Conn. AG seeks to block shutter requirement

Connecticut Attorney General Richard Blumenthal has submitted draft legislation to the General Assembly that would prohibit insurers from requiring that consumers install hurricane shutters as a condition of insurance.

The legislation would also require an insurer to notify existing policyholders when the company applies to the insurance commissioner for approval of new underwriting requirements that could cost homeowners more than $1,000.

Blumenthal said his proposed legislation "responds to a trend by insurers to impose onerous, expensive conditions - or cease writing policies altogether - in Connecticut and other coastal regions."

He also said his office is continuing an antitrust investigation involving several companies at various levels in the insurance industry, including carriers, reinsurers, modelers and rating agencies.

"This legislation would help stop a storm of bad insurance policies battering Connecticut," Blumenthal said. "Insurers are reaping record-breaking profits, but still shifting costs to consumers. They shirk risk by imposing expensive, extreme, and egregious conditions on homeowners. Forcing consumers to spend tens of thousands of dollars to install storm shutters is bad policy - and should be banned."

He maintained that "consumers feel blindsided and bullied by insurance policy changes that may cost them tens of thousands of dollars. Policyholders deserve advance notice so they can act - at a minimum protest against approval by the insurance commissioner."

Mass. Gov. Patrick replaces commissioner; halts high risk plan

Massachusetts Gov. Deval Patrick has taken steps to install his own appointee as insurance commissioner and halted the ongoing implementation of reforms to the state's auto insurance high risk pool championed by the regulator he is replacing.

Patrick said he would review the state auto insurance system after he had his acting insurance commissioner suspend rule changes made in the system during the final weeks of the Romney administration.

On Dec. 13, then Insurance Commissioner Julianne Bowler approved a new method for assigning high-risk drivers to automobile insurers that aligned Massachusetts with most other states. The change has been opposed by Massachusetts' largest auto insurer -- Commerce Insurance -- but embraced by a coalition of rivals. The decision capped a four-year-long process that was slowed after Commerce filed a court challenge in January 2005 when Bowler initially approved the plan.

On Jan. 19, Acting Insurance Commissioner Joseph G. Murphy suspended the changes made by Bowler, which were to have taken effect in April.

"I have taken this action in order to consider the impact of the Dec. 13, 2006, order and both the short- and long-term implications of those rules on the Massachusetts private passenger automobile market with the least disruption to consumers and the insurance industry," Murphy said in a brief statement.

The Patrick administration explained that the move was to buy time for further study.

"The governor wants the opportunity to take a look not just at this initiative, but at the entire automobile insurance system in Massachusetts," Patrick spokesman Kyle Sullivan said. He said patrick would name a study group to provide advice within the next 60 days.'

State law requires Murphy to act on the rule suspension within 90 days. A public hearing is set for Feb. 15.

Bowler sought to create an assigned risk plan similar to those in more than 40 other states. This Massachusetts Assigned Insurance Plan, known as MAIP, would replace the current system under which the state assigns agents with high risk insureds to insurers that then share all the losses.

The MAIP included a so-called "clean in three" provision to remove drivers from the high-risk pool after a three-year period in which an individual maintains continuous insurance coverage and isn't found to be at fault for an accident or traffic violation.

Commonwealth Auto Reinsurers (CAR), which administers the state's high risk operation, had been working feverishly to meet the April deadline. Some issues remained unresolved at the time the MAIP implementation was suspended, one of them involving agents. Independent agents have been pushing for a change that would formally recognize their ownership of any business that insurers voluntarily remove from the assigned risk plan. The Massachusetts Association of Insurance Agents has asked CAR for an amendment that would require that a company taking a risk out of the MAIP to write it voluntarily would be required to recognize the producer of record and pay the producer a commission.

Royal & Sun Alliance management buyout faces opposition

A proposed management buyout and eventual dissolution of Royal & Sun Alliance Insurance Group's U.S. operations could leave policyholders in jeopardy, according to critics trying to halt the deal that is before Delaware regulators.

The proposed buyout was the subject of a lengthy hearing recently in Delaware, where the British company's U.S. affiliates are incorporated. Delaware insurance commissioner Matt Denn is expected to make a decision within 30 days, after receiving a report from the hearing officer.

Royal & Sun announced in 2003 that it did not consider its U.S. business central to its main operations, and it stopped writing new policies with the eventual goal of exiting the U.S. market after more than 150 years.

Among the four U.S. subsidiaries that managers of Royal & SunAlliance USA plan to "runoff" is Royal Indemnity Co., which has been sued over more than $250 million that it may owe to the developer of the World Trade Center site in New York City. Royal Indemnity and more than two dozen other insurers took out policies with developer Larry Silverstein weeks before Sept. 11, 2001.

RSA USA also is involved in litigation over potentially costly asbestos and environmental claims, including a Michigan lawsuit in which General Motors has asserted a claim of more than $1 billion, for which the insurer has not put up any reserves.

RSA USA chief operating officer Dennis Cahill accused GM of lobbying other large policy holders, including DaimlerChrysler, Federal-Mogul Corp. and the Student Loan Corp., in an effort to kill the buyout.

Meanwhile, New York Sens. Hillary Clinton and Charles Schumer, along with New York City Mayor Michael Bloomberg, have expressed concerns that the deal may leave Royal Indemnity unable to meet its obligations.

"Without Royal Indemnity Company's full payment of its obligations, efforts to redevelop Ground Zero will be seriously impeded," Clinton wrote in a letter to Denn.

RSA USA executives said the company has a good claims payment history, including more than $1 billion World Trade Center-related claims, and will meet future obligations as they become due.

Delaware regulators described RSA USA as one of the department's "problem children," burdened by the 9-11 attacks and an ill-advised acquisition of a big workers compensation portfolio in the 1990s.

RSA USA chief executive officer John Tighe said the company has made significant progress in reducing expenses and resolving major lawsuits since 2003, and that the buyout represents a "great benefit" to policyholders. "Our ultimate objective is to achieve a solvent runoff," he said. "We have not approached this endeavor naively."

RSA USA currently has $2 billion in reserves to meet likely claim obligations, according to Delaware insurance regulators, and more than $700 million in surplus funds.

Royal & Sun's U.K. parent has agreed to provide an additional $287.5 million in financing for the buyout, but opponents contend that amount is insufficient to ensure that obligations are met.

Marc Wolinsky, an attorney representing the World Trade Center policy holders, said the buyout will result in management lining its pockets at the expense of policy holders. He noted that the management group has put up nothing for the buyout but has been promised $27.5 million by the British parent to cover operations and salaries during the runoff.

"Their downside is protected, and their upside is ... whatever they can squeeze from policy holders," Wolinsky said.

