D.C.'s revised captive laws in effect
Two changes to captive insurance laws passed by the Council of the District of Columbia went into effect on March 14, 2007. Supporters see the changes as giving captives more flexibility and making the District a more inviting environment for these alternative self-insurance organizations.
The Captive Insurance Amendment Act updates and expands the Captive Insurance Company Act of 2004 on the formation and structure of protected cell captive insurers, providing greater flexibility to captive owners, managers and regulators regarding the status and actions of protected cell companies.
The Special Purpose Financial Captive Act provides securitization of risk and allows access to capital markets through special purpose captives, which promises to make the District's captive laws more compact and easy to use.
The changes were hailed by Insurance Commissioner Thomas E. Hampton. "The establishment of a regulatory scheme for securitizing insurance risks in a captive and the amendments to our protected cell statute will put the District ahead of other jurisdictions in our captive insurance regulation and attract more captive insurance companies to the District," said Hampton.
Since 2001, when the District enacted its captive insurance law, it has licensed more than 70 companies, including those owned by such organizations as the American Society of Association Executives, General Motors and the Port Authority of New York and New Jersey.
The Captive Insurance Council of the District of Columbia, worked with DISB on the new laws.
"Now our captive regulations will be the most advanced in the United States in terms of access to capital investment and flexibility in forming protected cell insurance companies," said Larry Smith, chair of CIC-DC. "Each captive insurance company that locates in the District has a multiplier economic effect through its business presence, its capital deposits and the use of local professional service providers."
N.J. court: sexual assault preclusion not automatic
A New Jersey appeals court recently ruled that while an insurer is freed from providing liability coverage when an insured commits sexual assault on a young child, the insurer could have an obligation when the insured attacker is a minor.
Three years ago a 13-year-old boy sexually assaulted a younger girl who was staying in his home. The victim's family sued the attacker's parents who owned the home, which was insured by Shelby Mutual Insurance Co.
Shelby Mutual sought a declaration that it was not obligated to provide liability coverage under the homeowner's policy. Shelby cited what is known as the inferred intent rule, which assumes that the adult knew the victim would suffer injury. The policy contains an exclusion from liability coverage for bodily injury "which is expected or intended by one or more 'insureds' even if the 'bodily injury' ... is of a different kind, quality or degree than expected or intended."
Shelby lost in lower court and appealed. On March 26, a three-judge panel in the Appellate Division decided that the inferred intent rule, which precludes as a matter of law insurance coverage for a sexual assault committed by an adult against a young child, does not automatically apply as a matter of law when the sexual assault is committed by a minor under 14 years of age. Instead, the panel ruled, a factual determination must be made on a "case by case basis to determine the attacker's subjective intent."
Writing for the court, Judge Joseph Lisa explained why:
"We take no issue with the proposition that sexual molestation of a young child is inherently harmful. But for that harm to be excluded from coverage the wrongdoer must intend or expect to cause it. In our view, insistence on universal application of the inferred intent rule, without regard to the age of the wrongdoer, substitutes arbitrariness for fidelity to the rationale underlying the rule."
The court acknowledged the public policy concern of not wanting to encourage such conduct but said providing insurance proceeds to an innocent victim also had to be weighed.
"Our holding does no violence to the insurance contract. If, indeed, J.T. subjectively intended or expected to cause harm to P.G., coverage will be precluded.
"If, however, he did not intend or expect to cause such harm, any resulting harm would have been 'accidental' within the meaning of the policy terms, thus obligating Shelby to provide the coverage required by its policy," the opinion concluded.
Virginia bartenders test drive anti-DUI program
The men and women who usually have a sympathetic ear for customers will be on extra alert for drinkers who drive.
The nonprofit Foundation For Alcohol Responsibility has selected Harrisonburg, Va., and its bartenders, as the first to test what could be a national training program to keep intoxicated patrons off the road.
The goal is to reduce underage drinking through cooperation with police, bars and university administrators, according to foundation President Jill Kerr. The nonprofit is supported by alcohol distributors.
"They wanted to get the beverage industry behind an initiative that's not anti-alcohol, but teaches responsible consumption," Kerr said.
Since the fall, Kerr has met with bar owners, law enforcement authorities and university officials to start the program, which will operate in Harrisonburg for five years. During the first year, Kerr says FAR will give up to $100,000 in training materials to city restaurants. A James Madison University marketing class will create materials encouraging young adults to drink responsibly.
The foundation picked Harrisonburg because it's near its home base in northern Virginia, is a university town, and already has The Community Coalition on Alcohol Abuse.
Chris Clark, manager at the Artful Dodger, said the training covers what bartenders should already be doing. "If we can't help them, we're doing a disservice to the customers," Clark said. "We don't want people (leaving) and getting DUIs."
In addition to training, Clark says FAR will provide the bar with a breath-testing machine. He also expects to receive a machine that will detect fake IDs.
Big awards unlikely for pet owner
Pet owners are not likely to get much compensation if they individually sue pet food-maker Menu Foods over the death of a dog or cat, although they might fare better if they joined in a class action suit, experts say.
Most state laws consider pets to be personal property, according to Carl Tobias, a law professor at the University of Richmond. "With animals, all you get is the value of the property," he said. "There are no emotional damages."
In early March, Menu Foods recalled 60 million containers of its wet pet foods, sold under nearly 100 brands, after cats died during company taste tests. It is not clear how many pets may have been poisoned, although anecdotal reports suggest hundreds if not thousands have died.
In Connecticut, attorney Bruce Newman has filed a class-action lawsuit against Menu Foods on behalf of Lauri Osborne of Plymouth seeking unspecified damages.
Menu Foods has offered to pay veterinary bills but has admitted no wrongdoing.
Jack Hall, a product liability lawyer from Pittsburgh, said the owner of a pet used for breeding or of a specially trained animal could argue for higher compensation. Hall said pet owners would fare better if they joined in a class action suit. Still, Tobias said even a class-action suit could be tricky. "The factual variations in the cases will make it very difficult to form a class action," he said.
Car insurance taxes to help fund masive Virginia transit plan
Virginia Gov. Timothy M. Kaine has proposed $3 billion in borrowing for transportation projects, one-fifth more than Republican legislators sought, using existing taxes on car insurance premiums to pay off debt.
Kaine, a Democrat, also left intact regional transportation provisions for the state's most populous and gridlocked regions -- northern Virginia and Hampton Roads -- allowing them to generate up to about $440 million and $215 million, respectively.
His amendments to the transportation funding also reduce the burden on localities and give local leaders in those regions with options for tax and fee increases.
Counting the more than $500 million the statewide plan would provide annually and if all the local taxes are enacted in the regional plans, Kaine's amendments could yield about the same $1.2 billion annual total for transportation that the GOP plan projected.
Republicans, who dominate the House and Senate, expressed guarded support for Kaine's amendments. "The (Republican) caucus certainly reserves the right to look at it, but the general tenets, I think, are very good. The big stuff looks very good," said Del. M. Kirkland Cox, R-Colonial Heights, who delivered the GOP response.
