Competing on personal lines service
So, think there's limited competition around service in personal lines?
Think again. Northeast insurers are tripping over themselves to herald their latest service features, which is good news for agents and consumers. Consider these recent events:
Hail to Mt. Washington
"It was like Armageddon," independent agent Pam Sakowski says of the hailstorm that hammered Exeter, New Hampshire, on July 11. Sakowski, who owns the Ray F. MacDonald Agency in Durham, was visiting her friends at Foy Insurance Group, when the sky turned black, the wind howled and baseball-sized hailstones crashed down loudly on everything --including her new Honda Accord parked outside. "It looked like the Red Sox were on the roof pitching down ice baseballs," she says.
Sakowski represents Mt. Washington Assurance Corporation and also insures her own car with it. At 7 the next morning the Mt. Washington Crashbusters van, a claims office on wheels, was pulling up to her door. Appraiser Doug Andrew quickly declared the car a total loss. "Her car was dented from hood to trunk, the windows were shattered, and the hailstones had even punched big holes through the shelf under the rear windshield. I've never seen anything like it --and there were many others just as bad," says Rich Middleton, general manager of the Concord-based carrier, who came along.
As a result of the early-morning appointment Sakowski didn't lose any time at work, where her own customers would soon be calling in hail losses.
For the next four days, Andrew drove his van from car to car, giving checks on the spot to people whose vehicles could be repaired and expediting the payment process for total losses. The hailstorm struck Tuesday afternoon, and every car was appraised by Saturday afternoon.
Meanwhile, Middleton met with independent agents and policyholders. Most of the more than 70 hail-damaged cars Mount Washington insures in Exeter and neighboring Stratham were totaled. Many had both exterior and interior damage because the hail smashed windows, and the upholstery, if not torn by hail, was at least soaked. "We pulled out all the stops to get the job done," Middleton added.
Getting car rental cars quickly proved another challenge. Since most rental car fleets in the Exeter area were destroyed as well, Mt. Washington worked with them to relocate cars from other areas.
Middleton says being New Hampshire-based helped. "Because we're local, we not only could we put the resources on ground fast and pay claims, but we also met with consumers and agents in person and addressed their concerns on the spot," he says.
A Peerless primer
Peerless Insurance, a member of Liberty Mutual Group, is helping its 151,000 homeowner insurance customers throughout the Northeast protect their families and homes during hurricane season. It is making a six-page Disaster Planning Guide available to policyholders on its website at www.peerless-ins.com. The guide helps policyholders develop an action plan for possible evacuation, details what necessities should go into an emergency kit, and explains the importance of undertaking a household inventory among other important safety tips. Also Peerless independent agents will be distributing wallet and key cards to policyholders, highlighting some of the most important preparedness tips and providing the claims service toll-free phone number for reporting a loss.
Rock and Tow
Boston-based auto insurer Plymouth Rock has introduced a new service for customers whose vehicles are unable to be driven after an accident. Known as "Tow And Go," the service provides accident-related towing assistance at no additional charge to Massachusetts Plymouth Rock customers who have selected full collision coverage. By dialing a toll-free claim number, customers with full collision coverage can now have a covered damaged vehicle towed, arrange for delivery of a rental car and speak to a claims representative, all at one time.
The Tow and Go program will be introduced and tested first in Massachusetts. In the coming months the company plans to make it available in New Hampshire, Connecticut, and New Jersey.
ID Service for Homeowners
Commerce Insurance Company in Webster, Mass. has joined with Identity Theft 911 to offer eligible homeowner policyholders identity resolution services to assist them should they fall victim to identity theft. The services will be at no additional cost. Arizona-based Identity Theft 911 offers victims of identity theft a personal advocate to help them with identity and credit restoration. Some highlights of the service include: placing credit file fraud alerts with all three major credit bureaus; completing the Federal Trade Commission Fraud Victim Affidavit; access to proactive educational materials at www.commerceinsuranceidentitytheft.com; a full year of credit monitoring and fraud monitoring; resolution of account takeover and true identity theft cases, as well as assistance with policyholder inquiries. All services apply to immediate family members. Commerce provides personal and commercial property and casualty insurance in Massachusetts and New Hampshire.
Delaware struggles to realize workers comp reform
Virtually everybody involved in Delaware's workers compensation system agrees the system is broken. The hard part is figuring out how to fix it.
