Eyes on the road: Automated speed cameras get a fresh look as traffic deaths mount

Link:https://www.npr.org/2024/02/16/1231362802/automated-speed-cameras-traffic-fatalities

Excerpt:

Richmond joins a growing list of cities turning to speed cameras. New laws in California and Pennsylvania will allow them in major cities where they’ve long been blocked.

Traffic fatalities have risen sharply over the past decade, and safety advocates around the country are desperately searching for anything that will get drivers to slow down. But critics say speed cameras can be a financial burden on those who are least able to pay.

Still, they’ve earned the endorsement of prominent safety advocates, including Jonathan Adkins, the CEO of the Governors Highway Safety Association.

“Automated enforcement works,” Adkins said. “For lack of a better term, it sucks to get a ticket. It changes your behavior.”

….

No one likes getting a speeding ticket. But the objections to automated traffic enforcement go deeper than that.

“We are very skeptical that safety is the real goal,” says Jay Beeber, with the National Motorists Association, a driver advocacy group.

There are other ways to get drivers to slow down, Beeber argues, including speed feedback signs that show drivers how fast they’re going in real time.

Author(s): Joel Rose

Publication Date: 16 Feb 2024

Publication Site: NPR, All Things Considered

Insurance Fraud on the March

Link: https://www.insurancejournal.com/blogs/right-street/2024/02/12/760360.htm

Graphic:

Excerpt:

Some of the most chilling examples of insurance fraud are grisly affairs revealing the darkest of humanity’s dark side:

  • John Gilbert Graham placed a time-release bomb on a plane in which his mother was traveling, for the life insurance payment. The bomb exploded. In addition to Graham’s mother all 43 other passengers and crew perished.
  • Utah physician Farid Fata administered chemotherapy to hundreds of women who did not have cancer. Fata submitted $34 million in fraudulent claims to Medicare and private insurance companies.
  • Ali Elmezayen staged a freak car accident which took the lives of his two autistic children and nearly drowned his wife. He collected a $260,000 insurance payout, but his crime was discovered. He was sentenced to 212 years in prison.
  • A Chicago federal grand jury charged 23 defendants with participating in a fraud scheme swindling $26 million from ten life insurers. The scheme featured submission of fraudulent applications to obtain policies, and misrepresenting the identity of the deceased.

There are thousands of other equally horrific insurance fraud stories. The annual Dirty Dozen Hall of Shame report describes some of the most egregious, and contributes to an understanding of how far fraudsters will go to cheat insurance companies.

….

Improvements in predictive modeling and the introduction of artificial intelligence (AI) have strengthened insurers abilities to identify, and ultimately investigate, submitted claims that may be fraudulent. At the same time, however, AI is also being used as a weapon to penetrate insurers’ fraud detection systems. Techniques being used include AI-created fake photographs of cars of a particular make and model showing damage that is not real, but used to extract a claims payment. Some insurers are no longer accepting photos because they may be doctored, and are returning to adjustors physically visiting the allegedly damaged car. A nefarious life insurance scam includes AI-enabled manipulation of ones voice so that a criminal third party gets past insurers’ voice recognition technology, and initiates a policy being surrendered to a non-policyholder, non-beneficiary. It seems that for every additional layer of protection insurers introduce, the criminals are keeping up, if not forging ahead.

Author(s): Jerry Theodorou, R Street

Publication Date: 12 Feb 2024

Publication Site: Insurance Journal

Regulatory Capital Adequacy for Life Insurance Companies

Link: https://www.soa.org/4a194f/globalassets/assets/files/resources/research-report/2023/erm-191-reg-capital-with-final-visuals.pdf

Graphic:

Excerpt:

The purpose of this paper is to introduce the concept of capital and key related terms, as well as to compare and contrast four key regulatory capital regimes. Not only is each regime’s methodology explained with key terms defined and formulas provided, but illustrative applications of each approach are provided via an example with a baseline scenario. Comparison among these capital regimes is also provided using this same model with two alternative scenarios.

The four regulatory required capital approaches discussed in this paper are National Association of Insurance Commissioners’ (NAIC) Risk-Based Capital (RBC; the United States), Life Insurer Capital Adequacy Test (LICAT; Canada), Solvency II (European Union), and the Bermuda Insurance Solvency (BIS) Framework which describes the Bermuda Solvency Capital Requirement (BSCR). These terms may be used interchangeably. These standards apply to a large portion of the global life insurance market and were chosen to give the reader a better understanding of how required capital varies by jurisdiction, and the impact of the measurement method on life insurance company capital.

