Welcome to another edition of Shop Talk where we discuss what’s going on in our personal points & miles space and highlight what we think is interesting in the broader space as well. This is the kind of “Shop Talk” many of you are engaged in on a daily basis, so feel free to discuss with us in the comments section.
Self-insurance is more commonly applied to large companies taking on the risk of providing insurance for their employees rather than farming it out to a 3rd party. The company’s assets relative to their risk pool is such that they don’t have to take on the burden of paying an outside agency to manage the risk.
But self-insurance can be applied to some aspects of personal finance and travel, and it came up a couple of times in the episode.
At around 23:00 Matt discusses the notion of paying less for a port excursion on a cruise by booking directly with a local company instead of booking through the cruise ship. One thing cruise operators do to scare you into buying excursions through them is by saying the ship will wait for you if you’re running late on a tour booked through them.
Similarly at 27:00 Matt describes how he handled an international flight cancellation due to a mechanical irregular operation.
Building up confidence in our abilities to navigate a situations gone awry is both mentally and financially empowering. Sam, I know this concept resonates with you as well. What are your thoughts, perhaps some ideas big and small, on how we can all benefit from self-insurance?
Sam: Just a quick thanks to Matt for coming on here to discuss this topic. Also a thank you for the support, on the phone, in person and online. I appreciate all of it.
I’m pretty well insured, personally and on my property. But I view insurance not as stored value, but as protection against catastrophic issues. I’m insured in a way that I have more control over my money (because I have more of it than if I over insured). The basics of milenomics could be argued to be similar, that we need to know what’s best for us and be experts ourselves WRT travel.
That’s why I think Matt’s podcast comments are so important for travelers. As savvy as we are (or should aspire to be), we likely have more tools at our disposal than any one company we deal with. Think about it…you likely have millions of miles in a half-dozen or more programs.
You have purchase protections built into cards you hold that are ‘good enough,’ and you book tickets that are flexible enough that they could be cancelled with little or no penalty. (Add links)
To answer Robert’s question directly, some small tips I can offer are to be aware of your surroundings. That’s true once you land but it also means familiarizing yourself with other routes and backup plans.
I always do one last check the day before my flight and see if there is a later option, just in case the worst happens. Yesterday’s 830am flight had a 955am with plenty of space on it. I spent maybe 2 minutes on that research, and never needed to use it. But had a wild card happened and my family missed our flight I would have started all my conversations focused on getting onto that 955. This gives the person helping me something to actually help me with, and something reasonable. I’m not asking to jump alliances or try to jam onto a packed flight. It is realistic and actionable.
Larger picture the best advice I’d offer is: don’t be afraid. Self insurance is the modern version of American frontierism! You can buy insurance for anything. But then when things go wrong you’re dealing with an agent of a company who has to attempt to make you whole.
I have a few examples of the same kind of vague discussions Matt outlined in the podcast, whereby no one at Allianz or whoever wants to say you have a surefire claim, they instead keep it real vague. This doesn’t actually bring you the peace of mind you think your insurance is bringing you.
Matt, what’s your take on self insurance, both personally and for travel? And any tips as well?
Matt: I see insurance as ‘research commoditized’. Conceptually, you could look at it like Active vs Passive Investing. The insurance company wants to sell as many policies as possible (owning the Passive Index), and ideally to the lowest risk group (akin to a French Fama SMB tilt) whereas the buyer of insurance wants to cherry pick a policy for circumstances that are favorable to them. Some things simply ‘must’ be insured, such as homeowners or Flood insurance connected to a mortgage company, others are more optional.
For the savvy buyer you can see opportunities that are clearly a smarter bet for buying insurance. EG, if you have unique knowledge of a certain oceanic passage, such as the Francis Drake Channel, you are more likely to know whether a ship may pass through it or not in any given season based upon local, real-time data (wind/heat/bird migration signals). An insurance company will never have this granularity, so must rely more on averages. While that seems extreme, it is possible to use local knowledge of flight delays and traffic, or hurricane season in order to determine how risky your trip is. Similarly, if you know you have baked in additional time to get from point A to point B and you are on a common route, such as New York to Miami, you’re probably going to be just fine. If you are flying on the same day as a cruise from an airport in the midwest with one flight per day, you can see the risk spike. Conversely, if you are too busy to think about all the aspects of such a trip, buying regular insurance might be the smarter move.
