The Insurance Death Spiral

The world is not linear. No matter how much we would like to believe that B follows A in some simple predictable manner, it has been my experience that the best that can be observed is some sort of first order differential equation where B is dependent on A but also on itself (B), when it is not dependent on C, D and E. In fact most of my observations fall into the second order non-linear camp. This is true for tax policy (Laffer curve), population dynamics, and global warming just to mention a few.

The lack of Congressional strategic planning ability or the ability to even somewhat accurately project the consequences of policy is annoying. Without even going to Washington DC, you also can observe the problem, which appears to be endemic, in the corporate world. People want simple answers and typically want them in time for quarterly earnings reports or next year’s elections.

Some time ago I wrote about a hit-and-run involving my daughter. That missive was based on the report from a bystander that the driver of the other vehicle (my daughter’s vehicle was parked and she in bed) was “Mexican looking” and presumably illegal.

Now my daughter has been involved in three hit-and-runs and two comprehensive claims where her windows were smashed out. Not one of these were her fault, and in four out of the five claims she was not even present. As a result of these “excessive” claims, my unnamed insurance company sent me a notice that they were dropping insurance on both my daughter and her vehicle. Now as it turns out, on her way to Seattle she did encounter a revenue-needy jurisdiction in Wyoming. After a 200 mile stretch of 75 MPH highway, Lovell has strategically placed 35 MPH speed limit signs with 35 MPH AHEAD signs well short of the necessary typical stopping distance for 75 MPH. Considering that the mimimum fine was $100 for a 1-10 over the limit offense, this burg needs to be listed. So we have five claims and one instance of a seriously dangerous driver at 1-10 over the limit.

It is to no one’s surprise that small towns derive a significant portion of their revenue from speeding tickes. Some juristictions, fondly mentioned in other Angry Man entries, also seem to use tickets as an extended revenue source. So we have the situation where insurance companies are rating driver and vehicles on moving violations, and jurisdictions using those same violations as a major source of revenue, and using the insurance rating process as a justification for setting fines higher and higher. We even have the absurd situation where the legal jurisdictions offer non-permanent settlements, at a higher cost, for clearing the violation. (See Illinois and Missouri DMVs).

So the jurisdictions view the problem as one of revenue with the insurance companies providing a means for extorting higher fines. The insurance companies, looking to next quarter’s revenues, see their policy as a loss control mechanism. Dumping drivers with “bad” records is a loss stopper. Dumping good drivers with excessive claims without regard to fault is a loss stopper. States who pass no-fault laws in auto accidents have succeeded only in changing the limits from x number of at-cause claims to x number of any claims. States have made it illegal to drive without insurance, yet also apply financial responsibility taxes to violations. This is all enabled by the fact that America is now a mobile society rather than a stationary one. (The milkman used to deliver to you.) So to recap:

• America is mobile – driving is more or less a necessity
• States require insurance by law
• Insurance companies attempt to stop loss by cancelling policies with excessive claims
• Jurisdictions use moving violations as a source of revenue
• Jurisdictions use the potential loss of your policy as a means of extorting additional revenue by offering cash alternatives to permanent violations on record

Insurance companies offer policies with uninsured/underinsured driver coverage. In my daughter’s case, even though she was not at fault, since the other driver could not be located, the company was responsible for the loss. That this is an endemic problem can be deduced by the fact that comprehensive and under/un-insured motorist coverage now comes with a deductible as high as collision, and the liability limits on this coverage are now as high as on the vehicle underwritten. Translation: There are a lot of accidents involving hit-and-runs or uninsured motorists.

So here is where the strategic planning comes in, or lack thereof. Insurance companies by promoting their loss policies are, in fact, limiting their losses in the short term. People who are dropped from coverage, and cannot afford the “high-risk” coverage, naturally drive without insurance. As their numbers increase, and they will because of the requirements imposed by a mobile society, the pool of potential long term customers shrinks. Further, jurisdictions using the same instrument the insurance company uses as a risk metric (tickets) as a revenue source, drive the number of excessive claims cancels and further limit the pool. Overall, the probability of non-insured-vs-insured collisions increases. This of course flows into the loss limit which further exacerbates the problem. The end result is either a stable phase point of no revenue, or of no market for insurance.

In fact, this is nearly homologous to the dog-flea problem, an example of two first order coupled differential equations in its simplist formulation. In that problem, if there are too many bites, the dogs die out. Too many fleas and they starve for lack of dogs and die out. Stable solutions exist trivially with no dogs and fleas or non-trivially in stationary points in phase space or phase-space limit cycles.

Unfortunately, none of this phase state analysis makes it to the policy makers at the local government or to the risk analysts at the insurance companies. Each is acting as if the problem were purely linear and totally decoupled. At the very least, both should acknowledge that actions taken effect the other and at least jointly consider the long term consequences.

The short term consequence to the particular insurance company mentioned in this specific case was the loss of all policies held with that company (6 or so policies); the douchbags.

 

Utah Man Tased for Speeding

We’ve covered abuse committed by police and private law enforcement before, but today we have a story that is really going to shock you. A man in Utah has not only been tased for speeding, and then requesting to know what the cop was pulling him over for (with almost no warning before the taseing), but to top it all off, the Cop refused to read him his rights.

