Tag: Jerry Theodorou

Insurance Fraud on the March

Mary Pat Campbell

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

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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

2022 Insurance Regulation Report Card

Mary Pat Campbell

Link: https://www.rstreet.org/2022/12/12/2022-insurance-regulation-report-card/

PDF link of report: https://www.rstreet.org/wp-content/uploads/2022/12/r-street-policy-study-no-272.pdf

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KEY POINTS

  1. The RSI Insurance Regulation Report Card analyzes and evaluates the effectiveness of state government regulation of property and casualty insurance and assigns a letter grade to all 50 states. The grade for each state was calculated by adding the weighted results from seven categories.
  2. The highest grades were for Kentucky and Arizona, both of which received an A+. At the other end of the spectrum, California and Alaska both scored an F.
  3. 20 states had a higher grade than they did in R Street’s 2020 edition of the Report Card, 23 maintained the same grade and seven had lower grades. This result is positive and means that insurance regulatory regimes have become more effective and efficient in the past two years.

Executive Summary
We are pleased to present the 10th edition of R Street’s Insurance Regulation Report Card, which analyzes and evaluates the effectiveness of U.S. insurance regulation of property and casualty insurance. The first iteration of this report was published in June 2012, and this 2022 edition largely follows the format of prior reports. It begins with a brief introduction on the current landscape of U.S. insurance regulation; reviews recent, relevant federal and state-based regulatory changes; presents a detailed evaluation of the effectiveness of each state’s regulation of insurance in seven key categories; and synthesizes those category evaluations by offering a “report card” grade for each state for analysis and comparison purposes.

This report draws on 2021 year-end statutory insurance financial statistics and the most recent datasets available for non-financial information. Sources include data and reports from the National Association of Insurance Commissioners (NAIC), S&P Global Market Intelligence, National Conference of State Legislatures, R Street analyses and others, all of which were accessed through Sept. 30, 2022.

In this report, we seek to shed light on the same three foundational issues we have focused on in past iterations of this report card:
• How free are consumers to choose the insurance products they want?
• How free are insurers to provide the insurance products consumers want?
• How effectively are states discharging their duties to monitor insurer solvency and foster competitive, private insurance markets?

Author(s): Jerry Theodorou

Publication Date: 12 Dec 2022

Publication Site: R Street

Federal Insurance Office: A Study in Evasiveness

Mary Pat Campbell

Link: https://www.insurancejournal.com/blogs/2022/09/12/684696.htm

Excerpt:

A September 8 U.S. Senate Banking, Housing and Urban Affairs Committee hearing on current issues in insurance included useful discussion on some of the industry’s most pressing concerns. Comments from the committee’s members and from one witness, Maryland Insurance Commissioner Kathleen Birrane, shed light on insurance for cyber and pandemic events; the impact of private equity firms acquiring pension obligations from life insurers (pension risk transfer); and pressures on the United States to conform to global regulatory regimes, which impact U.S. insurer capital standards. The hearing also featured profound evasiveness from the other witness, Federal Insurance Office (FIO) Director Steven Seitz.

….. sparks began to fly when Sen. Toomey asked Seitz questions which went unanswered, or drew bureaucratic doublespeak responses. A heated exchange between Sen. Toomey and Seitz, in which Sen. Toomey grew visibly irritated, demonstrated Seitz’ frustrating equivocation in explaining FIO’s relationship to the International Association of Insurance Supervisors (IAIS). An excerpt from the exchange below gives a flavor of the tone:

Sen. Toomey: Are you involved in an effort to make recommendations to the IAIS regarding private equity’s involvement in insurance?

Seitz: Umm. As part of our work at the IAIS, we’re closely coordinating the NAIC with the Federal Reserve and the states on a variety of issues, including work relating to the capital standards and the holistic framework which the NAIC is adopting.

Sen. Toomey: You didn’t answer my question. Are you personally involved in research or development of a memo, or an analysis that will include policy recommendations to the IAIS regarding private equity in insurance?

Seitz: You know, our teams are working closely with the NAIC and the states. You know, I am a member of the executive committee, and there are a variety of topics that the IAIS is discussing. And one of those topics at upcoming meetings that we will be discussing is private equity.

