High-tech sensor halts ice on N.H.-Vt. bridge

Drivers heading into New Hampshire from Vermont on Interstate 89 this winter will have some high-tech help to keep them on the road. Crews have finished installing a sophisticated system that uses sensors to detect when ice is about to form on the I-89 bridge over the Connecticut River, then sprays the road surface with anti-icing fluid to prevent it from getting slick.

Denis Boisvert of New Hampshire's Transportation Department says that the fluid is not a de-icer, which melts ice that already has formed. It is an anti-icing chemical, which prevents it from forming in the first place. "It's a pre-emptive strike," Boisvert said.

Sensors on the bridge deck and nearby track the temperature and moisture levels in the air and on the deck to predict when freezing is about to occur, and trigger a system of sprinklers embedded along the roadway's centerline. Each time the rain, snow or moisture on the surface approaches the freezing point, it will get another hit of potassium acetate. It's especially helpful on bridges over rivers, such as the I-89 bridge, where rising mist or moisture might cause black ice when nearby roads are clear and dry.

The system is made by Boschung America of Newcastle, Pa., which has 40 systems on roads and bridges in 15 states and one Canadian province. The I-89 test is the first in New England.

Boschung has 10 systems running in Pennsylvania. "We did see a marked decrease in the number of weather-related crashes on those bridges," PennDOT spokesman Steve Chizmar told The Associated Press.

Insurer sues arson suspect over fire truck damage

A Vermont man already facing arson charges in two apartment house fires is being sued by the city of Rutland's insurance company. The insurer maintains that the suspect, Robert Vandriel, is responsible for more than $50,000 in damage the blaze caused to the city fire truck.

Vandriel has pleaded innocent to setting the fires in May of 2005, which destroyed an apartment and badly damaged another building across the street.

Now the Vermont League of Cities and Towns Property and Casualty Insurance Fund has filed suit in Rutland Superior Court against Vandriel.

The lawsuit says Vandriel "negligently or intentionally" set the fires and that heat from them caused $56,168 in damage to a city fire truck. The insurance company paid the city that amount, minus a $500 deductible. It is seeking to recover its payment, plus interest and court costs.

The suit says heat from the fires damaged the city fleet's largest ladder truck, Engine 1, melting seals on the front axles, breaking the windshield and another window and burning out its electronics.

The truck was out of commission for six weeks, and was repaired in Pennsylvania, where it was made.

Long Island makes Top 10 Hurricane-Prone List

Dr. Stephen P. Leatherman, director of the International Hurricane Research Center at Florida International University in Miami, released his list of the Top 10 Most Vulnerable U.S. Mainland Areas to Hurricanes.

Not surprisingly, New Orleans tops the list. The other area that is protected from flooding by levees -- the 140-mile long Hoover Dike -- is adjacent to Lake Okeechobee, Fla., where the second most deadly hurricane in U.S. history occurred in 1928. Presently more than 40,000 people live at the base of this giant structure that is leaking and declared by two recent reports to be a "grave and imminent danger to the people and the environment of South Florida."

The Top 10:

1. New Orleans


2. Lake Okeechobee, Fla.


3. Florida Keys


4. Coastal Mississippi


5. Miami/Ft.Lauderdale, Fla.


6. Galveston/Houston, Texas


7. Cape Hatteras, N.C.


8. Eastern Long Island, N.Y.


9. Wilmington, N.C.


10. Tampa/St. Petersburg, Fla.

Pa. renews med-mal premium subsidies

Pennsylvania Gov. Ed Rendell has signed a bill to continue state subsidies for a fifth straight year to help tens of thousands of physicians and other health care specialists pay their medical malpractice insurance bills.

In a statement on his signing of the insurance subsidy, Rendell said he is committed to seeing the number of physicians practicing in Pennsylvania increase from its recently constant number of 35,000.

The subsidy is largely funded by cigarette tax revenue. It benefits doctors who pay into a state-run program, called MCare, that provides catastrophic medical malpractice insurance for claims that rise above $500,000.

For 2007, part-time emergency physicians will join certain other specialists, including full-time emergency physicians and orthopedic surgeons, whose entire MCare assessment is paid by the subsidy. Others get a 50 percent benefit.

The state has spent more than $830 million on the insurance subsidy in the last four years.

Declarations

N.J. gay couples

"Denying committed same-sex couples the financial and social benefits and privileges given to their married heterosexual counterparts bears no substantial relationship to a legitimate governmental purpose."

The New Jersey Supreme Court in its decision giving the state Legislature 180 days to either change the marriage laws or come up with another scheme to guarantee that same-sex couples be afforded "on equal terms the same rights and benefits enjoyed by opposite-sex couples under the civil marriage statutes."

Beacon Mutual apology

"There is no question that in the past mistakes were made. Reforms are being implemented to ensure a greater level of transparency and equity for all our policyholders."

