Flooding in Pennsylvania destroys 518 homes

The floodwaters that inundated parts of Pennsylvania last month destroyed at least 518 homes and affected another 7,100 homes and businesses, according to the Pennsylvania Emergency Management Agency.

The preliminary damage figures are almost certain to grow as investigators continue to tally the destruction caused by days of heavy rains, said PEMA spokesman Justin Fleming.

Eastern concentration
"It's just a snapshot in time," Fleming said. "That's the information we use to be able to present the federal government with evidence that there was destruction in these counties."

The damage was concentrated in the eastern half of the state.

In Bucks County, 308 single-family homes sustained serious damage. Luzerne County had 23 homes destroyed and 492 otherwise affected. Schuylkill County reported 52 businesses with major damage among the 618 structures affected.

PEMA said 2,220 homes or businesses had major damage, 3,045 minor damage and 1,845 were otherwise affected.

The state also estimates at least $76 million in damage to public infrastructure such as bridges and roads.

Eight counties have been approved for federal aid to repair that damage, and 21 counties have been designated for federal assistance for individuals, according to officials.

Maryland tends to alcohol training

Groups offering state-mandated alcohol-awareness training to bartenders and liquor-store workers would have to provide at least three hours of instruction and give a state-approved test under rules proposed by the Maryland Comptroller of the Treasury. The proposal would standardize requirements for programs offered by nearly 20 vendors and about 250 trainers following complaints that some have shortchanged students on training time. The courses are supposed teach servers about the legal and physical limits of alcohol consumption, mainly to prevent drunken driving.

The proposal incorporates suggestions from the Restaurant Association of Maryland, which offers a training program called Maryland's BEST.

Maryland law requires every establishment that sells alcoholic beverages, including retail stores, to have at least one employee certified by a state-approved alcohol-awareness program.

Alcohol-related traffic fatalities in Maryland have declined since the law was passed in 1989. Such deaths peaked at 407 in 1986 and reached a low of 215 in 1999, according to the National Highway Traffic Safety Administration. In 2004, the last report year available, there were 286 alcohol-related traffic deaths in the state, according to NHTSA.

Granite State volunteers

Wanted: about 200 volunteers to help clean basements of mold and mildew left over from the May flood in New Hampshire.

More than 300 families statewide are living with toxic waste, mold and mildew as a result of the flooding, said Tim Dupre, executive director of Volunteer NH! The group was contacted to help people clean out, but more volunteers are needed he said of the organization's "Mud Out" program, which helps homeowners who don't have flood insurance.

"I would tell you if we have cleaned out 20 homes, that's a good number," Dupre said. So far, only about 10 new people have been trained and agreed to help clean up other homes. The areas in greatest need across the state range from Gilford to Rochester to Goffstown and part of Nashua.

Mass. mandate

Massachusetts officials have unveiled proposed regulations that would set the minimum a company would have to do to be exempt from a new $295 per-worker assessment as part of the state's new health care law. Under the proposal, companies could meet that threshold if at least 25 percent of their full-time employees are enrolled in the company's group health plan. Businesses that don't meet that goal could still be exempt from the assessment if they contribute 33 percent of the cost of an individual's health care premium.

N.Y. tour boat lawsuits

Last fall's capsizing of a tour boat that killed 20 people on Lake George, N.Y., including 19 from Michigan, has led to two more lawsuits. One filed by the estate of Marjorie H. Perry, 77, Livonia, Mich., says the makers of the tour boat's pump and engine should among those held responsible. The lawsuit asks for $12.5 million in damages.

The other lawsuit was filed by the estates of Beverly B. Becker, 78, and Joann L. Manore, 74, both of Temperance, Mich., against several companies and individuals, including the boat's owner, operator and captain.

The National Transportation Safety Board continues to investigate what caused the October accident.

Both lawsuits were filed in U.S. District Court in Albany.

Pennsylvania risk pool

A code enforcement officer told Suzette Heydt of Allendale, Pa., that she would have to put up a four-foot fence around her kids' inflatable pool, which could raise the cost of the $24.99 pool by hundreds of dollars. "A baby pool, whether it's a foot deep or three feet, can be even more dangerous than a pool with sturdy side walls that are four feet high," officer Sandy Nicolo said. "The fact is that children can find a way to get into anything."

