Mass. AG Reilly opposes FAIR Plan rate hike

Massachusetts Attorney General Tom Reilly has decided to appeal Insurance Commissioner Julianne Bowler's order allowing the state's insurer of last resort -- the FAIR Plan -- to raise home insurance premiums an average of 12.4 percent statewide and 25 percent on Cape Cod.

In his appeal filed with the Supreme Judicial Court, Reilly said he was not allowed to cross-examine Massachusetts FAIR Plan executives about a $13 million purchase of reinsurance coverage, and complained that Bowler didn't hold a public hearing.

Reilly called for a 1.2 percent increase on the Cape and islands and no increase, on average, statewide.

The Massachusetts FAIR Plan, which was created to provide coverage to homeowners unable to secure insurance in the private market, currently insures more than 130,000 homeowners statewide, including a third of all homeowners on Cape Cod.

Insurance rates in coastal areas have increased across the country, largely because storm damage projections show a hurricane would cause more severe damage than previously believed.

In its rate filing, the FAIR Plan averaged the damage projections of the two leading hurricane modelers.

Reilly, who is also a Democratic candidate for governor, said one model should be thrown out and the other tweaked.

"The Division of Insurance has a pattern of accepting the (insurance) industry's statistics and not holding them to scrutiny and the necessary analysis," Reilly maintained

N.Y. mobile command

The New York State Forum, a part of the Rockefeller Institute of Government, is giving a Best Practices Award to the New York State Insurance Department for its acquisition and launch of a Mobile Command Center.

"The Insurance Department's Mobile Command Center is an office on wheels, giving us the ability to continue operations if our department's existing communications infrastructure is severely damaged or temporarily disabled," said Super-intendent of Insurance Howard Mills.

The 36-foot MCC vehicle is equipped with the latest computer and electronic communications systems, including satellite and Internet telephones, as well as devices that give personnel access to police radio systems in case of an emergency.

Virginia broker goes green: first 'carbon neutral footprint'

Rutherfoord, a Roanoke, Va., insurance broker, says it is committed to reducing its greenhouse gas emissions and has become the first in the U.S. insurance industry to establish a carbon neutral footprint in response to the emerging risk of climate change.

According to Thomas Rutherfoord, chairman of the board, the company hopes to set an example. "Rutherfoord is taking the lead in assisting its clients in eliminating and managing business risks that can impact their success. Given the enormity of this global issue, it is incumbent upon us to do our part to implement and assist others in sustainable business practices," he said.

"Recent catastrophic events such as Hurricane Katrina coupled with the high price of petroleum make us all aware that we live in a fragile environment. Companies are realizing that in addition to their economic responsibilities, they have environmental and social responsibilities as well," says Stephen Myers, vice president and practice leader for Rutherfoord's Environmental Risk Management Practice.

The agency performed a carbon footprint analysis on itself, mapping energy use of electricity and natural gas as well as emissions from car and air travel by its employees. Once calculated, verified emission reduction credits were purchased and officially retired by Carbonfund.org.

Eric Carlson, president of Carbonfund.org, applauded the broker's actions.

"Rutherfoord is, to our knowledge, the first insurance entity to fully off-set its carbon footprint and to receive our designation of being Carbon Free."

Carbonfund.org lets any individual or business reduce its carbon footprint and support climate-friendly projects using its calculator, low offset cost per ton of CO2, and verified offset projects.

In addition, Rutherfoord is joining EPA Climate Leaders, a voluntary program dedicated to reducing greenhouse gas emissions and energy use. Rutherfoord will be the first U.S. insurance broker to do so.

Declarations

Gambling man
"Our investigation determined that Mr. Bowen created an elaborate scheme that diverted the premiums of dozens of customers into his personal bank accounts to fund gambling and other personal activities. To hide the theft, Bowen allegedly created fraudulent insurance cards and documents that were in effect worthless. Consumers were led to believe that they had full coverage when their policies failed to exist."

Pennsylvania Attorney General Tom Corbett in bringing criminal charges against a Potter County, Pa., insurance agent, Jon Bowen, who is accused of stealing more than $21,000 in insurance premiums from clients for online gambling and other personal uses.

Contingency
"This amendment correctly recognizes that when we act as an agent for the insurer, it is appropriate for us to accept contingent compensation from the insurer."

Greg Case, Aon's president and chief executive officer, reporting that the New York, Illinois and Connecticut officials have agreed that an Aon managing general agent or managing general underwriter may now accept contingent compensation from the insurer. Aon's original agreements, drawn up as part of the settlement over charges of bid rigging and account steering, prohibited Aon from accepting any contingent compensation. Insurance brokers Marsh and Willis have also worked out amendments allowing them to accept contingent pay when acting as MGAs.

Vital coverage
"The biggest hazard of all is being shut down. Business interruption insurance is absolutely vital."

