Tuesday, August 28, 2007
In my last blog I kind of drew the conclusion that the obvious source would be the brokers. In thinking that through some more, if severance insurance is geared towards large corporations, then I would think the large brokers would be the likely suspects. I'm talking about the Marsh's and AON's of the world. They are the one's with the existing client relationships among the Fortune 200.
So...keep the faith. I'll keep looking. I'm getting more convinced that there is a move afoot, albeit quiet, to introduce severance insurance. I'm just curious enough (and unemployed enough) to have the interest and time to stay on this.
Thursday, August 23, 2007
I am becoming convinced that there is something going on out there in this space. I'm not so sure what's taking so long, but where there's smoke, there's fire...and I believe there is plenty of smoke out there.
I'm going to turn my research towards trying to sleuth out what is going on. Back to the Callen patent as a starting point.
I'll be back...hopefully with some concrete information.
Wednesday, August 22, 2007
- Outplacement firms...they like the system just the way it is, because large corporations turn to them to provide post-employment support. Why mess with what works (for them)?
- Academics...believe the current system is broken but beyond that diagnosis they have not come up with any concrete ideas for a new system/method
- Insurance companies...other than the AIG www.aig.com rumor, nothing else has turned up that would confirm any insurance company (good or bad) has a severance insurance product. They seem to be mired in the "adverse selection" bog.
- Insurance brokers...My sense is that the Marsh's of the world www.marsh.com are always looking for new product. But that doesn't mean they are capable or interested in developing one.
- Insurance consultants...Is it their job to diagnose problems (kind of like the academics), to solve problems (kind of like investment bankers) or both? My sense is they are diagnosticians not problem solvers. See www.hewitt.com or www.mercer.com
- Politicians...With all the talk about the middle class being left behind, about mortgage foreclosures, etc. I'm kind of surprised that both sides of the aisel haven't focused on this issue. Not one of the serious candidates has anything remotely close to restructuring job loss benefits on their radar screens/web sites.
- Job Boards...The Monsters www.monster.com of the world are too focused on their own business model to meddle in another arena.
- Investment Bankers...You'd think that the folks responsible for creating financial solutions and effecting all of the major merger and acquisition activity would have quantified the amount of money allocated to workforce restructuring in these deals and at least inquired/explored as to whether there were any alternative strategies available. I guess they rely on the brokers to give them a heads up.
- Private Equity...If there was ever a natural fit, I guess this would be it. They are focused on returns on invested equity and the timeline to effect their exit strategy. Severance Insurance could play a significant roll here. Again, I guess they rely on the brokers to give them a heads up.
- Corporate Executives...They rely on their risk managers (who rely on their brokers) and their human resource executives (who seem to always prefer not rocking the boat). If those executives aren't feeding senior management the right information, then nothing is going to change.
So, who cares (other than me)? I don't think anyone...EXCEPT THE POOR SOULS WHO HAVE BEEN FIRED!! And they don't carry any weight. Maybe they should organize? I've suggested that before.
Tuesday, August 21, 2007
Their lack of attention to the issue is probably driven by the same reason that mine was...it simply wasn't on their radar screen. A little bit surprising since their client bases have displaced tens of thousands of employees over the last eight to ten years. But their business model had nothing to do with funding benefits, so I guess it's not so surprising. As I understand it, they position themselves between the displacing corporation and displaced employee to provide the employee with what their industry deems as post-employment support, i.e., developing job search skills.
If that's the case, their business certainly doesn't focus on the mechanisms of funding severance nor does it focus on actually being accountable for finding displaced workers new jobs.
So they certainly can't be accused of ignoring severance. It's just not on their bandwidth. It just comes along with the displaced workers who cycle through their systems.
I'm beginning to come to the conclusion that if there is someone out there in the severance insurance space, they don't have a lot of company.
Tuesday, August 14, 2007
As a matter of fact, the relevant literature goes back to 1996 when a guy named George E. Rejda (V.J. Skutt Distinguished Professor of Insurance at the University of Nebraska) wrote a paper, UNEMPLOYMENT COMPENSATION: A PROPOSAL FOR AN OPTIONAL SYSTEM OF SELF-INSURANCE. I quote from the abstract, "The author believes state unemployment compensation programs are inefficient public monopolies that are not subject to competition."
Now admittedly George was coming from a slightly different direction, but his premise was identical to mine. I quote further from his Abstarct, "As a result (of providing an alternative), the cost of providing benefits to unemployed workers may be reduced for many employers..."
There is another paper written in 2005 by Donald O. Parsons from Department of Economics at George Washington University entitled, BENEFIT GENEROSITY IN VOLUNTARY SEVERANCE PLANS: THE U.S. EXPERIENCE. What is interesting about this paper is that it cites studies done by Right and Lee Hecht Harrison that basically confirm the formulaic approach to severance plan benefits. The paper further posits (at least as I read it) that voluntary programs would (i) end up costing more, "induce firing costs" and (ii) be less generous, "benefit generosity is likely to be limited". Well, give the guy some credit, at least he's got his fingers on the right places to look, if you're a corporation trying to save money. But his conclusion is weighed down by what I would call the typical excuses for why severance funding can't be done (i) differently, (ii) fairly and (iii) more economically. He is basically saying that a different kind of severance would cost more and provide lower benefits. How creative!
Severance Insurance can be real. What I now know is that there are people out there working on an alternative, e.g., the Callen patent. What I don't know is who are they (other than Callen)?
I know I'm not alone. I've just got to find the players and bring their ideas to the surface.