I think that this brings us back to the Money:Time equation. Time is a finite commodity, and at some point, if you want to do more, you need money to buy someone else’s time to help leverage the hours in the day.
The topic can somewhat polarizing because people are at different phases in life. When one person states it is a good idea to buy Life Insurance, some people may rightly argue it is not. Trip Insurance is very much like that. As a crowd known for spotting deals, and one step away from Extreme Couponing, selling the concept that you should pay to insure can be a tough one. Self Insurance resonates with the people who would happily spend 2 hrs every evening to buy and liquidate gift cards, and while doing so receive income in exchange for their time (a second job). For many people, including myself that exchange of time has been a smart move, but also a time may come when they decide that it no longer is.
So as much as I like the idea of Self Insurance, and I talk about it a lot, it is most naturally an extension of the sale of your time, vs the purchase of coverage that requires less thought and planning. If you have ten tasks to get done at any one time, buying the insurance makes that seven. Remember that you have flights/hotels/incidentals as modules or components of the trip, and if you were to insure it fully, you’d need to become aware of the unique risks and resolutions that can be made at each point. Yet again, Lifestage is very important, if you’re 21, healthy and a male, I think that you’ve got more personal capacity for risk/being stuck in an airport or railway station than if you are older, or have a family, or are a solo female traveler. This capacity to absorb downside risk is an important factor.
Wealth is a different layer, it allows you more options. Your capacity to absorb is less important if your capacity to pay (for a losing insurance bet) is higher. There’s a balance here between the idea of waiting until you ‘get rich’ to spend, and remembering that if you spend you have more ability to accumulate wealth by focusing on other tasks instead of keeping all the self insurance rules in your head.
The notion of when to pay vs when to self insure also can be cyclical. It might be that when you’re broke, but you are studying for the Bar Exam or Med School that you ‘outsource that part of your brain’ by paying for insurance. Two years later, you might self insure, a year after that perhaps you buy again.. it doesn’t need to be linear, but rather based upon demand and desire.
The final piece for Self Insurance has to be portability of data. When we self insure we’re often thinking about the bad, but not terrible scenarios… a delayed flight, or lost luggage. If we know how rectify these via a credit card benefit (if any remain) or by having a stash of back up Avios for alternative bookings then that is fine. However, if the event you are insured against happens to be that the Primary is incapacitated, then you will quickly see gaps in your system. I find that as with finances, there’s often a Primary and Secondary in a relationship, and it can be that the other partner/spouse doesn’t understand points/miles or credit cards, they like flying in First for Free, but they don’t really know how it works.
If their job is to initiate a ‘Self Insurance Protocol’ because the Primary cannot function, there could be some real problems. Further, it doesn’t need to be as dramatic as a health related incident, but perhaps as mundane as Primary is separated and has no power on their phone, so the Secondary must fend for themselves. The ability to have data that is transcribed and portable (such as using Asana, or a Shared Google Doc) and instructions for use (who to call, which credit card you used to pay, what to do) are an important consideration. This is another example of how changing from a Solo to Group travel changes your systems, and how it can be easier to Self Insure if your capacity for managing failure is higher.
Robert: Wow. Great stuff, guys. Both of you.
As I think about this topic, while reading what you wrote, it occurs to me how frequently someone tries to sell us insurance. It really is everywhere.
I find it helpful to have conceptual principles in my head for this stuff that I can store away for later reference. A mental database like we discussed in our latest Shop Talk. Things like “insurance is meant to protect against catastrophic loses” or “term life insurance (rather than whole) is all you need”.
These mantras don’t 100% define every buy/no-buy insurance decision but it does give me the confidence to say “no, thanks” when a salesperson makes that last attempted money grab at the end of a transaction.