Carol Chastang, a spokeswoman for the Small Business Administration, on the tendency of small businesses to overlook the need for business interruption coverage.

Can't say when
"I know of nobody in the intelligence field who doesn't believe there will be another attack. There's going to be another attack. They just can't tell you when."

Thomas Kean, former New Jersey governor and Republican chair of the 9/11 Commission that investigated the government's security missteps leading up to the 2001 hijackings.

It Figures

$18 to $106
The premium range that lower income single adults will pay a month for health care under a plan approved by the Massachusetts board drafting regulations for the state's new health care law. Under the plan, people earning up to the poverty level pay no premiums. The costs increase incrementally for those earning up to three times that level, with people paying at most 4.7 percent of their income each month, according to the Executive Office of Health and Human Services.

$4.2 million
The federal jury award to a Sanford, Maine, woman whose 48-year-old husband was killed three years ago in a workplace accident involving a forklift truck. However, a limit on damage awards for loss of spousal companionship will reduce the amount she receives from Crown Equipment Corp. of New Bremen, Ohio, to either $1.4 million or $1.6 million. Brown alleged that the manufacturer failed to warn her husband that the lift truck he operated at Prime Tanning in Berwick had a design flaw that contributed to his death.

6
The death toll in Virginia from Tropical Depression Ernesto, which was also blamed for an estimated $33 million in damages in Virginia. Preliminary reports from localities put the damage estimates at $24 million for homes, $3 million for businesses and $5 million for public facilities, including roads and government buildings.

46
The number of owners of high-hazard dams cited by the Pennsylvania Department of Environmental Protection for operating without emergency action plans. Emergency action plans can include recommended road closings, around-the-clock monitoring and complete evacuation of certain endangered areas. The plans must be updated every five years with input from DEP, the Pennsylvania Emergency Management Agency and local officials Those failing to comply face civil penalties of up to $10,000 plus $500 for each day of continued violations.

$3.07 million
The amount Erie Insurance Exchange has been ordered to pay a customer who alleged that her claim was mishandled. The Pennsylvania Supreme Court dismissed an appeal by Erie Insurance Exchange of a judge's order in a January 2002 case. Luzerne County Judge Peter Paul Olszewski Jr. sided with customer Jean Hollock who claimed the company showed "deliberate indifference and, in some instances, blatant dishonesty" to Hollock.

Conn. caught up in coastal insurance shutter controversy

Connecticut Insurance Commissioner Susan F. Cogswell and Andover Insurance Company agreed to suspend for 90 days the implementation of a department decision allowing the insurer to cancel the policies of homeowners who fail to install storm shutters.

The moratorium, which began Sept. 6, followed talks between Cogswell and Andover officials, initiated at the request of Gov. M. Jodi Rell. Rell said she was concerned that coastal homeowners would have their policies canceled before being able to obtain other coverage.

The agreement also came after the issuance of subpoenas to insurers by state Attorney General Richard Blumenthal, who is questioning some insurers' coastal underwriting practices.

The moratorium bought Cogswell some time to further evaluate the extent of homeowner insurance availability along the state's coastline and hold a public forum in New London.

Cogswell also asked that the entire insurance industry agree to a 90-day delay in implementing new coastal underwriting guidelines -- such as requirements for shutters or a higher deductible -- while she completes her study.

"I will use the next 90 days to carefully study this issue," Cogswell said. "I am trying to balance the needs of policyholders with the industry's responsibility to adequately plan for the financial exposure companies face by insuring coastal communities. I will use the next 90 days to study the coastal marketplace to ensure that adequate coverage is available."

Last month, Cogswell approved rules allowing Andover to nonrenew policies for insureds residing within three-quarters of a mile from Long Island Sound or portions of major rivers if they do not install shutters within 45 days. She decided the guidelines did not violate state regulations against underwriting based solely on geographic location and would only affect about 1 percent of Andover's policyholders.

However, Blumenthal has called upon her to reconsider that approval and he has issued subpoenas to Andover and other insurers he suspects might be violating state laws.

According to Amy Lazzaro, Cogswell's chief of staff, the department is monitoring the situation closely and while it appears that a number of smaller mutual insurers are tightening their underwriting on the coast, "we believe there's still availability."

Despite a bulletin urging insurance agents to report any insurers that might be underwriting based solely on geography, few if any complaints have come in from agents, Lazzaro told Insurance Journal.

She said the department is reviewing underwriting guidelines that insurers must file with the state to make sure they are justified by actuarial data and comply with regulations. While insurers are not required to wait until the state signs off on their guidelines before implementing them, most insurers do wait, Lazzaro said.

As a precautionary move, Cogswell also issued bulletins reminding insurers of the state's rules against geographic-only underwriting and producers of their obligations to search the standard market before placing risks in the surplus lines market.

AG's subpoenas
Blumenthal maintains that Andover and other insurance companies are imposing "unprecedented and unreasonable requirements" on homeowners. He said that along with Andover's nonrenewing, some insurers plan to increase deductibles for those who fail to put up shutters.

