Insurance and the Numbers
The social worker profession is truly a noble one that is founded on service, integrity, and clinical expertise. At times, it can be a stressful and very dangerous occupation. The nation is grateful for what you do, thank you!
Insurance is all about numbers and using numbers and statistics to predict outcomes. That is because some people say that insurance is like gambling. Why is that?
While similar to gambling, however, insurance is not a zero-sum game where the dealer wins the bet and you lose. The critical difference is that the insurance carrier pools a large number of policyholders’ loss risks which makes the premiums affordable while shifting defined risks from the policyholders to the insurance carrier. You do not lose because you win protection in exchange for paying the insurance premium. Through actuarial science and sophisticated statistical modeling, the insurance carrier is betting that the policy owners will not utilize the policy benefits beyond the expected or predicted expectation, or in other words, the policy owners will report an incident and file a claim as anticipated by the actuarial modeling predictions.
For the most part that is the case, but the policy owner is always protected in the event that a covered incident occurs regardless of the condition of the insurance carrier because of the insurance fiscal regulatory requirements to pay claims. The actuaries use the “Law of Large Numbers” which enables robust predictability when claims incidents occur, particularly among specific types of exposures, such as licensing board inquiries, or negligence claims for example. Moreover, the losses are spread or shared over the entire group and reserve risk pool of policyholders that are funded by the aggregate premium collected. There are multiple benefits with strength in the numbers.
On the supply side, actuaries compute predictive statistical models to gauge reserve requirements for regulators and future insurance carriers claims losses arising from insurance policies sold. On the demand side, premiums, defined perils, sub-limits, and limits are set based on the probability, frequency, and severity of incidents through claims experience. It is all driven by the numbers.
A simple numerical example of the “check-the-box” Endorsement to a professional liability insurance policy is simply expanding Licensing Board Inquiry coverage from $35,000 to $50,000 by agreeing to pay an additional $50 in annual premium.
Another number example as seen in auto insurance and other property and casualty policies is a triple number like 25/50/20. These are considered sub-limits and work this way:
- $25,000 is the maximum coverage for bodily injury sustained by a person in an accident;
- $50,000 is the maximum coverage for bodily injury sustained by all people in the accident;
- $20,000 is the maximum coverage for property damage in an accident caused by the insurance policy owner.
These are typical state minimum vehicle liability tiers. Auto insurance carriers allow for increased coverage and recommend a limit structure of $100,000/$300,000/$50,000. More coverage and umbrella liability coverage may be purchased as well. Endorsements with their respective limit numbers and premium numbers can be added to the insurance policy contract to accommodate coverage upgrades.
In summary, here is what you need to do.
- Study your insurance policy Declarations Page thoroughly and understand the numbers. It lists all the category risks and perils coverage. Always understand what you are amending in your insurance policy contract through riders and endorsements, and the numbers, and what the numbers mean. This includes the premiums, limits, sub-limits, deductibles, discounts, endorsements, insureds, and premiums.
- Make sure that you thoroughly read your policy contract so that you know the extent of your coverage and what is excluded and what is defined as a peril. After that, then the actual numbers apply. The numbers express the actual level of coverage protection that the insurance policy provides.
An important note:
When you buy your insurance policy, picture yourself in various situations, and then study your insurance policy contract and declarations page to understand if coverage applies and how much. Know the risk elements and the meaning of the numbers.
Thank you for all that you do as first responders, and as ongoing behavioral health and social work providers. It is truly a noble profession needed now more than ever. Good luck and stay healthy!