Conn. agents could face fight on contingent pay
Insurance executives would likely create a replacement incentive should lawmakers in Connecticut ban contingent commissions, as the state regulator has warned could happen.
Executives voiced their dismay over possible legislation to ban incentive pay at the recent meeting of the Independent Insurance Agents of Conn. where Insurance Commissioner Susan Cogswell warned independent agents that they should expect to see legislation to restrict or wipe out their contingent commissions.
Cogswell said that legislation should be expected because the state's attorney general is among those behind settlements with several insurers to prohibit contingency pay as well as dictate how agents and brokers should disclose their pay.
"I believe there will be legislation that will eliminate contingent compensation. I can guarantee you that you are going to see that in this legislature," she told agents, adding, "That's a heads-up."
Cogswell did not identify any specific advocate for such a bill in her state but she suggested it would come because of recent settlements between a number of large insurers and officials from New York, Illinois and Connecticut, including Conn. Attorney General Richard Blumenthal.
When the anti-contingent commission legislation surfaces, agents will not have the support of some of their own company partners because these insurers have pledged to several states that they would back elimination of contingent commissions, Cogswell added.
But they would have the support of other insurers, as evidenced by comments at the meeting.
"The world thrives on incentives. They can be used to incent good and bad. We use it to do the right thing," said William Siclari, president and chief executive officer, Patrons Mutual Insurance Co. "If it goes way, we'll have to come up with a new way. I'll build another incentive. It's very important. I can't imagine not having one."
Judy Jackson, New London County Mutual Insurance Co. chief executive and president, said the idea of banning contingencies is "kind of crazy" and likened not having contingent pay to not having the team that scores the most runs win in baseball. "It's an American way of life," Jackson maintained.
Thomas M. van Berkel, The Main Street America Group, chief executive officer and president, said his company would obey whatever the law is but he hopes such a ban does not become reality. "It's very disheartening to hear about this legislation. We use contingent commissions. They're used in many businesses. And we hope it continues," Van Berkel told agents. "We would comply with whatever the law is but we'd have to find another way."
Warren Ruppar, executive vice president and lobbyist for IIAC, told Insurance Journal he was unaware of any specific sponsor or bill but acknowledged that such legislation is possible given that AG Blumenthal has an alliance with companies that have signed the settlements.
Cogswell criticized the multi-state settlements Blumenthal is behind for infringing upon her state's public policy on compensation and for making Main Street agents pay for the sins of large insurance brokers.
The Connecticut Legislature has adopted an amended version of the National Association of Insurance Commissioners model rules governing producer disclosure of their income. The law permits contingency pay but sets rules for informing customers. Cogswell said she thinks that this public policy decision should be respected and not overridden by court settlements relating to wrongdoing by large insurance brokers.
"Unfortunately the rules keep changing and they are not changing because of decisions by regulators or legislators really in charge of public policy," she noted. "The rules are being changed by a number of settlements with insurance companies that are inconsistent."
Cogswell expressed concern that the agreements are "getting down to Main Street producers and they are looking to put the onus of disclosure on you."
She maintained that she and the majority of commissioners are at odds with the direction being taken by an NAIC committee that is pursuing further changes to disclosure rules.
Cogswell also expressed skepticism over further regulation of producer disclosure, suggesting few customers would read disclosure notices and arguing that requiring them would be a "waste of time and money," a line that won applause from the agents at the gathering.
"If somebody really wants to know what your compensation is, they have a right to ask. If you don't want to tell them, then they can go somewhere else, frankly," she told agents.
Agents' lobbying
The insurer executives suggested that the agents' own lobbying could win this day on this issue.
"The people in this room have the power to fight this," Jackson reminded them.
Siclari appeared optimistic that the industry can prove its point. "We have to show it produces the right effect," said the Patrons Mutual chief, adding that if the upshot is that the insurer has to file its incentive plans with regulators, "so be it."
The issue of contingent commissions has heated up as agents fight settlements between insurers and various states that would require those insurers to stop paying contingencies to agents or disclose all compensation to insureds.
Four insurers -- St. Paul, AIG, Zurich and ACE -- have signed pacts in which they have agreed to discontinue paying all of their agents and brokers contingent commissions on excess casualty coverage. The settlements are a response to bid rigging and account steering by several large insurance brokers. That prohibition has now been extended to homeowners, personal automobile, boiler and machinery, and financial guaranty insurance beginning on Jan. 1, 2007.
The insurers have also agreed as part of these settlements not to oppose legislation and regulations to abolish contingent commissions.
In Mass., Big Dig lawsuit cites 3 insurers among 15 defendants
Massachusetts Attorney General Thomas F. Reilly has filed a civil lawsuit against 15 companies including three insurers that provided surety bonds for the general contractor of the Big Dig Interstate 90 connector tunnel that collapsed on July 10, killing Milena Del Valle of Boston.
The suit alleges negligence and breach of contract against the companies and is filed on behalf of the Commonwealth, the Massachusetts Highway Department and the Massachusetts Turnpike Authority. The suit also alleges that Bechtel/Parsons-Brinkerhoff -- the joint venture overseeing the Big Dig -- was grossly negligent.
"We are alleging these companies that designed, installed and had oversight responsibilities for the I-90 Connector Tunnel were negligent and, in some cases, grossly negligent when it came to their first responsibility -- keeping drivers safe," Reilly said. "What this case has always been about is the tragic death of Milena Del Valle. As we have said since our investigation began, our main focus remains on getting to the bottom of what happened and hold accountable those responsible for the collapse. We also have a responsibility to the Commonwealth to ensure that monetary damages are recouped."
Named companies
The companies named in the lawsuit are: Bechtel/Parsons-Brinkerhoff, the joint venture overseeing the Big Dig; Bechtel Corp., sued individually as well as with the joint venture; Parsons Brinkerhoff Quade & Douglas, Inc., sued individually as well as with the joint venture; Modern Continental Construction Corp., general contractor for the I-90 Connector tunnel; Gannett Fleming Inc., designer; Sika Corp., epoxy manufacturer; Powers Fasteners Inc., epoxy wholesaler; Newman Renner Colony LLC, epoxy distributor; Newman Associates Inc., epoxy distributor; Renner Colony LLC, epoxy distributor; Sigma Engineering International Inc. , engineering services to Modern Continental Construction; Conam Inc., pull testing for Modern; Fireman's Fund Insurance Co., surety for Modern; United States Fidelity and Guaranty Co., surety for Modern and National Surety Corp., surety for Modern.
The complaint filed in Suffolk Superior Court alleges gross negligence against Bechtel Parsons Brinckerhoff (B/PB); breach of contract against B/PB, Modern, and Gannett Fleming; and negligence against all parties. It focuses on each company's role in the design, installation and oversight of the epoxy anchor bolt system that failed inside the 1-90 connector tunnel.