Tighe asserted that Royal U.K.'s offer of $287.5 in seller financing, backed by $300 million in non-interest bearing subordinated notes from the U.S. executives, helps ensure that policyholders are protected. "Royal U.K. made it very clear to us that they have limits to what they would be willing to provide," he said. "We understand the challenges we face and believe we have sufficient capital to meet policy holder obligations."

Deputy insurance commissioner Michael Vild noted that Royal U.K., at the insistence of Delaware regulators, has provided nearly $1 billion to support its struggling American operations since 2001, most of it before the runoff decision was made.

When RSA USA approached Delaware regulators last year, it was told a solvent runoff was unlikely without an infusion of additional capital. Royal U.K. reluctantly agreed to provide the $287.5 million, narrowly winning over the Delaware regulatory staff.

"It's close," said Vild, adding that in the event RSA USA becomes insolvent, the $287.5 million could come in handy.

George Culmer, chief financial officer for the British parent company, asserted that the $287.5 million is contingent on the deal being approved, and that the company will not inject any more capital into the U.S. businesses.

Wolinsky dismissed the notion that Royal U.K. would risk its international credibility by abandoning the U.S. group to face liquidation if the deal is not approved. "They're saying, 'approve this transaction or we're going to commit economic suicide,"' he said. "They're not going to do that."

Copyright 2007 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Delaware enacts major workers comp system reform package

Lawmakers and Gov. Minner moved quickly, hoping DaimlerChrysler gets the message and keeps its plant open

The Delaware Senate and House moved swiftly earlier this month to pass a bill containing major reforms of the state's workers' compensation system. Gov. Ruth Ann Minner immediately signed the reforms into law.

Lawmakers hope the new law (SB1) will mean more than $30 million in rate relief for employers. Some estimates project savings could reach up to $43 million annually.

Lawmakers and Minner acted quickly in part to send a message to auto manufacturer DaimlerChrysler, which is considering whether to close a plant in the state that employs about 4,500 workers.

The new law promises to control workers' compensation costs by imposing fee schedules on physicians and placing some restrictions on lawyers' fees. It also promises to encourage certain best practices guidelines for treatments as well as standardize some of the health care forms used by employers, insurers and medical providers.

Under the new payment system, doctors could receive up to 90 percent of the most common charges for medical services while surgery charges by hospitals could be cut by 15 percent.

Attorneys for injured workers will have to have written fee agreements with their clients. The law attempts to limit when a lawyer can collect a percentage of a client's weekly benefit check.

In an effort to streamline payments to workers, the law authorizes an insurance carrier to make payments of indemnity benefits or health care benefits to a worker without affecting the insurer's right to later contest the employer's claim. Insurers woud be able to halt benefits to any persons jailed due to a criminal conviction.

The reform law also requires insurance carriers to notify the Department of Labor of cancellation of coverage on a business and enhances penalties for employers violating the state's mandatory coverage provisions.

The legislation mandates that the state hire a firm, Ingenix, to assist the Health Care Advisory Panel in developing the medical fee schedules and treatment guidelines.

The legislation was developed by bill sponsors, Rep. William Oberle Jr., R-Newark, and Sen. Anthony DeLuca, D-Wilmington, who credited the cooperation of labor, medical and insurance representatives.

Minner tried but failed to enact workers' compensation legislation reforms last year.

Highlights of Delaware's workers' comp changes

In some of its specific provisions Delaware's workers' compensation reform law (SB1):

• directs that a new workers' compensation rating plan be filed with the Insurance Commissioner within 90 days of the effective date of a medical payment system and practice guidelines, and at least annually thereafter.


• clarifies the obligations of independent contractors and subcontractors with respect to maintaining workers' compensation insurance.


• requires that petitions to the Industrial Accident Board for attorneys' fees be accompanied by affidavit, and that fees awarded to an employee's counsel offset any financial obligation the employee otherwise has to counsel.


• establishes new procedures for attorneys' fees in workers' compensation matters. Among other things, it requires that attorneys representing employees have written fee arrangements and limits an attorney's ability to collect fees from an employee's periodic benefit payments to special circumstances.


• authorizes employers or insurance carriers to make payments of indemnity benefits or health care benefits without prejudice to the right to later contest the employer's obligation to pay the expense in question.


• establishes a Health Care Advisory Panel charged to develop various health care cost containment and efficiency measures.


• provides for a health care payment system intended to control health care costs in connection with workers' compensation. The system will be developed by the Health Care Advisory Panel. The system is to provide clear schedules of maximum acceptable charges for professional services, hospital services, independent treatment centers, laboratory and pharmaceuticals.


• provides for the development of health care practice guidelines that will implement best practice treatment standards in workers' compensation. Such guidelines will be developed by the Health Care Advisory Panel within one year.


• provides for the development of certification standards for health care providers treating workers' compensation patients.


• provides for the adoption of forms for a consistent and uniform reporting system among employees, employers, insurance carriers and health care providers.


• allows the Industrial Accident Board to offset payment otherwise due to an employee where the insurance commissioner has made a finding of insurance fraud and ordered restitution.


• provides for workers' compensation matters before the Industrial Accident Board to be referred to mediation.


• provides a procedure to suspend workers' compensation benefits to persons who are incarcerated due to a criminal conviction.


• directs that the Industrial Accident Board, when reviewing a proposal to commute benefits, consider attorneys' fees and costs.


• requires that contractors and other parties doing substantial work within Delaware ensure that their employees are adequately insured for workers' compensation.


• strengthens mandatory insurance provisions by requiring insurance carriers to notify the Department of Labor of cancellation of coverage and requiring employers to either establish that the employer has gone out of business, or is no longer required to maintain workers' compensation insurance. It also enhances penalties for violating mandatory insurance coverage provisions.


• authorizes the Office of Workers' Compensation to engage the firm of Ingenix, Inc. to provide services in connection with the development of health care cost containment measures adopted in the Act.

New Markets

Parking and Valet Operators
Nuts & Bolts: USRisk Brokers has a new Parking and Valet Operators Program designed for businesses engaged in parking customers' cars, such as self-parking garages and lots, assisted parking, valet parking and parking for special events. Exposures can include parking operations at retail or office complexes, hotels, restaurants, medical centers, high-rise residences and airports, and extend to incidental operations such as car washing, detailing and minor repairs; and concierge-type services such as luggage assistance or bellman operations.

Dollars: $250,000 per vehicle/ $1 million per location/$5 million aggregate.
Carrier: Rated "A" XV by A.M. Best. Non-admitted.
States: All.
Contact: Connie Chalayan at 800-856-7035 or email conniec@usrisk.com.