Sen. Kenneth W. Stolle, R-Virginia Beach, said Kaine can count on broad GOP support in the Senate as well. "We are hopeful we can garner broad support among the Republican Caucus and the entire Senate," he said.
With all 140 seats in the House and Senate up for election in November and Democrats sensing an opportunity to overtake the GOP majority, the transportation issue dominated the 2007 legislature.
Kaine's most conspicuous change to transportation funding boosts borrowing from the $2.5 billion through 2016 in the plan as it passed the General Assembly to $3 billion.
Kaine's amendments call for repaying the debt using about $150 million a year from one-third of the existing tax on automobile insurance premiums. He said it was a much more reliable source of revenue for repaying bonds than the tax paid to record deeds, wills and lawsuits that the GOP plan pledged for debt repayment.
Lawmakers already had agreed to earmark that source of money for transportation.
"We do have an experience, though, in knowing how much those auto insurance premiums produce," Kaine said at a news conference. "We could look at the past 20 years of that and easily do a projection for what they'll produce in the next 10 or 15 years."
Hartford Specialty Risk's Sullivan named Conn. insurance chief
Connecticut Governor M. Jodi Rell is naming a claims administration executive, Thomas R. Sullivan, to be the state's insurance commissioner, replacing Susan Cogswell who is stepping down from the top regulatory post she has held for almost seven years.
Sullivan, 45, most recently served as senior vice president of Specialty Risk Services, LLC, a wholly owned subsidiary of The Hartford Financial Services Group, Inc. Specialty Risk Services is a large property-casualty third party administrator for workers' compensation and general liability claims with 2006 revenues of $252 million. It also provides auto, general and product liability, integrated disability, claim administration and risk management services nationwide.
Sullivan graduated from Western Connecticut State University and earned a Master's degree in Business Administration from the University of Connecticut.
"He has a keen awareness of the industry as a whole -- the competition, market segments, industry trends, customers, as well as the legal and regulatory environment. I am confident Tom will be an excellent insurance commissioner," said Gov. Rell.
Sullivan's nomination must be confirmed by state lawmakers.
Cogswell tenure
Last December, Rell accepted the resignation of Commissioner Cogswell. Cogswell is not leaving the department, however. She has accepted the position of deputy insurance commissioner and will focus her energies on health care access and affordability issues.
Cogswell was appointed by former Gov. John Rowland in June 2000 to be insurance commissioner. She was the state's first female commissioner.
Rell kept Cogswell in the post in July, 2004 when she was sworn in to succeed Rowland, who resigned amid a corruption investigation.
During her tenure Cogswell has overseen and approved a number of industry transactions including the merger of Travelers Property Casualty Corp. with The St. Paul Companies and Prudential's acquisition of CIGNA Life Insurance Co. In November, 2000, she approved the sale of Aetna Life Insurance Co. to Ing Groep, N.V
Mass. auto report offers map to move state to limited price competition
Also, advises against assigned risk pool change at this time and against erasing subsidies or allowing credit scoring
A special auto insurance study group appointed by Massachusetts Gov. Deval Patrick has recommended modest changes to introduce limited pricing competition to the state's highly-regulated auto insurance system, while warning against a proposed overhaul of the state's high risk pool at this time.
Although the study group found that introducing "some form of competitive rating is essential to attract and retain insurers willing to write this line of business in the Commonwealth," it stopped short of recommending fully competition-based pricing.
Instead, the state should retain its state-set rates while considering ways to grant insurers some pricing flexibility, the study group concluded in its the report. This flexibility could come in one of two ways: permit insurers to deviate up and down from state-approved rates within certain limits, so-called flex bands, or retain state-set rates for compulsory coverages only and give insurers more flexibility to price optional coverages themselves.
The panel advised in favor of keeping existing rate subsidies for urban and inexperienced drivers and against allowing the use by insurers of credit scores, occupation or education criteria in pricing.
It urged a delay in creation of an assigned risk plan until a 2006 redistribution of residual market agents is assessed, although the study group's members did not rule out introducing an assigned risk plan down the road.
The group also urged more cost containment efforts and quicker approval of new endorsements and extra coverages.
Patrick convened the study group on Jan. 26, after instructing the Division of Insurance to halt the implementation of a new assigned risk plan advanced by the Romney Administration to replace the existing agent-assignment high risk system.
He asked the group to "identify opportunities within the existing system to increase competition and reduce costs while maintaining equity."
Some of the recommendations would require legislative actions, while others could be accomplished though regulatory changes.
Issues of concern
The study group members included Chair Daniel Crane, director of the Office of Consumer Affairs and Business Regulation; Deirdre Cummings of the consumer group, MassPIRG; Paul Doherty, a Springfield attorney whose firm specializes in business law and tax; Paula Gold, vice president and chief regulatory counsel from Plymouth Rock Assurance Corp.; Patrick Lee, executive vice president of Trinity Financial; Joseph Meador, professor in the College of Business Administration Northeastern University; and Susan Scott, senior vice president and general counsel of The Premier Insurance Co. of Mass.
The members agreed that introducing "some form of competitive rating is essential to attract and retain insurers willing to write this line of business in the Commonwealth."
There are 19 insurers now writing Massachusetts private passenger automobile insurance market. More than 60 percent is written by companies that write either exclusively or primarily in Massachusetts.
The study group members tried to balance the desire to attract more insurers by introducing some form of pricing competition with a desire to leave intact a number of features of the current system that discourage new entries into the marketplace.
Never be ideal
"Massachusetts may never be an ideal market for every company but due to the state's strong demographics, the Massachusetts market should be made more attractive to a greater number of insurers, including direct writers. However, all members agreed that attracting and retaining insurers should not be accomplished at the expense of consumers," the report says.
The study group members concluded that the following initiatives were among those that might prove effective in preventing future company withdrawals or insolvencies, and bring additional carriers to the state: a prohibition on gaming the system and advances toward parity and transparency in the residual market; investment in cost-containment measures; greater flexibility in setting rates; and implementation of a streamlined approval process for enhanced coverages and endorsements.
In introducing competition into pricing, the group agreed that competition should be introduced "gradually to allow the market to adjust and to measure the impact on drivers who least can afford insurance."
With regard to rating variables, the group insisted that rating factors should be limited to the current set that includes years of driving experience, number and severity of at-fault accidents, traffic violations and territory. "Massachusetts should continue not to use other factors such as: credit scores, homeownership, level of education and occupation as rating factors," the report makes clear.
The study group final report recommends continuing the state's existing express subsidies for urban and inexperienced drivers in auto rates for both the voluntary and residual markets. "These types of subsidies were universally viewed as serving important social goals. Furthermore, they exist to a certain degree in most other states," notes the report.
The group suggested that good drivers under the Safe Driver Insurance Plan might not be receiving sufficient rate relief through discounts offered because the system has built in subsidies for "bad drivers."
