States addressing widening tragedy of teen driver deaths
A new report uncovers the wider tragedy of fatal car crashes involving teen drivers and is putting new impetus behind state efforts to limit passengers in teenagers' cars.
Over the past decade, nearly two out of three victims in fatal car crashes involving 15- to 17-year-old drivers were the passengers of the teen drivers, occupants in other cars or pedestrians, according to a study by the American Automobile Association.
Although state restrictions on teenage drivers over the past decade have reduced fatal car crashes, AAA and other safety advocates now are pressing lawmakers to place greater limits on novice drivers, especially in the 17 states that have no limits on the number of young passengers that can ride with a new teenage driver. The group also is urging parents to impose restrictions, even if state law doesn't.
Of the 30,917 people killed in accidents involving 15- to 17-year-old drivers from 1995 to 2004, 11,177 were the young drivers themselves. Another 9,847 were passengers of teen drivers -- and 70 percent of those were under 18 years old, according to AAA's analysis. The remaining 9,893 fatalities were people riding in other cars or pedestrians.
Parental authority
Legislators in some states are reluctant to strengthen passenger restrictions, saying that it interferes with a parent's authority, said Elizabeth Vermette, director of state relations for AAA. "The point [of the study] is to show policy-makers that it's a problem for everyone," she said.
Since 1996, 46 states have adopted graduated drivers licensing, which increases driving privileges in three steps -- a learner's permit, a provisional license and a permanent license. In 2005, California, Colorado, Connecti-cut, Georgia, Hawaii, Maryland, Montana, Nevada, Oklahoma, Rhode Island and Wyoming all created or strengthened graduated drivers license requirements. Those laws are credited with a 5.6 percent decline in deaths of 15- to 17-year-old drivers, according to a 2005 study by professor Thomas Dee of Swarthmore College. States with the highest standards could reduce fatalities by 19 percent, he found.
But there is no intermediate license in Arizona, Kansas, Kentucky and North Dakota. Plus there are numerous variations in the requirement of states that do have a three-tiered license, said Jonathan Adkins, of the Governors Highway Safety Association. "Lawmakers want to do the right thing on [graduated drivers licensing], but there's no universal agreement on what that is," he said.
In fact, no state has fully implemented all of the recommendations for the Insurance Institute for Highway Safety's "optimal" program, which sets 16 years as the minimum age for a learner's permit that must be held for 6 months and requires 30 to 50 hours of supervised driving. The IIHS also recommends an intermediate stage, lasting until age 18, that limits nighttime driving and restricts the number of minor-age passengers.
AAA is urging states to fill the gaps in existing laws. It has launched a new "Parent to Parent" program to encourage adults to enforce strict road rules.
"Parents should not allow their teen to ride with other teen drivers. It's tempting to be lured by the convenience of having other options for getting kids to and from school and practices, but the risks are just too great," said Robert L. Darbelnet, AAA president.
The states that do not limit the number of passengers for teen drivers are: Arizona, Arkansas, Florida, Idaho, Iowa, Kansas, Kentucky, Louisiana, Michigan, Minnesota, Mississippi, Missouri, Nebraska, North Dakota, Ohio, Pennsylvania and South Dakota.
Eric Kelderman is a www.stateline.org staff writer. Reprinted with permission from www.stateline.org.
'Kids and Cars' campaigns to reduce backover accidents
A coalition of parents and safety groups, including the American Academy of Pediatrics, are counting on common sense and technology, plus a boost from bipartisan teams of congressional politicians, to drastically curb the number of kids injured in non-crash auto accidents.
Janette Fennell is the founder of Kids and Cars, which wants to assure no child dies or is injured in a non-crash motor vehicle event. About a year ago, she teamed with Jamie Schaefer-Wilson, a former TV producer-turned-safety advocate, to tackle specific issues: backovers, power windows and vehicles inadvertently knocked into motion.
The result is the Cameron Gulbransen Kids And Cars Safety Act, a bill sponsored by Hillary Clinton (D-N.Y.) and John Sununu (R-N.H.) in the Senate and Peter King (R-N.Y.) and Jan Schakowsky (D-Ill.) in the House. It's named for a boy from Long Island, N.Y., who died when his father accidentally ran him over with the family SUV when backing into his driveway.
