Mass. ruling revives possibility of auto assigned risk plan
Whether Massachusetts will implement an assigned risk plan for its private passenger auto market was considered a dead issue when in January the incoming Patrick administration suspended rules to create one, but now the administration has signaled that the idea may not be dead after all.
Insurance Commissioner Nonnie Burnes, who took office in February, ruled recently that a final decision on an assigned risk plan would come after she sees some changes to one of the proposed assigned risk plan rules that affects good drivers who might be rejected by private insurers.
Burnes told Commonwealth Auto Reinsurers, which runs the high risk system, to get back to her by the end of this month with amendments to the "clean-in-three" provision, which she indicated is the biggest obstacle to proceeding with the Massachusetts Assigned Insurance Plan .
"[W]e find that the MAIP rules, as they pertain to the 'clean-in-three' provision only, need further amendment," the decision stated.
After she receives those, Burnes said she would rule on whether the proposed MAIP should be adopted.
The ruling gives some hope to proponents of the MAIP.
The decision "leaves open the possibility that she will ultimately decide to replace the current inequitable residual market system in Massachusetts with an assigned risk plan," said John Murphy, American Insurance Association, vice president for the Northeast.
Surprise development
The ruling caught the industry off-guard.
"It was a surprise but a pleasant surprise," said Frank O'Brien, regional vice president for the Property Casualty Insurers of America.
Daniel Foley, Jr. agreed, calling it "somewhat of a surprise." Foley is vice president of government affairs for the Massachusetts Association of Insurance Agents, which opposes the MAIP and cites the "clean-in-three" provision as one of the reasons it does.
This controversial provision seeks to keep drivers with clean driving and claims records within the past three years who cannot obtain insurance from an insurer in the voluntary market from being forced into the assigned risk plan.
In a key Supreme Judicial Court decision last year upholding the commissioner's authority to implement the MAIP, this provision was the only feature that did not win court approval.
Since then, the rule has been amended but agents and others are still uncomfortable with it. In its latest version, insurers would be required to share with all other insurers the names of "clean-in-three" drivers they do not want to insure, in hopes other insurers may pick them up voluntarily, avoiding an MAIP placement.
But MAIA and agents have criticized that method. Agents argued that it would violate their rights to control policy expirations and would interfere with the relationships they have with these customers. In her ruling, Burnes appeared to raise doubt about these rights claimed by agents, referring to agents' "alleged rights to control policy expirations."
Others have criticized the information-sharing rule as potentially violating drivers' privacy rights.
Gov. Patrick's own Automobile Insurance Study Group in March recommended that insurance companies be required to renew "clean-in-three" drivers until they no longer meet the criteria.
Attorney General Martha Coakley has also recommended requiring insurers to write these clean risks under a modified "take all comers" requirement.
Whether the "clean-in-three" is fixable to Burnes' liking remains to be seen. PCI's O'Brien said Burnes has given "no hint" of her thinking on the issue, or what she might do after she receives amendments to the rule. "This administration has been confounding," he commented.
AIA's Murphy certainly hopes it can be fixed.
"The assigned risk plan has been studied for years, with improvements in 'clean in three' it should be implemented," he said. "The current system is unfair and benefits some insurers over others."
N.H. weighs seat belt savings vs. freedom
When New Hampshire House lawmakers recently passed a seat belt bill, supporters emphasized that buckling up would save lives. But the issue also has financial ramifications, and not just because changing the law would net the state $3.7 million in federal funding.
Mandating seat-belt use probably would contribute to a decrease in insurance premiums over time, according to the insurance industry. It could also save the state millions of dollars a year in medical care, lost productivity and other costs associated with auto deaths and injuries that result from failure to buckle up, according to seat-belt supporters.
With a seat-belt usage rate of 63.5 percent, New Hampshire tied Wyoming for lowest in the nation last year, according to the National Highway Traffic Safety Agency. A mandatory seat-belt law, coupled with education, could increase that rate to more than 80 percent, according to Seat Belts for All, a coalition of state lawmakers, health officials and law-enforcement leaders.
That would spare the state an average of 14 deaths, 335 serious injuries and roughly $75 million in related costs each year, the group estimates.
