Warren Buffett is promoting a new insurance product called THREE, a multi-line insurance product for businesses. THREE includes property, liability, auto, and Workers Comp, using a unique and simplified policy form.
This article explores some of the possible advantages and deficiencies of THREE in some detail.
Me, since my primary beat is Workers Comp insurance, I have to worry about anything that eliminates the element of standardization in Workers Comp insurance. The existing policy form created by NCCI is cumbersome and not always easy to understand but it does have the benefit of being pretty much uniform--which is a useful thing for those who must buy this insurance, as business owners really don't want to have to worry about whether the policy from company A really provides the same vital coverage as the policy from company B.
Of course, when it comes to how premiums for Workers Comp is figured, uniformity has already been substantially eroded--particularly by Mr. Buffett's company Applied Underwriters. That company's policies have often featured a premium mechanism that was essentially incomprehensible and impossible to predict by policyholders, a mechanism that often produced much higher charges than the business owners ever expected.
Buffett has put Applied Underwriters on the auction block, though. But that company illustrates what can go wrong when someone decides to shake up the established Workers Comp format.
When I first entered the wonderful world of Workers Comp insurance, some forty-some years ago, uniformity of policy form and rates was viewed as a bedrock virtue. Then that got eroded over time, at least as far as rates and premiums, with mixed results IMHO. But getting creative with the policy form? Particularly in an insurance program that appears geared towards small business?
The road to hell is paved with good intentions, they say.