international conflicts. The use of drones, however, is not limited to this sphere of operation, and drones are currently at use domestically for public safety, disaster mitigation, and environmental and climate monitoring. The Insurance Journal reports that the industry group Association of Unmanned Vehicle Systems International (AUVSI) has been lobbying the FAA to make changes to its regulations that would allow air space for unmanned vehicles and permit a greater range of government and commercial uses for drones.

The linked article provides an overview of the possibilities and challenges of using drones for insurance claim operations. On the one hand, they provide unmatched speed to the area where a loss has occurred, as well as aerial views not easily achieved by the human adjuster. Not only would this reduce the need for skilled adjusters, it would also reduce the company's number of worker comp claims, as fewer adjusters would be in the field.

On the other hand, adoption of drones creates another potential skills-bottleneck, as the need for drone operators would increase. In addition, even if the FAA makes adjustments in its regulations, there is still a host of legal and privacy issues relating to drone use that would have to be addressed.

While this is just speculation, one can expect that, given the combination of human nature, the drive to adopt new technologies, and the potential to reduce the size and liabilities of its workforce, that insurers will explore the use of drones aggressively in the near future.

Housing-related goods, seven years later

Atif Mian and Amir Sufi at House of Debt blog note that spending on housing-related goods -- i.e., retail spending on furniture, appliances, and home improvement -- remains below its 2006 level in 2013, and emphasize that this is gap is reported in nominal terms, meaning that adjusting for inflation make the gap even larger. They go on to ask a number of interesting and important questions as tease for their (forthcoming in May) book, House of Debt: How They (and You) Caused the Great Recession, and How We Can Prevent it From Happening Again. A link to the publisher's book page with additional information is available here.

Trouble around the bend

HousingWire, citing Springboard Nonprofit Consumer Credit Management, notes that trouble may be coming soon for borrowers with HELOCs, as almost half of all HELOCs -- to the sum of $221 billion -- will reset in the next four years. A major reason for concern is that the article cites data showing the majority of HELOCs outstanding today were taken out between 2004 and 2009. Many of these loans during this time span are designed with lower payment terms for the first 10 years before resetting, in most cases, to fully amortizing loans. Depending on the specific terms and amounts of the loan, consumers could see substantial increases in monthly payment amounts.

The cost of winter

Roof collapses and auto accidents, downed tree limbs and power lines, business interruption and supply chain losses: Old Man Winter has packed a punch this year. And just think; winter is not officially over until March 19th!

An estimated $1.5 billion of insured losses already have been attributed to this season's weather. This figure, reported by the Insurance Information Institute, is an estimate from PCS, a division of Verisk Analytics, that covers events occurring between January 1 and February 21, 2014 with more than 175,000 claims paid to policyholders. As the $1.5 billion figure includes only two of the four 2014 winter storms to date, it is certain that the final tally will prove significantly larger.

Insured losses from winter was $2 billion in 2013, and the final total for 2014 is certain to exceed that figure. It is expected that the 2014 winter will enter the record books among the top five costliest since 1980.

Give us healthcare plans with broad networks...unless they're (that much more) expensive

The Kaiser Foundation continues to do great work following the issues related to healthcare reform and its implementation. One tool that they use is an ongoing tracking poll to survey the public's response to the law. This month's poll shares a number of data points, one of which concerns an issue that has been garnering more media attention lately, namely the so-called "narrow network" plans.

According the February tracking poll, about half of those surveyed (51 %) stated preference for a plan that costs more money but allows them to see a broader range of doctors and hospitals. However -- and despite our best intentions, there always seems to be a "however" -- upon being informed that they could save up to 25 % on their health care costs, that number drops from 51 to 37 % among the public overall, and from 35 % to 22 % among those to whom the law is directed: the uninsured and those with non-group coverage. The actual poll can be accessed here.

Duly noted

The Michigan DIFS has issued Bulletin 2014-04-INS, adopting the NAIC's Uniform Certificate of Authority Application (UCAA). The bulletin can be accessed here.

Reasons for staying the course

The Employee Benefit Research Institute has released a new study showing that investors who were able to weather the storm of the financial crisis and continue their 401(k) positions have been rewarded with positive returns. According to the report, the average 401(k) account balance for participants consistently participating in their 401(k) plans for the four years from 2007 through 2011 was up 23.5 percent at year-end 2011 compared with year-end 2007, despite the sharp decline caused by the bear market in 2008. The full report can be accessed here.

Remembering the financial crisis

Via the links for today at Yves Smith's Naked Capitalism blog, there is a link to Investor Home that opens a treasure trove of resources pertaining to the economic crisis. In particular, there is a comprehensive listing of books. Well worth checking out!