Assigned risk plan
Massachusetts currently has a unique residual market system that relies on assignments of agents and is administered by Commonwealth Auto Reinsurers. The study group recommended that new Insurance Commissioner Nonnie Burnes delay implementing any new assigned risk plan until "she is able to meaningfully evaluate the results of the redistribution" of Exclusive Representative Producers (ERPs) that occurred in 2006, and other rule changes underway at CAR.
"Members agreed that the current private passenger automobile insurance residual market, administered by CAR, has been a source of great frustration to regulators and unfairness for many insurers. The system's reliance on agent assignments undermines the statutory requirement of a fair and equitable distribution of residual market share among carriers. CAR's current mechanism is widely viewed to be unduly complex and susceptible to gaming the system. As a result, it is perceived to provide an unfair advantage to companies who are experienced in the market and willing to invest in 'playing the game,'" says the report.
Previous administration
Former Insurance Commissioner Julianne Bowler cited similar concerns over the existing residual market system in advancing an assigned risk plan during her tenure despite opposition from Commerce, Arbella and other domestic carriers. But her plan was halted when Patrick was sworn in to replace her boss, Mitt Romney, as governor in January. Patrick urged a rethinking of the assigned risk plan and named the study group.
While advising against implementing an assigned risk plan to replace the current system now, the study group did report that it "generally accepts an assigned risk plan as a fair and equitable mechanism for distributing risk to a residual market" and that the "current system at CAR may not be a long term solution."
Study group members said they hoped that new rules at CAR together with the redistribution of ERPs "might result in a level playing field, and eliminate the need for an assigned risk plan," however the did not rule out an eventual turn to an assigned risk plan.
"If inequities continue, the commissioner should give serious consideration to an assigned risk plan. Members suggested that an assigned risk plan would be more likely to be successful if it were implemented as part of a comprehensive reform initiative, or at least after some steps to introduce competitive rating have been tested," says the report.
Cost-containment and education
The report recommends the implementation of initiatives to reduce accidents and claims. These included beefing-up law enforcement; identifying dangerous intersections and encouraging municipalities to use local aid to make improvements; examining seatbelt laws and whether cell phones add to accident rates; and encouraging enhanced technology for traffic enforcement such as intersection cameras.
Finally, the study group urged better consumer education. Specifically, it suggested that the Web site for the insurance departmen allow consumers to search for price quotes.
Interest groups' reaction
The American Insurance Association (AIA) said it was encouraged that the group recognized the need to add competition to the market. "AIA believes a vibrant, competitive marketplace will best serve the state's drivers, and we look forward to working with the administration to implement elements that will inject competition into the market," said John Murphy, vice president, AIA Northeast Region.
But the insurer group is sorry the assigned risk plan is not being implemented at this time.
"Assigned risk plans are the standard in 43 other states. There is no risk in moving to an assigned risk plan," AIA's Murphy concluded.
Consumer group executive and study group member Cummings of MassPIRG called the report "good news for consumers."
While domestic insurers Commerce and Arbella opposed the move to the assigned risk plan, Liberty Mutual, a major insurer based in Boston, supported it and continued its support even after the study group's report.
"We are especially pleased that the report acknowledged that the involuntary residual market is 'unduly complex and susceptible to gaming.' We urge Insurance Commissioner Burnes to take swift action to eliminate this inequity by implementing the previously approved assigned risk plan," said Edmund F. Kelly, Liberty Mutual Group chairman and chief executive officer, in a statement.
Kelly said Gov. Patrick deserves credit for focusing on ways to improve the state's auto insurance system for consumers. "We welcome the task force's report, which includes many aspects that will directly improve competition among the state's auto insurers," he said.
Summary of Mass. auto insurance recommendations
In its report, Gov. Patrick's auto insurance study group set forth these key recommendations:
1. The insurance commissioner should examine alternatives to move towards competitive rating using flex-bands, while maintaining affordability for all drivers, minimizing disruption to the market and maintaining consumer protections. This may include, but is not limited to, allowing price flexibility for all coverages or continuing with a "fixed and established" system for compulsory coverages while allowing price flexibility in optional coverages.
2. Existing rate subsidies for urban and inexperienced drivers should be maintained.
3. Rating factors should be limited to the current rating factors: years of driving experience, number and severity of at-fault accidents, traffic violations and territory. Massachusetts should continue not to use other factors such as: credit scores, homeownership, level of education and occupation as rating factors.
4. The commissioner should delay implementing any assigned risk plan until able to meaningfully evaluate the results of the 2006 redistribution of exclusive representative producers (agents) and subsequent revisions to the rules of Commonwealth Automobile Reinsurers. If inequities continue, the commissioner should give serious consideration to an assigned risk plan.
5. The commissioner should implement a streamlined approval process to allow insurers to set rates and seek approval for endorsements providing enhanced coverages or premium reductions to the standard auto policy.
6. The Safe Driver Insurance Plan should be examined for opportunities to more accurately reward safe driving.
7. Cost containment initiatives should be implemented to reduce accidents and the number and cost of claims.
8. Steps should be taken to provide consumers with more information to assist them in purchasing insurance.
Conn. self-service businesses face new liability standard
The Connecticut Supreme Court has adopted a new legal rule making it easier for plaintiffs to sue businesses in the state for negligence alleged in self-service operations.
Customers who are injured at a business previously had to demonstrate that the owner or operator was on notice that a hazard existed and failed to fix it. The new rule puts the burden on Connecticut self-service businesses to recognize the possibility of foreseeable hazards that they should take reasonable steps to address, according to unanimous ruling.
The new rule reflects the rise in self-service business in which customers, not just the business and its employees, have access to work areas.
"It's a change in the law only because the law was stuck in the early 20th century instead of the 21st century," said Steve Ecker, the lawyer for the plaintiff who was injured in a fall at a self-service salad bar at a Stop & Shop supermarket in Fairfield. "It used to be that Mr. Johnson would say, 'Would you like some grapes?' and he'd go select them out of a bin and hand you a bag. That no longer is what occurs."
The court emphasized that an injured customer still has the burden of proving that the business owner failed to take adequate steps to safeguard the premises.
A spokesman for Stop & Shop refused to comment.
Maureen Kelly, a customer who slipped on a piece of lettuce at a Stop & Shop in November 1999, tore her rotator cuff and said she has since experienced chronic pain.
The store manager testified in Fairfield Superior Court that the area at the salad bar was precarious, with customers often dropping food. Store policy required an attendant to be on duty at the salad bar and for a report to be filled out each time the area was swept, he said. The report prepared by the store in connection with Kelly's fall was completed nearly a month later with no report of sweeping.
Kelly lost her negligence case at the trial, failing to persuade the judge to adopt a rule that a business have advance notice of a hazardous condition. Under the previous rule, Kelly would been required to prove that the store knew there was lettuce on the floor and neglected to remove it reasonably quickly.
Supreme Court Justice Richard N. Palmer said in the decision that self-service operations have the potential to create hazards caused not only by an oversight by employees of the business, but by customers.
"Because self-service businesses are likely to achieve savings by virtue of their method of operation, it is appropriate to hold them responsible for injuries to customers that are a foreseeable consequence of their use of that merchandising approach unless they take reasonable precautions to prevent such injuries," he wrote.