Gov. Ruth Ann Minner tried unsuccessfully to ram a reform bill through the legislature last month before it adjourned on July 1. Now, Minner is hoping fellow Democrats who control the state Senate will take up an amended bill when the Senate reconvenes in August. It remains to be seen whether the Republican-led House will go along.
Rep. William Oberle Jr., R-Newark, head of the House labor committee, said he might draft alternative legislation.
In the meantime, roughly 18,000 employers in Delaware will continue to pay some of the highest workers compensation premiums in the nation, to the tune of about $175 million annually.
Alan Levin, chief executive officer of the Happy Harry's regional drugstore chain, describes the current workers compensation system as "out of control." Levin, chairman of the Delaware State Chamber of Commerce, noted that his company's workers compensation premiums increased more than 14 percent in 2003-2004, while payroll increased only 4.4 percent. Premiums increased another 15 percent the following year, while his payroll increased less than 8 percent.
"I don't think anybody is being well-served at this time," said Levin, who along with other business leaders cites the lack of managed care and unregulated attorney fees for the high cost of the current system.
Jim Randall of Caldwell Staffing Services in Wilmington said his firm pays 84 cents per $100 of payroll for clerical workers in Delaware, compared to 53 cents in Pennsylvania and 49 cents in Maryland.
Such discrepancies can be found in other job classifications as well. Approved rates for restaurant workers in Delaware range from $3.90 to $10.35 per $100 of payroll, compared to $1.07 to $3.69 in Maryland. Employers can expect to pay between $9 and $23.92 per $100 of payroll to cover sheet metal workers in Delaware, more than the double the cost in Pennsyl-vania, where rates last year were between $3.19 and $11.21. The cost for road construction workers in Delaware ranges from $14.87 to $39.51. In New Jersey, it's $4.66 to $9.06.
According to the industry's Delaware Compen-sation Rating Bureau, rates in Delaware have increased by an average of about 4 percent annually over the past decade, while rates in Pennsylvania have dropped by about 4 percent. "The gap is getting wider," said DCRB spokesman Bruce Decker.
A 2006 DCRB survey of rates for 30 job classifications in manufacturing, contracting and other industries shows Delaware with a combined average range of $2.23 to $5.91 per $100 of payroll, higher than Maryland, Pennsylvania, New Jersey, Virginia and West Virginia.
John Kirk III, administrator of the state office of workers compensation, cited two primary reasons for Delaware's high premiums.
"First and foremost, we have no medical cost containment whatsoever," Kirk said, adding that another culprit is the "friction costs" of litigating cases. "We have unregulated attorney fees," he said.
According to Kirk, Delaware is the only state that has no cost-containment mechanism for treating patients. The system also has no standards of care and does not give employers a say in which doctors can treat injured workers.
Critics of the system also say attorney fees also have to be reigned in. "There's a lot of money to be made on the current system," said House Majority Leader Wayne Smith, R-Wilmington.
Lawyers say they support a reduction in workers compensation insurance rates, but not at the expense of workers' benefits or their right to legal representation.
Copyright 2006 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Liability contracts could complicate Big Dig recovery efforts
The state's ability to recover damages from the Big Dig's overseer for the ceiling collapse that killed a passing motorist and closed nearby tunnels may be limited by project liability agreements signed by Massachusetts officials.
One of the agreements covered the period when the 3-ton ceiling panels that killed 39-year-old Milena Del Valle of Boston were being installed in the Massachusetts Turnpike connector tunnel where the collapse occurred on July 10. A second agreement covered the period when the connector underwent final inspections and was opened to the public.
The first agreement, signed in July 1996 and remaining in effect until January 2001, limited the money that could be recovered to the state's insurance protection, plus 150 percent of the management fee received by the overseer, Bechtel/Parsons Brinckerhoff. That fee has been estimated at $150 million.
The second agreement, signed in February 2001 and extending through December 2005, altered the liability limit so it included the insurance protection, plus $100 million from Bechtel/ Parsons Brinckerhoff.
Bechtel's limit
State officials later estimated the state's insurance protection at $50 million, meaning the contract limited Bechtel's liability to $150 million in total.
No price tag has been set for tunnel repairs; engineers are working on reinforcements to the ceiling fastening system. Gov. Mitt Romney has already sought $20 million to cover initial costs.
