Clergy Sex Abuse Scandal Raises Insurance Costs for Youth Programs
Kay Johnson's western Massachusetts Big Brothers Big Sisters agency has never been hit with a claim of child sexual abuse. Yet its cost for insurance to cover such claims has more than tripled in the past year, forcing Johnson to think about trimming some staff and, perhaps, some kids from the program.
"I got this fax. There was this huge number on it. It was definitely a shock,'' said Johnson, executive director of Big Brothers Big Sisters of Franklin County.
Across the country, insurance costs are rising for youth organizations, partly because of the sex abuse scandal in the Roman Catholic Church, according to agency officials and the insurance industry itself.
Robert Hartwig, chief economist for the Insurance Information Institute, said organizations that deal with children have seen their liability insurance costs outpace the average. "The problems in the Catholic Church have raised this problem to a higher level than otherwise would have been the case,'' Hartwig said. "This is affecting the cost for all those organizations associated with youth.''
Franklin County Big Brothers Big Sisters, based in Greenfield, serves 200 children. The organization raised about $140,000 and paid $4,000 for liability insurance last year, according to Johnson. But this year it has been hit with a bill for $14,000 for a nine-month period. She expects the next full year to cost between $18,000 and $20,000, and she's getting less coverage for more money.
Similar increases are affecting YMCAs across the country, said John Medler, chief executive of YMCA Services Corp., a for-profit subsidiary that provides insurance for about half the nation's 975 YMCAs.
Medler said some insurers have simply stopped offering coverage to groups that work with youth. Others have remained in the business but raised prices and required agencies to tighten procedures to protect children.
"The pricing in the last two to three years has literally tripled, with half the coverage,'' he said. A typical YMCA that might have paid $5,000 for $2 million in coverage two years ago is now paying $15,000 for $1 million in coverage, Medler said.
While the Insurance Information Institute doesn't track specific costs for agencies that serve youth, Hartwig said the cost for liability policies offering the most protection against litigation has gone up 30 percent to 40 percent in each of the past two years.
Insurance companies were forced to pay out more in recent years for sex abuse claims and raised rates to protect themselves against future claims, he said.
"What insurers are doing is simply reflecting in the rates the losses they've suffered and they're still trying to stem the flow of red ink,'' Hartwig said.
The Boston Archdiocese agreed last year to pay $85 million to settle more than 500 lawsuits by people who said they were abused by priests. It was the largest known payout by a U.S. diocese to settle molestation claims, but hundreds of other settlements across the country in recent years have added up to hundreds of millions of dollars.
Boston church officials and insurance companies are still wrangling over how much of that insurance companies will pay. But Rev. Christopher Coyne, a spokesman for the archdiocese, said its liability insurance premiums went up 35 percent last year. He said the increase was only partly attributable to the church's youth programs, and much of the rise was related to the archdiocese's work in nursing homes.
Summer camps have also seen higher insurance costs, said Bette Bussel, executive director of the American Camping Association of New England. The region's camps reported increases in their insurance costs ranging from 30 percent to 200 percent last year.
Mack Koonce, executive vice president and chief operating officer of Big Brothers Big Sisters of America, estimated that its 470 affiliates nationwide have seen two consecutive years of average increases of 30 percent in their liability coverage costs.
Boys and Girls Clubs of America Vice President Les Nichols said his organization's 1,100 affiliates had also seen some "pretty dramatic increases'' in insurance costs over the past three years.
Nichols sees another factor at work in the rate increases: insurance companies, which invest the money they collect, were hurt by a clumping stock market and are recouping those losses from customers.
Hartwig called that argument "a popular red herring'' and said insurance rates are driven not by investments, but by how much the industry is forced to pay out. Also, two-thirds of the industry's investments were in bonds during the recent bear market, and in 2002, its investments generated $37 billion in earnings. "The fact of the matter is the rates were rising even before the markets began to fall out,'' Hartwig said, noting that the abuse scandal accelerated the trend.
