Lunch break
An insurance company employee who hurt herself when returning to work from her lunch break was entitled to workers' compensation benefits because the injury occurred on the employer's premises, the Maine Supreme Judicial Court recently ruled.
The unanimous ruling by the Maine high court affirmed an earlier decision by a Workers' Compensation Board hearing officer who ruled against Aetna Inc., which claimed Robyn D. Fournier was not entitled to benefits. Fournier slipped and fell on snow and ice on an Aetna stairway while returning to work from her unpaid lunch break, injuring her knee and possible aggravating a pre-existing back injury.
The court considered whether Fournier should be subject to the "going and coming rule," which provides that an accident occurring off an employer's premises while the employee is merely on his way to or from work is not compensable.
But the justices agreed that the common staircase leading to Aetna's offices could be considered part of Aetna's premises since it constituted a kind of right of passage through which the employer had something equivalent to an easement.
Wal-Mart to court: nix Maryland's employee health benefit law
Wal-Mart and other retailers challenged Maryland's new law requiring Wal-Mart to spend more on employee health care, arguing before a Baltimore judge recently that only the federal government may dictate health spending by private companies.
Maryland's law requiring large employers to spend at least eight percent of payroll on health care or pay the difference in taxes is worded so that only Wal-Mart Stores Inc. would be affected.
The Retail Industry Leaders Association, which includes Wal-Mart, argued that the law unfairly targets the world's largest retailer. Barring court intervention, the law takes effect in January.
The Wal-Mart law was seen as a way to encourage companies to keep employees off public rolls. It became law last winter when the Democratic legislature overrode a veto the year before by Republican Gov. Robert Ehrlich.
U.S. District Judge J. Frederick Motz asked Wal-Mart lawyers whether throwing out the law would be a signal to states that they can't experiment with ways to control health care costs. Eugene Scalia, lawyer for the retailers, said the law was unlikely to do anything but force Wal-Mart to spend more on health care.
"This law is highly discriminatory," argued Scalia, who is the son of U.S. Supreme Court Justice Antonin Scalia. "This was intended and crafted to affect just one company."
Gary Kuc, assistant attorney general, defended the law as legitimate, citing the state's interest in reducing uninsured residents. "We're all paying elevated rates for people who don't have health insurance," Kuc said. He said Wal-Mart is free to pay a penalty instead of providing better benefits -- an estimated $6 million a year by state estimates.
Geico defends auto rating criteria in N.J.
New Jersey state Senator Nia Gill, D-Essex, has sponsored a bill to ban auto insurance companies from taking education and occupation into account when setting policy prices, arguing that the practice is discriminatory and circumvents laws against using race and income to calculate prices.
Gill, who stuck to her view after listening to testimony from insurance companies and the state's Banking and Insurance commissioner, said such practices pose "a serious economic consequence to working-class families."
A recent Senate Commerce Committee hearing focused on Geico, the state's fourth-largest insurer and one of only two that use a person's job and schooling to determine a driver's risk of accident. Geico officials said a person's occupation and education were only two of more than 20 criteria used to set rates and don't give any indication of someone's race. They declined to say how much weight the two criteria are given, citing laws that exempt the public disclosure of proprietary information.
Banking and Insurance Commissioner Steven Goldman said the department hasn't received complaints about the job and education criteria. Goldman said he was unaware that Geico is facing a potential class-action lawsuit in Michigan that alleges the company discriminates against blacks by charging them higher premiums than it charges white customers with the same driving records by using education and job criteria.
Based on 2000 census figures, 70 percent of New Jersey residents don't have a college degree, according to The Associatd Press However, 82.9 percent of blacks and 87 percent of Hispanics have no college degree.
Ironically, Gill said, a 2005 study by an independent insurance rating company found doctors and lawyers were among the drivers most likely to be involved in an accident. Gill said that according to the study, firefighters and homemakers were the least accident-prone.