Enforcement officers say many people are surprised to learn that some kiddie pools, like in-ground pools, require fences. Under Pennsylvania's Uniform Construction Code, pools more than 24 inches deep must be completely enclosed by a fence or a screened enclosure equipped with self-closing and self-latching gates.

Heydt said she has deflated the pool and doesn't plan to use it.

Boston's Big Dig tragedy expected to trigger new wave of litigation

When the family of Milena Del Valle, who was killed when part of the Big Dig tunnel ceiling crushed the car she was riding in, gets around to filing a wrongful death lawsuit, that suit is expected to trigger legal fights among all the parties that have been involved with the design, management and construction of the $15 billion public project, according to lawyers familiar with such cases.

"There will be lots of finger-pointing," noted James Harrington, who adds there will be numerous legal, technical, insurance and other contractual issues to resolve. Harrington is a partner with Robins Kaplan Miller and Ciresi LLP in Boston.

"Whenever there is a tragedy like this, anybody who touches the project is at risk of being sued," agreed Jim Dorr, a defense lawyer with the Chicago firm, Wildman Harrold.

Among the candidates to be defendants in any suit are the design firm and project manager, Bechtel/Parsons Brinckerhoff; the main contractor, Modern Continental (now part of Jay Cashman); the Central Artery Tunnel Project; the Massachusetts Turnpike Authority, and various subcontractors. Manufacturers could also be targeted if there emerges any proof they knew of a defect in their product.

Punitive damages
The stakes could be high. Massachusetts' wrongful death statute permits punitive damages and any award could be "very substantial," added Dorr.

While state law caps the liability of the public agency, the Turnpike Authority, at $100,000 in damages, there is no such cap shielding private firms.

Federal investigators are also looking into other tunnel construction projects around the country that used the same method to affix panels.

While lawyers agree there will be great pressure to settle out of court, they note that resulting litigation will still take at least three or four years and probably longer if criminal charges are pursued since parties will be restricted in talking.

It is not yet known exactly what went wrong but speculation has centered on the loosening of bolts that were used to secure the heavy ceiling panels to the roof of the tunnel. Questions have been raised about whether the bolts were installed correctly, whether the epoxy used with the bolts was properly mixed and applied, even whether the bolting method and panels used were appropriate.

Several state and federal investigations of the tunnel are underway. Inspectors have discovered hundreds of additional ceiling panels with potential problems. The Interstate 90- airport connector tunnel where the accident occurred has been closed indefinitely, as have two other tunnels.

Design/manage
Harrington says the troubles surrounding the Big Dig raise questions about the wisdom of contracts where the design firm doubles as project manager and whether there were sufficient checks-and-balances. He points out that instead of a technical expert overseeing Bechtel/Parsons Brinckerhoff, there was a political entity, the Turnpike Authority.

"Bechtel Parsons has an excellent reputation but we all make mistakes," Harrington said. He said such projects should have another layer of expert monitoring, especially given that public safety is at risk.

Attorney General Tom Reilly is considering bringing criminal charges related to Del Valle's death. His office has begun issuing subpoenas to firms with anything to do with the use of the ceiling panels, including the Turnpike Authority and designer/project manager Bechtel/Parsons Brinckerhoff.

Reilly has said that project managers knew of problems with the ceiling bolting system back in 1999 but might have ignored the warnings.

Reilly had been in negotiations to free the design and construction firms from future liability for claims related to some 200 alleged errors in construction in exchange for a lump sum payment of $108 million. However, Reilly suspended those negotiations after learning of the Del Valle tragedy.

Bechtel/Parsons Brinckerhoff defended its work. "Supporting concrete ceiling panels by anchoring bolts to the roof with epoxy adhesive is widely and successfully used throughout the construction industry," the company said in a statement.

Modern Continental, the contractor of the section being investigated, has also defended its work. The company said that its work "fully complied with the plans and specifications provided by the Central Artery Tunnel Project. In addition, the work was inspected and approved by the Central Artery Tunnel Project."

AIG is the lead insurer on the Big Dig under an owner-controlled insurance program for workers' compensation and general liability.

The section of the Big Dig tunnel where the ceiling is being investigated connects the Mass Turnpike (Interstate-90) to the airport. It was one of the last sections of the mega-project to be completed; it opened in 2003.

The Big Dig buried one major interstate under the city, connected the state's turnpike to the airport and erected the widest cable-stayed bridge in the world -- all without shutting down the city. It has been hailed as a monumental engineering achievement. But it has come in for criticism for cost overruns and various problems, including water leaks and the alleged use of substandard concrete.

