Gov. Baldacci signs Maine law in effort to curb uninsured motorist claims following court ruling
Maine Gov. John Baldacci signed into law legislation that promises to curtail the number of uninsured motorist claims.
The new law will allow insurers to limit coverage for uninsured motorists to claims based on injuries sustained by insureds.
Drafted by the National Association of Mutual Insurance Companies, the measure is a legislative response to the case of Butterfield v. Norfolk & Dedham, in which a majority of the Maine Supreme Judicial Court held that a policy provision limiting coverage conflicted with the state's UM statute. Under this holding, the father of a woman who was killed in an auto accident was able to recover under the uninsured motorist coverage of his policy, even though the policy limited UM coverage to bodily injury sustained by an insured, and the decedent did not quality as an insured under the policy because she did not live with her father.
Two justices dissented, arguing that the policy limitation represented a reasonable and legally permissible means for an insurer to control its exposure to risk.
The industry sought a correction last year, but trial lawyers challenged the initiative.
"Ultimately, lawmakers recognized the wisdom of the dissenters' reasoning and saw that clarification of the UM statute's intent is appropriate," commented Paul Tetrault, NAMIC's Northeast state affairs manager. "The change in the law recognizes what the dissenting judges recognized, that insurers have to be able to assess the exposure they take on when they write an insurance policy."
Delmarva poultry industry criticizes federal avian flu planning
The federal government could learn a thing or two from the Delaware- Maryland-Virginia area poultry industry about how to prepare for an outbreak of avian flu, according to the Delmarva industry officials.
In a meeting called by U.S. Rep. Michael Castle, R-Del., industry officials took exception with a draft avian flu response plan developed by the U.S. Department of Agriculture's Animal and Plant Health Inspection Service.
Delaware agriculture secretary Michael Scuse complained that the USDA has received little input from Delaware and other states that have dealt with recent avian flu outbreaks.
"This doesn't mean anything to us," Scuse said, holding up a copy of the USDA plan. "We're years ahead of this."
Jack Gelb Jr., chairman of the Department of Animal and Food Sciences at the University of Delaware, said UD already offers cutting-edge surveillance technology to protect commercial flocks of chickens and is developing disease containment programs.
State resources
At the same time, industry officials said the federal government could do a better job of providing states with the resources needed for surveillance and containment in the event of an outbreak of the dreaded H5N1 virus.
The H5N1 strain is spreading through wild birds and poultry in several countries, killing more than 100 people, mostly in Asia. It also has killed or led to the slaughter of more than 200 million domestic fowl in Asia, Europe and Africa. Health officials have said the virus could cause a global pandemic if it mutates to become easily spread from human to human.
'"Of course we're all concerned about the worst-case scenario of human-to-human transmission," said Castle, who is concerned that the government's focus has been on developing and stockpiling vaccines, rather than on preventing and containing the spread of the disease.
While most of those attending the meeting predicted that H5N1 eventually would show up in wild birds in this country, they were cautiously optimistic that commercial poultry flocks can be protected.
"The industry is going to have to wave a big stick for bio-security, but I think it can be done," said Christopher McNeill, a veterinarian with Virginia's agriculture department.
In the event that a flock on the Delmarva peninsula becomes infected, industry officials plan to rapidly kill all of the birds, either by gassing them with carbon dioxide or suffocating them in fire-retardant foam, and compost them inside the chicken houses. The USDA plan, they noted, suggests that the best way to dispose of dead birds is to bury them, a practice that could increase the risk of the virus spreading, and also pollute ground water supplies.
"It's just appalling that USDA would have that as the best choice for disposal," said Bill Satterfield, executive director of Delmarva Poultry Industry Inc., a trade group.
Satterfield noted that one industry official he talked to said the best thing the federal government could do to protect the poultry industry from avian flu is "just get out of the way."
Tom Holder, a veterinarian with Allen's Hatchery, said the peninsula's four major poultry companies have stockpiled supplies and agreed to share resources and establish quarantine areas in the event of an outbreak.
"We don't need a document that thick," he said of the USDA plan. ".... We need about five pages ... We need something short and sweet."
Castle said he would ask federal agriculture and homeland security officials to consider the Delmarva industry's planning as a model for other states.
Copyright 2006 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Insurers paid $43 million in Boston clergy abuse case
The Roman Catholic Church in Boston has paid $150.8 million through June 2005 to settle claims of sex abuse by clergy, with $43.3 million of that paid by insurance companies, according to financial information released by Archbishop Sean O'Malley.