Life Insurance Awareness Month

September is Life Insurance Awareness Month. Most producers in the life insurance field are aware of this, but not all bother to fully leverage the resources made available to them -- many of which are free -- by the event's sponsor, the Life and Health Insurance Foundation for Education (LIFE). If it has been awhile since you have visited their website, you should take the time to do so today. Be sure to check out their Industry Resources tab, from which you can access sales tips, social media tools, and marketing products.

While the best known, Life Insurance Awareness Month is not the only awareness campaign supported by the Foundation. Be sure to also investigate the tools they offer for Disability Awareness Month (May) and the ongoing Insure Your Love and Life Happens campaigns. Each offers free and for purchase materials that are of very high quality.

Resources for understanding the Affordable Care Act

As the ACA continues to unfold, the full complexity of the law and its impacts can seem daunting. This sense of being overwhelmed can be as true for insurance producers and benefits providers as it is for small business owners.

There are, fortunately, a host of information resources available online. The Michigan Business and Professional Association offers its Small Business Health Care Reform Guide and Employer Checklist: What the Affordable Care Act Means for Michigan Small Businesses through the Health Reform Connect(TM) section of its website. The Detroit Regional Chamber of Commerce hosts MI Health Answers, and the Department of Financial and Insurance Services offers the Health Insurance Consumer Assistance Program.

In addition to these, webinars are available as well. The Small Business Administration and Small Business Majority conduct the free Affordable Care Act 101 webinar series on a weekly basis.  In this series, SBA reps go through the key pieces of the law, focusing on concerns of small business owners.

For a "big picture" overview that focuses on state policy initiatives, the National Academy for State Health Policy conducts webinars on an ongoing basis. Of particular interest as we approach the October 1st roll-out for exchanges is All Hands on Deck: State Plans for Consumer Assistance. This webinar, offered on September 11th from 1:30 to 3:00 pm EDT, will highlight the key features of consumer assistance strategies being employed by exchanges.

September is National Preparedness Month

September is National Preparedness Month, and FEMA invites members of the public to join the National Preparedness Community along with more than 32,000 people and collaborate on emergency preparedness.

From their website you can download the 2013 National Preparedness Month Toolkit. The Toolkit has a wide range of resources, and a section dedicated to prepardness questions for small business owners. The ideas within can be used for one's own business, and shared with colleagues and clients. Along with providing important information, the concepts within are a great way to discuss different risk exposures and coverage gaps.

The lonely status of Morgan Stanley

From today's online Fortune we read that five years after the Lehman bankruptcy, Morgan Stanley is the lone big bank that has not paid a federal fine relaying to the crisis. What is more, neither the firm nor any of its bankers currently face any federal accusations!

The article makes it clear that a federal action could still occur, but notes -- in a stand-alone sentence that seems to frown with disappointment -- it is possible the firm "didn't do anything wrong in the run up to the financial crisis." This statement is immediately followed by a brief overview of private lawsuits from investors who would "seem to disagree."

At the SEC website there is a list of big banks that have paid fines for "activities" relating to the financial crisis. Morgan Stanley's name is conspicuously absent from this list, and while that should be noted and applauded while it stands, one has to wonder about the lack of vigor shown by Washington and the SEC to take action on this issue. To date, the SEC has charged 161 firms or individuals, and garnered $2.7 billion in fines. Isolated from the overall context of the issue, this may seem impressive. However, consider this: the Dallas Fed estimates that the total cost of the financial crisis to range from $6 trillion to $14 trillion. The hoary details can be accessed from a pdf download of the full report available here. In light of the sheer scale of the crisis, $2.7 billion sounds...well, meager.

Like oil and water: fracking, residential mortgages and insurance

Fracking is the colloquial term for the hydrofracturing and subsequent extraction of oil and gas-bearing shales. The "fracturing" part of the process breaks up shale rock deep underground through the application of water and chemicals under extremely high pressure. While fracking has created jobs and delivered energy resources, it does not come without a host of negative consequences.

The negative effects of fracking most often reported in the media and by environmental groups relate primarily its potential to damage and pollute the soil, water, and air. Yet along with these known risks, writes Roger Drouin in a Grist article titled Fracking boom could lead to housing bust, another set of risks looms large:  its doleful effects on the residential property market.

In his article, Drouin cites the Mineral, Oil and Gas Rights rider in loan paperwork from Sovereign Bank says the mortgage will be automatically recalled if the property owner transfers any oil or gas rights or allows any surface drilling activity. It also specifies that owners must “take affirmative steps to prevent the renewal or expansion” of a current gas lease.

None of this should be surprising, really. It was reported in a 2012 article in the New York Times that the Department of Agriculture was considering requiring an extensive environmental review before issuing mortgages under its Rural Housing Service program to people who have leased their land for oil and gas drilling. The Federal Housing Administration’s lending guidelines prohibit financing for homes within 300 feet of a property with “an active or planned drilling site.” Fannie Mae and Freddie Mac also prohibit property owners from signing a gas lease.  The result of all this is that many owners are now in “technical default” under the terms of their mortgage if they signed a gas lease without first getting consent from their lender.

