Maryland agents get notice relief
Maryland insurance agents are applauding the General Assembly for relieving them of liability in the delivery of notices about flood and homeowners insurance.
The Senate and House of Delegates unanimously passed companion bills (Senate Bill 790/House Bill 1106) that remove legal liability from insurance agents to produce and deliver flood and homeowners insurance coverage notices. As a result, insurance companies, not insurance agents, will be required to deliver customer notices regarding flood and homeowners optional coverages.
Insurance agents will only deliver notices to the extent that they are directed to do so by the insurance companies they represent, according to the Insurance Agents & Brokers of Maryland (IA&B).
IA&B Chairman Tony Bennett said the legislation corrects a liability situation for agents that never should have surfaced.
"We do not believe that the original intent of the law was to place a legal burden on agents, and with the passage of these amendments, we are one giant step closer to protecting agents from this unintended consequence of the law," Bennett explained.
According to Bennett, the legal liability was inadvertently forced upon agents by provisions placed in the state's flood and homeowners notice law. After the law's enactment, IA&B said it worked with Del. Brian Feldman, D-Montgomery, and Sen. John Astle, D-Anne Arundel, to introduce bills that protect agents and ensure customers receive accurate notices.
IA&B anticipates that Gov. Martin O'Malley will sign the bill. Once that happens, only insurance companies will be legally liable to deliver flood and homeowners coverage notices, not insurance agents.
Mass. judge throws book at injury case perjurer
Worcester (Massachusetts) Superior Court Judge Francis Fecteau has sentenced a Templeton man to two and one-half years for committing perjury in a workers' compensation claim proceeding at the Department of Industrial Accidents.
The judge also ordered the man to read the book "Integrity" by author Stephen Carter and write a 1,000-word essay.
The man was found guilty of forging a document to show he had provided employees with safety goggles.
Koren was owner of now-defunct Wood Technology Inc. in Gardner. In July 1998, an employee at Wood Technology sustained a serious eye injury. The employee filed a claim for workers' compensation benefits but it was denied, and the employee subsequently sued the DIA.
One of the issues before the DIA was whether Wood Technology provided its employees with safety glasses. In proceedings before the DIA, Koren argued that he had provided safety glasses before the accident. In support of his position, Koren submitted an apparent invoice from a safety supply products company which was dated July 28, 1997.
However, the employee's attorney obtained evidence which demonstrated that the 1997 invoice was forged.
Delaware agent groups on verge of merger
The boards of directors for the Insurance Agents & Brokers of Delaware (IA&B of DE) and the Independent Insurance Agents of Delaware Inc. (IIAD) have unanimously voted to approve the plan for merger of their associations, the second of three steps to make merger a reality.
The new organization, to be named the Delaware Association of Insurance Agents & Brokers, will maintain affiliations with both the Independent Insurance Agents & Brokers of America (IIABA) and the National Association of Professional Insurance Agents (PIA National).
The two property and casualty insurance associations had previously announced their intent to merge in December.
"We are pleased that the merger is going through so smoothly and quickly," said IIAD President Jeff Good. "Members from both organizations had been asking for a single organization for some time and today we are pleased to announce that we have come one giant step forward in making that possible."
"The new organization will better serve independent property and casualty agents throughout the state," said IA&B of Delaware Chairman Kevin Nemith. "Both organizations have been working on the due diligence process for some time and there is one final step before the new organization becomes official -- a vote from the membership."
The memberships of both organizations were scheduled for a vote on April 18. Upon a favorable membership vote, the new organization will become effective as of May 1.
N.J. ruling could affect 10,000 drunk driving cases
A breath test used in thousands of drunken driving cases in New Jersey went on trial earlier this month, when the state Supreme Court considered whether the instrument provides reliable blood-alcohol level readings.
The outcome will affect at least 10,000 drunken driving cases that have been hung up -- some for more than a year -- over questions about the reliability of the machine, the Alcotest 7110.