Clifford Parent, Beacon Mutual interim chief executive officer, in a Sept. 12 letter to its 14,000 Rhode Island workers' compensation policyholders eight months after an audit found that the insurer gave improper breaks to preferred clients. The findings led to the firing of the former CEO and the resignation of three board members.

Ground zero workers

"If even a minority of the plaintiffs suffered serious injuries to their respiratory tracts arising from the acrid air of Sept. 11, their claims deserve to be heard when a recovery could make a difference in their lives."

U.S. District Judge Alvin K. Hellerstein in ruling that New York City, its roughly 150 contractors and the Port Authority of New York and New Jersey are not totally immune from lawsuits brought by emergency workers sickened after working amid toxic dust at ground zero. His ruling cleared the way for thousands of claims. Hellerstein said they were only partially immune from lawsuits, with the extent of the immunity varying according to date, place and activity.

Record profits

"It now appears clear that the industry's record profits in 2004 and 2005, and the exceptional record profit about to be reported for 2006, are due in large part to the years of huge rate hikes in the earlier part of the decade, which were not caused by any accompanying increase in claims or payouts. In fact, inflation-adjusted payouts and claims never increased at all during this period. Rather, this is all part of a well-documented cyclical phenomenon for the property/casualty insurance industry."

J. Robert Hunter, director of insurance for the Consumer Federation of America, co-founder of Americans for Insurance Reform and former Texas Insurance Commissioner and Federal Insurance Administrator, reacting to a report indicating that skyrocketing insurance rates of 2000 to 2003 have led to record industry profits but commercial insurance rates have stabilized or dropped in almost every sector, including medical malpractice.

It Figures

$17.5 million

The total in refunds that Maryland Insurance Commissioner R. Steven Orr ordered Allstate Insurance to send to 20,571 auto policyholders he says were improperly charged. This restitution is in addition to a $100,000 administrative penalty. Allstate had sent premium increase notices that did not comply with the law requiring that any notice include a description of the accident or violation which is the basis for the increase.

4.2

The magnitude of the earthquake that surprised residents of scenic Bar Harbor, Maine, on Sept. 22, according to John Ebel, director of the Weston Observatory at Boston College, which monitors seismic activity in New England. Historically, the New England region averages a magnitude 5 or stronger earthquake once every 50 years. The quake in Bar Harbor caused boulders to fall from ledges onto Acadia National Park's loop road, but did not cause any structural damage.

8

The number of individuals, including a New York State corrections officer, arrested for workers' compensation fraud against the New York State Insurance Fund, as reported by the NYSIF. Suspects accounted for more than $284,000 in actual fraud and more than $1 million in reserves. NYSIF officials said the arrests came in a sweep conducted by the Westchester and Putnam District Attorneys' Offices. Warrants were also issued in Mexico and Puerto Rico.

11.09

The date for a public hearing called by Connecticut Insurance Commissioner Susan Cogswell into workers' compensation loss costs. The Nov. 9 hearing in Hartford will review a filing by the National Council on Compensation Insurance, which has recommended an average decrease of -0.9 percent for pure premium loss costs and an average decrease of -0.1 percent in assigned risk rates. NCCI seeks a Jan. 1, 2007 effective date.

$8 million

New York's grant monies made available for property owners in downtown "Main Street" areas damaged by late June floods. The New York Main Street Flood Relief Program is targeted to owners of mixed-use or commercial buildings located in a downtown area that experienced substantial uncompensated flood damage. The program is being offered in 13 counties: Broome, Chenango, Cortland, Delaware, Herkimer, Montgomery, Oneida, Orange, Otsego, Schoharie, Sullivan, Tioga and Ulster. Before receiving money, applicants must prove that monies from flood insurance and any other aid have already been pursued. Applications can be obtained by e-mailing:

FloodRelief@communityp.com

Agency's growth strategy driven by giving away profits to charities

Having bought insurance agencies for years when he was chief financial officer with the former Covenant Group, Joe Grochmal knew that finding an agency that would actually grow after the acquisition was next to impossible.

"We used to describe them as a melting ice cube. You bought the ice and all of a sudden it starts going away. You lose customers and you get a few customers that move into town and maybe other agents would go get those, too. So you had to figure out ways to build ice onto that thing or what you bought just melted away from you over time," recalls Covenant's former executive.

He thinks he knows why agencies have trouble achieving organic growth. "There's no differentiator between agencies. There's no differentiator in product. There's no difference in the story. And most agencies don't have big sales forces; they may not have any."

So when he began considering entering the insurance agency business on his own, Grochmal decided to first solve the mystery of how to differentiate an agency from its peers. "I was thinking how do we get customers to want to come to us? The thought I had at the time was, 'Well, I think we need to touch their deepest concerns.'"