All of these approaches are similar in that they identify key risks for which capital should be held (e.g., asset default and market risks, insurance risks, etc.). However, they differ in significant ways too, including their defined risk taxonomy and risk diversification / aggregation methodologies, as well as required minimum capital thresholds and corresponding implications. Another key difference is that the US’s RBC methodology is largely factor-based, while the other methodologies are model-based approaches. For the model-based approaches, Solvency II and BIS allow for the use of internal models when certain conditions are satisfied. Another difference is that the RBC methodology is largely derived using book values, while the others use economic-based measurements.

As mentioned above, this paper provides a model that calculates the capital requirements for each jurisdiction. The model is used to compare regulatory solvency capital using identical portfolios for both assets and liabilities. For simplicity, we have assumed that all liabilities originated in the same jurisdiction as the calculation. As the objective of the model is to illustrate required capital calculation methodology differences, a number of modeling simplifications were employed and detailed later in the paper. The model considers two products – term insurance and payout annuities, approximately equally weighted in terms of reserves. The assets consist of two non-callable bonds of differing durations, mortgages, real estate, and equities. Two alternative scenarios have been considered, one where the company invests in riskier assets than assumed in the base case and one where the liability mix is more heavily weighted to annuities as compared to the base case.

Author(s): Ben Leiser, FSA, MAAA; Janine Bender, ASA, MAAA; Brian Kaul

Publication Date: July 2023

Publication Site: Society of Actuaries

Climate risk vs. interest-rate risk

Link: https://www.bloomberg.com/opinion/articles/2024-01-18/coinbase-trades-beanie-babies

Excerpt:

An important meta-story that you could tell about financial markets over the past few years would be that, for a long time, interest rates were roughly zero, which means that discount rates were low: A dollar in the distant future was worth about as much as a dollar today. Therefore, investors ascribed a lot of value to very long-term stuff, and were not particularly concerned about short-term profitability. Low discount rates made speculative distant-future profits worth more and steady current profits worth less.

And then interest rates went up rapidly starting in 2022, and everyone’s priorities shifted. A dollar today is now worth a lot more than a dollar in 10 years. People prioritize profits today over speculation in the future.

This is a popular story to tell about the boom in, for instance, tech startups, or crypto: “Startups are a low-interest-rate phenomenon.” In 2020, people had a lot of money and a lot of patience, so they were willing to invest in speculative possibly-world-changing ideas that would take a long time to pay out. (Or to fund startups that lost money on every transaction in the long-term pursuit of market share.) In 2022, the Fed raised rates, people’s preferences changed, and the startup and crypto bubbles popped. 

I suppose, though, that you could tell a similar story about environmental investing? Climate change is, plausibly, a very large and very long-term threat to a lot of businesses. If you just go around doing everything normally this year, probably rising oceans won’t wash away your factories this year. But maybe they will in 2040. Maybe you should invest today in making your factories ocean-proof, or in cutting carbon emissions so the oceans don’t rise: That will cost you some money today, but will save you some money in 2040. Is it worth it? Well, depends on the discount rate. If rates are low, you will care more about 2040. If rates are high, you will care more about saving money today.

We have talked a few times about the argument that some kinds of environmental investing — the kind where you avoid investing in “dirty” companies, to starve them of capital and reduce the amount of dirty stuff they do — can be counterproductive, because it has the effect of raising those companies’ discount rates and thus making them even more short-term-focused. And being short-term-focused probably leads to more carbon emissions. (If you make it harder for coal companies to raise capital, maybe nobody will start a coal company, but existing coal companies will dig up more coal faster.)

But that argument applies more broadly. If you raise every company’s discount rate (because interest rates go up), then every company should be more short-term-focused. Every company should care a bit less about global temperatures in 2040, and a bit more about maximizing profits now. Maybe ESG was itself a low-interest-rates phenomenon.

Anyway here’s a Financial Times story about BlackRock Inc.:

BlackRock will stress “financial resilience” in its talks with companies this year as the $10tn asset manager puts less emphasis on climate concerns amid a political backlash to environmental, social and governance investing.