The Alcotest is the next-generation successor to the Breathalyzer machine and is used in 17 of the state's 21 counties. The other four still use the Breathalyzer.
The Supreme Court will consider whether the machine is scientifically reliable for establishing blood-alcohol levels in prosecutions. Defense lawyers claim the machine can produce erroneous readings, but the state says it is accurate.
The legal threshold for intoxication in New Jersey is a blood-alcohol level of .08 percent.
Questions over the validity of the Alcotest are as old as the machine itself. After a 13-month trial period for the then-new Alcotest in Camden County in 2001-2002, a Superior Court judge upheld the machine's use after some defendants challenged its results.
In February, a special master appointed by the Supreme Court concluded that the machine is generally reliable but not perfect, and that it should only be used with some adjustments and discretion.
The master, retired Judge Michael Patrick King, suggested that judges be able to consider other evidence in cases where the Alcotest readings are close to the threshold.
King also said that until the Alcotest machines are outfitted with breath temperature sensors, all the readings should be reduced. Higher breath temperatures give higher blood-alcohol readings, King wrote in his report.
The reliability of the new machines is a big deal in New Jersey because judges, not juries, hear all drunken driving cases. And they are given practically no leeway. If a driver is determined to have a blood-alcohol level above .08 percent, he or she is guilty.
Copyright 2007 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Judge rejects antitrust, racketeering charges in brokerage suit
Plaintiffs in a class action suit alleging bid rigging and account steering by commercial insurers and brokers have failed to show that the defendants' actions amounted to fraud under federal racketeering statutes or that they violated federal antitrust laws, a federal judge in New Jersey has ruled in dismissing the charges.
Judge Garrett E. Brown Jr. in U.S. District Court in Newark, N.J., found that the plaintiffs failed to support their assertions that insurers and brokers conspired to suppress competition and fraudulently sell insurance and benefits by agreeing on certain bid-rigging, account steering and contingent commission arrangements.
The judge did, however, give plaintiffs one more shot, granting them a 30-day window to come back with an amended case addressing his concerns.
In addition to dismissing the conspiracy charges, the ruling points out that contingent commissions paid to brokers are not illegal or anticompetitive. It also frees a major broker organization of assertions that it facilitated illegal activity.
Brown's dismissal of the federal charges came in two separate but related rulings, one on charges made under the Racketeering Influence and Corrupt Organization Act (RICO) and other on charges made under federal Sherman Antitrust Act. The rulings involved consolidated cases brought by employees of companies that bought benefits from MetLife and other insurers through various large insurance brokers, including Marsh & McLennan, Seabury & Smith and Aon, and employees whose companies purchased property/casualty insurance from AIG, Chubb, Fireman's Fund, XL, Berkshire Hathaway and other insurers through Marsh, Aon, Willis, Brown & Brown and others brokers.
The class action suits were filed in 2005 after then-New York Attorney General Eliot Spitzer and others began investigating possible bid rigging and insurers' payment of contingent commissions.
Plaintiffs alleged that there were classic "hub and spoke" conspiracies in play, with brokers being the hub and insurers being the spokes, serving as strategic partners in agreeing to bid-rigging and account steering.
Plaintiffs also alleged that brokers communicated this strategy to their carriers.
But the court said it wasn't clear that the insurers themselves were collaborating in any scheme or had any agreed-upon method for divvying-up accounts.
Just because insurers paid a brokers higher commissions to receive more of their business does not mean a conspiracy to allocate market and restrain competition existed, the court found.
The court further found that while such a conspiracy might be plausible based on the plaintifs' allegations, there would only be an antirust violation if the underlying behavior was itself illegal, which plaintiffs failed to show. Contingent commissions by themselves are not illegal or anticompetitive, the court noted.
"The court is not satisfied that plaintiffs have set forth sufficient allegations that the conduct alleged, i.e., the consolidation of the insurance markets and the steering of certain customers based on contingent commission payments, constitutes a per se illegal horizontal customer or market allocation scheme," Brown wrote.