The 2001 agreement also continued an earlier exemption freeing Bechtel/Parsons Brinckerhoff and its subcontractors from any liability for loss of use of the project -- which the collapse has created -- as well as any loss of revenue to the state -- such as recent lost toll collections in the Ted Williams Tunnel. It links the connector tunnel to Logan International Airport.
A lawyer who negotiated that agreement on behalf the Massachusetts Turnpike Authority said he vehemently protested the contract because he felt the liability limits were too low. He said he was ordered to complete it by then-Turnpike Chairman Andrew Natsios.
$100 million not a lot
"When you consider the order of magnitude of the issues that we were dealing with, believe it or not, $100 million was not a lot," said Peter Pendergast, who served as general counsel to the Turnpike Authority from August 2002 to July 2002. He is a campaign consultant to Christy Mihos, a former Turnpike board member and Bechtel/Parsons Brinckerhoff critic who is now an independent candidate for governor.
"I couldn't predict the future as to everything that was wrong with the project and what it would cost to fix it, as well as maintain it going forward, but I knew it could be huge dollars," Pendergast said.
Natsios disputes
"I have to say that Peter has a short memory and he's protecting himself from what's happening," said Natsios, who left the Turnpike to serve as head of foreign disaster assistance at the U.S. Agency for International Development.
"Peter was quite satisfied with the agreement when it was happening," Natsios added. "He not only negotiated that, but he signed off on that."
Revamped insurance
The former chairman said the 2001 contract, known formally as Work Program 15, revamped the pay and incentive structure for Bechtel/Parsons Brinckerhoff at a time when he was trying to correct a $2.4 billion cost overrun incurred under prior chairmen.
The 1996 contract, meanwhile, was called Work Program 14 and was signed by commissioners of the Massachusetts Highway Department, which supervised the project at that time.
Natsios said the insurance program -- including the liability limits -- were revamped after demands from federal officials, who were paying for the bulk of the $14.6 billion project, the most expensive in the nation's history.
He also pointed to a clause in the both the 1996 and 2001 contracts declaring that in spite of the liability limits, any claim, loss and damages resulting from "willful misconduct, gross negligence, ...fraud or active concealment" could be recovered through a lawsuit.
"Well, what do you think happened?" he asked, criticizing Bechtel/Parsons Brinckerhoff's oversight.
A spokesman for Attorney General Tom Reilly, who is pursuing a criminal case stemming from the accident, and who had already been spearheading state cost recovery efforts with Bechtel/Parsons Brinckerhoff, suggested the liability cap and lost-revenue clauses could complicate his efforts. Reilly is a Democratic candidate for governor.
"Without question, the agencies and governors who have run this project have been too close to Bechtel, and portions of these contracts clearly favor Bechtel's interests over those of taxpayers," said a statement from David Guarino, Reilly's spokesperson. "But the final chapter on Bechtel in Massachusetts isn't written yet, and we'll do everything we can to hold them and anyone else accountable for their failures on this project."
Andrew Paven, spokesman for Bechtel/Parsons Brinckerhoff, declined to comment.
Copyright 2006 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Vesta liquidation by Texas felt from Florida to Mass.
Some 70,000 Florida, 150,000 Texas, 5,200 Massachusetts and 11,000 New Jersey policyholders are among those affected by the liquidation of Vesta Fire Insurance Co. and its subsidiaries.
Texas regulators placed the company into liquidation in July and its affiliates are issuing notices to agents to cease writing new and renewal insurance business. Also all policies with the companies will be canceled on Aug. 23 in most states.
Vesta is the parent company of four Texas-domiciled insurers: Texas Select Lloyds Insurance Company, Vesta Insurance Corp., Shelby Casualty Company and Shelby Insurance Company.
Texas Insurance Commissioner Mike Geeslin said Vesta's problems include a series of hurricane losses driving a long-term need for capital. Negotiations with potential buyers for certain Vesta insurers failed.
"We moved in this direction simply because the company did not have the capital to cover the risk to which they were exposed and we felt policyholders were at risk," Texas department spokesman Jim Hurley said.
Regulators in Hawaii and Florida have also taken control of Vesta subsidiaries--the Hawaiian Insurance & Guaranty Company Ltd. (HIG) and Florida Select Insurance Company.