His mind jumped to "deepest concerns" because as he was mulling the insurance agency business, he and his wife had also been discussing ways they might do good deeds for the western Massachusetts towns where they grew up and raised their family.

Then came the pretzel. By his own admission, he's "addicted" to Newman's Own pretzels, proceeds from which along with those of salad dressing, popcorn, coffee and other foods go to support charities designated by actor Paul Newman. "I sat and I was looking at that bag and I thought, 'Wow, wouldn't it be interesting if we built a network of insurance agencies that touch those deepest concerns by providing financial support to charities, to non-profits, that enhance or enrich the local services in those areas. That was it, that's how it all came together. I sat there that day and thought an awful lot about how would you do that. How would you go about taking that next step?"

Profits to charity

The next step -- after finishing the pretzels -- turned out to be GoodWorks Insurance Agency, an independent agency that commits half of its profits to local charities utilizing a unique social contact with its insureds and the local communities in which it operates.

With Grochmal as chief executive officer, the agency has already opened two offices -- one in the Berkshire town of Great Barrington, Mass., and a second in Granby, Conn. -- and has plans for more in those two states and eastern New York, before going national.

Initial sales have focused on personal auto and homeowners, but within weeks the agency had also moved into life and disability. It has close to 20 property/casualty and benefits companies signed up. Within its first few months, GoodWorks had also worked out a brokerage arrangement with broker Hilb Rogal Hobbs Co. to handle large commercial accounts.

Patent pending

The differentiator for GoodWorks is its written charitable contract. It is signed by GoodWorks and a handful of individuals, including board members, who each gave $1, making it a legally binding document.

Under the pact, GoodWorks promises to donate 50 percent of its annual operating profits (excluding investment earnings) or $15,000, whichever is greater, to charities involved in education, health care or safety programs in local communities. The three page contract also promises transparency in all of the agency's financial dealings.

It's an enforceable contract, meaning policyholders, competitors, residents in any town where GoodWorks operates may pursue remedies for any breach.

The group had lawyers research charitable organization laws to clear the concept. They also checked states' anti-rebating laws and came away confident the model is legal.

Grochmal determined the categories of non-profits to receive the monies based on what he felt the "deepest concerns" are for most people: education, health care and safety.

The contract builds on what is generally regarded as the hallmark of the independent agency system, namely an agency's tie to its local community, and also addresses the wider issue of the industry's public image.

"I thought this is an industry that's had its issues with consumers, issues of trust, right?" says Grochmal. "People have a perception that the insurance industry accumulates these greedy pools of assets and then tries hard not to pay claims. I really don't think that's true. I've been an observer of the business for a long time and there are a lot of capable people trying to sell a product that you don't know the price of sometimes for years after you sold it. You don't know what it cost you to make it. That's pretty hard. I think in the face of that, and our desire to do good things, we decided that we need to go to an extreme almost of proving to the communities and the world that we intend to do these good things."

The contract is so unique and central to the mission of GoodWorks that the founder is seeking to have it patented under the name GIFT Marketing System. "I think proper risk management in a company like ours says, 'We have this unique tool. If we let it be available to everybody in the world, everybody in the United States, at some point somebody's going to abuse it. And when they do, it won't just reflect on them, it's going to reflect on us.' So I think this is proper corporate risk management in the face of a world where the Wall Street Journal reads like a rap sheet to protect our business model for ourselves and the communities that we try to serve."

Raising capital

Given his past disappointment with agency acquisitions, Grochmal decided his best route would be to start a new agency not buy one. The first order of business was getting the funding to get off the ground.

Grochmal is familiar with raising capital, having been a principal in the Connecticut venture capital fund management firm, Schupp & Grochmal LLP, which he ran with David Schupp, and prior to that was a founder of Northington Partners, a specialty investment bank focused on the insurance industry.

Calling upon contacts and friends and utilizing a Connecticut tax credit program that he himself helped create, Grochmal signed up about 20 investors and raised $1.6 million in his first round by the end of 2004.

"We have three kinds of investors in our company. We have people who run divisions of insurance companies who are investors personally. We've got a few of those. We've got a few investors who run investment banks that focus on the insurance industry -- few of those out there. And then we have this whole other group that focuses -- that I would describe as philanthropists -- people who look at us as an engine for giving," he maintains.

In March 2004, Schupp & Grochmal created an investment vehicle named Noble View in North Canaan, Conn., with the intention of investing in GoodWorks. Locating Noble View in Connecticut enabled it to take advantage of the Insurance Reinvestment Tax Credit Program, which the state adopted to encourage small insurance start-ups and specialty insurance businesses to help recover insurance jobs lost to consolidation in the early 1990s.

Schupp & Grochmal was able to offer investors tax credits equal to their investments. It is one of only six fund managers approved by the state to offer these tax credits. The other approved fund managers include Conning & Co., Dowling & Partners Securities, Northington Partners, Prospector & Partners and Stamford Financial Group. Among the more than 21 firms that have received $184 million in tax-credit eligible investments made through the program are Guilford Specialty, OneBeacon Professional Partners, Berkley Administrators of Conn., Target Capital Partners and Insurance News Network.