Sen. Toomey: You’re obviously trying to evade my question. I don’t know why it’s such a difficult question to answer…

Author(s): Jerry Theodorou

Publication Date: 12 Sept 2022

Publication Site: Insurance Journal

Event: The Private Market for Flood Insurance

Mary Pat Campbell

Link: https://www.rstreet.org/2022/07/20/event-the-private-market-for-flood-insurance/

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The private market for flood insurance in the United States measures approximately $300 million in annual premium. This is less than 10 percent of the $3.7 billion in flood insurance premium written by the federal government’s National Flood Insurance Program (NFIP). Private insurers offering flood insurance are not operating on the same playing field because many NFIP policies are subsidized and underpriced. The creativity of private insurers, guided by the dynamics of a free and competitive market, will eventually drive out inefficiency and false price signals, and make available to homeowners and businesses the flood insurance they need at the right cost.

We invite you to an online discussion examining the obstacles and opportunities for private insurers featuring flood insurance entrepreneur Trevor Burgess, and R Street’s Jerry Theodorou and Caroline Melear.

Author(s): Jerry Theodorou, Trevor Burgess, Caroline Melear

Publication Date: 20 Jul 2022

Publication Site: R Street

Flood-Prone Homes Could Lose Federal Insurance Under FEMA Plan

Mary Pat Campbell

Link: https://www.wsj.com/articles/fema-urges-congress-to-drop-flood-insurance-for-highest-risk-areas-11655384400

Excerpt:

Mr. Toomey asked Jerry Theodorou of the R Street Institute, a conservative-leaning Washington-based think tank, how seriously Congress should look at paying repetitive loss claims. “Indeed, this is a very serious problem,” Mr. Theodorou said. “The numbers speak for themselves, to have such a small percentage of policyholders accounting for close to 40% of the claims dollars paid.”

The flood insurance program — which is the main provider of flood coverage in the U.S. and has issued more than five million policies — has paid out more money to property owners and other expenses than it has collected in premiums from policyholders since Congress created it in 1968. It collects about $4.6 billion in annual revenue from policyholders in premiums, fees and other charges, according to the Congressional Research Service.

Flooding ranks as the country’s most common natural disaster. Scientists predict floods will happen more frequently in neighborhoods that face new risk from rising sea levels and extreme rainstorms due to climate change.

Author(s): Katy Stech Ferek

Publication Date: 16 June 2022

Publication Site: Wall Street Journal

R Street Institute Testifies Before Senate Banking Committee on National Flood Insurance Program

Mary Pat Campbell

Link: https://www.rstreet.org/2022/06/16/r-street-institute-testifies-before-senate-banking-committee-on-national-flood-insurance-program/

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Additional link: https://www.rstreet.org/2022/06/16/five-solutions-to-help-fix-the-national-flood-insurance-program-from-r-street-testimony-to-the-u-s-senate-banking-housing-and-urban-affairs-committee/

Excerpt:

Regarding the second objective, there is no equitable sharing of costs between the public and private sectors. The private sector is only peripherally involved in bearing flood risk. The involvement of the private insurance sector is restricted to administration of the program, for which insurers are remunerated by the NFIP. The participation of private insurers in flood insurance as a risk-bearer is de minimis, writing less than a tenth the premium collected by the NFIP.

Instead of attaining the overarching goal of reducing economic losses caused by flooding, flood-
related economic losses have increased. In the past decade, U.S. economic losses caused by flooding were $943 billion, close to five times more than the $211 billion cumulative flood-related losses in the prior decade. In this testimony, we highlight five issues standing in the way of the NFIP falling short of achieving its mission, and propose solutions to remedy those problem areas.

Author(s): Jerry Theodorou

Publication Date: 16 June 2022

Publication Site: R Street Institute

Event: Risk-Based Rating in Personal Lines Insurance

Mary Pat Campbell

Link: https://www.rstreet.org/2022/04/05/event-risk-based-rating-in-personal-lines-insurance/

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The insurance industry is unique in that the cost of its products—insurance policies—is unknown at the time of sale. Insurers calculate the price of their policies with “risk-based rating,” wherein risk factors known to be correlated with the probability of future loss are incorporated into premium calculations. One of these risk factors employed in the rating process for personal automobile and homeowner’s insurance is a credit-based insurance score.