In their racketeering complaint, plaintiffs tried to show that membership of the brokers in The Council of Insurance Agents and Brokers, was proof of a conspiracy.
While CIAB provides networking and communications, plaintiffs "failed to assert any fact indicating the presence of a nexus" between CIAB and defendants' alleged fraudulent activity.
The plaintiffs failed to prove that the brokers and insurers acted as a single unit, despite their membership in CIAB, shared industry relationships and use of similar operating models. "The presence of such similarities does not preclude a competition among these entities for their share of the market, but the presence of such competition precludes a finding of a RICO enterprise," the opinion states.
Bush administration rejects pleas for federal disaster plan
Warning of another looming hurricane season, lawmakers including Florida Gov. Charlie Crist pleaded this month in Washington for a national catastrophe fund to help stabilize an insurance industry that some say has gone berserk in coastal areas.
The Bush administration shot down the idea, however, and a leading Democrat promised only to create a commission to study the issue.
Crist, a Republican, joined Florida Sens. Bill Nelson, a Democrat, and Mel Martinez, a Republican, as the lead witnesses at a Senate banking committee hearing, saying that rising insurance premiums after recent hurricanes are driving people from their homes. Lawmakers from other Gulf states, the Northeast, and elsewhere have also voiced support for such a national program, which would establish a backup for property insurance similar to a federal program set up for terrorism insurance after the Sept. 11 attacks.
"Traditional insurance market mechanisms are not adequately managing catastrophic risk," Crist said, accusing insurance companies of profiting from disaster-stricken communities. "Floridians are being forced to choose between paying skyrocketing insurance premiums or selling their homes."
A Bush administration official -- joined by some industry representatives -- countered that such a program would undermine the private market and ultimately cost taxpayers more.
"Government insurance would displace insurance provided by the private market," said Edward Lazear, chairman of the White House Council of Economic Advisers. "For the most part, the national insurance industry is healthy today."
Sen. Richard Shelby of Alabama, the ranking Republican on the committee, said a national fund also would leave taxpayers everywhere paying to cover vulnerable coastal locations, including ritzy houses on the beach.
Crist and others disputed that argument, saying the fund would cover all types of catastrophes in every region, such as earthquakes. Besides, federal taxpayers already pick up the tab for events like Hurricane Katrina in the form of disaster assistance. It's wiser to create a fund on the front end that could earn interest and hold down insurance rates, they argued, even if it requires a taxpayer subsidy.
"Our current system is based largely on a post-event reaction," said Alabama Insurance Commissioner Walter Bell, adding that the United States is one of the only industrialized nations in the world without a comprehensive catastrophe plan.
Copyright 2007 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Congressional hearings examine the need for national disaster solution
Some say private market insurance is sufficient, while others claim federal help is needed to solve a 'national problem'
Two U.S. Senate committees -- the Committee on Banking, Housing and Urban Affairs, and the Committee on Commerce, Science and Transportation -- met this month to examine the response of the insurance industry to the claims filed by homeowners and business owners in the wake of the calamitous 2005 hurricane season and the need for a national solution for natural disaster coverage.
"Put simply, insuring against natural disasters is a national problem that requires a national solution," the Independent Insurance Agents and Brokers of America said in a statement. "Despite our longstanding position that the insurance market is best served by limited federal involvement, we believe that a federal solution to the issue of natural catastrophe insurance is necessary to help provide capacity and fill a void that the private market cannot and will not service."
Franklin W. Nutter, president of the Reinsurance Association of America, testified that creating federal and state catastrophe reinsurance funds would not solve the homeowners' insurance availability problem. He argued that cat funds do not reduce the vulnerability of people to natural catastrophes. "There is no evidence that state reinsurance catastrophe funds result in greater availability or affordability of homeowners' insurance," Nutter said. "Instead, these funds are effectively a cost shifting mechanism -- low risk policyholders end up insuring high risk policyholders," he stressed.