The $150.8 million includes the total costs of the sexual abuse settlements of $127.4 million plus $23.4 million spent on abuse prevention programs and outreach to survivors of sexual abuse, church documents show.
These figures include a global settlement of 541 claims reached by Archbishop O'Malley in the fall of 2003 at a cost of $84.1 million.
The total $43.4 million received from the two primary insurers for the archdiocese, Lumbermens Mutual and Travelers, has been supplemented by $20.1 million from the church's own insurance reserve fund and $2.0 million in donations made specifically for the purpose of funding therapy assistance for survivors.
Recovery from insurance carriers was complicated by the fact that one of the insurers, Lumbermens Mutual, faced financial difficulties. Lumbermens provided general liability coverage beginning in the mid-1950s until early 1983, a span of time involving an estimated 80 percent of the claims.
In March 2004, the Archdiocese sued Lumbermens Mutual. The litigation concluded in February of 2005, when the parties achieved a settlement under which the Archdiocese received $20 million and forfeited any rights to claim against Lumbermens in the future.
The Archdiocese also reached an $8.5 million settlement with its other principal insurance carrier, Travelers Insurance Company, which provided general liability coverage for the period spanning 1983-1989.
With the settlement of the claims against Lumbermens and Travelers, the total amount received from insurance toward the $127.4 million in settlements negotiated and concluded by the Archdiocese through June 30, 2005 was $43.4 million, or about 29 percent of the sources of fund used to settle the claim.
Rensselaer model of New Orleans levee points to layer of clay
Preliminary findings from a simulation project suggest that during Hurricane Katrina the 17th Street Canal levee in New Orleans may have slid on a layer of weak clay just beneath the peat that underlies the earthen structure.
Researchers at Rensselaer Polytechnic Institute in Troy, N.Y. have developed a small-scale centrifuge model showing the 17th Street Canal levee during Hurricane Katrina conditions.
The U.S. Army Corps of Engineers Hurricane Katrina Interagency Performance Eval-uation Task Force selected Rensselaer engineers to test small-scale centrifuge models of sections of the flood-protection system from several locations in New Orleans, including the 17th Street Canal and the London Avenue Canal. They are attempting to replicate conditions during Hurricane Katrina by subjecting the models to flood loads.
To date, three small-scale models have been tested at Rensselaer and at the Corps' Engineer Research and Develop-ment Center in Vicksburg, Miss. Models of the London Avenue Canal and the 17th Street Canal were run at Rensselaer.
In the 17th Street model, the wall in the middle of the earthen structure started to move before the water reached the top, according to Tarek Abdoun, associate professor of civil and environmental engineering at Rensselaer. He also notes that the weak clay directly underneath the peat layer sheared first, causing the whole levee to slide.
"Our centrifuge models have already produced some valuable information, which not only will provide the Corps with important scientific data as they move forward, but also could give engineers around the world a better understanding of how levees respond under extreme conditions," Abdoun says.
Abdoun stresses that these results are preliminary and they need to be replicated at both Rensselaer and ERDC. The final report, scheduled to be completed by June 1, is to be validated by an external review panel from the American Society of Civil Engineers.
The video footage of a small-scale centrifuge model of the 17th Street Canal can be viewed at http://www.rpi.edu/news/levees.
Mass. personal lines: a surplus of disagreement
Claims by Massachusetts regulators that the combined surplus of the insurers serving the state's homeowners market is inadequate and that changing the auto system will help boost the homeowners market are untrue, according to one of the state's leading insurers.
But state insurance officials insist they are right in raising concerns about the adequacy of capital behind the homeowners market and in suggesting this condition is tied to the auto insurance system.
Speaking at a recent industry panel, John Kittel, Arbella Insurance Group senior vice president, blasted Insurance Commissioner Julianne Bowler for her recent assessment in which she claimed that the homeowners' market is supported by only $32 billion in combined surplus, or about $33 for every premium dollar. Bowler compared that figure with Connecticut ($55 billion), New Hampshire ($192 million) and other New England states and suggested a severe hurricane could put a serious strain on insurance resources and the economy.
Bowler has argued that the way to get more capital into the homeowners market is for the state to make its auto system "more rational" like those in other states. "The goal of auto insurance reform is not to fix auto for the sake of fixing auto. It's to increase the personal lines market capital base," she said.
Auto system changes
Bowler's boss, Gov. Mitt Romney, has been pressing for deregulation of the state's auto insurance system. Legislators are expected to debate the legislation later this month.
Arbella, which opposes the auto legislation, thinks Bowler's analysis is misleading because it only looks at the surplus of individual companies instead of insurer groups. Kittel said the total surplus is actually more than $125 billion. Using what he said was Bowler's flawed formula, he maintained Massachusetts has a higher surplus than New York --and the ratio to premium dollars gets smaller the bigger the state.