In February, A.M. Best downgraded the company's property casualty subsidiaries' ratings to C++ (Marginal) from B (Fair). Best's said Vesta's statutory capital and surplus had declined over recent years due to higher than anticipated losses from the 2004 and 2005 hurricane seasons, combined with other declines in statutory surplus attributable to changes in accounting estimates. While Vesta successfully executed several capital enhancement plans, which included the sale of its life insurance and automobile insurance operations, hurricane losses largely offset the surplus realized through those transactions.
House bill would establish national disaster commission with agent member
Legislation that would establish a bipartisan national commission tasked with recommending policies to help the federal government prepare for and manage disaster response has been introduced in the House of Representatives.
H.R. 5891, the Catastrophic Disaster Risk and Insurance Commission Act, would attempt to mitigate future costs, reduce the likelihood of fraud and abuse in a federal repayment program, and hedge any risk exposure assumed by the government in the adoption of a national catastrophe program.
The bill was introduced by Rep. Debbie Wasserman-Schultz, D-Fla., and cosponsored by nine other representatives, including Rep. Mike Castle, R-Del., Rep. Patrick McHenry, R-N.C., and Rep. Charlie Melancon, D-La.
Conceptually, the House legislation is similar to the Commission on Natural Disaster Risk and Insurance Act, introduced in the Senate by Sen. Bill Nelson, D-Fla., and Sen. Mary Landrieu, D-La., in May. The legislation would establish a 17-member bipartisan commission and include an independent insurance agent as part of that commission.
The Independent Insurance Agents and Brokers of America expressed their strong support for the bipartisan legislation.
"Independent insurance agents and brokers are an integral part of the insurance marketplace, and this commission would give a crucial part of the industry a place at the table in the process of making important public policy," said Charles E. Symington Jr., IIABA senior vice president for government affairs and federal relations. "Our members serve as the conduit between consumers and insurance companies, and they understand from experience the marketplace disruption caused by natural disasters."
Is the U.S. prepared for a cyber catastrophe? Business executives say, 'no'
Testifying before a Senate Homeland Security and Government Affairs Subcommittee, Karl Brondell of State Farm Insurance Companies warned that the U.S. is not adequately prepared for a cyber catastrophe.
The insurance executive outlined what a recent Business Roundtable report identified as gaps in current response plans for restoring the Internet following a catastrophic cyber disruption.
Brondell, a strategic consultant with State Farm, also detailed a series of Roundtable recommendations for government and businesses to improve identification and assessment of cyber disruptions, to coordinate responsibilities for Internet reconstitution, and to make needed investments in institutions with critical roles in Internet recovery.
The Roundtable report, Essential Steps Toward Strengthening America's Cyber Terrorism Preparedness, found the U.S. is ill-prepared for a cyber catastrophe due to a lack of coordination between the public and private sectors that would be critical to restoring the Internet following a disaster.
"Progress has been made over the past decade on technical issues, such as establishing computer security readiness teams in government and gaining a better understanding of cyber risks," Brondell testified.
Strategic issues
"However, other issues have not been addressed, such as strategic management and governance issues around reconstituting the economy and shoring up market confidence after a widescale Internet failure."
Business Roundtable is an association of 160 CEOs of U.S. companies, and State Farm leads the Roundtable's Cyber Security Working Group. The Roundtable report identified major gaps in the U.S. response plans to restore the Internet:
Inadequate Early Warning System -- The U.S. lacks an early warning system to identify potential Internet attacks or determine if the disruptions are spreading rapidly.
Unclear and Overlapping Responsibilities -- Public and private organizations that would oversee recovery of the Internet have unclear or overlapping responsibilities, resulting in too many institutions with too little coordination.
Insufficient Resources -- Existing organizations and institutions charged with Internet recovery should have sufficient resources and support. For example, little of the National Cyber Security Division's funding is for support of cyber recovery.
In its report, the Roundtable concluded that these gaps in response plans mean the U.S. is not sufficiently prepared for a major incident that would lead to disruption of large parts of the Internet and the economy.
Protecting your most valuable assets overseas
Foreign voluntary workers' compensation, kidnap & ransom, and accident coverage help mitigate losses
A business has many valuable assets, but perhaps none as critical to success as its employees. Businesses depend on their senior management, leading sales executives and other top talent to guide the company, plan for the future and help manage growth.