During the House debate, opponents described the bill as a blow to personal liberty and said the failure to wear seat belts only affects those who choose not to wear them, not the wider public.
They also said New Hampshire already enjoys relatively low auto-insurance rates. New Hampshire's average auto insurance policy was $798 in 2004, compared to $698 in Vermont and $650 in Maine.
N.Y. City puts foot down on pedicabs
New York City's hordes of unregulated bicycle taxis will have to meet licensing, insurance and safety standards, and only 325 will be allowed to operate at one time, thanks to a City Council's recent override of a mayoral veto.
The so-called pedicabs, which look like giant tricycles with passenger carriages in the back, have increasingly become popular among tourists and some residents who prefer to beat traffic jams by weaving through all the cars.
The city estimates it has between 300 and 400 pedicabs.
The bill was moments from being signed into law last month when Mayor Michael Bloomberg had second thoughts during the bill-signing ceremony. A group of pedicab drivers told him the bill was unfair, particularly because it caps the number of bicycle taxis allowed at 325. He deferred any decision that day and later vetoed the measure, saying 500 was a more appropriate limit.
Despite his objections, the City Council voted 37-6 to go ahead with the regulations, which take effect in about five months.
"This legislation is designed to make pedicabs safer for passengers and drivers, and less disruptive to small businesses, pedestrians, and other vehicles," City Council Speaker Christine Quinn said. She added that the cap of 325 will "allow the industry to thrive, while alleviating congestion in the parts of the city most frequented by pedicabs."
The law includes licensing and insurance requirements and stipulates that each pedicab post its formula for calculating fares.
Copyright 2007 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Study questions insurance cost effect on Pa. doctor supply
Spiraling-malpractice insurance costs appeared to have little effect on the number of doctors in high-risk specialties practicing in Pennsylvania over a 10-year period, according to a new study.
Opponents of efforts to limit pain-and-suffering awards in malpractice lawsuits said the study refutes claims that insurance costs have forced doctors to leave Pennsylvania. A doctors' lobbying group questioned the findings.
Researchers based their conclusion on an analysis of more than 47,000 doctors who participated in the state's medical-malpractice insurance fund known as Mcare from 1993 to 2002. The study found that an average of 16 percent of doctors in high-risk specialties such as urology, neurosurgery and orthopedics stopped practicing in Penn-sylvania each year from 1999 through 2002, which researchers defined as the "crisis period" after insurance rates spiked. The number of high-risk specialists leaving the state from 1993 through 1998 averaged 15 percent a year, by comparison.
"What this study shows is, at least on a statewide level, that (the malpractice crisis) doesn't seem to have resulted in noticeable decreases in the number of physicians available in particular specialties," said research-er Bill Sage, vice provost for health affairs at the University of Texas at Austin.
Researchers found that the total number of doctors practicing across all specialties in Pennsylvania increased by nearly 6 percent between 1993 and 2002 and the total number of high-risk specialists grew by 3.3 percent.
The study identified a nearly 8 percent decline in obstetrician-gynecologists as the only notable decrease among high-risk specialists, but it also noted that the number of live births in Pennsylvania dropped during the study period.
In recent years, the Pennsylvania Medical Society has unsuccessfully lobbied state lawmakers to pass monetary caps on pain-and-suffering awards in medical malpractice lawsuits. The organization has said high malpractice insurance rates have led doctors in high-risk specialties to leave the state.
Copyright 2007 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Dog daze: pet food case raises product recall, 'special' property claims
The tragedy could even lead to some new coverage opportunities for the insurance industry if lawyers are successful
While the manufacturer of the contaminated multi-brand pet foods that have caused an unknown number of pet deaths and illnesses wants to put the controversy behind it, the pet food maker along with insurers, lawyers, and other manufacturers may be dealing with the ramifications of the tragedy for months and years to come.
On March 30, Menu Foods held a press conference to report that the toxic compound that contaminated the pet foods had been isolated and that all food made after March 16 was safe. "That, seemingly, cleared the way for us to address the problem, deal fairly with the pet-owners who had been injured, put our business back together, and move on," said Paul Henderson, president of Menu Foods.
The Ontario, Canada-based company estimates that the recall of its products could cost between $30 million and $40 million.