Copyright 2004 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Unwillingness of Insurers to Go Near Water Causes Cape Cod HO Crisis
The homes are among the most desirable on the East Coast. Their wealthy owners have maintenance staffs and landscapers to keep the properties in shape. They install the latest fire prevention and security features and, as one agent says, they will "replace a roof if it gets dirty."
Are they a homeowners insurance company's dream customer?
Not if the mansion is on Cape Cod.
The lack of availability of homeowners insurance on Cape Cod has become a "crisis" in the opinion of agents and their organization, the Massachusetts Association of Insurance Agents (MAIA).
The crisis, which affects all homes on the Cape, not just the mansions, has been building for several years as insurers, facing price increases from their reinsurers and red flags from computer catastrophe models, have retreated from writing in coastal areas like Cape Cod out of fear a hurricane may strike any moment.
Even the state's homeowners market of last resort, the FAIR Plan, has signaled warnings, as it has been swamped with applications, not from urban areas where it expects to get business, but from coastal communities like Falmouth, Harwich Port, Dennis and Brewster. Last year, this market of last resort filed for a rate increase, citing its growth in coastal areas; its approved hike was limited to about 5 percent.
The Massachusetts Division of Insurance detailed in a 2003 report how the private market for coastal properties has eroded. Boston territories represented 28.8 percent of FAIR Plan homeowners dwelling form policies as of Dec. 31, 1996. The same Boston territories decreased to 20.1 percent of the FAIR Plan's policies as of Dec. 31, 2002. Coastal rating territories over the same period increased their share of these policies from 22.1 percent to 23.6 percent, which represents an increase in the number of coastal territory policies from approximately 10,355 in 1996 to 16,184 in 2002, an increase of almost 60 percent. Cape Cod and the Islands went from 3,889 to 6,725 during that same time period, while Plymouth County (excluding Brockton) went from 4,909 to 7,499.
The FAIR Plan's share of Cape business is about to get a lot bigger.
Last month, one of the state's biggest homeowners insurers, The Andover Companies, sent its Cape agents lists of all their accounts and informed them it would no longer write homeowners business in Barnstable County on the Cape, and as of May 1, 2004, it will begin non-renewing 14,000 homeowners policies in the county. The only available market for these policyholders will be the FAIR Plan. The Andover exit jolted Cape agents who had been already dealing with slowdowns and withdrawals from the likes of OneBeacon, Travelers, Commerce, Hingham Mutual and other carriers.
Alexander Thomson, president of Snow & Thomson Insurance Agency in Harwich Port, and his staff, are reeling. Thomson, who calls his firm "an average-size" independent agency, said he "will be severely affected by the untimely and sudden withdrawal of The Andover from the Cape market."
He said just a few days before he learned about The Andover withdrawal, his field representative from the company was handing him his profit sharing check and proclaiming how his 9 percent loss ratio made him one of the company's prized agencies.
The 350 policies he has with The Andover are what he calls "the absolute cream" of his agency and include his own home. These properties generally have high dwelling coverage limits, broad jewelry and fine arts floater coverages, business-in-the-home protection and high-limit liability umbrellas.
Thomson says he will be able to move most of the routine HO-3 coverages to the Massachusetts FAIR Plan, but "will have to greatly reduce or eliminate these other coverages as too difficult or impossible to place through other markets."
Further, replacing 350 Andover homeowner policies, plus hundreds of others he has with OneBeacon and other carriers that won't go near the coast, "will place an extraordinary burden on our staff and resources." Given the "sheer magnitude of paperwork, appraisals, phone calls and quotes" involved in the shift of accounts, he now may need to hire additional staff, which is easier said than done due to the shortage of qualified personnel on Cape Cod. As a result, he may simply tell many of his long-term clients he simply cannot accommodate their insurance needs and to go elsewhere.
Thomson says the Mass. FAIR Plan is doing a good job in meeting some of the insurance needs, but cannot meet them all, and should not be relied upon to write the vast majority of the homeowners insurance policies for Cape Cod.