Justice Peter Zarella and Appellate Judge Ian McLachlan wrote separately that a new rule of premise liability should not cover all self-service operations, but only those that are improperly designed or operated.
Copyright 2007 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Insurers fight impression their big profits are at claimants' expense
The headline numbers were eye-popping: Allstate reported a record $5 billion profit for 2006. State Farm Insurance's profit climbed 65 percent. St. Paul Travelers' earnings rose sixfold in the fourth quarter, American International Group's rose eightfold.
A year and a half after Hurricane Katrina devastated the Gulf Coast, profits at the nation's major property/casualty insurance companies soared -- and are expected to be strong again in 2007, according to estimates by the A.M. Best Co. rating agency.
Critics charge that the insurers are doing well financially by shorting the people who bought their products -- including hundreds of consumers who still haven't gotten settlements for their Katrina claims.
The industry, in turn, denies taking advantage of consumers, crediting its growing profitability instead to fewer storms last year and improved business procedures.
One of the harshest critics, J. Robert Hunter, director of insurance for the nonprofit Consumer Federation of America in Washington, D.C., accuses the nation's insurers of using Katrina and other major hurricanes to try to justify "overpricing insurance, underpaying claims and reaping unjustified profits" at the expense of homeowners and business owners. Hunter added that he expects the industry to continue to do exceptionally well because it is pushing more risk and cost onto policyholders.
"They're making homeowners and business owners take on more of the risk through high deductibles, caps on replacement costs and other limitations," he said. "And they're refusing to renew tens of thousands of homeowner and business property policies, especially along the coasts."
For consumers, the situation can be frustrating and financially burdensome. Joyce Ridgeway, whose house in the Esplanade Ridge neighborhood of New Orleans was damaged when Katrina hit in August 2005, is still waiting for a final settlement from Lloyd's. She's so far received just $30,000 toward the $85,000 needed for living expenses and repairs.
Ridgeway is frustrated that she's still living on the property in a trailer provided by the Federal Emergency Management Agency. "I've waited so long. It just doesn't seem fair."
A Lloyd's spokesman said that if a claim couldn't be resolved locally, it could be referred to the company's dispute resolution department. He added: "We have not received any formal complaint on this matter so are unable to comment any further."
Industry defense
Industry experts argue that the property/casualty insurers did amazingly well in handling Katrina and the other hurricanes in 2004 and 2005. Robert Hartwig, president and chief economist with the New York-based Insurance Information Institute, points out that the industry has so far paid $41 billion on 1.74 million claims for Katrina alone, and for the combined 2004-2005 hurricane season, about $81 billion in insured hurricane-related losses.
The industry's profits rose in 2006 in part because there were far fewer storms, Hartwig said, adding, "But the good results have more to do with fact that insurers saw good results in auto insurance, workers' comp and a variety of other areas and in states that don't have a coastline."
A.M. Best estimates that the property/casualty industry earned $68 billion in 2006, up from $49 billion in 2005, and that profits could total $62.2 billion this year if the storm season is relatively benign. As a result, the policyholder surplus grew to a record of nearly $500 billion in 2006, A.M. Best estimates.
There also has been a change in how the industry actually makes its profits. Insurance companies traditionally made most of their money by investing premiums, mainly in bonds. But increasingly, they're relying on underwriting profits.
Critic Hunter says that insurers have sharply reduced the percentage of premiums paid out in claims. He estimates payouts fell below 70 percent of premiums in 2006, far below the 80 percent in the 1990s.
Greg Heidrich, senior vice president for policy research with the Property Casualty Insurers Association of America, said it's unfair to look at the payout ratio for a single year or a short period of time. He said that property insurers in Louisiana in 2005 paid out $20 billion in claims, or the equivalent of 20 years worth of premiums collected in the state. After that, Heidrich said, "you want those companies to build back their capital base so they're in a position to pay claims that could be at extraordinary levels in other years."
He also said that more than 95 percent of all the hurricane claims have been settled, "so I have to reject out of hand the notion that profits in 2006 are driven by people not paying claims." At the same time, he said, he "understands the concerns" of those still waiting for settlements.
Genio Staranczak, chief economist with the PCIAA, said that insurance companies also have become better at buying reinsurance. He estimated that 45 percent of the 2005 hurricane season losses were borne by reinsurers.
Eileen A. Frank, a New York insurance broker who grew up in Louisiana and maintains an office in New Orleans, said that while many hurricane claims have been settled, many others still are pending. "Payments that should have been made without question are still not being delivered," she said.
Meanwhile, it's become harder for those in coastal states to get affordable property insurance coverage. Frank, who is a member of the Independent Insurance Agents and Brokers of New York, said that insurers wary of more-active storm seasons don't want new customers or are not renewing old ones.
A policy she handled recently for a multifamily house cost the owner $6,000, up from less than $2,000 before Katrina. Frank said it had a deductible for wind damage equivalent to 5 percent of the value of the house.
Copyright 2007 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Two charged in bicoastal restaurant insurance brokerage scheme
A Canadian man has been extradited to the U.S. to face trial on charges that he swindled $7 million from the victims of a fraudulent commercial insurance policy scheme, according to Acting New York Insurance Superintendent Eric R. Dinallo.
Ian Stuart-Smith, 56, is now being held in New York's Metropolitan Correctional Center pending trial in Manhattan Federal Court. A pre-trial hearing is scheduled in May.
According to the insurance department's frauds bureau, Stuart-Smith posed as a New York wholesale insurance broker authorized to sell insurance for various underwriters such as Lloyd's of London. Officials allege that Stuart-Smith, who used several aliases, sold fraudulent policies to hard-to-insure bars and restaurants, including several on Long Island.
The charges allege that Stuart-Smith operated purported brokerages named Surplus Lines Inc., Heritage Inc. and Rupertsland Insurance Intermediaries Ltd., located in New York and Ontario, Canada.
In addition, early last month, a San Francisco man, Richard Peterson, 66, who allegedly had business ties with Stuart-Smith, was sentenced to 10 years for insurance fraud. Peterson was involved in the sale of approximately $6 million worth of fake insurance policies that he falsely claimed were underwritten by Lloyd's of London, according to the California Department of Insurance.
CDI investigators said Richard W. Peterson (also known as Robert James) claimed to specialize in the placement of insurance for restaurants and bars. Between 2000 and 2003, Peterson issued policies he said he placed with underwriters at Lloyd's and obtained through two New York insurance brokerages: Surplus Lines Inc. and Heritage Inc., CDI said. When a broker tried to confirm coverage, he found the policies were fraudulent. Lloyd's advised CDI that the company did not receive any applications for insurance or any premium funds from the bogus policies.
Peterson pleaded guilty on July 19, 2005 to wire fraud and engaging in the business of insurance after having been convicted of a felony. At sentencing in Manhattan, U.S. District Judge Denny Chin also ordered Peterson to pay restitution of $6.6 million and ordered the forfeiture of $6.6 million, as well as Peterson's interest in four properties (two buildings in San Francisco, a condominium in Las Vegas, and another in the Cayman Islands).