With artificial intelligence and high interest rates rattling companies globally, BlackRock wants to know how they are managing these risks to ensure they deliver long-term financial returns, the asset manager said on Thursday as it detailed its engagement priorities for 2024.

BlackRock reviews these priorities annually as it talks with thousands of companies before their annual meetings on issues ranging from how much their executives are paid to how effective their board directors are.

“The macroeconomic and geopolitical backdrop companies are operating in has changed. This new economic regime is shaped by powerful structural forces that we believe may drive divergent performance across economies, sectors and companies,” BlackRock said in its annual report on its engagement priorities. “We are particularly interested in learning from investee companies about how they are adapting to strengthen their financial resilience.”

There is a lot going on here, and it is reasonable to wonder— as the FT does — whether BlackRock’s shift from environmental concerns to high interest rates is about the political and marketing backlash to ESG. But you could take it on its own terms! In 2020, interest rates were zero, and BlackRock’s focus was on the long term. What was the biggest long-term risk to its portfolio? Arguably, climate change. So it went around talking to companies about climate change. In 2024, interest rates are high, and the short term matters more, so BlackRock is going around talking to companies about interest-rate risk.

I don’t know how AI fits into this model. For most of my life, “ooh artificial intelligence will change everything” has been a pretty long-term — like, science-fiction long-term — thing to think about. But I suppose now “how will you integrate large-language-model chatbots into your workflows” is an immediate question.

Author(s): Matt Levine

Publication Date: 18 Jan 2024

Publication Site: Bloomberg

The insurance industry’s renewed focus on disparate impacts and unfair discrimination

Link: https://www.milliman.com/en/insight/the-insurance-industrys-renewed-focus-on-disparate-impacts-and-unfair-discrimination

Excerpt:

As consumers, regulators, and stakeholders demand more transparency and accountability with respect to how insurers’ business practices contribute to potential systemic societal inequities, insurers will need to adapt. One way insurers can do this is by conducting disparate impact analyses and establishing robust systems for monitoring and minimizing disparate impacts. There are several reasons why this is beneficial:

  1. Disparate impact analyses focus on identifying unintentional discrimination resulting in disproportionate impacts on protected classes. This potentially creates a higher standard than evaluating unfairly discriminatory practices depending on one’s interpretation of what constitutes unfair discrimination. Practices that do not result in disparate impacts are likely by default to also not be unfairly discriminatory (assuming that there are also no intentionally discriminatory practices in place and that all unfairly discriminatory variables codified by state statutes are evaluated in the disparate impact analysis).
  2. Disparate impact analyses that align with company values and mission statements reaffirm commitments to ensuring equity in the insurance industry. This provides goodwill to consumers and provides value to stakeholders.
  3. Disparate impact analyses can prevent or mitigate future legal issues. By proactively monitoring and minimizing disparate impacts, companies can reduce the likelihood of allegations of discrimination against a protected class and corresponding litigation.
  4. If writing business in Colorado, then establishing a framework for assessing and monitoring disparate impacts now will allow for a smooth transition once the Colorado bill goes into effect. If disparate impacts are identified, insurers have time to implement corrections before the bill is effective.

Author(s): Eric P. Krafcheck

Publication Date: 27 Sept 2021

Publication Site: Milliman

SBF Was Reckless From the Start

Link: https://www.bloomberg.com/opinion/articles/2023-10-04/sbf-was-reckless-from-the-start?srnd=undefined#xj4y7vzkg

Excerpt:

First: “A Jane Street intern had what amounted to a professional obligation to take any bet with a positive expected value”? Really? I feel like, if you are a trading intern, you are really there to learn two things. One is, sure, take bets with positive expected value and avoid bets with negative expected value.

But the other is about bet sizing. As a Jane Street intern, you have $100 to bet each day, and your quasi-job is to turn that into as much money as possible. Is betting all of it (or even $98) on a single bet with a 1% edge really optimal?[6] 

People have thought about this question! Like, this is very much a central thing that traders and trading firms worry about. The standard starting point is the Kelly criterion, which computes a maximum bet size based on your edge and the size of your bankroll. Given the intern’s bankroll of $100, I think Kelly would tell you to put at most $10 on this bet, depending on what exactly you mean by “this bet.”[7] Betting $98 is too much.