John K. Golembeski, president of the Mass. FAIR Plan, agrees. He said his staff is handling the influx of business but is worried that its rates will not support the additional exposures. Right now, the FAIR plan's ability to raise rates as losses rise in the Cape area is limited. Its rates are tied to what the top 10 homeowners carriers do with their pricing statewide and are further restricted in areas, like the Cape, in which the FAIR Plan has a sizable market share.
A bill to change that and give Golembeski's underwriters more pricing flexibility has been pending in the legislature for more than a year. Golembeski does not expect this measure will advance until the spring. Golembeski said that while he understands that agents are in a bind, philosophically he opposes expanding the residual market.
But MAIA thinks that expansion may be the best and quickest solution. MAIA is urging passage of legislation (H 1880) currently before the insurance committee that would widen the coverages available in the FAIR Plan to include DP-2, DP-3 and personal liability coverages.
Everyone involved blames the high cost of reinsurance and the computer models that show what could happen if Cape Cod, proudly sticking into the Atlantic, were hit by a hurricane.
But Thomson thinks that's "ridiculous." The last time the Cape had a hurricane was 1991 and Hurricane Bob was pretty "modest," he said. What's more, he added, his agency and many that write for the Andover are "pretty selective" and have "squeaky-clean" accounts. He's even turned away accounts from agents in other Cape towns because he has not wanted to dump business on companies he had that were still willing to accept homeowners.
Thomson said the pull-outs are 'knee jerk' reactions by companies that are not thinking about the effect on agents and the public. He believes the story has to get beyond the trade press and get out to the public. As people rush to real estate closings and need last minute binders, agents are not going to be able to help them, which he predicts will begin to affect the real estate market on the fast-growing Cape.
Pennsylvania Moves to Enforce Large Deductibles in Insolvencies
Pennsylvania lawmakers have taken a major step toward clarifying how insurer insolvencies should be handled in passing a bill, which if applied in the liquidation of Reliance Insurance Co., promises to save the state's guaranty fund and ultimately Pennsylvania consumers $40 million.
The Senate voted 47-2 in favor of a bill (SB 815) requiring that the amount of large deductibles on certain business policies of insolvent insurance companies be credited against outstanding claims. The bill would limit the liability of state insurance guaranty funds to no more than the insolvent companies would have had if they had remained in the black.
Senate Bill 815 is now in the House for consideration.
"The bill is not particularly complicated. All it does is clarify that under our insurance liquidation laws, any deductibles connected to an insurance policy go to claims under that policy, not to the estate of the insurer," the bill's sponsor, Sen. Don White, said.
"That means the guaranty associations here and across the country will have to assess less money on insurance policyholders. Without this bill, the Insurance Department is forcing the guaranty associations to cover claims that were supposed to be paid by these deductibles—and that means additional assessments on policyholders, which is the same thing as additional taxes," White said.
It would affect the ongoing Reliance Insurance Co. insolvency in particular by saving the state's guaranty fund as much as $40 million to cover outstanding claims under certain large deductible Reliance policies.
The Pennsylvania Department of Insurance took over the failing Philadelphia-based Reliance in 2001. The $2.8 billion insolvency is regarded as the nation's largest.
Reliance had issued many policies to corporate policyholders with large deductibles of $250,000 and more. Large deductible policies typically cover workers' compensation, commercial auto and general liability exposures of large commercial policyholders. Right now, those deductibles are going into the Reliance. SB 815 changes that by insisting that these deductibles be directed to the claims they were intended to cover.
The bill's sponsor maintained the change is a matter of fairness.
"Any bankruptcy—whether it is an insurance company, some other business, or a person—is a painful one, and no creditor or claimant can ever be made whole," White said. "The best we can do is make sure creditors and claimants are treated fairly. This bill helps do that with insurers that go under: It gives the insurer's estate the same money the insurer had, no less but no more. And it saves policyholders here and across the country money."