Since the morning of July 11, the Attorney General's Office has been investigating the collapse both civilly and criminally. According to Reilly, the civil investigation has uncovered information that reveals mistakes on the part of these companies and individuals that were paid to do a job and fell tragically short.
A criminal investigation involving state and federal law enforcement officers is continuing and is not affected by the filing of the civil suit.
The civil suit seeks unspecified damages for repairs the Commonwealth will need to make to the system and for the loss of the use of the tunnel, including lost toll revenue and other costs incurred because of the collapse.
"In the days since this tragic collapse, Massachusetts taxpayers have rightly been wondering how this happened, who is responsible, whether it was preventable, and who's going to pay for these deadly mistakes," Reilly said. "Well, today marks a first step in recouping some of the losses."
The lawsuit was filed as a potential trigger date loomed on Nov. 29. Six years ago on that date, a portion of the tunnel was opened, possibly triggering the Commonwealth's statute of repose. This suit was filed now to remove that technicality as a defense by any companies.
Conn. pursues loss mitigation, market alternatives for coastal homes
Home insurers in Connecticut may no longer require permanently installed storm shutters as a condition for writing or renewing policies but must offer consumer choices of loss mitigation controls and deductibles, according to a report on coastal insurance issued by Connecticut Insurance Commissioner Susan Cogswell.
Citing an availability problem for coastal residents, Cogswell is also recommending that the state create a voluntary Coastal Market Assistance Plan (C-MAP) to supplement and be run by the existing FAIR Plan residual market insurer. The department hopes that the C-MAP will be available to consumers by mid-March.
But if the voluntary approach of a C-MAP does not work, she will recommend that the FAIR Plan expand to offer a full homeowners policy.
Also, she said she would submit legislation giving her department authority to disapprove excessive personal property insurance rates within a competitively-priced market and to increase the limits covered by the state guaranty fund from $300,000 to $500,000 to reflect increasing home values.
Cogswell said her department has concluded "there is an availability problem for homeowners insurance within the admitted markets for homes located within 1000 feet of the coast." Her recommendations are meant to deal with the problem before it gets worse.
The report found that 59 percent of the market imposes mandatory mitigation requirements of some type for new business while the remaining 36 percent are offering a choice to new customers of mitigation or increased deductibles or no requirements at all.
Only 5 percent of the market requires mandatory shutters for renewal business. The remaining 91 percent of the market is offering a choice or imposing no requirements at all.
"Consumers living near the coast certainly recognize they need to take measures to protect their homes. At the same time, we are expecting carriers to recognize when residents take these measures by reducing premiums or deductibles," said Cogswell.
The report and recommendations are based on a public hearing she held in September following a public outcry over a decision allowing one insurer, Andover Insurance, to require homeowners living within a mile from the coast to install special storm shutters on their homes or face non-renewal of their policy.
"I clearly heard the frustration and anger from homeowners when the department approved Andover's shutter guidelines," admitted Cogswell.
At the September forum, coastal residents expressed concerns about the cost of installing shutters and agents relayed anecdotal evidence that insurance carriers are not writing policies in violation of their filed guidelines.
Insurers must offer consumers choices in mitigation controls they accept and in deductibles. Consumers must be allowed to use measures recommended by the Institute of Building and Home Safety, including plywood shutters or impact resistant glass. Carriers may also apply a hurricane deductible.
For regional carriers, predictive modeling is about more than pricing
Frank J. Coyne, chief executive officer of Insurance Services Office, recently warned that insurers unable to keep up in the technological arms race face a grim prognosis.
The industry leader said a chasm is growing between insurers using state-of-the-art analytics or predictive modeling and those that aren't -- the "haves" and the "have nots."
"Increasingly, the 'haves' will be able to write business at the margins they target," said Coyne. "The 'have nots' will fall victim to adverse selection, as more sophisticated insurers target the risks apt to prove profitable. And the bar will rise continually as competition drives weaker players from the field. Today's 'haves' are at risk of becoming tomorrow's 'have nots.'"
National writers such as Progressive and GEICO have grown their auto insurance books for years by virtue of their superior predictive models, but other insurers are now catching up.
John Barbagallo, president of Progressive's Drive Group, CEO acknowledged as much in a July Insurance Journal interview in which he was asked if his company might be feeling the heat from other personal lines insurers adopting more advanced rating tools. He agreed "the level of sophistication overall is improving. It's an area where we feel we've enjoyed a competitive advantage, and we'll continue to invest in that, and improve our skills. I think more carriers are getting good at that particular skill set."
Regional insurers with the resources are adopting the so-called new analytics once reserved for national giants and developing their own segmentation or predictive modeling tools for underwriting and pricing. These complex, often proprietary, computer models employ internal and external data to produce dozens, even hundreds, of pricing and underwriting options for a line of insurance.
The regional insurers like the models not only for their pricing prowess but also because they make it easier for their agents to do business with them. Regional insurers that have adopted predictive modeling also report surges in new business as a result.
Peerless
Keene, N.H.-based Peerless Insurance, an independent agency company that is a member of Liberty Mutual Group, is among the regional carriers that stress using technology to make life easier for agents as much as for improved pricing.
"Ease of doing business is now considered as much a part of our product as the coverage provided by the actual policy," says Dwight Bowie, president and chief executive officer of Peerless, which writes in the nine Northeast states of Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island and Vermont.
The company's Personal IQ SmartRisk provides real-time quote and submission capability for automobile and homeowners new business and endorsements. The system crunches internal and external data -- credit score being just one variable -- to produce more than 40 different price options. In addition to real time quotes, the system offers agents real-time endorsement quotes, policy inquiries, motor vehicle reports and transaction histories.
Peerless is also applying new analytics to small commercial lines. Its Commercial IQ SmartRisk provides up to 100 pricing points for business owners' policies and simplifies eligibility criteria.
With multiple pricing points, Peerless is now in a position to more accurately price its risks. "We won't be adversely selected against when we compete," says Victor Pepin, vice president for personal lines.
Along with the expansion of its pricing has come an "expanded" appetite for new business as well. Agents who used to pigeonhole Peerless as being interested in certain type accounts now ask Peerless to quote on risks they may not have submitted to it in the past.
"Our quote counts have increased dramatically," Pepin says, adding that "hit ratios" have been good, too.
He maintains the new accounts are coming from a wide range of competitors, including national agency companies.
Pepin believes that its technology puts Peerless in line with the "most advanced regional carriers" and in a position to compete against the Progressive and GEICOs of the world. "We offer the best of both worlds. As a regional carrier we feel we are close to the customer and the local market yet offer the strength of a national carrier," he maintains.