Credit-based insurance scores draw on some elements of the insurance buyer’s credit history. Actuaries have found this score to be strongly correlated with the potential for an insurance claim. The use of credit-based insurance scores by insurers has generated controversy, as some consumer organizations claim incorporating such scores into rating models is inherently discriminatory. R Street’s webinar explores the facts and the history of this issue with two of the most knowledgeable experts on the topic.

Author(s): Jerry Theodorou, Roosevelt Mosley, Mory Katz

Publication Date: 5 April 2022

Publication Site: R Street Institute

Risk-Based Rating in Personal Lines Insurance

Mary Pat Campbell

Link: https://www.youtube.com/watch?v=IPYSSZkP-Oo&ab_channel=RStreetInstitute

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Description:

The insurance industry is unique in that the cost of its products—insurance policies—is unknown at the time of sale. Insurers calculate the price of their policies with “risk-based rating,” wherein risk factors known to be correlated with the probability of future loss are incorporated into premium calculations. One of these risk factors employed in the rating process for personal automobile and homeowner’s insurance is a credit-based insurance score.

Credit-based insurance scores draw on some elements of the insurance buyer’s credit history. Actuaries have found this score to be strongly correlated with the potential for an insurance claim. The use of credit-based insurance scores by insurers has generated controversy, as some consumer organizations claim incorporating such scores into rating models is inherently discriminatory. R Street’s webinar explores the facts and the history of this issue with two of the most knowledgeable experts on the topic.

Featuring:

[Moderator] Jerry Theodorou, Director, Finance, Insurance & Trade Program, R Street Institute
Roosevelt Mosley, Principal and Consulting Actuary, Pinnacle Actuarial Services
Mory Katz, Legacy Practice Leader, BMS Group

R Street Institute is a nonprofit, nonpartisan, public policy research organization. Our mission is to engage in policy research and outreach to promote free markets and limited, effective government.

We believe free markets work better than the alternatives. We also recognize that the legislative process calls for practical responses to current problems. To that end, our motto is “Free markets. Real solutions.”

We offer research and analysis that advance the goals of a more market-oriented society and an effective, efficient government, with the full realization that progress on the ground tends to be made one inch at a time. In other words, we look for free-market victories on the margin.

Learn more at https://www.rstreet.org/
Follow us on Twitter at @RSI

Author(s): Jerry Theodorou, Roosevelt Mosley, Mory Katz

Publication Date: 4 April 2022

Publication Site: R Street at YouTube

Jerry Theodorou Presents on Social Inflation to the Business Insurance World Captive Forum

Mary Pat Campbell

Link: https://www.youtube.com/watch?v=HahkUnXje1A

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Description:

R Street Institute Director of Finance, Insurance and Trade Jerry Theodorou presents on social inflation and his latest policy study to the Business Insurance World Captive Forum in Miami in February.

Author(s): Jerry Theodorou

Publication Date: 23 Feb 2022

Publication Site: YouTube and R Street Institute

Insurance Companies – Heels or Heroes?

Mary Pat Campbell

Link:https://www.rstreet.org/2022/01/24/insurance-companies-heels-or-heroes/

Excerpt:

The insurance industry is far from the economy’s most-admired sector. A Forbes survey found insurance ranking low in popularity in the public eye. Three main reasons are responsible for insurers’ relatively poor rating. First is the intangible nature of the insurance product. Unlike a car one can drive home from the dealership, or a chocolate bar whose taste can be savored, purchase of an insurance policy does not lead to immediate physical gratification. To be sure, if there is no loss, one may never get a flavor of its value. Second, insurance is associated with life’s tragedies, its most physically, emotionally and financially distressing experiences—a home damaged by a storm, a car totaled, being sued, a death or dread disease, or a crippling workplace accident. Insurance payments can take away the sting with financial recovery, but loss remains painful, especially if one discovers the loss is not 100 percent covered. And third, the insurance industry has become an easy target for critics who regularly vilify it.

…..

Why do we maintain that insurance, R Street’s inaugural research program, is fundamentally exciting? Three reasons.

First, insurance is the economy’s financial first responder. When the wind blows, the earth shakes and large-class action lawsuits are decided in plaintiffs’ favor, the insurance industry pays. 

….