Peterson illegally operated under the names United Restaurant Services; United Restaurant Services Corp.; United Restaurant Services Cooperative; United Restaurant Services Inc.; United Restaurant Insurance Services; and California Restaurant Specialty Cooperative Inc. located primarily in San Francisco.
Although his broker/agent license was revoked by CDI in 1999 for similar activities, Peterson misrepresented himself as a licensed insurance broker able to place insurance coverage.
Mass. extends deadline for residents to buy health coverage
The board that oversees Massachusetts' landmark health insurance law voted last month to delay key elements of the plan by a year and a half to give residents and businesses a chance to ramp up their health care coverage to meet more stringent requirements.
Residents would still need some kind of health care coverage by July 1 or face tax penalties next year.
But hallmarks of the plan -- including the requirement that everyone be covered for prescription drugs -- wouldn't kick in until January 2009, under the preliminary regulations approved.
Officials said the extra 18 months are needed to give employers, workers and insurers more time to adopt what the state defines as "minimum creditable coverage" -- or the most basic health insurance that the state will recognize under the law.
"It's important that we do not unduly disrupt the situations of hundreds of thousands of people who currently have insurance," said Leslie Kirwan, chairwoman of the board and Gov. Deval Patrick's top budget official.
Kirwan said the first goal is to make sure virtually all Massachusetts residents have some insurance by July 1, as required by the law, before mandating what should be included in those plans.
The regulations, when given final approval, would make Massachusetts the first state to require a range of insurance features, including drug coverage. All regulations approved Tuesday now face a public comment period, with a final vote scheduled for June.
"This is another giant step forward," said Jon Kingsdale, executive director of the Commonwealth Health Insurance Connector, which oversees the law. "This is really not about employers vs. individuals vs. taxpayers."
While virtually any licensed health plan will count for the July 1 deadline, by January 2009 only those plans that meet the state's new basic requirements will be considered adequate to avoid future tax penalties.
Businesses had pushed for the extension, saying they needed more time to comply with the law.
"That gives us more time to educate employers and individuals about what's being recommended here," said Richard Lord, a board member and president of Associated Industries of Massachusetts.
Kingsdale also said part of the reason for pushing back the deadline was that businesses have staggered enrollment periods for insurance.
The board also voted to require prescription drugs as part of the minimum coverage over the objections of some employers, who said the drug coverage put too much of a financial burden on businesses.
Individuals would face a maximum $250 deductible annual on prescriptions, with insurers picking up the rest of the cost. The maximum annual deductible for families would be $500. Individuals and families would still be subject to copays.
"It's a wonderful standard to be setting for the rest of the nation," board member Celia Wcislo said.
The board backed away from imposing a ban on lifetime benefit caps on coverage. There are about 360,000 people in Massachusetts whose health plans include a lifetime benefit limit, typically between $1 million and $5 million.
The ban had been recommended by a committee of the board last week, but it opted instead to allow the lifetime caps for now.
Some businesses said the board's definition of what constitutes minimum acceptable coverage was too strict.
Casey Tincier, comptroller for Gibson Engineering in Norwood, said the health plan the company currently offers wouldn't meet the state's definition because its deductibles are too high. She said January 2009 is too tight a deadline.
"For a lot of employers, it's not going to be enough time. It's a very tight timetable," she said. "Our employees like our plan."
Some health care advocates called on lawmakers to delay the tax penalties.
"Good citizens of the commonwealth must not be punished for being poor," said the Rev. Hurmon Hamilton of the Greater Boston Interfaith Organization.
Copyright 2007 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
N.Y. insurer compensates credit report breach victims
New York Attorney General Andrew M. Cuomo has negotiated a settlement affecting nearly 400 New York consumers whose credit reports were unlawfully accessed by an insurance company.
Under the settlement, Administrators for the Professions Inc. (AFP), a New York insurance company, is paying $229,600 in compensation to those consumers.
According to Cuomo, between November 2000 and March 2006, AFP obtained more than 800 consumer credit reports on approximately 400 different individuals from the credit reporting agencies Equifax and TransUnion. An overwhelming majority of the consumers' credit reports were acquired for purposes not permitted by the federal and state Fair Credit Reporting Acts.
Headquartered in Manhasset, N.Y., AFP is the management company, conducting all day-to-day operations for Physicians' Reciprocal Insurers (PRI), a medical malpractice writer.
Credit reports may be legally obtained by agents such as potential credit grantors, employers, or insurers, or with a consumer's permission. AFP, however, illegally provided credit reports for use as investigative tools in civil litigation, for use in connection with insurance claims, and for satisfying requesters' personal curiosity, according to officials.
Officials said credit reports were also unlawfully attained for investigators trying to locate parties in matrimonial and other personal matters, and for individuals looking to acquire information about an estranged spouse.
"Companies with access to a consumer's credit report must be vigilant in ensuring that such access is not abused or used unlawfully. Consumers' privacy must be protected, and the integrity and confidentiality of a consumer's credit report must be preserved," Cuomo said.
As a result of AFP's unlawful acquisition of consumers' credit reports, the credit files of those consumers inappropriately reflected that a credit "inquiry" had been made. The inclusion of such an inquiry in the credit files of these consumers could adversely affect their credit score or result in other negative consequences.
Under the settlement with the attorney general, AFP agreed not to acquire a consumer credit report unless it is for a permissible purpose as set forth in federal and state law. AFP agreed to pay $229,600 in compensation for consumers whose credit reports were illegally accessed; those consumers whose credit reports were obtained on one occasion will receive $600, while consumers whose credit reports were accessed on two separate occasions will receive $1,000. AFP will also pay the State of New York $85,000 for penalties and $15,000 for costs related to the investigation.
In addition, AFP will provide the list of all affected consumers to Equifax and TransUnion, and direct those credit reporting agencies to delete all references to the illegal inquiries from each consumer's credit file.
Wanted: Appraisal of Elvis items to relieve 'suspicious minds'
A Delaware judge has granted a California businessman's request to order an insurance inspection of a collection of Elvis Presley memorabilia sitting in a Nevada airport hangar pending resolution of an ownership dispute.
Richard Long is battling Nevada residents Robert Gallagher and Betty Franklin, with whom he formed a partnership to buy and exhibit the collection. Long claims that Gallagher and Franklin have refused to surrender access to the memorabilia.
"They never had any ownership, but they had possession," said David Finger, a Wilmington attorney representing Long.
The collection, known as "Dr. Nick's Memories of Elvis," consists of items once owned by Dr. George Nichopolous, once a personal physician to the rock star who died of heart disease and prescription drug abuse in 1977 at his Memphis mansion. Among the items is a black doctor's bag used by Nichopolous and containing prescription bottles bearing Presley's name. The collection also includes jewelry, guns, a laryngeal scope used to examine Presley's throat, and a glass nasal douche "used to irrigate Elvis' sinuses before each show."
"Taken as a whole, it does have a lot of personality to it," Long said outside court.