The attorney general's subpoenas order 10 companies to substantiate their reasons for requiring shutters. In addition to Andover, the other companies subpoenaed are: Main Street America Group Holdings, Met Property & Casualty Insurance Co., Vermont Mutual Insurance Group, New London County Mutual Insurance Group Co., Fireman's Fund Insurance Co., The Allstate Corp., Unitrin Inc., and Lumbermen's Mutual Casualty Co.

He has also subpoenaed two reinsurers: Lloyd's America Inc. and the Hartford Steam Boiler Inspection and Insurance Co.

"I need to know whether these outrageous conditions reflect coincidence or coordinated behavior," Blumenthal said. "If these onerous and potentially illegal requirements result from concerted activity among carriers or their reinsurers, they may violate our antitrust laws. My office will aggressively prosecute any anti-competitive practices that may be shown."

Blumenthal has been joined by Speaker of the House James A. Amann, D-Milford, in asking Cogswell to reconsider the shutter guidelines and to closely scrutinize deductible increase requests he said are pending before her office.

Blumenthal and Amann claim that about 2,000 consumers could be forced to spend as much as $100,000 to comply with the standard or lose their coverage.

"This standard is unfair, unreasonable and unprecedented -- and potentially illegal. The demand is unconscionable and unacceptable that homeowners -- many of them decades-long residents living on fixed incomes -- pay $100,000 within 45 days or lose their insurance coverage," Blumenthal charged.

Amann expressed concern about further restrictions. "After Hurricane Katrina hit the Gulf Coast, we saw many insurers pull the rug out from under their clients by denying storm claims. With some Connecticut insurers now planning ways to drop coverage even before a storm hits here, it's time to step in and question where the industry is heading," Amann said.

A recent Insurance Information Institute survey of hurricane and windstorm insurance did not find a single state along the East coast where an insurer required shutters as a mandatory criteria for issuing a policy, Blumenthal wrote to Cogswell. Rather, a number of companies have premium or deductible incentives for policyholders who install shutters.

7 of 10 WTC rescuers suffer lung problems

Nearly seven out of every 10 World Trade Center responders suffered lung problems during or after their work at ground zero, and high rates of lung "abnormalities" continued years after the 2001 terrorist attacks, according to a new health study issued by Mount Sinai Medical Center.

The study focused mostly on the so-called "World Trade Center cough," which has become the chief concern of health experts.

In lung function tests, responders had abnormalities at a rate double that expected in the general population; these abnormalities persisted for months and in some cases years after the exposure, the study found.

Other findings highlighted by the study include:

Spitzer, Republican opponent, attorneys spar over dropped Greenberg charges

New York Attorney General Eliot Spitzer has dropped two of six civil charges against former American International Group CEO Maurice "Hank" Greenberg and another former executive of the company, according to a Spitzer attorney.

Greenberg's legal team said that "the most explosive and financially significant claims" had been dropped.

But Spitzer's office disputed that reading and said he will still pursue the most serious accusations involving deceptive accounting claims. His team said that what are being dropped are charges that became moot after AIG settled another case brought by Spitzer, paid some restitution and adopted accounting reforms.

'Heart' of case remains
"The heart of the case remains," said David Brown, chief of Spitzer's Investment Protection Bureau.

One dropped charge involved a scheme Spitzer said was intended to make investment income look like underwriting income, strengthening AIG's financial picture. The other claim alleged that Greenberg and former AIG chief financial officer Howard Smith were part of a scheme to hide workers' compensation payments.

Spitzer's Republican opponent for governor called the action proof of "the phony nature of many cases pursued by Eliot Spitzer."

"It's a steady but sure unraveling of this bogus case," said Republican candidate for governor John Faso. He noted that the case began with claims of criminal and civil charges and a threat of an indictment against the company.

"This case produced the largest regulatory settlement for corporate fraud in history," Spitzer spokesman Darren Dopp countered. "If Mr. Faso thinks that's 'bogus,' he's definitely not on the side of investors or workers. AIG settled with regulators earlier this year for $1.6 billion, the largest single settlement with an individual company in history."

The remaining charges involve what Spitzer said was a plot to "mislead the investing public about the profitability of AIG and its skill at underwriting," Brown said.

Greenberg confident
David Boies, lead lawyer for Greenberg, said in the statement that he appreciated that Spitzer "has now decided to drop these key claims from the complaint."

"We are confident that when all the facts are out, the remaining claims, which relate to accounting disputes involving much smaller amounts than the claims that are being dropped, will also be dismissed," he added.

Boies also said that "to the extent that the remaining accounting disputes affected AIG's financial statements at all, most of the effect is attributable to accounting decisions that were undisputedly reviewed with, and approved by, AIG's current management."