Monoline Energy
Nuts & Bolts: MarketScout, the Dallas-based eInsurance Exchange, has launched an exclusive Monoline Energy Workers' Compensation program that accepts most class codes related to the energy industry, including operations "over the hole" and USL&H exposures.

Dollars: Statutory and $1 million employers liability.
Carrier: Rate "A" by A.M. Best. Admitted.
States: All, except New Jersey.
Contact: Chris Kerr at 972-934-4206 or e-mail ckerr@marketscout.com.

Financial Institutions
Nuts & Bolts: National Union Fire Insurance Co. of Pittsburgh, Pa., is offering Financial Institutions Risk Protector, a package of management and professional liability coverages for privately held financial institutions. FIRP bundles a number of coverages into one policy including directors & officers liability; employment practices liability; fiduciary liability; errors & omissions liability for insurance companies and banks; security and privacy liability; and employed lawyers liability.

Dollars: Up to $25 million, aggregate.
Carrier: National Union, rated "A+ by A.M. Best. Admitted and non-admitted.
States: All
Contact: Raymond DeCarlo at 212-458-1576; e-mail managementliability@aig.com.

Small Business EPL Package
Nuts & Bolts: CNA's Epack EZ targets companies with fewer than 50 employees and less than $10 million in assets with a stand alone employment practice liability (EPL) policy or combination EPL, directors and officers and fiduciary policy. Epack EZ offers online quoting, a two year policy term and a separate limit for defense cost. Additional enhancements include a broad insured definition that includes domestic partners; a broad definition of wrongful employment practices; automatic coverage for third-party claims; punitive damages coverages; and independent contractor coverage.

Dollars: Monoline, $500,000 or a $1 million; or shared D&O fiduciary limit $1 million.
Carrier: Continental Casualty, rated "A" by A.M. Best. Admitted.
States: Ala., Ariz. Colo., Del., D.C., Fla., Ga., Hawaii, Idaho, Ill., Ind., Iowa, Kan., Ken., La., Md., Mich., Mont., Mo., Neb., N.H., N.J., Nev., N.C., N.D., Ohio, Okla., Ore., Penn., R.I., S.C., Tenn., Utah, W. V., Wis., Wyo. (Non-admitted in La. and Wyo.)
Contact: Michelle Aliperti at 732-398-4375 or e-mail michelle.aliperti@cna.

A look behind the very good P/C results for 2006

The numbers, or estimates, for the property casualty insurance industry for 2006 are in. Dr Robert Hartwig, president and chief economist of the Insurance Information Institute, discussed them with Insurance Journal's Andrew Simpson at III's Joint Property Casualty Insurance Conference in New York. The complete video interview may be viewed at www.insurancejournal.com/broadcast.

What do the overall results of 2006 look like for property casualty insurers?
Hartwig: The results for the industry were quite good in 2006 and there are numerous ways to measure that. In terms of dollars, yes, the industry did generate record in terms of dollars of profit in 2006. In terms of ROEs there are a couple of ways to look at that. The industry had its best return on equity at about 14 percent. That is the best it has seen since 1988.

While that is very good for property casualty insurers, in fact, that is just about the norm for the Fortune 500 group. Really the industry is just joined the pack after having trailed it for many many years. It is still quite possible actually that the industry will fall behind the Fortune 500 group when all the final numbers are in. That will be the nineteenth consecutive year actually that the industry underperformed the Fortune 500 group.

All in all it was a very good year for insurers in terms of underwriting performance. This is the most remarkable statistic of all. The combined ratio we estimate to be about 94 for the year. That would be the best result since 1955. In fact, there is a possibility it could be down in the 92 range when all the numbers in. That would be the best number since 1948.

What effect did the mild hurricane season have on those results?
Hartwig: The mild hurricane season did have a significant impact in pushing down and making the underwriting results better than they would have otherwise been. But I think too much credit has been given to the absence of hurricanes. Even if we had a normal hurricane year in 2006 we would have still seen a very good year for insurers. Probably a combined ratio perhaps in the 97-98 range.

Now, put that in perspective, that would only be the second underwriting profit the industry has had since 1978. Even with a normal level of catastrophe loss activity, it would have been a good year. That means that the results were robust. That basically every type of coverage, all across the country, was contributing to the industry's bottom line. Along with, of course, robust investment results in 2006.

So lines that would not have been affected necessarily by the mild hurricane season have also looked good?
Hartwig: That is right. Lines such as workers compensation and auto insurance, which aren't really catastrophe prone lines, contributed tremendously to the industry's bottom line in 2006. And helped the industry stay above water in years like 2004 and 2005.

What have insurers done with the profits?
Hartwig: Well what insurers have done is largely reinvest their profits that they earned in 2006. They have also reinvested their unrealized capital gains. So what that means is insurers are going to post their second largest ever increase in policy holder surplus, the best measure of claims paying capacity. We estimate by 12/31/06 that number reached $481.5 billion, which is a new record, but it is important to keep in mind that this is not one sum, one pool of money that is available to pay any mega type claim that arises. It is in thousands of little pots. Each one of those pots represents an individual insurance company. There are even pots within that, that basically represent the individual lines of insurance each of those insurers write. It is not some almost $500 billion that is available to pay some single terrorism loss, some single major hurricane or earthquake.

The Consumer Federation of America has suggested that there is too much surplus?
Hartwig: There is too much surplus in the industry when there is no concern about not being able to meet the claims. We live in an era that is very dangerous. In fact, we are looking at potential claims, from a single event, from an earthquake or hurricane that could easily exceed $100 billion. That would consume more than 20 percent of the industry's total claims paying capacity. Again, that whole 20 percent is not available to pay on that single event. It would be a very difficult event at that level, and of course some terrorist attack scenarios are even worse.

It is also the case, we are a cyclical business. There are times when the industry increases its surplus, there are times when it decreases. For instance, part of the reason for the increase is the buoyant equity markets that we saw in 2006. Well, had it been the case that the stock markets went down or that investments turned south generally as was the case during the 2000-2002 period, we would have seen a surplus decline as we did during that period of time. It is very prudent for insurers to take this time to rebuild their claims paying resources.

The good underwriting results seem to suggest there is more discipline in the pricing these days than years ago.
Hartwig: Right, Typically what we saw at the end of previous hard markets in the 70's or 80's is basically pricing would fall off a cliff. Now pricing has moderated, but there is not right now any information that suggests that we are at the beginning of or about to enter a slippery slope where insurers are simply price cutting to gain market share and don't pay any attention to underwriting performance.