Setting a standard
If the bill passes, the Department of Transportation would set a standard for what drivers should be able to see behind them when backing their vehicle. Automakers would decide how best to meet that standard with technologies such as rear sensors, better rearview or side mirrors, and rearview cameras which are already available on some higher-end vehicles. Also, it mandates automatic reversal of power windows if an obstruction is detected and a service brake that prevents vehicles from rolling away.
According to Clinton, the window sensor is $12, the gear brake $5 and the backover system $300, which is cheaper than a DVD system. "The cost is really insignificant compared to what we're trying to do to save children's lives," Clinton says.
Clinton notes that the bill has bipartisan support. "It's a parent and family issue, not a partisan issue. It's a problem with a practical solution."
Fennell is no stranger to a safety crusade, having won regulations requiring trunk releases in all autos. She took on backovers and windows because she said the government wasn't dealing with them.
Backovers are most common in someone's own driveway and the majority of victims are children, she says. "We know of more than 100 kids who were backed over and killed last year, and 70 percent time there was parent or close relative behind the wheel," she said.
Copyright 2006 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Pennsylvania Gov. Rendell not shy with his veto pen
Pennsylvania Governor Edward G. Rendell recently vetoed legislation designed to scale back the obligation of defendants to pay damage awards in civil lawsuits.
He also nixed legislation that would have capped the damage award homebuilders must pay for faulty work and regulated the ability of property owners to sue.
Rendell explained his veto of the defendants' damages measure, Senate Bill 435, by maintaining that the bill did not go far enough to protect the rights of victims in cases of negligence.
He said the bill would have appropriately limited the doctrine of joint and several liability, but was not balanced and urged continued bipartisan work on the subject.
Lawyer groups and business and insurance advocates have battled over the legislation, which was geared to replace a 2002 law that was never enforced before it was struck down by the Supreme Court last year.
Supporters said it would improve the state's business and insurance climate and curtail frivolous lawsuits. However, opponents said it would severely limit injured victims' compensation.
The bill sought to prevent victims from suing multiple defendants with one lawsuit. In addition, defendants would only have to pay the portion of the damages proportionate to their liability, unless they were at least 60 percent liable or their actions were intentional.
Under current law, victims can sue multiple defendants and be reimbursed for an entire damage award. If a defendant does not have enough money to pay his share, then the other defendants must pay that share.
Referring to the 200-year-old joint and several liability doctrine, Rendell acknowledged that it "has produced inequitable and unfair results that have had a detrimental impact on businesses."
He noted that bipartisan attempts in the General Assembly to achieve an appropriate balance, failed narrowly. "I believe we must find a better way -- a law that will balance the equities between our businesses and the victims of negligence."
The governor also vetoed legislation that would have capped the damage award homebuilders must pay for faulty work. This measure would also have regulated the ability of property owners to sue.
The legislation had been deemed unconstitutional by Attorney General Tom Corbett, a Republican whose opinion the Democratic governor solicited.
One section of the bill would limit a damage award to the cost of the repairs if the property owner rejects a "reasonable" offer by the contractor or does not allow the contractor to repair the problem. Another requires the property owner to notify contractors 75 days before suing.
Corbett said the legislation would have violated a constitutional provision that bars the Legislature from limiting civil damages that a victim may recover. In addition, the legislation possibly trespassed on the authority of the state Supreme Court to regulate the legal process, Corbett said.
Northeast warned 'historic' weather disaster could hit this year
The northeast U.S. coast is "long overdue" and could be the target of a serious hurricane, perhaps as early as this season, according to forecasters.
Weather experts at the AccuWeather.com Hurricane Center say this year could bring the Northeast a storm like the 1938 hurricane that killed 600 people and resulted in more than $306 million in damage then. In today's dollars that would mean nearly $6 billion in damage.
In terms of number of storms, the 2006 hurricane season will again be more active than normal, but less active than last summer's historic season, the forecasters said.
"The Northeast is staring down the barrel of a gun," said Joe Bastardi, chief forecaster for AccuWeather. "The Northeast coast is long overdue for a powerful hurricane, and with the weather patterns and hydrology we're seeing in the oceans, the likelihood of a major hurricane making landfall in the Northeast is not a question of if but when."
Weather cycles
AccuWeather meteorologists say they have identified weather cycles that indicate which U.S. coastal areas are most susceptible to landfalls. "If you examine past weather cycles that have occurred in the Atlantic, you will see patterns of storms," maintained Ken Reeves. "There are indications that the Northeast will experience a hurricane larger and more powerful than anything that region has seen in a long time."
