A new idea: Do The Right Thing Insurance

This week I’m taking a break from posting my notes on the Jim Collins book Good to Great to share an idea I had yesterday.  The idea is Do The Right Thing Insurance (DTRT for short).  I came up with this while thinking of an accident I was involved in last year.

Last September I was asked to speak at a retreat.  I was having lunch with the participants in the facility’s buffet hall when my chair collapsed from beneath me.  I wish I could find a picture of the chair online so I could show it.  Most folding chairs are designed so the seat rises as you fold the chair, but the ones at this establishment had a weird mechanism where you lift the seat a bit and then push down.  The chair folds flat as the seat folds downwards.

When I was done with lunch I picked myself up slightly and pushed the chair back with my legs.  The chair’s rubber feet caught on the rug, and instead of pushing the chair back it caused me to lose my balance.  I fell into the chair and it started to lean backwards.  I wanted to get my point of balance leaning forward again so I twisted my body.  I grabbed the back of the chair with my right hand and leaned forward with my left shoulder.  Or, I should say, that’s what I tried to do.

Instead, as I tilted back the front legs of the chair and my feet lifted off the ground, and by leaning forward I gave the chair enough of a move that the seat started to fold down. Suddenly I had zero support.  The chair collapsed flat and I fell, straight down. Due to my position my right wrist took the brunt of my weight.

I’m a big guy, six feet tall and 230 pounds.  My wrist hurt.  The facility staff asked if I wanted ice but I declined. The pain went away after rubbing my wrist for a few minutes.  I did decide to file a report with the establishment though – as I told the manager, if the same accident were to happen to an elderly person their fragile bones could’ve easily fractured or broken.  I recalled this yesterday, wondering if they ever replaced the chairs.

I doubt it.  There were at least 200 chairs in that dining room.  Replacing them probably would’ve meant selling them for less than they bought them for, and maybe paying for shipping. They’d also have to buy new chairs and pay for them to be delivered.  Added up this could’ve cost hundreds, maybe even over a thousand dollars.  From the point of view of a CEO, that might not be worth the potential risk.  After all, the organization surely has insurance to cover them in case a visitor falls and gets hurt.  The deductible might be $1,000 or $2,000, and they might never pay that because an accident might never happen.

As a citizen, this strikes me as one of the downsides of capitalism.  Every day companies make decisions that balance money versus risk, even life and death.  Sometimes these decisions make the news.  I thought, “Isn’t there some way we could make this better?”  And so it came to me: Do The Right Thing insurance.  Here’s how it would work:

A business will have their regular property liability coverage (say $100,000 with a $2000 deductible) to protect them in case someone gets hurt on their property.  Then they can also buy a DTRT policy that covers $10,000 or $20,000 (with a deductible of $500).  The DTRT policy would cover any expense that the business owner can show needs to be done to make their business safer.  In the case above, they would be replacing poorly designed folding chairs that could cause a serious injury.  (We would exclude regular maintenance costs, though.  It’s not meant to cover the cost of fixing the brakes on your company car.)

Insurance companies will save money because it’s better to pay $10,000 to help a company become safer instead of paying a $100,000 claim for medical bills and legal fees.  Businesses would save money by paying a smaller deductible – small enough that it’s in the company’s best interest to spend that money – as well as knowing that they’re making their company safer.  Hurting your customers is bad for business.  Conversely, showing that you care about your customers can be good for business.  Also, rather than typical coverages where claims will raise your rates, filing a claim on this kind of coverage could be used to trigger a more complex algorithm.  Excessive claims could cause your rates to go up, but responsible use of the policy could trigger discounts on other coverages – because your business will be safer.

There’s been a lot of talk in the media lately about how expensive medical costs are in the USA.  The best way to bring down your exposure to medical costs is to not get hurt in the first place. DTRT coverage could be a very useful product by combining the invisible hand of the market with achieving things our society actually wants.

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4 responses to “A new idea: Do The Right Thing Insurance

  1. I think this is a pretty good idea, but I see two glaring issues. First, in your example, I’d find it hard to believe that an insurance company wouldn’t see it as a problem with the product itself and deny the claim as a product liability issue (even after warranties are up) and have you (or them?) seek replacement or refund from the manufacturer. Second, I’m no expert, but I’m pretty sure that insurance rates are determined (on the outset) by Actuary tables. In car insurance they take your age and the vehicle itself into consideration when determining your rates. In life, they want to know if you’re a smoker. Even in business liability, they look at tables with exposure information that are related to the historical claims or dangers in that particular industry. To create insurance to cover an unknown set of objects without knowing the risks of each of those objects seems impossible. Creating tables to determine the risks seems like a daunting, infinite task. Of course, they could just submit their inventory I guess–like businesses do when figuring depreciation for state taxes. I don’t know. Interesting thought, though. Keep up the good work. Love the blog! -Ken

    • Thanks for the comment Ken. The problem with the product I described above was not a case of the product not working as expected – these chairs were working exactly as they were designed to do. So the manufacturer wouldn’t accept there to be anything to warranty. They may or may not accept a return, but if they did I’m sure there would’ve been some financial loss to the event hall. (When I ran my ebay business I accepted returns from customers who bought the wrong RAM for their computer but they still had to pay to ship it to me.)

      But let’s play this out. Say I got hurt. I’d file with my health insurance carrier. My health insurance may sue the event hall. The event hall files a claim with their own insurance company. Their insurance company denies the claim on product liability grounds. The event hall then sues the chair manufacturer, who denies the claim saying the chair wasn’t being used as intended. If the event hall wins their case the chair manufacturer’s insurance company pays for the legal costs as well as my medical bills. If the event hall loses then they probably have an umbrella policy that will cover my medical bills.

      All of this is unnecessary expense. There could be 3-6 entities paying legal fees, months of deliberations, and in the end an insurance company is still going to pay. And they’d end up paying a hell of a lot more than if they just paid the DTRT claim.

      As for actuarial tables – I’m sure they’d figure out a way to make money at it.

  2. If the resort were to get new chairs, someone else would have bought the old ones cheap. Maybe some poorer resort with poorer clients, who would be less able to pay the medical bills from an accident.

    • The destruction of the chairs (and therefore loss of assets) could also be something covered by the insurance. I appreciate your comment though. If you have any other thoughts feel free to share them 🙂

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