Property/casualty insurers continue to argue that while the private insurance marketplace is the best vehicle to address coastal insurance issues and natural disasters in the U.S., the federal government can play a role in efforts to reduce affordability and availability problems in coastal regions.
"While government and the private sector can and should work together to address this problem, we should not delude ourselves into thinking that economic principles affecting the relationship between supply, demand, and price can be erased by government regulation and programs," testified National Association of Mutual Insurance Companies' President and CEO Chuck Chamness.
Both insurers and agents believe that federal involvement should come into play when assisting with the financing of mega-catastrophe risk.
"Government, consumers and insurers must work together to put in place viable solutions to reduce losses from future catastrophes and speed relief to those who need it after the next natural disaster hits," says Ben McKay, Property Casualty Insurers Association of America, senior vice president, federal government relations.
"There are no shortcuts to addressing these problems, and all of us must remain committed to solutions that guarantee long-term stability in the private markets to protect our economy and, more importantly, to provide certainty to the nation's insurance consumers," testified American Insurance Association President Marc Racicot.
Banks' total insurance revenue dipped
The nation's bank holding companies (BHCs) experienced a slight decline of 1.3 percent in their total insurance revenue from $44.1 billion in 2005 to $43.5 billion in 2006. Citigroup Inc. (N.Y.), Wells Fargo & Co. (Calif.), Countrywide Financial (Calif.), HSBC North America Holdings (Ill.), and BB&T Corp. (N.C.) led all bank holding companies with significant banking activities in total insurance fee income in 2006, according to findings released by Michael White Associates (MWA) and the American Bankers Insurance Association (ABIA).
The findings are based on data reported to the Federal Reserve Board by top-tier BHCs. The analysis measures the banking industry's insurance business and provides some benchmarks that gauge bank insurance performance.
"While the industry's insurance underwriting activities registered a decline of 5.2 percent, its insurance brokerage fee income continued growing, increasing 10.6 percent in 2006. Among the top 50 in insurance revenue, the mean ratio of insurance revenue to non-interest income was 14.8 percent in 2006," said Michael D. White, president of MWA. "So, insurance activities continue to make increasingly meaningful contributions to banking revenues."
During 2006, 656 bank holding companies (or 67 percent of all top-level BHCs reporting) earned some type of insurance-related revenue. BHCs' insurance brokerage fee income increased 10.6 percent from $10.98 billion in 2005 to a record $12.14 billion in 2006.
"While insurance underwriting income has grown at a compound annual rate of 3.1 percent since 2001, insurance brokerage fee income has been racing upward at a compound yearly average of nearly 20 percent during that same period," said Valerie Barton, ABIA executive director. "Its growth was slowed in 2006 by softening of property/casualty premiums and declines in some agencies' contingent commissions. Insurance brokerage remains healthy, and the prospects for continued growth in bank insurance revenues are very positive."
The analysis includes a ranking of the top 50 bank holding companies on the basis of the absolute dollar amount of total insurance revenue (earnings from sales and underwriting) and on the basis of total insurance revenue as a percentage of the institution's total non-interest income.
SEC agrees to ease Sarbanes-Oxley rules for small firms
The Securities and Exchange Commission board has officially endorsed changes in the Sarbanes-Oxley compliance rules that should particularly benefit smaller companies.
The SEC commissioners voted to allow more flexibility in the rules, particularly the guidelines developed by the independent board that oversees the accounting industry. The new rules are expected to be approved by June in time for 2007 financial audits.
The commissioners "urged the SEC staff to continue to work closely with the Public Company Accounting Oversight Board (PCAOB) to make the internal controls provisions of Section 404 of the Sarbanes-Oxley Act of 2002 more efficient and cost effective."
The 2002 law, which requires companies to adopt internal controls to prevent fraud, has been criticized by small business lobbyists for creating an unnecessary burden. Under the SOX Act, PCAOB audit standards must first be approved by the SEC and cannot take effect without a vote of the commission. The commission expects the new PCAOB standard will be submitted for SEC review by the end of May or early June.