The insurance tax credit program has been criticized by the state's Department of Economic and Community Development, which argues that the program is flawed because it does not require that the benefits to the state match or outweigh the costs. It has no effective minimum job creation requirement and no cap on the amount of tax credits. It's also "too broad" in its definition of insurance-related firms, in the opinion of Mike Lettieri, who oversees the program for DECD.

Taxpayers have paid from $172,000 to $1.1 million for each job created under the act, DECD has figured out. In the case of GoodWorks, its filing indicates it hopes to create 90 jobs, although it need only create one to continue to qualify for tax credit status because it is a new company.

DECD's beef is with the law and not with GoodWorks. The state agency signed off on Grochmal's venture as meeting the program's requirements. Grochmal said he is using the tax program for its intended purpose.

Having raised $1.6 million to fund the start-up, Grochmal and Peter Gay, his chief operations and chief financial officer, set about building the agency network. Gay formerly served as the operations manager of a $3 million independent insurance agency, worked at Travelers and before that managed a $100 million Aetna loan fund for independent agents.

Part of the GoodWorks strategy is to locate an agency by first finding the right person to run it, which they do by raiding other agencies. As Grochmal puts it, "[W]hen we go into a local community, we like to hire the best people from existing agencies. We'd like to hire people that aren't owners. And we want them to be real partners with us."

Finding employees

They target employees of existing agencies with 10 to 30 years of experience. "[T]hey have two incredibly important assets. One is they've solved customer problems for a long time. They were the people who got the call, to explain the dec page, you know. And they explained it well. And the second thing is that they've interacted with carriers on the same basis. They know what carriers to call for certain kinds of risk. ... And that's the cornerstone of every local office. If we can't get that person, we're probably not going to put an office there."

GoodWorks offers equity to its employees, although Grochmal contends the idea of being affiliated with a business that is doing good for the community is what really wins over people. "I think that even if we didn't give equity away, I'm virtually certain we'd still be able to hire these people because of the strength of the story," he adds.

He acknowledges that his hiring strategy could strain relations with other agents but doesn't appear concerned.

"I don't talk to them, to be honest with you. We haven't had any conversations with local agents. Some of them are friends of mine that I've known from playing golf over the years; we're members of the same club," he noted.

Grochmal had been more concerned about carriers' response, but winning them over has been easier than expected. The agency has already signed with The Hartford, St. Paul Travelers, Chubb, Arbella, Litchfield Mutual, National Grange Mutual and Progressive's Drive -- close to 20 insurers in total at a time when new agency appointments by insurers are rare.

To help it handle large national and specialty commercial risks, GoodWorks has set up a national accounts division and entered into a "preferred not exclusive" brokerage agreement with Hilb Rogal Hobbs Co. (HRH), the eighth largest insurance broker. Grochmal had also talked with Marsh and Aon about the idea but they said no.

Some have suggested to Grochmal that the charitable model will work only in well-to-do communities such as Westport and Greenwich, Conn., or Newton, Mass. But Grochmal, who grew up in blue collar Chicopee, Mass., doesn't buy that.

"I don't believe that. I think it works everywhere. I think we'll be in urban areas, we'll be in the suburbs, we'll be in college towns. I think that, you know, the only thing that we ever have to deal with is: is there enough of a base of population to support our business plan?"

Wherever he and GoodWorks may go next, Grochmal speaks like a man who is in a good place now.

"I feel good about this every day. We're really challenged because we have more opportunities than I ever imagined, but it's very uplifting. It just feels good. It's amazing to get up and think of what good you can do every day. It's a wonderful feeling."

Soft pricing in D&O to continue

Pricing for D&O coverage is soft and could get softer, according to Lance Dalzell-Piper of Marsh FINPRO and David Bradford of Advisen Ltd., who spoke during the PLUS Symposium discussion of "D&O Litigation Trends and Predictions of Things to Come."

The number of securities class action lawsuits filed has been trending downward, which correlates to the number of financial restatements. Shareholders are getting "less and less benefit" from securities class action lawsuits while lawyers are reaping the rewards, which would encourage the trend to continue.

"This is important because securities class action settlements defined the D&O marketplace," Dalzell-Piper said, noting that it affects pricing.

Bradford offered that the soft D&O market will continue as long as surplus capacity exists.

Furthermore, he predicted, if this year's hurricane season passes without a major event, there will be even more surplus that could lead to further price reductions.

Mass. to move ahead with assigned risk plan

Massachusetts Insurance Commissioner Julianne Bowler has set Nov. 10 for a public hearing into her guidelines for moving the state's auto insurance system for high risks from a reinsurance plan to an assigned risk plan. If her guidelines remain as she has proposed, the new assigned risk plan will begin accepting risks starting April 1 of next year.