I am being imprecise, and for various reasons you might not expect the interns to stick to Kelly in this situation. But when I read about interns lining up to lose their entire bankroll on bets with 1% edge, I think, “huh, that’s aggressive, what are they teaching those interns?” (I suppose the $100 daily loss limit is the real lesson about position sizing: The interns who wipe out today get to come back and play again tomorrow.) 

But I also think about a Twitter argument that Bankman-Fried had with Matt Hollerbach in 2020, in which Bankman-Fried scoffed at the Kelly criterion and said that “I, personally, would do more” than the Kelly amount. “Why? Because ultimately my utility function isn’t really logarithmic. It’s closer to linear.” As he tells Lewis, “he had use for ‘infinity dollars’” — he was going to become a trillionaire and use the money to cure disease and align AI and defeat Trump, sure — so he always wanted to maximize returns.

But as Hollerbach pointed out, this misunderstands why trading firms use the Kelly criterion.[8] Jane Street does not go around taking any bet with a positive expected value. The point of Kelly is not about utility curves; it’s not “having $200 is less than twice as pleasant as having $100, so you should be less willing to take big risks for big rewards.” The point of Kelly is about maximizing your chances of surviving and obtaining long-run returns: It’s “if you bet 50% of your bankroll on 1%-edge bets, you’ll be more likely to win each bet than lose it, but if you keep doing that you will probably lose all your money eventually.” Kelly is about sizing your bets so you can keep playing the game and make the most money possible in the long run. Betting more can make you more money in the short run, but if you keep doing it you will end in ruin.

Author(s): Matt Levine

Publication Date: 4 Oct 2023

Publication Site: Bloomberg

NRT director on team awarded patent for fireball-dropping drones

Link:https://nrt.unl.edu/nrt-director-team-awarded-patent-fireball-dropping-drones

Excerpt:

Craig Allen recently accomplished a personal first as an ecology professor by getting listed on a patent for a fireball-dropping drone.

“For me, because I expect that I will probably never have another patent in my life, because I do science that’s generally not patentable and I really don’t have the capacity for that kind of thing, the patent is fully unique and, thus, will have a special place in my heart,” said Allen, director of the National Science Foundation Research Traineeship at Nebraska.

He worked with agronomy professor Dirac Twidwell, computer science professors Sebastian Elbaum and Carrick Detweiler, and former Nebraska students Christian Laney, James Higgins and Evan Michael Beachly in developing IGNIS, the drone product.

….

At first, the three discussed using drones as a less dangerous way to sample invasive species like zebra mussels in Nebraska waters. Then, when a person was injured on an ATV during a prescribed burn, the three professors turned to discussing using drones in prescribed burns.

Allen said about 40,000 acres of rangeland in Nebraska are invaded by trees every year and fire is the best way to control that.

Typically, firefighters on ATVs or in helicopters carry out prescribed burns, but both methods can be dangerous.

Publication Date: accessed 29 Jun 2023

Publication Site: University of Nebraska-Lincoln

Fire-Bombing Drones Keep Firefighters Safe in Prescribed Burns

Link: https://www.govtech.com/products/fire-bombing-drones-keep-firefighters-safe-in-prescribed-burns?utm_campaign=Newsletter%20-%20GT%20-%20GovTech%20Today&utm_medium=email&_hsmi=262543864&_hsenc=p2ANqtz-9cKiMnR5SEZ5LqjD0xlm7Y2UK9bJ3ek7riTeox-rO11Qok9nthGAZcnV5pUb69I1cdyNZPSe3oYfVk4axtFufocifCEO_-bvzdCk7Kpuz8TuK7dhw&utm_content=262544854&utm_source=hs_email

Excerpt:

Prescribed burns are a proven way to reduce the impact of destructive wildfires, but they still come with risks to the firefighters who carry them out. That was the impetus behind a project from the National Science Foundation’s National Research Traineeship (NRT) program at the University of Nebraska-Lincoln (UNL) that uses a drone to drop fireballs to ignite prescribed burns, keeping firefighters out of harm’s way.

Publication Date: Jun 2023

Publication Site: govTech

Why is it so hard to buy things that work well?