However, that recall does not put an end to the insurance and legal questions -- or opportunities -- raised by the case, experts say.
According to Lisa Harrington, vice president of education for the Florida Association of Insurance Agents, there are potentially three layers of contractual involvement in the case: the manufacturer; the distributors; and the retailers.
"The waters could become very muddied throughout this process," Harrington said. "It could trigger a general liability policy for each of the involved entities. It all depends on how they have transferred the liability."
Harrington said the contractual agreement might assume liability for example if the product stays on a retailer's or a distributor's shelf for a certain period of time: "I would caution that contracts need to be checked thoroughly for 'transferred liability,'" she added.
The situation should be "a real eye opener" for many manufacturers, believes Dave Golden, director of Commercial Lines, for the insurer trade group, the Property and Casualty Insurers Association of America. "It's a very interesting situation in that when this kind of case hits the news it creates an opportunity for manufacturers in general to look at their products' recall exposure," Golden said. "And they have to ask themselves how much insurance they can handle -- and what they can do to minimize the risk."
Golden said many manufacturers compartmentalize components of their operation -- in essence protecting one segment from the risks of others. For Menu Foods, he said, their problem traverses all components of the operation.
'Special property' claims
U.S. courts have typically viewed pets as property and limited any recovery to the cost of the animal and veterinarian bills. Recovery for emotional distress over the loss of a pet is rare. But the Menu Foods case could change that as some plaintiff lawyers are pushing the novel theory that pets are "special property" whose owners deserve compensation for emotional suffering.
"There's really a lot to it -- you have to look at the specific value to the owner," maintains attorney Jay Edelson of the Chicago law firm of Blim & Edelson, who filed a class action lawsuit on behalf of Dawn Majerczyk and others whose pets died after eating tainted product made at two of the company's U.S. factories. "The special property issue is harder to win in court but even when it comes to property, not all property is treated the same."
If the concept of "special property" succeeds, AIA's Golden suggests it may become an insurance opportunity since as new types of liabilities emerge, insurers develop products that respond to those liabilities. "This may open the door to a new class of commercial insurance," Golden noted.
Ethical treatment
Edelson said his firm is in discussions with animal law expert Bruce Wagman and with PETA (People for the Ethical Treatment of Animals), but could not disclose the crux of their respective conversations.
Wagman wrote a law school casebook titled "Animal Law" that was published in 2001. "For the manufacturer, I suppose commercial general liability policies would cover anything that covers them for products liability," Wagman said. "I'm not sure of the answer to the 'special property' question, other than that the same policies should cover them, assuming these types of damages are not exempted."
Lori Kettler, PETA's senior counsel for regulatory issues, said her group is trying to decide whether to get involved in any of the class action suits or bring its own. "These suits are generally about money and we're not about the money -- we're about doing what's right for the animals," she said.
As of March 22, PETA claimed that at least 13 cats and one dog were reported as having died of kidney failure after eating food manufactured by Menu Foods under several brand names including Iams, Eukanuba, Science Diet, Nutro, and several store brands. According to PETA, nine of those animals died after Menu Foods deliberately forced 40 to 50 dogs and cats to ingest toxic and lethal food in Menu Foods' laboratory where tests were allegedly performed seven days after the food contamination was reported.
Fraud allegations
Plaintiffs in Edelson's case allege that Menu Foods committed fraud. "We're charging them with fraud and saying that they knew about it as far back as December 2006. So far, we have hundreds of clients and have received thousands of calls -- and we think that will be our most compelling argument," Edelson said.
The suit alleges that the company's "initial misconduct" originated in December 2006, when it began to use a new supplier of wheat gluten from China. "Menu Foods knew or should have known that there have been problems with wheat gluten coming out of China becoming contaminated with lethal agents," the filing states. Edelson said he doesn't want all of the pet food returned to Menu Foods because that would be destroying evidence.
Another class action law suit filed by Berding & Weil of Alamo California, concerns Diane Swarberg and her 12-year old cat which apparently ate Iams Select Adult Bites for several years, but became ill in March. Swarberg took Oscar to her veterinarian who told her that the cat was suffering from kidney failure and should be euthanised.
Dan Rottinghaus, a partner in the Berding & Weil firm, said the victims involved in the case want compensation: "But that's only part of it. People want change in the industry; they want quality control markers and independent verification."