Hanover
Connection Auto is the multi-variate auto product with customer segmentation capabilities from The Hanover Insurance Group, which includes The Citizens and Hanover Insurance.
Connections Auto has gone like gangbusters. "We had a pretty aggressive plan and our expectations have been exceeded," James Hyatt, president of personal lines for Hanover/Citizens, told Insurance Journal.
Just one year after its March 2005 release, before it was even available in all of its states, Connections Auto generated more than $85 million of new business. This past summer, the company boasted that business jumped 150 percent in each state where it was introduced.
It has also helped The Hanover add more than 300 new personal lines agents and the company says it has seen a number of "dormant agencies brought to life" since the product was launched.
Connections Auto is now available in 17 states including Arkansas, Connecticut, Florida, Georgia, Illinois, Indiana, Louisiana, Ohio, Oklahoma, Maine, Michigan, New Hampshire, New Jersey, New York, Tennessee, Virginia and Wisconsin.
Hanover says the product allows agents to quote and issue new business for 90 percent of the market. "Companies used to play at the most preferred end of the spectrum but now predictive variables let us reach down into middle tiers," Hyatt explains.
While Hanover can now reach into middle tiers, it is not interested in building a huge book of substandard business. It is, however, now better positioned to compete where there might be a higher risk factor associated with a good account, such as a teen driver in a family account.
As is true for other regional companies, Hanover values the new analytics not only because they make pricing more accurate but also because they make it easier for agents. An agent can get a quote in about two minutes.
"The older product was unsophisticated like the car I drove right out of high school," Hyatt says, suggesting the new model is more like a vehicle with electronic stability control and a global position system.
There's no looking back. Believing that technology is driving competition, Hanover is looking at other ways to apply it. Hyatt says the company is "well down the path on small commercial."
Selective
Ward's and Fortune magazines have cited Selective Insurance as among the nation's best performing companies. Agents consistently rank it as among the easiest and best service companies and it has a case full of awards for leadership in industry technology.
Since it offers just about every technology tool for agents -- often before other insurers -- it's not surprising that Selective is also among the regionals adopting predictive modeling. The Branchville, N.J.-based insurer sells commercial and personal lines through approximately 750 independent agents in 20 eastern and midwestern states.
When it comes to the new analytics, the company has taken a broad perspective -- viewing these tools as part of an overall knowledge management responsibility. At Selective, it's about more than rating.
"It's all about making better decisions ... how to better use information," explains Ed Pulkstenis, senior vice president, commercial lines underwriting officer. "It's more than just pricing. It allows us to broaden our appetite as well as target services more precisely."
The Selective approach also means using the new analytics to supplement other management information, not replace it, says Sharon Cooper, Selective's communications officer.
The book of business for the company, which broke the $1 billion revenue mark in 2002, breaks out to be 85 percent small and medium commercial and about 15 percent personal lines. Thus, although it has been pursuing segmentation modeling in both commercial and personal lines, its first application has come in commercial lines. Selective is applying it first in the 20 states where it writes workers' compensation, a line which it felt to be "most ripe" for the new approach.
"It's where we were challenged on profitability," John noted, explaining that a small percentage of accounts were not profitable. Predictive modeling offers a way to do a better job of risk selection at the same time that it promises to improve pricing. It also provides for the targeting of safety and risk management services where they will do the most good.
According to John Marchioni, Selective's senior vice president for personal lines, while large national carriers may have been ahead of regional carriers in utilizing predictive modeling in personal lines, that's not necessarily the case in commercial lines.
Selective is utilizing predictive modeling in its New Jersey auto business and plans are underway to expand it to all nine states where it writes this line. Small commercial package policies will be next.
Like other insurers, Selective has found the new tools let it compete against national carriers and in some cases win over new accounts it might never have had a chance with before.
"Agents see a change in our appetite, a willingness to talk about new segments," Marchioni said.
"We've identified some new opportunities more quickly than we might have," he adds. But there is "always that 10 percent that's residual business."
Cooper suggests that "some national carriers have the tech but lost the touch whereas some regionals provide hands-on personal attention. The power lies in effective leveraging of both."
While small insurers with an expertise or niche have simpler books of business and may be under less pressure to adopt the new tools, for others predictive modeling is a "necessary part of dong business" and expected going forward, says Marchioni.
A state-based insurance safety net
The best choice for consumers is the tried and true property/casualty guaranty fund system administered by the states
From almost the moment Gramm-Leach-Bliley was signed into law in late 1999, discussion turned to the question of state or federal regulation for insurers. Debate continues with participants anxiously assessing the impact of this year's election results on their interests.
Interestingly, the component of the regulatory system that could mean the most to consumers and taxpayers has gone mostly unnoticed; that is, what would happen to the current state-based property/casualty guaranty fund system if insurers can choose federal oversight? It's a provocative question made more so because the state system works, a fact that has not gone unnoticed.
Speaking this past summer, Deputy Assistant Secretary of the U.S. Treasury for Financial Institutions David G. Nason said, "While there are passionate views on virtually all aspects of the [insurance] modernization debate, the viability and merit of the state guaranty system is rarely, if ever, called into question."
The American Insurance Association (AIA), whose membership includes many of the companies supporting an optional federal charter, has previously favored leaving the state-based guaranty fund system intact and requiring all national insurers to join state guaranty funds in the states in which they do business.
The two major OFC bills introduced in Congress during 2006 also would make use of the current state-based guaranty association system for both state and federally chartered insurers.
State property/casualty funds were created by statute some 35 years ago. Since their inception, they have consistently carried out their mission to promptly pay outstanding claims of insolvent insurance companies so that policyholders are not left unprotected. To date, state guaranty funds have handled hundreds of insolvencies and paid more than $21 billion to affected consumers. The system works exactly the way state legislators intended and can continue to handle all property/casualty insurer insolvencies, regardless of charter.
Beyond the question of effectiveness, issues of cost-benefit are unavoidable. A national guaranty fund for federally chartered insurers would duplicate effort, particularly because the state-based system would continue to exist for the companies that would likely remain state chartered. State Guaranty Funds would continue to operate using locally based personnel to receive and process claims, and to make assessments as needed.
A federal guaranty fund mechanism for nationally chartered insurers might look something like the FDIC, which currently employs 5,300 people and has a budget of slightly more than $1 billion. The state guaranty fund system is estimated to cost under a tenth of that amount, with fewer than 500 employees.
Most critically, two systems could actually reduce the overall capacity of the combined safety nets. An analysis undertaken in 2001 showed that assessment capacity of the state funds would have been reduced from $4 billion to $2.3 billion, while the national guaranty fund's capacity would have been just $1.2 billion (assuming that only the 10 largest property/casualty insurers became national insurers participating in a separate federal guaranty fund mechanism).