He said that the current cycle and above-normal water temperatures are reminiscent of the pattern that eventually produced the 1938 hurricane that struck Providence, R.I. That storm killed 600 people in New England and Long Island. It was the Northeast's strongest tropical system in history.
Forecasters say that today's patterns are similar to those of the 1930s, 40s and 50s when storms such as the 1938 hurricane, the 1944 Great Atlantic Hurricanes and the Trio of 1954--Carol, Edna and Hazel--hit from the Carolinas to New England.
Because coastal areas are much more developed today, a storm similar to that of 1938 would result in substantially higher damage. The storm that struck Providence on Sept. 21, 1938, first made landfall in Westhampton, Long Island before ripping across the island and continuing north to Rhode Island. It created the Shinnecock Inlet, and has since been known as "the Long Island Express."
Insurers unlikely to alter credit scoring as agencies pursue uniformity
The decision by the three major consumer credit reporting agencies to create a more uniform credit scoring system is not expected to have a major impact on insurers' use of credit in rating personal lines insurance policies, although some think insurers would be better off to simplify theirs as well.
Equifax, Experian and TransUnion said their new "VantageScore" is the result of market demand for a more consistent approach to credit scoring. In the past, each agency used its own proprietary formulas to create its own score, meaning that a lender dealing with a consumer's application for a credit card or a mortgage might have to reconcile three widely-different scores. The new system uses a single formula to create the scores.
The new system may make it easier for lenders and may eliminate some of the criticism leveled at the credit scoring companies by lenders and consumers.
But insurance trade groups question whether the simplified approach of the three companies will cause any splash in the controversial world of insurers' use of credit scores.
"Insurers use different systems and scoring models such as Fair Isaac Corp. (FICO), Choicepoint and proprietary scores. These models are different from the consumer lending focused credit scores by Equifax, Experian and TransUnion," said Jeff Junckas, director of public affairs, American Insurance Association. "A likely guess is that this new scoring system from the three companies is designed to rival FICO's generic credit score, which is designed to predict the likelihood of a bill going 30 days late in a 24 month timeframe. This is not what insurers are looking for when they use credit-based insurance scores. Insurers are trying to predict future claims."
Different approach
Insurers explain that what they do differs from what lenders or credit card companies do.
"Credit-based insurance scores can only be developed using insurance claims data. They are completely distinct from scores based on credit histories that are designed and developed for other purposes such as making decisions about the granting of credit," Diana Lee, Property Casualty Insurers of America, assistant vice president, research told the Federal Trade Commission last year. Lee said that elements that "for any reason should not be used for insurance underwriting purposes" are not included in credit-based insurance scoring models.
A 2003 survey by the National Association of Independent Insurers found that about 20 percent of insurance companies using credit scores created their own models or had customized ones developed with outside help.
A survey by Conning & Co. found that more than 90 percent of insurers use credit data but they vary in the data they use.
Oregon Insurance Administrator Joel Ario, former chairman of the Credit Scoring Working Group of the National Association of Insurance Commissioners, thinks the standardization of the three major agencies is good move. "I personally believe insurers would be better off if they had more standardization, much like the banking industry," Ario said.
The National Association of Mutual Insurance Companies also thinks that the decision by the three major credit scoring companies is a positive one. "Strictly from a consumer standpoint, this move will definitely ease some consumer frustration and generally is a positive development," said Neil Alldredge, NAMIC senior director of state advocacy.
Banks, shippers, oil companies -- not just insurers -- face Katrina-related suits
Hurricane Katrina lawsuits are multiplying and it's not just insurance companies that are defendants. Oil companies, mortgage brokers, a shipping firm and a debris removal contractor have all been sued.
One lawsuit seeks to cover all the bases. Gerald Maples, a lawyer based in New Orleans, filed a class action against all the homeowners insurers, mortgage lenders and oil companies in Mississippi. The oil companies allegedly increased global warming and produced the conditions where "a storm of the strength and size of Hurricane Katrina would inevitably form and strike the Mississippi Gulf Coast," the complaint states.