Gallagher and Franklin were no-shows at the most recent Chancery Court hearing, despite being granted a continuance in February. "I didn't get the notice in time," Gallagher said by telephone from Nevada.
Vice-chancellor Leo Strine Jr. said Gallagher, who has represented himself, notified the court that he was trying to hire a Delaware lawyer.
Strine denied the request for another continuance but gave Gallagher and Franklin 30 days to hire an attorney.
In the meantime, Long's request to have the collection inspected for insurance purposes is "entirely reasonable," Strine said.
Strine said both parties should have lawyers present when the insurance inspection is conducted, and that it be videotaped. He also encouraged the plaintiffs and defendants to try to find a way to talk to each other.
"I'm trying to alleviate 'suspicious minds,"' quipped the judge, who tentatively scheduled a trial for early fall.
According to the lawsuit, Nichopolous, who has collaborated with Gallagher and Franklin in past exhibitions of the collection, agreed last year to sell it to them and Long for $1 million. Long claims that he agreed to put up the $1 million, and that Gallagher and Franklin, who claimed to have a "half interest" in the collection, agreed to assign all their rights to a limited liability company he controls.
But according to the lawsuit, the sale never developed and plans to exhibit it at the Stardust casino in Las Vegas fell through. In a letter, Franklin blamed Long for "tremendous losses" because of the cancellation.
In response to a question from Strine, Finger said Long is willing to walk away from the deal "in a New York minute" if he can recoup his money, and also would consider auctioning off the collection to settle the dispute
Copyright 2007 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Top 10 data loss disasters in 2006
Data recovery firm says no matter how bad the loss, there's a chance for recovery
Data recovery experts worldwide from Minneapolis, Minn.-based Ontrack Data Recovery chimed in for a poll to name the top 10 remarkable data loss disasters in 2006. While the data disasters could have been catastrophic for the companies and their customers, the company reported that all of its top 10 data disasters recovered at least some, if not all, of the lost data for its clients.
10. Helicopter Hi-jinks -- Employees of a global telecommunications company dropped a laptop computer while working from a helicopter in Monaco. Vital files on the laptop were retrieved and sent through an FTP server for a meeting in Hong Kong the very next day.
9. Wash the Data Away -- On a flight from London to Warsaw, a passenger packed his laptop and toiletries in the same bag. Unfortunately, his shampoo leaked and flooded everything in the bag, including the laptop, causing the hard drive to fail. Engineers had to clean the hard drive and other components in order to get the drive functioning.
8. Not a Jolly Occasion -- British comedian Dom Joly, presenter and co-creator of Trigger Happy TV, dropped his laptop, damaging a hard drive that held 5,000 photos, 6,000 songs, half a book he was writing and all of his old newspaper columns. Having read the tragic story in a newspaper column written by Mr. Joly, Ontrack contacted him and was able to recover everything.
7. Rescuing the Research -- A leading UK research university suffered a catastrophic data loss after a fire broke out in the computer science department on a weekend morning, damaging computer equipment with smoke and water from the fire department's efforts. Thirty computers were rescued and more than a terabyte of data recovered.
6. Beware of Bananas -- A customer left an old banana on the top of his external hard drive which proceeded to seep its contents into the drive, ruining the circuitry. The drive would no longer run, but was the drive was cleaned and the circuit board repaired so the drive would spin long enough to recover his data.
5. Hard Drive Speed Bump -- It happens every year, but people continue to leave computers and hard drives in the path of moving vehicles. This year, data was recovered from a laptop that was run over by a "people mover" at the airport, and more data recovered from several external hard drives stuffed in a backpack that was backed over by a truck.
4. Tenth Time's the Charm -- A man reformatted his hard drive not once, not twice, but 10 times before he realized there was some valuable information he needed recovered.
3. Finding Nemo -- A customer returned from the vacation of a lifetime in Barbados to discover that he couldn't access any of the snorkeling photos he took on his new "waterproof" digital camera. It seems the camera wasn't as waterproof as advertised, so all of his prized tropical fish photos had to be rescued.
2. Squeaky Drive Gets the Grease -- A university professor heard a squeaking noise from the drive of his new desktop computer. To solve the annoying problem, he opened the case and sprayed the inside of the drive with WD-40. Although successful in stopping the drive from squeaking, his actions also prevented the drive from booting up. But the drive was saved and his data recovered.
1. Sock it to Me -- Although the circumstances of the original data loss were unremarkable, the problem was intensified when the customer shipped his drive to Ontrack in a pair of dirty socks. The old socks didn't provide the necessary protection during shipping and the resulting damage made the recovery more challenging than normal. Next time, he'll stick with bubble wrap.
Ontrack Data Recovery can be found at: www.ontrack.com.
Bipartisan flood insurance 'modernization' bill boosts borrowing, maximum limits
Agents generally support legislation, but insurers caution changes could result in additional costs
U.S. Reps. Judy Biggert, R-Ill., and Barney Frank, D-Mass., introduced bipartisan legislation to revamp the National Flood Insurance Program that boosts the program's borrowing authority to $21.5 billion, increases the maximum coverage limits and provides for business interruption coverage.
Backers of H.R. 1682, the Flood Insurance Reform and Modernization Act of 2007, say it will increase accountability, eliminate unnecessary federal subsidies, and update the flood insurance program to meet the needs of today.
The bill seeks to address a number of weaknesses in the NFIP that some say were exposed by the unprecedented 2005 hurricane season. In an effort to make the program more actuarially sound, the NFIP phases out subsidized rates on vacation homes and second homes. Under this bill, small business owners will be eligible to purchase business interruption coverage in order to meet payroll and other obligations in the event of flooding.
Also, for the first time since 1994, the bill updates maximum insurance coverage limits for residential and nonresidential properties. The current NFIP coverage limits are $250,000 for a residential structure, $100,000 for contents, and $500,000 for a commercial structure. The legislation would raise limits for homes from $250,000 to $335,000; for contents from $100,000 to $135,000; and for businesses from $500,000 to $670,000.
The bipartisan bill is also sponsored by Reps. Earl Blumenauer, D-Ore., Gary Miller, R-Calif., Gene Taylor, D-Miss., Richard Baker, R-La., Doris Matsui, D-Calif., JoAnn Davis, R-Va, Maxine Waters, D-Calif. and Ginny Brown-Waite, R-Fla.
"This bill has been very carefully drafted and has passed out of the House before," said Rep. Frank, chairman of the House Committee on Financial Services. "It gives members an unusual chance to respond to the concerns of those who are pressing to reduce government expenditures and those who want to enhance environmental protection."
"The 2005 Gulf Coast hurricanes showed the nation how important the National Flood Insurance Program is to the average homeowner," said Rep. Biggert, ranking member of the House Financial Services Subcommittee on Housing and Community Opportunity. "We must act to strengthen and pull the program into the 21st century and before the next major disaster hits. The program needs to provide a financial safeguard for homeowners while protecting the interests of taxpayers. This bill strikes the right balance."
Bill provisions
Under the NFIP, which is administered by the Federal Emergency Management Agency (FEMA), flood insurance that could not be purchased in the private marketplace is made available to homeowners, renters and business owners in more than 20,000 communities across the country.