Liberty expansion
Liberty Mutual Group has begun construction of a 350,000 square foot office building located on 225 acres of land the company owns in Dover, New Hampshire. The company expects to begin occupying the building in late 2007.
Joining Liberty Mutual Chairman Edmund F. Kelly at a recent ground breaking ceremony were U.S. Senator Judd Gregg, Governor John Lynch, Dover Mayor Scott Myers and other city and state officials.
The building will house approximately 2,050 Liberty Mutual employees. Liberty Mutual will continue to employ more than 1,250 employees in two existing buildings the company built in 1996, which are adjacent to the new facility.
The new office building was designed by Gorman Richardson Architects, and is being built by William A. Berry and Son. The project is providing over 200 jobs for Seacoast-area construction workers.
Taxachusetts no more
Whatever happened to Taxachusetts?
A new study ranks Massachusetts among the states with the lowest tax burdens. Some things don't change, however. New Hampshire still boasts the lowest tax burden. In New England, Maine residents pay the most -- 17.3 percent of their income -- while Vermont comes in next, with residents paying 16.2 percent. Rhode Island, where residents pay 15.3 percent of their income, is in the middle. Connecticut, at 13.5 percent, and Massachusetts, at 13.7 percent, were among the 10 states with the lowest tax burdens, ranking at No. 47 and No. 44, respectively
New Hampshire residents pay 12.3 percent of their personal income in taxes, while the national average is 15.1 percent. Alaska residents pay the most, 27.3 percent of their income, followed by Wyoming at 21.3 percent.
Moneyball
Only on Long Island" might best describe a summer promotion that could have a fan leaving a Long Island Ducks baseball game with an extra $10,000 just for throwing a few strikes. The Long Island Ducks and Mercury Insurance have partnered to create the Mercury Insurance Perfect Pitch Skill Challenge, a game within 15 selected Ducks home games this season. The contest will give one lucky participant the chance to throw with the pros and win $10,000 throughout the season. To win the grand prize, each aspiring pitcher will need to throw three strikes through a target from a distance of 60'6" and do so before throwing four balls.
Mass. agents seek 4% auto pay raise
Massachusetts independent insurance agents have filed for a four percent hike in the commission they receive on private passenger auto insurance polices.
If approved by Insurance Commissioner Julianne Bowler, the increase would mean a typical commission per policy of $126.19 beginning April 1, 2007, up from the current figure of $121.34.
Whatever new commission is approved for 2007, it will not go into effect on the traditional date of Jan. 1. Under a new law, rates and commissions for 2007 will go into effect beginning April 1 next year. This later effective date is intended to lessen the need for insurers to issue provisional invoices. Insurers have sent estimated invoices in past years because the decision on overall rates is not announced until Dec. 15, which in turn delays approvals for group and safe driver discounts until mid-February.
"This should reduce the workload for agents and companies and reduce the confusion for policyholders," said Frank Mancini, president and chief executive officer, Massachusetts Association of Insurance Agents, on the April 1 date.
MAIA's commission filing for 2007 uses the same 2005 cost study information utilized for 2006 but trends it forward to reflect anticipated increases in agency costs.
With this filing MAIA is also trying to establish whether its studies of its membership are fairly representative of the state's population of independent agencies. Bowler raised the representation question last year, citing a list from the state's statistical agent for auto insurance, Commonwealth Auto Reinsurers, which showed that some 28 percent of private passenger independent agencies did not belong to MAIA.
MAIA's own analysis claims there are 1,751 total independent insurance agencies writing private passenger auto insurance in the state, of which 1,521 -- or 86.9 percent -- are MAIA members.
More to the point, claims MAIA, its members write 94.1 percent of the exposures written by independent agents, a percentage that its actuaries say should make its membership representative of the whole.
"We believe that as long as MAIA members write more than 90 percent of the policies written by Massachusetts agencies, it is reasonable to perform cost studies of MAIA members alone," its filing states.