U.S. District Judge L.T. Senter Jr. dismissed the mortgage and insurance companies as defendants. He said the oil companies can still be defendants, but he foresaw "daunting evidentiary problems" in trying to prove the global warming claim. Maples plans to file an amended complaint. "It will have a great deal more information and science as well as admissions by certain oil companies," Maples said.
In other suits,
Regions Bank was sued by a couple in Pike County for allegedly failing to pay their windstorm policy out of their escrow account. They learned that their policy had been canceled in February 2005 for nonpayment.
Landsafe Flood Determination Inc. was sued by a couple contending that Landsafe failed to correctly designate their property as lying in a special flood hazard area.
Crowley Liner Services Inc. and Lloyd's of London are being sued by Royal Beach Hotel n Gulfport. The hotel contends that Crowley breached its duty to secure its storage containers and damaged the property. Lloyd's has allegedly failed to promptly pay for business income loss and debris removal.
Phillips & Jordan Inc. is being sued by a property owner who contends that the contractor bulldozed her property even though she had not signed a right of entry form.
Meanwhile, Silver Slipper Casino Venture is taking pre-emptive legal action by asking a federal court to limit its liability after Katrina "caused the President Casino Broadwater to be torn from its moorings and washed ashore and caused to collide with the Biloxi Beachfront Hotel."
Copyright 2006 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Consumer group accuses Geico, other insurers of unfair underwriting
A U.S. consumer group has made claims that Geico Corp. uses rate-making methods that directly base eligibility and premiums solely upon the educational background and occupation of consumers.
The Consumer Federation of America says that it uncovered a Geico underwriting guide showing that the company, the nation's fourth largest auto insurer, has adopted rating methods and underwriting guidelines in 44 states that directly base rates and eligibility for auto insurance solely upon education and occupation. The CFA says that the use of this information results in an "unjustifiable increase in insurance rates for many lower income and minority consumers" and is calling on insurance regulators to ban the practice.
In a letter sent to the National Association of Insurance Commissioners on March 17, the CFA and New Jersey non-profit insurer NJ CURE noted that insurance commissioners often do not collect or review underwriting guides, so it is likely that "these methods have been overlooked."
Geico, a subsidiary of Warren Buffett's Berkshire Hathaway Inc., called the allegations "patently false and intentionally divisive."
"The use of education and occupation to underwrite and price is a long-standing industry practice," Geico said in a statement. Geico says it uses these and other criteria to accurately differentiate risks. "Every criterion, including occupation and education, used by Geico reflects its actual loss experience nationwide over many decades," the company said.
However, J. Robert Hunter, director of insurance for CFA and a former Texas Insurance Commissioner, says Geico is "pulling an underwriting sleight-of-hand that allows it to skirt existing prohibitions on the use of income and race to determine insurance rates and eligibility." Hunter claims that education level and occupation are directly linked to income, which cannot be used in determining insurance eligibility or rates because of its impact on lower income and minority consumers.
Geico claims it has justified its use of educational and occupational criteria with U.S. insurance regulators for many years.
"Insurers are constantly looking for ways to ensure that there is a close relationship between a consumer's premium and the potential risk of loss that they take on," said Joseph Annotti, senior vice president of public affairs for the Property Casualty Insurers Association of America.
"In order to price insurance, Geico uses a combination of several dozen factors," the insurer said in a statement. "No single criterion is ever used to determine a customer's rate. ... Income or race based criteria never has a role in underwriting or pricing."
"Driving experience, past loss history, age, gender and marital status are widely accepted rating factors that have been approved by state regulators because they are accurate predictors of future losses," Annotti added.
Jeff Brewer, also of PCI, said the practice of using education and occupation in underwriting is not a uniform practice among all insurers. "You've got some companies that have used it and used it for years; and there are other companies who don't use it," he said.
Agents not concerned
While independent agents have criticized insurers' use of other underwriting criteria, such as credit scoring, in the past, the use of education and occupation as an underwriting criteria shouldn't be a problem if used responsibly, says Wes Bissett, a spokesperson from the Independent Insurance Agents and Brokers of America.
"The credit debate really took off because companies were using credit almost exclusively," Bissett said, which is not the case when insurers use education and occupation in underwriting. "As long as these factors, like numerous others, are used as tools and used responsibly, right now it's hard to call for their complete elimination."
One thing agents would be concerned about is the fear that increased legislative or regulatory intervention might stifle competition.