N.Y. blasts 'anemic' workers' comp anti-fraud efforts

New York officials have denied a requested 7.5 percent hike in workers' compensation premiums and criticized what they termed carriers' 'anemic' efforts in combating fraud in doing so.

The decision means rates will not be going up in October as insurers had hoped.

"The insurance department is disapproving the rating board's request because our detailed analysis of the application demonstrated that an increase is not warranted," said N.Y. Insurance Superintendent Howard Mills.

"The statistical data that was submitted as part of the rating board's application, and the testimony received at the public hearing, indicate the workers' compensation market in New York remains quite profitable."

The rate request had been made by the New York Compensation Insurance Rating Board on behalf of insurers.

In a statement, Mills criticized the workers' compensation carriers for their "collective unwillingness to expand anti-fraud efforts despite being given new and enhanced tools" granted by the Legislature in 1996 to combat the problem.

"Now, an entire decade after the enactment of that landmark reform legislation the insurers efforts to fight fraud -- both claimant and employer fraud -- can be said to be anemic, at best," the decision stated.

The NYCIB presented information at a June public hearing indicating that for the seven policy years running from 1997 to 2003, the total underwriting savings to the insurers is $12,579,670 or less than $2 million annually for all the carriers doing business in the state.

"The paucity of fraud savings in an industry which experiences fraud costs of approximately $5 billion per year, according to the National Crime Bureau, is most unsettling," the decision stated.

Mills cited one carrier's report on anti-fraud initiatives that indicated that the carrier referred only 320 claims for investigation to its Special Investigation Unit out of a total policy count of over 40,000.

"Without a greater commitment on the part of workers' compensation carriers in New York to fight fraud, this department is hard pressed to justify any new overall average rate increases," Mills stated.

The rate denial follows slight increase of five percent granted in 2005 and no increase in 2004.

N.Y. lawmakers disappoint on property insurer; avoid workers' comp reform

The New York State Legislature's most recent session will be remembered by insurance lobbyists more for what did not get accomplished than for what did.

The Republican-controlled Senate and the Democrat-led Assembly once again missed an opportunity to help calm a growing homeowners insurance crisis in the downstate region, according to the state's insurance agents.

They also bypassed reforms of the state's workers' compensation system sought by Gov. George Pataki, business and insurance leaders.

Also, three different bills on the reinstatement of flex rating for private passenger auto insurance were introduced by the Senate in an attempt to get the Assembly interested in this issue but none of the bills were advanced before the session closed on June 23.

With insurance companies such as Allstate, MetLife and others restricting homeowners coverage in Westchester County, New York City and Long Island, the Independent Insurance Agents & Brokers of New York, Inc. says lawmakers could have eased the situation by permanently extending the life of the residual market property insurer.

However, as they have done in years past, lawmakers only granted the New York Property Insurance Underwriting Association a one-year extension. NYPIUA provides fire, vandalism and other coverage to those who cannot obtain them in a standard market.

The uncertainty over the future of the NYPIUA has consequences that are felt in the marketplace, agents maintain. "The financial markets do not take NYPIUA seriously due to its temporary status," said Sharon H. Emek, IIABNY chair and a managing director of CBS Coverage Group in New York City. "Because of its dependence on the New York State Legislature, NYPIUA has lapsed in the past, making it unable to obtain certain financial commitments."

For years, NYPIUA has been a political hostage between the Republicans who control the Senate and Democrats who rule the Assembly. A bill to make NYPIUA permanent recently passed the Assembly, but was unable to survive obstacles in the Senate. The Legislature finally adopted a one-year extension.

"We are disappointed with a number of senators whose short-range views on this crisis will eventually hurt homeowners in the downstate region," said Emek.

Lawmakers also extended provisions that allow auto insurers to cancel or non-renew up to two percent of their business on an annual basis. This provision was scheduled to expire on June 30, 2006.

Workers' comp inaction
Lawmakers did not take seriously a workers' compensation reform plan advanced by Gov. Pataki that he said would reduce costs for businesses by more than 15 percent, while increasing benefit levels for injured workers by 25 percent.

This was not the first time Pataki has waded into the workers' compensation arena. His latest recommendations come on top those he fought for in 1996 that are credited with cutting costs by 25 percent on average. He proposed a series of additional reforms in 2004, but the Legislature failed to act on them.

