Apologies are difficult. Especially when directed at more-or-less anonymous people on the internet based on more-or-less generic remarks about oil and gas and supply and demand.
But I have been called out repeatedly for misconstruing comments from an internet acquaintance about such and even labelling the comments as illogical. That wasn't my intent but I do understand how my post about "Gas Prices and Logic" was received that way.
Therefore, I humbly apologize for my behavior, and ask one Cswil to forgive and forget and move on so we can celebrate a Broncos victory together on October 12 without any animosity between us.
Go Broncos!
Thursday, September 25, 2008
Wednesday, July 25, 2007
The Love of Sports, and Money. . .
Take a look at the sports page of any newspaper, or watch the sports segment on your local news, and a troubling pattern is emerging. For years many die-hard fans and critics have complained about the stratospheric salaries and endorsement deals that professional athletes have been blessed with.
There is a very legitimate argument that this is a free-market system, and that basically this is what the consumer wants. The sports entertainment consumer wants to see the best athletes on the best teams, and the supply/demand equation means higher prices/salaries.
At what point will there be a correction or back-lash? Is there no ceiling on the amount of money that sports fans will pump into this system? Ultimately, the money that funds these salaries comes from the fans of these sports. When do they become so disgusted that the money begins to dry up?
Look at the effects of this money today:
1. NBA referee Tim Donaghy has been accused of having a relationship with "low-level" mafia contacts in order to alter the outcome of NBA games in such a way as to be beneficial to these gamblers.
2. Michael Vick, the Quarterback for the Atlanta Falcons is accused of organizing a dog-fighting ring which resulted in the barbaric deaths of an unknown number of dogs. While his greed probably didn't lead him to do this, his large salary did subsidize the creation of this organization.
3. Within the past week at least three riders in the Tour de France have been linked to doping. Of course, for years the sport has been plagued with doping allegations, and last years winner was disqualified for testing positive for doping.
4. Barry Bonds is on the cusp of breaking Hank Aaron's home-run record. Most consider this record the most hallowed in sports. Tarnishing this accomplishment are the constant allegations that Bonds used steroids to improve his power, and break the record. Just today a chemist from Balco has identified Bonds directly as having been provided steroids.
I certainly don't know how much more the average sports fan can take before they allocate their entertainment dollars elsewhere. However, these stories and others may have no effect at all. I would expect more and more of this type of story in the future, if the fans don't balk at this. In other words, if the current state of professional sports is not getting the consumer's attention, it likely never will.
Ultimately, these fans control the money, and by extension, they ultimately control the behavior of these sports leagues. You just have to follow the money.
There is a very legitimate argument that this is a free-market system, and that basically this is what the consumer wants. The sports entertainment consumer wants to see the best athletes on the best teams, and the supply/demand equation means higher prices/salaries.
At what point will there be a correction or back-lash? Is there no ceiling on the amount of money that sports fans will pump into this system? Ultimately, the money that funds these salaries comes from the fans of these sports. When do they become so disgusted that the money begins to dry up?
Look at the effects of this money today:
1. NBA referee Tim Donaghy has been accused of having a relationship with "low-level" mafia contacts in order to alter the outcome of NBA games in such a way as to be beneficial to these gamblers.
2. Michael Vick, the Quarterback for the Atlanta Falcons is accused of organizing a dog-fighting ring which resulted in the barbaric deaths of an unknown number of dogs. While his greed probably didn't lead him to do this, his large salary did subsidize the creation of this organization.
3. Within the past week at least three riders in the Tour de France have been linked to doping. Of course, for years the sport has been plagued with doping allegations, and last years winner was disqualified for testing positive for doping.
4. Barry Bonds is on the cusp of breaking Hank Aaron's home-run record. Most consider this record the most hallowed in sports. Tarnishing this accomplishment are the constant allegations that Bonds used steroids to improve his power, and break the record. Just today a chemist from Balco has identified Bonds directly as having been provided steroids.
I certainly don't know how much more the average sports fan can take before they allocate their entertainment dollars elsewhere. However, these stories and others may have no effect at all. I would expect more and more of this type of story in the future, if the fans don't balk at this. In other words, if the current state of professional sports is not getting the consumer's attention, it likely never will.