Basically, the price cuts that we are seeing today, generally speaking, are justified by good underlying fundamental results. In other words, what insurers are seeing in workers comp is fewer claims and lower claim costs often times. Same thing in auto insurance. These savings are being passed along to consumers. Insurers can lower rates and at the same time maintain profit margins.

Looking ahead, are the results of 2006 sustainable through the new year?
Hartwig: It is unlikely that the results of 2006 are sustainable. In the sense that we had abnormally low catastrophe losses during a period of time where catastrophe losses are expected to be abnormally high. In and of itself we would expect for some deterioration in underwriting performance. Even if you normalize catastrophe losses and you assume the industry is becoming more competitive, there is more pressure on pricing, we still expect momentum into 2007. I am expecting a combined ratio of 97 or 98 in 2007. That would be a very good result, would generate a healthy ROE for the industry for the second year in a row.

R.I. lawmakers study ways to assist coastal homeowners

A group of Rhode Island legislators examining insurance companies' recent changes to homeowners' policies for coastal areas met recently at the University of Rhode Island's Bay Campus to review a model of the damage that could be done by a major storm in coastal communities in Rhode Island.

At the meeting, G. Dail Rowe, senior research scientist at Accurate Environmental Forecasting Inc. of Narragansett, presented a model to demonstrate the catastrophic possibilities of a major Category 3 storm. The model focuses on one urban area -- likely Newport; one suburban area -- likely a community on the Narragansett Bay like Bristol or the Conimicut section of Warwick; and one coastal area such as Watch Hill or Matunuck.

Following the devastation left along the Gulf Coast by Hurricane Katrina last year, many insurers -- prompted by demands by their reinsurance issuers -- have changed their policies, identifying many more properties than ever before as "at risk" for hurricane damage.

Lawmakers are concerned that as a result, people who live well above sea level, sometimes several miles from the shore, are facing expensive prospects like double-digit premium hikes, deductibles of $20,000 or more, or requirements that they purchase flood insurance or make structural changes to their homes. Insurers are dropping some homes altogether, saying they represent too big a risk.

Several legislators formed an ad hoc committee to examine the matter and possibly develop legislation to protect Rhode Island homeowners from what they say might be any undue insurance costs. The ad hoc committee consists of Rep. Paul W. Crowley (D-Dist. 75, Newport), Rep. Brian Patrick Kennedy (D-Dist. Dist. 38, Hopkinton, Westerly), Rep. Peter L. Lewiss (D-Dist. 37, Westerly), Rep. John Patrick Shanley Jr. (D-Dist. 35, South Kingstown), Rep. Donald L. Lally (D-Dist.33, Narragansett, North Kingstown, South Kingstown), Rep. Eileen S. Naughton (D-Dist. 21, Warwick), Rep. Kenneth Carter (D-Dist. 31, Exeter, North Kingstown), Rep. J. Russell Jackson (D-Dist. 73, Newport, Middletown), Representative-elect Donna Walsh (D-Dist. 36, Westerly, South Kingstown, New Shoreham, Charlestown)

"This is a long, involved process, but we feel that if we are to learn more about severe storms, we need to learn through an extreme model to observe the catastrophic level of destruction that one of these storms could inflict on Rhode Island," said Rep. Crowley.

The committee is looking for a consultant to examine the potential damage a Category 3 storm could do.

The committee has also been drawing on the expertise of several professors at the University of Rhode Island.

The ad hoc committee expects to complete a report for use by a full-fledged legislative commission that is expected to be appointed when the 2007 legislative session begins. Rep. Brian Patrick Kennedy (D-Dist. 38, Hopkinton, Westerly), who leads the House Corporations Committee, is expected to be named chairman.

"We wanted to make sure that we have time to do all the necessary research and develop effective solutions this session, so Rhode Island homeowners will see relief as soon as possible," said Rep. Shanley.

Under new rules, bytes of electronically stored info could have big bite

Insurance agents want to avoid litigation, but it is not always possible. When they become involved in litigation in federal court, it is important for agents and their attorneys to understand the new Federal Rules of Civil Procedure governing electronically stored information (ESI). The rules went into effect on Dec. 1, 2006, and apply to all cases filed after that date, as well to all pending cases to the extent "just and practicable."

Understanding these new rules is important because much of an agent's work is done on computer and transmitted electronically. Most contacts with clients and insurers are probably done electronically (Web sites, applications, e-mail, transaction databases), and computerized records are increasing all the time. Also, there are more types of ESI (databases, Web pages, digitally stored voice mail) and increasing options for storage (servers, Web sites, laptops, notebooks, personal digital assistants, removable media). The amended rules cover the following six areas relating to ESI.

1. Definition of discoverable material
The new amendments introduce the phrase "electronically stored information" to acknowledge that electronically stored information is discoverable. The expansive phrase is meant to include any type of information that can be stored electronically. It is intended to be broad enough to cover all current types of computer-based information, yet flexible enough to encompass future changes and technological developments.

2. Early attention to electronic discovery
The amended rules require the parties to address ESI early in the discovery process, recognizing that early attention is crucial to controlling the scope and expense of electronic discovery and avoiding discovery disputes.

Rule 26(f) expands the list of issues that must be discussed as a part of the early meet and confer process by the parties.

Rule 16(b)(5) adds discovery of ESI as an item that may appropriately be included in the court's scheduling order.

To participate meaningfully in early discussions regarding ESI, agents and their attorneys must first have a basic understanding of the agent's computer systems. There are many issues to consider, including:

• For personal computers, what operating systems are used? What e-mail client? Productivity software? Browsers? Instant messaging?


• What e-mail servers are used?


• Is there a janitorial system for e-mail or a "sweep and keep" policy?


• How are servers organized? By office? By type of data?


• How are file shares on the servers structured? By users? By department, product, service?


• Are internal Web sites used? Collaboration tools? Extranet?


• What voice mail system is used? Is it Internet protocol-enabled? Unified messaging?


• What type of portable devices, including handhelds and removable media, are used?


• What offsite storage locations are used for electronic documents? Is there any third-party hosted data? Outsourcing?


• Can employees save files, e-mails or other data to their desktop or laptop hard drives?


• What are the backup and disaster recovery policies? How often are servers backed up? Is there a policy for recycling recovery media?


• Is there long-term storage for electronic document retention?


• Are employees' local drives backed up? Is it possible for employees to save documents on their personal computers or laptops?


• Do e-mail backups include items in employees' sent or deleted folders?


• What happens when an employee leaves?

If that seems like a lot to discuss, it is. But the new rules require a higher level of understanding of information technology systems. Like anything in life, the more one knows, the better prepared one will be.