Like, have you ever bought a pair of $29 headphones at a big box electronics store? The cashier is prompted to sell you some type of insurance on this item. It feels like they’re hoping for an extra 10 or 20% on everything they sell. On the decision side it’s an easy, “I can weather the storm if these things break. I’ll pass”
At the extremes (very little items like this, or very big items like your home) it becomes obvious what needs to be insured and what doesn’t. The harder decisions are in between.
Should we buy an extended warranty on a new car? Should we buy long-term disability insurance? Maybe an adequate umbrella policy to protect ourselves from unintentional liability is more important than protecting our dwelling? It gets complicated.
Circling back on a point Sam made, and conflating it with a point Matt made, the insurance sales process preys on our fears and attempts to use money as a way to give us peace of mind and free up cognitive bandwidth.
But in reality, I find it often does neither and we’d be better off without it.
I’ll give you an example.
When our boys were very young, my wife and I bought an upholstered sofa from a local furniture store. The fabric my wife selected was light in color and with two young boys in the house we were worried it would quickly get marred by their shenanigans.
The furniture store offered insurance whereby for $99, the sofa (and 3 other pieces we bought) would be insured – even against damage inflicted by our kids. What a deal! Sold.
A few months in, one of our boys took a red marker to the light-colored sofa resulting in a 4-foot long stain.
This seemed like a perfect thing to leverage that insurance we bought, so I filed a claim. However, it was denied because I didn’t submit the claim in a timely enough manner.
I wrote a quick blog post about it and as it turns out many others had the same experience with Guardsman, the company that sold the insurance. That post got more comments than anything I’ve ever written and I was approached by a law firm to join a class action suit.
I declined joining the class action. It just wasn’t worth it. It wasn’t worth buying the insurance in the first place and as I look at that sofa now, I can’t even see the stain. If I did, it might even be a pleasant reminder of when the boys were younger.
Bringing this back to travel, if I’ve got 10 things on my plate I don’t feel like buying supplemental trip insurance knocks 3 things off my list. I feel like it adds another purchase decision I’m burdened with. I’m not sure what I’m buying, and I feel my claim might be denied on some technically like that $99 sofa policy was.
That said, the slickest sales pitches come directly from brands you trust, bundled in as an addendum to the purchase process.
The Honda Pilot is a reliable automobile, but don’t you want the peace of mind that comes with Honda Care for $2,499? Sure you could buy the exact same insurance from another Honda dealer after the initial purchase for more than 50% off, but if you buy now you can wrap this purchase up and be on your way!
Or how about insuring that Disney Cruise? Mickey strongly recommends it! You just spent $5,000+ dollars on your vacation, are you willing to gamble this money? It costs just 10% of the cruise, and there’s a 17% you’re going to need it. Why not check this box and give yourself peace of mind while doing the right thing to protect your family?
One reason to do business with well-regarded entities, in addition to their ability to provide good products and experiences, is that they tend to stand behind what they sell – even if you don’t buy insurance through them.
So I’m done insuring little things. And vacations, even expensive ones, are optional. So rather than feeling exposed when I refuse travel insurance I feel empowered. Like a company that’s big enough to self-insure their employees’ healthcare.
Sam: There’s not much I can offer add, but after Robert’s example above I want to really stress that you’re putting your trust in to whomever is insuring you. Even though your credit card says they offer you trip protection insurance you’re not dealing with Chase Wells or Citi when it comes time to make a claim. You’re not even directly the insurance company’s client, so that leverage of taking your [future] business elsewhere doesn’t even exist.
I’ve found the claims process through these companies to be pretty bad. Instead, as Robert says above I’ve usually attempted to deal with good companies. When I had an entire trip booked and a hurricane *might* have affected us my trip protection insurance was very vague over their help. If the hurricane changed course (it did eventually) would they still cover us? They couldn’t say. Was I on the hook for my Airbnb which was non-refundable? They needed me to actually have cancelled and lost money first.
Instead I called Airbnb, who reached out to the hosts. They were not willing to refund me, but Airbnb actually did instantly refund me through their guest protection policy.
And that’s the real rub here…you’re probably already covered for some of the most major issues you’ll deal with. Familiarizing yourself with your exit options for the different companies you’re dealing with is important, just as reviewing your insurance policy before signing it would be as well.
