RISCARIO INSIDER

August 28, 2010

DO FINANCIAL DOCTORS MAKE AS MANY MISTAKES AS MEDICAL DOCTORS?

"many a doctor is out of sync with patients and as a consequence often does them a disservice or makes preventable medical mistakes." — Canadian Medical Association Journal, Aug 23, 2010

Medical doctors are among the most highly trained professionals but they make mistakes. You probably know this from your own experience. Two years ago, identifying and treating a basic wart took six separate doctors.

We learn to print and write as children but doctors' bad handwriting kills over 7,000 a year. You'd think that injecting a needle would be a basic skill yet the CDC found that unsafe injection practices may have harmed over 125,000 patients since 1999. The Journal of the American Medical Association (JAMA) reports that medical errors cause 250,000 deaths in the US each year — the third leading cause of death.

Statistics don't tell the whole story but make great sound bites. For our purposes, let's consider the claims plausible or possible. Doctors don't intend to hurt you, yet that happens despite their high level of skill.

When you need help, would you rather deal with a novice instead? In many parts of your life, you do.

Look Around

You'll find mistakes abound when you look elsewhere too. That's not much consolation. At least there are tough requirements to become a professional like a doctor, lawyer, engineer and accountant. The barriers limit entry and make the designations valuable. That's a consequence of what Seth Godin calls The Dip.

What if the barriers were very low? Almost nonexistent? Welcome to the financial world. The ability to sell means often more than formal training or demonstrated ability.

Earlier this week, an investment advisor from a major bank knocked on our door. Is this the return of the door-to-door salesman? In the world of do-not-call lists and do-not-spam, door-to-door solicitation and junk mail are loopholes for interruptions. Lucky us.

When I'm interrupted, I look up the offenders. Try this yourself. Their business cards rarely show designations — not even a university degree. They rarely show up with a web search. If they have a profile on LinkedIn, don't expect much detail or (m)any testimonials. Maybe they have wonderful experience, but where's the proof? In a world of abundance, you've got lots of choice.

New doctors may cause a 6% increase in death rates among hospital patients. Couldn't a new or untrained advisor wreak havoc too? Regardless, count on paying roughly what the experts charge.

Why Education Matters

Education is what remains after one has forgotten everything he learned in school.
— Albert Einstein

School teaches us to think.Completing school takes discipline. Many drop out physically or mentally before graduation.

Yes, experts make mistakes too. When doctors admit theirs, they face fewer malpractice suits. The less competent in any field may not even know they messed up.

Low Barriers

Back in 2000, the last time we bought a Toyota, the sales manager said new salespeople would have university degrees. Imagine a world where selling cars takes more formal education than selling investments or insurance. Scary.

A framed degree on the wall may not prove much … except that the recipient had enough discipline, intelligence and determination to succeed. Maybe that matters to you.

Would you believe that 23% of patients had an adverse event after discharge? That's with well-trained medical doctors. What happens with your financial doctors?

Podcast Episode 81 (4:38)

direct download | Internet Archive page

August 22, 2010

THREE KEYS TO GETTING YOUR INSURANCE CLAIM PAID

"A pocket full of mumbles such are promises."
— Simon and Garfunkel, The Boxer

Your insurance contract is an expensive but worthless stack of paper if your claim isn't paid. A promise broken. As Warren Buffett says, promises vary greatly in their quality. You know that.

You can boost your chances of getting your (legitimate) claim paid with

an insurer with excellent corporate governance
an independent distributor with leverage with the insurer
an independent advisor with leverage with the distributor

These keys maximize your leverage when you need it most. The cost is minimal.

The Right Insurer

Corporate governance deals with companies keeping promises. This measure looks to the past but is a reasonable predictor of the future, especially for publicly-traded companies. Due to competition, picking a well-run insurer rarely costs you much more. The Globe and Mail prepares rankings.

The latest global financial crisis shows that bigger doesn't mean better corporate governance. Investors and taxpayers around the world learned this tough lesson. So you won't automatically pick the company with the highest score because other factors also matter.