City hall suits
The cost to New York City of settling legal claims against it has more than doubled since 1995, reaching more than $575 million in 2005, according to the New York City Independent Budget Office.
Personal injury claims against the city account for the vast majority--about 90 percent--of the city's expenses for judgment and claims. In 2004 the city paid a total of $536.8 million to settle personal injury claims.
Four categories of personal injury claims accounted for 60 percent-- medical malpractice (30 percent), sidewalk trips and falls (12 percent), motor vehicle accidents (11 percent), and police actions (7 percent).
The IBO says it expects the payout for settlements to grow even bigger. From 1995 through 2004, the cost of settling these lawsuits grew at an average rate of nine percent annually, nearly twice the rate of all other city spending, the agency reports.
The Mayor's most recent budget projections anticipate that the cost will rise to nearly $800 million by 2010--a rise in spending that continues to exceed the growth rate for most other city programs.
The virtual, global economy challenges, humbles insurance leaders
Insurance agents and executives have a lot to worry about as the fast-paced virtual economy takes hold.
According to futurist Edie Weiner, they are right to be worried. She says there are a lot of unfamiliar risks ahead and given the speed of change, those that now appear to be remote could be on insurers' doorstep sooner than many think.
"Are we prepared over the next five years? Because that's when these things are coming down. Are we prepared, with the people we currently have, to understand the risks ...as we go forward?" Weiner asks.
Weiner, president of Weiner, Edridge and Brown, a futurist consulting group, sees risk in just about every trend in the virtual economy. Her insights framed a recent panel discussion sponsored by the Independent Insurance Agents and Brokers of New York, Inc. in Manhattan.
Software pollution
Start with software. Weiner contends that brownouts, identity thefts, viruses, hacking and software glitches are not yet seen as the "pollution" they are.
Imagine society telling a chemical firm to build a plant now and worry later when pollution and diseases start to manifest themselves. "You can't build a plant on that basis today. But we are introducing software on that basis today. There will be latent liabilities that you have not even begun to see because those glitches and abuses in software are the pollution of the coming economy," said Weiner.
This new "pollution" is just one potential exposure for insurers and their customers. Another is stress. "We know already that stress will probably be the number one cause of pulling down workers comp claims in the 21st century. Yet we have not even begun to deal with that risk effectively."
While most worry about "Big Brother," Weiner is more concerned about "Little Brother" intrusions on privacy, where individual citizens gain access to private information, often legally. "As we go into the future, neighbor will be able to know everything and spy on neighbor, coworker against coworker, spouse against spouse. We will have a situation where, while you protect your information systems from unauthorized access, authorized access will become a major risk because of blackmail, which is becoming probably the number one white collar crime in the country," Weiner told her insurance audience.
Weiner's warning list goes on and on: climate change, outsourcing, supply chain management, suburban sprawl, water issues, global disease, life extension, alternatives in energy, nanotechnology, genetic manipulation, remote employees, centralized networks of energy, finance, and transportation patterns and more, all the way down to the reality that U.S. teens are spending more time online than they are driving cars.
The insurance leaders at IIABNY's meeting cited their own priorities among the looming threats while candidly acknowledging they do not have all the answers about what to do about them.
Worldwide catastrophes
Tom Motamed is most worried about the "potential for a whole new generation of worldwide catastrophes." Along with floods, windstorms, earthquakes and even terrorism, one of the main challenges is going to be global diseases such as SARS, Mad Cow disease and the avian flu, according to the vice chairman and CEO of the Chubb Corporation.
Motamed suggested that something like the avian flu could bring workers compensation claims brought by employers infected on the job. There could also be negligence claims against farmers, processors, restaurants and others. Boards of directors could be exposed for lack of a disaster recovery plan and, ultimately, even employment practices may be tapped as employees fear being let go because they decide not to show up to work amid an outbreak.