The hearing will address changes in the rules for the assigned risk plan -- known as the Massachusetts Assigned Insurance Plan, or MAIP -- and the timetable for transitioning from the existing reinsurance system to the MAIP.

In August, the Supreme Judicial Court unanimously upheld the commissioner's authority to implement an assigned risk plan over a challenge by several insurers. Bowler's MAIP guideline, which was first proposed in December 2004, is not expected to be dramatically altered but Bowler has indicated a desire to amend the transition plan to reflect marketplace changes that have occurred while the ARP was held up by legal challenges.

In her revised plan, new business could be written in the MAIP as of April 1, 2007 and renewal business as of July 1, 2007. This would apply to all agents, including ERPs and agents with voluntary markets.

Bowler's revised plan also addresses a controversial provision -- the so-called clean-in-three rule -- affecting drivers with good records who insurers may not want to voluntarily insure for other reasons. Bowler has removed the ban on clean-in-three risks being written in the MAIP, but to guard against them being trapped without a company, she wants to require the MAIP to shop them to all carriers after their third clean year. If no carrier voluntarily writes them, then CAR is required to notify the drivers and give them the option of staying with their current assigned risk company or being reassigned.

Honesty is the best insurance policy

Why government should require insurance policies to declare what is NOT covered

I have introduced legislation in the U.S. Senate to make future insurance policies easier for consumers to understand. The "Honesty is the Best Insurance Policy Act" calls for requiring insurance companies to state in plain English and big letters exactly what their policies do not cover.

Most insurance policies are long, complicated and written in legalese. In addition to the policy itself, just about every month, your insurance company probably sends you page after page of addendums and changes to your various policies, also lengthy and complex.

My bill won't do away with all this intimidating language and paper, but it will require the companies to include up front a very unintimidating, user-friendly "non-coverage disclosure" box as part of the policy's documentation.

In this box policyholders would find a concise re-statement of all conditions, exclusions and other limitations to the policy's coverage -- all clearly written in type twice the size of the policy's main text.

We Mississippians in particular know why having clearer insurance policy language is so important.

Thousands of Hurricane Katrina's victims saw their homes heavily damaged or destroyed, only to learn their insurance policies were practically useless.

Obviously this bill won't help those of us whose homes were damaged or destroyed by Hurricane Katrina and who now are negotiating with our insurers or confronting them in court. But by clarifying policy terms and stating them up front, this act would increase consumer confidence in future insurance products and even reduce litigation for both consumers and insurance companies.

In fact, it actually would reduce costs to insurance companies. As policies are clarified, fewer consumers would sue insurers citing obscure policy terms which are subject to interpretation.

More importantly, it could save consumers billions of dollars. If all Katrina homeowners had been adequately insured, total payments to them would be about $100 billion. Instead, Katrina homeowners suffered about $65 billion in unprotected losses, a number that will likely increase when damages are fully and accurately assessed.

This plan has already garnered endorsements from consumer groups, including the Consumer Federation of America and the Consumers Union. It would require no cost to taxpayers, and the costs to insurance companies would be negligible -- requiring only some additional ink.

Enforcement would be administered through the Federal Trade Commission's Division of Financial Practices. The federal government already is heavily involved in insurance regulation through the National Flood Insurance Program which insures more than $700 billion in assets through more than four million policies. Clearly there is precedent for the federal government to be involved with insurance regulation.

The Honesty is the Best Insurance Policy Act won't solve the current questions about insurance coverage in south Mississippi and other areas of the country. But Katrina has clearly shown the need for better communication among insurance companies, lending institutions and consumers.

Folks buying insurance want and deserve policies that are honest and straightforward. Having a simple explanation of policy provisions is good for consumers as well as insurers, and it should be a standard part of all insurance policies.

In anything we do, honesty is always the best policy. That applies to the insurance industry, too.

Sen. Trent Lott, R. Miss., welcomes questions or comments about this column. Write to: U.S. Senator Trent Lott, 487 Russell Senate Office Building, Washington, D.C. 20510 (attn: Press Office).

Erie, agents facing charges of unfair bias

The U.S. Department of Housing and Urban Development has charged that Erie Insurance Group and five independent insurance agencies violated the Fair Housing Act in providing inferior insurance products to homeowners in African-American neighborhoods compared to those offered in white neighborhoods in New York State.

Erie has called the charges "misguided" and blasted HUD for issuing an "inaccurate and inflammatory press release" without a fair hearing on a matter HUD has been looking into for five years.

"When people walk into a store in America, the service and the offerings should not be determined by the color of their skin. That is exactly the type of discrimination we are talking about here," said Kim Kendrick, HUD's Assistant Secretary for Fair Housing in the HUD release announcing the action.