The bill seeks to improve accountability and financial responsibility at the NFIP. FEMA is required to report to Congress on the financial status of the NFIP and conduct a thorough review of the nation's flood maps. The bill makes the updating and modernization of flood maps an ongoing process, and calls for greater disclosures to consumers about flood insurance.
In addition to boosting NFIP's borrowing authority to $21.5 billion from $20.775 billion, the bill increases the amount FEMA can raise policy rates in any given year from 10 percent to 15 percent.
In order to help ensure that those homeowners who should have flood insurance do have flood insurance, the bill increases the fines on lenders who do not enforce the mandatory flood insurance policy purchase requirement for those who live in a floodplain and hold a federally-backed mortgage.
In addition to providing for optional business interruption coverage, the bill calls for additional living expenses coverage, optional replacement cost coverage for contents and optional finished basement coverage.
Agents approve; insurers cautious
The legislation met with approval from agents, while insurers reacted more cautiously.
The Independent Insurance Agents and Brokers of America noted the legislation incorporates many of the provisions it has recommended, including the higher maximum limits and business interruption coverage.
"Hurricanes Katrina and Rita clearly showed that homeowners and businesses need higher coverage limits by the NFIP in order to properly insure their properties," said John Prible, Big "I" assistant vice president for federal government affairs. "An increase in the maximum coverage limits will better allow both individuals and commercial businesses to insure against the damages that massive flooding can cause, and we're grateful that this increase was included."
IIABA did not make a specific dollar recommendation for raising coverage limits, but instead recommended that Congress raise them to "correspond with modern-day real estate prices and to consider periodic adjustments to reflect inflation," Prible noted.
While agents generally applauded the bill, insurers cited some concerns.
"Certainly, it is imperative that we address the solvency of the NFIP, both in the short term and in the long term, because this is a vital, necessary program for consumers," said Ben McKay, senior vice president, federal government relations for the Property Casualty Insurers Association of America (PCI). "A number of the bill's provisions work toward those goals, by increasing the borrowing authority in the short term and enhancing mitigation efforts and homeowner outreach for the long term. But we must be careful not to cancel out those positive steps by creating additional costs for a program that is already drowning in debt."
Of particular concern to insurers is a provision that would triple the time period, from 60 to 180 days, for policyholders to file proof of loss. This provision "could add significant costs both immediately and in the future, with such additional costs ultimately to be borne by taxpayers," according to PCI.
PCI cited the increase in borrowing authority, increased funding for mitigation programs and mapping updates, and increased outreach to encourage the purchase of flood insurance as positives however.
A.M. Best cites 15 P/C insurers as financially impaired in 2006
Seventeen U.S. insurance companies became financially impaired in 2006, despite a respite for property/casualty insurers from two consecutive turbulent hurricane seasons and more diversified asset portfolios among life/health insurers.
That is according to two new A.M. Best Co. special reports, "2007 Annual U.S. Life/Health Impairments" and "2007 Annual U.S. Property/Casualty Impairments."
The property/casualty report found 15 insurers in those lines of business became impaired last year, a rate of 1-in-233 companies.
While any impairment can be a hardship to policyholders and employees, 2006's impairment rate is half the historical rate of the past 38 years. So far in 2007, A.M. Best has identified one public impairment -- Vanguard Fire and Casualty Co. Florida. Regulators placed that company in rehabilitation in January. Vanguard Fire and Casualty was never rated by A.M. Best.
The majority of last year's impaired property/casualty companies were affiliated with either Poe Financial Group or Vesta Insurance Group.
Of the two life/health companies identified as impaired in 2006, one is a known confidential supervision. The other impairment is Security General Life Insurance Co., which was issued a cease-and-desist order by the Oklahoma Insurance Department last September. It was placed in rehabilitation in November. The company was not rated by A.M. Best at the time of impairment. 2006's impairment rate of 1-in-769 life/health companies continues a seven-year trend of below-average impairment rates.
"We have a circumstance with confidential supervision," said John Williams, senior business analyst at A.M. Best. "The states take action to try to prevent problems for companies that they see in financial trouble. We picked up three additional impairments for 2005 and there's a fair shot that you'll see a fair jump in the 2006 numbers as we go forward -- enough that they won't be the lowest numbers on record."
A.M. Best designates an insurer financially impaired as of the first official regulatory action taken by an insurance department. That marks the point when an insurer's ability to conduct normal insurance operations is adversely affected, capital and surplus have been deemed inadequate to meet legal requirements, or the company's general financial condition has triggered regulatory concern. The financially impaired companies identified in these studies might not technically have been declared insolvent. The definition of financially impaired is broader than that of a Best's Rating of E (under regulatory supervision), which is assigned only when an insurer is no longer allowed to conduct normal ongoing insurance operations.
Study claims U.S. 'tort tax' amounts to $865 billion cost each year
America's legal system imposes an economic cost of more than $865 billion, or more than $9,800 per family, every year, according to a new study released by the Pacific Research Institute (PRI), a free-market think tank based in San Francisco.
This figure is 27 times more than the federal government spends on homeland security, 30 times what the National Institutes of Health dedicate to finding cures for deadly diseases, and 13 times the amount the U.S. Department of Education spends to help educate America's children.
The authors of "Jackpot Justice: The True Cost of America's Tort System" calculated that the nation's tort system imposes a yearly "tort tax" of $9,827 for a family of four and raises health care spending in the U.S. by $124 billion.
According to the study's lead author, Dr. Lawrence J. McQuillan, unlike previous studies, Jackpot Justice calculates both the direct and indirect costs of America's legal system.
These include not just the direct cost of annual damage awards, plaintiffs' attorney fees, defense costs, and administrative costs from torts but also the indirect cost of the legal system's impact on research and development spending, the cost of defensive medicine, the related rise in health care spending and reduced access to health care, and the loss of output resulting from deaths due to excess liability.
"America's legal system doesn't just transfer wealth from companies to personal injury lawyers," said Dr. McQuillan. "It also changes behavior in economically unproductive ways. Any true estimate of the economic cost of our tort system must include these dynamic, negative-spillover costs."
Among the report's findings
The $865 billion annual cost of America's tort system is equivalent to the total yearly sales of the entire U.S. restaurant industry.
Every day, the American economy takes a $2.4 billion hit to sustain its legal system.
More than 51,000 U.S. jobs have been lost due to asbestos-related bankruptcies alone. Employees at these bankrupted companies have lost $559 million in pension benefits.
The liability system increases the cost of many risk-reducing products and services and health care services, making them less accessible, and in some cases unavailable to consumers. PRI estimates that more than 114,000 people would be alive and working today, but are not due to inefficiencies in the tort system over the last two decades.
The practice of "defensive medicine" by litigation-fearing physicians increases U.S. health care costs by $124 billion per year and adds 3.4 million Americans as uninsureds.
American companies suffer over $367 billion per year in lost product sales because spending on litigation curtails investment in research and development.