As midsize and smaller companies expand their operations into countries outside the United States, their management relies heavily on these A-level employees to negotiate with foreign business leaders overseas or manage critical foreign operations.
Senior and mid-level executives at U.S. corporations have been traveling to Europe for years, but business trips to India, China and developing countries are becoming more common. Although most companies have workers' compensation and other insurance policies to protect their employees while they are working in the United States, those policies may not provide adequate protection when employees travel abroad.
Hazards when traveling abroad
The potential for accidents, injury or illness in a foreign country is very real. Because they face a broad array of unfamiliar exposures, employees are more likely to be injured at work when they are outside the United States than when they are on home turf. A 1997 study of the health-insurance records of 10,800 employees of the World Bank found that employees who routinely traveled on business accounted for 80 percent more medical claims than employees who did not travel. Among the common problems found with frequent travelers: intestinal and diet complaints, vascular troubles, respiratory infections, back aches and higher levels of complaints about occupational stress and anxiety. With international and business travel expected to rise this year, according to the Travel Industry Association of America, the risk of illness or injury while traveling abroad remains high.
Business people can become sick or injured anywhere, but traveling overseas presents a number of unique risks due to language barriers, jet lag, inherent driving hazards and infectious diseases. Employees are at greater risk for an illness if they are traveling to a foreign country where they may become exposed to infectious diseases, such as malaria, that are not common in the United States.
These risks are further compounded by the difficulty employees may have in finding appropriate or specialized medical care in a foreign country. Although many countries have excellent medical facilities for nationals, finding translation services to assist with interpretation of symptoms, medications and conditions is difficult at best and strained when pressed with an emergency.
Global travel also brings the risks of injury from terrorist attacks and kidnappings. Travel to the Middle East and some countries in Africa and Latin America may be especially dangerous, but as last year's attacks in London and Madrid demonstrate, employees could be at risk even when traveling to seemingly safe countries. Beyond terrorist attacks, kidnapping is a very real threat and they are not confined to remote or difficult regions.
Because senior management, key executives and other high-level performers frequently travel on business outside the United States, they are the people most exposed to risk and the ones a company can least afford to lose to illness or injury.
The right insurance protection
To ensure that valued employees get the best possible care and protection when working outside the United States, businesses should purchase foreign voluntary workers' compensation and kidnap and ransom insurance along with other insurance, such as a controlled master policy for property and liability, to protect them from international exposures.
Foreign voluntary workers' comp insurance provides workers' comp and employers liability protection specifically for employees who are working overseas. Although some protection may be afforded by a domestic workers' comp policy, this protection may not be sufficient. Domestic workers' comp policies often provide medical and wage benefits for short-term assignments outside the United States, but the extraterritorial provisions of these contracts generally exclude endemic disease or accidents that occur outside of work hours. The distinction between work and non-work activities may be blurred when employees are working abroad, creating a gray area that could be confusing to the insurance buyer. An added incentive for purchasing a foreign voluntary workers' comp policy is that claims for foreign exposures will not have a negative effect on the domestic experience modification for the U.S. workers' comp program, leading to higher U.S. premiums at renewal.
Foreign voluntary workers' comp insurance provides employees with wage continuation while recovering from illness or injury and pays the expenses incurred for repatriation. Repatriation expenses include those incurred for emergency medical treatment, transportation and mortuary services when an employee becomes ill, is injured or dies while traveling on business outside the United States and transportation expenses for an accompanying spouse and children. These expenses can be costly. The average cost of a medical helicopter evacuation, for instance, is about $60,000. Domestic workers' comp protection does not pay for this kind of expense.
Travel accident policies may be an appropriate alternative to buying foreign voluntary workers' comp insurance in some circumstances. A travel accident policy provides an employee with lump sum compensation for an injury and access to good medical care. However, keep in mind that unlike foreign voluntary workers' comp policies, travel accident policies do not include wage continuation or repatriation expenses.
Kidnap and ransom insurance is also important for traveling executives. Under a kidnap and ransom policy, clients are reimbursed for property or money surrendered as a ransom payment. A kidnap and ransom policy also provides defense and indemnity in the event of a lawsuit alleging negligence on the part of a customer in a hostage retrieval operation or in the prevention of a kidnapping. Moderate limits for kidnap and ransom insurance can be found under an exporters' package policy as well as a controlled master program. For higher limits, a monoline contract can be purchased.