The industry worked with New York Compensation Action Network, an industry and business workers compensation reform coalition, to advance this session's workers compensation reform to no avail.

Kristina Baldwin, regional manager and counsel for Property Casualty Insurers Association of America, put a positive spin on the effort, stating, "While workers compensation reform did not get passed this session, PCI and coalition partners made progress in raising the prominence of this issue."

While the Legislature didn't find the time to address broad workers compensation changes, it did manage to pass legislation, which increases the threshold for employer approval of certain treatments in the workers compensation system from $500 to $1,200.

The industry has urged Pataki to veto this legislation, arguing that it only worsens a system that already has the second highest claims costs in the nation.

While states adopt seat belts laws, 29 still balk at motorcycle helmets

In Illinois and Iowa, motorists can get tickets for not wearing seat belts. In Connecticut, they are prohibited from talking on cell phones. And in New Hampshire, motorists can be fined if they are involved in an accident while applying makeup or eating.

But adult motorcyclists in these states do not have to wear a helmet.

The laws of these four states illustrate a national dichotomy in traffic regulations: While most states have increased safety requirements for automobile drivers and passengers over the past 20 years, including requiring the use of seatbelts and improved driver training, motorcycle safety rules, and especially helmet laws, have been relaxed or remain static.

States have an interest in regulating motorcycle safety because taxpayers could end up paying for the medical bills of underinsured or uninsured riders, said Melissa Savage of the National Conference of State Legislatures.

Pittsburgh quarterback
Recent events in Pennsylvania and Michigan have intensified the debate about whether motorcyclists, in the name of personal freedom, should have the right to increase their risk of injury or death. In Pennsylvania, which repealed its helmet law in 2003, Ben Roethlisberger, quarterback of the Super Bowl champion Pittsburgh Steelers, was not wearing a helmet when his motorcycle collided with a car on June 12. Roethlisberger suffered a concussion and underwent seven hours of surgery.

In Michigan Gov. Jennifer Granholm (D) -- ignoring intense lobbying -- vetoed a bill June 23 to repeal the state's helmet requirement. "The governor believes that personal freedom ends at someone else's bumper," said spokeswoman Liz Boyd.

That leaves Michigan as one of the 19 states that require all motorcyclists to wear helmets. Twenty five states, including Pennsylvania, require helmets only for younger riders. Four states -- Colorado, Illinois, Iowa and New Hampshire -- do not require motorcycle helmets. Since 1997, Arkansas, Florida, Kentucky, Pennsylvania and Texas all have rolled back their helmet laws to cover only younger riders. Louisiana bucked the tide two years ago and enacted a universal helmet law.

But every state except New Hampshire now requires drivers to wear seat belts, and half the states have so-called "primary" laws allowing police to issue tickets solely for not buckling up. In 24 states, a ticket for not wearing a seat belt can be given only in conjunction with another traffic violation.

Public policy shift
Those seat belt laws are the result of a two-decade shift in public policy, explained Barbara Harsha, executive director of the Governors Highway Safety Association.

But over the same period a well-organized anti-helmet lobby has been very effective at convincing many states to loosen rules for bikers, said Russ Rader a spokesman for the Insurance Institute for Highway Safety.

The effects are reflected in highway crash statistics. "Motorcycle crash deaths are the only area of traffic safety going in the wrong direction," Rader said. While deaths from automobile accidents in 2005 are only slightly higher than in 1997, motorcyclist fatalities have increased for eight straight years and more than doubled over that period, according to the National Highway Traffic Safety Administration, which says a motorcyclist is 32 times more likely to die in a crash than someone in a car.

The government figures also point to a clear connection between weak helmet laws and increased fatalities and injuries. For example, the number of motorcyclists admitted to hospitals jumped 40 percent in 30 months after Florida repealed its helmet law in 2002.

In addition, annual costs to treat head injuries more than doubled to $44 million and nearly a quarter of that amount had to be covered by public or charitable sources, NHTSA found. While Florida law required bikers to carry $10,000 insurance, only a quarter of those injured had expenses less than that amount.

A recent Pennsylvania study found that head injuries in motorcycle accidents have more than doubled since the state's helmet law was rolled back in 2003. Helmetless riders accounted for more than 60 percent of those head injuries.

Eric Kelderman is a staff writer for stateline.org. Reprinted with permission from Stateline.org.