Lawsuits against American corporations generate an annual loss of $684 billion in shareholder value. Half of all Americans own stock either directly or indirectly through 401(k)'s or pensions.
According to another study cited by PRI, the U.S. spent 2.2 percent of its GDP on tort costs, compared to 0.7 percent for the United Kingdom, 0.8 percent for Japan, and 1.1 percent for Germany. The authors project that America wastes $589 billion per year on excessive social tort costs, equivalent to the total annual output of Illinois, compared to competing foreign countries.
"An efficient tort system provides proper incentives to firms to produce safe products in a safe environment and ensures that truly injured people are fully compensated for their injuries," said Dr. McQuillan. "Through tort reform, the U.S. can become a more favorable place to invest human, physical, and financial capital -- the ingredients for self-sustaining economic growth and a rising standard of living for all Americans."
For the full study see www.pacificresearch.org.
Insurers advise Congress private markets should handle most disasters
But mega-cats need a public-private partnership, first responders and industry agree
The best way for the federal government to help property owners recover from a natural disaster is to let private insurers do what they know, except in the case of a megadisaster, when federal aid would be needed. That was what insurer representatives told the House Financial Services Subcommittee on Housing and Community Opportunity, which held a hearing on whether the country needs a national disaster plan.
According to Chuck Chamness, president and chief executive officer of the National Association of Mutual Insurers, for the vast majority of natural disasters, government need not be involved. "We believe the private insurance, reinsurance, and capital markets can serve as the predominant source of risk management for natural disasters -- unless it's a mega disaster."
For mega catastrophes, a coalition of first responders, emergency management experts, businesses agreed with insurers that a comprehensive public-private, federal-state partnership is needed to protect against a massive hurricane or earthquake.
"Catastrophe protection and preparation is a nationwide priority that must be addressed immediately, before the next catastrophe strikes," according to Robert W. Porter, executive director of ProtectingAmerica.org.
However a catastrophe comparable to the 1906 San Francisco earthquake could potentially exceed private market capacity, Chamness said. "To prepare for a disaster of this magnitude, it is appropriate for policymakers to consider whether government programs should be created to supplement the supply of private-sector capacity," Chamness testified.
American Insurance Association President Marc Racicot urged Congress to take a holistic approach to addressing the problems posed by natural catastrophes.
"The reality is that there are no quick fixes or easy answers to the very difficult challenges we face," Racicot said.
"Large natural catastrophes are a national economic problem, not simply a local insurance problem," said Florida Insurance Commissioner Kevin McCarty, who also chairs the National Association of Insurance Commissioner's Catastrophe Insurance Working Group. "Congress and the states need to work together to develop a comprehensive plan today to better manage and mitigate the natural catastrophic events of tomorrow."
AIA's Racicot outlined specific measures that Congress and state legislatures can take to increase preparedness for and expedite recovery from devastating natural disasters. The proposals include measures to protect people and property in harm's way; regulatory and legal reforms to improve the stability of the insurance market; tax incentives for individuals to take a greater role in disaster preparation and response; and National Flood Insurance Program reforms.
To the extent government gets involved for megadisasters, such programs would need to be carefully designed to avoid undermining the private insurance market and "distorting public perceptions of the risk associated with living and doing business in disaster-prone areas," according to NAMIC.
"The question lawmakers ought to be asking is, 'What mix of policies will maximize the private sector's ability to provide property insurance in disaster-prone areas while minimizing the risk associated with living and doing business in these areas?'" asked Chamness.
Study: homeowners more volatile than private passenger auto
The homeowners insurance line was three times more volatile than private passenger auto during the 14-year period 1992-2005, due in large part to the active 2004 and 2005 Atlantic hurricane seasons, according to a recent study by Aon Re Global.
The study shows that the private passenger auto line experienced the lowest volatility during that period, followed by the auto physical damage, commercial auto and workers' compensation lines. Excluding catastrophe losses, the homeowners line has a risk level comparable to the commercial auto line. Liability lines and medical malpractice also have significantly above average volatility.
Aon Re's Insurance Risk Study quantifies the systemic risk for each line of business, representing the risk to a large portfolio from non-diversifiable risk sources such as: changes to market rate adequacy and underwriting terms and conditions; misestimating plan loss ratios; frequency and severity trends; weather-related losses; legal reforms and court decisions; level of economic activity and macroeconomic factors.
For large books of non-cat-exposed business, systemic risk is the major component of underwriting volatility.
The report examined volatility in nearly two dozen lines including commercial multi peril, other liability (occurrence and claims made), fidelity and surety, and medical malpractice.
The Insurance Risk Study applies sophisticated techniques from risk theory to a database of National Association of Commissioners' Annual Statement data from accounting years 2001-2005 for 1,875 individual U.S. groups and companies. The database, covering all 21 Schedule P lines of business, contains more than 800,000 observations.
Judge rules Spitzer suit may continue; Liberty Mutual not giving up fight
Liberty Mutual has vowed to continue its court fight against charges begun by former New York Attorney General Eliot Spitzer that it engaged in anti-competitive bid-rigging and broker compensation practices after a judge declined the insurer's bid to dismiss the attorney general's suit.
New York Supreme Court Judge Bernard Fried ruled late last month that the state's suit could go forward against Liberty Mutual subsidiaries that do business in New York, although he did agree that Spitzer's office had no jurisdiction over Liberty Mutual's Boston-based holding company and dropped that entity from the suit.
"Liberty Mutual is both pleased and disappointed with the court's ruling," John Cusolito, Liberty Mutual vice president and manager for external relations, said in a statement. "We are pleased that Liberty Mutual Holding Co. was dismissed from the matter. We are disappointed that the court did not accept our substantive arguments."
Cusolito said the court case will continue. "We continue to believe that the matter needs to be resolved through the judicial process. This is the first step in that process and we fully expect that we will prevail eventually."
Unlike American International Group, Zurich, ACE and other insurers that have settled similar charges, Liberty Mutual Insurance Group decided last May to fight allegations of anti-competitive practices brought against it by the attorneys general of New York and Connecticut.
The Boston-based insurer has maintained that charges regarding improper commissions and bid-rigging are untrue and overblown and has refused to settle with the states. Last May, Liberty Mutual said it had been unable to reach a resolution and believed the states' settlement demands were excessive.
The insurer took its stand following the filing of complaints by then-New York Attorney General Eliot Spitzer and Connecticut Attorney General Richard Blumenthal. The complaints described alleged cooperation of Liberty Mutual employees from 2001 through 2004 in a bid-rigging scheme.
The complaints also found fault with Liberty Mutual for paying contingent commissions -- or what the attorneys general call "kickbacks" and "payoffs" -- to insurance brokers and independent agents.
The case is now being pursued by Spitzer's successor as attorney general, Andrew Cuomo.
A number of other insurers agreed to alter their commission payment practice to settle with the states. But Liberty Mutual has defended its compensation practices as appropriate and lawful. As for the bid-rigging charges, Liberty Mutual has not denied that former employees engaged in bid-rigging but insists it is not a common practice as alleged.