3. ESI from inaccessible sources
Some ESI is not reasonably accessible. Under the amended Rule 26(b)(2), a responding party does not need to produce ESI from sources that it identifies as not reasonably accessible because of undue burden or cost. In that case, the responding party must identify the potentially responsive information that it is neither searching nor producing. If the requesting party moves to compel discovery of this information, the responding party would be required to show why the information is not reasonably accessible. Once that showing is made, a court may order discovery only for good cause.

Again, understanding the capabilities of the agent's computer system and having a policy governing how, when and what information is stored is critical.

4. "Safe harbor"
Rule 37(f) states that, absent exceptional circumstances, a court may not impose sanctions on a party for failing to provide ESI lost as a result of the routine, good-faith operation of a system. Good faith in the routine operation may involve modifying or suspending certain features to prevent the loss of information, if that information is subject to a preservation obligation. A party cannot use the routine operation of a system to destroy ESI that it should preserve. The agent must understand what ESI the agency's system will automatically delete and modify by routine operation in order to comply with good faith operation.

5. Format of production
Rule 34(b) addresses the format of production of ESI, and would permit the requesting party to designate the form or forms in which it wants ESI produced. The rule does not require the requesting party to choose a form of production. The rule provides that if a request does not specify a form of production, or if the responding party objects to the requested form(s), the responding party must notify of the form in which they intend to produce the electronically stored material -- with the option of producing either in a form in which the information is ordinarily maintained (its native or application electronic format), or in a reasonably usable form (generally meaning being searchable electronically).

6. Asserting claim of privilege or work product protection
Rule 26(b)(5) created a procedure through which a party who has inadvertently produced trial preparation material or privileged information may nonetheless assert a protective claim as to that material. The pending rule provides that once the party seeking to establish the privilege or work product claim notifies the receiving parties of the claim, the receiving parties must return, sequester or destroy the specified information.

Knowing is half the battle
The amended Federal Rules of Civil Procedure are a call for agents to become better informed about their IT capabilities. Given the sheer volume of electronic documentation that insurance agents work with, it is essential for agents and their attorneys to understand how their computer systems operate to properly handle ESI under the amended Federal Rules of Civil Procedure. When agents and their counsel are comfortable with such information, they will be equipped to handle legal requests for ESI.

The best time to start that education process is now. As always, forewarned is forearmed.

Todd Nunn is a partner in the business litigation practice in the Seattle office of Preston Gates & Ellis LLP. Nunn's practice emphasizes class action defense, complex document production and electronic discovery, insurance coverage and constitutional law. Phone: 206-623-7580. E-mail: toddn@prestongates.com.

How Democratic Congress might approach federal insurance

The Professional Liability Underwriting Society (PLUS) held its international conference in Chicago in late 2006. Moderating the panel was television journalist Forrest Sawyer, a 24-year veteran of ABC, CBS and MSNBC, who targeted his questions to insurance leaders and the Illinois state regulator on the debate over who should regulate--the federal government or the states. Noting that the Democrats now control both Houses in Congress, Sawyer sought input on how that change would impact whether Federal regulation would become a reality.

Sawyer: With a new Democratic majority in both Houses of Congress, what's your take on federal regulation and where it is headed?

Sullivan: As the industry grows and expands, as we globalize, as all business moves more rapidly all the time, frankly some of the states are having a difficult time adapting to those changes. Those factors give rise to a lot of things that are happening in Washington D.C. that are beginning to have a significant impact on our business. No matter whether you come down on the state side, or the federal side, or somewhere in between, you do have to watch carefully what's happening in Washington D.C., because they are very active and will probably become even more active in the months ahead.

McRaith: There's not a lot of nuance to my position. If we are concerned with the profitability of the largest carriers in the country--federal regulation is a great idea. If we're concerned about solvency, consumer protections: it's not something we should consider seriously. The last thing we want is a dual regulatory system where the courts become the "de facto" regulators. That's exactly what we would have and that's exactly what we don't want.

Sawyer: Will the changes in Congress have a small or large impact?

Leib: I just don't think the issues that we're here to talk about fall predictably down party lines. You might think that the Democrats are more inclined to favor centralized federal regulation of the industry. I don't think that is the case. The proponent of the actual federal charter regulation is John Sununu, a Republican. Mike McRaith is from a Democratic platform. So I don't think it's easy to predict the impact of Congressional shifts on our business.

Bowden: My own guess is that Leib is probably right. I don't think an optional federal charter is going to happen quickly because the Democrats have more power. But I do think it doesn't take much to imagine another crisis, whether it's a hurricane season like that last one or another terrorist attack before somebody realizes that the federal government has literally no information about the insurance industry. Yet, Congress has a very substantial interest in both natural disasters and terrorism--that combination that could be very volatile at a federal level.

Sawyer: Why isn't what was just said an argument that the Democrats should press for more involvement in the insurance industry?

McRaith: In terms of where I think there will be a shift, first of all, I think it will be on a state level, not the federal level. Elliott Spitzer is now the governor of New York. New York Attorney General Cuomo is going to be every bit as aggressive prosecuting cases in the industry as Attorney General Spitzer was. Interestingly in California, John Garamendi, a noted and passionate consumer advocate, is now the lieutenant governor and replaced by a Republican. So I think that's going to be interesting changes more on a state level. At the federal level I'm not so smart as to speculate. But I would say that money is ultimately bipartisan. There is a lot of money in the federal charter bill.

Sawyer: From an insurance industry standpoint, does this look like too much meddling and limiting the ability to do business?

Sullivan: The biggest problem for us is that when you take consumer protection too far insurers begin to get hamstrung in the ability to provide products that insureds are seeking. This is where problems begin. That doesn't mean that consumer protection isn't important. It's tremendously important. One of the great strengths of state regulation is that regulators can look at local issues and react quickly.

Dodell: I think there is nothing wrong with it(state system). I do not think the issue is so much who is doing the regulating, but how it is being done. In the environment that a lot of us practice in--we have to be fast both to protect our own capital and also to get products to our customers quickly. We need an efficient system, and the current structure makes it very difficult for us to get products out to the marketplace quickly.

Sullivan: Automobile and homeowners constitute about 50 percent of premium volume in the country. However, many of us have handled relatively few automobile and homeowners coverages. Most of us are heavily involved in dealing with commercial coverages of one sort or another. If you are dealing with a risk that has locations in multiple states, the way things are set at the moment, it is impossible to write a multiple state risk and comply with all the laws because the laws are so contrary. Insurers end up breaking the law somewhere.

Delaware agent groups to merge

The Independent Agents Association of Delaware (IIAD) and the Insurance Agents & Brokers of Delaware (IA&B of DE) have agreed to merge their memberships.