Globalization is going to have an effect on how insurers spread their risk and where they do business, he added. Whether they are in the U.S. or abroad, carriers are going to be pressured to follow their clients. Carriers are also going to try to improve their spread of risk through "uncorrelated risk," meaning if they have a lot of Florida wind business, they're going to look for non-weather business.
Net quoting
Change is communicated quickly and new ideas can very quickly move from country to country, noted Alex Soto, president-elect of the Independent Agents and Brokers of America, and president of Insource Inc. in Miami, Fla.
The U.S. will not be alone in setting the agenda. As an agent, Soto is keeping his eye on Europe. "The big movement in Europe right now is net quoting of insurance. In some countries they're already there where an intermediary, an agent, or broker, gets a net quote and adds what they perceive to be their value in the transaction, in charging the client. Four years ago this was a little whisper. It is now a central core of discussion at the World Federation of Insurance Intermediaries."
Yet, Soto does not fear the future. "The bottom line is that I suspect that what this is going to do with the flattening of the world is that there are going to be challenges and opportunities. Others from different parts of the world will come after our clients, and we will have an opportunity to go after their clients."
Something actionable
Seeing how various forces are reshaping the world is one thing. But knowing what to do about them is something else altogether, pointed out Frederick Eppinger, CEO and president of the Hanover Group.
"There are very few people who can actually take big thoughts and translate them into something actionable," he said
The privacy area is in need of something actionable, Eppinger suggested. "The distribution of information today is just so widespread, and so many people have access to it, and there's so many potential ramifications and business risk, that to me I don't think we've really come to grips with the implications of all this distributing."
Eppinger was not alone in acknowledging he does not have all the answers.
"(At) the end of day the fact matter is that there are things here that we may or may not be insuring - or may not have intended to insure - and we might have no clue that this stuff is laying there," commented Steve Lilienthal, chairman and CEO of CNA Insurance.
The industry is not developing policy language that addresses emerging issues, he maintained, explaining, "We think we get it and then we don't and we find out that we didn't box it and we didn't address it and we couldn't."
Dealing with a changing world teaches humility. "I think that we're discovering that we're probably not as smart as we think we are, and that's coming as a bit of a surprise," Lilienthal commented.
Supreme Court: Workers' comp premiums not priority in bankruptcy
A workers' compensation insurer does not have a claim against a bankrupt business for unpaid premiums under bankruptcy law, according to the U.S. Supreme Court that insurers are warning could disrupt the insurance marketplace unless Congress acts to reverse it.
In a 6-3 decision, the Supreme Court majority rejected an insurer's argument that an employer's liability to carry workers' compensation coverage fits the employee benefit plan category that would assign it priority in the event of a bankruptcy.
Instead, the high court ruled that workers' compensation premiums are more like liability premiums than employee benefit costs, and as such, do not fall under the section of bankruptcy code (11 U.S.C. section 507(a)(5)), which assigns priorities to unsecured creditors' claims for unpaid contributions to an employee benefit plan.
"Weighing against such categorization, workers' compensation does not compensate employees for work performed, but instead, for on-the-job injuries incurred; workers' compensation regimes substitute not for wage payments, but for tort liability," Justice Ruth Bader Ginsburg wrote on behalf of the majority.
In Howard Delivery Service, Inc., et al v. Zurich American Insurance Co., handed down June 15, the high court reversed the Court of Appeals for the Fourth Circuit, which had held that payments for workers' compensation coverage were "contributions to an employee benefit plan ... arising from services rendered" and thus subject to the bankruptcy priority provision.
Zurich had urged the court to borrow the broader definition of employee benefit plan contained in the Employee Retirement Income Security Act of 1974: "[A]ny plan, fund, or program [that provides] its participants ... through the purchase of insurance or otherwise ... benefits in the event of sickness, accident, disability, [or] death."
But the majority noted that federal courts have questioned whether ERISA is appropriately used to fill in blanks in a Bankruptcy Code provision.