Mass. Fair Plan plays catch-up on reinsurance, rates

Last summer when the Massachusetts Fair Plan, the state's involuntary homeowners insurance market, looked into purchasing reinsurance, the premium was about $17.5 million. The plan did not purchase the reinsurance then, which left its participating individual property insurers to cover Fair Plan business as part of their own reinsurance.

But the Fair Plan board of directors, after some prodding by state officials and individual company members, changed its mind. It just bought $455 million worth of reinsurance, effective July 1, for a lot more money. The new premium: $38 million.

"The reinsurance market has changed dramatically," John K. Golembeski, told Insurance Journal. Golembeski is president of the Massachusetts Property Insurance Underwriting Association, the formal name for the Fair Plan, the residual market that is shared by all of the state's property insurers.

Reinsurance emerged as the major factor in the state's rejection of Golembeski's rate filing for an average 12.5 percent increase, a bid that was initially submitted last September with a Dec. 31, 2005 proposed effective date.

Original request
The original filing included the net cost (the premium offset by costs already measured by hurricane models) or about $13 million in its rate filing. The net cost for the reinsurance actually purchased is about $28 million.

The insurer argued that it needed assurance that the premium cost would be covered before actually spending the money to purchase reinsurance. But Insurance Commissioner Julianne Bowler turned down the rate filing, indicating that she would only approve a filing that had reinsurance costs as part of rates if in fact the Fair Plan bought coverage.

Bowler wrote that "[I]f MPIUA can demonstrate that it has purchased premium of a dollar at least as great as $17.5 million, it may include in its rates the $13 million net cost of reinsurance as initially filed."

MPIUA, with proof of reinsurance in hand, is expected to submit a so-called compliance filing that incorporates the $13 million reinsurance net cost by the end of this month.

This would mean leaving for a future rate filing any recovery of the additional $15 million in reinsurance costs. Although the insurer does have the option of submitting an entirely new filing for the full amount, it has already lost seven months from its original proposed effective date and new rates cannot be retroactive.

"We're overdue for a major correction," said Golembeski.

The compliance filing is expected to look a lot like the original filing since Bowler agreed with most of the Fair Plan's figures and analysis, including its practice of averaging the estimates of two major hurricane models.

Bowler did indicate, however, that the estimates of hurricane losses not captured by hurricane models seemed high and suggested that the compliance filing adjust them downward.

"It appears the commissioner agreed with the case we presented except on reinsurance and non-modeled losses," noted Golembeski.

Despite indications that a 28.4 percent statewide rate hike was called for, the Fair Plan requested a 12.5 percent hike across all homeowners policies, which was to account for hurricane forecasts and reinsurance costs. The filing included an average hike of 12.9 percent on the major homeowners forms (HO-2,3,5) and a slight 0.3 percent jump for tenants (HO-6). The association has also asked for an increase of 6.4 percent on dwelling policies statewide.

The biggest increases are in store for coastal Cape Cod, where the Fair Plan has become the leading property insurer rather than the insurer of last resort as intended. For Cape homes, it has filed for an average 25 percent hike, although its actuaries maintain that experience supports as much as a 68 percent increase.

The Fair Plan is not the only property insurer grappling with hurricane models and reinsurance costs. These same forces are also driving private insurers to exit markets and raise rates, making the Fair Plan the most affordable and often only option for many Cape Cod and other coastal homeowners.

It Figures

80

Attorneys for Pennsylvania-based Sheetz convenience stores and scores of customers sickened during a salmonella outbreak two years ago have settled more than 80 lawsuits in recent weeks and agreed to delay a filing deadline in hopes that dozens of other claims might settle. July 1 marked the two-year anniversary of the outbreak, which was traced to salmonella-tainted Roma tomatoes. Ordinarily, that would also represent the statute of limitations for some suits, but attorneys for Sheetz, its customers and various insurance companies involved agreed to push that back to July 21. "Basically, Sheetz and we want to resolve the claims without having to file lawsuits," said Bill Marler, the attorney who represents 139 of the more than 400 who were sickened.

26,000

The number of Connecticut license plates stolen within the past three years in part because thieves are after the registration stickers affixed to them. Because the stickers are not easily removed from license plates, thieves often cut off the corner of the plate with the sticker still attached, and then sell them to unscrupulous car dealers or other individuals. Governor M. Jodi Rell recently signed legislation directing that new motor vehicle registration stickers be placed inside the windshield rather than on the rear license plate.