New York-based AIG in February agreed to pay $1.64 billion to resolve allegations that it used deceptive accounting practices to mislead investors and regulatory agencies. The deal also required the company to change its business practices to ensure proper accounting procedures in the future.

The settlement did not cover Greenberg, who resigned in March 2005 as chairman and chief executive officer and pledged to fight the Spitzer action in court. Greenberg was replaced as chief executive by Martin Sullivan, who oversaw two restatements of AIG's earnings back to 2000. The revisions knocked some $2 billion off shareholders' equity and nearly $4 billion off its profits.

$1.6 billion explanation
Greenberg's chief spokesman, Howard Opinsky, repeated that Greenberg's actions as AIG chief "were legal, based on sound business judgment and in the best interests of AIG shareholders."

Opinsky said AIG shareholders "are owed an explanation as to why $1.6 billion in company funds were spent to settle allegations that do not withstand scrutiny."

The statement issued by Greenberg's legal team also quoted Vincent Sama and Andrew Lawler, lead lawyers for Smith, as saying: "We are pleased by this development and are confident that, after all the facts are considered, the remaining claims will be dismissed."

A Spitzer spokesman insisted that the lawyers for Greenberg and Smith were overstating the significance of the dropped charges. "It's outrageous and ridiculous and a reading of the amended complaint shows their claim is ridiculous," Dopp said.

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

Va. bird flu impact

A bird flu pandemic would kill nearly 700 people in Virginia's Fairfax County, forcing hospitals, nursing homes and other medical centers to set up temporary morgues and stockpile body bags to handle the deaths, according to a government report.

The Fairfax report presents a grim scene. A severe outbreak of bird flu would infect nearly a third of the county's population. As much as 40 percent of the county's 11,000 work force would be out of commission.

To prepare for such a scenario, the county is giving government officials, infectious disease specialists and first responders explicit instructions. The goal is to minimize the transmission of the virus while keeping the county government running.

The county would track infections through by local doctors and hospitals. Sites would be set up to distribute a potential vaccine or medicine, and sick people could be quarantined. Many county employees would work from home, and hundreds could be diverted from their jobs in "nonessential" agencies. Others would be ordered to stay home.

Crime down in N.Y.

Overall crime rates continued to decline in New York during 2005 as vehicle thefts dropped almost 13 percent and robberies edged up from 2004, according to a Federal Bureau of Investigation report.

The rate of violent crime did tick up 1.2 percent in 2005 -- tracking a 1.3 percent increase nationally.

The level of crimes tracked by the FBI declined 3 percent from 2004, largely because of the 12.7 percent drop in motor vehicle thefts and a 3.8 percent decline in property crime. Nationally, vehicle thefts were down 0.8 percent and property crime was down 2.3 percent.

There were 2,554 crimes reported per 100,000 of population in 2005, the FBI said. Of those crimes, 446 were classified as violent -- murder, rape, robbery and aggravated assault. While murders declined 1.6 percent, rape was up almost 1 percent and robberies jumped 5.1 percent, according to the report.

Burglaries and larcenies were down 3.6 and 2.7 percent respectively.

Nationally, the murder rate increased 1.8 percent, rape was down 2.2 percent and robberies increased 2.9 percent.

Owners often overlook need for business interruption coverage

Although most small business owners know they need property and casualty insurance for their premises, many don't realize they need specialized insurance coverage to limit their losses from a disaster.

Perhaps the biggest omission owners make when buying a commercial policy is business interruption insurance, according to Loretta Worters, vice president for communications of the Insurance Information Institute, a New York-based trade group. "They fail to think about what would happen if their business couldn't open again," she said.

Worters noted that business interruption insurance should be part of a company's business plan, and the blueprint needed for any kind of loan or financing. Even the many owners who fund their companies themselves should buy this type of insurance -- or they could see their hard work and dreams become a casualty of a fire, flood, earthquake or storm, she added.

Business interruption insurance covers profits that are lost and expenses that continue to be incurred when a company is forced to shut down by a disaster, or even by an event such as an extended power outage. Policies typically have a 48-hour waiting period before coverage starts, but, depending on how much coverage a business buys, interruptions up to 360 days can be covered.

Among the expenses that business interruption insurance covers are salaries, rent and electricity -- costs that businesses still need to pay although they may not be able to operate.

How much business interruption insurance a company should buy is, of course, an individual decision, Worters said, but it should be considered along with a disaster recovery plan. If businesses are certain they could quickly relocate operations to another site and keep working, they might not want to buy the maximum amount available. However, disasters like the Sept. 11, 2001, terror attacks and Hurricane Katrina have shown that the unthinkable can happen -- companies can be uprooted and put out of commission for months. Without business interruption insurance, many have failed, she said.

"The biggest hazard of all is being shut down," said Carol Chastang, a spokeswoman for the Small Business Administration. "Business interruption insurance is absolutely vital."