Ultimately, these fans control the money, and by extension, they ultimately control the behavior of these sports leagues. You just have to follow the money.
Wednesday, June 20, 2007
Paul Potts singing Opera
I haven't been able to post for a while, but here is a triple-feature to make up for it.
Paul Potts is a cell-phone salesman who was working at "Car Phone Warehouse" when he made this audition for "Britains Got Talent".
I think it's safe to say that he can quit his day job.
Wednesday, June 13, 2007
State Farm Accused of Conspiring with Xactware
A Federal suit has been brought by a couple in Louisiana who allege that State Farm conspired with a software firm named Xactware to low-ball repair estimates, and consequently underpay claims caused by Hurricane Katrina.
You can find an article here from the New Orleans Times-Picayune.
After reading the article I am left a little confused. The suit names State Farm and Xactware, but also alleges that State Farm used numbers for replacement costs and repairs that were lower than the numbers Xactware provided.
What is especially interesting to me is the argument against using Xactware. According to the article Xactware is used by 16 of the top 20 insurers to help adjust claims. The law-suit alleges that Xactware conspires with the insurers to develop lower pricing for repairs, and that this is a direct result of insurers being exempted from much of Federal Anti-Trust legislation.
First of all, the reasoning behind these exemptions is to allow for competition by smaller companies. Companies such as State Farm or Allstate handle millions of claims each year, and have large volumes of data regarding claims payments. However, a smaller or regional company might not have the best data. Therefore, allowing these companies to share data with each other through Xactware or some other entity, allows for the "small-guy" to have access to the same information. It also benefits the larger companies in seeing that they are paying similar amounts for services that other insurers are paying for. In other words, in theory, this helps everyone, including consumers who benefit from more companies being able to compete in the market-place.
Now, for what really puzzles me. Many of these companies also use Xactware to develop the estimated replacement cost of dwellings when initially writing coverage on homes. This feature presumably uses the same data in order to develop what the total replacement cost of a home would be should a total loss occur, and make sure that an insured is carrying the proper coverage.
I am guessing that if you ask any insurance agent about "replacement cost estimates" for homeowner's policies that you will hear a groan. It is a constant source of mis-understandings, and one of the most difficult concepts to help a consumer to understand.
In my experience the estimates for replacement cost developed by Xactware are pretty similar to actual construction costs when comparing what someone paid for a home that was recently built. This leads me to believe that Xactware is pretty accurate in these estimates.
The problem comes when a home is not brand new. When a home is 10, or 20 or 50 years old, the market value will typically be quite a bit lower than replacement cost. A 1500 square foot home built in 1980 might sell at $75 per square foot in a particular market, while construction costs for new construction might run $95 per square foot in the same market. Keeping this example pretty simplistic, and ignoring the value of the land, this leads to a difference of $30,000 between "market value" or what a customer paid for the property and "replacement cost" or what it would take to replace it.
Most customers are able to understand this after an explanation, however, many believe that this is just a way for the insurer to "jack up" their premium. The see that they are paying $112,500 for a home, and the insurer wants to cover it for $132,500 thereby increasing their premium, and paying for coverage they don't feel they need. After all they are only investing $112,500. When it comes to paying the premium, the customer (somewhat understandably) wants to pay the bare minimum.
So, this becomes interesting, that when a policy is written, there is conflict that the insurer, through the use of Xactware is inflating costs, and over-charging. However, when a claim is filed, the same insurer and Xactware are accused of low-balling estimates. The insurer and Xactware will tell you that they use the same data for both estimates.
On the surface, it seems like no matter what the insurer does they are accused of taking advantage of the customer.
You can find an article here from the New Orleans Times-Picayune.
After reading the article I am left a little confused. The suit names State Farm and Xactware, but also alleges that State Farm used numbers for replacement costs and repairs that were lower than the numbers Xactware provided.
What is especially interesting to me is the argument against using Xactware. According to the article Xactware is used by 16 of the top 20 insurers to help adjust claims. The law-suit alleges that Xactware conspires with the insurers to develop lower pricing for repairs, and that this is a direct result of insurers being exempted from much of Federal Anti-Trust legislation.