"These needed improvements in the Sarbanes-Oxley process are especially urgent for smaller companies, who will begin complying with Section 404 this year," said SEC Chairman Christopher Cox. "The result of the new auditing standard for 404, together with the SEC's new guidance to management, should make the internal control review and audit more efficient by focusing the effort on what truly matters to the integrity of the financial statements," he added.
SEC staff will focus the remaining work in four areas: aligning the PCAOB's new auditing standard (AS-5) with the SEC's proposed new management guidance under Section 404; scaling the 404 audit to account for the particular facts and circumstances of companies, particularly smaller companies; encouraging auditors to use professional judgment in the 404 process; and following a principles-based approach to determining when and to what extent the auditor can use the work of others.
Lloyd's posts more than $7 billon in record pre-tax profit
What a difference a year makes. On March 29, Lloyd's announced pretax profits for 2006 of $7.2 billion compared to the $202 million loss it posted in 2005.
Lloyd's also achieved an extremely good combined ratio of 83.1 percent, compared to 2005's 111.8 percent. The figure looks even better when compared with "an estimated average of 93 percent for U.S. property and casualty insurers, 95 percent for U.S. reinsurers, 94 percent for European insurers and reinsurers and, 86 percent for Bermudan insurers and reinsurers," according to Lloyd's announcement.
Assets in Lloyd's Central Fund increased by 14 percent to $2.856 billion from $2.487 billion in 2005. Other highlights included the following: Gross written premiums up 9.6 percent to $32.25 billion; Net written premiums rose 12.1 percent to $25.94 billion; Net earned premiums up 7.7 percent to $24.93 billion; Net claims incurred down 34.6 percent to $12.22 billion; Net operating expenses up 18 percent at $4.21 billion.
Lloyd's combined ratio in all classes of business was less than 100 percent with the lowest figure being 65 percent in "aviation" and the highest a 99 percent ratio in "energy." "Motor" (auto) was the only sector to show an increase, moving from 91 percent to 96 percent. "Reinsurance" dropped from a dizzying 135 percent to a very respectable 81 percent, while "property" went from 119 percent to 82 percent. "Casualty and "marine" were both at 89 percent.
Lloyd's Chairman Lord Levene and CEO Richard Ward noted that "we benefited from strong underlying conditions and an exceptionally low level of catastrophes." Ward stressed Lloyd's "strong competitive position" and said its results "compares well with our global peers."
Both leaders inveighed against complacency. Levene indicated "it would be unrealistic to expect such a favorable claims experience this year. With a trend for more frequent and severe natural catastrophes." While Ward stressed that "retaining our competitive edge requires an unrelenting focus on all our customers."
Levene's remarks addressed two themes: 1) Lloyd's reputation, and 2) its leading position in the UK's financial services industry.
Financial giant in U.K. and beyond
Turning to the importance of the financial sector to the UK's economy, Levene pointed out that Lloyd's "is a major component of the Financial Services industry of the UK. Indeed, we represent over 50 percent of the total London market business.
Richard Ward, who replaced Nick Prettejohn as Lloyd's permanent CEO a year ago, has emerged as a forceful leader, dedicated to reforming Lloyd's antiquated business practices. He's determined to do away with the famous slip cases full of paper documents and the four tons of paper Lloyd's produces every day. Following breakthroughs with service providers Xchanging and RI3K, as well as some of the leading brokers and Syndicate managers, he's well on his way to achieving that goal. Lloyd's Syndicates are already at 85 percent of contract certainty.
Ward's next task, taming the cycle, won't be so easy, but he's upbeat. "There is clear evidence that the market, having worked with the Franchise Performance Directorate over a number of years, is now better prepared to manage the insurance cycle," he stated. "Through a combination of underwriting for profit rather than market share, the use of state-of-the-art modeling tools and better availability and application of data, it is hoped that the market can shield itself from the worse effects of the cycle."
In his final remarks Ward thanked Lloyd's staff, indicating they have "provided strong leadership over the past year and have been instrumental in the delivery of our objectives."
