GEICO cancels Charo

Connecticut Attorney General Richard Blumenthal said that GEICO insurance company has said it will no longer run what Blumenthal claims is "a false and misleading television advertisement" that claims the company repairs cars in a few days or less.

Blumenthal has called on the company to immediately cease running the ad in which actress Charo appears with a consumer who claims that GEICO "repaired (his car) within a few days, like new."

Blumenthal said the commercials may give consumers the false impression that GEICO actually repairs cars directly. Under state law, GEICO is not permitted to repair motor vehicles without obtaining a motor vehicle repair license. The company is also prohibited from requiring that consumers use preferred auto repair shops.

According to Blumenhtal, the Auto Body Association claims that the ad is symptomatic of a larger problem in the industry where insurers allegedly steer business to "preferred" auto repairers.

Low crime rate in N.Y. City

New York City was the safest of the nation's 10 largest cities in 2005, with about one crime reported for every 37 residents, according to an Associated Press analysis of FBI statistics.

The number of reported crimes in New York fell 4.3 percent last year, while the number nationwide dropped 1.2 percent.

Police statistics show crime in the city has continued to fall this year, down 5.04 percent by Sept. 10 compared with the same period in 2005.

The large city with the highest crime rate was Dallas, with about one crime reported for every 12 people. Los Angeles, the nation's second largest city, ranked third safest, with about one crime for every 26 people.

San Jose took the No. 2 spot, while San Diego ranked fourth. Chicago, Philadelphia, Houston, San Antonio and then Phoenix followed.

The AP's calculation ranked cities by the total number of crimes reported per resident and did not distinguish between violent crimes and property crimes.

The national figures showed that violent crime rose 2.3 percent last year, the first increase since 2001.

But in New York City, violent crimes -- which include rape, murder, robbery and aggravated assault -- fell 1.9 percent.

TITLE: Safety rankings of the nation's 10 largest cities

Ranking of the nation's 10 largest cities in order of crime rate per capita in 2005. The rankings do not take into account the severity of the reported crimes:

1. New York: one crime per 37.38 residents.
2. San Jose, Calif.: one crime per 34.46 residents.
3. Los Angeles: one crime per 25.97 residents.
4. San Diego: one crime per 24.09 residents.
5. Chicago: one crime per 21.9 residents.
6. Philadelphia: one crime per 17.96 residents.
7. Houston: one crime per 14.17 residents.
8. San Antonio: one crime per 14.12 residents.
9. Phoenix: one crime per 14.10 residents.
10. Dallas: one crime per 11.79 residents.

Source: FBI annual crime report, http://www.fbi.gov/ucr/05cius/
By The Associated Press

Oh, deer ... it's that season

According to Erie Insurance, one in every 100 drivers nationally is likely to have a collision with a deer. The Insurance Institute for Highway Safety estimates that deer-vehicle crashes rack up $1.1 billion in property damages, tens of thousands of injuries, and more than 200 deaths every year.

Erie Insurance has been trying to buck the trend of deer/vehicle collisions by warning about the hazard. The awareness campaign appears to be working. ERIE's deer claim frequency declined for the fourth straight year and now stands at its lowest level in seven years. Erie saw a 9 percent decline in deer claims during the peak months of October through December.

Experts agree defensive driving is the best way to avoid crashes with animals. "Keep your eyes on the road, doing a visual sweep for deer during October, November and December, when most deer collisions occur," advises Jim Arciere, who heads ERIE's claims division. "If you're going 60 mph, you can cover a lot of ground in just a few seconds -- 30 yards per second or the length of a football field in the time it takes to change a CD or reach for your travel mug."

Darrin Birtciel, a rate analyst at Erie, notes that some routes might make drivers more prone to chance meetings with crossing deer. "Everyone should be alert for deer, but those who have already had a deer claim should be especially alert. "There's probably a good chance those drivers routinely travel on roads that are frequent crossing points for deer."

Among the safety tips about deer Erie stresses:

• Deer aren't just found on rural roads near wooded areas, many deer crashes occur near cities.


• Deer are unpredictable, especially when faced with glaring headlights, blowing horns and fast-moving vehicles. They often dart into traffic.


• Deer often move in groups. If there's one, there are likely more in the vicinity.


• Highest risk periods are from sunset to midnight and the hours shortly before and after sunrise.

Declarations

Civil justice
"If the criminal system is not going to follow through and make them accountable, the only thing we have left is the civil system."

James Gahan, whose 21-year-old son, Jimmy, died in The Station nightclub fire in Rhode Island. Now that the criminal case has ended with a plea deal for the club's owners, the families of some of the 100 people killed in the blaze are looking to a massive civil case for accountability. The federal lawsuit, filed by nearly 300 people who were injured or lost loved ones in the fire, names dozens of defendants, including everyone from the rock band Great White, whose pyrotechnic display sparked the fire, to a salesman who sold flammable polyurethane foam used as soundproofing.