A type of coverage related to business interruption insurance and also often overlooked is extra expense insurance, which reimburses a business for costs related to having to shut operations down, including expenses such as moving costs, new equipment and supplies.

Companies also can buy contingent business insurance to prote themselves from the fallout from a disaster that befalls a critical supplier -- for example, a company that custom manufactures a part that the business depends on to produce its own goods.

"If it [a disaster] shuts down a business and it affects business, it helps to defray the costs," Worters said.

Damage from flooding is not covered by a typical commercial package; it must be purchased separately. The same goes for earthquake insurance.

There are even more specialized kinds of disaster insurance that companies should consider, including "boiler and machinery" insurance, which covers damage to premises caused by a sudden and accidental equipment breakdown.

Companies in specific industries should consider purchasing policies tailored to their line of work. For example, food purveyors should have food spoilage insurance to cover their losses from a power failure, she added.

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

Sorry, Catbert! Study shows cutting employee incentives hurts

Contrary to the nefarious plots of Catbert, the "evil director of human resources" character depicted in the popular Dilbert comic strip, a study of nearly 20,000 organizations shows that employee incentives really are good for business.

Data from 19,319 organizations reveal that when a company emphasizes human resource activities such as incentive pay and flextime, it can enjoy a 10 percent to 20 percent improvement in employee retention, employee productivity, profitability, and stock price, according to an upcoming study in Personnel Psychology. Meanwhile, companies that cut these programs can expect a 10 to 20 percent reduction in their bottom line.

"Over the last 25 years, corporate America has debated whether the human resources function adds value or if it is just a necessary evil," noted Dave Ketchen, study co-author and Lowder Eminent Scholar at Auburn University. "Our results show that negative images of human resource managers miss the mark. Skilled HR managers can make the difference between a company making a profit or losing money."

The study found that performance improvements are stronger when companies take a systematic approach to human resources rather than implementing one or two practices.

"A firm can't view training or team-building as a magic bullet that will deliver profits," said Ketchen. "Executives need to adopt a strategic view of the human resource function and create sets of practices that reinforce each other."

The study also found that human resource activities make a bigger difference among manufacturing firms than among service firms. "Manufacturing jobs often involve complex and dangerous machinery," said Ketchen. "In high performing companies, the services that the human resource function provides, such as safety and training, support other programs such as quality management and lean manufacturing systems to make sure that workers are safe, motivated, and productive."

The study combined the findings of 92 previous studies published since the mid-1980s. Co-authors with Ketchen on the project were James Combs, Yongmei Liu and Angela Hall, all of Florida State University.

Survey: young agents value rates, technology, products from insurers

The five most important things carriers can offer independent insurance agencies are: competitive rates; technology that helps them more easily write business and service customers; a variety of markets and products; competitive commissions and support provided by service personnel via phone.

That's what younger agents -- those 40 or younger, or those who have been in the industry less than 10 years -- think, according to a survey by Drive Group of Progressive Insurance Companies.

Nearly all young agents (94 percent) also say a carrier's commitment to building a brand on behalf of independent agents is important.

The insurer conducted a countrywide online survey of young independent insurance agents on everything from business growth opportunities and technology to the skills necessary to succeed and the challenges faced by the industry. More than 750 young independent agents responded.

Importance of technology
The survey clearly shows that technology is important to younger agents. The majority of young independent agents (79 percent) say technology has been significant in helping them grow their business.

The top technologies young independent insurance agents use to manage/grow their business are carrier Web sites; agency management systems; downloads from carriers; real-time interfaces with carriers; comparative raters and, sixth, the Internet for prospecting, selling or informational purposes.

Only 11 percent of young independent insurance agents have an interactive Web site where people can quote, buy and contact them. Thirty-four percent have a static Web site and 40 percent don't have a Web site at all.

Skills for success
The respondents reported that the top five skills needed to become a successful independent insurance agent are: product and risk management knowledge; sales skills and people management skills (tie); initiative; being a self starter; business management skill and, fifth, empathy for customers.

The top five most significant challenges faced by independent agents are: attracting new customers; increasing competition from companies selling direct; finding and retaining good people; having the variety of markets and products to meet customers' needs and retaining existing customers.

The three most important ways young agents say they attract new business are:

Personal lines. Referrals from existing customers; cross selling new coverages to existing customers; and traditional advertising/marketing.

Commercial lines. Referrals from existing customers; cross selling new coverages to existing customers; and referrals from other organizations and area professionals.

Ninety-three (93) percent of young agents surveyed are targeting personal lines as a growth area while 75 percent are targeting commercial lines.

A majority (67 percent) say they have a succession plan in place.

Cutting the fat in state regulation

Are we doing things we really should be doing from a regulatory standpoint to cut the cost of regulation? asked Property Casualty Insurers Association of America President and CEO Ernie Csiszar during the International Insurance Society's 42 Annual Seminar in Chicago in late July. "What factors would make a difference on the overall cost of state regulation?" he asked.