Rhode Island Nightclub Fire Sparked Debate, But Few Big Safety Changes
Fire marshals across the nation scurried to review inspections of nightclubs after sparks from a rock band's pyrotechnics set fire to a Rhode Island club, killing 100 people and injuring scores of others a year ago.
At least 15 states debated tougher laws, mostly dealing with pyrotechnics. A national association of fire safety professionals approved more stringent safety recommendations.
But one year after the tragedy at The Station nightclub in West Warwick, only Rhode Island has enacted sweeping new fire safety measures dealing with everything from fire sprinklers to upgrading older buildings. Experts say it could take years for many states to follow suit.
"It's not my sense that (the Rhode Island) fire is poised to make profound change,'' said David Lucht, director of the Center for Firesafety Studies at Worcester Polytechnic Institute in Massachusetts. "We don't as a society take fire safety that seriously. It is possible to change cultural attitudes but I don't think we are close enough yet. I don't know if we ever will be."
Since the nation's fourth-deadliest nightclub fire, seven other states—Alabama, Georgia, Illinois, Maine, Minnesota, New York and North Carolina—approved tighter regulations for indoor fireworks. Cities also debated changes, with Boston banning indoor pyrotechnics.
"The fire absolutely put the issue on the radar screen,'" said Julie Heckman, executive director of the Maryland-based American Pyrotechnics Association. "What we saw in Rhode Island was the blatant misuse of indoor pyrotechnics."
The association, which includes 260 companies, wants all states to adopt uniform standards and licensing requirements for fireworks use.
The Rhode Island blaze was the impetus for new standards approved last summer by the National Fire Protection Association. The Quincy, Mass.-based organization adopted recommendations that would require sprinklers in every new club serving at least 50 patrons, and in every existing club serving at least 100 patrons.
Thirty-four states, including Rhode Island, voluntarily adopted the group's previous recommendations. It could be another decade before the association knows if its new standards will be adopted nationwide, said NFPA Assistant Vice President Robert Solomon.
"It will be a more drawn-out process," he said. "We've seen good things come from these types of tragedies."
Rhode Island was quick to act in the wake of The Station fire. Rhode Island Gov. Don Carcieri said he hoped his state's new regulations "would set the stage for what happens nationwide, to make sure this never happens again."
Rhode Island banned pyrotechnics in all but its largest public venues. Most nightclubs must have sprinklers by July 2005. Local fire marshals can order immediate repairs and fine violators. The new Ocean State code eliminates the so-called grandfathering statutes that allowed older buildings to ignore new safety standards. It also mandates fire alarms be municipally connected in all nightclubs with occupancies of at least 150, and it requires smoke and carbon-monoxide detectors in three-family apartment buildings. Many of the changes went into effect on Feb. 20, the first anniversary of the fire.
Copyright 2004 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
MASS. EYES COMMERCIAL AUTO:
While most attention has been focused on reforming this state's private passenger auto insurance residual market, progress is slowly being made in another area agents say is critical: the commercial auto residual market. By Jan. 1, 2005, agents and some companies hope to re-engineer the way the residual market, Commonwealth Auto Reinsurers (CAR), handles high risk commercial auto accounts. Voluntary agents have been complaining for close to two years that the present system gives unfair access to agents who do not have voluntary contracts and write only through CAR, known as exclusive representative producers. In some cases, voluntary agents have no choice but to send accounts to nearby ERPs to secure coverage. As with CAR's private passenger scheme, its commercial lines operation is also complex. Insurers are financially penalized in some cases for reinsuring commercial auto business through CAR, except for certain so-called excluded classes of buses, trucks and other high risk vehicles. At first there were proposals to simply expand the list of excluded classes so insurers would not be discouraged from accepting these risks. But a survey of their members convinced Mass. Association of Insurance Agents (MAIA) leaders that the problems ran deeper. Insurers weren't writing these risks voluntarily or in CAR, agents revealed. So MAIA threw its support behind a move to equalize access to the plan for all agents, remove company penalties for ceding business, and limit the number of servicing carriers. Last month the long-sought plan almost got sidetracked over a CAR notification issue but the governing committee agreed to permit CAR staff to work on the plan's details while the procedural issue was resolved. The plan will now be addressed again at the April CAR meeting.