7,000

The number of drivers New Hampshire state troopers say they stopped over the July Fourth holiday weekend in which they wrote more than 6,000 tickets and made 38 drunken driving arrests. They also wrote 3,800 warnings. Among those stopped were three drivers clocked at 117 mph on Interstate 95.

7-12%

The percentage of total workers compensation medical costs attributable to prescription drugs costs, according to Workers Compensation Research Institute. WCRI reported these costs are rising rapidly, up to nearly 20 percent per year. WCRI says public policymakers are considering cost containment measures.

$30,000

The new aggregate premium for a commercial account to qualify for deregulation under Rhode Island's revised rating law. The new law adjusts several statutory provisions that a commercial risk must satisfy to be deregulated in addition to employing the services of a risk manager. Among other provisions, it cuts the net worth requirement from $50 million to $10 million, reduces the net revenue requirement from $100 million to $5 million, and lowers the aggregate premium level from $150,000 to $30,000.

$16.7 million

The amount First Act Inc. accepted in payment stemming from a lawsuit in which a jury found that Brook Mays Music Co. had falsely disparaged the products of the bargain-priced musical instrument maker. The settlement came after a 2005 verdict in which a Boston jury awarded First Act $20.7 million. The payment ends the lawsuit, which Dallas-based Brook Mays had vowed to appeal. The company sued Brook Mays in 2003 after the retailer sent a flier to band directors and consumers claiming that First Act and other imported instruments were of poor quality and that repair parts might not be available.

Agency compensation reflects organic growth, profitability and retention

With fewer large books of business changing hands recently, insurance agencies are relying on staff-driven, organic growth to expand their operations. Compensation packages and new recruitment and training strategies have shifted to reflect this trend, and also to address the shortage of trained sales professionals, according to a recent report by Business Management Group Inc.

"With a shortage of sales talent in today's market, hiring producers from outside the industry has become a key recruiting strategy for almost 85 percent of respondents in our survey," said Suzy Hammett, vice president, BMG and author of the "2006-2007 Owner, Executive and Producer Compensation Survey."

"That means it's even more important for agency principals to know how to attract and retain top performers with good training programs and competitive compensation packages."

BMG's survey, conducted in March 2006, is a 46-page report based on responses from 162 agencies and brokerage firms, categorized by line of business, six regions and 2005 total agency revenue.

Producer compensation. According to the survey, the level of compensation for agency producers was directly related to the agency's size and individual earnings.

Commission rates. Producer commission rates at the largest agencies--those with revenues greater than $25 million--averaged 4 percent to 12 percent less than those in mid-size and smaller agencies. This difference may be due to the fact that larger agencies tend to provide additional resources such as sales centers, central marketing and account executives which increase the cost of acquiring and keeping business yet can help increase an individual's productivity.

Benefits and perks. Beyond commission, the benefits and perks offered by an agency were important components of a producer's total compensation package.

Executive compensation and bonuses. For executives, the most important factors in determining base salaries were management responsibility and the size of the book of business produced. Sixty-two percent of respondents ranked agency profits as the key factor for determining executive bonuses compared to 50 percent of respondents in BMG's 2002 survey. Additionally, agency growth moved from fourth place to second place during this time period, emphasizing the need to better align executive rewards with growth initiatives.

Long-term incentives. To retain the most senior personnel, more agencies today are offering long-term incentives in the form of stock redemption and deferred compensation plans.

Account trends. Another continuing trend was the focus on developing new and larger accounts. According to the survey, 24 percent of agencies were eliminating or reducing commissions on small commercial accounts. More agencies were also establishing small business units to handle sales and service functions and reduce operating expenses so their producers could focus on larger accounts.

Similarly, agencies were depending more on CSRs to sell additional products to customers and were structuring their compensation to reflect this trend.

Stock option timing scandal to be felt in D&O insurance

If investors think they're safe from the scandal involving the suspicious timing of executive stock option grants, they may want to consider this: Even if they aren't invested in companies caught up in that mess, it could still cost them big.

That's because this controversy could lead to big changes across corporate America in the policies for directors and officers insurance.

Not only are rates expected to rise, but insurers could also be more restrictive in the coverage they offer or what they pay out in claims.