Bowler's figures are also suspect because they "totally ignore the existence of reinsurance," Kittel added.
Speaking before the Cape Cod chapter of the Massachusetts Association of Insurance Women, Kittel maintained that Bowler's argument "should be considered an embarrassment."
Kittel also refuted the argument that the homeowners market would benefit from changing the auto system, pointing out that three of the top 10 homeowners carriers do not even sell auto coverage.
But Bowler's office stood by its argument. "The Division of Insurance was looking at surplus in our market; New York is not our concern. We understand reinsurance is a significant component but from a regulatory perspective we would want to see our domestics with greater surplus," said DOI's Christopher Goettcheus said.
Survey: Risk managers spent more on disaster preparedness, catastrophe management
Spending for loss control services increased or remained flat for a majority of organizations in the past year, and the greatest spending increases occurred in such areas as disaster preparedness and catastrophe management, according to the Internet-based 2006 Loss Control Spending Survey conducted by Chubb Group of Insurance Companies.
Survey results indicated that 52 percent of the 125-plus risk managers who responded to the survey said loss control spending remained the same in the past year, and 43 percent said spending increased, according to Steven D. Hernandez, senior vice president of Chubb & Son. Those figures are noteworthy because many organizations have tightened their budgets and are continuing to find ways to cut costs, he said.
"When you consider that inflation runs at about 3 percent and business spending is generally in line with inflation, a 7 percent increase in loss control spending is significant," Hernandez explained. "It appears that many organizations recognize the importance, function and benefit of effective risk management."
The threat of natural disasters was cited by 15 percent of the respondents as a reason for changing their loss control spending in the past year, and 5 percent cited terrorism. In contrast, in 2003, 24 percent cited the threat of terrorism as a factor. In 2006, legal/regulatory compliance also was a factor cited by 17 percent of survey respondents for changing spending in the past year. And 47 percent said increased spending related to corporate governance.
"The survey indicates that organizations' loss control spending tends to correlate with the dominant risks of the day. On the heels of an unprecedented number of hurricanes and other national disasters, corporate scandals and growth in Internet activity, loss control spending in the past year has shifted toward catastrophe management, disaster preparedness planning, legal and regulatory compliance and cyber security," Hernandez said.
The surveys bring attention to one of the challenges risk managers face: how to balance critical, time-sensitive issues with traditional risks such as workers' compensation and basic property, against emerging risks such as the threat of diseases and epidemics, Hernandez added.
"Risks are compounding and will increase in frequency and complexity. Risks just don't disappear," he said. Consequently, risk managers have to be careful not to be too reactionary and neglect traditional risk areas when it comes to loss control spending.
To aid in keeping loss control spending in check, the survey indicated that organizations rely on internal and external personnel. Of risk managers surveyed, 86 percent said they rely on internal staff, 74 percent said they rely on insurers, 46 percent rely on brokers/agents and 38 percent rely on independent loss control vendors.
Chubb's survey was conducted via the Internet in April 2006. Respondents were risk managers from both public and privately held companies, and from government institutions and nonprofits.
Actuaries to White House: Federal insurance backstop needed
The American Academy of Actuaries, in response to questions posed by the President's Working Group on Financial Markets, has submitted its terrorism risk insurance analysis, which concludes that a national framework for terrorism risk is necessary if terrorism coverage is to be widely and readily available.
"A large chemical, nuclear, biological or radiological (CNBR) terrorist attack on New York City could cause insured losses of $778 billion," said Michael McCarter, chairperson of the Terrorism Risk Insurance Act Subgroup. "Without a national framework for managing terrorism risk, insurers would be exposed to losses far greater than they could sustain -- significantly damaging their ability to provide the ongoing insurance coverage that is essential to the stability of the entire economy."
The actuaries were not able to identify any insurance, reinsurance or capital market solution that could finance such potential insured losses from a large CNBR event.
With their solvency threatened, insurers would be forced to limit their exposure to losses from a terrorist attack.
For workers' compensation and group life insurance, an insurer could only reduce its terrorism exposure by limiting the availability of the underlying coverages, the group said.
The president's working group is preparing a report about the long-term availability and affordability of terrorism insurance. The report is due to Congress by Sept. 30, 2006.
To view the analysis in its entirety, visit www.actuary.org.
Sound risk management, investment plus for insurers
U.S. property/casualty insurers managed to increase earnings and add to their capital base in 2005 despite record catastrophe losses, according to Insurance Services Office (ISO) and the Property Casualty Insurers Association of America (PCI).
