Michael Faure & Véronique Bruggeman

Abstract

Although the insurance industry has expressed growing concern over the sharp rise in losses from natural disasters, only about one third of potential victims have purchased first-party catastrophe insurance. Despite the several advantages of first-party insurance, there is in practice little demand for or supply of such coverage. This article therefore asks, from a behavioral law and economics perspective, why first-party insurance is so underutilized and why it could serve as a viable alternative to government compensation. It further considers whether compulsory first-party disaster coverage might offer a solution. The article concludes by examining the circumstances under which expanding the availability of first-party catastrophe insurance should be encouraged as a way to give potential victims greater control over their compensatory resources while also strengthening incentives for loss prevention.

Daniel Schwarcz

Abstract

This contribution to a symposium on insurance intermediaries analyzes insurers’ compensation of independent agents and brokers in consumer markets. It focuses on various forms of “differential compensation,” in which an intermediary’s payment varies depending on the insurer with which the consumer ultimately purchases coverage. The article argues that such differential compensation undermines competition among consumer insurers on non-price product attributes, thereby increasing the risk of a “race to the bottom” as insurers concentrate on offering the cheapest coverage that still complies with legal requirements. To address these concerns, the article proposes that insurers relying on independent agents to sell consumer lines of insurance should be prohibited from paying different rates of compensation to different agents for selling the same line of insurance.

Jeffrey W. Stempel

Abstract

This article addresses the “other” intermediaries involved in administering insurance policies—specifically the “downstream” intermediaries who handle insurance claims. It focuses on managing general agents, third-party administrators, and independent contractor claims adjusters, who perform the essential, day-to-day tasks of the insurance industry and are generally less well compensated than commercial insurance brokers. Because these intermediaries are immune from judicial claims by policyholders, they have fewer incentives to perform their duties competently. The article argues that improving the claims process requires holding these intermediaries accountable for misconduct, at least in tort and potentially even for “bad faith” in a manner similar to insurers. It reviews the benefits of imposing accountability and proposes a workable standard under which an intermediary may be held liable when a policyholder alleges negligence or more serious wrongdoing.

Hazel Beh & Amanda M. Willis

J. Gabriel McGlamery

Abstract

This casenote explores the reasons why industrial life insurance—and the use of racial discrimination within it—disappeared. It reviews the history of industrial life insurance and the problems it posed, including discriminatory underwriting practices. The 2005 case Guidry v. Pellerin Life Insurance Company, although a minor lawsuit, is the only industrial life insurance case to address directly the use of race in underwriting. While the Guidry court held that no rule, law, or statute prohibits a life insurer from using race as an underwriting criterion, the decision is best understood as a provocative artifact, given that industrial life insurance had already effectively died out. The casenote evaluates several theories explaining this decline, including legislation barring the use of race in underwriting, social pressure discouraging racial discrimination, the narrowing of the racial mortality gap, and the growth of group life insurance. It concludes that no single theory is sufficient on its own, but collectively they provide insight into why industrial life insurance ultimately disappeared.

Steve Cooper

Abstract

This case note discusses whether biotechnology should be endorsed by federal crop insurance. It reviews the history and goals of the Federal Crop Insurance Corporation and the role it plays in the American agricultural system. Although genetically modified crops are becoming increasingly prominent in U.S. agriculture, they have not yet been addressed by federal crop insurance. The U.S. Department of Agriculture recently created the Biotech Yield Endorsement pilot program to connect the federal crop insurance system with the expanding industry and market for genetically modified seeds. The note also critiques agricultural policymaking as economically inefficient. It argues that a permanent biotechnology endorsement program should not be implemented until it is proven that the environmental and economic consequences do not make lower crop insurance premiums inadvisable.

Thomas Plotkin & Tarae Howell

Aviva Abramovsky

Abstract

This article argues that any discussion of insurance regulation should consider the impact reinsurance may have on insurer behavior. It reviews traditional types of reinsurance and examines how private reinsurance contracts can influence insurer actions. When reinsurance is excluded from a holistic analysis of the insurance system, its practical effects can misdirect regulatory assumptions. Moreover, reinsurance operates as a source of independent—and often unexamined—contractual influence on insurers, and as a potential source of interference with regulatory initiatives. Although reinsurance arrangements arise from private contracts, those contracts can exert regulatory effects significant enough to warrant answering this Essay’s central question affirmatively: reinsurance may indeed be correctly termed a “silent regulator.”

Louis Cruz

Abstract

This note distinguishes predatory lending from subprime lending while focusing on the insurance consequences of predatory lending. It examines how single premium credit insurance (SPCI) and private mortgage insurance (PMI), two mortgage-related insurance products, have contributed to the current predatory lending crisis. The note argues for reforms that would eliminate SPCI and make PMI a more feasible option for insureds, enabling subprime lenders to offer mortgages to qualified borrowers while reducing predatory lending and foreclosures. The introduction provides background on subprime and predatory lending; the second part analyzes several issues concerning the role of insurance in the subprime mortgage market; the third part discusses necessary reform measures to address problems with mortgage insurance; and the fourth part reviews recent Federal Reserve Board actions and evaluates whether they are likely to bring meaningful change. The note concludes that although the Fed’s new regulations are a step in the right direction, an outright ban on SPCI is necessary and predatory lending must be stopped completely.

Sara Nadim

Abstract

This note examines the 2008 Mental Health Parity and Addiction Equity Act and argues that although the Act represents a landmark improvement in mental illness parity coverage, it should be amended to define explicitly what constitutes a mental illness or substance use disorder. The first part explores the history of federal mental health parity efforts. The second part discusses the Act’s specific provisions, emphasizing that it does not provide explicit definitions of covered conditions. The third part reviews state definitions of mental illness, while the fourth highlights recent developments supporting the biological basis of mental illness. The fifth part evaluates the societal cost reductions that would result from expanding mental health insurance parity. The note concludes that certain severe biologically based mental illnesses should be expressly listed in the statutory definition and required, at minimum, to be covered by insurers. It supports this position by showing that the cost impact on employer group health plans would be minimal, whereas societal costs—such as homelessness and reduced workplace productivity—would decrease substantially when mental illness and substance use disorders receive adequate treatment.