First of all, the reasoning behind these exemptions is to allow for competition by smaller companies. Companies such as State Farm or Allstate handle millions of claims each year, and have large volumes of data regarding claims payments. However, a smaller or regional company might not have the best data. Therefore, allowing these companies to share data with each other through Xactware or some other entity, allows for the "small-guy" to have access to the same information. It also benefits the larger companies in seeing that they are paying similar amounts for services that other insurers are paying for. In other words, in theory, this helps everyone, including consumers who benefit from more companies being able to compete in the market-place.
Now, for what really puzzles me. Many of these companies also use Xactware to develop the estimated replacement cost of dwellings when initially writing coverage on homes. This feature presumably uses the same data in order to develop what the total replacement cost of a home would be should a total loss occur, and make sure that an insured is carrying the proper coverage.
I am guessing that if you ask any insurance agent about "replacement cost estimates" for homeowner's policies that you will hear a groan. It is a constant source of mis-understandings, and one of the most difficult concepts to help a consumer to understand.
In my experience the estimates for replacement cost developed by Xactware are pretty similar to actual construction costs when comparing what someone paid for a home that was recently built. This leads me to believe that Xactware is pretty accurate in these estimates.
The problem comes when a home is not brand new. When a home is 10, or 20 or 50 years old, the market value will typically be quite a bit lower than replacement cost. A 1500 square foot home built in 1980 might sell at $75 per square foot in a particular market, while construction costs for new construction might run $95 per square foot in the same market. Keeping this example pretty simplistic, and ignoring the value of the land, this leads to a difference of $30,000 between "market value" or what a customer paid for the property and "replacement cost" or what it would take to replace it.
Most customers are able to understand this after an explanation, however, many believe that this is just a way for the insurer to "jack up" their premium. The see that they are paying $112,500 for a home, and the insurer wants to cover it for $132,500 thereby increasing their premium, and paying for coverage they don't feel they need. After all they are only investing $112,500. When it comes to paying the premium, the customer (somewhat understandably) wants to pay the bare minimum.
So, this becomes interesting, that when a policy is written, there is conflict that the insurer, through the use of Xactware is inflating costs, and over-charging. However, when a claim is filed, the same insurer and Xactware are accused of low-balling estimates. The insurer and Xactware will tell you that they use the same data for both estimates.
On the surface, it seems like no matter what the insurer does they are accused of taking advantage of the customer.
Monday, June 11, 2007
Insurance and Bad Drivers
There is an interesting story developing in California regarding one of California's State Senators, and her apparent poor driving. Here is a good story which looks at the impact on California's tax-payers.
I have to give credit to David Rossmiller for his earlier post here which brought this to my attention, and includes a couple of earlier articles on this story.
The situation is that we apparently have a driver who has had more than her fair share of accidents. To wit: 1. The current accident in which she apparently side-swiped a guard-rail, and then rear-ended another vehicle, injuring the driver and shaking up the child in the car; 2. Side-swiping a bus on June 8, 2006 causing over $5,000 in damage; 3. Two "minor fender benders while parking" in 2005; and 4. Running a stop sign in 1996 and injuring another driver.
This particular driver is a California State Senator, and as such is provided a 2007 Toyota Highlander Hybrid to use for state business, which I infer from the articles includes her daily commuting. During "official business" the insurance for this vehicle is provided by the State of California. This is a benefit provided to the Legislator's, and as such these "risks" are not underwritten. In other words, if you are elected to the California Legislature, and you are legally entitled to drive, you are automatically insured in the State's vehicles no matter how bad your driving record.
In a "normal" underwriting structure an insurance company would certainly review this type of claims history, and I am guessing that many, if not most companies would now be trying to divorce themselves from the risk that Sen. Migden represents, if they hadn't done so already. At the very least, she would presumably be paying some hefty surcharges for this accident/claims record.
However, the citizens of California don't get much of a voice in the matter. The State of California is "self-insured" and as such, is on the hook for these claims. Short of a change in State Policy this practice will continue, and I doubt that these legislators would vote to end this benefit.
What is the effect of this lack of underwriting? The article listed above mentions that the State's annual "frequency" of claims is 22.5 per 100 vehicles, which compares with 14.8 per 100 vehicles for California drivers in general. That is approximately a 52% higher frequency than the general population.