Kendrick said that HUD's investigation found that Erie's agents did not provide homeowners in African-American neighborhoods in Syracuse, N.Y., with the same level of insurance coverage they provided in predominantly-white neighborhoods in Liverpool, N.Y.

HUD also said its investigation found that Erie was less likely to appoint agents to neighborhoods with large African-American populations.

HUD's investigation claims that in the 600 New York ZIP codes in which the African-American population is less than 1 percent, Erie has 49 agents, representing 2.7 agents per 100,000-population. In the 27 New York ZIP codes in which the African-American population is greater than 30 percent, Erie has two agents, representing 0.55 agents per 100,000-population. Erie does not market its products or appoint agents on Long Island, in New York City or in the suburban counties north of New York City.

"The numbers don't lie. Whether you examine Erie by ZIP codes or by families insured, the differences between black and white are clear," said Kendrick. "This really is about African Americans being denied an equal opportunity to protect the biggest investment of their lives."

The five agencies licensed to sell Erie insurance products that were charged by HUD were R.K. Johnson & Associates, Salanger & Hayward Agency Inc., CNY Insurance Associates, the Vacco Agency, Inc., and the Grimsley Agency Inc.

Erie Insurance Group issued a statement expressing regret that HUD issued a press release "promoting its misguided claims against Erie and several independent insurance agencies."

According to Erie, the claims by HUD staff are based on calls to independent insurance agents made more than five years ago as well as on the claim that an insurer's distribution of agents within a state must mirror the racial composition of each community within that state.

Erie's counsel, Andrew Sandler of the Skadden Arps law firm, said Erie looks forward to "presenting its defense to these baseless charges and hopes that HUD staff, having already taken five years to pursue its claims, does not seek further delay in permitting Erie to obtain a fair hearing."

Insurance not to blame for high cost of doing business in Mass.

A study by a Boston-based think tank shows that Massachusetts firms in nine selected industries including financial services have costs that are on average 20 percent to 30 percent higher than similar companies in Texas, North Carolina and New Hampshire. The average after-tax profit levels in those three states are about twice as high as in Massachusetts.

Of the six other states studied, Massachusetts beats out only New Jersey and New York, where costs are typically 5 percent and 15 percent higher, respectively, according to the Pioneer Institute for Public Policy Research.

The study compares Massachusetts to six states: New Hampshire, Rhode Island, New York, New Jersey, North Carolina and Texas.

Among the nine industries analyzed, the financial services-securities sector was more profitable in all competitor states except New York.

The high costs in the Bay State are wages, commercial rent/land costs, and unemployment insurance, according to the Pioneer report.

High land costs are cited as the Bay State's biggest disadvantage. They push up the rental and building costs for businesses and may also be undercutting one of the state's main strengths --its skilled workforce -- because residents can't afford homes, according to the study.

"While improvements in health premiums, energy costs, and taxes would help, those are all secondary to the major factor: land prices, which affect business costs, standard of living, and affordability," the study's executive summary notes. "The latter is perhaps the most important, as it is imperative that Massachusetts maintain its main competitive advantage -- a skilled labor force -- to offset its higher costs elsewhere. Without a pool of highly educated workers, the state may have difficulties in business retention and development."

Insurance costs for healthcare and workers' compensation are not among the problem areas in the Bay State, the study finds.

The state has an advantage over a number of competing states in workers' compensation costs, despite its high wages costs. However, the differential is too small to affect the overall results much. According to the study, an infotech/semiconductor firm pays about $112,000 annually for workers' compensation coverage in Massachusetts, but would pay nearly 50 percent more, $165,000, in Manchester, N.H. The largest advantage for Massachusetts is over New York, where the annual cost would be $192,000.

Also, despite the impression that is healthcare costs are the highest in the nation, health premiums for businesses in Massachusetts are not tops. Health care premiums for manufacturing firms are lower, on average, in Massachusetts than in New Hampshire, New Jersey, Rhode Island and Texas. Healthcare costs are lower in New York and North Carolina than in the other states.

Maine court allows suit over employee's fatal crash

Maine's highest court reinstated a lawsuit targeting VIP Inc. over a fatal collision caused by one of its employees. In the 3-2 ruling, the Maine Supreme Judicial Court overturned a judge's conclusion that the crash occurred outside the scope of employment.

The collision was caused when VIP employee Justin Laliberte was driving home from Oxford Plains Speedway where he had volunteered along with other VIP employees to set up for an event. Laliberte and other hourly employees were given $25.

Writing for the majority, Justice Howard Dana said there was a "genuine issue of material fact as to whether the travel was within the scope of Laliberte's employment."

The victims' husband argued that because of the $25 and the fact Laliberte received workers' compensation for his injuries, the travel to and from the racetrack arose from his employment.