The panel, chaired by Csiszar, addressed the cost cutting issue as well as everything from harmonization and federal oversight to the European Union's Solvency II initiative. Panel members included Reinsurance Association of America President Frank Nutter; Dr. Bassel Hindawi, director general and vice chairman of the Board of the Insurance Commission of Jordan; Walter Bell, Alabama's insurance commissioner, and Alessandro Iuppa, Maine insurance superintendent and president of the National Association of Insurance Commissioners.

Cutting the fat
Reaction to the question about cost cutting efforts in the regulatory regime had panelists muttering that nailing down inefficiencies in the system would be a challenge.

Alabama's Bell responded, "There is a cost to regulation and the better the regulation probably the more it costs. The industry has become very complex as it has become more global in the last 25 years and that creates the need for good regulation. Regulators are dealing with complex security and financial issues in a global insurance world as they never did before. "

Panelists sparred over which areas of regulation were the ones that could actually be cut.

"For example, if we drop the regulation on collateralization in the U.S. of international companies is that going to create more capacity in U.S.?" Bell asked. "No one can answer that question. If we have just one federal regulator, will that reduce the cost of regulation? No one knows the answer to that question either."

One panelist responded that the money saved from having just one federal regulator would go back to profit lines, policyholders and shareholders of the companies.

Bell responded by saying, "that's okay, but how does the consumer benefit from less costs in the system of regulation?"

"I get 30,000 phone calls per year, and no consumer complains about being over regulated," Bell added. "How will consumers benefit if we reduce the cost of the regulatory system?" he asked.

Side-stepping the consumer angle, panelists agreed that some of the cost of regulation is the actual need for resources and the infrastructure necessary to respond to consumer complaints and in the rate review process.

"I suspect that most of the costs come from companies internally having to deal with multi-state compliance rules and the resources needed to do that," said RAA's Nutter. "However, having said that, the NAIC has done a great job of working toward finding efficiencies in the regulatory system. It seems to me that it's hard to make a case for the type of regulation needed in terms of the cost of the regulators and their offices being too high. I do agree that there may be areas of company compliance where better efficiency could have a real impact."

NAIC Interstate Compact
Bell countered by saying that on the life side of the industry a giant step had been taken with the implementation of the Interstate Compact.

"Twenty-seven states have joined the Compact and now those companies will have a single point of entry to send their products for approval. And when they receive approval, it will be an approval for all 27 states," Bell said. He added that over 40 percent of the market share is represented with the 27 states currently in the Compact.

"Creating the Compact has been one of the biggest improvements in achieving regulatory efficiency for the companies, consumers and regulators," Bell said.

Panelists did not address whether the same type of compact could or should be considered for the property casualty side of the industry where forms, in particular, are not as universal as life insurance forms.

A look abroad
Panelists also debated whether U.S. regulators should look at the European Union's regulatory system and whether the E.U. should consider having just one regulator, rather than one for each country, as is does now.

"We have raised the question with China and the European Union about the regulatory differences and conflicts," said NAIC's Iuppa, who chairs the Executive Committee of International Association Insurance Supervisors.

Iuppa added that the on-going dialogue with the international community has helped the lines of communication stay open, but that regulators can only advise and discuss.

Bell said that many states such as California and New York are bigger than many of the jurisdictions in Europe. Having separate regulators in each country has not stopped business from coming to the U.S. or companies writing abroad, he said.

Most Americans favor mitigation policies while opposing subsidies for high risks

Most Americans favor public policies that could help to mitigate the damage caused by catastrophic natural disasters before they happen, but many Americans remain unprepared for a disaster in their own homes and communities.

Nine out of 10 adult Americans support the enforcement of building codes to make new homes stronger and safer. And two-thirds (67 percent) support building codes even when they would add 6 percent to the cost of a new home, according to a report, Public Attitude Monitor 2006, Issue 1, Natural Disasters, from the Insurance Research Council (IRC).

While the survey found strong support for government policies aimed at mitigating risk before a natural disaster, it found strong opposition to programs and policies that subsidize the cost of insurance for people in high-risk areas. Asked to consider the National Flood Insurance Program as an example, almost six in 10 (59 percent) indicated that it is unfair to use taxpayer dollars to subsidize the cost of insurance in high-risk areas.

A similar percentage indicated that it is unfair to require policyholders in non-coastal areas of a state to subsidize the cost of insurance for wind damage in coastal areas.

Two-thirds (67 percent) also disagreed with the idea of using taxpayer dollars to subsidize the cost of insurance to encourage new building in coastal areas.

States debating
Certain public policies relating to natural disaster loss mitigation now being discussed in state legislatures around the country and in Congress enjoy strong support, according to the survey. A large majority (70 percent) of those surveyed favored the adoption of laws and regulations restricting the construction of new homes in disaster-prone areas, including coastal areas, and 82 percent favored government action and public spending to preserve and rebuild coastal wetlands that act as buffers against hurricanes.