Finding the right carrier
When choosing an insurer, look for a carrier with extensive international experience, a strong branch network and a reputation for reliable, quality loss control and claims services. It is also important that the insurance carrier is familiar with rules and regulations in countries around the world. Buyers should make sure the insurer can support its agents through connected and supported correspondent brokers who work together to service the company's needs on a local basis worldwide.
The challenges of operating a global business are many. By understanding the risks, companies can make educated decisions about the purchase of appropriate foreign insurance. With foreign voluntary workers' comp, kidnap and ransom and travel accident policies, businesses can mitigate any potential losses and help keep their most valued asset--their employees--safe and productive.
Kathleen S. Ellis is a senior vice president of Chubb & Son, and manager of Multinational Risk Group - Global Accounts.
Congressional hearing held on terrorism and insurance
Agents, risk managers and insurers press Congress for long-term TRIA solution
Two U.S. House subcommittees--the Committee on Financial Services, Subcommittee on Oversights and Investigation, and the Homeland Security Subcommittee on Intelligence, Information Sharing, and Terrorism Risk Assessment--held a hearing late last month to examine the ongoing issue of insuring the U.S. economy against terrorist attacks.
The hearing marked the first-ever joint inquiry into the issue by the two congressional subcommittees. The panel was convened by Homeland Security Committee Chairman Peter King, R-N.Y., Oversight and Investigations Subcommittee Chair Sue Kelly, R-N.Y., and Intelligence, Information Sharing, and Terrorism Risk Assessment Subcommittee Chair Rob Simmons, R-Conn. Its purpose was to re-examine the issue of terrorism risk insurance, focusing in particular on challenges faced by the insurance industry with regard to its ability to assess such exposures.
The hearing, "Terrorism Threats and the Insurance Market," took testimony from several industry groups, including agents, brokers, risk managers and insurers.
The Independent Insurance Agents and Brokers of America gave testimony in support of a long-term solution for terrorism insurance after the expiration of the Terrorism Risk Insurance Extension Act (TRIEA) on Dec. 31, 2007.
The IIABA expressed concern that consumers will face sunsets and exclusion clauses in policies as TRIEA nears expiration without a long-term solution that addresses the issue. The IIABA highlighted findings that there is only a limited amount of private-sector terrorism reinsurance available and that the unique and unpredictable nature of terrorist attacks makes it difficult for insurers to calculate risks.
"The issue of terrorism risk insurance has too many variables to assess with the accuracy needed to provide effective private coverage," said Charles E. Symington Jr., IIABA senior vice president for government affairs and federal relations. "It remains virtually impossible to determine when or where an attack may occur, or how serious it will be in terms of its effects, and these facts continue to make it extremely difficult for the insurance marketplace to provide adequate coverage for such an event."
Terry Fleming of the Risk and Insurance Management Society Inc. delivered testimony on behalf of RIMS and said that the potential inability for risk managers to purchase terrorism insurance in the event that the TRIEA is allowed to sunset at the end of next year is particularly critical.
"Without coverage, many companies will be vulnerable to bankruptcy and extreme financial losses, which ultimately could adversely impact the nation's economy," according to Fleming. RIMS considers the availability of adequate insurance for acts of terrorism not just an insurance problem, but a national security and economic issue.
Terrorism is an uninsurable risk
Insurers also believe a long-term solution to terrorism risk insurance is needed, maintaining that catastrophic terrorism is uninsurable.
"The threat of a terrorist attack on U.S. soil remains very real, and, unfortunately, so do the many difficulties insurance companies face in trying to manage this volatile risk without some form of government involvement," said Drew Cantor, American Insurance Association director of federal affairs. "The potential magnitude of loss from a terrorist strike greatly exceeds the available capital in the private sector insurance market."
Cantor said that catastrophic terrorism is uninsurable by the private sector alone for other reasons, including the inability to model attack frequency and the interdependent nature of the risk. "These problems are exacerbated for the private market with regard to the possible use of nuclear, biological, chemical and radiological weapons," Cantor said. "It is vital the federal government remain a partner in insuring this risk."