While the assessment capacity of the state guaranty fund system has since grown to $6.8 billion, the concentration of insurance premium in the largest insurers continues, and the same division of capacity would still exist. In an era of mega catastrophes and heightened terrorism risk, a bifurcated system that could reduce overall capacity poses a substantial risk to consumers.
Not to be overlooked is that as a national system, the state funds haven't needed access to anything close to its maximum assessment level; since the early '90s, the average assessment of all state guaranty funds is less than 20 percent of capacity and has not exceeded 35 percent (Those figures are based on the total of all states' assessment capacity. Because states make separate assessments based on the premiums written in their state, some states have experienced assessments approaching their annual capacity in recent years). The insolvency of one major national insurer could have a much more dramatic impact on a single national fund with lower assessment capacity.
Wherever you come out on the question of an optional charter for the property/casualty industry, there is no reason to worry about how consumers will fare under a state-based guaranty fund system. With $21 billion and thousands of affected lives later, it's clear that the guaranty funds are delivering on the low-cost public policy promise state legislators made to insurance policyholders long ago.
Roger H. Schmelzer is president of the National Conference of Insurance Guaranty Funds in Indianapolis. E-mail: rschmelzer@ncigf.org. Phone: 317-464-8199.
Court passes on Beacon Mutual appointments
Rhode Island's highest court has declined to rule on whether state lawmakers have any remaining role in appointing members, or approving gubernatorial appointments, to the board of the state's largest workers' compensation insurance carrier, Beacon Mutual Insurance Co.
Senate Democratic leaders asked the court whether the Senate had still final approval over Republican Gov. Don Carcieri's appointments to Beacon Mutual, after voters passed a separation of powers amendment that removed lawmakers from a host of state boards and commissions.
The Rhode Island Supreme Court said that it was required to issue advisory opinions only on matters pending before the General Assembly. But the General Assembly is in recess and when it reconvenes in January, its membership will have changed as a result of the November elections. The court said it is not required "to give an opinion to a succeeding legislative body in reply to a request propounded by a preceding legislative body."
Lawmakers can refile their requests for an advisory opinion during the next legislative session.
Beacon Mutual has in the past year been beset by controversy following charges it played favorites with certain customers. Gov. Carcieri recently fought unsuccessfully to remove AFL-CIO secretary-treasurer George Nee, and former state Rep. Henry Boeniger, a teachers union lobbyist, from the Beacon Mutual board. Several of the company's executives have resigned.
Carcieri spokesman Mike Maynard said the governor does not believe he needs the Senate's approval for his four appointees to the board.
Mass. employee smoking over firing
A Massachusetts man has filed a lawsuit against The Scotts Co., alleging the lawn and garden company violated his privacy and civil rights when it fired him because he smokes.
Scott Rodrigues, of Bourne, claims he was fired from his job after a drug test came up positive for nicotine.
He claims the company violated his rights found under the Massachusetts Privacy Statute, which bars the unreasonable, substantial or serious interference of privacy, and other state law.
The Scotts Co., a subsidiary of Scotts-Miracle Gro Co. of Marysville, Ohio, has a policy forbidding smoking by employees as a way to promote healthy lifestyles and hold down insurance costs. In the 20 states that allow it, including Massachusetts, the company refuses to hire smokers and tests all new employees for nicotine, according to Jim King, vice president for corporate communications. King said all new employees are told they must be tobacco-free and are told they will be tested for nicotine.
Rodrigues said he never smoked during work or while on break. "I didn't think you couldn't smoke at home," he said.
Rodrigues' lawyer, Harvey Schwartz, said the case goes beyond smokers' rights. If this practice stands, employers could dictate other aspects of their workers' lives, he said.
"They can say you don't exercise enough. We want every employee to attend a health club, and we're going to check your attendance record there," Schwartz said.
But Boston attorney Denise Murphy said Scotts has a legitimate business reason for not hiring smokers. "If they do that for everyone, and that's their policy, I don't see anything illegal about it," she said.
Copyright 2006 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
N.Y. auto profits hit
Auto insurance companies are profiting at unprecedented levels from New York drivers who are spending more on insurance premiums while the industry pays out less in claims, New York City Comptroller William C. Thompson Jr. charged.
He called for insurers to cut premiums for New York City drivers by at least $1.5 billion.
Thompson based his charge on a report by his department which he says reveals that premiums in New York have ballooned even as insurance companies' losses dropped.
Insurers quickly criticized the report as faulty and maintained that Thompson's recommendations would only make the market worse for consumers.
Auto insurers reported $10.5 billion in earned premiums in New York in 2005, a jump of nearly 29 percent from 2000, according to the report. Meanwhile, during the same period, incurred losses went down by more than 20 percent, from $6.4 billion to $5.1 billion.
The report concludes that in 2005 only 48.4 cents of each premium dollar was paid to policyholders, a nearly 30 percentage point drop from 2000. This loss ratio was the lowest in the nation and was 11.8 percentage points below the nationwide loss ratio of 60.2 percent, it says.
Thompson also maintained that New York automobile insurers enjoy an "extraordinary return on net worth." In 2004, industry net worth was 18.6 percent in New York, while the national return on net worth in that same year was 13.2 percent.
In response, insurers said that the comptroller's report fails to justify its claims.
"This report doesn't support its political headlines," said David Snyder, American Insurance Association vice president and assistant general counsel. "The report tries to isolate a single year and draw conclusions that do not hold up over time."
Declarations
Contingent commission ban
"Many industries -- not just the insurance industry -- rely on performance-based compensation, which is legal, honest and brings many benefits to the insurance marketplace, as it does to our entire American economy. Eliminating all contingent compensation is patently unfair to those who never committed abuses, such as Main Street insurance agents. Main Street agents are not Mega-brokers."
National Association of Professional Insurance Agents Executive Vice President Len Brevik upon learning that New York Attorney General Eliot Spitzer told ACE, AIG, St. Paul Travelers and Zurich that they may no longer pay contingent commissions to agents and brokers who sell automobile, homeowners and certain other insurance products.
Maryland exclusion upheld
"The exclusion, as it operates for amounts greater than the mandatory minimum coverages for bodily injuries in this case, neither violates the law of contracts nor Maryland's compulsory automobile insurance law."
The Maryland Court of Appeals in ruling that a fellow-employee exclusion in a commercial automobile liability policy is valid and enforceable above the minimum statutory liability limits. The court found that the employee exclusion is invalid to the extent that the policy provides less than the minimum statutory liability limits. The case is Wilson v. Nationwide Mutual Insurance Co.
More than money
"This lawsuit is more than just about money, although we will be seeking monetary damages. What this case has always been about is the tragic death of Milena Del Valle. That could have been any one of us."