Flood reservoirs
"It's not going to stop flooding. But our hope is that it will reduce flood losses in the future."

Clarke Rupert, spokesman for the Delaware River Basin Commission, in announcing that New York City has agreed to periodically lower the water level in three of its upstate reservoirs to ease flooding along the Delaware River. By leaving the reservoirs below capacity, experts believe they could be used to capture far more runoff from a major storm, lessening the severity of flooding in riverbank towns in the Catskills and northeast Pennsylvania. In the past, the city has tried to keep its Cannonsville, Pepacton and Neversink reservoirs as full as possible during the summer to guard against droughts, but that has meant that deluges spill directly into the Delaware.

Senior degraduation
"There's no leeway at all now. We don't want to take someone's independence from driving until it's absolutely, 100 percent necessary."

New Hampshire motor vehicle chief Virginia Beecher in explaining a "degraduated" licensing system for elderly drivers. Drivers over 80 would be tested every three years instead of after five years as is the case now. A license examiner could renew a license for less than the five-years currently in law, allowing some drivers to keep driving longer. The state has 31,000 licensed drivers who are 80 and older while 2,800 are 90 and older. There are 19 licensed drivers who are 99 and 15 who are at least 100. Drivers aged 75 and older must take a road test and pass a vision test to renew their license.

On target
"The targets are all here."

Delegate Eleanor Holmes Norton listing the White House, the Capitol, major monuments and other government facilities in northern Virginia and suburban Maryland at a ceremony opening a state-of-the-art communications center in the District of Columbia that will serve as a command post in the event of a regional emergency. The 127,000 square-foot center, five miles east of the U.S Capitol, could be used to coordinate rescue and recovery operations, mass evacuations or other response efforts. The building was designed to meet federal blast-resistance standards set after the 1995 Oklahoma City bombing and its air filtration system is designed to resist biochemical contamination.

It Figures

$1.2 million
The number of motor vehicles thefts nationwide in 2005. That's about 416.7 motor vehicles stolen for every 100,000 inhabitants.

$7.6 billion
The estimated total property losses due to motor vehicle theft in 2005. That's an average of $6,173 per stolen vehicle.

800
The number of jobs GEICO insurance company announced it would add at its regional headquarters in Virginia's Stafford County. The facility employs about 3,000 people and already is one of the Fredericksburg area's largest private employers. Adding the staff will continue into the first half of 2007.

33
The number of its subsidiaries that American International Group used to donate a total of $335,000 to Republican Gov. George Pataki; $50,000 to Attorney General Eliot Spitzer, the Democratic front-runner for governor; and $25,000 to Democratic Comptroller Alan Hevesi, according to The New York Times. Using subsidiaries avoids the $5,000 corporate limit and, while legal, has been criticized by some groups. The contributions in 2003 to Spitzer were made before he investigated AIG and its then CEO, Maurice Greenberg.

700
The number of people in Virginia's Fairfax County that would be killed if a bird flu pandemic occurred, according to a new government report. The Fairfax report presents a grim scene. A severe outbreak would infect nearly a third of the county's population, sending thousands to local hospitals. As much as 40 percent of the county's work force would be out of commission.

18%
The percentage cut in Massachusetts auto insurance rates proposed by Attorney General Tom Reilly. Reilly's $180 a year saving per car is more than double what the State Rating Bureau of the Division of Insurance is urging: about 8.3 percent, or $85. Insurers have themselves indicated that a 3.7 percent cut is warranted. Commissioner Julianne Bowler must decide by Dec. 15 on new rates that will be effective as of April 1, 2007.

$2.75 million
The settlement agreed to with the estates of Lawrence and Judith Lewis of Moneta by Mark de Tournillon Sr., who pleaded guilty to causing the boat accident that killed a couple on Smith Mountain Lake in Virginia. Most of that amount will be paid by insurance companies, but de Tournillon intends to pay $250,000 out of the proceeds from the sale of his business, Shoreline Marina.

Flood policy purchases rising nationwide and in Eastern states

The purchase of flood insurance in New Hampshire has risen by 26.2 percent since May of last year -- a jump attributed to last October's flooding and some updated maps that identified new areas at risk.

Policy purchases in New Hampshire through the National Flood Insurance Protection program rose from 5,421 to 6,842 between May 2005 and May 2006, according to figures supplied by the Federal Emergency Management Agency at the request of Foster's Daily Democrat.

Only Mississippi had a greater percentage increase in the same one-year period, jumping 41.4 percent, from 42,730 to 60,435 policies. Still, the growth in flood insurance is a national trend, with three times as many policies written since last May compared with the previous 12-month period.

Jennifer DeLong, the New Hampshire assistant coordinator for the program, said flood insurance inquiries peaked in the state in July and November.