"The further away we get from 9/11, the easier it becomes to forget about the enormous risk to the economy that terrorism presents," said Ben McKay, senior vice president, federal government affairs for the Property Casualty Insurers Association of America.
McKay also said that terrorism is an uninsurable risk because of the industry's inability to accurately predict the frequency or severity of future attacks, the broad range of possible targets, and the potential that damages from some attacks could exceed the industry's capital base.
PCI in particular supports an approach that would establish a "middle layer" of reinsurance coverage to fill the gap between the losses for which the industry is responsible and those losses which would be paid by the federal government. Such a program would enhance the development of a viable private terrorism insurance market. However, PCI claims that a federal backstop would still be needed to stimulate such a market and to ensure that the economy was protected from the impact of a cataclysmic attack.
"We've got one chance to get this right before TRIA expires in December 2007," McKay said. "We are working with a broad-based coalition of businesses to secure passage of a long-term solution that will eliminate the need to ask Congress for an extension of TRIA every two years. Continued extensions are not in anyone's best interest, least of all the businesses that need such coverage in place."
Post 9/11 for U.S. businesses
After Sept. 11, 2001, and before the passage of TRIA, many risk managers and their companies found it difficult to purchase property insurance, including coverage for terrorism on buildings and construction projects, reported RIMS' Fleming, who says it is critical that a program be developed to provide continued coverage for acts of terrorism, including nuclear, biological, chemical, and radiological acts. NBCR attacks can vary widely in their effects, says the IIABA, that there is an inability to predict with any certainty or probability their severity.
One influence that might sway Congress to take action is the President's Working Group on Financial Markets (PWG) study on long-term availability and affordability of insurance for terrorism, which is due to Congress by Sept. 30.
"The PWG study is an important piece of information as the Administration, Congress, policyholders and insurers work to create a workable long-term solution for protecting the U.S. economy against the threat of terrorism," AIA's Cantor stated. "We also hope that policymakers will look beyond that study--as they are doing with this hearing--to gather other vital information as we all look at how best to maintain the vital economic security net currently provided by the federal terrorism risk insurance program."
Directors and officers market ripe for U.K. buyers
There are small but significant gains to be made for insureds in the current London directors and officers market, according to the majority of underwriters surveyed in the Willis Index tracking the D&O market.
In the second quarter of 2006, the Willis Index found competition for business in the London market is being driven by a more than adequate supply of capacity and a willingness to negotiate on coverage not seen for some years. With many insurers having recently overhauled their wordings, and with others due to do the same, the buyer's market looks set to continue into the third quarter.
The Willis Index--a quarterly survey of London market insurers--asks participants for their views on the underwriting market over the past three and for the next three months. There are four surveys in the series with each Index exploring a different coverage area.
All respondents agreed that primary premium rates had fallen in the preceding quarter, with 66 percent reporting decreases of 10 percent or less, and the remaining 34 percent noting larger reductions of up to 20 percent. Over the next three months the trend looks set to continue, with a massive 75 percent predicting reductions of up to 10 percent and only a few of the brave (8 percent) suggesting that rates could flatten out.
While the overwhelming majority of respondents noted reductions in excess layer pricing over the last three months, a small but noteworthy group of 8 percent suggested that rates actually remained static overall during this period, indicating that there could be more resistance to declining rates among excess insurers where competition has been the greatest. For the next three months this small group of respondents remains of the opinion that rates will be static. However, of the rest, 84 percent agreed that reductions will be less than 10 percent.
St. Paul Travelers' 2nd quarter profits dip 9%
Insurer St. Paul Traveler's Companies Inc. said its profit fell 9 percent in the second quarter, but still beat analysts' expectations.
The company also disclosed a $42 million charge "for an additional legal provision related to investigations of various business practices by certain governmental agencies."
St. Paul Travelers said it earned $970 million, or $1.36 a share, down from almost $1.07 billion, or $1.52 a share during last year's quarter, which included a $138 million gain on the sale of Nuveen Investments Inc.
Revenue increased 3.6 percent to $6.25 billion, up from almost $6.04 billion during the same period last year.
Analysts surveyed by Thomson Financial were expecting $1.29 per share on revenue of $6.2 billion.