"Our members have clearly told us that they want a single organization to represent their interests in Delaware and our two boards have agreed that we can better serve our members by merging," said Jeff Good, president of IIAD.

"We're very excited about the new organization," said Kevin Nemith, chairman of IA&B of DE board of directors. "Our new voice will be stronger and clearer and our shared strength will create a better package of products and services for our membership."

Good said the newly-merged state organization will maintain affiliations with both the Independent Agents Association of America (IIABA) and the National Association of Professional Insurance Agents (PIA National).

Nemith said both organizations are already at work bringing the two organizations together. Due diligence is underway as well as work on a final governance structure which will be presented to the memberships for a vote in the next few months.

"Understand though," Good said, "that this was not a vote to test the waters. Our two boards are fully committed to making this merger successful for the benefit of all independent insurance agents in Delaware."

Insurer to investigate Vermont diocese's sex abuse

An insurance company for the Roman Catholic Diocese of Burlington, Vermont wants to investigate the church's conduct in 27 cases of alleged child sex abuse by a former priest before paying the costs of litigation associated with them.

The state's Roman Catholic church has sued its insurer demanding it pay its legal fees.

In court papers filed earlier this month, the Minnesota-based United States Fidelity & Guaranty Co. requested a review of how much the diocese knew about allegations that former priest Ed Paquette had sexually abused alter boys in two states before he came to Vermont.

The Diocese agreed to permit the investigation as long as the information remained confidential.

Evidence arose last year that indicated the church knew about the past abuse allegations when it hired Paquette and moved him to two other churches before dismissing him in 1978 following new allegations.

Nine former priests are accused in the 27 lawsuits against the church, and Paquette is named in most of them.

In April, the church settled a Paquette lawsuit for $965,000 and then put its 128 parishes in individual charitable trusts to protect them from other lawsuits.

The insurer has agreed to pay the legal fees in the Paquette cases but says it does not have to cover the cost of financial settlements if it can prove the church knew of and allowed Paquette's abuse.

Insurers gain access to Mass. diocese abuse files

A judge has ordered the Roman Catholic Diocese of Springfield, Mass. to release thousands of pages of documents in a dispute between the church and seven of its insurance carriers over settlements with clergy sex abuse victims.

The diocese sued the insurance companies to get them to cover the claims of 57 people who allege they were sexually abused by priests.

The insurers argued in court that more than 7,500 pages of documents from the church will enable them to see how the diocese handled the cases and whether it fulfilled its obligation to protect the public.

In his ruling, Berkshire Superior Court Associate Justice John A. Agostini rejected the diocese' arguments that documents were protected from disclosure under the First Amendment, priest-penitent privilege, religious autonomy and psychotherapist-patient privileges, The Republican newspaper of Springfield reported.

The judge, however, agreed with the diocese that some documents were protected by attorney-client privilege.

"Speaking for myself, I think you could say we were very pleased," Adam Simms, a Boston attorney for one of the companies, North Star Reinsurance Corp. of Stamford, Conn., told the newspaper.

The Springfield diocese settled claims from 46 other claimants for more than $7 million in 2004.

N.Y.'s Interboro back in business

New York officials announced that the Interboro Mutual Indemnity Insurance Co. is on track to emerge in early 2007 from three years of insolvency and subsequent rehabilitation and return to the marketplace as a private sector company. Interboro was placed in rehabilitation on April 6, 2004.

Mineola-based Interboro primarily wrote private passenger auto, homeowners and general liability coverage, as well as a small amount of commercial auto and workers compensation coverage.

Most companies declared insolvent end up in liquidation. Interboro's successful rehabilitation means the company will continue as a going concern, preserving close to 70 jobs, according to outgoing Superintendent of Insurance Howard Mills. The investor group scheduled to become the new owners has committed to keeping the jobs and the company's operations on Long Island, according to officials.

The New York Liquidation Bureau, which secured the investor group, managed Interboro during the period of rehabilitation. The liquidation bureau was able to successfully set the stage for the first demutualization of an insurance company in rehabilitation in New York.

This will end with the transformation of Interboro into a stock company with stock to sell to the investor group, subject to court approval on or after an upcoming Feb. 1 hearing.

At the Feb. 1, 2007 hearing, the court will be asked to approve the conversion to a stock insurer (the demutualization), the acquisition by the investor group to bring in the capital to render the company solvent and the discharge of the company from rehabilitation thereby allowing it to commence business again as a stock insurer.

Commercial insurers' stocks reflect 4th quarter profits, calm storm season

Stock Prices:
Commercial insurers breathed a sigh of relief in the fourth quarter as the 2006 hurricane season officially ended with only minor losses, a dramatic contrast from a year ago. Insurers' stock prices reflected the calm hurricane season, benefiting from profits particularly on business in catastrophic areas that had experienced large rate increases after the devastation caused by hurricanes in 2005. St. Paul Travelers (NYSE:STA) led the way in stock price performance during the fourth quarter, up 15 percent, and for the full year of 2006, up 23 percent. Through the third quarter of 2006, St. Paul Travelers reported net income of approximately $3 billion, compared to $1.4 billion for the same period a year ago. ACE Ltd. (NYSE:ACE) also had strong stock price results, up 11 percent, CNA Financial Corp. (NYSE:CNA), up 12 percent, and Ohio Casualty Corp. (Nasdaq:OCAS), up 16 percent during the fourth quarter of 2006. In contrast, Cincinnati Financial Corp. (NYSE:CINF) experienced the smallest gain in stock price for the fourth quarter and year among commercial insurers. Their stock traded down 5 percent in the fourth quarter and was up a slight 4 percent for the year. Although Cincinnati Financial does not have as much coastal exposure as other commercial insurers, the company was affected by storms in the Midwest, including a hail storm in April. Another storm in October caused heavy hail damage in central Ohio, resulting in approximately $35 million of losses for policyholders. The company is expected to report a record year for catastrophe losses in 2006.

M&A Activity:
Only a handful of deals that involved commercial insurers were announced during the fourth quarter. The largest occurred on Dec. 13 when QBE Insurance Group Ltd. agreed to acquire Praetorian Financial Group from Hannover Re for $800 million. Praetorian will add almost $1.4 billion in gross premium income on an annualized basis. The portfolios acquired are complementary to QBE's existing business in the United States. The acquisition will be funded from internal excess capital and short-term debt. Praetorian is based in New York and writes specialist property and casualty insurance programs through various managing agents (78 percent) and specialty retail agency business through brokers (22 percent). Praetorian was created by Hannover Reinsurance Group in 2005 to selectively renew specialty program business from its U.S. subsidiary, Clarendon Insurance Group. The combined operating ratio for the business written into Praetorian for 2005 was 81.7 percent and the projected combined operating ratio for 2006 is 78.1 percent. Praetorian currently reinsures 50 percent of its business through quota share agreements to Hannover Re and its affiliates. QBE intends to cancel these reinsurance arrangements at closing and inject approximately $200 million of additional capital into Praetorian.

