Perilocity

ResNet for the Home: Why Don't Last-Mile ISPs Detect, Clean, and Insure Home Machines?

Colleges and universities often provide residential networks (resnets) for their students. There are companies that do that, such as Apogee Networks, plus value added services such as patching, installing, and configuring secure and virus-free software. Last-mile ISPs could do that too. They could go farther: they could detect, clean, and insure home machines.

Now they may not want to do this because they might incur legal liability. But that's what insurance is for. And they might not want to do it because it's not their core competence. But they could offer such services through a third party. Why don't they?

-jsq

Boutique Wildfire Insurance

Of course it's AIG offering this:

In 2005 the loss prevention experts at AIG Private Client Group created the first-ever personal wildfire protection program. This groundbreaking service is available exclusively to AIG Private Client Group policyholders who reside in designated response zones in the western U.S.

— Wildfire Protection Unit®, Exclusively for AIG Private Client Group Policyholders, AIG Private Client Group, accessed 9 October 2007

If you guessed that Aspen and Vail were among the designated response zones, you guessed correctly! And Los Altos and Beverly Hills. Good old AIG: charge what the traffic will bear and see if there's a market.

They have a similar hurricane protection unit.

Common Sense Lacking for Big Perils such as Georgia Hurricane or Worst Case Worm

Why it's not good to depend on common sense for really big perils:

The models these companies created differed from peril to peril, but they all had one thing in common: they accepted that the past was an imperfect guide to the future. No hurricane has hit the coast of Georgia, for instance, since detailed records have been kept. And so if you relied solely on the past, you would predict that no hurricane ever will hit the Georgia coast. But that makes no sense: the coastline above, in South Carolina, and below, in Florida, has been ravaged by storms. You are dealing with a physical process, says Robert Muir-Wood, the chief scientist for R.M.S. There is no physical reason why Georgia has not been hit. Georgias just been lucky. To evaluate the threat to a Georgia beach house, you need to see through Georgias luck. To do this, the R.M.S. modeler creates a history that never happened: he uses what he knows about actual hurricanes, plus what he knows about the forces that create and fuel hurricanes, to invent a 100,000-year history of hurricanes. Real history serves as a guide it enables him to see, for instance, that the odds of big hurricanes making landfall north of Cape Hatteras are far below the odds of them striking south of Cape Hatteras. It allows him to assign different odds to different stretches of coastline without making the random distinctions that actual hurricanes have made in the last 100 years. Generate a few hundred thousand hurricanes, and you generate not only dozens of massive hurricanes that hit Georgia but also a few that hit, say, Rhode Island.

— In Nature's Casino, By Michael Lewis, New York Times, August 26, 2007

And of course a hurricane did hit the Georgia coast before detailed records were kept, in 1898. The article notes that before Hurricane Andrew, insurers believed that a Florida hurricane would cost max a few billion. The actual cost was more like $15.5 billion, predicted only by one woman: Karen Clark, founder of A.I.R.

Sure, the Georgia coast doesn't have any single concentration of wealth like Miami. But it does have a swath of wealth that could be taken down by a single storm. And complacent owners who think it can't ever happen, just like people in Thailand didn't believe Smith Dharmasaroja before the 2004 Tsunami.

Meanwhile, on the Internet, the few insurers of Internet business continuity are winging it and most companies have no insurance at all, despite online crime becoming increasingly sophisticated, leveraging the global reach of the Internet, and the possibility of a global worm that could cause $100 billion damage still being out there.

-jsq .

To Insure or Not to Insure?

Iang reminds me that it was on his blog, Financial Cryptography, that I saw the rough estimate of how much an identity theft costs, that is, about $1,000.

He follows up on my post of yesterday about LifeLock, discussing a company called Integrity which insures identities in Second Life. Or, actually, insures any lawsuits resulting from "inappropriate content", whatever that is.

Then he gets to the real quesion:

How viable is this model? The first thing would be to ask: can't we fix the underlying problem? For identity theft, apparently not, Americans want their identity system because it gives them their credit system, and there aren't too many Americans out there that would give up the right to drive their latest SUV out of the forecourt.

On the other hand, a potential liability issue within a game would seem to be something that could be solved. After all, the game operator has all the control, and all the players are within their reach. Tonight's pop-quiz: Any suggestions on how to solve the potential for large/class-action suits circling around dodgy characters and identity?