These views toward government policies aimed at mitigating the damage caused by catastrophic natural disasters before they happen, contrast sharply with private actions. Only 26 percent of those surveyed said they are personally prepared for a natural catastrophe in their community, and only 38 percent have a disaster preparedness kit containing enough food, water, and essential supplies to last at least three days.

Insurance attitude
The contrast between public views on the role of government in mitigating damage from natural disasters before they happen and personal actions to minimize the personal disruption and financial loss following a natural disaster is particularly stark when it comes to insurance. A large majority (80 percent) of those surveyed favored laws that would require people who live in disaster-prone areas to purchase insurance covering the particular risk involved. However, according to the survey, many homeowners have not purchased insurance to cover disaster risks, even though they indicate they may be at risk for those disasters.

For example, of those who report living in an area where a flood could occur or has occurred in the past (not including those also at risk of hurricane), only 20 percent said they have purchased flood insurance coverage. Of those who report living in an area at risk of having a severe earthquake, 42 percent say they have purchased earthquake insurance coverage.

"Americans clearly want government to take steps to mitigate the damage from catastrophic natural disasters before they occur," explained Elizabeth A. Sprinkel, senior vice president of the IRC. "This enthusiasm, however, appears to stop at the front door of many households, as many homeowners have not pursued personal strategies to minimize the disruption and reduce the financial impact a natural disaster would cause."

The results of IRC's report are based on a survey conducted by Harris Interactive. The survey consisted of online questionnaires completed by more than 1,400 members of the Harris Interactive consumer survey panel. The online surveys were completed during a two-week period in late July and early August 2006.

For more information visit IRC's Web site at: www.ircweb.org.

Specialty program market continues to grow, but new business still a challenge

The program administrator specialty market continues to grow, according to survey results by Guy Carpenter & Company Inc. More than 65 percent of survey respondents estimate the size of the program administrator specialty program market segment at between $20 billion and $40 billion of annual gross written premium.

Though specialty program writers cite new business production as their greatest challenge, prospects for future growth are bright, with 65 percent of survey respondents viewing program market results over the last three years as more profitable than the standard market. More than half of all respondents indicate that they see market conditions remaining consistent through 2007.

"Across the specialty programs segment, we are seeing new opportunities developing, from both existing business and new players entering the market," said Carl Bach, senior vice president and head of Guy Carpenter's Program Manager Solutions Specialty Practice. "By providing greater insight into what specialty programs carriers are seeking, where market opportunities are and what program carriers require from their program administrators, we hope to help all participants operate with maximum efficiency as they build their business."

Key findings
The specialty programs market continues to change and evolve rapidly, with the introduction of new markets, new program administrators and new products, as well as a rise in merger and acquisition activity, an increasing number and variety of third party service providers and more frequent use of non-admitted paper and alternative risk mechanisms. Respondents projected that they will write a total of at least 80 to 100 new programs in 2006.

Specialty program markets are actively seeking profitable new business, as they increase underwriting activity across multiple commercial and personal lines. On the commercial side, all respondents noted an appetite for general liability insurance, with a majority also indicating an appetite for property, inland marine, automobile liability, professional liability and umbrella liability.

The most significant change from 2005 is evidenced in commercial umbrellas, with some 65 percent expressing a willingness to underwrite that line, compared with 52 percent last year.

With respect to personal lines, only 30 percent of respondents indicate a desire to write homeowners, 25 percent indicate an appetite for auto and 10 percent for umbrella.

Regional or national programs
Responding carriers seem to vastly prefer programs that are regional (65 percent) over national (25 percent) and single-state (10 percent) programs. This is a dramatic shift from 2005, when respondents were fairly evenly split, with preferences divided among regional, national and single-state programs.

While many carriers continue to feel that their in-house claims departments have the experience and expertise to manage specialty program claims, there appears to be more flexibility with respect to the use of third party administrators. While 40 percent prefer to use their own in-house claims department, 45 percent always use a TPA.

Copies are available at www.guycarp.com.

Reinsurers adopt 'wait and see' posture at Rendezvous

For the first time in two years the high and mighty from the reinsurance world gathered for their annual Rendezvous in Monte Carlo without having to face the consequences of an ongoing catastrophe (Ivan in 2004 and Katrina last year). Sunny skies and warm weather, coupled with solid first half profits and the absence of natural disasters, generally produced an upbeat outlook. The atmosphere was more reminiscent of the '90s than the 21st Century.

The 2,000 plus insurers and reinsurers from around the world who attended the 50th installment of the annual event that marks the beginning of the upcoming reinsurance treaty renewal season, therefore took advantage of the interlude to reflect on their past and evaluate the future.