Link:https://danluu.com/nothing-works/

Excerpt:

It’s also true at the firm level that it often takes an unusually unreasonable firm to produce a really great product instead of just one that’s marketed as great, e.g., Volvo, the one car manufacturer that seemed to try to produce a level of structural safety beyond what could be demonstrated by IIHS tests fared so poorly as a business that it’s been forced to move upmarket and became a niche, luxury, automaker since safety isn’t something consumers are really interested in despite car accidents being a leading cause of death and a significant source of life expectancy loss. And it’s not clear that Volvo will be able to persist in being an unreasonable firm since they weren’t able to survive as an independent automaker. When Ford acquired Volvo, Ford started moving Volvos to the shared Ford C1 platform, which didn’t fare particularly well in crash tests. Since Geely has acquired Volvo, it’s too early to tell for sure if they’ll maintain Volvo’s commitment to designing for real-world crash data and not just crash data that gets reported in benchmarks. If Geely declines to continue Volvo’s commitment to structural safety, it may not be possible to buy a modern car that’s designed to be safe.

Most markets are like this, except that there was never an unreasonable firm like Volvo in the first place. On unreasonable employees, Yossi says

Who can, and sometimes does, un-rot the fish from the bottom? An insane employee. Someone who finds the forks, crashes, etc. a personal offence, and will repeatedly risk annoying management by fighting to stop these things. Especially someone who spends their own political capital, hard earned doing things management truly values, on doing work they don’t truly value – such a person can keep fighting for a long time. Some people manage to make a career out of it by persisting until management truly changes their mind and rewards them. Whatever the odds of that, the average person cannot comprehend the motivation of someone attempting such a feat.

It’s rare that people are willing to expend a significant amount of personal capital to do the right thing, whatever that means to someone, but it’s even rarer that the leadership of a firm will make that choice and spend down the firm’s capital to do the right thing.

Economists have a term for cases where information asymmetry means that buyers can’t tell the difference between good products and “lemons”, “a market for lemons”, like the car market (where the term lemons comes from), or both sides of the hiring market. In economic discourse, there’s a debate over whether cars are a market for lemons at all for a variety of reasons (lemon laws, which allow people to return bad cars, don’t appear to have changed how the market operates, very few modern cars are lemons when that’s defined as a vehicle with serious reliability problems, etc.). But looking at whether or not people occasionally buy a defective car is missing the forest for the trees. There’s maybe one car manufacturer that really seriously tries to make a structurally safe car beyond what standards bodies test (and word on the street is that they skimp on the increasingly important software testing side of things) because consumers can’t tell the difference between a more or less safe car beyond the level a few standards bodies test to. That’s a market for lemons, as is nearly every other consumer and B2B market.

Author(s): Dan Luu

Publication Date: March 2022, accessed 7 Jun 2023

Publication Site: Dan Luu

Speed Limit Signs – a History of Speeding in the US

Link: https://www.roadtrafficsigns.com/speed-limit-signs-history

Graphic:

Excerpt:

The debate between those demanding the freedom to travel at high speeds in an unregulated environment and others citing the need for greater security and increased regulation (e.g. signs) was common in the 20’s and 30’s. For certain communities, “too slow speeds” were also an issue. As reported in the June, 1925 Lyle Sign Post, the chairman of the Maryland State Roads Commission, John Mackall, “advises substitution of the maximum speed limit with a minimum speed limit, to speed up traffic. Mackall also suggested slow-moving vehicles be barred from main streets during peak hours”.

Many states did not require drivers licenses. As part of the author’s own family lore, there is a wonderful story of two strong-willed daughters, Lydia and Mary, traveling from their home in North Dakota to visit their father, Senator Langer, in Washington, DC. With little experience, other than on farm machinery and certainly no license, they ended up in Washington in record time. Speed limits (and the few Speed Limit Signs) were proudly ignored.

For more discussion, see the excerpt below on fixed speed limits: “Should there be Fixed Speed Limits?“. Even in the 30’s and 40’s, speed limits were not uniform. Should speed limits change, depending upon the weather conditions, road conditions and time of day (for example, during school hours)?

Publication Date: accessed 7 Jun 2023

Publication Site: RoadTrafficSigns.com

Paying more for less

Link: https://allisonschrager.substack.com/p/paying-more-for-less

Excerpt:

Between the controversies at Disney, Bud Light, and Target, I think we need a return to shareholder primacy.