The first came after FEMA completed one stage of updates to New Hampshire flood plain maps through the nationwide Flood Map Modernization program. The maps are used to set flood insurance rates and identify households required to have the insurance.

"I had many calls last year from people saying, 'I lived here 20 years and I never needed (flood) insurance before,'" DeLong said.

The second spike came after October, when major flooding in Alstead and surrounding communities in the southwest corner of the state took the lives of seven people.

The months following these two events brought the largest monthly increases in flood insurance enrollment during the year.

DeLong said the map modernization program affected many people because newly digitized aerial maps showed more homes than previously thought were in areas at risk of flooding. Updated maps have been created in Rockingham, Strafford, Cheshire and Sullivan counties but are in progress elsewhere in the state through 2009.

Other states that saw an impressive one-year increase in flood insurance policies were Idaho, with 20.5 percent; Texas, with 17.9 percent; and South Carolina, with 13.2 percent.

Florida leads the country, with 2,065,573 policies in force.

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

To make insurance appealing to college grads, smash the myths

One of the most serious problems facing the insurance industry today is the acute shortage of bright, college-educated young people entering the profession. Walk around any college campus and you'll find that the brightest and best of our graduates are not thinking insurance. Talk to them about careers and you'll hear "computers," "finance," "banking," "law," "marketing," "medicine" -- all the so-called "glamour" professions. Rarely will you hear "insurance" or "risk management."

But insurance is one of the biggest and most diverse industries. It involves -- and indeed, couldn't operate without -- people trained in finance and banking, in medicine, marketing, engineering, advertising, computer science and law, as well as people with underwriting, actuarial and management skills. Insurance, in fact, encompasses more of the "glamour" professions than any other industry in America.

Why then, aren't we glamorous enough to attract young people? The answer, in my opinion, is poor public relations. The insurance industry suffers from a negative image. Our work is rarely thought of as creative or intellectually demanding. "Dull" is more like it. Yet those of us who are involved in the industry, who have made it our life's work, know that nothing could be further from the truth.

Too many of our college graduates think of insurance strictly in terms of sales. Their knowledge of the industry is based on very limited personal experience, or worse yet, hearsay. They've never even heard of commercial insurance. The only kind of insurance they may know much about is auto insurance.

Few bad apples
While there are many dedicated and knowledgeable people in the field, the sad truth is that the majority of good professionals are often overshadowed by the few bad apples. Recent scandals regarding bid-rigging at some of the nation's biggest brokers have once again damaged our reputation. There's still the old image of the insurance salesman as a grasping, aggressive, and possibly even unscrupulous person -- eager to sell, but reluctant to help with a claim. This stereotype is based on ignorance. But ignorance is something we have the power to correct.

We need to change our image. And we can change it by launching a massive public relations and advertising program to educate the public and make people, particularly college and high-school students, aware of what our industry is really all about. The industry should help educators nationally develop a curriculum that would teach high-school students about the insurance industry's positive key role in our society.

We need to tell young people that personal insurance is just one segment of our industry, and that sales is only one of the many attractive careers available in it. We need let students and their advisers know about business insurance and risk management, and about the many opportunities in it for men and women with talent, ambition and skills. We need to make our future MBAs, our law, marketing and engineering students aware that insurance is the very cornerstone of our economy that makes all other commerce possible.

In my efforts to recruit young staff for my company, I have traveled to many campuses. I have found it easier to sell insurance to many of the Fortune 500 corporations than to sell a single outstanding student on a career in insurance.

Dramatize our story
To change that, we need to dramatize our story. If we are going to recruit on campus, we must emphasize the creative challenges facing our industry today. And we must do it in a sophisticated contemporary way, taking advantage of the Web, blogs and podcasts, along with seminars and fun events highlighting the industry's past achievements and current challenges. We need to show that insurance and risk management offer exciting, vibrant careers.

Feature stories must be developed for the media pointing out the roles the insurance industry plays in strengthening corporations and in building and preserving communities.

Our message to the academic community must focus on the positive -- including the role of risk management and how we work to improve safety to save lives and protect homes and businesses. Let's talk about the kind of research and creative thinking that allows for the development of new insurance products to protect against new risks like terrorism.

Let's act, rather than react! We are living in an age in which technology seems too often to have gotten out of control, as we spend endless hours checking e-mail on our Blackberries and laptops. While technology is crucial in insurance and risk management, it takes skilled humans to use that technology successfully and apply the human touch.

Everyone in the insurance and risk-management field knows very well that it is dynamic, not dull. We know that our work is challenging, rewarding, personally and professionally fulfilling -- and addictive. It's time we stopped keeping all that a secret.

If our profession is to thrive in the 21st century, we must embark now on a campaign to attract the best talent available. Our future, and the future of the industry as a whole, depends on it.