Rottinghaus said there might be multiple insurance issues depending on what the manufacturers are covered for and what they're not covered for. He added the transferred contractual liabilities could delay the entire process.
Insurance Information Institute spokesperson Claire Wilkinson said the Menu Foods case has major product liability implications, but the larger issue is the rampant litigiousness on a global scale.
"Where there's a lawyer with a will, there's a potential legal liability avenue," Wilkinson said.
The federal government's investigation of the pet food remains active and the Federal Drug Administration says it is continuing to follow leads to ensure that all contaminated product is removed from the market.
Sullivan confirmed as Conn. commissioner
The Connecticut House of Representatives has confirmed the nomination of a former claims executive with The Hartford, Thomas R. Sullivan, to be the state's insurance commissioner. The confirmation, a voice vote on a resolution offered by Rep. Claire L. Janowski, 56th District, came after a favorable recommendation from the Executive and Legislative Committee. No Senate vote is necessary.
Connecticut Governor M. Jodi Rell named the claims administration executive to the post, replacing Susan Cogswell who is stepping down from the post she has held for almost seven years.
Sullivan 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, LLC, 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, claims administration and risk management services nationwide.
Sullivan resides in Southington. He graduated from Western Connecticut State University and earned a Master's degree in Business Administration from the University of Connecticut.
Cogswell is not leaving the department. She has accepted the position of deputy insurance commissioner and will focus her energies on health care access and affordability issues.
Cogswell, a Torrington resident, 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 her three-time Republican running mate, former Gov. Rowland, who resigned amid a corruption investigation.
GAO report welcomed
The GAO's report, commissioned by the Senate Committee for Homeland Security and Governmental Affairs, chaired by Sens. Joe Lieberman, an Independent (ex-Democrat) from Connecticut, and Susan Collins (R-Maine), has garnered generally favorable reviews.
Collins, the committee's ranking Republican, indicated that the GAO's conclusions support the rapidly mounting evidence that climate change is a reality and a threat to the environment. She also noted that it places a potential burden on consumers and taxpayers that could add "billions of dollars" in costs, "as insured losses from floods and storms cause increases in federal spending and insurance premiums." While Collins praised private insurers for "paying serious attention" to the increased risks presented by climate changes, she chided federal programs for their failure to do so.
Claire Wilkinson, the International Insurance Institute's vice-president-Global, thinks the GAO report will be felt. "The report will increase U.S. attention [on the problems posed by climate change]," and will "have an impact on the current scientific debate," she said in an interview.
She strongly agreed with the GAO's conclusions that a lot more attention should be paid to where and how buildings are constructed in risk-prone areas. "The insurance industry has been involved for many years in strengthening building codes," Wilkinson said, "especially in areas like Florida and Louisiana." She acknowledged, however, that enforcing those codes is equally important.
However, Wilkinson said, "the many variables surrounding climate change make it difficult to relate increased losses directly to the weather, the links are too uncertain." She pointed out that each private insurer is different, and that, while practically all of them are aware of the potential dangers posed by climate change, each would most likely seek its own solutions to deal with the risks.
The federal agencies came in for some harsh comments from the Natural Resources Defense Council (NRDC), an environmental group. "We commend Senators Lieberman and Collins for exposing the inadequacies of federal insurance programs to protect taxpayers from catastrophic losses due to global warming," stated David Tuft, campaign director of the NRDC's Climate Center on the Group's Web site (www.nrdc.org).
"Not only has our federal government thus far failed to take action to prevent the worst consequences of unchecked global warming pollution, but it has failed fundamentally to take reasonable precautions against global warming-induced storms and drought, and the high costs that will be borne by families, businesses and ultimately, taxpayers." He called the government "woefully ill-prepared to protect its citizens against catastrophic losses," and, citing the GAO, said it has "blown the whistle on how ill-prepared we are as a nation for further destruction."
Commercial property/casualty premiums drop, underwriting relaxes, 1st quarter survey finds
Commercial property/casualty premiums for all sizes of accounts dropped sharply during the first quarter of 2007, with indications that insurance companies are starting to loosen underwriting standards and price aggressively to get business, according to the latest Commercial Property/Casualty Market Index by The Council of Insurance Agents & Brokers
"Once again, underwriting is out the door as the companies fight for growth/premium," observed an agent from the Southwest.