Second, insurers are significant investors in the capital markets. They provide much of the financial muscle to power the economy. Property-casualty insurers hold $1.1 trillion in bonds, and life and health insurers hold another $3.6 trillion. Collectively, insurers hold $4.7 trillion in bonds, 10 percent of the U.S. bond market of $47 trillion.

….

Third, insurance is the grease in the engine of the economy. Without clinical trials insurance, pharmaceutical companies would not take the risk of developing vaccines. Without ocean marine or inland marine insurance, ships would not sail and trucks would not take the risk to carry loads. Airplanes would not fly, people would be afraid to drive, and inventors would not create new products for fear of lawsuits. 

Author(s): Jerry Theodorou

Publication Date: 22 Jan 2022

Publication Site: R Street

THE SCOURGE OF SOCIAL INFLATION

Mary Pat Campbell

Link:https://www.rstreet.org/wp-content/uploads/2021/12/RSTREET247.pdf

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If unchecked, social inflation, driven by the myriad factors discussed in this study, will become a self-perpetuating phenomenon that sends improper signals regarding the value of damages to jurors, judges and defendants. This will lead to higher insurance premiums, financial strain on insurers, depletion of municipal resources and disincentives for businesses to take risks. This hidden “tort tax” benefits no one except plaintiff attorneys and their clients who engage in practices that lead to social inflation.

There are two broad responses that need to be pursued to combat the perpetuation of social inflationary pressures. One is to influence the development of public policy at the state and federal levels to reveal and control excesses. The second is for insurers and defense counsel to adopt and deploy more aggressive strategies that push back and formally object to tactics violating existing norms of courtroom behavior.

Author(s): Jerry Theodorou

Publication Date: December 2021

Publication Site: R Street

Jerry Theodorou on Natural Disasters and Insurance

Mary Pat Campbell

Link:https://www.c-span.org/video/?514314-3/washington-journal-jerry-theodorou-discusses-natural-disasters-insurance

Excerpt: [transcript from closed captioning]

Jerry Theodorou
IT IS HARD TO CALCULATE. THE INSURANCE INDUSTRY WAS FACED WITH MASSIVE FLOOD LOSSES BUT FOUND THAT IT DID NOT HAVE THE DATA TO PRICE IT ACCURATELY. IT STARTED REDUCING AND EXCLUDING FLOOD FROM STANDARD INSURANCE POLICIES AND THE GOVERNMENT STEPPED IN TO CREATE THE PROGRAM. TO PROVIDE SOME LEVEL OF FLOOD INSURANCE. THERE IS AN INHERENT TENSION IN THE PROGRAM BECAUSE IT HAS TWO GOALS IN CONTENTION WITH EACH OTHER. THE GOAL TO PROVIDE AFFORDABLE FLOOD INSURANCE AND SOME DEGREE OF FISCAL SOUNDNESS. THEY ARE PAYING ABOUT $400 BILLION IN INTEREST, WHICH IS A BURDEN, SO IF WE FOCUS STRICTLY ON AFFORDABILITY, YOU WILL HAVE UNDERPRICED INSURANCE, NOT PRICED ACCORDING TO THE ACTUAL VOLUME. THIS IS WHAT IS HAPPENING NOW WITH LARGELY IMPACT — OVERPRICED INSURANCE. FOCUSING ON FISCAL SOUNDNESS, YOU WILL HAVE THOSE EXPOSED. IT IS A LITTLE BIT OF A BALANCE. DO YOU WANT FISCAL SOUNDNESS? PROBABLY A LITTLE BIT OF BOTH, WHICH IS MY NEXT MONTH, OCTOBER 1, THE NEW BEATING WILL BE INTRODUCED TO MAKE IT MAKE THE PRICING AND THE COST OF FLOOD INSURANCE MORE APPROPRIATE FOR THE LEVEL OF RISK. IT IS EITHER OR. IF YOU LIVE IN A FLOOD ZONE, YOU PAY HIGHER PREMIUMS. IT IS NOT BLACK-AND-WHITE BECAUSE THERE IS A SPECTRUM FOR THE DEGREE OF RISK. IT WILL INTRODUCE MORE VARIABLES SO THAT IT IS MORE APPROPRIATELY CORRELATED WITH THE LEVEL OF RISK.

Author(s): Jerry Theodorou, John McArdle

Publication Date: 5 Sept 2021

Publication Site: C-SPAN, Washington Journal