NEW JERSEY UIM RULING HAILED:
The Property Casualty Insurers Association of America, the American Insurance Association and other professional groups have lauded a decision by New Jersey Supreme Court ordering reversal of an appellate court decision and upholding a state law that bars the right of an uninsured motorist to sue for non-economic damages resulting from an injury from an automobile accident. The decision in the case of Caviglia v. Royal Tours of America, upheld the state law on due process grounds indicating that the statute does not implicate a fundamental right and that it is rationally related to, and suitably furthers, a legitimate state interest. It also found that the law did not violate the equal protection rights of uninsured drivers under the federal or state Constitutions, because uninsured drivers are not similarly situated to insured drivers since uninsured drivers are in violation of the law, and their counterparts are not. The decision is the second recent win for the industry in New Jersey courts. In Vassiliu v. Daimler Chrysler Corporation, et al the state's Supreme Court rejected efforts to expand liability coverage by refusing to consider wrongful death and survivorship actions as separate actions under liability coverage, which would have triggered twice the coverage limits. Instead, the court upheld the contractual language and found all actions arising out of the death of one person to be one action for purposes of triggering coverage.
S&P—WTC TRIAL WON'T ALTER RATINGS:
As the lawsuit over the amount of the recovery from destruction of World Trade Center's twin towers plays out in Judge Michael Mukasey's federal courtroom, Standard & Poor's came up with another kind of verdict. The rating agency doesn't anticipate any changes in ratings, even if Swiss Re and 12 other insurers lose the lawsuit pitting them against Silverstein Properties. S&P said that even in a worse-case scenario for the insurers, a verdict in favor of the Silverstein interests would result in a doubling of the original policy limits of $3.55 billion. Although the amount is obviously significant, S&P said it was "well spread across the insurance industry." Silverstein's insurance program consisted of a primary and 11 excess layers in which more than 20 insurers and Lloyd's syndicates participated. Swiss Re, the largest participant, has about a 25 percent share, "therefore, a verdict against the insurers is not, in itself, a trigger for further downgrades." S&P warned, however, that the legal process may go on for a long time. The lawsuit, which started trial Feb. 9, was first filed by Swiss Re in October 2001. The insurers involved have already budgeted the $3.55 billion limit per event for in their reserves following from agreements reached with their reinsurers. Although the sum is substantial, especially if it's doubled, S&P called it a "relatively small part of the overall liability picture spawned by Sept. 11, 2001." It pointed out that while only around 70 families have chosen to reject the federal settlement offer, there are still over $8 billion in unresolved business interruption claims. S&P noted that the industry had benefited in this instance from better modeling techniques to spread risk.
MARYLAND ADDRESSES CREDIT SCORES:
A recent report issued by the Maryland Insurance Administration (MIA) on the use of credit-based insurance scoring found no basis for any conclusion that credit history is skewed toward ethnic minorities or low-income individuals. The study actually indicates that there is insufficient data to conclusively determine whether the use of credit scoring by insurers has an adverse impact on low-income or minority populations. According to the MIA, this is due, in part, to the fact that insurers do not collect information regarding an applicant's race or income. The MIA added that it has "neither the data nor the information needed to reach a definitive conclusions regarding the impact of the use of credit scoring by insurers on low-income and minority populations." It will continue to monitor the personal lines insurance market based on consumer complaints, market conduct investigations and data collection by zip code in order to determine if the use of credit history has an adverse impact on low-income or minority populations. In addition, the MIA will be participating in a multi-state study initiated by the Missouri Department of Insurance to determine the impact of credit scoring on minorities and low-income populations. The Property Casualty Insurers Association of America reacted by issuing a bulletin claiming that said the study "provided no conclusive evidence" that insurance scores are anything less than objective, accurate underwriting and rating devices benefiting most policyholders with lower premiums.