"All of the carriers want and need new business, and they are willing to do anything to get it," said another broker.
The Council members write 80 percent of the premiums annually in the United States. The Council's market surveys, which have been conducted since the fourth quarter of 1999, ask respondents to compare market conditions and premiums quarter-to-quarter.
Sharp declines
One broker from the Northeast, calling the premium drop "dramatic," said rates in the most recent quarter fell more sharply than during all of 2006.
Eighty-one percent of the survey respondents said their small account premiums for January through March 2007 were down 1 percent to 30 percent, while 97 percent said their medium accounts were down 1 percent to 30 percent. Ninety percent said their large accounts premiums were down 1 percent to 30 percent.
An analysis of the survey findings by Lehman Brothers placed the average premium decrease for accounts in the first quarter at 11.3 percent. The Lehman analysis said premiums for all sizes of accounts were at their lowest point since they peaked in the fourth quarter of 2001 following the 9/11 terrorist attacks.
Easier underwriting
Although the premium rate decreases have been evident in the last several market index surveys, this was the first time that less restrictive underwriting was widely reported. Brokers and agents from every section of the country said carriers were writing and quoting accounts that a year ago they would not consider.
"Underwriters are buying new business in the Midwest," one broker reported.
"More companies jumping in on each line. It's going to get more competitive still," said a broker from the Pacific Northwest.
Coastal property/casualty, wind coverage and California earthquake coverage remained tough to find and expensive, but no worse than previously reported, the agents and brokers said.
Key subcommittee chairman favors six to eight-year terrorism insurance extension
Insurance industry pushes for longer period with some in favor of 20 years or more
In his opening statement as chair of a U.S. House of Representatives subcommittee considering extension of the Terrorism Risk Insurance Act (TRIA), Rep. Paul E. Kanjorski of Pennsylvania said he believes the act should be extended for a period of six to eight years.
At a hearing on April 24 in Washington, D.C., Kanjorski asserted that this length of time "is long enough to provide greater certainty to the marketplace and short enough to encourage the private sector to develop its own solutions to the problems posed by conventional terrorism."
Congress enacted TRIA after the Sept. 11, 2001, terrorist attacks as a temporary program designed to give the private insurance markets time to develop models and pricing for terrorism risks. The act was extended in 2005 for two more years and is set to expire at the end of 2007.
"While TRIA has increased the availability and affordability of terrorism risk insurance, the market place is still tenuous," Kanjorski said. "Insurers still have limited capital to cover terrorism losses alone and without federal assistance." He noted that the property/casualty industry had $164 billion reserved for terrorism losses in 2005 but "according to the Insurance Information Institute, some models have predicted terrorism losses of more than double this number."
Insurance industry representatives who spoke at the hearing supported a longer period of time, with some in favor of extending the act for 20 years, and others proposing no expiration date. But Kanjorski said a 15 to 20-year or more extension would "for all intents and purposes" result in a loss of institutional memory of the topic at the committee level.
Brian Dowd, chief executive officer, Insurance-North America, for the ACE Group, appeared on behalf of both ACE and the American Insurance Association. In a list of principles supported by both the AIA and the Coalition to Insure Against Terrorism that Dowd submitted with his written testimony, he asserted that "the program should have no expiration date, and thereby end only when Congress determines terrorism is no longer a threat."
Vincent T. Donnelly, president and CEO of Pennsylvania-based PMA Insurance Group, who spoke on behalf of PMA and the Property Casualty Insurers Association of America, told the subcommittee that the need for market stability should be considered "so that we're not looking at this issue every two years." He said that a 10 to 15 year extension would add some permanency and enable the market "to react in a stable fashion."
According to Kanjorski, an in depth study of the terrorism insurance issue is needed. Such a study, he said, was lacking in the original TRIA legislation and without it "we're doing patchwork and that really does disturb me."
He said the committee needs to explore how to "add nuclear, biological, chemical and radioactive (NBCR) coverage to TRIA." The marketplace believes that in the event of an NBCR attack, "the federal government will step in and respond," he said. "We therefore should explicitly address the government's role."