Ernesta G. Procope is president and CEO of E.G. Bowman Co. Inc., an insurance brokerage and loss control firm located on Wall Street in Manhattan that ranks as America's largest minority-owned and woman-owned insurance brokerage. She founded E. G. Bowman as a storefront agency in Brooklyn in 1953. She can be reached at procope@egbowman.com or 212-425-8150.

N.H. audit blasts state's anti-competitive insurance purchasing practices

The state of New Hampshire routinely bypasses competitive bidding for insurance contracts and awards them to incumbent producers, a state audit report that severely criticizes many of the state's insurance practices has found.

The report also blasts the state's risk management office for failing to do its job in assessing the value and insurance needs for state properties and auto fleets.

The report says that the Department of Administrative Services and its Bureau of Risk Management (BRM) regularly renew contracts under $5,000 in premium as well as specialty line policies costing more with existing producers rather than seek competitive bids.

Competition preferred
The auditors said they found "significant noncompliance" with state procurement standards.

"Competition, government's most effective means of obtaining goods and services at a fair and reasonable price, is the preferred selection method but the bureau routinely sole-sourced contracts under $5,000 to incumbent insurance producers providing coverage for similar risks and sole-sourced 'specialty line' insurance contracts over $5,000 without required justification," claims the report prepared for legislators by the Office of Legislative Budget Assistant.

The Office of Legislative Budget Assistant is the audit office of the New Hampshire Legislature and is headed by Catherine A. Provencher, CPA.

Overall, the audit found that the bureau sole-sourced 44 percent of the insurance secured during the audit period and used limited competition in 23 percent of procurements. These procurements totaled $702,399 and $1.3 million respectively during the audit period. In one instance, the auditors said they found that the BRM sole-sourced an additional $429,495 in insurance services onto an ongoing contract over a two-year period.

The auditors also said there were two sole-sourced specialty line insurance policies totaling $474,459 for the audit period. Both lacked Governor and Executive Council approval as required.

Further, the study claims, BRM "inadequately ensured against incumbent producers having an unfair advantage in the insurance procurement process, affecting over $2.4 million in insurance service procurements during the audit period."

Exeter Rep. Lee Quandt, a Republican, pushed for the audit. He told The Associated Press he thinks every contract should be approved by the state insurance department. "We knew this whole operation was a mess and that's why we asked for the audit," he said.

Additonal findings:
Other findings of the state audit:

• The BRM lacked data quantifying state property risk, policies or procedures to obtain such data, and loss control programs to mitigate related risks. Despite these shortcomings, the BRM procured property insurance covering state-owned real property without cost benefit or similar analysis.


• The BRM did not assess personal property risk facing the state, establish a system to regulate and monitor state personal property, collect personal property risk data, or have rules relative to these responsibilities. State agencies obtained property insurance policies separate from the statewide policy without cost-benefit analysis or competitive process. During the audit period, the state's separately insured property policies totaled $436,168 in premiums, while claims totaled $132,756, resulting in a loss ratio for the period of $3.29 in premiums to $1 in claim payments.


• The BRM inadequately managed the state automobile fleet loss control program. Incumbent vendors were afforded an unfair advantage during the request for proposal (RFP) process.


• The BRM inefficiently administered foster care provider insurance. From October 1997 through October 2005, the state paid a total of $456,268 in premiums while claims totaled $138,190, resulting in a loss ratio of $3.30 to $1. Further, the New Hampshire Insurance Department was not consulted as state law requires.


• The BRM ineffectively administered the state's motorcycle rider education loss prevention program. Over the audit period the state paid $126,081 for motorcycle rider education program insurance premiums, offset by $4,358 in paid claims, for a loss ratio of $29 in premiums for every $1 received in claim payments. There was no evidence these contracts were put out to bid.


• Producers assisting the state with employee health benefits were assigned the business of acting on the state's behalf without any formal procurement process or contract protecting state interests. During the audit period, four brokers received $484,288 in commissions on employee dental insurance premiums.

N.J. agents balk at commission disclosure

Agents in New Jersey are protesting a state proposal to require originating brokers making surplus lines placements to tell insureds they will receive a portion of the commission.

Professional Insurance Agents of New Jersey Inc. President Andrew Anderson told the Department of Banking and Insurance during a recent meeting that the change would unnecessarily expand the current disclosure requirement.

"PIANJ opposes the new requirement because we do not believe there is a valid reason for requiring such a disclosure," said Anderson. "It is an administrative burden being placed upon producers that will offer no benefit to the insurance consumers of this state."

According to Anderson, state regulations already require producers who charge fees to disclose in the required written fee agreement whether the producer also will receive commissions from an insurer for the placement. The department's proposal would take the current rule a step further by requiring originating brokers making surplus lines placements to inform the insured that the producer also will receive a commission from the surplus lines producer, even when the originating broker is not charging a fee to the insured.

Anderson asserted that the existing regulation is a reasonable approach to commission disclosure that need not be expanded.