Sound risk management and strong investment results lead to the insurance industry's rise in net income of 11.7 percent, or $4.5 billion, to $43 billion in 2005 from $38.5 billion in 2004. Reflecting the industry's income, its consolidated surplus, or statutory net worth, increased 9.2 percent, or $35.8 billion, to $427.1 billion at year-end 2005 from $391.3 billion at year-end 2004.
Net income and surplus increased even though direct insured property losses due to catastrophes rose in 2005 to a record $57.7 billion -- more than double the $27.5 billion in direct insured property losses due to catastrophes in 2004, according to ISO's Property Claim Services (PCS) unit.
"But countrywide data for all lines often masks significant problems in specific markets and locations," said Michael R. Murray, ISO. "For example, before reinsurance recoveries and excluding losses covered by residual market mechanisms, the hurricanes of 2005 caused $24.7 billion in insured losses to residential and commercial property in Louisiana -- $3.1 billion more than all the premiums insurers charged for property insurance in the state during the 23 years from 1982 to 2004.
"Similarly, in Mississippi, hurricanes caused $11.3 billion in insured damage to structures and their contents, exceeding all the premiums insurers charged for property insurance in the state during the 19 years from 1986 to 2004."
These consolidated industry results are estimates for all private property/casualty insurers based on reports accounting for at least 96 percent of all business written by private U.S. property/casualty insurers.
"The insurance industry's financial results for 2005 attest to insurers' risk management and, in particular, their use of reinsurance to spread risk globally. "ISO's analysis indicates foreign insurers and reinsurers will ultimately cover from $14 billion to $19 billion of the losses from last year's catastrophes," said ISO's Murray. "But the cost of reinsurance for U.S. property risks in catastrophe-prone areas is now rising sharply, making it more expensive for primary insurers to provide coverage."
Adjusting for losses covered by foreign reinsurers, residual market mechanisms and the Florida Hurricane Catastrophe Fund, ISO estimates that private insurers' financial results for 2005 included net catastrophe losses totaling $31 billion to $36 billion -- up from about $15 billion in 2004.
Reflecting higher net catastrophe losses, the industry suffered a $5.9 billion net loss on underwriting in 2005 -- a $10.2 billion adverse swing from the $4.3 billion net gain on underwriting in 2004.
Former Enron executive admits guilt, says complacency equally bad as committing fraud
The same week Enron Corp. founder Kenneth Lay told jurors that he did not intentionally deceive investors and analysts, another former Enron executive told the insurance and risk management community that Enron suffered corruption and complacency in the months before the company's collapse.
Speaking to attendees at the Risk and Insurance Management Society conference in Honolulu, Lynn Brewer, a former Enron executive and currently founding chairman of The Integrity Institute Inc., shared her experiences in discovering fraud at Enron and the dilemma she faced between choosing to become a whistleblower or listening to her supervisors.
"There are two equally destructive forces in every corporation: those who will commit fraud and those who will be complacent toward it," Brewer said.
According to Brewer, although former Enron Chief Executive Jeffrey Skilling never told company employees to "cook the books, he said, 'find me the revenue.'" That pressure, she said, led to unethical company decisions to hide accounting practices and poor business operations.
Brewer said when she initially noticed fraud at Enron, she was complacent because of fear. She eventually became comfortable with the payoff, making $2,000 on stock options. "Some days, I was making $20,000 or $30,000," she said, apologizing that by standing back, she was equally guilty as those who committed the fraud.
"There are really good people who do horrendous things simply to solve business problems," she said. "Right and wrong is not black and white. Often, the decisions that we make at the time seem like the lesser of two evils."
Many times, business decisions are made quickly, and risk managers are involved in decisions when it's too late, she said.
Enron is a good case study for risk managers and the insurance community, Brewer indicated.
"Misconduct can interfere with business continuity," she said. "These things hit like a tsunami, and then it's very difficult to regain shareholder value and trust."
Brewer said there were probably 20 to 40 people at Enron who actually committed fraud, but two-thirds sat back and watched it. "The risk is in the human beings that make up your companies," she said, advising the risk and insurance industry to listen to its employees.
In 2001, there were 6,400 whistleblowing reports made every month to the U.S. Securities and Exchange Commission. In 2004, after Enron's collapse, there are 40,000 reports made monthly, according to Brewer.
Her advice was for companies and risk managers to analyze their whistleblowing reports and to examine how many people are leaving the company. "That will tell you a story about what's going on beyond the bottom line," Brewer said.
