Insurers Find Religion (from the WSJ)

Here's an interesting tidbit (from the Wall Street Journal Online edition):

If you attend religious services regularly -- or work as a firefighter, or drive a station wagon -- your insurer might want to cut you a break.

In an effort to cherry-pick more-profitable customers, insurers are rolling out new programs targeted to specific groups they believe pose less risk. One of the most recent entrants: GuideOne Mutual Insurance Co. of Des Moines, Iowa, last year began offering FaithGuard, an auto and homeowners policy that waives insurance deductibles for accidents that occur on the way to a religious service, and provides extra coverage for stolen religious materials.

The most popular feature of the policy, though, may be the company's promise to replace tithing donations if a covered driver is disabled in an auto accident. The program has struck a chord with Independence, Mo., insurance agent Derek Savage's customers. Around 75% of his 300 or so auto and homeowners policyholders have signed up for the no-extra-fee coverage.

Click here for the whole thing (subscription required).

I think it's an interesting story for a couple of reasons. First, because I think it's a good example of how increased computing power (and better models) have made it possible for companies to identify profitable niches. Today's average notebook computer is probably more powerful than the average mainframe ten years ago. As a result, financial services companies have become much better at data mining to identify underserved and potentially profitable markets.

However, there's also a part of me that cringes at the idea of people probably being sold insurance on the basis of benefits that really aren't that valuable (like waiving deductibles for accidents on the way to/from church or replacing tithing payments). It reminds me of how life insurance agents used to tout the accidental death benefit. They'd say, "if you die in an accident, your coverage doubles. And that's for only pennies a month". So, instead of buying the coverage they need, prospects would end up buying a much lower standard amount amd depending on the ADD coverage. But, there was a reason it was cheap - chance of an accidental death was pretty low.

Maybe the boys at RiskProf have some thoughts on the matter - insurance is much more their bailiwick than mine.

Does Insider Selling Matter?

From time to time, you'll read reports of one corporate insider or another selling shares. This is often followed by an interpretation that the sales signal trouble for the company. Unfortunately, insider sales are often motivated by other factors, like the need for liquidity (maybe Junior crashed the Porsche) or a desire to diversify holdings (insiders get a lot of stock in compensation packages, which ends up in their having an overly concentrated portfolio).

Insider purchases, on the other hand, are usually a much more reliable signal. The Motley Fool has a good piece on insider selling that expands on these ideas. Click here to read the whole thing.

If you're interested in learning more about using insider trading information to make investment decisions, Nejat Seyhun's book on insider trading Investment Intelligence from Insider Trading is probably the best treatment of the topic I've read. He's got serious academic credentials on the tropic (he's done more path-breaking work in insider trading than anyone else). It's not only extremely thorough, but also a pretty easy read (it's written for the layman).

Product Warnings (from Overlawyered)

When I teach the introductory finance class, I teach my students that limited liability is one of the reasons corporations comprise most of the really large firms (rather than sole proprietorships or partnerships). To show the downside of not having limited liability, I give a examples of stupid lawsuits, or examples of product warnings that thwart the evolutionary process.

M-LAW's annual Wacky Warnings awards provide a lot of good examples of stupid product warnings. This year's winner: A heat gun and paint remover that produces temperatures of 1,000 degrees and warns users.

The warning? "“Do not use this tool as a hair dryer"

HT: Overlawyered.

Dealing With Car Salespeople

Planning on buying a car any time soon? When I used to teach a personal finance class, I spent a good week on buying a car, since this is the single biggest purchase (outside of a house) most people ever make. Before you start down this road, make sure you spend some time educating yourself not just on the make and model you'll buy, but also on the car buying process.

The Motley Fool just ran a short piece on car-buying, titled Tips for Dealing With Car Salespeople . It's got a lot of useful tips, and a link to another article titled Confessions of a Former Car Salesman. I'd highly recommend both as a start.

Remember - car dealers are expert negotiators. So, before you go into the lion's den, educate yourself about negotiating tactics. I've mentioned this several times, but the single best book I've ever read on this topic is Roger Dawson's Secrets of Power Negotiating. It does a great job of not only giving specific strategies, but also of giving a good overview of the process of negotiating almost anything (from a car to your work assignments). At less than $15, it'll pay for itself many times over (and there's even an audiotape version).

Calculated Risk: Mortgage Spread

Here's an interesting fact for the next time you teach about interest rates: the spread between interest rates on 30-year mortgages and ten-year Tressuries has increased by almost 50 basis points (a half percent) over the last year.

So, what caused the change?

It's probably not due to changes in the yield curve, since the duration of 30-year mortgages is somewhere around 10 years, or even a bit less (mortgages tend to get paid off or refinanced well before their term).

What's more likely (as hypothesized by Calculated Risk) is that it's driven by investor perceptions of risk in the mortgage-backed securities (MBS) market. Today, most mortgages are "securitized" (packaged into portfolios that are used to back securities issued on the cash flows of the portfolio). So, if MBS investors view them as riskier, prices drop, and rates on these securities rise. Of course, this feeds back to the mortgage market, which could partially explain the rate increase.

Mungowit's Law On Unpublished Work

Dang. Lately it seems like I end up referring to Mike Munger's blog on a daily basis. That's because he has a lot of good things to say, and he says them in an interesting and amusing way (with a huge dose of attitude). Here's his latest, which he calls Mungowit's Law:

Everyone's unwritten work is brilliant.
Everyone's written but unfinished work is excellent.
Everyone's finished but unpublished work is good, but they won't show it to you.
Everyone's published work is...well, most people don't HAVE published work. They are too busy talking about how brilliant their unwritten work is.

He takes it from a piece titled "Scaling the Ivory Tower" (in PDF format) for which he was one of several contributors. It contains extremely good advice for academics just starting out (both in grad school and new assistant professors). Skimming through it, I noticed that it echoes Boice's advice to write every day.

Enough Type B Procrastination. Back to work.

Keeping Your System Free of Spyware

In case you've never taken the plunge, here are some tips from Spyware Confidential on how to keep your system free from Spyware. It's a lot easier to prevent it than to cure it - one of my old systems was so riddled that I had to reformat everything and start over.