Kanjorski also favored eliminating the distinction between foreign and domestic terrorism events. He noted the "need to make sure to move this legislation as soon as possible," and said the committee would try to move it along in the next few months.
Another report details property/casualty insurers' 2006 profitability, escape from storms
Warns falling prices mean profits are at, or are steadily, approaching the cyclical peak
Another report on the insurance industry confirms and details what has been widely acknowledged: a sharp decline in catastrophes in 2006 contributed to improved underwriting results for the year.
The U.S. property/casualty industry posted a $31.2 billion net gain on underwriting for the year. The net gain on underwriting in 2006 stands in stark contrast to the $5.6 billion net loss on underwriting in 2005.
The industry's overall profitability was the highest in 20 years.
The industry's positive underwriting results contributed to an increase in its net income after taxes to $63.7 billion in 2006 from $44.2 billion in 2005. Reflecting the increase in net income after taxes, the industry's rate of return on average policyholders' surplus (net worth) rose to 14 percent in 2006 from 10.8 percent in 2005, according to Insurance Services Office (ISO) and the Property Casualty Insurers Association of America (PCI).
The figures are consolidated estimates for all private property/
casualty insurers based on reports accounting for at least 96 percent of all business written by private U.S. property/casualty insurers.
Overall profitability
Insurers' overall profitability as measured by their statutory rate of return on average surplus -- net income after taxes divided by average surplus during the year the income was earned -- climbed to 14 percent in 2006 from 10.8 percent in 2005. The rate of return for 2006 was the highest since 1986, when it equaled 15.1 percent, but it remained well below the record 23.1 percent statutory rate of return for 1977.
By decade, insurers' average rate of return climbed from 9.5 percent during the ten years ending 1976 to 13 percent during the ten years ending 1986 but has since fallen to 9.5 percent during the ten years ending 1996 and to 7.9 percent during the ten years ending 2006.
"The insurance industry's profitability last year compares quite favorably with its own results during the previous 20 years. But escalating competition and falling prices in insurance markets mean that insurers' profitability is at or near a cyclical peak, even though their rate of return is no better than that of firms in most other industries," said Michael R. Murray, ISO assistant vice president for financial analysis. "In fact, the insurance industry has a long history of being less profitable than other industries, with insurers' rate of return being less than that of the Fortune 500 in 21 of the 23 years from 1983, when ISO's data for the Fortune 500 starts, to 2005. During that span, insurers' rate of return averaged 8.2 percent -- 5.6 percentage points below the 13.8 percent average rate of return for the Fortune 500."
Catastrophe losses
According to ISO's Property Claim Services (PCS) unit, direct insured losses from catastrophes dropped to $9.2 billion in 2006 from $61.9 billion in 2005.
"Insurers and residents of coastal states dodged a bullet last year," noted Murray.
"Much of the improvement in insurers' underwriting and overall results last year reflects the decline in catastrophe losses from 2005's record high. Allowing for losses from Katrina, Rita, and Wilma that didn't emerge until after insurers closed their books for 2005 -- and factoring out losses covered by residual market insurers, the Florida Hurricane Catastrophe Fund, and foreign insurers -- ISO estimates the catastrophe losses included in private U.S. insurers' net financial results declined by $21.9 billion to $11.7 billion in 2006 from $33.6 billion in 2005. ISO also estimates that catastrophe-related net loss adjustment expenses declined to $0.6 billion in 2006 from $1.2 billion in 2005, contributing another $0.6 billion to the improvement in underwriting results."
But experts warned that despite the experience of 2006, catastrophe losses remain a threat.
"While meteorological anomalies confounded the experts and helped the U.S. escape major hurricane strikes in 2006, the threat of more frequent and severe storms, combined with the growing population and the increased value of property in the highest risk areas of the country, means that the threat of enormous losses from natural disasters is a financial problem the nation must deal with," said Genio Staranczak, PCI's chief economist.
Underwriting results
The improvement in underwriting results in 2006 reflects both growth in premiums and a decline in loss and loss adjustment expenses.