The department is also proposing changing rules governing fees and commissions to clarify that the fees surplus lines producers may charge to originating brokers are limited to $50, plus the actual costs incurred for other services, such as inspection services.

PIANJ said it sees several technical problems with the clarification, which could create confusion for producers.

Pa. court rebuffs Republicans on liability award law

The Pennsylvania Supreme Court has rejected an effort by two high-ranking Republican lawmakers to revive a business-friendly law that would have altered how civil lawsuit awards are paid.

In a one-sentence order, the court ruled unanimously that the Legislature violated the Pennsylvania Constitution by passing a bill that combined new lawsuit liability rules and a requirement for DNA testing of sex-offender inmates.

The law would have changed the current liability system that allows people who win civil judgments against multiple parties to collect all of it from any one of the defendants.

After the law was passed in June 2002, House Democratic leaders H. William DeWeese of Greene County and Michael R. Veon of Beaver County sued to overturn it.

"Worse than the way it was passed, in our judgment, was the fact that it was the most extreme version of tort reform that one could possibly have dreamed," DeWeese spokesman Mike Manzo said.

The law's opponents won in July 2005 when Commonwealth Court said the DNA testing and the tort liability provisions should have been passed in separate bills that each related to "one single overarching subject," as the state constitution requires.

Following that ruling, Senate President Pro Tempore Robert Jubelirer, R-Blair, and House Speaker John M. Perzel, R-Philadelphia, asked the Supreme Court to reinstate the law.

The General Assembly has since passed a replacement bill, largely supported by Republicans and opposed by Democrats, that forced defendants to pay only their proportion of liability, unless they were at least 60 percent liable or they acted intentionally.

However, Democratic Gov. Ed Rendell vetoed that legislation in March, saying it was unfair to victims and that he wanted a better balance of "the equities between our businesses and the victims of negligence."

Rendell said he favored a different bill, narrowly defeated in both chambers, that would have lowered defendants' liability when plaintiffs are partially responsible for their own injuries or damages.

A spokesman for House Majority Leader Sam Smith, R-Jefferson, said the veto occurred after Rendell had expressed his support for the bill -- and noted he called on Veon and DeWeese to drop their court challenge.

"He said he supported the legislation and then he flipped to help out his special-interest lawyer friends," said Steve Miskin, Smith's spokesman.

Jubelirer spokesman Dave Atkinson said he was "disappointed but not surprised. Obviously, we attempted a remedy earlier and ran into an unexpected veto from the governor."

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

Terrorism insurance market hits federal radar

Two new federal reports have found that the long-term development of the private terrorism insurance market remains at best uncertain due to the unpredictable nature of terrorist attacks. Both reports acknowledged that a totally private market solution to insuring against certain terrorist attacks is unlikely in the near future.

The U.S. Government Accountability Office report, prepared for Congress on Sept. 26, covers the risk of nuclear, biological, chemical or radiological (NBCR) attacks only, and does not address insurance for terrorist attacks by more conventional weapons. The report received backlash from property/casualty insurers claiming that terrorism is an uninsurable risk, whatever the choice of weapon.

"The real issue is terrorism itself and its uninsurability, not the specific weapon a terrorist may decide to use," said Ben McKay, PCI senior vice president, federal affairs for the Property Casualty Insurers Association of America.

The President's Working Group (PWG) on Financial Markets Terrorism Insurance report, released by the Treasury Department on Oct. 2, says that while the quantity of terrorism risk reinsurance capacity has increased since the period following Sept. 11, the presence of subsidized federal reinsurance through the Terrorism Risk Insurance Act "appears to negatively affect the emergence of private reinsurance capacity because it dilutes demand for private sector reinsurance."

Future of terrorism insurance
Both reports are skeptical about the future of a terrorism insurance market in its entirety.

The PWG report concludes that the "high level of uncertainty currently associated with predicting the frequency of terrorist attacks, along with what appears to be a general unwillingness of some insurance policyholders to purchase insurance coverage, makes any prediction of the potential degree of long-term development of the terrorism risk insurance market somewhat difficult."

Insurers claim the federal backstop provided under TRIA is the "single reason" that any private insurance market exists today.

"Over time, the private sector can assume a greater portion of the responsibility, but only with a public-private partnership is there any hope for terrorist insurance to be available and affordable," McKay said.

Insurers, agents and business groups called on Congress to create a permanent solution to safeguard the economy against future terrorist attacks at a Congressional hearing focusing on how best to protect Americans from catastrophic terrorism risk when the current TRIA extension expires at the end of 2007.

At the hearing on Sept. 27, "Protecting Americans from Catastrophic Terrorism Risk," industry groups urged Congress to replace TRIA with a long-term, market-based solution that does not arbitrarily pick winners and losers based on the type of attack, as an NBCR-only approach would do.