More than 50 companies-- from industry bellwethers like Apple Computer Inc. and Home Depot Inc. to many smaller technology companies--are facing questions about whether they manipulated the timing of options grants to boost their value to the recipients and properly disclosed what resulted in outsized and potentially illegal profits for many executives. Shareholders have already started filing lawsuits, some naming board members or corporate officers for their alleged breach of fiduciary duties.

Companies that have acknowledged some link to the controversy could find it "difficult to obtain renewal terms at palatable rates and may be forced to accept potentially restrictive terms," said Kevin M. LaCroix, who advises clients on D&O liability issues at OakBridge Insurance Services in Beachwood, Ohio.

And others, even if they have no connection to the scandal, could face higher rates as the insurance industry tries to cover itself in the face of increased risk. Already, insurers are asking businesses questions about whether they have any exposure to option-grant timing, especially in industries like technology where options have been more prevalent as an employee compensation and retention tool.

That means the aftereffect of this scandal is already being felt even before most companies have determined if they have done anything wrong. While timing the issuance of stock option grants may be wrong if it is done to maximize executive payouts, it isn't yet known what securities laws could have been violated or what role top corporate officials played in these alleged schemes.

"This issue hits a lot of people the wrong way," said Robert P. Hartwig, chief economist at the Insurance Information Institute. "But this practice might not be considered strictly illegal."

Copyright 2006 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Big 'I' exec tells agents federal charter is a 'recipe for disaster'

If a mandatory or even an optional Federal Charter is implemented in Washington, D.C., it will be a "recipe for disaster," says Charles E. Symington Jr., Independent Insurance Agents and Brokers of America's senior vice president of Government Affairs and Federal Relations. As debates heat up in the Senate over the proposed National Insurance Act, Symington says the Big 'I' opposes federal regulation of insurance, optional or mandatory.

The industry's biggest concern is where insurance should be regulated, on a state or federal level, Symington explained.

"You may not think it has much effect on your day-to-day operations, but it is starting to heat up and the outcome will play a big role in your future," Symington said.

Symington says while IIABA remains a strong supporter of state-regulated insurance, "we recognize that state insurance regulation needs to be brought into the 21st Century." He said agents and brokers across the country realize first hand the patchwork requirements that states oftentimes have and that these requirements can often be a burden to businesses.

That is why the Big 'I' supports targeted federal legislation working through the state-based system, supporting Mike Oxley, House Financial Services Committee chairman, and Richard Baker, who have proposed the SMART Act. The SMART Act maintains improved state insurance regulation, rather than the National Insurance Act, which would create an Optional Federal Charter system.

"SMART rides on the over 100 years of experience and model state regulators have regulating the insurance marketplace and does not throw out the baby with the proverbial bath water," he said.

Symington said there is significant disagreement over where to take this debate. According to Symington, some of the large international insurance companies want to see an optional Federal Charter created that is aligned with the OCC and dual banking charter.

"They believe the state system is beyond repair and that it should be regulated in Washington, D.C.," Symington said.

Symington pointed to the National Insurance Act, introduced by U.S. Sens. John Sununu, R-N.H., and Ken Johnson, D-S.D., currently under debate in the Senate Committee on Banking, Housing and Urban Affairs. Under the Sununu/Johnson proposal, a federal regulator would be appointed to head the Office of National Insurance, based in the Office of the Comptroller of the Currency. This would be housed in the Treasury Department, led by Commissioner of National Insurance, appointed by the President.

"What would this mean for you? How would this affect your day-to-day business operations?" and "Why does Big 'I' oppose it?" Symington asked.

Local regulation works best
Local regulation works best for consumers, Symington says.

"If a federal regulator is created in Washington, D.C., it will have a negative impact on your ability to represent your consumers and yourselves," he said. "With the creation of a new Office of National Insurance in downtown Washington, D.C., agents would lose the capability of communicating with the state regulator and his or her staff, which you may know personally from many years of business."

"Additionally, who do you think will have the ear of this new federal regulator? It will not be Main Street, it will be Wall Street. It will not be small business, it will be big business. It will not be independent agencies; it will be financial services conglomerates."

Symington also noted that a dual state-federal structure created by a Federal Charter would be confusing to consumers and require independent agents to understand both systems of regulation.

Symington said the bill's provisions would totally deregulate forms, explaining that an independent agent would have to compare forms for consumers. Legally this would drastically increase independent agents workload and legal exposure, Symington advised.