The company said premiums grew 8 percent. Chairman and Chief Executive Jay Fishman said the company was putting in significant premium increases for insuring coastal property in the Southeastern U.S. St. Paul Travelers is one of the largest insurers in the Gulf Coast region, and it suffered $1.47 billion in cat claims last year. He said pricing in the rest of the country was stable.
Higher interest rates and strong operating cash flows drove the company's investment income to $874 million before taxes, up 13 percent from the same period last year.
St. Paul Travelers raised its earnings guidance for the year to $4.90 to $5.10 per share, up from $4.70 to $5 a share announced in May. It said the new guidance assumes pre-tax catastrophe losses of $385 million for the rest of 2006 and no change in its reserve for settling claims from last year.
Copyright 2006 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Sample Partnership
State Farm has launched a series of initiatives to expand its markets while contributing to the economic vitality and safety of low-income neighborhoods. To help reach its goals, State Farm has developed a long-term, strategic business relationship with Neighborhood Reinvestment Corporation and community-based nonprofits that make up the NeighborWorks network.
In Chicago, State Farm partnered with Neighborhood Housing Services (NHS) of Chicago to form the Home Safety Program. Working with the Chicago Fire Department, NHS sponsors inspections of potential safety hazards such as furnaces and electrical systems and provides loans if repairs or replacements are needed. State Farm funds the loans once the homeowners have undergone training in repair and fire safety. The company also established home buying seminars in cooperation with NHS. Corporate representatives explain the home and insurance purchasing process, help with credit repair, and educate prospective buyers on property inspection and upkeep.
Source: www.winwinpartner.com, reprinted with permission.
Employers' workers' comp costs rose faster than benefit payments in 2004
Employers' costs for workers' compensation grew faster than combined cash benefits for injured workers and medical payments for their treatment, according to a new study issued by the National Academy of Social Insurance. The cost increase in 2004 (the most recent year for which data are available) continues a trend that began after 2000, when workers' compensation costs and benefits relative to wages were at their lowest point in the last 15 years.
Total workers' compensation benefit payments for injured workers rose by 2.3 percent to $56.0 billion, while employer costs rose by 7.0 percent to $87.4 billion.
"The fact that employer costs rose faster than payments for benefits and medical care reflects broader developments in the insurance industry," according to John F. Burton Jr., of Rutgers University, who chairs the panel that oversees the report. "Employer costs reflect rising premiums insurers charge to cover future benefit costs," he explained. "The recent rise in costs appears to be part of a longer cycle of ups and downs in the insurance market."
Relative to wages of covered workers, benefit payments fell by 3 cents for every $100 of wages in 2004--from $1.16 to $1.13.
Most of this national decline can be attributed to changes in California, where medical benefits dropped by 10 cents per $100 of covered payroll. Nationally, the costs to employers--primarily the premiums they pay for workers' compensation insurance (or the benefits they pay plus administrative costs if they self insure)--rose by 3 cents per $100 of wages, to $1.76 in 2004. The increase in costs in 2004 was the smallest annual increase since the current cycle of higher costs began in 2001, and Burton suggests, "This development may signal a period of more modest increases in workers' compensation costs."
Despite the recent rise in costs, both costs and benefits in 2004 remain far below their peak levels relative to wages. Total benefits peaked in 1992 at $1.68 per $100 of covered wages, which is 55 cents higher than the most recent figure. Costs to employers peaked in 1990 at $2.18 per $100 of wages, which is 42 cents higher than in 2004.
"The decline in employer costs in the 1990s occurred as favorable investment returns led insurance companies to cut premiums in order to expand their market shares," according to Burton. "Costs also declined in the 1990s because of the drop in benefits paid to workers. After 2000, low interest rates and poor stock market returns led insurers to raise premiums in order to cover future benefit costs."
Since 2000, the growth in benefit payments all stemmed from increased spending for medical care. Spending for medical treatment grew from 47 cents per $100 of wages in 2000 to 53 cents per $100 in 2004. Spending for cash payments to workers relative to wages was the same in 2004 as in 2000--60 cents per $100 of wages.
The new report, "Workers' Compensation: Benefits, Coverage, and Costs, 2004," is the ninth in a NASI series. The study provides estimates of workers' compensation payments--cash and medical--for each state, the District of Columbia, and the federal programs providing workers' compensation benefits.
The full report and state-specific information are available from the Academy's Web site at www.nasi.org.
