Is there insurance for that?

Woman thinking

Originally Published in Isthmus on April 13, 2017

By Joe Tarr

CUNA Mutual finds a way to insure people against job loss and more

After Steve Millen began to hear rumblings last year that the company he worked for might be in trouble, he started searching online for ways to prepare for a job loss.

“I’d never drawn unemployment,” says Millen, who lives in Stanley, Wisconsin. “I didn’t know what it covered or what it did.”

While surfing online, he stumbled across an article about SafetyNet, a new type of insurance designed to protect against job loss or disability. “It was just cheap,” says Millen. “So I signed up.”

He promptly forgot about the policy — and the $20 automatically getting deducted from his bank account each month. In December, the management company he worked for did in fact shut down.

So Millen began collecting unemployment and also scrutinizing his spending. That’s when he remembered the $20 premium he was paying for SafetyNet. So he filed a claim and was mailed a $6,000 check.

For Millen, that amounts to an extra four months of unemployment benefits as he searches for a job.

The insurance policy that Millen benefited from is the brainchild of Madison’s CUNA Mutual. The company is creating a new type of insurance geared toward the needs of the working class. Mark Greene, CUNA Mutual’s director of innovation and business development, compares SafetyNet to insurance that companies buy for “business interruption.”

“A tree falls on your business or something happens with your supplier and you’re unable make an income — there’s insurance that covers that,” Greene says. “This is a personal analogue to it that doesn’t really exist. There’s no landscape for it, but we think there should be.”

“We’re giving people cash because their income has been interrupted for some reason,” he adds.

So far, SafetyNet exists in just two states, Wisconsin and Iowa. But CUNA Mutual is slowly looking to roll the program out around the country, with plans to operate in four or five states by the end of the year. And the company is looking at ways to protect against other types of risks not traditionally covered by insurance.

“There’s a vacuum of financial needs for people that is not served by the major banks, Wall Street firms,” says Dan Kaiser, senior vice president for CUNA Mutual’s innovation center. “We locked into one in particular, this cash flow problem, which is growing. As a mutual, and a company, our philosophy is to help people.”

Greene says the company is committed to returning 70 percent of premiums to consumers. And it has put a 5 percent cap on profits, donating anything over that amount to charity.

Joan Schmit, a professor at the UW-Madison School of Business, consulted with CUNA Mutual on the project. Initially she was skeptical because policies of this type aren’t typically worth it.

With typical insurance, Schmit says, for every dollar of premiums “maybe 70 cents pay for losses and 30 cents go to pay for expenses.”

“In many small-value policies, it’s 50-50,” she adds. “That’s not typically good for the consumer.”

The reason that smaller policies pay so poorly is that an insurer’s fixed expenses are hard to reduce. But Schmit says that SafetyNet has been able to improve the ratio by using new technologies. For instance, there are no insurance agents hawking policies.

“You just buy it online, so there’s no commission going to an agent,” she says. “And they’ve made a commitment to a pretty high percentage of the premium going toward losses. I think if they fail, they will just shut it down.”

CUNA Mutual rolled out the program slowly and found that it wasn’t necessarily an easy sell, Greene says.

“The way that it’s paid out in a lump sum, consumers were just confused. ‘What is this?’” he says.

At the same time, the policy sparked interest from higher-income people looking to be insured for even higher amounts.

Greene declines to say how many policies have been sold, but says that growth has been steady. Sales have been particularly strong in Milwaukee.

Schmit doesn’t usually like small, limited insurance policies. “I’m not particularly a fan of individual causes of loss. For example, I prefer to have health insurance that covers any health care need as opposed to cancer only,” she says. “[SafetyNet] has two causes of loss — unemployment and disability.”

Nevertheless, she understands that broadening SafetyNet could be extremely complicated from an underwriting perspective.

Some who have purchased the policy have asked CUNA Mutual to expand it to cover other types of risks or problems. According to a Federal Reserve Board survey, 46 percent of U.S. households would struggle to pay an emergency $400 expense.

Could the company insure against a divorce? Or cover a crippling bill for car or home repairs? Could a parent buy a policy for a child who has recently graduated, in case the child loses a job?

Jack Daniels, president of Madison College, is intrigued by the possibilities. After seeing a presentation on SafetyNet last year, he shared with CUNA Mutual that many of his students end up dropping out of school with just a semester or two to go before graduating.

“We have many students who have life issues that come up,” Daniels says. “They want to stay on track but don’t have the resources.”

CUNA Mutual is trying to develop a policy that could cover these students. “We’re working to see if that’s something we can even do, but it fits squarely within our mission,” says Greene. “If we can get [students] through the next five or six months, they get their degree and go on to a job, that puts them in a much better financial situation.”

One of the reasons that CUNA Mutual has been moving slowly is because it is wary of predatory firms exploiting the market. Could companies offer a similar product but with much worse terms?

“It’s always a worry when you’re dealing with a financially vulnerable population, not always the most financially savvy or discerning,” Greene says. “A lot of our consumers aren’t banked, they’re paying for things with prepaid credit cards and don’t trust financial institutions. We worry the population is seen by other businesses as ripe for opportunity.”

Ultimately, CUNA Mutual wants others to sell this type of insurance, but it wants them to be reputable. CUNA Mutual hopes that states require high payout ratios, close to its own 70 percent target.

“Insurance is nothing more than a lot of people putting money into a pot, and the people who have a loss are the ones who take the money out,” Kaiser says. “In a perfect world, you’d have no administrative costs, and 100 percent of the dollars that go in would come back out.”

Reputable insurance companies have a return of 60 to 65 percent for auto and home policies, Kaiser says. He believes that SafetyNet will take off, and he wants there to be high standards.

“That’s our way of showing we’re not going to keep a bunch of profits,” Kaiser says. “We’re going to find every way we can to give people a way to efficiently protect themselves.”

Another concern would be if conservatives push to use policies like SafetyNet as a replacement for unemployment benefits, essentially shifting the expense to workers.

“We hope it doesn’t happen,” Greene says. “We would not support that, but it’s not our choice to make. We’re not setting ourselves up to be a replacement. We hope we operate as a supplement, not a replacement.”