"New Jersey has had a complete turn around of its auto insurance marketplace in the last two to three years," Bissett said. "The reason for that is that government has essentially gotten out of the way and allowed the market to thrive. The thing that we fear is that government will get back in and micro-manage and then we will see a reduction in competition."
Bissett says that insurers are merely looking for ways that allow them to underwrite and rate more effectively and more appropriately. "And if this is not one that works then competition will soon figure that out for them," he said. "It's interesting to note that the New Jersey department [of insurance] reviewed Geico's filings and I assume those of others and found that there is actuarial support for the use of those criteria."
But CFA's Hunter says it's "troubling that Geico appears to rely on these guides as a de facto rating method that would normally require approval by departments of insurance and be included in rate manuals that are usually made public."
Other insurers called out
Hunter added that the CFA/NJ CURE "have recently discovered that Liberty Mutual Insurance has also adopted educational attainment as a method of underwriting and rating as well. Allstate has begun to use such factors in four states."
However, Geico maintains that such underwriting criteria are valid tools for cost-based pricing and they are being used in a fundamentally fair manner.
"Allowing companies to use a wide range of underwriting and rating tools promotes market competition and choice and ultimately drives down the cost of insurance for consumers," Geico says.
Arbitrary restrictions on actuarially justified rating and underwriting factors harm the insurance marketplace, according to PCI. "The bottom line is that consumers benefit when insurers seek to find more accurate ways to match rates to risk," PCI's Annotti said.
Katrina not enough to cause many homeowners to buy flood coverage
Despite Hurricane Katrina's devastation, a new survey says that most Americans are not very concerned about buying flood insurance for their homes.
Only 14 percent of Americans say they have purchased flood insurance for their primary residence, according to the survey of 700 homeowners, conducted for the Chubb Group of Insurance Companies by Opinion Research Corporation. Seven of the 101 homeowners (8 percent) who had flood insurance purchased it following Hurricanes Katrina, Rita and Wilma; all the new purchasers were more affluent college graduates. Ninety-one percent of the 101 homeowners said they already had it and did not purchase more coverage following the hurricanes.
"Chubb's survey clearly shows that, other than some better educated individuals with higher incomes, many Americans are risk takers when it comes to protecting their homes, valuables and financial well-being from flood damage," said Eric Pruss, senior vice president of Chubb & Son and strategic marketing officer for Chubb Personal Insurance. "However, this is a risk that few people can afford to ignore, especially in light of seeing the potential for devastation."
Among those whose home has been flooded, 34 percent said carpeting or wood floors were destroyed. Other destroyed possessions included sentimental items (19 percent), furniture (15 percent), personal papers and information (12 percent), and art or collectibles (4 percent).
Why buy flood coverage?
Those who have purchased a flood insurance policy said they did it because: While their house is not near a body of water, they are taking no chances (28 percent); their mortgage lender required it (27 percent); their house is near a body of water (24 percent); or their insurance agent or broker recommended it (20 percent).
Among those who purchased a flood insurance policy, 25 percent have purchased excess flood insurance policy from a private insurer that provides higher home and contents limits beyond the National Flood Insurance Program's. These individuals tend to have higher incomes and levels of education and primarily reside in metropolitan areas.
Survey participants were very opinionated about the role of the government in rebuilding flood damaged homes. Only 31 percent agreed the federal government should bail out those whose homes were destroyed by flooding and who did not purchase flood insurance. Sixty-eight percent said state and local governments should impose restrictions on building along coastal areas. Fifty-nine percent said it makes no sense to rebuild a city that is below sea level after flood damage.
Consumer group accuses Geico, other insurers of unfair underwriting
A U.S. consumer group has made claims that Geico Corp. uses rate-making methods that directly base eligibility and premiums solely upon the educational background and occupation of consumers.
The Consumer Federation of America says that it uncovered a Geico underwriting guide showing that the company, the nation's fourth largest auto insurer, has adopted rating methods and underwriting guidelines in 44 states that directly base rates and eligibility for auto insurance solely upon education and occupation. The CFA says that the use of this information results in an "unjustifiable increase in insurance rates for many lower income and minority consumers" and is calling on insurance regulators to ban the practice.
In a letter sent to the National Association of Insurance Commissioners on March 17, the CFA and New Jersey non-profit insurer NJ CURE noted that insurance commissioners often do not collect or review underwriting guides, so it is likely that "these methods have been overlooked."
