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.

 

On big capitals, big government, and whose fault it is

A very creative depiction of the United States prompted an interesting discussion among the Angry Men this past week. One of the most striking features of the map is the complete absence of our nation’s capital, which prompted our Angry Overeducated Catholic to rejoice that our nation is blessed by having an insignificant capital city. After all, a large capital suggests a large government, and a larger capital would have made it onto the map. As AOC put it, “All true sons of the Founding Fathers should rejoice that, despite the best efforts of socialist weenies like the Democrats, foreigners still don’t give a fig about our capital.”

As a long-time DC area resident (like the Angry Midwesterner, actually, no matter what he might tell you), I too noticed the conspicuous absence of our capital city. I wouldn’t draw too many conclusions about this particular map: Just like the word “anecdote”, the plural of the term “funny picture on the Internet” is not “data”. In reality, the large number of international tourists in DC suggests that foreigners actually care more about Washington than most Americans do. Every American I meet from outside of DC says something like, “Oh, yeah, I was there once in fifth grade,” and all they seem to remember is the oppressive summer weather and a lot of buildings with columns on the front of them.

However, I would agree with a complementary point to AOC’s, which is that sons of the Founding Fathers should rejoice when Americans don’t give a fig about our capital. Having pretty monuments that attract Japanese people with cameras does not suggest that our government is too powerful. However, having too many people and jobs in our capital city suggests that our government is too powerful, and in fact that’s exactly the situation that we are in. Relative to its humble beginnings (to paraphrase Monty Python, “When I started here, all there was was swamp. Other kings said I was daft to build a White House on a swamp, but I built it all the same, just to show ’em. It was burned down by the British, then sank into the swamp. So, I built a second one, and that one stayed up!”) or even its recent past, the Washington area is growing like a Republican president’s budget deficit.

Of course, I now have to take that point about “small capital = good” and turn the political implication (“socialist weenie Democrats”) on its head. The Washington area (particularly Northern Virginia) has exploded over the past few decades, with millions of people and numerous businesses moving to the area. Besides triggering an automotive transit clusterf**k of Los Angeles proportions, this migration suggests that our government is growing too quickly. However, these people and businesses are not here because they want to work for the Department of Agriculture or the Department of Commerce or all of the Departments of Things That Even Well Educated Americans Can’t Be Bothered To Remember. Rather, they’re all here directly or indirectly because of the Department of Defense and the Department of Homeland Security.

As someone who has looked for a job in the DC area, I can tell you that you can’t do anything more than flip burgers without a security clearance in this town (and that’s not because you’re going to work for some Super Secret Welfare Program, either). I’m currently in the process of finishing a graduate engineering degree, and I’m planning to move away following graduation because I don’t want to work for the military and I don’t want to work for some three-letter agency that is in the business of spying on Americans. If I stay in Virginia, I simply won’t have any other choices.

So, I would agree that a big and thriving capital is a bad thing, though I would argue that it’s a bad thing because it represents the excesses of the American War Machine and not the excesses of an alleged welfare state.

 

How not to prevent alcohol abuse

Consider the following statistics:

• 40% of University of Virginia (UVa) students consume an average of six or more drinks a week.
• 24.4% of UVa students don’t care if their friends drink and drive.
• 33.5% of UVa students don’t mind if their drinking causes problems for other people.
• 16.5% of UVa students are too scared of the cops to call 911 when one of their friends has alcohol poisoning.
• About one in twenty UVa students has gotten into a fight while drinking.
• 25.4% of UVa students drink alone and/or go to frat parties without anyone there that they know.
• 35.1% of UVa students will leave their drunk friend with a stranger.
• 10% of UVa students who drink have been injured at some point because of their drinking.

Now, consider the source of these statistics, namely a web site that is supposed to convince UVa students that other students don’t drink. The idea is that students will be overwhelmed by how many of their peers do the right thing, thus causing students with drinking problems to abandon all of their foolish and irresponsible habits.

Of course, to make this argument more convincing, all of these statistics are provided in reverse. For instance, they assert that 60% of UVa students consume 0-5 drinks per week…

I guess you’ll have to excuse me if I’m still underwhelmed by those numbers.

Apparently, this is a popular approach to addressing alcohol problems at universities. You can even find consulting companies that will put together one of these “Social Norms” campaigns for your school. There are (at least) two things wrong with this picture.

1. If I go to a crowded frat party or a popular bar that is turning people away at the door every Friday and Saturday night, I’m not going to be worried that too many of my peers will look down on me for drinking. On the contrary, I’m still going to be more worried that I’m never going to get through the crowd around the bar to get a drink of my own.
2. If you can do the simple arithmetic that I did at the beginning of this post, then you can figure out that there are very large groups of students who do these things that you are not supposed to do. There are over twenty thousand students at UVa, and so I have to conclude that nearly a thousand of them have gotten in a fight while they were drunk. The first two rules of Fight Club might be not to talk about Fight Club, but they evidently still have quite a few members in their Charlottesville chapter.