Massachusetts Attorney General Tom Reilly in announcing his intention to file a multimillion-dollar lawsuit against the companies that worked on the Big Dig highway tunnel project, alleging their negligence led to the ceiling collapse that killed Milena Del Valle in July.
New Orleans opportunity
"Right now, we're on the verge of an opportunity to get a recovery for people who have lost everything and who didn't have flood insurance or didn't have enough flood insurance."
Plaintiffs' attorney Joseph Bruno on a ruling that could cost insurers many more billions of dollars than they have already paid out in Hurricane Katrina claims. U.S. District Court Judge Stanwood R. Duval Jr. in New Orleans ruled that ambiguities in certain homeowners policies leave open the possibility that flooding due to "man-made" acts could be covered, despite widespread water damage exclusions contained in most policies.
It Figures
$1.07 million
The fine imposed against the owners of Rhode Island's The Station nightclub for failing to carry workers' compensation insurance at the club, the site of a 2003 fire that killed 100 people. Owners Jeffrey and Michael Derderian sought to have the state fine wiped out after filing for bankruptcy protection last year. But a federal bankruptcy judge has ruled the fine could not be discharged under bankruptcy law.
6%
The State Farm rate cut for homeowners and rental policies approved by Delaware Commissioner Matthew Denn. Denn also allowed other cuts for auto insurance policies: American International Pacific Insurance Co., 7.1 percent; American International South Insurance Co. , 4.1 percent; Birmingham Fire Insurance Co., 4.1 percent; Harleysville Preferred Insurance Co., 9.4 percent and Westfield Insurance Co., 2.6 percent.
$1,221
The average auto insurance premium in 2004, one year after the state adopted major reform to the system, according to figures from the National Association of Insurance Commissioners. New Jersey drivers had the highest auto insurance bills in the nation in 2004. Average premiums in New Jersey, at $1,221 per vehicle per year, were 46 percent higher than the national average of $838 in 2004.
-7.9%
The voluntary market workers' compensation loss cost reduction for industrial risks approved in Virginia. The State Corporation Commission also approved a 9.7 percent cost increase for surface coal mines and a 13.8 percent cut for underground coal mines. Assigned risks rate revisions include a 8.2 percent reduction for industrial; a 19.2 percent reduction for federal; a 17.4 percent reduction for underground mines and 6.9 percent increase for surface mines. The changes will become effective April 1, 2007, for new and renewal workers' compensation policies.
2.7%
The hike in workers' compensation rates for the assigned risk market approved in Delaware. Insurance Commissioner Matt Denn also said he would approve no increase in costs for voluntary market workers compensation rates. The Delaware Compensation Ratings Bureau had applied for increases of 4.05 percent in the loss costs for the voluntary market and 6.72 percent for the residual market.
$25 million
The figure defining a high net worth individual in a new law signed by Massachusetts Gov. Mitt Romney that creates an exclusion governing the guaranty fund that covers claims when an insurer becomes insolvent. The Massachusetts Insurers Insolvency Fund (MIIF) will not be obligated to pay first party claims to a high net worth insured.
Personality plus or minus in sales
How to use a producer's unique personality traits in sales
A necessary evil. That's how some people might describe insurance. A producer's job, of course, is to turn this kind of misguided, industry-swiping thinking around, and make the whole experience of purchasing insurance pleasant -- or at least something that's perceived as being a little less than loathsome.
Unfortunately, insurance products can't sell themselves. They just don't have the same exciting allure of golf course homes, luxury cars, or dream vacations in Hawaii. Unlike salespeople in the real estate, auto, or travel industries, producers can't easily entice buyers with pretty pictures or slick ads. Insurance products are invisible, and while they're invaluable when needed, on a day-to-day basis they seem to offer clients no tangible benefits.
To a great extent, an agent's ability to succeed in insurance sales depends on how well he or she mentally and emotionally connects with would-be clients. In order to interact effectively with others, a clear understanding of one's own personality and inherent behavior must be gained, whether these are atypical of sales or not. Even if less than ideal, a producer's unique traits can be utilized in sales as long as they are recognized for what they are and channeled properly.
Networkers
Producers who easily strike up conversations, relax around strangers and project a friendly demeanor often have a clear advantage over shy, quiet types when it comes to sales. Their charm and enthusiasm can be hard for anyone -- including apprehensive prospects -- to resist! These charismatic dynamos are not all highly assertive, though; many prefer to come across as more of a trusted friend than a self-serving business monger. They're likeable and they know it. They despise arguments, debates or confrontations.
If you see yourself or a producer employee in this Networker personality group, know that social skills are the strengths. They will help open doors that might remain sealed to others! However, the challenge may be to overcome a fear of hurting others' feelings or seeming too pushy. This fear, if not erased, can cause Networker producers to lose out on some sales. Their sales performance may be uneven more often than not.
Guard against being dictated to by a prospective client. Maintain the upper hand. Smile and stay upbeat, but insist on a buying commitment or at least an immediate follow-up appointment so the closing process moves forward and the sale hastens.
Be aware that very staid individuals could have some trouble relating to very vibrant, expressive producers. Stick with the bottom-line facts about policies and save the hype and humor for more outgoing prospects.
Administrators
Producers who stay attentive to details and assume the role of a cautious, understated consultant may find that clients appreciate their service-mindedness and candor. Does this sound like you or one of your sales people? If so, know that the strong points are an accommodating nature, a helpful disposition and the ability to spell out facts. Existing clients and prospects probably appreciate the Administrator producer's thorough analysis of the policies they want. Make sure, though, that technical jargon is kept to a bare minimum.
An understated business approach might be perceived as a breath of fresh air by anyone who's recently fallen prey to shark-like, fast-talking sales pros. Keep in mind, however, that a conscious effort to be more assertive might need to be made when making a sales presentation. Otherwise, some people might mistake a more laid-back attitude for one that lacks drive and determination.
Try to seem more enterprising and self-serving, especially around those who appear to be bold, demanding people. Most buyers prefer doing business with someone they can relate to, so reading the personality of a prospect and then becoming a bit of a chameleon helps. A producer's basic personality can't be changed, but his or her behavior can certainly be modified, and should be, if doing so will enhance the chances for sales success.
Intimidators
Producers who are opportunistic may seem naturally suited to sales scenarios. They typically possess the resilience and desire to win that's needed to sell insurance successfully in today's unpredictable, highly volatile market. They usually find it easy to pressure others into decisions and often keep score of their victories by counting their commission checks. If this sounds like you or someone on your staff, the strength here is forcefulness.
Other assets are a thick skin and an ability to apply pressure so others comply. Be careful, though, as too much of a good thing becomes a liability. Coming on too strong will seem intimidating and dictatorial. Nobody likes a condescending, cocky wise guy.