Net written premiums climbed $18.3 billion to $443.8 billion in 2006 from $425.5 billion in 2005, with written premium growth accelerating to 4.3 percent in 2006 from 0.3 percent in 2005. Net earned premiums rose $18.2 billion last year, increasing to $435.8 billion in 2006 from $417.6 billion in 2005. Earned premium growth accelerated to 4.4 percent in 2006 from 0.9 percent in 2005.
Overall loss and loss adjustment expenses declined $27.9 billion, or 9 percent, to $283.7 billion in 2006 from $311.6 billion in 2005. Non-catastrophe loss and loss adjustment expenses declined $5.4 billion, or 1.9 percent, to $271.4 billion in 2006 from $276.8 billion a year earlier.
Underwriting expenses -- primarily acquisition expenses, other expenses associated with underwriting, pricing and servicing insurance policies, and premium taxes -- rose $7.7 billion, or 7 percent, to $117.5 billion last year from $109.8 billion in 2005.
The net gain on underwriting in 2006 amounts to 7.2 percent of the $435.8 billion in premiums earned during the period, whereas the net loss on underwriting in 2005 amounted to 1.3 percent of the $417.6 billion in premiums earned during that period.
The combined ratio improved 8.5 percentage points to 92.4 percent in 2006 from 100.9 percent in 2005.
Study: Obese workers drive up workers' compensation costs
Gaining too much weight can be as bad for an employer's bottom line as it is for a person's waistline.
A Duke University Medical Center analysis found that obese workers filed twice the number of workers' compensation claims, had seven times higher medical costs from those claims and lost 13 times more days of work from work injury or work illness than did nonobese workers.
Workers with higher risk jobs were found to be more likely to file workers' compensation claims, and obese workers in high-risk jobs incurred the highest costs, both economically and medically.
Although workers' compensation plans vary from state to state, they all require that employers carry insurance policies to cover their employees should they be injured on the job. The plans can pay for employee medical costs, compensation for loss of current or future wages, or compensation for pain and suffering.
"We all know obesity is bad for the individual, but it isn't solely a personal medical problem -- it spills over into the workplace and has concrete economic costs," said Truls Ostbye, MD, PhD., professor of community and family medicine.
The results of the study were published April 23, 2007, in the Archives of Internal Medicine. The study was supported by a grant from the National Institute for Occupational Safety and Health.
"Given the strong link between obesity and workers' compensation costs, maintaining healthy weight is not only important to workers but should also be a high priority for employers," Ostbye said. "Work-based programs designed to target healthful eating and physical activity should be developed and then evaluated as part of a strategy to make all workplaces healthier and safer."
The researchers looked at the records of 11,728 employees of Duke University who received health risk appraisals between 1997 and 2004. Duke collects this information anonymously in order to identify areas of potential occupational risk and to develop plans to reduce that risk. The analysis covered a diverse group of workers, such as administrative assistants, groundskeepers, nurses and professors.
The researchers looked at the relationship between body mass index (BMI) and the rate of workers' compensation claims. Because the BMI takes into account both a person's height and weight, it is considered the most accurate measure of obesity. For Americans, a BMI of 18.5 to 24.9 is considered normal; 25 to 29.9 is considered overweight, and 30 and above is considered obese. (See BMI calculator here.)
The researchers found that workers with a BMI greater than 40 had 11.65 claims per 100 workers, compared with 5.8 claims per 100 in workers within the recommended range. In terms of average lost days of work, the obese averaged 183.63 per 100 employees, compared with 14.19 per 100 for those in the recommended range. The average medical claims costs per 100 employees were $51,019 for the obese and $7,503 for the non-obese.
The body parts most prone to injury among obese workers were the lower extremity, wrist or hand, and back. The most common causes of these injuries were falls or slips, and lifting.
"The primary message is that we need to reduce the burden on workers' compensation by intervening not only on individual risk factors such as obesity but also within the workplace to reduce the risk of injury," Dement said. "By targeting obesity and workplace risks simultaneously, we can reduce absenteeism, increase the overall health of our workers, and decrease the cost of health care for all employees."
Duke has a number of programs available to encourage employees to adopt more healthful lifestyles and occupational safety and health programs to reduce the risk of injuries. Future research is aimed at testing different strategies to see if they are effective in creating healthier and safer workplaces, and then determining whether or not they are cost effective.