Insurance is another issue. Drouin notes that real estate experts see a trend in homeowners insurance policies not covering residential properties with a gas lease or gas well. This directly impacts any property transactions, as mortgage companies require homeowners insurance from their borrowers.

It is easy to see why fracking does not mix with homeowners insurance. As reported in the Catskill Mountainkeeper, gas companies can sell a gas lease to anyone they choose without telling the homeowner. Subsequently, the homeowner has lost control over who comes onto their property to drill and the quality of work they perform. In addition, neither homeowner’s insurance nor the gas lease covers risks from accidents, such as methane leaks, chemical spills, and blowouts that can come with gas drilling, and it is hard to envision a carrier being enthusiastic about underwriting coverage for those perils.

Title insurance may also be adversely affected, as a gas lease may void title insurance should the policy not cover commercial ventures. The Catskill Mountainkeeper notes that "[t]he fine print in most title insurance policies in New York State contains specific exclusions that have the potential to void title insurance coverage for any commercial venture, including any of the common activities of commercial drilling, storage, or transmission of gas that occur on a residential property" and that "it’s likely that even if someone were able to buy a property with a gas lease, they would be unable to get title insurance."

To learn more, read Elizabeth N. Radow's article, Homeowners and Gas Drilling Leases: Boom or Bust? from the November/December 2011 issue of the NYSBA Journal. 

Affordable Care Act Guidebook available from Congressman John Dingell

A longtime supporter of health insurance reform, Michigan Rep. John Dingell, D-District 12, recently announced the release of a new guidebook to help Michigan residents better understand and take advantage of the various facets of the Affordable Care Act. During a press conference at Oakwood Hospital & Medical Center in Dearborn, Dingell said the guidebook "explains what the Affordable Care Act means to individuals," noting also that "it will explain tax credits to small businesses, and it will tell you how to navigate the system and select a healthcare plan that is best tailored to your needs." The book, titled The ABC's of Navigating the Affordable Care Act: A Resource Guide to Understanding Your Rights, Responsibilities, and Choices can be viewed and downloaded at the Congressman's website, dingell.house.gov.

Some welcome news on industry employment numbers

The August 12, 2013 edition of PropertyCasualty360 reports that the PC industry added 1,500 new agent and broker jobs in June. This growth follows the trend of other insurance subsectors, and is a welcome reversal of the past six months of declining numbers.

Michigan has experienced this uptick in hiring within the insurance industry, and this matches the expected trend. At the Michigan Labor Market Information website, annual average openings are expected to be 429, and the state's overall level of insurance industry employment is thought to grow to 13,200, an increase of 14.1% from 2010's figures.

Meeting the new Annuity Suitability training requirement

Background

In March of 2010, the National Association of Insurance Commissioners (NAIC) finalized its Suitability in Annuities Regulation, which requires anyone selling annuity products receive mandatory suitability and product training.

This action was taken to protect consumers. The intention of the regulation is this: by establishing standards to ensure all annuity producers are trained in the new suitability requirements, annuity products will be represented accurately.

Not a New Continuing Education Requirement 

Annuity suitability training is not a new continuing education requirement and – this is important – it is the insurance carriers, not the state insurance departments, who must validate the compliance of their producers.

But the Individual States are Still Involved

Although the regulation puts the burden of compliance on the carriers and producers, states retain the right to decide the specific details of the training requirement upon implementation. This means that, while all training courses will follow the NAIC’s template (e.g. courses must be 4 hours in length), each state will address specific aspects within the broader context of the regulation, and one can expect some variation in content from state-to-state.

And the Education Providers Still Play a Role

In addition, even though the regulation requires carriers to develop standards for product training and must validate that its brokers and producers are in compliance, the suitability training must be taken through a state-authorized continuing education (CE) provider. With CE providers offering the training, it is expected that the courses will be approved for CE credit, and can be applied to the producer’s record in order to meet the resident state’s mandatory requirement.

Because CE credit is optional, however, there are some things producers should watch for. First, they should make sure the training course has been submitted and approved for CE. In addition, producers need to keep in mind that while they typically receive reciprocal credit from non-resident states for meeting license requirements in their resident states, reciprocal credit is granted for meeting another state's similar training requirement. It is impossible to meet a requirement that has not yet been implemented in one’s resident state, so completing a course prior to the effective date is not valid for reciprocal credit from another state in which the requirement is already effective.

Completing a course should result in the issuance of a Certificate of Completion that indicates the following: date of course completion, state for which the training was approved, course name and course number. A certificate that does not include this information is not proof of compliance! A certificate with this information needs to be issued regardless of whether CE credits were earned.