If your advisor is independent, you'll likely get proposals from different insurers. Ask about the selection criteria. Was corporate governance a consideration?

The Right Distributor

Insurers are growing through acquisition to reduce unit costs, increase market share and eliminate competitors. You're stuck with less choice but may not get lower prices.

Fortunately, the independent distributors are growing too. They're often called Managing General Agents (MGAs).

An independent distributor promotes products from different insurers. A dependent distributor is generally owned by an insurer to promotes its own products.

Insurers don't like dealing directly with advisors — too many points of contact. The distributor is the intermediary. Also, the insurer can recover advisor debt from them.

Some independent distributors have better reputations and more clout with the insurers. Here is the just-released 2010 Report Card from Investment Executive. This link shows the main chart in PDF format. Don't worry if you don't recognize the names.Your advisor picks the distributor. Who did they pick and why?

The Right Advisor

Through your advisor, you'll get the distributor and access to the insurers. You want your advisor on good terms with all parties. If not, you lose by association when you need a favour.

You have full control over who you pick. Get this decision right and you don't need to worry much about the others. Here are three decision criteria to consider: chemistry, credentials and generosity.

Avoid an advisor who's a "squeaky wheel". Insurer staff don't like them. Who would? You may face unwelcome delays and anguish during the claims process. Your advisor will likely blame the insurer … even though they picked the company.

Since insurers set the premiums, you don't pay extra for picking a particular advisor. You simply need to be careful. Your decision affects everything else.

Exceptions Prevail

Insurance is an intangible promise on a piece of paper. You're dealing with people and ambiguity. A claims adjuster uses judgement to decide if you're disabled or have suffered a critical illness that qualifies under the terms of the policy contract. So requests for exceptions are routine. Some lead to changes in procedures. Others are special one-time arrangements. Many are rejected.

The nicer advisors and the larger advisors get more exceptions.

That's no surprise. That's how life works. You want the leverage on your side. An advisor who knows the inner workings of the insurers can help the distributor frame requests in ways that are more likely to get results.

Cutting Back

You've experienced the effect of companies trying to make more money. You might face higher prices, smaller sizes, slower delivery, tougher return policies, smaller selection or less service.

An insurer maximizes profits if clients pay premiums but make fewer claims than projected. Some of those savings may be passed on to you. For example, term life insurance is inexpensive because so few die. Getting you to cancel your coverage helps too. So you find incentives like a return of your premium if you cancel your critical illness insurance. The insurer wins because they keep all the investment returns and didn't pay a claim. You may gain more by keeping your coverage. Since you're older, you're more likely to make a claim.

If you or your advisor pick the lowest price, do you think that company is taking lower profits or are they making money by cutting back somewhere else? As a shareholder, what would you want them to do?

Survival

Bell Canada Enterprises owns Bell Mobility, Solo and Virgin Mobile. They share the same network. If there are network problems or enhancements, who gets top priority? Probably customers of the flagship brand.

In the world of acquisitions, bigger insurers are more likely to survive and to give their own clients preferential service. What's worse, experienced staff from the acquired company are often cut to reduce costs. So picking the right company at the outset is helpful — though you can't be certain which company is the right one. Your advisor can help in reducing the chances of guessing wrong.

Sad Cases

Here's a sad story about an insurer that delayed a death claim for 11 months. Imagine the family's anguish. Even then, intervention by Ellen Roseman seems to be the catalyst for payment.

There's the cruel world of bank mortgage insurance. You may think you're covered because you've been paying premiums for years. How would you feel to be told you never qualified when you file a claim?

External pressure from a journalist may help if you have a solid case and exhaust other options first.

No Guarantees

Insurers are likely to pay "obvious" claims. Otherwise you'd see articles in the media regularly and pressure to reform their practices. The government might even intervene.

The challenges occur when there's ambiguity. Human judgement isn't perfect and there may be financial pressure to deny claims — maybe not today, but in the future.

Insurance is about peace of mind. Why not boost yours with simple, inexpensive steps?

Podcast Episode 80 (7:46)

direct download | Internet Archive page

PS Visit the links for more, including touching examples.