Temper boldness. Exhibit patience. A sense of humor can also soften an overly aggressive image. Make sure the Intimidator producer personality provides excellent follow-up service to clients.
Every producer exhibits his or her own response to other people and environments; it is, in fact, this uniqueness that opens the door to both opportunities and challenges. Once the ways to best capitalize on those opportunities and override those challenges are realized, success is maximized and it becomes much easier to stay way ahead in any sales game!
Carletta Neal is a senior sales consultant from Tampa, Fla. She specializes in personnel selection/management and helps clients increase employee productivity. Neal is also a popular speaker at industry seminars and tradeshows. Contact: 800-525-7117, ext. 1226, e-mail: cneal@omniagroup.com.
Zurich agrees to terms to close multi-state bid-rigging probe
In separate but related move, N.Y., Conn., Ill. tell four insurers contingent commissions no longer an option
Ten states, led by Texas and its Attorney General Greg Abbott, have come to terms with Zurich American, closing their probe into the insurer's involvement in alleged bid-rigging and unfair compensation practices in the commercial insurance market.
The multi-state settlement finalized in Texas is part of a larger settlement requiring Zurich to pay $121.8 million in refunds to commercial policyholders in the U.S., fully disclose all compensation paid to commercial brokers and agents and implement various business reforms.
Zurich denies that its activities violated any laws and does not admit any liability but the insurer agreed to settle to avoid lengthy legal proceedings.
Multi-state coalition
The multi-state coalition involved in this settlement includes the attorneys general of California, Florida, Hawaii, Maryland, Oregon, Texas, West Virginia, Massachusetts, Pennsylvania and Virginia, the Florida Chief Financial Officer and the Florida Office of Insurance Regulation.
Zurich has also agreed to stop engaging in the practices that the states allege resulted in violations for 10 years.
"Today's settlement brings greater transparency and fairness to the commercial insurance markets in Texas and across the nation," said Attorney General Abbott. "This settlement paves the way for states to protect businesses from falling victim to the kind of deception that raised insurance prices above competitive levels."
The multi-state investigation alleged the company participated in deceptive bid-rigging, price-fixing and other schemes in the commercial insurance market, orchestrated by Marsh & McLennan and other large brokers. In the process, large and small companies, nonprofit organizations and government offices that purchased commercial lines of insurance from Zurich were misled into believing they were receiving the most competitive commercial premiums available, according to the states.
The states contended that Zurich showed a willingness to submit fake quotes and was rewarded with protection from competition so it could set artificially high premiums and profit on other lucrative accounts. The brokers also engaged in anti-competitive conduct by steering contracts away from insurance companies that refused to participate in the scheme, the states said.
Secret commissions
The states maintain that the scheme was successful because insurers such as Zurich failed to disclose to policyholders that they paid secret "contingency commissions" to the large insurance brokers.
With this multi-state settlement, Zurich is agreeing to end that secrecy by disclosing all compensation that it pays its agents and brokers for commercial lines business. It will deliver a compensation disclosure statement before a commercial insurance policy is bound. The statement shall disclose any base compensation paid, including the maximum percentage of the premium paid for each commercial policy. Also, the disclosure form shall inform insureds whether contingent compensation may be paid to the broker or agent, including the maximum percentage of contingent compensation that could be paid, the average percentage paid by Zurich in the immediately preceding calendar year and the factors that Zurich will consider in determining the percentage of contingent compensation to pay.
Zurich will also pay $20 million to the investigating states to defray their costs and fees.
Three-State Agreement
The Texas-led multi-state settlement is separate from a three-state agreement Zurich signed with attorneys general for New York, Illinois and Connecticut, and the New York Department of Insurance. Under that agreement, which is called the Three-State Agreement, Zurich agreed to create an $88 million fund for policyholders that purchased or renewed excess casualty insurance policies, other than workers' compensation policies, issued by Zurich through Marsh & McLennan Companies Inc., or Marsh Inc., from Jan. 1, 2000 through Sept. 30, 2004.
On Nov. 30, New York Attorney General Eliot Spitzer notified ACE, AIG, St. Paul Travelers and Zurich that under those agreements reached with his office earlier this year, they may no longer pay "contingent commissions" to agents and brokers who sell automobile, homeowners and certain other insurance products.
Under the Three-State Agreement, the insurers must change their compensation structure for brokers and agents in any type of insurance where more than 65 percent of the insurance is sold by companies that do not pay contingent commissions. Spitzer said this 65 percent "tipping point" has been reached for homeowners, personal automobile, boiler and machinery, and financial guaranty insurance. As a result, the four companies must stop paying contingent commissions for these insurance products beginning on Jan. 1, 2007. They have already given them up for excess casualty insurance.
Agents expressed distain with the decision, calling the order "grossly unfair."
"It is grossly unfair to impose contrived restrictions on the ability to compensate producers in a legal and honest manner," said National Association of Professional Insurance Agents Executive Vice President and CEO Len Brevik.
Independent Insurance Agents & Brokers of America CEO Robert A. Rusbuldt said carriers are now unable to use what otherwise is a perfectly legal way to compensate their sales forces. He noted contingent compensation is done in virtually all industries across America. "The independent agent and broker community is greatly distressed by this development," Rusuldt said.
Details on the Zurich settlements can be found at: http://www.insurancebrokerageantitrustlitigation.com/zurich/
4.4 million Mattel 'Polly Pocket' toys recalled after kids swallow magnets
A consumer research group called for warning labels on toys with magnets after more than 4 million Mattel play sets were recalled over injuries to several children who swallowed magnets that fell off.
The Consumer Product Safety Commission, which announced the recall of magnetic Polly Pocket sets as the holiday gift-buying season begins, urged shoppers to avoid buying toy sets with small magnets for children under six.
The Polly Pocket recall does not include sets currently on store shelves. Mattel redesigned those sets to make them safer, said CPSC Spokesman Scott Wolfson.
Wolfson said the government is "actively pursuing new voluntary standards" from toy makers. "That work is being pursued not at the mandatory level but the voluntary level right now," he said.
The commission received 170 reports of the small magnets falling from Polly Pocket dolls and accessories. Three children swallowed more than one magnet and suffered intestinal perforation that required surgery. If more than one magnet is swallowed, they can attach to each other and cause intestinal perforation, infection or blockage, which can be fatal.
"Swallowing a magnet is not like swallowing a penny," said Alison Cassady, research director of the U.S. Public Interest Research Group in a statement that accompanied its annual toy safety survey. "Powerful magnets can wreak havoc inside the body."
Sara Rosales, vice president of communications at Mattel, said the company is working with others in the toy industry, consumer advocates and the government "to make appropriate revisions to the U.S. toy standard to prevent such issues in the future," Rosales said.