Capital Raising:
Approximately $1.6 billion of new capital was raised by commercial insurers during the fourth quarter of 2006. First Mercury Financial Corp. (NYSE:FMR) announced the completion of its initial public offering of 11,161,764 shares of common stock at a price of $17 per share, which includes the exercise in full of the underwriters' option to purchase 1,455,822 shares of common stock. The net offering proceeds to the company were approximately $174 million. First Mercury offers products in the specialty commercial insurance market in the United States.

LMC Capital LLC is a national investment banking firm focused exclusively on the insurance industry. Services include highly-qualified, industry-specific advisory relating to mergers and acquisitions, capital raises and valuations. Contact: 704-943-2600, by e-mail at Info@LMCCapital.com or visit www.LMCCapital.com.

Pricing discipline key to P/C insurers' repeat performance in 2007

>Insurers delivered strong results for 2006; now the question becomes can they remain disciplined?

Property casualty insurance industry earnings may have peaked in 2006 but that doesn't mean 2007 will see a reversion to reckless price cutting and relaxed underwriting, according to experts observing the industry.

Instead, insurers should be able to build on the momentum of 2006 to deliver another profitable year in 2007, maintained panelists at the annual Property/Casualty Joint Industry Forum in New York City recently.

In a session entitled View from the Outside Looking In, they all agreed that 2007 and even 2008 are looking good for property casualty insurers as long as they continue to price risks properly.

Dr. Robert Hartwig, president and chief economist of the Insurance Information Institute, noted that 2006 was a record year for the P/C industry, with net income after-taxes at nearly $60 billion, according to latest estimates. The industry also delivered its best return on equity in about 20 years--in the range of 14 percent.

"What is driving that is the industry's very strong underwriting performance," said Hartwig. "We are looking at potentially the best combined ratio in 60 years, maybe in the low 90s."

This was due partly to the huge drop in insured catastrophe losses, which went from $62 billion in 2005 to just $8 billion in 2006.

Looking ahead, Jay Gelb, senior vice president and senior non-life insurance equity analyst, Lehman Brothers, said he expected industry earnings to remain at robust levels in 2007 and 2008, though perhaps lower than 2006 levels. He estimated returns of 10 percent to 13 percent through 2007.

"Overall the industry's returns probably peak in 2006 and part of that is because we had very low catastrophe losses last year," noted Gelb. However, he added that the strength of the industry's balance sheet would allow it to sustain these results going forward.

At the same time, Gelb noted, given the good combined ratios being achieved in both personal and commercial lines, competition is likely to heat up.

Personal lines favored
Except for catastrophe losses, the homeowners insurance line has been performing well for years, noted personal lines expert Brian Sullivan, editor, Risk Information, Inc., who added that auto insurance is also looking good.

He maintained that the good results could be attributed to insurers' impressive commitment to adequate pricing. "We have seen more pricing discipline, particularly in personal lines, in the last five years than I have seen in my career. I think it is because no one knows what to do," said Sullivan.

The lack of price-cutting makes for a rather unusual market for those who have been through previous cycles. "Everyone wants to grow profitably but the question is how. I don't think anybody has been in a situation where we are not cutting prices to grow market share," Sullivan added. "This would change only if someone was to do something stupid, or there is an unexpected claims shock."

Matthew Mosher, group vice president of Global P/C Ratings, A.M. Best Co, observed that there has been some market softening, particularly in auto, but he also believed the industry was maintaining its pricing discipline.

"In 2006 the industry saw a level of profitability it had not seen in quite a long time, but we are still not seeing the level of rate cutting that would suggest undisciplined pricing," said Mosher.

"There is also a much greater focus on risk in the industry than ever before, which will help minimize the impact of any rate softening," he noted.

Mosher described the market as experiencing some "price settling but not discount pricing" as might have been the case in years past.

Mosher agreed with Sullivan that to the extent personal lines prices are going down they are doing so based on real risk factors influenced by demographics and safety advances. "There is more focus on risk than ever before," he maintained.

Hartwig noted that the P/C industry is expecting net written premium growth of just 2 percent in 2007.

In that environment of slow organic growth, it is possible that insurer merger and acquisition activity could pick up, according to Gelb.

Hartwig suggested another possible trend might be East Coast regional insurers moving into the Midwest. But Sullivan questioned whether this is really happening. "You don't see the price cutting which would indicate more competition there," he commented. "There's a lot of talk about it but I'm not sure it's happening."

Commercial trends
As for commercial lines, Gelb said risk managers can expect a continuing stable market, with pricing relatively flat and terms and conditions restrictive. The exception would be for any wind-exposed property.

In the liability arena, Hartwig described the tort system as "remarkably better" thanks largely to the efforts of some states. Gelb said he thinks the liability picture will continue to improve while Mosher said he is concerned that Democrats' control of Congress might slow progress in this area.

Mississippi view
George Dale, Mississippi insurance commissioner, cautioned that despite the industry's collective record results in 2006, each line of business has to stand on its own by state. "We in Mississippi don't want to be paying for forest fires that happen in southern California and neither do they want to be paying for hurricanes that hit Bay St Louis, Mississippi."

Panelists discussed the ongoing wind/water litigation issues relating to Hurricane Katrina, agreeing that a resolution on these issues would be beneficial to the industry in the long-term.

Dale noted that while negotiations are underway with some parties relating to a large number of impending lawsuits, as yet no agreement had been reached. "My concern is to be sure that the rights and settlements of the insureds are protected and that they don't just get a coupon and the lawyers run off with all the money."

Billions at stake as Supreme Court weighs credit notice standards

Two large insurers defended their decision not to tell customers about their less-than-perfect credit, as the Supreme Court debated the legal standard for finding the companies liable under federal law.

During an hour of argument, several justices seemed taken aback at the magnitude of a federal appeals court ruling. Under that ruling, Geico Corp. and Safeco Insurance Co. would have to notify nearly all their customers that they aren't getting the best rates because their credit scores aren't the highest.

The consumers sued Geico and Safeco because the companies used a less-stringent policy and thus notified far fewer customers.

The case casts a spotlight on the business world's vast credit reporting system, which has compiled files on 200 million Americans.

Congress passed the Fair Credit Reporting Act in 1970 to protect consumers from flaws in the system and improve the reliability of reports.