The court further noted that workers' compensation also differs from fringe benefits in that while nearly all states require employers to carry workers' compensation, they commonly do not mandate employee benefits.
In the case before the court, Howard contracted with Zurich to provide workers' compensation coverage for its operations in 10 states. After Howard filed a Chapter 11 bankruptcy petition, Zurich filed an unsecured creditor's claim for some $400,000 in premiums, asserting that they qualified as "contributions to an employee benefit plan" entitled to priority under 507(a)(5).
The Bankruptcy Court denied priority status to the claim, reasoning that because overdue premiums do not qualify as bargained-for benefits furnished in lieu of increased wages, they fall outside 507(a)(5)'s compass. The District Court affirmed, similarly determining that unpaid workers' compensation premiums do not share the priority provided for unpaid contributions to employee pension and health plans.
But a Fourth Circuit panel reversed without a rationale, which resulted in the case being brought before the Supreme Court.
Justice Ginsburg was joined in her majority opinion by Chief Justice John Roberts and Justices John Paul Stevens, Antonin Scalia, Clarence Thomas and Stephen Breyer. Justice Anthony Kennedy filed a dissenting opinion, in which Justices David Souter and Samuel Alito joined.
Insurer reaction
Insurers said the decision is flat out wrong and could have serious repercussions in the marketplace.
"The court simply got it wrong. The majority's narrow focus on the priority provisions of the bankruptcy code overlooked that workers' compensation coverage is mandatory, and the consequences of an employer's lapse in coverage," charged Bruce Wood, American Insurance Association assistant general counsel.
Wood also maintained that the decision could undermine the workers' compensation system and benefits for injured workers.
"This decision means that an employer trying to reorganize its business will no longer be required to pay its workers' compensation premiums. This result will jeopardize continued coverage, because an insurer now has no legal authority to compel payment of premiums and doubtful incentive to continue coverage," according to Wood. "Under current law, employers without workers' compensation coverage -- even bankrupt employers -- are subject to huge fines, criminal prosecution and business shutdown."
"At the same time this decision puts worker protections at risk, along with the viability of the employer's business," he added. Employers that self-insure their workers' compensation coverage will face related problems, Wood said.
AIA participated in the case as an amicus in this case. The industry will likely now press lawmakers to a change the bankruptcy law.
In its ruling, the Supreme Court said questions over priority status should be decided with the bankruptcy code's aim of equal distribution in mind.
"Every claim granted priority status reduces the funds available to general unsecured creditors and may diminish the recovery of other claimants qualifying for equal or lesser priorities" the court noted. "To give priority to a claimant not clearly entitled thereto is not only inconsistent with the policy of equality of distribution; it dilutes the value of the priority for those creditors Congress intended to prefer."
Slimmed-down SMART bill to reform surplus lines insurance regulation; brokers pledge their support
In a step to overhaul the current state of insurance regulation, Reps. Ginny Brown-Waite, R-Fla., and Dennis Moore, D-Kan., have introduced legislation that would mandate states to establish a uniform system of regulation for the surplus lines industry.
The new bill, which is a slimmed-down version of the proposed State Modernization and Regulatory Transparency Act (SMART), pulled out incremental pieces of the SMART legislation targeting nonadmitted insurance and reinsurance, in an effort to ease the legislation's path through Congress.
Rep. Richard Baker, R-La., chairman of the House Financial Services Committee's Subcommittee on Capital Markets, Insurance and Government-Sponsored Enterprises, held a hearing on the new bill, the Nonadmitted and Reinsurance Reform Act of 2006, last month.
Several trade groups, including the American Association of Managing General Agencies, the National Association of Surplus Lines Stamping Offices and the Council of Insurance Agents and Brokers testified in support of the legislation at that hearing.
"This is an area where various state regulations are in conflict, and state regulators for decades have been unable to reconcile their differences," said Ken A. Crerar, president of The Council. "With respect to multi-state commercial insurance placements, the current system benefits no one, least of all the policyholders who ultimately pick up the tab."