TRIA of 2002, as well as the extension passed in 2005, will cover losses from a certified act of terrorism, irrespective of the weapon used, if those types of losses are included in the coverage. The GAO was asked to study the extent to which these risks can be and are being insured by private insurers across various lines of insurance.

"While we're pleased that it (GAO report) acknowledges the uninsurability of nuclear, biological, chemical and radiological (NBCR) attacks, we think a federal program should be accessible to insurers and consumers of all sizes and should not draw distinctions between some types of perils and not others," McKay added.

The GAO report explains why NBCR losses are uninsurable. "Insuring NBCR risks is distinctly different from insuring other risks because of the potential for catastrophic losses, a lack of understanding or knowledge about the long-term consequences, and a lack of historical experience with NBCR attacks in the United States. Measuring and predicting NBCR risks present distinct challenges to insurers because the characteristics of the risks largely diverge from commonly accepted principles used in determining insurability," the GAO report says.

The PWG report agrees with the GAO that coverage for CNBR is unlikely to develop. "Given the general reluctance of insurance companies to provide coverage for these types of risks, there may be little potential for future market development," the report says.

Long-term solution
The insurance industry continues to be united in its stance for a long-term federal backstop for terrorism risk insurance.

The Independent Insurance Agents and Brokers of America testified at the Congressional hearing in September, saying a continued federal role is needed to ensure the availability of terrorism risk insurance, and it is essential for the federal government to look ahead now, before backstop legislation expires.

"It is crucial that all businesses have access to affordable insurance to protect them from this risk," said Sharon Emek, chair of the board of the Independent Insurance Agents and Brokers of New York. "The federal backstop created by these laws has worked well and ensured that terrorism insurance is available and more affordable."

Agents take aim at Zurich compensation, disclosure settlement

Two associations for independent insurance agents have urged a federal court to reject recent settlement provisions between Zurich Insurance and states that affect thousands of agents who were not involved in the original dispute with the states.

The National Association of Professional Insurance Agents and the Independent Insurance Agents and Brokers of America have filed amicus curiae briefs with the United States District Court for the District of New Jersey, in opposition to certain limited aspects of a proposed settlement involving Zurich Insurance.

Agents oppose having to inform their customers of Zurich's compensation practices, one of the provisions in the settlement. Agents also object to other conditions set forth in the pact, including a ban on Zurich's payment of incentive compensation to agents and brokers in the future if 65 percent of the insurance companies in the marketplace do not pay incentive compensation for a product, line or segment of business.

Ultimately it is not for state attorneys general who created the 65 percent threshold to determine whether carriers should be permitted to offer legal incentive compensation to agents and brokers or how it should be disclosed to consumers, the IIABA argued.

PIA National said it objects to recent multi-state settlements because it says they create a disparate impact on PIA members by prohibiting the payment by carriers of certain contingency payments and because they introduce legal confusion of insurance buyers' rights with their disclosure notice requirements.

"The alleged abuses that led to these settlements were not committed by Main Street insurance agents," said PIA Executive Vice President & CEO Len Brevik. "Regrettably, this settlement agreement and others like it attempt to create a remedy for alleged wrongdoing and then impose it on those who were not involved in any wrongdoing."

IIABA is opposed to a portion of the settlement that requires agents to provide insureds with a form disclosing compensation practices.

"The Big 'I' supports transparency in insurance transactions but is opposed to the portion of the settlement that would require independent insurance agents and brokers to implement for Zurich its obligation under the settlement to provide to insureds a form describing the company's practices in compensating agents and brokers," said IIABA President Alex Soto, also president of Miami, Fla.-based InSource Inc.

According to Soto, singling out disclosure of agent and broker compensation does not provide the consumer with sufficient transparency regarding the cost of the insurance transaction.

Agents at odds with AGs
Agents also object to efforts by several state attorneys general to use the settlement process to compel making incentive compensation illegal. In the case of the proposed settlement involving Zurich, this includes a provision requiring the company to "support legislation and regulations in the United States to abolish contingent compensation for insurance products or lines."

"State attorneys general should not usurp the policymaking authority of state legislatures," Brevik said. "Specifically, they should not use their law enforcement powers in an effort to bring about a fundamental change in the American system of free enterprise."

On Sept. 29, attorneys general of 10 states -- California, Florida, Hawaii, Maryland, Oregon, Texas and West Virginia and the Commonwealths of Massachusetts, Pennsylvania and Virginia -- filed a motion with the court opposing PIA's amicus brief.

The AGs contend the filing of PIA's brief is premature, noting, "PIA's concerns are more properly reserved for the final fairness hearing -- not preliminary approval. PIA's concerns do not raise any issue that should delay preliminary approval ... the Settlement should not be delayed and PIA's Motion should be denied as premature."

"It is not fair to relegate the concerns of professional insurance agents to a late-stage, final fairness hearing," Brevik said.

Agents have noted in the past that all settlement negotiations between carriers, regulators and attorneys general have been conducted privately and without agents being permitted to directly voice concerns about certain terms.