— If Insurance is the Answer to Identity, what's the Question?, Iang, Financial Cryptography, September 11, 2007

This wraps right around to the original reaction of the person from whom I heard it (hi, Anne Marie) on a list that is silent.

I have several thoughts about this:

Identity Theft as Marketing Opportunity

Since identity thieves are making many people worried about losing control of their identities, of course somebody has found a way to cash in on all that free publicity:

By now you've heard the stories about Americans whose identities have been stolen. They're not pretty…people working for hundreds of hours over many years to get their lives back in order, kids not getting student loans because someone has already ruined their credit, people losing homes because thieves placed mortgages they never knew existed, even innocent individuals ending up in jail.

LifeLock can keep this from happening to you and we guarantee our service up to $1,000,000.

— LifeLock

I seem to recall reading that the typical identity theft is only worth $1,000, but nevermind that.

Look who recommends it:

You've heard Rush Limbaugh, Paul Harvey, Dr. Laura, Sean Hannity, Howard Stern, Dr. Joy and others endorse us.

Well! None of those people would ever sell pure fear, would they?

I have to give them credit for honesty, though: LifeLock admits right out that the main four preventive things they do you could do for yourself. Beyond that, the main substance they seem to offer is essentially an insurance package:

If your Identity is stolen while you are our client, we’re going to do whatever it takes to recover your good name. If you need lawyers, we’re going to hire the best we can find. If you need investigators, accountants, case managers, whatever, they’re yours. If you lose money as a result of the theft, we’re going to give it back to you.

For $110/year or $10/month, is such an insurance policy overpriced, underpriced, or what?

-jsq

Brooklyn Tornado

How soon they forget:

It wasn't just the tornado in Brooklyn -- the first in recorded history in the borough -- it was the huge quantities of rain that flooded basements and stranded rail and road commuters from Mineola to Midtown.

— End of the world as we know it? By Carl Macgowan, Newsday, 10:51 PM EDT, August 8, 2007

Sounds kind of like "who could have predicted it?"

Telemedicine Risk

Speciality Insurance blog points out that while remote medical practice can bring efficiency and cost savings (to which I would add better quality medical care to remote locations), it can increase liability. Malpractice insurance is merely the first step in risk management for telemedicine, since local laws may be different on each end of the link. And not only local laws, but local expectations, so you need to make sure all participants have appropriate expectations and monitor both those expectations and what actually happens.

Insurance Online (Finally)

When that most stodgy of businesses, insurance, moves online, the Internet will truly have woven itself into the fabric of everyday life.

Insurance is moving online one step at a time. Despite privacy continuing to concern users of the internet, consumers and businesses are putting more of their insurance buying process onto the internet. And Safeco recently announced their intention of having a significant online presence that will not include agents (see here), a move which has not been met with insurance agent enthusiasm.

Internet Use & Insurance Specialty Insurance Blog, July 18, 2006

Mega-Cats: What is Insurable?

Interesting post in Specialty Insurance Blog about mega-cats, i.e., catastrophes so large the insurance industry can't insure them, at least not without losing many small insurance companies.

There have been and will continue to be large scale disasters that the insurance industry is entirely capable of absorbing, including significant levels of terrorism and hurricane losses, as has been demonstrated with the events of 9/11 and the most recent hurricanes. What needs to be the focus of the discussions is the level of exposure that is above the insurance industry’s capacity, such as the mega-cat hurricanes (see here) hitting the most exposed areas that the experts are concerned about. There has not been much distinction between these exceedingly rare events and other catastrophes that the insurance industry can absorb - but may not want to.

Hurricanes Insurable? 8 June 2006

And of course there's the question of whether mega-cats will remain exceedingly rare or whether with climate change they will become more frequent.

-jsq

Long Island Perils

No, not a baseball team. The Long Island perils are what insurers think they are facing:

Allstate says it won't write any new homeowners policies in New York City, Long Island or Westchester County. Although Long Island hasn't been struck by a major hurricane since 1938, "The probability exists for New York to be hit," says Trevino. MetLife also is cutting back on new homeowners policies near the coast. New York's legislature is considering a bill to create a permanent, state-run insurer of last resort to provide wind and fire insurance for coastal homes.

Strapped insurers flee coastal areas By Marilyn Adams, USA TODAY, Updated 4/26/2006 12:27 PM ET

The same thing is happening in Florida and along the Texas coast. Some people may find it surprising that insurers also don't want to cover New York and Massachusetts coastal areas. Who would have thunk it?