Tuesday, July 17, 2007

Severance Insurance...What is it?

As I said in last night's blog, there is an insurance product out there for corporations called Severance Insurance. Clearly, it is a new and innovative way of funding the costs associated with severance. But why would a corporation buy it? Is the corporate market the only market? What about private equity funds? What about its use in the merger and acquistion spectrum? What about for activist investors? Not yet knowing all the details of how the coverage is designed, I would expect that there are only two credible pitches for this coverage: (i) it can save significant money and (ii) it can smooth demand on cash flow! The question is, how much can it save and at what cost to whom? Being the cynic that I am, I could assume it takes from the worker in order to give to the employer, but maybe that's an unfair position. Until I find out more I'll withhold my cynical tendencies.

I'm hoping that my poking around will turn up the actual structure of this new product, and then we can discuss its specific merits (or lack thereof). In the meantime the patents I mentioned do give some sense of how the insurance policy is structured, so maybe we can start there.

More on what the patents disclose later.


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