The only part that I can’t figure out about all of this is why anyone would think that such a ridiculous campaign would work in the first place. Yes, people are very sensitive to what their peers are doing, but people also already have a pretty good idea of how much their peers are drinking and posters with these messages certainly aren’t going to change that.

PS – Please double-check to make sure that your friends would actually call an ambulance for you if you needed one. Apparently, a fair number of my peers wouldn’t.

 

The Night Christopher Owens Ruined Shakespeare

Your brain is as dry as the remainder biscuit after a voyage.

Shakespeare, As You Like It

This summer I had the horrible misfortune of attending Christopher Owens’ production of “Love’s Labour’s Lost” at the Virginia Shakespeare Festival. This isn’t to say that I dislike “Love’s Labour’s Lost”; I am a fan of all of The Bard’s plays. It isn’t a sign that I abhore Shakespeare Festivals; I’ve attended them in several states and always enjoyed them. It also isn’t an indication of my opinion of the Virginia Shakespeare Festival (though it is not as professional, nor as amazing as the Illinois Shakespeare Festival). No, it is more a reflection of the odious combination of Christopher Owens, the director of the VSF this year, and the previously mentioned ingredients.

You see, for some reason Chrisopher Owens, a show business nobody, thinks he is more brilliant than one of history’s greatest playwrights. Instead of putting on the production as it was intended, Mr. Owens made several monumentally bad alterations to the play. First, and least severe, he decided to “update” the play by setting it in 1910. Ok… I suppose that could work, but why? While Mr. Owens makes some vague limp comments about artistic sentiment and “period of innocence” I can’t help but wonder why he thought his setting was so much better than the original year of 1597? No matter, the worst is yet to come.

Second, and far more severe is the fact that Mr. Owens replaced all of the poetry in the play with songs from the early part of the 20th century, in effect, substituting pop trash for poetic treasures. The changes were jarring, obvious, and utterly ruined the play. To make matters worse, Mr. Owens then went through and cut large sections of the play entirely, declaring them irrelevant. Thank you Mr. Owens, but no thanks. You are not smarter than Shakespeare, so please don’t go butchering the work of a far more successful director and writer.

When asked about his changes by the Daily Press, Mr. Owens had this to say:

I think Shakespeare was trying to show off a bit, with lots of Latin references and different rhyming styles… It’s very verbose

Yes, Mr. Owens, plays by Shakespeare are verbose. He was a master of words and wrote very language driven plays. Most of us don’t think he was “showing off” but that he was attempting to entertain us with clever word choice, diction, and humor. Perhaps Shakespeare is too subtle for you to understand? You seemed to indicate as much in the program for the performance when you called Love’s Labour’s Lost a terrible play. If it was so terrible, why did you produce it? Or were you not aware of Shakespeare’s numerous other works?

Please Mr. Owens, leave Shakespeare alone. I understand that you “artistic” types like to try and justify your self importance by changing everything you can get your hands on but please, for the love of God, and all that is holy, don’t change a Shakespearean play during a freaking Shakespeare Festival! We’re coming to the festival for Shakespeare’s masterful plays, not your amateur drivel. In parting, I leave you with a quote from Shakespeare’s play All’s Well that Ends Well:

Methink’st thou art a general offence and every man should beat thee.

-Angry Midwesterner

 

Virginia Tax Law, Stupid, Evil, and Greedy

This article is the first in a series I am going to be writing which focus on a common topic. The fact the Virginia sucks. Having spent a good part of my childhood in Virginia, and having completed my undergraduate education in the state… I’m sorry the commonwealth… which styles itself “the mother of presidents”, I have an intimate knowledge of the depths to which that state is willing to plumb. In describing many of these to one of my office mates, he came up with the best explanation for all of Virginia’s problems I have ever heard: “Virginia sucks”.

I’ll leave the general explanation for another article and cover here just one particular way in which Virginia sucks: Its tax law.

Unlike more civilized states, Virginia feels that taxation is not a process of citizens funding the government, but rather the natural exercise of an entitlement the state has with respect to your money. Evidently if any mistake is made during the process of taxation, no matter who is at fault, Virginia shakes down the tax payer for more money. Here are some of the more egregious portions of the law in question:

• YOU owe more money if the government mailed your bill to the wrong address — What one assumes this portion of the tax law (enacted in the 1981-82 Report of the Attorney General 393, March 25, 1982) is attempting to account for is when a false address is given by the taxpayer. However this portion of the code also applies if the Treasurer has the correct address, and failed to properly mail the bill. I ran into this particular clause myself once. In my case the treasurer’s office actually had the correct address, but had transcribed the address wrong when it was forwarded to the billing department. So I ended up owing penalty fees because of mistakes Virginia made, even though the treasurer’s office admitted the mistake was theirs. To top matters off, it was a special tax assessed to new residents of the county, whose due date was not publicized outside of the mailed bills. Good to know the taxpayer exists as the cash cow of the state.
  