"It won't be like comparing apples to oranges; it will be like comparing apples to oranges, peaches, pears and watermelons, and so-on," Symington explained.

Symington said the National Insurance Act is not all bad, pointing out that for some larger agencies, the agent licensing reform does move the ball forward.

"However, in the end we feel the National Insurance Act will only lead to more burdensome requirements for our membership," Symington concluded.

"We share many of the same goals, efficiency and uniformity for state insurance regulation," Symington admitted. "But we prefer the SMART concept over the optional Federal Charter."

U.S. property/casualty industry posts record 1Q profits

The U.S. property/casualty industry's net gain on underwriting rose $1.4 billion, or 20.8 percent, to $8.4 billion in first-quarter 2006 from $6.9 billion in first-quarter 2005. The combined ratio--a key measure of losses and other expenses per dollar of premium--improved to 91.2 percent from 92.2 percent.

The $8.4 billion net gain on underwriting is the largest experienced any quarter since the start of records extending back to 1986. Similarly, the 91.2 percent combined ratio for first quarter 2006 is the best for any quarter since 1986.

The industry's consolidated surplus--its assets minus its liabilities--rose $13 billion, or 3 percent, to $440.1 billion at March 31, 2006, from $427.1 billion at Dec. 31, 2005, according to ISO and the Property Casualty Insurers Association of America.

Much of the increase in underwriting profits is directly attributable to a decline in first-quarter weather-related catastrophe losses. And despite higher profits on underwriting, the industry's net income after taxes fell $0.7 billion, or 3.8 percent, to $16.7 billion in first-quarter 2006 from $17.4 billion in first-quarter 2005, as investment income declined and federal income taxes increased.

The ISO and PCI industry figures for first-quarter 2006 are consolidated estimates for all private P/C insurers based on reports that account for at least 96 percent of all business written by private U.S. P/C insurers.

Catastrophe losses fell $0.7 billion, or 30.7 percent, to $1.5 billion in the first three months of this year from $2.1 billion in the first three months of 2005, according to ISO. "The decline in catastrophe losses accounts for six-tenths of the improvement in the industry's combined ratio in first-quarter 2006," said Gregory Heidrich, PCI's senior vice president for policy development and research. "With year-to-date catastrophe losses as of June 27 totaling $4.5 billion, or $1.4 billion more than the $3.1 billion in catastrophe losses in first-half 2005, we already know that underwriting results for the first-half of this year will not benefit from a decline in catastrophe losses," Heidrich added.

"And we have to brace ourselves for more bad news on catastrophe losses as the year plays out," said Michael R. Murray, ISO assistant vice president for financial analysis.

Reported figures for first-quarter 2006 and first-quarter 2005 reflect three special developments that affected how results for the periods compare. In first-quarter 2006, one large insurer stopped reporting financial results as a P/C insurer and instead began reporting financial results as a health insurer. Also in first-quarter 2006, another insurer changed the accounting for $0.7 billion paid to its foreign parent in 2005, reducing both first-quarter 2006 reported new funds paid in and first-quarter 2006 dividends to shareholders by that amount. And in first-quarter 2005, one insurer received $2.3 billion in nonrecurring special dividends from an investment subsidiary, inflating industry investment income for the period.

Adjusted for these special developments, industry first-quarter 2006 net income after taxes increased $1.7 billion, or 11.4 percent, from $15 billion in first-quarter 2005. Also adjusted for special developments, first-quarter 2006 net gains on underwriting increased $1.5 billion, or 22.1 percent, from $6.9 billion a year earlier, and surplus increased $15.9 billion, or 3.8 percent, from $424.2 billion at year-end 2005.

Based on results, growth in net written premiums slowed to 1.9 percent versus year-ago levels in first-quarter 2006 from 2.4 percent in first-quarter 2005. Adjusted for special developments, written premiums increased 2.5 percent in first-quarter 2006.

"Even with remarkable underwriting results for first-quarter 2006, the industry's statutory rate of return on average surplus for the 12 months ending March was just 10.1 percent--down from 11.2 percent for the 12 months ending March 2005. Furthermore, we are already seeing signs of an increase in competition that could undermine insurers' profitability," Murray said.

"In addition to rising prices, we're also hearing about availability problems in coastal states in the wake of last year's record-setting $61.2 billion in catastrophe losses. The countrywide softening in insurance markets and the problems in coastal insurance markets are both natural consequences of the law of supply and demand," added Murray.