Sunday, July 15, 2007

Severance Insurance

If insurance companies can write short and long term disability insurance, then why can't they write severance insurance? Their immediate response will be that they can't deal with something called adverse selection. What's that? It is the fact that if a corporation is the insured, they will only buy the insurance if they know they are going to need it. If the worker is the insured, he or she will only buy it, if they think they're going to get fired.

Interestingly enough there is a patented underwriting method for something called salary protection insurance that claims to deal successfully with the adverse selection issue. Go look up Patent Nos. 6,332,125 B1 and 6,944,597 B2.

So if the concern for adverse selection is removed, why isn't salary protection insurance available? Geeez, it would be just like disability insurance...someone loses their job through no fault of their own...they get sick...they get injured...or they get fired/displaced/let go/replaced/outsourced for no cause and their income is maintained net of Workman's Compensation, Social Security or in the case of Salary Protection Insurance, net of state unemployment insurance benefits. Why shouldn't every worker in the United States have this a benefit? The company pays for it (or some major chunk of it), just like they do disability insurance. Then, if a worker gets fired, it's an insurance policy that takes over and maintains the worker's income for some period of time. But maybe it should be exactly like disability insurance. If the worker pays the premium and gets fired, the benefit payments are tax free. That would be excellent!

I've heard AIG has been looking at this coverage. Don't know for sure, but they are a company that has always been on the cutting edge of new transfer-of-risk solutions, so it wouldn't surprise me.



ABB Madison said...

Following the patent numbers you gave, I was unable to see the exhibits liested as figures 1-8, in either patent.

Willy said...

They're there. Called "Figures 1 - 8"...28 pages of them. Don't disclose a whole lot except it appears the computer method is three-dimensional.