NEW YORK SEEKS FRAUD REMEDIES:
The New York Senate's Standing Committee on Insurance, chaired by James L. Seward, R-District 51, held hearings last month regarding growing concerns about insurance fraud, particularly staged accidents, that abuse the state's no-fault auto insurance system. As summarized in a bulletin issued by the Professional Insurance Agents of New York, August D'Aureli of the New York State Insurance Department's Insurance Frauds Bureau began the day's testimony with what he termed a "street level look at the no-fault problem." He indicated that the center of the no-fault problem lies with the medical facility or the provider and noted that runners—individuals who orchestrate or stage accidents—are increasing in number and get paid anywhere between $1,500-$2,500 per job. The senators also heard from Liberty Mutual's New York Special Investigations Manager John Huber; Jim Urban, claims team manager for State Farm Insurance Co., and Steve Englert, head of Allstate's New York special investigative unit. They suggested that de-certification of medical providers and attorneys who sell their licenses for a fee would be one good way to curb the no-fault problem. They also suggested establishing a system of certified and approved medical protocols for no-fault medical treatment to help reduce the number of phony tests, treatments and procedures that equate to premium increases for policyholders. D'Aureli noted that the no-fault system is paying up to $50,000 for each person involved in an accident, making it a "billion dollar per year problem." He also told the committee that runners' rings are becoming increasingly territorial, and this, coupled with New Jersey's tightening of its fraud-fighting laws, has flooded downstate New York with such criminals. The rings are also spreading into upstate New York, where people are unfamiliar with their operations. To halt the problem, he urged the passage of a felony runners' bill, increasing the penalties from a misdemeanor to a felony. He also suggested examining how medical facilities are formed as corporations to reduce the number of so-called "medical mills" providing "treatment" to accident victims.
MONY, AXA MERGER VOTE POSTPONED:
The MONY Group Inc. postponed the shareholder meeting that was to vote on a merger with French insurance company AXA, after a Delaware court decided that the company must explain the deal better to shareholders. The special meeting to vote on the hotly contested deal had been set for Feb. 24. MONY, which is based in New York, is the holding company for subsidiaries that provide financial services like mutual funds and insurance. In his opinion, Vice Chancellor Stephen P. Lamb ruled that the company's proxy materials need to be supplemented to provide fuller information about executive change-in-control provisions before shareholders could vote on the deal. Under the provisions, executives stand to gain as much as $90 million when the deal closes, a major bone of contention for a group of shareholders contesting the $1.5 billion offer from AXA as inadequate. However, the judge declined to take more drastic action, rejecting most substantive claims in a shareholder lawsuit seeking to nix the upcoming vote.
CHI-CHI's Parties to mediate: Attorneys for Chi-Chi's and more than 200 people who claim they were sickened in a hepatitis A outbreak in western Pennsylvania have asked a bankruptcy judge to approve a mediation system to handle major legal claims against the restaurant chain and its insurers. The agreement, which also involves attorneys representing Chi-Chi's creditors and the restaurant's primary insurer, Arch Specialty Insurance Group, would set up a 45-day window during which 202 people who have attorneys and plan to sue—and any others who have yet to—would submit their pending lawsuits to nonbinding mediation. Those plaintiffs who can't settle in mediation would be free to file a lawsuit in an attempt to get damages from Chi-Chi's and its insurers. Under the mediation system, potential lawsuits settled for $35,000 or less will be paid from $500,000 in self-insurance the restaurant chain has or a $1 million Arch Specialty policy, without further review from the bankruptcy court. Chi-Chi's will agree to seek the bankruptcy judge's approval of settlements of more than $35,000. If Chi-Chi's or its insurer aren't able or allowed by the bankruptcy court to pay a claim, the plaintiff is free to sue Chi-Chi's and its insurers for damages.