In 2019, many of the biggest American CEOs signed a manifesto declaring the end of shareholder primacy and embracing a new stakeholder model. With shareholder primacy, the main objective of a corporation is to maximize profits, both long- and short-term profits, because that is what boosts share prices and dividends, and shareholders like that. With the stakeholder model, a corporation has many other objectives: worker well-being, the environment, and the good of society. That may sound nice, but often, these stakeholders have competing objectives, and choosing who gets priority is a question of values.

When Milton Friedman argued for shareholder primacy, he said that a CEO should not forgo profits to exercise his personal values. It is not his money to spend, and not everyone shares his values, nor should they. And worse, I blame the multi-stakeholder model  for making everything feel more political.

Now, I realize even before 2019, companies were getting more political, but it got ramped up several notches in 2020. And now, everything you buy feels like a political statement. And even innocuous well-intentioned marketing campaigns that aim to give visibility to marginalized groups are taken as an explicit endorsement of a more divisive political agenda. I think shooting Bud Light cans in protest is stupid. But I get that people feel frustrated that everything is political and often not their politics.

And even if corporations mostly did pursue profits after 2019, and the stakeholder manifesto was a cynical ploy to appease young workers, get ESG capital, or avoid regulation, rhetoric matters. Before 2019, people could shrug at corporate pandering because it all seemed like a marketing ploy, and who can argue with selling lawn chairs and beer to the trans community? It is a growing demographic.

But in the context of announcing that you are doing it to make the world a better place, it strikes a different tone. And since stakeholder capitalism is about choosing between competing values, it is political. And now everything is worse for profits and society, since it adds to division and rancor.

Milton Friedman was right; shareholder primacy is better for corporations and society.

If CEOs really want to save the world, they should do the brave thing: announce an end to stakeholder capitalism and go back to just worrying about profits.

Author(s): Allison Schrager

Publication Date: 5 Jun 2023

Publication Site: Known Unknowns at substack

Statement of CFPB Director Rohit Chopra, Member, FDIC Board of Directors, on the Proposed Special Deposit Insurance Assessment on Large Banks

Link: https://www.consumerfinance.gov/about-us/newsroom/statement-of-cfpb-director-rohit-chopra-member-fdic-board-of-directors-on-the-proposed-special-deposit-insurance-assessment-on-large-banks/

Graphic:

Excerpt:

First, we need to simplify our rules while strengthening them. Too many areas of regulation across our economy have become so complicated with weird formulas, dizzying methodologies, and endless loopholes and carveouts. We need simpler rules to prevent future disasters. A better alternative is to create bright line limits, with clear sanctions, including size caps and growth restrictions. Clearly observable metrics make it easier to monitor and increase consistency.

Second, we need to stop subsidizing the largest and riskiest banks by giving out free deposit insurance. When small banks fail, they rarely lead to much cost to the FDIC’s Deposit Insurance Fund, since they can be fairly easily wound down or sold. But when large banks fail, the costs to the Deposit Insurance Fund and broader economy can be steep. To make matters worse, those institutional clients with the biggest deposits feel they can get around insurance limits by going to the biggest banks. In other words, people perceive that the biggest banks get free deposit insurance over the legal limits by way of their too-big-to-fail status.

Fixing our deposit insurance pricing structure is just one small step that could help address this problem. Large, riskier banks should pay more and small, simpler banks should pay less. We should also make the framework countercyclical, so that we aren’t in the position of raising rates when banking conditions are weak.

While today’s proposed special assessment will not fall on small, local banks, the failure of First Republic Bank will be a direct hit to the Deposit Insurance Fund that is not being recouped through this special assessment. It’s a reminder that we need to fix the fund’s pricing over the long term.

Finally, as Swiss policymakers made clear regarding the recent turmoil involving Credit Suisse, more people are saying the quiet part out loud: the current resolution plans filed by the largest financial institutions in the world, which purport to show how the firms could fail without a government bailout or economic chaos, are essentially a fairy tale.5

The latest failures are another reminder that we must work to eliminate the unfair advantages bestowed upon too-big-to-fail banks. New laws and old laws alike provide a roadmap to end too-big-to-fail and the resulting risks to financial stability, fair competition, and the rule of law.6

Author(s): Rohit Chopra

Publication Date: 11 May 2023

Publication Site: Consumer Finance Protection Bureau