Geico, a subsidiary of Warren Buffett's Berkshire Hathaway Inc., called the allegations "patently false and intentionally divisive."
"The use of education and occupation to underwrite and price is a long-standing industry practice," Geico said in a statement. Geico says it uses these and other criteria to accurately differentiate risks. "Every criterion, including occupation and education, used by Geico reflects its actual loss experience nationwide over many decades," the company said.
However, J. Robert Hunter, director of insurance for CFA and a former Texas Insurance Commissioner, says Geico is "pulling an underwriting sleight-of-hand that allows it to skirt existing prohibitions on the use of income and race to determine insurance rates and eligibility." Hunter claims that education level and occupation are directly linked to income, which cannot be used in determining insurance eligibility or rates because of its impact on lower income and minority consumers.
Geico claims it has justified its use of educational and occupational criteria with U.S. insurance regulators for many years.
"Insurers are constantly looking for ways to ensure that there is a close relationship between a consumer's premium and the potential risk of loss that they take on," said Joseph Annotti, senior vice president of public affairs for the Property Casualty Insurers Association of America.
"In order to price insurance, Geico uses a combination of several dozen factors," the insurer said in a statement. "No single criterion is ever used to determine a customer's rate. ... Income or race based criteria never has a role in underwriting or pricing."
"Driving experience, past loss history, age, gender and marital status are widely accepted rating factors that have been approved by state regulators because they are accurate predictors of future losses," Annotti added.
Jeff Brewer, also of PCI, said the practice of using education and occupation in underwriting is not a uniform practice among all insurers. "You've got some companies that have used it and used it for years; and there are other companies who don't use it," he said.
Agents not concerned
While independent agents have criticized insurers' use of other underwriting criteria, such as credit scoring, in the past, the use of education and occupation as an underwriting criteria shouldn't be a problem if used responsibly, says Wes Bissett, a spokesperson from the Independent Insurance Agents and Brokers of America.
"The credit debate really took off because companies were using credit almost exclusively," Bissett said, which is not the case when insurers use education and occupation in underwriting. "As long as these factors, like numerous others, are used as tools and used responsibly, right now it's hard to call for their complete elimination."
One thing agents would be concerned about is the fear that increased legislative or regulatory intervention might stifle competition.
"New Jersey has had a complete turn around of its auto insurance marketplace in the last two to three years," Bissett said. "The reason for that is that government has essentially gotten out of the way and allowed the market to thrive. The thing that we fear is that government will get back in and micro-manage and then we will see a reduction in competition."
Bissett says that insurers are merely looking for ways that allow them to underwrite and rate more effectively and more appropriately. "And if this is not one that works then competition will soon figure that out for them," he said. "It's interesting to note that the New Jersey department [of insurance] reviewed Geico's filings and I assume those of others and found that there is actuarial support for the use of those criteria."
But CFA's Hunter says it's "troubling that Geico appears to rely on these guides as a de facto rating method that would normally require approval by departments of insurance and be included in rate manuals that are usually made public."
Other insurers called out
Hunter added that the CFA/NJ CURE "have recently discovered that Liberty Mutual Insurance has also adopted educational attainment as a method of underwriting and rating as well. Allstate has begun to use such factors in four states."
However, Geico maintains that such underwriting criteria are valid tools for cost-based pricing and they are being used in a fundamentally fair manner.
"Allowing companies to use a wide range of underwriting and rating tools promotes market competition and choice and ultimately drives down the cost of insurance for consumers," Geico says.
Arbitrary restrictions on actuarially justified rating and underwriting factors harm the insurance marketplace, according to PCI. "The bottom line is that consumers benefit when insurers seek to find more accurate ways to match rates to risk," PCI's Annotti said.
Zurich agents caught in compensation disclosure web
Independent agents representing Zurich Insurance in the U.S. will have to disclose their income before binding any commercial lines policies for Zurich and some Zurich agents may be denied contingency compensation under the terms of recent class action settlements.
Zurich Insurance must provide its agents across the country with a compensation disclosure statement for all Zurich new and renewal commercial lines policies that agents will in turn be required to give to policyholders prior to binding coverage, according to a March 20 agreement in which Zurich also agreed to pay $171 million.
The pre-binding disclosure document informs the policyholder of the standard commission Zurich pays agents by type of policy and, if the agent also has a contingency compensation arrangement, provides a description of the factors weighed in contingent payments. Insureds are also directed to a Web site for more information.
