- The Washington Times - Friday, February 27, 2004

“Your odds of winning the Nigerian lottery are one in six.” “Call now for your free Jamaican vacation.”

“Earn over $100,000 stuffing envelopes.”

In an effort to protect consumers, the U.S. Postal Service has just released a list of the top five mail-fraud scams: work-at-home dream jobs, foreign lottery tickets, get-rich-quick investments, pyramid wealth schemes and free-prize offers. These five are responsible for conning Americans out of billions of dollars every year.

Not surprisingly, however, the Postal Service’s awareness list does not include its own dubious scheme — postal insurance. Now here’s an operation that routinely dupes even the savviest consumers.

Although the Postal Service takes in more than $100 million a year to insure mail, it pays out claims at a rate so low it is almost laughable — around 16 percent of revenues. Of the $130 million the USPS received in insurance revenues in 2002 (the most recent figures available), only $20.6 million made its way back to customers whose goods were lost or damaged.

If the Postal Service were a private organization — as opposed to a government agency — such a low payout ratio would be scandalous.

“An indemnity/revenue ratio of 16 percent is unheard of in the insurance industry,” says Shelley Dreifuss, consumer advocate of the U.S. Postal Rate Commission. “No regulatory commission would permit [such] payout ratios.”

In the casualty-insurance industry, for example, the payout rate is around 67 percent. According to the American Insurance Association, when payout ratios fall below 50 percent, state regulatory agencies start hyperventilating. Unfortunately, there is no regulatory agency overseeing USPS insurance, so the Postal Service does not have to play by private-sector rules.

In what is called a “perverse twist” by a consumer advocate, some insurance revenues are used “to pay the salaries of the Postal Service claims personnel who nonchalantly deny the requests for indemnity.”

Customers are also routinely misled. USPS insurance rules are so lengthy, complicated and vague that, according to a consumer advocate, “most postal employees do not understand them and unwittingly give inaccurate advice to purchasers.”

When a customer insures a package through USPS, he or she must fill out an insurance form. On the back of this form is the following disclaimer: “Insurance is provided only in accordance with postal regulations in the Domestic Mail Manual.”

What the disclaimer does not say, however, is that the Domestic Mail Manual is the size of a telephone book and is filled with ridiculous rules and stipulations.

For example, if there is no visible damage to the outer mail package, then the claim is automatically rejected by the USPS — even if the package’s contents have been shattered or crushed. Meanwhile, the Postal Service claims that, unlike private companies, it has no obligation to provide customers a written statement on the limitations of insurance coverage.

To make matters even worse, the average USPS insurance claim takes 62 days to resolve, more than twice the length of time the USPS itself has stated is acceptable for settlement.

If private companies tried this, they might well be sued. But the “courts impose a much less stringent standard on the Postal Service due to its status as a governmental agency,” according to consumer advocates.

Customers have a right to know exactly what coverage they are getting for their money. There should be a clear presentation of the types of losses that are — or are not — covered, precise packaging requirements, the percentage of claims actually paid, the steps required to file a claim and the actual length of time on average before settlement is made.

Providing such basic information at the point of sale — in an easily readable brochure — would be a sensible first step toward restoring postal insurance to legitimacy. Until then, the Postal Service might want to enlarge its list of top mail scams by one more.

Sam Ryan is a senior fellow of the Lexington Institute in Arlington.

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