Forecasters agree: 2007 Atlantic hurricane season to be busy one

Weather forecasters agree that the 2007 hurricane season, which runs from June 1 through Nov. 30, with peak activity in August through October, should be a busy one.

The National Oceanic and Atmospheric Administration (NOAA) Climate Prediction Center says there is a 75 percent chance that the Atlantic hurricane season will be above normal this year. NOAA scientists predict seven to 10 storms becoming hurricanes, of which three to five could become major Category 3 strength or higher, according to retired Navy Vice Adm. Conrad C. Lautenbacher, Ph.D., undersecretary of commerce and NOAA administrator.

An average Atlantic hurricane season brings 11 named storms, with six becoming hurricanes, including two major hurricanes.

Last year, seasonal hurricane predictions proved to be too high when an unexpected El Niño rapidly developed and curtailed Atlantic storm activity.

"There is some uncertainty this year as to whether or not La Niña will form, and if it does how strong it will be," said Gerry Bell, Ph.D., hurricane forecaster at NOAA's Climate Prediction Center. If La Niña develops, storm activity will likely be in the upper end of the predicted range, he added.

A team of researchers at North Carolina State University projects eight to nine hurricanes, of which two or three will make landfall on the East Coast, while one or two will strike the Gulf Coast. "Everything shows that it's going to be a much busier year than last year," said Len Pietrafesa, a professor at N.C. State.

Colorado State University's William Gray had estimated last season would produce nine hurricanes, but he later revised his projections downward. This year, Gray and his fellow researcher Philip J. Klotzbac, have predicted at least nine hurricanes, five of them major. They project a 74 percent probability that at least one major (Category 3, 4 or 5) hurricane will make landfall along the U.S. coast.

The National Hurricane Center was to issue its forecast for the 2007 season in late May.

Newport's mansions develop hurricane plan

Perched on the picturesque Rhode Island coastline, the 11 Newport mansions are a national treasure. Once a summer getaway for the country's wealthiest industrialists, today the historic mansions are a tourist attraction for 750,000 visitors each year.

Yet, as lovely as the mansions are, they are at serious risk should a hurricane threaten the Eastern Seaboard. To lessen the risk of damage to these grand houses, Fireman's Fund Insurance Co., the insurer of the Newport mansions, has worked with the Preservation Society of Newport County, the non-profit that owns them, to devise a three-phase hurricane preparedness plan.

During the first phase, the staff monitors the weather, including the direction and magnitude of the storm. State-of-the-art communication technology ensures that the staff is kept up-to-date. Each of the 11 mansions has its own disaster list that details the structure's valuables and how to properly secure them to minimize loss. During phase one these lists are brought out and reviewed. As an added precaution, all outside furniture and statuary are brought indoors.

Phase two occurs when the storm is approximately 24 hours away. Experts review tide charts to gauge ocean levels, while the staff removes furniture, fine arts and other valuables to the second floor or from the house. Prefabricated storm shutters are installed on all windows and doors. During the late stages of phase two the property is evacuated of all personnel.

Phase three occurs after the storm has passed. The staff takes photos to document damage; makes insurance claims; cleans up debris and water damage; and then re-evaluates the individual disaster lists. It's not unheard of for storms to hit one after another so there may be little time between phase three and gearing up for phase one again.

Jury finds Brightpoint-AIG finite reinsurance deal violated SEC laws

A federal jury in a civil case recently that a former Brightpoint executive violated U.S. securities laws by helping a colleague create a finite reinsurance scheme to conceal millions of dollars in losses by the Indiana cell phone distributor.

The jury in U.S. District Court in Manhattan agreed that Timothy Harcharik, the company's director of risk management from June 1997 until February 2002, helped John Delaney, its former chief accounting officer, pull off the scam at the Plainfield, Ind., company.

The jury declined to agree with the government's claim that Harcharik violated securities laws on his own. U.S. District Judge Harold Baer Jr. said he will announce the penalty Harcharik faces at a June 14 hearing.

Government lawyer David Stoelting told the jury the case was about "deceit and deception" after Brightpoint realized its losses from the closing of an office in the United Kingdom would be higher than the $18 million the company had promised investors it would cost in 1998. He said Harcharik and Delaney teamed up with American International Group Inc. to obtain a phony policy to cover up $11.9 million in losses by making it appear that the losses were covered by insurance.