Copyright 2006 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Insurers urge Supreme Court to overturn 9th Circuit ruling on credit scoring
A national insurance trade group has filed an amicus brief urging the U.S.Supreme Court to overturn the cases of Safeco Insurance v. Burr and Geico General Insurance v. Edo, which said insurers acted in willful disregard of the law by not sending out adverse action notices whenever a consumer's credit information did not result in the consumer receiving the best possible rate.
According to the suburban Chicago-based Property Casualty Insurers Association of America, these cases involve a ruling from the 9th Circuit Court of Appeals which took the very unusual step of withdrawing and issuing an opinion three times on this matter. While the 9th Circuit did not materially change its ruling, ultimately it did moderate its position on the issue of willful disregard.
The 9th Circuit held that the Fair Credit Reporting Act's (FRCA) adverse action notice is required whenever a company uses credit information in determining the insurance rate applied, and the consumer did not receive the lowest rate. Additionally the court maintained that every company, within a family of companies that accessed the credit information must send the consumer an adverse action notice. The only part of this third opinion that was different from the previous two was the application of willfulness.
The court held that "if a company knowingly and intentionally performs an act that violates FCRA, the company will be liable for willfully violating consumer rights and [that may] constitute reckless disregard for the law." The court's opinion differs from the previous decisions in that in some cases the court must look at "specific evidence as to how the company's decision was reached, including the testimony of the company's executives and counsel."
"We strongly disagreed with the lower court's ruling that these companies acted in willful disregard of the law," said Kathleen Jensen, senior legal counsel for PCI. "The 9th Circuit used a very low standard for determining willful disregard of the law, and that lower standard could open the door to increased litigation and substantial penalties for insurers."
Jensen added that, it is PCI's opinion that the 9th Circuit imposed a new set of rules for notice requirements that conflict with the FCRA statute and runs counter to previous court decisions. The 9th Circuit's ruling has caused confusion because it was inconsistent with other courts around the country.
It's 'haves' vs. 'have-nots' in insurance technology race for survival
Spurred by intensifying competition, breakthroughs in analytics are transforming insurance markets, according to an industry leader. Sophisticated insurers able to harness large volumes of high-quality data to drive decision making can look forward to a long and prosperous future, said Frank J. Coyne, chairman, president and chief executive officer of Insurance Services Office, who also warned that insurers unable to keep up in the intellectual and technological arms race face a grim prognosis.
"In just a decade and a half, approximately a third of the insurers serving the United States vanished as escalating competition ate into top-line revenue growth and bottom-line profitability. But it isn't just the intensity of competition that's changing," Coyne said. "The nature of competition is changing too, as advances in predictive modeling and other analytical techniques enable leading insurers of all sizes to target their marketing, underwriting and pricing as never before."
He said a chasm is growing between insurers using state-of-the-art analytics and those who aren't -- the "haves" and the "have nots."
"Increasingly, the 'haves' will be able to write business at the margins they target," Coyne said. "The 'have nots' will fall victim to adverse selection, as more sophisticated insurers target the risks apt to prove profitable. And the bar will rise continually as competition drives weaker players from the field. Today's 'haves' are at risk of becoming tomorrow's 'have nots.'"
Technology meets claims
Coyne said advances in analytics are also transforming loss settlement. "Smart insurers are using advanced analytics -- such as data mining, pattern-recognition technology, data-visualization tools and scoring -- both to detect insurance fraud and to expedite payment of meritorious claims," the ISO executive said.
Coyne was speaking to the 800 attendees at ISOTech, an insurance technology conference.
This focus on claims can be an important competitive advantage given that claim fraud adds approximately 10 percent to loss and loss-adjustment expenses, he noted.
Coyne said the use of predictive modeling in personal auto is "fast becoming a competitive necessity, if it hasn't already."
Predictive modeling is getting more powerful, he continued. "Today, sophisticated insurers are using models based on credit information and territory or ZIP code level data. But visionary insurers will soon be using models based on hundreds and even thousands of variables for individual addresses. These next-generation models have already been developed, and they are much more powerful. The days when personal auto insurers base decisions on credit and territory or ZIP code level data are numbered."
Commercial lines
Coyne noted that the use of predictive modeling and other advanced analytics is spreading to Main Street commercial lines business. With premiums for businessowners policies averaging approximately $1,500, spending significant sums on painstaking underwriting is out of the question. "But with the right technology, it only takes a junior underwriter seconds to enter a few facts from a policy application and get a score that indicates whether the risk should be underwritten," said Coyne.
He added the use of technology still depends on certain basics. "Yet even the most sophisticated modeling won't yield correct underwriting and pricing decisions if the information on applications is wrong," he said, citing the $16 billion in lost premiums that poor data cost U.S. personal auto insurers in 2005. "Predictive modeling and intelligent database matching now enable insurers to spot flawed information and stop premium leakage."
Confronting catastrophes
As competition intensifies, keeping up with advances in analytics is only one of many challenges confronting insurers. At $61.8 billion, last year's catastrophe losses dwarf even those in 2001 when the World Trade Center was destroyed and those in 1992 when Hurricanes Andrew and Iniki struck.
Citing research by AIR Worldwide, Coyne noted that the biggest factor contributing to the upward trend in catastrophe losses is exposure growth associated with increases in the number of homes and businesses, in the size of homes and commercial structures, and in construction costs. Continuing exposure growth means catastrophe losses should be expected to double approximately every 10 years.
Today's catastrophe models enable insurers to measure, manage and price for catastrophe risk.
"But the answers that come out of catastrophe models are only as good as the exposure data fed into them. Research shows that many insurers are at risk of underestimating their potential catastrophe losses because of poor-quality exposure data," Coyne said.
Focusing on man-made catastrophes, Coyne cited terrorism as a risk that will be with insurers far into the future. "Modeling indicates that an attack on New York using weapons of mass destruction could lead to losses on the order of $780 billion," Coyne said. "Yet the Terrorism Risk Insurance Extension Act and its reinsurance backstop expire at the end of 2007."
Coyne urged insurers to develop a long-term mechanism for covering terrorism, "be it public, private or a partnership that brings government and the private sector together."
ISO's CEO also highlighted other potential threats that may one day cause huge losses, including avian flu, nanotechnology, genetically modified organisms and personal injury coverage in the Internet age.
"A pandemic could cause huge losses as businesses are shut down and decontaminated, while new nanosubstances are already being used in consumer products such as cosmetics, sunscreens and wound dressings, even though it's too soon to tell whether use of such substances will have long-term health consequences," Coyne explained.
"Similarly, genetically modified forms of tomatoes, potatoes, soybeans and many other crops are already in the food chain, even though it's too soon to tell whether consuming them will negatively affect people's health or the environment."