Friday, August 10, 2007
- Stabalize Insurance Budgets
- Reduce Insurance Admin Costs
- Negotiation Tool
- Utilize Own Experience
- Premium Flexibility
- Policy Terms
- Increased Claims Control
- Recapture Underwriting Profits
- Accept Greater Deductibles
- Access to Reinsurance Markets
- Customized Coverage
- Underwrite Exposed Risks
- Enhance Loss Prevention
- Profit Center
After looking at this list, the conclusion is pretty obvious. Severance Insurance fits the "captive model" about as well (if not better than) any other cover currently offered by captives.
I'm beginning to get pretty convinced that if that Callen patent really does what I think it's trying to do, then whether it's an independent insurer or a captive insurer, severance insurance may, in fact, really be a reality out there. Unknown. Flying beneath the radar. But a reality. I'll continue to dig.
Wednesday, August 8, 2007
There are plenty of companies out there with self-insuring cultures who have captives. Why wouldn't they want to end-run the traditional insurance channels, insure through their captive and reinsure that portion of the risk they wanted to cede? I suspect they would.
- Make money
- Benefit shareholders
- Establish itself on the cutting edge of a new kind of "socially responsible" insurance
- Improve reputation
- Reduce UI claims by reducing unemployment duration, i.e. getting people back to work more quickly
Interesting to note here that service severance has potential quantifiable value not only to displaced workers and their former employers but also to the state UI trusts, which in turn should realize savings through the reduction in benefits paid and, as a result, be able to lower premiums and benefit the corporations that are paying those premiums; a rather circular set of relationships.
Tuesday, August 7, 2007
- Could provide less expensive funding alternative for the costs associated with severance
- Savings could fund a variety of initiatives from R&D to retained workforce benefi
- Could provide the ability to smooth the costs associated with severance over a period of years
- Could position the company as one with a social conscience, assuming they included service severance in their plan
- Could position the company as a better place to work...for prospective employees
- Could level the playing field for all employees...a known benefit plan with equal treatment for all
- It could guarantee the severance benefit to the displaced worker
- It could provide a stronger guarantee than the company could provide
- It could smooth out the severance benefit, i.e., no lump sum payment but payments made on a pay period basis
- It could extend the benefit period
- It could provide a tax advantage to the benefits
- It could help access "working fringe benefits"
- It could provide ancillary benefits, e.g., "service severance"
This is pretty interesting. I'll take a look at them one by one.
Monday, August 6, 2007
So, if their perspective is one of guardian, then severance insurance needs to bring more to the table than "just" an alternative funding strategy that happens to have the potential to save substantial sums of money. Enter what I have called in earlier blogs "service severance".
If service severance, as I see it, can be justified to HR folks as a far superior and constructive approach than outplacement, then maybe they begin to grab onto the idea that there might be a better mousetrap in the world of severance. What am I saying here? I am saying that corporations need to go the extra mile and add service severance to financial severance, if for no other reason than to get the buy-in of their own HR executives.
I'm going to spend some time to better flesh out my ideas for service severance in future blogs.
Sunday, August 5, 2007
My point here is that there seems to be significant data available to an underwriter to understand the myriad of individual risks inherent in underwriting severance insurance. The challenge is automating its retrieval and layering it on a real workforce/employee base.
Saturday, August 4, 2007
What does all of this mean to an insurance underwriter? I really don't know, but I suspect that s/he would conclude that an underwriting would have to be done on an individual by individual basis. That's pretty cumbersome stuff and could be enough of a hurdle for the insurance companies to back away from even trying to offer severance insurance.
But where there's smoke, there's usually fire, and there is clearly buzz out there that some insurance company is writing severance insurance or at least some form of it. I still haven't found it, and I don't know whether it is for corporations or employees. I'll keep looking.
Friday, August 3, 2007
I've got to think that the insurance industry hasn't missed this, if they are really considering putting a product on the market (or they already have). Their actuaries are certainly looking for predictability and fifty years of this data certainly would show them that. However, don't think the adverse selection proiblem is solved. There's a lot more drilling to do.
But for every one of these answers (and there are plenty more, I'm sure), I suspect the insurers would say there is an offsetting risk. And I'm sure they will hang their hats on the "adverse selection/moral hazard" argument, that those who would buy the coverage would be those who controlled the risk. For instance, a corporation would only buy the coverage, if they knew they were going to need it, or an individual would only buy a retail version of severance insurance if s/he thought they were at risk for getting fired.
No question, if there really is an insurance product out there, it has to deal successfully with this issue. The question is how could that happen. The answer...I don't know.
I'll keep digging.
My vision of service severance is very different. First, it's actually accountable to its client(s). If they don't help you find a new job, they don't get paid. Second, they actually become an advocate for the displaced worker. Third, they have the ability to reach deep into the world of available jobs and match up opportunities that actually fit...your age, your skills, your experience, your location, etc..
I really think there's a void in this space, and without a whole lot of imagination I think we are beginning to see that there is a lot of "loose" money kicking around in the world of severance that could be better applied to not only provide a financial bridge during unemployment but also provide active advocacy with a clear goal...finding a new job.
Let me know what you think.
Thursday, August 2, 2007
Why not take some of the financial leverage and use it to help workers get back to work? It would benfit the worker, the insurer and the displacing corporation.
Pretty simple, eh? You'd think so. But I'm still blown away by the fact that corporate America isn't pursuing this idea.
Anybody got any thoughts on why?
That would seem to confirm that there are at least two ways for a company/insurer to save money on severance. I've got to think there are more.
What blows my mind is why severance insurance (if, in fact, it does exist) isn't on corporate America's radar screen.
I'll do some more hom,ework and circle back.