Chief Justice John Roberts pointed out that federal law entitles consumers to a free copy of their report. Scott Shorr, a lawyer representing the customers who sued, said alerting the consumer at a critical time when money is at issue is important so that the customer can send for a copy and check it for accuracy.

If the appeals court ruling stands, Safeco would be required to send notices of "adverse actions" to 80 percent of the company's new customers, said Maureen Mahoney, an attorney defending the two companies. At Geico, 10 percent of new customers qualify for the top tier of credit.

Justice Stephen Breyer said implementing an expansive notification requirement would be like the "boy who cried wolf" and that notices likely would "go right in the wastebasket."

The major issue in the case is the legal standard for finding that the insurance companies willfully violated the 37-year-old credit reporting law. The 9th U.S. Circuit Court of Appeals said the standard is reckless disregard for the statute's notification requirement. The companies say the standard is higher -- actual knowledge on the part of the companies that they are breaking the law.

Pending lawsuits against various insurance companies on behalf of consumers over the notification issue potentially involve billions of dollars, Mahoney told the justices.

Shorr, the lawyer representing consumers, said internal Geico documents show the company initially interpreted the law "the same way we do."

Roberts asked how Shorr could argue the insurance companies had acted willfully to violate the law. Shorr pointed to a letter by the Federal Trade Commission staff saying the requirement is to be interpreted broadly.

The letter isn't even binding on the commission, Roberts replied.

Copyright 2007 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Homeowners win key water v. wind Katrina claims case against State Farm

Insurer then settles next case without going to trial; U.S. Rep. Taylor calls for Congressional probe of industry claims practices

In a Hurricane Katrina claims decision watched closely by the insurance industry, a federal judge in Mississippi ruled that State Farm failed to properly settle a claim involving both wind and water damage from Hurricane Katrina.

In a directed verdict, U.S. District Court Judge L.T. Senter in Broussard v. State Farm ruled that the homeowners needed to only prove a direct physical loss, while the burden was on State Farm to prove what damage was caused by water versus wind or a combination of the two, a burden he ruled the insurer failed to meet.

Senter ordered State Farm to pay $223,000 in actual damages for the home and belongings of Biloxi couple Norman and Genevieve Broussard, before turning the case back to the jury to decide on the punitive damages. The jury came back with $2.5 million in damages against the insurer for its handling of the Broussard's claim.

After State Farm refused to pay for any damage to their demolished home, the Broussards sued to obtain full insured value of their home plus $5 million in punitive damages. They maintained that winds from Katrina destroyed their house.

State Farm, however, denied any payment, arguing that all the damage was caused by storm surge waters and therefore excluded from coverage.

"We did not expect this decision," said Kim Brunner, general counsel for State Farm. "Testimony of expert witnesses showed that damage to the Broussard home was overwhelmingly caused by water and not wind."

However, Senter pointed to testimony of one of State Farm's witnesses who "testified that it was more probable than not that the Broussards' dwelling sustained at least some wind damage to its roof."

State Farm also expressed disappointment with the jury's finding the company is liable for punitive damages in the amount of $2.5 million. The company will likely appeal.

However, eight days later, State Farm settled a similar case with another Mississippi policyholder whose lawsuit was scheduled to be tried next week in federal court. State Farm settled with Richard Tejedor of Long Beach for undisclosed terms.

State Farm attorneys had asked for the Tejedor trial to be postponed, but Senter refused.

State Farm attorneys argued in court papers that a "barrage of publicity" about the Broussard's multimillion dollar verdict may have tainted the jury for Tejedor's case.

State Farm also is the defendant in the next four Katrina cases set for trial in Gulfport. The first is scheduled to start March 12.

State Farm has said it has closed 98 percent of the claims it received arising from the storm and has paid out over $1.1 billion in claims in Mississippi.

The Broussard ruling has stirred a call for a Congressional probe. "This ruling is just the latest example of insurance companies engaging in a systematic effort to avoid paying Katrina victims for destruction caused by wind damage," claimed Rep. Bennie Thompson, D-Miss., chairman of the House Homeland Security Committee.

"Working with other committees of jurisdiction, I will be investigating the assertions that insurance companies are wrongfully passing the costs of Katrina onto an already-burdened federal flood insurance program," he said.

The Associated Press contributed to this report.

Demotech named official Insurance Journal Research Partner

Financial analysis and actuarial services firm Demotech, Inc. has been designated an official Research Partner of Insurance Journal. The Columbus, Ohio-based company will provide research, actuarial and statistical support for the Insurance Journal editorial team and participate in joint reports on industry performance and financial results.

"This partnership gives us access to a team of professionals who truly understand the insurance industry and its data and can provide statistical analysis and guidance when we need it for articles and special reports," said Mark Wells, president, Wells Publishing Co., publisher of Insurance Journal.

"Our team can offer insight and analysis that will complement the reporting and publishing capabilities of the Insurance Journal team," said Joseph Petrelli, president, Demotech. "We are pleased to be able to work closely with a publication that is respected and well-read throughout the industry."

One of their first joint research projects will be the unveiling in the Feb. 12, 2007, issue of Insurance Journal of the "Super Regional" report. Demotech will also collaborate with the Insurance Journal on a quarterly marketplace pricing index and other pertinent market indicators.

Since 1985, Demotech Inc. (www.demotech.com) has been providing independent Financial Stability Ratings® of property and casualty insurers and title insurance underwriters. Its services also include statements of actuarial opinion and pricing assistance.

Study: 20% of customers consider switching insurers after collision

Nearly one out of every five customers considers switching insurance companies after a collision claim, according to a new the J.D. Power study.

"Filing an insurance claim is a critical moment of truth that shapes a customer's overall perception of their insurer," said Jeremy Bowler, senior director of the insurance practice. "Often, this is the first time they truly become familiar with their insurance policy. Misconceptions about what is covered by the auto policy, or what to expect during the claim and repair processes can lead to significantly lower customer satisfaction, which in turn increases the likelihood that the customer may consider switching carriers in the future."

The 2006 Collision Repair Satisfaction Study finds that 7 percent of customers chose not to file a claim with their insurer after their most recent collision. Common reasons include: the insurance deductible was more than the cost of the repairs; concern that the carrier would increase the premium after the claim; or at the advice of their insurance agent.

The factors that drive customer satisfaction include: claims/estimation (62%); body shop (36%); and rental car (2%). Claimants whose vehicles are totaled are significantly more satisfied if their insurer gives them a clear explanation of why the vehicle is totaled and how they calculated the amount.

"The difference in satisfaction is primarily driven by how well the insurer manages the claims process, which is significantly longer for claimants experiencing a total loss," said Bowler.