Del. ups FAIR Plan limits

Delaware Insurance Commissioner Matt Denn is warning consumers to expect restrictions from homeowners insurance companies for coastal area homes.

Denn also announced changes to the Delaware FAIR Plan to accommodate expected new customers. The FAIR Plan will double the limits it provides from its current $250,000 for house and contents to $500,000 for house and contents. That puts Delaware's FAIR Plan in line with those of other Atlantic coast states. Denn also asked the FAIR Plan to eliminate a significant part of its "storm blackout" rules.

Litigation trends continue to mount worldwide, report says

Insurers face five times the average number of lawsuits than other economic sectors

Insurance companies are the litigation champions confronting an average of 1,696 lawsuits, spanning from product liability and environmental class actions to directors and officers claims, and even coverage fights over hurricanes and terrorist attacks, according to a new survey of corporate litigation trends from international law firm Fulbright Jaworski LLP.

In its third annual survey of corporate litigation trends -- pulling data from 422 in-house law departments worldwide -- Fulbright found that U.S. companies face an average of 305 pending lawsuits internationally. For large U.S. companies -- those with $1 billion or more in annual gross revenue -- the number of lawsuits soared to 556 cases, with an average of 50 new disputes emerging each year for close to half of them.

Although the majority of those cases are in U.S. courts, the tide of international disputes is rising -- more than one-third of companies said that up to 20 percent of their dockets originate in foreign venues, proof that U.S.-style litigation is going global.

U.K.-based companies surveyed reported an average of only 178 cases -- 63 in the U.S.

No segment of the American economy was spared a weighty litigation docket more than insurers. Insurance companies, historically the object of disputes brought by policyholders and class action claimants, had more than five times the average cases pending than the next highest sectors -- energy (364), retail (333) and financial services (300). More than half of insurance company counsel reported taking on 50 or more new lawsuits in the past year. Seventeen percent of insurers reported having more than 50 lawsuits pending with at least $20 million at issue. By contrast, only 6 percent of energy companies reported more than 50 suits in the $20 million or greater range.

Litigation part of culture

"Perhaps even more than our two previous studies, our new survey reveals how thoroughly litigation is woven into U.S. corporate culture -- the sheer number of cases and huge slice of spending taken up by lawsuits make abundantly clear that litigated disputes are a fundamental part of doing business," said Stephen C. Dillard, chair of Fulbright Jaworski's global litigation practice.

"Of course, litigation is not always defensive," he added. "The great majority of companies report initiating lawsuits in order to enforce contracts, safeguard intellectual property, block monopolistic behavior, and achieve other valid business objectives that require them to take assertive legal action."

Seventy percent of the in-house counsel surveyed confirmed that their companies initiated at least one new lawsuit in the past year as plaintiff.

Half of participating U.S. counsel said their companies separately faced at least one new arbitration and one new regulatory proceeding in 2005-2006, on top of their litigation caseload.

As lawsuits have multiplied -- brought by shareholders, regulators, consumers, employees and competitors -- so has another related event: the internal investigation. Nearly two-thirds of the U.S. companies interviewed by Fulbright reported that their companies had launched at least one such probe in the past year necessitating use of outside counsel, a certain byproduct of Sarbanes-Oxley legislation, as well as the recent mega-scandals of Enron and WorldCom.

That litigation is an everyday fact of life for American corporations is borne out by findings from companies of all sizes and industries. Ninety-four percent of U.S. counsel said that their companies had some form of legal dispute pending in a U.S. venue. For 89 percent, at least one new suit was filed against their company during the past year.

Businesses are not expecting litigation trends to ease up. One third of all companies, and nearly 40 percent of $1 billion-plus firms, project the amount of litigation to increase next year.

Cost of litigation

U.S. companies report spending 71 percent of their overall estimated legal budgets on disputes. Nearly 40 percent of those surveyed reported at least one $20 million suit commenced against them in the past year. Two percent faced 50 new suits or more involving at least $20 million in claims, or more than $1 billion worth of new disputes on the table for some large companies.

For billion-dollar-plus corporations, the costs of litigation are especially significant. Large U.S. companies commit an average of $19.8 million to litigation, approximately 58 percent of total average legal spending of $34.2 million. More than two-thirds of large companies surveyed reported at least one new suit involving $20 million or more in claims; 17 percent faced a minimum of six suits in the $20 million-plus range.

The generally high cost of dispute resolution in the U.S. has not been lost on the rest of the world. For more than half of foreign counsel surveyed, "high legal costs" was cited as a top concern about litigating a dispute in the U.S.

While smaller companies are hardly litigation free, the weight is considerably less. Companies with revenues under $100 million reported only nine cases pending on average. Counsel at American small businesses say their average dispute spending totaled only $178,000.

