Israel Goldowitz

Abstract

Public pensions can be poorly funded, and, if recent events are any guide, benefit promises may be impaired in municipal bankruptcies. Experience with private-sector pension plans suggests that responsible funding is the best protection against default risk. Studebaker’s default on promised pensions inspired the 1974 federal pension reform act, ERISA. The company’s pension plan was substantially underfunded when the company failed, despite periodic contributions under pre-ERISA standards. The plan’s assets first paid retirees’ benefits, leaving 7,000 younger workers with little to nothing in retirement. ERISA addressed this default risk through funding rules and PBGC insurance. ERISA’s minimum funding rules have not prevented pension plan failure; to the contrary, the PBGC and plan participants have absorbed some large losses. However, the funding rules remain the primary protection against default risk.

Jonathan Barry Forman

Abstract

Longevity risk—the risk of outliving one’s retirement savings—is probably the greatest risk facing current and future retirees in the United States. At present, for example, a 65-year-old man has a 50 percent chance of living to age 82 and a 20 percent chance of living to age 89, and a 65-year-old woman has a 50 percent chance of living to age 85 and a 20 percent chance of living to age 92. The joint life expectancy of a 65-year-old couple is even more remarkable: there is a 50 percent chance that at least one 65-year-old spouse will live to age 88 and a 30 percent chance that at least one will live to 92. In short, many individuals and couples will need to plan for the possibility of retirements that can last for 30 years or more. There were 48.6 million retirees in the United States in 2014, but there are expected to be 66.4 million retirees in 2025 and 82.1 million in 2040.

John E. Marthinsen

Abstract

Residential homes are the largest, most leveraged assets in most U.S. families’ portfolios. Home equity protection (HEP) contracts offer opportunities to safeguard these real estate interests. In the United States, each state decides if a HEP contract is financial guarantee insurance (FGI) and, therefore, regulated by the state laws and insurance commission rules, or non-insurance financial protection (NIFP), which may escape state and federal regulations. Because HEP contracts have the potential to provide substantial benefits to homeowners, their regulation should be designed to protect state residents and encourage the development of safe alternatives. This article explains HEP contracts, their development, and why states should treat those that require material interests as FGI. Particular focus is put on: (1) the advantages and disadvantages of HEP contracts that are linked to home price indices, (2) why linking these contracts to price indices should not disqualify them as FGI, and (3) how HEP companies engage in regulatory arbitrage by linking their policies to home price indices and claiming NIFP status.

Beth Olsen

Abstract

Since 1999, prosecutors have increasingly utilized deferred prosecution agreements (DPAs) and non-prosecution agreements (NPAs) to resolve investigations into corporate criminal conduct. Corporations are often eager to enter into such agreements in order to avoid indictment, believing that the consequences set forth in the terms of the DPA or NPA are less harmful than are the consequences of a corporate indictment. However, the impact that a DPA or NPA may have on a corporation’s insurance coverage may not be readily apparent or even contemplated when the corporation elects to enter into the agreement. This Note analyzes the ways in which corporate insurance coverage interacts with and is impacted by white-collar criminal investigations and the resolution of such investigations through the use of NPAs and DPAs. Specifically, this Note discusses situations in which corporations have lost insurance coverage as a result of entrance into a DPA or NPA and identifies ways in which such consequences could be avoided. Finally, this Note anticipates the impact that the Department of Justice’s (DOJ) new emphasis on individual prosecution for white-collar crimes will have on corporate insurance availability and policies.

Zhen Jing

Abstract

Chinese Insurance Law imposes on the insured a duty to disclose material information prior to the formation of the contract. This duty is limited to the scope and extent of the insurer’s inquiry and to the insured’s actual knowledge. The insurer may rescind the contract if the insured fails to disclose a material fact, either intentionally or by gross negligence. This article considers the remedies for breach of this duty, examines the way in which Chinese courts determine whether a breach occurs intentionally or by gross negligence, and discusses deficiencies of the available remedies. Finally, this article recommends adopting the doctrine of proportionality for insurers’ liability for losses.

Qihao He

Jay M. Feinman

Brendan S. Maher

Abstract

The fate of the Affordable Care Act is uncertain. Moreover, the nation is in an unusual state of political turmoil and may have no appetite for anything other than revolutionary changes to the ACA, if not its outright repeal. But press reports suggest even Republican officials formerly committed to its extirpation are now thinking instead about a measured path forward. If so, one fact about the ACA should not escape the attention of serious reformers: the legislation has already accomplished the difficult task of laying the ground work for a move away from employment-based (EB) insurance, a move scholars have urged for years. That said, not all features of employment-based insurance are undesirable, and certain reforms to the ACA could preserve those desirable features while nonetheless guiding the nation away from a flawed system. For largely (but not entirely) political reasons, the ACA made it difficult for those receiving or providing EB insurance to migrate to the individual exchanges the Act took great pains to create. Yet if there is political will to modify the employer mandate and adjust the tax treatment of insurance purchases, access to the individual exchanges could be cautiously “unlocked,” and millions could migrate from EB insurance to individual, exchange-based insurance. With certain additional reforms, there is reason to believe that migration will lead to stronger, healthier exchanges; to a reduced regulatory burden on employers; to a clearer stakeholder understanding of the relationship between health insurance and wages; and perhaps a diminished need to rely on the controversial individual mandate, with individual States making that final assessment.

Steven Plitt & Jordan R. Plitt

Tom Baker & Rick Swedloff

Abstract

Top law firms are notoriously competitive, fighting for prime clients and matters. But some of the most elite firms are also deeply cooperative, willingly sharing key details about their finances and strategy with their rivals. More surprisingly, they pay handsomely to do so. Nearly half of the AmLaw100 and 200 belong to mutual insurance organizations that require member firms to provide capital; partner time; and important information about their governance, balance sheets, risk management, strategic plans, and malpractice liability. To answer why these firms do so when there are commercial insurers willing to provide coverage with fewer burdens, we talked to dozens of people in large law firms and the insurance industry, including those at the notoriously secretive mutual insurers. We developed a unique, qualitative data set that sheds important, new light on the legal industry, insurance markets, and the mutual insurers that protect many large law firms from malpractice risks. We show that many of the most elite firms prefer the mutuals,inpart, because they help solve traditional insurance market failures like adverse selection, moral hazard, and long-term contracting. But this only tells part of the story. We also provide an important and novel autonomy explanation. Many lawyers prefer mutual insurance because they perceive that it promotes professional independence in the face of the social control imposed by liability and insurance. Our data also reframes the traditional understanding of organizational forms in the commercial insurance market. Most prior literature describes mutual and stock insurers as competitors. We show that stock and mutual insurers play complementary and symbiotic roles. Mutuals help manage access to the powerful risk-distributing potential of stock insurance through reinsurance and excess coverage, thus creating mutual stock hybrids. Further, we provide evidence that suggest that even outside of this relationship, mutuals favorably affect the behavior of stock insurers, indicating that these mutual arrangements produce positive externalities that benefit other lawyers and law firms in similar practice contexts.