Sometimes Insurance Gets A Bad Rap

Posted: June 28, 2009 in Actuary
Tags: , , , ,

Working for an insurance company myself, I found this story interesting:

Liability Issues Over Hudson Crash

The gist of the story is that AIG, which provides aviation liability insurance for U.S. Airways, is refusing to pay off the losses to passengers of the Flight 1549 which went down in the Hudson.  Now AIG has taken a lot of heat for the actions of the company, and a lot of it is deservedly so.  However, this is not an action that they should take heat for.

Insurance exists to cover specific things.  It does not exist as a pool of money to be collected from any time something bad may happen.  Specific events must occur to trigger coverage.  In the case of liability insurance, it exists to cover the insured for costs incurred in the defense and settlement of claims of negligence.  In this case, not only should AIG defend U.S. Airways, it has an obligation to do so.  From all appearances, the actions of U.S. Airways was not only not negligent, it actually exceeded what could reasonably be expected.  Those passengers are lucky to still be alive.

I found some of the passenger comments interesting.  One does not understand why they should have to pay out of pocket, claiming that’s why the insurer is there.  Um, insurance certainly does not exist to ensure that no one ever has to be pay out of pocket for any accident ever, regardless of the circumstances.  Another passenger thinks that offers of money in return for a release from future liability claims is disingenuous.  I hate to tell you this, but no company makes it a practice to hand out free money.  If they are giving you a check, they want something in return, even if it is nothing more than goodwill.

It is terrible that these folks had to suffer through a plane crash.  But it could have been a whole lot worse.  Sometimes accidents happen, and no one is at fault.  In these cases, you shouldn’t expect just to be compensated anyway.  (Of course, insurance does exist to cover losses where fault does not have to be established.  This would be such coverages as health insurance.  Homeowner’s insurance may well cover personal property losses here as well.)

Some things that some insurance companies do deserve the public’s scorn.  Please do not think that this is one of them.

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