The pre-binding disclosure is part of a settlement Zurich signed with 10 states (California, Florida, Hawaii, Maryland, Massachusetts, Oregon, Pennsylvania, Texas, West Virginia and Virginia) to settle charges related to questionable transactions between Zurich and large brokers.
The compensation disclosure provisions in that March 20 agreement differ from those of a second $153 million class action settlement with Connecticut, Illinois and New York that the insurer confirmed a week later on March 27. This tri-state agreement does not require pre-binding disclosure; it only requires a notice with the policy referring insureds to a Web site or toll free number for information on compensation.
However, the March 27 tri-state pact adds several twists regarding contingent compensation. It prohibits Zurich from paying contingent commissions on any excess casualty policies until 2008. In addition, the tri-state order bans Zurich from paying contingencies in any line of insurance in which companies with 65 percent of gross written premiums do not do so. These conditions on contingencies match those incorporated into the $1.6 billion settlement with American International Group back in February.
Zurich officials say they will apply the disclosure requirements of both settlements nationwide, but they acknowledge they aren't quite sure yet how to meld the two.
"We're not sure but we'll probably do both," Keith Owen, Zurich spokesperson, told Insurance Journal, while suggesting that the pre-binding rule might satisfy both agreements. The company has 180 days to implement the disclosure agreements. The company is in 18,000 agency offices nationwide.
"We are confident our agents and brokers will agree this is a good thing that helps everybody," Owen said.
State commissioners
The pre-binding disclosure rules in the Zurich contract mirror the model producer disclosure amendment developed by the National Association of Insurance Commissioners. Illinois Director of Insurance Michael McRaith, who heads the NAIC Broker Activities Task Force that worked to include the NAIC's views in the settlement, stressed that the NAIC is "very sensitive" to the concerns of agents but he defended the terms as necessary in the particular case of Zurich.
"We respect that agents and brokers do not want to disclose their amount of compensation and that it is an issue of difficulty for them. However, the conduct of Zurich was exceptional and so egregious we think this disclosure is particularly appropriate for Zurich," McRaith told Insurance Journal.
He acknowledged that the questionable activities in the case involved large brokerages like Marsh and not local independent agents.
He also maintained that the NAIC is not advocating using the Zurich pact as a model for other carriers that have been sued. Each suit should be handled on its own merits, he added.
The total cost of the two settlements to Zurich will be $325 million.
The settlements are intended to resolve suits brought by New York and other state attorneys general and insurance regulators charging Zurich with bid-rigging, price-fixing and improper use of finite reinsurance.
Zurich did not admit to any wrongdoing but did apologize for the conduct of certain employees who "violated both acceptable business practices and Zurich's own standards of conduct."
Fitch: Deterioration in profits for U.S. P/C sector
The U.S. property/casualty insurance industry will report deterioration in profitability in 2005 because insured catastrophe losses reached record levels in 2005, Fitch Ratings said. The decrease in profitability is largely due to the destruction from Hurricane Katrina, the most devastating insured loss event in history, and Hurricanes Rita and Wilma, each of which will rank among the top 10 historical insured loss events.
Indeed, underwriters that were hardest hit by the hurricane events were reinsurers and personal lines writers with concentrations of business in the Gulf Coast and Florida.
The Insurance Services Office's Property Claims Service unit reported that property/casualty insurers incurred $56.8 billion in catastrophe losses in 2005. This figure is roughly double the previous record of $27.3 billion catastrophe losses paid by insurers in 2004 and the $26.5 billion paid in 2001, which included the terrorist attacks of Sept. 11, 2001.
Fitch's year-end 2005 results reveal that, despite steady rate reductions in many insurance segments in the past two years, market conditions remain supportive of underwriting profitability for stronger underwriters in the near term. As evidenced by January 2006 insurance renewal results, rates have increased dramatically in market segments affected by the 2005 catastrophes, particularly property/casualty reinsurance.
Fitch anticipates that pricing will continue to firm in these areas through the remainder of 2006. In casualty lines and non-coastal property segments, the events may promote short-term stabilization in rates, but competitive pressure is likely to promote continued rate declines in these segments.
For a copy of the report, "Property/Casualty Insurers' Year-End 2005 Results (U.S.)," visit: www.fitchratings.com.