"We are quite happy with the bill," said Dick Bouhan, executive director of NAPSLO. "A lot of the material in the legislation are issues which we have discussed with the committee and we have publicly supported in the past," he said.
Some of those issues include the requirement that only one state, or the home state of the insured, may require any premium tax payment for nonadmitted insurance. Under the legislation, the amount of any premium tax payment for nonadmitted insurance shall be determined on the basis of any compact or procedures entered for allocation among the states.
The new legislation also calls for no other state, except the home state of the insured to regulate nonadmitted insurance. Additionally, no other state may require the surplus lines broker to be licensed to sell, solicit or negotiate nonadmitted insurance products except the home state of the insured.
"When surplus lines activity is limited to a single state, regulatory problems are minimal," Crerar said.
Bouhan said, "we now have a situation in which surplus lines brokers are getting licensed in a number of these states," because of multi-state risks. "[Brokers] have to comply with virtually every state with which there's an exposure."
The legislation aims to solve those problems by investing regulatory authority in the home state of the insured.
AAMGA's Executive Director Bernd Heinze says he was not really surprised that surplus lines and reinsurance were first on the list for insurance regulatory modernization efforts by federal legislators.
"We have been talking with Congressman Baker and his committee for the past year," Heinze said. "The fact that this is the first part of the marketplace that is looked at for reform is very encouraging," he said.
Heinze says that he expects more reforms and modernization bills to come. "Whether they continue to come after the Fourth of July recess, or prior to mid-term elections, or even in the next Congress," remains to be seen, he said.
CEOs, concerned about capacity and pricing, stress underwriting discipline
Although property casualty insurance capacity still exists in some areas in the U.S.'s East Coast, the rate at which it is vanishing, especially in coastal areas, as well as the steep prices for available capacity, have industry executives concerned about pricing discipline.
"Someone's going to have to blink soon," said Ted Kelly, chairman, president and CEO of Liberty Mutual Group Inc.
Property catastrophe capacity was high on the list of concerns for panelists from the property casualty industry at Standard & Poor's Ratings Services' recent annual insurance conference, "Insurance 2006: Rethinking Risk."
Whether insurers price risk properly is a worry. Although premiums have doubled in the past three to four years, "pricing in primary markets isn't supporting the cost of reinsurance," Kelly said. Reinsurance capacity might still be 20 percent short of demand in the southeastern U.S., he said, and "problems getting insurance in the Gulf region haven't been settled yet."
Companies "should look at their enterprise risk management and what kinds of controls management has on currency and hedging," said Martin Sullivan, president and CEO of American International Group Inc., who also would like to see construction codes improved in the Southeast.
Property casualty industry pricing, looking forward, is a huge question mark, and an additional worry for those CEOs. If 2006's hurricane season is benign, pricing discipline will remain, especially in the catastrophe area, Sullivan said.
Kelly, however, was not so sure. "A pricing bloodbath" could ensue if the hurricane season is moderate, he said. "Watch October renewals -- they will be the first sign of a lack of discipline," he warned.
The role capital markets now play in maintaining financial strength also had panelists, as well as the moderator Standard & Poor's credit analyst Thomas Upton, concerned. Although capital to replace what was lost to the catastrophes of 2005 and 2004 was readily available, it might not be if severe catastrophes hit in 2006.
"I was surprised at the ease of which companies recapitalized after Katrina," said Dinos Iordanou, president and CEO of Arch Capital Group Ltd.
Would companies be better off if they had to replenish capital organically rather than going to the capital markets? Opinions were not uniform. Kelly was emphatic about the industry's need for a free flow of capital, but Sullivan said the industry would be tested if the season were active. Iordanou cited that even if a major hurricane does come, $600 billion to $650 billion of surplus exists in the global marketplace.
Bottom line, underwriting discipline continues to be important, the panelists concurred.
"Clearly, there's room for improvement," Sullivan added.