Julian James, Lloyd's director of Worldwide Markets, joined by Chairman Lord Peter Levene and Franchise Director Rolf Tolle, indicated that the event acts as a timely opportunity to re-evaluate the past year. "It gives the market a chance to look back at the past 12 months and chart the progress it has made," he stated in an interview on the Lloyd's Web site. "When you look back to last year, we were still coming to terms with Hurricane Katrina and working on the issue of process reform."

Swiss Re took the opportunity in press briefing on Sept. 11 to highlight its positive first half results, with nary a word about the date's significance. For the future Swiss Re noted that "demand for cat cover has been growing by almost 10 percent annually, more than most other lines of business." As a result "significant portions of the peak scenarios are increasingly passed on to the capital markets (e.g. ILS, ILW, sidecars)." It also indicated that "investors (and rating agencies) expect risk adequate and stable returns," and that the "finance industry is confronted with increased volatility, more sophisticated risks and demand for increased capacity."

Underwriting profits
Munich Re's Chairman of the Board of Management Nikolaus von Bomhard at another press conference stressed the Group's ongoing commitment to maintaining underwriting profits. Munich Re "stands by its proven principle of writing business only at risk-adequate prices, terms and conditions," he stated. "We have satisfactorily absorbed -- also in comparison with our competitors -- the large losses from natural hazards events over the past two years. This is due to our consistent underwriting policy, our integrated risk management and our diversification."

James added Lloyd's endorsement to the sound underwriting mantra, indicating that the London market needs to maintain its discipline in the face of pressure to cut rates in areas outside of the United States. He signaled Lloyd's September announcement of its results, noting they "have been strong." However, he cautioned that this is a time when the industry needs "to maintain their discipline and stick with the commitments they made to the market. We have to avoid the temptation to ease that discipline."

September comes too early
James and his colleagues noted that for the first time for many years there was no overriding issue which would dominate the discussion in Monte Carlo. "In some respects September is too early this year," he indicated. "The market will not be able to make any cast iron decisions so early in the year because they are waiting to see what the tail end of the North Atlantic hurricane season will bring."

Ironically the Rendezvous crowd almost seemed to miss the crisis atmosphere that has besieged the gathering in recent years. The absence of any major hurricanes, terrorist attacks or other disasters to focus on led to a wait and see attitude. At this point the hurricane threat seems to have receded. The forecasters have all lowered their previous estimates on how many storms to expect. Studies have appeared linking their diminution to everything from a resurgent El Niño to North African sandstorms. For the moment at least the reinsurance industry seems fairly confident that it will be able to keep the profits it made in the first half of the year.

That doesn't mean they have become complacent. "Particular challenges at the moment are increasing risks from natural catastrophes and from the risk of terrorism," von Bomhard explained. "Besides this, inflation of serious personal injury losses has been noticeable in some markets; the causes are partly of a global nature (technical and medical advances) and partly the result of national developments (impacts of reforms, changes in legal conditions, organization of healthcare systems)."

If anything the current lull has given companies like Munich Re an incentive to become even more cautious. Last year's events also produced a more sanguine view of the industry's reliance on cat models. "These challenges exemplify the fact that risks and loss potentials are steadily changing," von Bomhard continued. "The permanent analysis of such changes means that models and calculations -- and thus also prices, terms and conditions -- have to be constantly adjusted."

Amid all the positive news reinsurers might do well to count their blessings. The people of New Orleans, Florida and along the Gulf Coast are certainly more than pleased not to have to face yet another season of terrifying storms.

Agency growth and performance study reveals higher productivity

The latest edition of the Growth and Performance Standards (GPS) study by the Austin, Texas-based National Alliance Research Academy has just been released, giving the insurance industry some new benchmarks for comparing independent agency performance trends. The GPS has been setting comparison standards for the industry since publication of the first edition in 1988.

Some information released from this new study include:

• Average growth in total agency revenues is 10 percent.


• Eight percent of all surveyed agencies purchased or merged with another agency within the past year.


• Average pre-tax profit is 11.58 percent, up from 9.80 percent in 2003.


• Average agency revenues per person increased 29 percent from 2003.


• Average commercial lines commission per account is $1,266, up from $886 in 2003.


• Personal lines CSRs handle an average of $149,224 in commission, a 15 percent increase from 2003.

The GPS study provides comparison benchmarks for:

• Agency profile standards;


• Income and expense averages;


• Balance sheet ratios; and


• Agency productivity measures.

A CD that allows agencies to input their own financial numbers produces variance reports comparing agency results to the GPS standards.

Comparison standards in the Growth and Performance Standards study are based on agency size and region, as well as national results.

Agencies use the GPS study to help improve their growth, profitability, and productivity levels. By comparing to industry norms and noting where significant variances occur, agencies can pinpoint the areas where they excel, and note those that need most improvement, says The National Alliance.

Growth and Performance Standards (GPS) study is available for purchase at: www.TheNationalAlliance.com/publications, or call 800-633-2165.