The victim of police brutality was a motorist named Jared Massey. Mr. Massey was pulled over on a Utah highway for allegedly speeding. When Mr. Massey asked the officer why he was being pulled over, and then to help him understand why he was accused of speeding before he signed the ticket, the officer ordered him to exit the vehicle. Mr. Massey was then asked to turn around and put his hands behind his back. Mr. Massey began walking back towards the car, obviously confused as to why he was being ordered to put his hands behind his back, and less than 10 seconds later was tased. While Mr. Massey was definitely acting a bit like an ass, I think we can all agree the cop was abusing his power. The Mr. Massey was neither violent, nor belligerent, so why did the cop feel so threatened that he had to tase this guy? Furthermore, why did the cop repeatedly refuse to:

1. Read the Mr. Massey his rights.
   
2. Tell the Mr. Massey the crime he was accused of, when it was requested.
   

Both of these are rights guaranteed to all American citizens. What is perhaps most alarming, however, is that despite the fact that the police officer accused of abuse is currently under an investigation by internal affairs, he is still on duty.

The first responsibility of a police officer is the safety of the community, including those individuals he suspects of a crime. Taseing an unarmed man who is accused of speeding is a breach of the social contract between police and the citizens they are supposed to protect. Police should use tasers as a weapon of last resort, not as a tool of personal convenience.

What can we do to prevent things like this in the future? Discuss.

Update: Mr. Massey discusses the incident, and his decision to post the video online.

-Angry Midwesterner

 

Airport Rent-a-Cop Brutality? The Carol Gotbaum Case

We’re trying something new here at AMB, shorter issue-oriented things where we hope to get a lot of discussion, in between the longer stuff we usually post, but which take a long time to write. Better known as actually blogging, I suppose.

To this end, I offer the very first one, the Carol Gotbaum case. Gotbaum was an alcoholic from Upper West Side Manhattan, traveling through Phoenix to Tuscon to go to rehab (it’s where everyone who is anyone these days goes). Depressed, relapsed (i.e., drunk) and facing the… insanity of modern air travel, she freaked out in the Phoenix airport. She got hauled off in cuffs. She died in her cell. Beyond that, wait for the inquest?

We discussed the issue of police brutality a fair bit over the last few months with Andrew “Don’t Tase Me, Bro” Meyer and that guy with a totally unpronounceable last name from UCLA, plus another one with a case from St. Louis. Now we’ve got Carol Gotbaum. Here’s the NY Times story and Judith Warner’s blog, which had some very interesting commentary. Some questions, then:

• Was this brutality?
• What should have happened here?
• Being honest with yourself, what do you think you would have done?
• Just how petty are airline bureaucrats these days, anyway?
• Would you pay more for a plane ticket if you got better service? (Carol Gotbaum got pretty much the worst service possible.)

Have at…. I’m sure there are some other good links to this one, too.

 

Beat Me in St. Louis: Cops, Power, and Abuse

I’d like to introduce you to Brett Darrow, a mild mannered community college student in St. Louis, Missouri and victim of abuse of police powers. We’ve done stories before about douches like Andrew Meyer who are out looking to make a scene, but this is different. Brett appears to be the honest target and victim of police who want to abuse their power.

It all started in 2006 when Brett received a speeding ticket which he thought was unfair. Since he had no evidence, he decided to install a video camera in his car just in case something like this happened again. Little did he now the saga of police drama it would help him document. Since that day Mr. Darrow has recorded a number of obvious instances of abuse of police power, and he is unfortunately paying the price for his efforts.

In December 2006, he caught on record the first, and least severe, instance of abuse. Having been stopped at a drunk driving road block the officer asks for his license and registration, and Mr. Darrow complies. However when the officer asks where he is headed, a question which is inappropriate to ask in the first place, Mr. Darrow politely declines to answer. The officer detains him illegally, and briefly confiscates his vehicle. When asked why he is being detained he is told:

You better stop runnin your mouth or the other officer will find a reason to lock you up tonight.”

Other than possible damage to his car (the confiscating officer couldn’t drive stick), the night passes without much more abuse, due to Mr. Darrow indicating the conversation was being recorded. But this was only the beginning of Mr. Darrow’s troubles. Earlier this month, on September 10th, Mr. Darrow had another run in with the police. This time in a commuter parking lot where he had arranged to meet his girlfriend to collect some keys he had accidentally left behind. A cop comes over to see what he is doing, and when Mr. Darrow asks what he has done wrong, the cop gets angry culminating in a threat to make up charges:

Do you want to go to jail for some ****ing reason I come up with? …I bet I could say you resisted arrest or something. You want to come up with something? I come up with nine things. Do you wanna try something?

Everything recorded on video, Mr. Darrow submits his evidence to the St. Louis Police Department and the officer is placed on unpaid suspension. By this point, however, things have become more serious, and Mr. Darrow appears to have gained the ire of the whole police department, leading to a death threat being made against him on a police forum. In addition to this death threat, police have been staking out his home, waiting for him on his street. His neighbors have confirmed police near the house at all hours of the day and night.

This level of police abuse is unacceptable and unbelievable. The 12 Angry Men join other members of the media in decrying the abuse he has suffered and applauding his bravery in the face of power.

Epilogue: There is some recent good news in this story. Earlier this week, the officer who abused his power in the commuter parking lot has been fired. Here’s hoping that casting a little more light on this story will make things even brighter for Mr. Darrow.

-Angry Midwesterner