Doctor Eclectic

Doctor Eclectic
Doctor Eclectic

Monday, March 23, 2015

Co-related Exclusions

If you are like me, you have probably never read the entire policy on any of your various insurances, excepting language on limits, minimum deductibles, co-payments for health visits and perhaps the premium.  As a matter of fact, inspired by this Post, I just cleared out my insurance folder and got rid of policies older than 2013 (and there were several).

Perhaps that is why I was intrigued by a recent feature that discussed a little known exclusion on most policies called: Co-related Exclusions.

Essentially it describes why an event that would normally be a covered casualty is excluded if it happens to more people at once than the actuaries expected in their calculations for risk.  An example would be a policy that has coverage for water damage, but excludes flood damage if your residence is one of several that were flooded during a hurricane.  Or if your house was one of several damaged in a forest fire.  Or if your residence in Syria, Gaza or even Israel was included in damage resulting from a conflict.

Not that you could not buy coverage for these occurrences, it’s just that that coverage would result in an additional premium.  In California I have to opt in or out of earthquake coverage every year, but am included with all insured drivers in the state for a premium to cover damage caused by uninsured motorists, a requirement by the state.  The risk from this latter coverage is spread across so many policyholders

Modern insurance can trace its origins to the Great Fire of London in 1666, which destroyed 15,000 homes.  It became apparent that such a societal catastrophic loss was more than any individual could bear, and ass the city rebuilt, there arose a commercial solution for individual loss.  Through time there are seven basic tenets for insurability, one of which is: limited risk of catastrophically large losses.  In London, that meant that any future reoccurrence of such a fire would be excluded from individual coverage and would be borne by the government.

In the United States that has been the case where flooding is the result of a natural disaster or wind damage from hurricanes.  Since 1978 the Federal Emergency Management Agency has coordinated relief in instances where the resources required exceed the state government’s capacity.  Although sometimes criticized, it is hard to see how a better solution could be made.

One of the major criticisms of federal support for natural catastrophes is that some states seem to have them more frequently than others.  Although California has few earthquakes of relevance, Montana has even fewer, and both states are prone to devastating fires.

There is some correlation between FEMA and dental insurance.

Dental insurance is not really insurance as much as it is a discount service.  Although actuaries do base premium on frequency and cost of service, the population needs are less a factor in establishing premiums that are Exclusions and Limitations of the policy.  Dental insurance did not exist prior to the labor shortage following WWII.  In an effort to control inflation, the federal government allowed employers to offer benefits, such as health (including dental) as incentives to work for their company.  Gradually, the benefit packages have morphed until dental is now greatly funded by the individual, and limitations have expanded to keep the premiums affordable.

For instance, it is estimated that more than ¾ of the adult population has active periodontal disease, but limitations limit this risk by more than half, either by frequency (no more than two cleanings a year) or by cost of the patient’s share.  There is no medical counterpart to these limitations and exclusions.  If you have coverage for a broken bone, you have coverage for a broken bone.

We are beginning to see complications from the Affordable Care Act, where on the Essential Health Benefit of Children’s Dental Health we have an annual maximum allowable cost to the patient and no allowable exclusions.  The actuaries are finding it difficult to transition from traditional coverage to the new format and keep premiums affordable.  There are huge differences from state to state on what are the covered benefits.  The differences can be explained as each state dealing with what should be allowed as Co-related coverage exclusions.  If the patient wants m ore coverage, they should pay more premium.

This is unlikely to happen.

My next Post will continue with health.  I’ll explain why you should be familiar with the words EPIC and Axiom, and what effect they may have on you in the near future.  I hope to see you then.

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