"PIA agents were rebuffed in all of our attempts to participate in the negotiations that brought this proposed settlement to this point," Brevik said.

House passes surplus lines, reinsurance regulatory reform legislation

The U.S. House of Representatives passed legislation on Sept. 27 that would apply single-state regulation and uniform standards to the nonadmitted insurance and reinsurance marketplace. H.R. 5637, The Non-Admitted and Reinsurance Reform Act of 2006, passed the House by a vote of 417-0.

Agents, brokers and insurers applauded the passage, which marks the first attempt by the federal government to modernize the insurance regulatory system.

"This bill's common-sense, pragmatic approach is just what we need to get the ball rolling on real reform of insurance regulation," said Independent Insurance Agents and Brokers of America CEO Robert A. Rusbuldt. "We believe it not only eliminates duplication in surplus lines regulation, but that it can also serve as a shining example of how responsible insurance reform can occur -- by using targeted federal legislation to address areas of concern while retaining the strengths of the current regulatory system."

H.R. 5637 establishes national standards for how states regulate the surplus lines market and creates a uniform system of surplus lines premium tax allocation and remittance, one-state compliance on multi-state surplus lines risks, and direct access to the surplus lines market for sophisticated commercial purchasers.

"This is an important milestone toward ultimately improving the operation and regulation of the surplus lines market," said National Association of Professional Surplus Lines Offices President William Newton.

In addition to surplus lines, H.R. 5637 also affects reinsurance. It would give the ceding insurer's state of domicile sole authority to govern reinsurance contracts and determine whether a particular reinsurance contract qualifies for credit for reinsurance. It would also prohibit states from applying their laws in an extra-territorial manner and provide uniform regulation of reinsurer solvency based upon National Association of Insurance Commissioner accreditation standards.

First step
H.R. 5637, first introduced by Reps. Ginny Brown-Waite, R-Fla., and Dennis Moore, D-Kan., on June 19, is a slimmed-down version of the proposed State Modernization and Regulatory Transparency Act (SMART), which deals with regulation of all lines of insurance. Waite and Moore pulled out pieces of the SMART legislation that target non-admitted insurance and reinsurance in an effort to speed the legislation's path through Congress.

While the bill has not been introduced in the Senate, industry groups feel its passage in the House is an important first step for future regulatory reform legislation.

"H.R. 5637 is an important first step in the effort to reform a state-based regulatory system that is becoming increasingly burdensome for insurers across the country," said Ben McKay, Property Casualty Insurers Association of America senior vice president, Government Affairs. "We encourage the Senate to address this important bill as soon as possible."

State regulators, insurer trades spar at Congressional hearing on insurer investments

The National Association of Insurance Commissioners President and Maine Insurance Superintendent Alessandro A. Iuppa told a House Financial Services Subcommittee panel last month that strong financial regulation of insurance companies is essential to consumer protection and state officials are committed to an open, transparent process for accurately analyzing insurers' investments.

"Without the consumer protection afforded by strong financial regulation, an insurance policy may not be worth the paper it is written on," Iuppa said. "State insurance officials serve the public by means of independent and honest financial oversight to safeguard insurers' capacity to pay claims."

Iuppa welcomed congressional interest in the NAIC's recent decisions on hybrid securities, which are highly complex, often customized, non-conventional and constantly evolving financial instruments.

"We stand by our recent analysis, both in the substance and the process," he said. "Although some asserted that our reclassification of a relatively small number of securities would have dire consequences, we have uncovered no insurer that would become financially impaired or unable to meet the minimum capital and surplus level required by our risk-based capital formula as a result of these decisions."

Not everyone agreed with Iuppa's position.

The Washington, D.C.-based American Insurance Association voiced its concern and told the subcommittee that examining how insurer investments are regulated by the states points to the vitally important need for comprehensive reform of the state regulatory system.

The AIA said the authority to examine investments is carried out, in part, through the SVO, a service agency for regulators. The SVO provides analysis and important information to regulators regarding the investments held by insurers.

"Because of this fact, the SVO's policies and procedures can materially affect insurers' investment strategies," said Phillip Carson, AIA assistant general counsel. "Transparency is as much an overriding principle for effective regulation of the insurance industry as it is for allowing the capital markets to function properly," Carson said. "The NAIC and the SVO should understand that their actions impact other participants in the capital markets."

The Illinois-based Property Casualty Insurers Association of America supported the efforts of Iuppa. "In something as important as valuing the securities insurers hold in their portfolios, having transparency and equal access to information are vital to all participants in the market," said Gregory W. Heidrich, senior vice president, Policy Development and Research.

The NAIC, led by the New York Department of Insurance, continues to evaluate the appropriate risk-based capital treatment of hybrid securities to develop a permanent solution.