• YOU owe more money if the government lies to you, or misrepresents the tax law — According to portions of the tax code enacted in the 1981-82 Report of the Attorney General 350, May 13, 1982, if a taxpayer receives erroneous information from a government official, whether in writing, from personal conversation, or over the phone, the taxpayer is still responsible for the correct tax amount.
  
• YOU owe more money if the government billed you for the wrong amount — This is perhaps the worst of the bunch (enacted in the 1986-87 Report of the Attorney General 321, July 31, 1986). It doesn’t matter to the state of Virginia that you payed the bill they mailed you, if they billed you for an incorrect amount, you owe penalties. Given the fact that your owed taxes changes from year to year due to assessment changes, tax relief, and new taxes, it is nearly impossible for an individual to figure out their property taxes, car taxes, and other fees. So why are the taxpayers responsible for the mistakes of the government during billing?
  

Given that Virginia Code Section 58.1-9 and 58.1-3916 prohibits the waiving of any fees, interest, or penalties, it quickly becomes obvious how stupid, evil, and greedy Virginia tax law is. The law itself is designed to screw over the taxpayer whenever mistakes are made, even though the taxpayer had no control over these mistakes. This sort of attitude and law stems from a deep disrespect of the taxpayer, and an attitude that the government is simply entitled to these taxes, regardless of its own incompetence.

Any decent state would include provisions absolving its tax payers of liability in the case of mistakes made by the government. Unfortunately, Virginia is not a decent state. I would ask how any state could act in such an evil and greedy fashion, but the answer is obvious. Because Virginia sucks.

-Angry Midwesterner

 

Angry Guest Woman: Why the Hell is it Called Hampton RoadS?

Occasionally on The 12 Angry Men, we will post rants from invited guests. In lieu of our normally scheduled segment, today we feature an invited rant, from an Angry Guest Woman. You may remember our current guest from her previous appearence when she ranted about poor service, and tipping. This time the issue which has our guest up in arms is the traffic situation in Virginia’s most populated region.
– The Staff of The 12 Angry Men

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I have recently had the unfortunate displeasure of spending an extended amount of time in the region of Virginia known as Hampton Roads. I find this name especially puzzling because the most distinguishing characteristic of the area is the distinct lack of roads! (To be fair, the “Hampton” part of the name is confusing as well. Hampton is just one of the collection of loosely-defined interlocking regions of suburban decay … er … sprawl … er … “communities” which call themselves “cities” yet in no way resemble actual cities. As far as I can tell, the area names Hampton because it is roughly in the middle.) I personally think the region should be renamed “Suburban Waterways” because it is as well-characterized by its myriad of waterways as it is by its distinct lack of places to cross them.

Truthfully, there is exactly one road in Hampton Roads and it is called I-64. For any two points A and B in Hampton Roads, unless A and B happen to be located within the same strip mall, you pretty much have to take I-64 to get between them. I must also mention here that I-64 is only very loosely a road itself. Throughout half of Hampton Roads (the half called “the Peninsula”) I-64 is only 2 lanes in each direction and at any given time, at least one lane in each direction is closed for “construction.” Because of all of this “construction,” I-64 is not so much a road and more of a ragged, flooding, hodgepodge of potholes and badly misaligned patches of asphalt with worse traffic backups than occur on real roads (the kind that actually have street-lights and connected regions of pavement to allow cars to drive effectively on them). I grew up in Washington, D.C. and have spent a significant chunk of my adult life living in America’s fourth largest city, Houston, and I can safely assert that the traffic in these two cities pales in comparison to traffic in Hampton Roads. This is not because Hampton Roads has anywhere near the number of people or cars or places to go but simply because Hampton Roads has no… roads! If there is a backup in any real city, there is always at least one other road connected to the road on which you are currently located. In a real city, you can then turn off onto this road and continue driving. Your route may be farther out of your way but at least it is possible to *move* in some direction. In Hampton Roads, you are just stuck on I-64. There are very few exits and most of these lead right back onto you guessed it I-64, usually by way of a strip mall and a waterway or four.

It has recently occurred to the residents of Hampton Roads that, perhaps, maybe, they should consider building more roads. There was a bill proposed and voted upon this week to establish a local transportation authority which would commit to widening and fixing I-64 and adding more ways to cross the local waterways. Surprisingly, this was a highly controversial proposal! The bill narrowly passed after a 3-2 vote by the 5 members of Isle of Wight board of supervisors. Ironically, the “city” of Hampton voted “no” and plans to appeal the decision. It seems the local residents prefer the region’s name, “Hampton Roads” to be more ironic than descriptive.

– Angry East Coast Guest Woman