The personal injury coverage provided by homeowners and umbrella liability policies protects insureds who are sued for libel. Now, with millions of people blogging and with the advent of "gripe sites" focusing on specific products and companies, the potential exposure is enormous.
"Surviving and thriving in the insurance business will require monitoring and proactively addressing emerging threats before they cause huge losses," Coyne said. "Surviving and thriving will also require devotion to the core fundamentals of the business -- cost-based pricing, solid underwriting, strong loss adjudication and sound risk management. The challenge is to keep up as advances in analytics change what constitutes superior execution against the fundamentals."
Lost in translation
Global businesses need integrated insurance solutions to ensure adequate protection
A U.S. company has purchased a manufacturing plant in China as part of a global expansion. Now, it needs property insurance for that facility, and it's the insurance agent's job to pull the program together and develop an insurance program that responds to its customers' global needs.
It should be no problem, right? Property insurance is property insurance.
It sounds easy, but it's not that simple. Although some of the company's exposures in China may indeed be similar to those in the United States, many may be quite different. In fact, risks can vary substantially from one country to the next as a result of differences in fire protection standards, crime conditions, local zoning codes and other factors.
These differences can present a serious challenge for agents trying to develop a coherent global property program for clients with operations in foreign countries. But by combining local admitted property insurance with a master difference in conditions/difference in limits (DIC/DIL) policy, you can provide your clients with the kind of cohesive global property insurance program they need.
Assessing the risks
To determine the appropriate insurance for a commercial client, the first step is a thorough review of the property-protection standards, public and private, in each of the countries where that client has operations.
Most commercial buildings outside the United States, for example, do not have sprinkler systems. If they do have such systems, the standards used for measuring water availability and pressure may be different from those in the United States. Not all sprinkler system components and equipment are subject to quality standards for response and reliability. Working with an insurer with strong loss control services puts businesses in the best position to properly assess the effectiveness of the building's fire suppression systems.
Public fire protection also can be a challenge in foreign countries. Just like in the United States, cities and industrial areas in foreign countries are often congested with traffic, making it difficult for fire departments to get to a burning structure quickly. Businesses with facilities in remote locations, on the other hand, may find there is limited public fire protection or water available for extinguishing fires. Water, for instance, may only be available at specific times of the day, making firefighting a game of roulette.
Local zoning laws, meanwhile, are usually far less stringent than in the United States, if they exist at all. In parts of Asia as well as certain developing countries around the world, for example, it is not uncommon for high-rise buildings to have a mix of tenants, including manufacturers, restaurants, light industry and residential -- all in one structure.
Businesses will have significantly different risks depending on where their facilities are located and that, in turn, will have a strong influence on their insurance needs. Putting together a global program for such a client can seem like a daunting challenge. Half the battle, however, is knowing how each country's risks and insurance requirements differ and then finding the insurance products that can help support their needs.
The right insurance program
U.S. companies can protect their international operations through a number of different insurance products.
Local admitted property insurance is available in most markets around the world and is tailored to country-specific exposures. In many cases, companies are required by law to purchase this local insurance.
By buying the local admitted policy, businesses can be assured of being in compliance with local requirements, but they may gain other advantages as well. For example, they may have access to local terrorism and natural catastrophe insurance pools through their local policy. These pools are usually a cost-effective and straightforward way for clients to obtain this type of insurance.
Because the policy will be in the language of the country where the foreign operation is located, managers based there will be able to review and assess that the insurance is appropriate and that they are in compliance with local requirements.
The disadvantage, however, is that these local policies usually respond to named perils only and, therefore, don't normally meet the needs of U.S. businesses.
Businesses should also purchase a master policy or DIC/DIL policy or what is referred to as a controlled master policy (CMP) to create a global program. This kind of program is coordinated out of one location, typically where the parent is based, and can provide protection that has a familiar feel and approach to the U.S.-based insurance buyer. The CMP also provides insurance that may be needed but may not be available or common in the local market. The master policy structure can be written in conjunction with the local admitted policies in each country and fill in potential insurance gaps, which are common in these local contracts.
Some local policies, for instance, require that a detailed statement of operations be warranted on the policy declarations. At the time of a loss, a local policy on its own could leave the insured without insurance if it is determined that there was a slight change to the operations or that the description on the policy was too vague.
Other gaps in coverage
Companies with only local admitted policies face other potential gaps as well. Currency devaluation and coinsurance deficiency are two common exposures that global property buyers may only be protected from when a CMP is properly structured.
For example, what might happen if a country devalues its currency, as Argentina did in 2002? That could potentially leave a client with property in that country that is underinsured because of the devaluation. The currency devaluation provision found on some master policies would provide the difference between the value of the property before the devaluation and after. Failure to obtain this insurance may leave the company with uninsured exposure in the event replacement property must be imported from outside the country where the loss occurred.
Coinsurance deficiency is another real exposure for clients who have facilities abroad. If a loss occurs to insured property and the insurance value is less than that required by the coinsurance or average clause provision on the local policy, a penalty is often imposed in the claims adjustment process. Again, without specific insurance for these exposures, the company will incur additional expenses as they recover from a loss.
One of the advantages of a controlled or coordinated master program is that this kind of program structure can respond to the needs of clients as they continue to grow. Additional country exposures can be added as the insured opens or acquires operations in other locations.
A master policy that is part of a global program also offers companies a coordinated global approach to loss prevention and claims-handling services. Under a master policy, claims handling is controlled by one insurer who works with its own offices or local affiliated companies to make sure that the claim is processed quickly and properly.
When arranging a global program, agents should look for an insurer that has the expertise and ability to place the required insurance in the local admitted markets and write the master policy as well. It is also important to look for insurers that have top-notch loss control and claims-handling services, as well as solid financial ratings and a global network of brokers and insurance affiliates.
Kathleen S. Ellis is a senior vice president of Chubb & Son, and manager of Multinational Risk Group - Global Accounts.
'Main Street' agent ad campaign free to PIA members, insurers
Members of the National Association of Professional Insurance Agents and the insurance companies they represent can now participate at no cost in a new branding program, Local Agents Serving Main Street America, which has been designed to increase independent agents' market positioning.
The first major component of the campaign consists of a series of print advertisements that PIA members can run in local publications, customized with their agency logo and contact information, and (optionally) a company logo.
"The PIA Branding Program does not attempt to create a new identity for PIA members," maintains PIA Executive Vice President and CEO Len Brevik. "They already have one that is clear and positive with consumers: they are Professional Insurance Agents. Their customers know who they are. They're local and they care."
Each of the advertisements can also be printed for use as flyers or as inserts in publications. The ads are available in a variety of sizes, in color as well as black and white.
