There is a difference between unemployment insurance (part ofthe New Deal's Social Security Act) and “wage insurance,”apparently a little-known private coverage sold by banks and someinsurers (“IncomeAssure”) that applies to the difference betweenwhat a worker over 50 was earning before his or her job waseliminated by technology or sent overseas, as long as that job hadbeen paying $50,000 a year or more.

The insurance money can be used to re-train the employee fordifferent work, or simply pay the difference in wages, reportedRobert J. Shiller in the March 13 New York Times, citing astudy by Lori G. Kletzer of Colby College and Robert E. Latan ofthe Council on Foreign Relations. As state unemployment benefitsare limited, such policies can pay up to 50 percent of a higherincome worker's prior wages before unemployment.

It is a form of financial guarantee insurance. The insuranceindustry was badly burned in the “credit default swap” coverages itwrote before the sub-standard mortgage bubble burst in 2008. Theunemployment peril (like all the social insurances offered bygovernment, including, unfortunately, flood insurance) isuninsurable. The maximum exposure cannot be defined, there would beadverse selection, and in a real economic disaster — something akinto the Great Depression — there would be no way to control orreduce loss.

If (or some say “when”) such a financial disaster strikes, it isnot only going to be the guy at the car wash who loses his job, itwill be people like adjusters and claims executives who will bereplaced by computers and Asian telephone answering services. “Joe”in Bangalore may be able to take over your computer electronicallyand get it to work, but is he going to be able to settle the claimof the pedestrian you just ran over, who is already on his way tosee a lawyer?

Social work or adjusting

Having spent many years in the field of social work beforegetting into the insurance claims business, handling a “wageinsurance” claim seems, from the NYT article, to be morein the line of social work than claims adjusting. Suppose JenniferJackson, a mid-level executive with the XYZ Company, has purchaseda “Wage Loss” policy with M&M Indemnity Company. The limits ofthe policy are $500,000. She was earning $125,000 a year, plus$50,000 worth of additional employee benefits. XYZ has decided tomove Jennifer's division to Manila, and because she has a husbandand three young children in New York, Jennifer declines an offer tomove to Manila. The claim assignment hits the adjuster's desk.

How would the adjuster go about handling such a claim? First, itwould be necessary to review the policy. Can she turn down thetransfer and still collect? Are benefits included in the loss? Isthe full amount of wage loss covered, or just the amounts over$50,000? Can taxes be deducted or are insurance benefits taxable?Is job-retraining included, and if so, for how much and for howlong?

Maybe Jennifer wants to go into real estate and elects TrumpUniversity to learn negotiation. Maybe it would be cheaper to payto transfer Jennifer's family to Manila, and if she refuses, limither claim to that amount of costs. Maybe M&M could find her asimilar executive position in Chicago; would the coverage pay thecost of moving the family to Chicago? But what if Jennifer's jobwas in Birmingham, Alabama, not New York and the new job is in LosAngeles, where comparable housing is 500 percent or more than inBirmingham? Will the policy pay the difference?

When I first entered the insurance business examining old deeds,mortgages and liens for a title insurance company, no one had everheard of “computer insurance” or “credit default swaps.” There wasno federal flood insurance or many other kinds of insurances withwhich adjusters now deal. This has always been the case, and newcoverages will constantly be created to meet new and unusual needs.Adjusters, if they are to avoid becoming victims of technologicalreplacement themselves, will need to prepare to handle new anddifferent types of claims.

Ken Brownlee, CPCU, is a former adjuster and risk managerbased in Atlanta, Ga. He now authors and edits claims-adjustingtextbooks. Opinions expressed are the author's.