Participant overview

In-house counsel from 311 companies headquartered in 29 states participated in the survey. In addition to U.S. respondents, Fulbright surveyed law departments in 22 other countries, including the U.K., Canada, Mexico, Japan, Brazil and elsewhere in Asia, Europe and Latin America. Eighty-two percent of U.S. participants held associate general counsel or more senior positions, including chief legal officer and chief litigation counsel.

Fifty-two percent of U.S. respondents work for publicly-held companies; a similar percentage represent companies with gross revenues of $1 billion or more. Of the remainder, 28 percent were middle-market firms with sales between $100 million and $999 million and 22 percent had less than $100 million in revenues. For the full survey results, go to: www.fulbright.com/litigationfindings

Ease of doing business can make the strategic 'profit' differential

Let's start with three basic ideas about property/casualty insurance distributed through independent agents and brokers -- a sector with more than $200 billion in written premium annually.

1) P/C insurance resembles a commodity, with few competitive differentiators. By and large, competitive price, product, and commission are basic tickets of entry to this marketplace. Independent agents and brokers don't want to represent carriers that can't provide these three basics.

2) The buying decision is largely made by the agent rather than the policyholder. After all, prospects looking for insurance use the independent agency system because they want the agent's expertise and connections rather than buying coverage directly themselves.

3) Ease of doing business (EDB) in every aspect of the carrier-agent interface is profoundly important to independent agents because it directly affects their productivity and profitability, as well as their quality of work life.

This means service -- EDB -- is a primary competitive differentiator between carriers.

Since EDB is a key strategic issue, knowing how well you and your key competitors perform is critically important for effective management. But what is EDB?

For the past four years, we have been measuring EDB performance industry-wide. We identified 10 EDB Factors, including traditional carrier-agency interface issues such as claims, underwriting, policy services, technology, and marketing support. They also include more subtle issues such as the carrier-agent working relationship and their impact on the agent-policyholder relationship. We asked independent agents and brokers across the country whether EDB is critical in their buying decision, how important each of the 10 EDB Factors are to them, and how the carriers they represent perform against those factors.

Finally, we asked agents what carriers could do to make it easier to do business with them. Over the four years of the survey some 10,000 agents have provided nearly 50,000 ratings of carriers.

Here's what we've found.

• Industry-wide there are significant gaps between how important agents said each of the EDB Factors is and the performance ratings they gave carriers on most of those Factors. There is opportunity for improvement.
• Interestingly, there has been relatively little change in industry-wide performance over the years. One standard measure is the EDB Index -- literally the gap between Importance and Performance ratings weighted by the Importance. Over the past three years the Index has shown a very small, steady up-tick.
• There is a great deal of individual variation in performance from one carrier to another. We see the EDB Index for different carriers range from lows in the '60s to high-performing mid-'90s. The EDB Performance chart shows EDB performance ratings for three different carriers. Notice how Carrier A, a moderate performer, shows moderate performance across the board and an overall EDB Index of nearly 85. Carrier B turns in a strong performance, even exceeding expectations on Factor 8. Carrier C rates at or above 90 on 3 Factors while falling into the '60s on the first 3 Factors.
• Within a carrier there is also often significant variation across demographics, such as geography, respondent role, line of business focus, agency size, and other areas. And even though there has been little industry-wide change in performance, some carriers have improved while others have gotten lower ratings.
• In the sales process -- from inquiry and rating to underwriting -- agents want better technical, organizational, and personal support in moving quickly from a prospect to a policyholder. One agent summed it up this way: "Quick response and flexibility are the main reasons we write new business with carriers."
• Agents want fast and fair "post-sale" support -- such as policy issuance, amendments, renewals, billing, and claims services -- in order to retain customers.

What carriers should do

Gaining the competitive advantage that comes with being easier to do business with doesn't happen without awareness, commitment, and effort. Our experience is that it doesn't have to include the huge price tag some may expect either. To lock in agents and build a sustainable advantage, to capitalize on EDB strengths, and to overcome EDB vulnerabilities, carriers can take these seven steps:

• Measure EDB performance; if it's not measured, it's not likely to be well managed.
• Benchmark EDB performance against key competitors.
• Assess how EDB performance affects your business results.
• Decide which factors are most important to address in 2007.
• Communicate the importance of EDB throughout the management team, ensuring the organization as a whole is aligned -- and acts on -- this strategic edge. This extends to how individuals as well as departments, functions, and processes affect EDB performance.
• Set EDB performance goals and interim business targets, track against those targets, and hold management accountable for achieving them.
• Build short and long term plans to achieve EDB goals.

Nearly 50,000 carrier ratings over the last four years show relatively little change in EDB performance which represents a stable industry benchmark. For those who recognize the strategic importance of EDB and focus on improving performance, there is plenty of opportunity.

Nort Salz is principal and co-founder at Deep Customer Connections Inc., a Massachusetts-based consulting firm. DCC helps carriers gain and sustain business by being easier to do business with. He can be reached at: nort.salz@deepcc.com