Most insurers attempt to write "better-than-average to average" drivers, or at the very least price in additional charges for drivers who are "worse-than-average". Taking on anyone who walks in the door, or in this case, any legislator makes for some bad risks.
This is the reason that insurers cancel folks after they've had accidents, or don't write new business that has previously had bad experience. If an insurer is not allowed to weed out the bad risks, they end up with much higher claims expenses than their competitors. In this case the California tax-payers are the insurer, and they are the ones footing the bill for this program.
Within an insurance company, this would have some pretty dire consequences. If you are not allowed to get rid of these bad risks, your rates must increase to pay their claims. In essence, the good drivers are forced to subsidize the bad drivers.
Good drivers, who don't like their insurance rates increasing start to shop around. If they find a better deal, they will leave. The bad drivers, tend to stay put, because nobody else will take them on, or nobody else offers them a more attractive price for their coverage. If not kept in check, this can cause a nasty spiral of higher premiums, higher claims expenses, and a shrinking book of business.
This type of "death spiral" doesn't apply to the California situation necessarily, but it does point out that the tax-payers are paying for careless drivers, who are driving some pretty fancy cars. If I was a California citizen, I would be loudly protesting this program, starting with providing brand-new high dollar vehicles to bad drivers in the first place.
I have to give credit to David Rossmiller for his earlier post here which brought this to my attention, and includes a couple of earlier articles on this story.
The situation is that we apparently have a driver who has had more than her fair share of accidents. To wit: 1. The current accident in which she apparently side-swiped a guard-rail, and then rear-ended another vehicle, injuring the driver and shaking up the child in the car; 2. Side-swiping a bus on June 8, 2006 causing over $5,000 in damage; 3. Two "minor fender benders while parking" in 2005; and 4. Running a stop sign in 1996 and injuring another driver.
This particular driver is a California State Senator, and as such is provided a 2007 Toyota Highlander Hybrid to use for state business, which I infer from the articles includes her daily commuting. During "official business" the insurance for this vehicle is provided by the State of California. This is a benefit provided to the Legislator's, and as such these "risks" are not underwritten. In other words, if you are elected to the California Legislature, and you are legally entitled to drive, you are automatically insured in the State's vehicles no matter how bad your driving record.
In a "normal" underwriting structure an insurance company would certainly review this type of claims history, and I am guessing that many, if not most companies would now be trying to divorce themselves from the risk that Sen. Migden represents, if they hadn't done so already. At the very least, she would presumably be paying some hefty surcharges for this accident/claims record.
However, the citizens of California don't get much of a voice in the matter. The State of California is "self-insured" and as such, is on the hook for these claims. Short of a change in State Policy this practice will continue, and I doubt that these legislators would vote to end this benefit.
What is the effect of this lack of underwriting? The article listed above mentions that the State's annual "frequency" of claims is 22.5 per 100 vehicles, which compares with 14.8 per 100 vehicles for California drivers in general. That is approximately a 52% higher frequency than the general population.
Most insurers attempt to write "better-than-average to average" drivers, or at the very least price in additional charges for drivers who are "worse-than-average". Taking on anyone who walks in the door, or in this case, any legislator makes for some bad risks.
This is the reason that insurers cancel folks after they've had accidents, or don't write new business that has previously had bad experience. If an insurer is not allowed to weed out the bad risks, they end up with much higher claims expenses than their competitors. In this case the California tax-payers are the insurer, and they are the ones footing the bill for this program.
Within an insurance company, this would have some pretty dire consequences. If you are not allowed to get rid of these bad risks, your rates must increase to pay their claims. In essence, the good drivers are forced to subsidize the bad drivers.
Good drivers, who don't like their insurance rates increasing start to shop around. If they find a better deal, they will leave. The bad drivers, tend to stay put, because nobody else will take them on, or nobody else offers them a more attractive price for their coverage. If not kept in check, this can cause a nasty spiral of higher premiums, higher claims expenses, and a shrinking book of business.
This type of "death spiral" doesn't apply to the California situation necessarily, but it does point out that the tax-payers are paying for careless drivers, who are driving some pretty fancy cars. If I was a California citizen, I would be loudly protesting this program, starting with providing brand-new high dollar vehicles to bad drivers in the first place.
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