My experience has been that travel companies would rather you be happy and stay at home than be miserable and upset. In a way they’re self insuring against negative reviews.
Matt, as I don’t get tired of listening to your take on this (or anything else really), what else might you have to say on the topic?
Matt: I think you both have nailed the important points here. I feel that the only point to add from my side is the notion of where I’m hoping to be vs where I am. I have two massive drivers at this time, and they intertwine into one. The first is the notion of removing myself from the equation: ‘how can I earn points without selling time?’ Or ‘how can my world operate without me pushing a button?’. I seek automation and systems for everything that should be automized and systemized. I then look at what cannot, and try to understand why. It reminds me of Database Normalization in terms of a process. The second, which is intrinsically linked, is what happens if I’m gone. Ultimately, this is the driver behind the first question. Can I create a world (work/life/travel) where if I were to stop functioning, can everything I’ve touched continue to the optimal resolution?
If I opt to self insure, it could result in the need to manage (call/nag) the process of being paid out. If I myself have ‘opted out’ of existence, is the gig gone too? There must be a price for that, the fact that I’m holding the strings, that I’m the ‘expert’. I now seek ‘zero’ everywhere, where if I were to elect self insurance it is something that can be picked up by someone else if I can’t carry it through, or perhaps it really isn’t a big deal in the big picture, if I can’t or won’t follow through the process of rectifying.
For Travel, because of the time constraints of an incident pre/mid trip, I think we also see a lot of fixing vs compensating. There’s a DYKWIA/Alpha flavor to needing to get a compensation result from a situation. I’d like to say that I’m aloof to this, but I also like to be aware as to when the counter party (Gate Agent/Check In Rep/etc) is lying/abusing their role. Ultimately though, ‘fixing’ is the key, since that involves completing the mission at hand, compensating is just a bit of icing on the cake.
An unfortunate distraction when considering self insurance vs ‘shelf insurance’ is that many of the traditional insurers seem to have folded in incentives to not pay out (such as the timeline for Robert’s red ink scenario, or just simple threats/pressure from a Rep who feels the urge to stifle the claim). We shouldn’t forget that there is an entire subculture out there that thrives on brand/corporate defense without any rational thought. I call this the ‘Gucci Gang’. If you walk into a fancy store, like Gucci or whatnot while dressing down and appearing like you do not fit you will see other humans exhibiting behavior that is irrational, they defend a brand or product over the human/interaction. You get a human earning $40K a year who refuses to talk to anyone earning less than $400K. You’ll find the same with a formal insurance policy. You will face a combination of a person who is compensated internally in conflict with supporting the customer (KPI based to not pay a policy) or that is ignorant but scared to show that, so intimidates the customer to not push further, or who thinks that the customer is actually the enemy, and serves the company instead, a short-term vision vs the big picture.
But again, we’re borderline Couponer’s at heart too. When shopping for insurance the savvy among us will seek an online marketplace where we see price $X for coverage a,b.c,d..n. We don’t think to ask if there’s a firm with a good reputation, we just want to buy the insurance at the cheapest rate.
Back to my mission: to remove ‘me’. This is where I disagree with the comment about forging a ‘mental database’ as mentioned earlier. That still pushes the brain-drain on the Primary and still results in a lot of problems if the Primary isn’t available. If possible, the goal should instead be to create a system that everyone in the family sphere can access and trust. Again, it lends towards paying for a service vs creating a shared lexicon of knowledge, but perhaps that is the key. It is easy to be a Superman Primary, to read all the blogs and know all the tricks, but if your responsibility is really to ensure your broader circle (family/friends) is protected in the time of need, then you either need to kick in the extra effort to codify your ‘Self Insurance Mental Database’ or to buy something that ensures that they are covered.
Robert: Great stuff, guys. That’s a wrap for this week. Our sincere thanks once again to Matt for joining us here on Shop Talk.
You can follow Matt on Twitter @Saverocity, visit the Saverocity networks of points/miles/personal finance blogs at http://saverocity.com, and check out the Saverocity Forums at http://saverocity.com/forum.