SEC sues RenRe officers over alleged finite reinsurance scam

The Securities and Exchange Commission, which has been investigating a number of finite reinsurance transactions for the past two years, lowered the boom on three former officers of the Bermuda-based reinsurance group Renaissance Re.

The government agency charged with regulating the securities industry brought civil suits against RenRe Holdings Ltd. former Chairman and CEO James N. Stanard and former controller Martin J. Merritt. It also named Michael W. Cash, a former senior executive of RenRe's wholly-owned subsidiary, Renaissance Reinsurance Ltd.

The action against RenRe's former officers differs from the criminal complaints filed by the Department of Justice against former officers of American International Group and General Re. The SEC brings only civil actions. If criminal wrongdoing is a suspected incident to a SEC investigation, the matter is made known to prosecutors.

The complaint, filed in federal court in Manhattan, "alleges that Stanard, Merritt, and Cash structured and executed a sham transaction that had no economic substance and no purpose other than to smooth and defer over $26 million of RenRe's earnings from 2001 to 2002 and 2003," said the SEC bulletin.

In addition to the overall allegations of securities fraud, the complaint specifically charges the three men with violations concerning reporting, books-and-records and internal control provisions; and with aiding and abetting RenRe's violations of a number of sections of the Exchange Act. Those rules aim to assure transparency in the buying and selling of shares through public markets, such as the New York Stock Exchange. When a company says it has made more money than it has, that's a lie, i.e., fraud. Companies, however, aren't people; they can only act through their officers, directors and employees. Therefore when misstatements are made, they are the people held responsible.

Basically the SEC described two interrelated contracts that "created a round trip of cash" between RenRe and Inter-Ocean Reinsurance Company Ltd. that "purported to assign at a discount $50 million of recoverables due to RenRe under certain industry loss warranty contracts." The SEC charges that instead of "a real reinsurance contract that transferred risk from RenRe to Inter-Ocean," the transaction "was a complete sham," and that each of the three men "knew that this was not true." The full details can be found in the SEC's press release at: http://www.sec.gov/news/press/2006/2006-164.htm.

GenRe/AIG
The case does resemble the one filed against four former senior executives of General Re and one former senior AIG executive. The SEC also filed a civil case in that matter. In criminal cases, however, different rules of evidence apply; the prosecution must prove guilt "beyond a reasonable doubt," and the penalties can include prison terms as well as fines. In addition directors and officers insurance coverage is not applicable to criminal actions, while it usually covers defense costs in civil matters.

GenRe/AIG involves charges of criminal conspiracy to make it appear that AIG had increased its loss reserves by $500 million through a series of contracts and side deals involving finite reinsurance. The amounts involved, the extended scope of the transactions, and the charge that they constituted a "conspiracy" are the key differences.

SEC attorney Andrew Calamari, who headed the SEC's investigations in both cases, declined to comment on whether criminal charges were under consideration in the RenRe matter. He stressed that the Commission brings only civil cases and is not involved in decisions about whether to bring criminal charges in any case. Speaking in general terms, he noted that the SEC considers many factors in deciding whether to refer a matter to criminal authorities for investigation, including the evidence of "intent" and the "magnitude" of harm caused by the offense. He indicated that the SEC has a good working relationship with the U.S. Attorney's Offices in New York and the Justice Department in Washington, D.C. It is therefore part of a natural process to share relevant information from investigations with colleagues in the criminal justice system, who then decide whether to proceed further.

While the SEC cannot put people in jail, it can still come down hard on those who try to abuse the system. It can ask for "civil money penalties," which are frequently substantial. Calamari explained that the payments are either made available to recompense people injured by the fraud, or, if the monetary damages are slight, they go to the government.

In addition the SEC can bar individuals found in breach of its laws and rules from practicing before it. As a result CPAs, lawyers and other practitioners also run the risk of losing their state licenses, if the SEC bars them.

This has already happened in the RenRe case. The SEC announced a partial settlement of its charges against Merritt, who has consented to the entry of an antifraud injunction and other relief. When the judgment is entered it "will permanently enjoin him from violating or aiding or abetting future violations of the securities laws, bar him from serving as an officer or director of a public company, and defer the determination of civil penalties and disgorgement to a later date."

In addition, Merritt has agreed to a Commission administrative order, based on the injunction, barring him from appearing or practicing before the Commission as an accountant, under Rule 102(e) of the Commission's Rules of Practice. Merritt was a certified public accountant licensed to practice in Massachusetts.

Like throwing a stone in a pond, SEC actions also form ripples that branch outward. The most common are shareholders' derivatives suits, usually class actions, typically filed under section 10b-5 of the Exchange Act. If the suit concerned misrepresentations in a registration statement there might also be suits under Sections 11 and 12 of the Securities Act. Law firms like William Lerach's San Diego-based firm Millberg, Weiss and William have specialized in these types of lawsuits over the years -- making a great deal of money in the process.