Harcharik, representing himself at trial, told the jury there was "no conspiracy, collusion or complicity" and that Delaney acted alone in using aggressive accounting techniques that got him in trouble.

"I am sorry ladies and gentlemen. I am not the murderer. I wasn't an accomplice to the murder. I wasn't even at the scene," he said.

Delaney, the only person criminally charged in the case, pleaded guilty to criminal securities fraud in a plea deal reached in October 2005. He served several months of home confinement and paid $100,000 to the SEC.

AIG paid a $10 million penalty while Brightpoint paid a $450,000 penalty.

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

Mass. workers' comp rates going down 16.9%

Workers' compensation insurers and the state regulator have agreed upon a 16.9 percent average decrease in workers' compensation rates in Massachusetts starting Sept. 1, 2007.

The industry's Workers' Compensation Rating and Inspection Bureau of Massachusetts (WCRIB) had submitted a bid for a 13.4 percent rate decrease. Insurance Commissioner Nonnie Burnes held a public hearing on that filing on April 5.

The Commonwealth's workers' compensation rates have declined more than 60 percent from what they were back in 1991 when a reform law was passed, according to WCRIB.

Paul Meagher, president of WCRIB, said insurers believe this decision is beneficial to employers, but warned about maintaining a stable marketplace.

"While this latest decrease is good news for employers, unchecked rising medical and pharmaceutical costs could erode these gains and lead to future rate inadequacy," he cautioned.

He noted that the residual market, which insured 4 percent of the market in 1999, today insures 15 percent, making it the state's second-largest workers' compensation insurer.

Insurers said the time has come for the state to allow insurers more pricing flexibility.

"Rates are coming down because insurers, employers, workers and regulators have worked hard to make safer workplaces," said John Murphy, American Insurance Association vice president, Northeast Region. "This is the ideal environment in which to move Massachusetts to a competitive rating system like those in 39 other states."

AIA is supporting legislation (H. 1840) that would install a loss cost rating system used in all the other New England states and which supporters say encourages insurers to compete for their business.

"In a competitive loss cost system insurers compete with a combination of loss control services, claims services and price which reflects their costs. More efficient companies are able to pass on savings to customers," said Murphy.

Maryland law targets staging accident fraudsters

Maryland became only the second state to make staging a car accident to steal insurance money a specific crime when Gov. Martin O'Malley signed a bill into law recently.

According to the Coalition Against Insurance Fraud, the new law (HB 1409) also would limit access by outsiders to police accident reports, thus making it harder to recruit real crash victims into insurance schemes involving fake injury claims.

The law takes effect Oct. 1, and was sponsored by Del. Dereck E. Davis D-District 25-Prince George's County.

Both reforms are relatively new anti-fraud tools nationally. Only Florida has adopted both measures, and the District of Columbia also limits access to police reports, according to CAIF.

"Phony injury claims can be highly profitable. That profit incentive makes the rings persistent, well-protected and hard to penetrate and bust. They can be equally hard to prosecute in court, but targeted fraud laws give prosecutors leverage that can increase convictions," says Howard Goldblatt, CAIF's director of government affairs.

Goldblatt said making staged accidents a specific crime arms prosecutors with a courtroom tool that helps convict the kingpins. Without this law, prosecutors would have to use other laws that may not as easily fit the elements of this crime.

15 years in prison
Staging a crash would mean up to 15 years in state prison and fines of up to three times the amount of stolen insurance money.

The measure surfaced when the CAIF suggested it to a state legislator who was seeking effective bills to attack accident rings, according to Goldblatt.

Auto-fraud rings typically will pack cars with passengers, then either maneuver innocent motorists into crashes or crash their cars into each other, Goldblatt says. Often working in concert with crooked medical clinics and lawyers, the so-called "passengers" will make bogus claims for treating nonexistent injuries.

In some cases, no cars are involved. The accidents and injuries happen purely on paper.

Limiting access to police accident reports addresses another facet of auto fraud rings -- enlisting victims of real crashes. Ring members use police reports to identify victims, then aggressively try to recruit them for unneeded or phantom treatment at crooked clinics -- whether or not the victims are injured.

Only accident victims and reporters could access the reports for 60 days after the crash. Conviction would mean up to 15 years in Maryland state prison and a $10,000 fine.

N.J. agents view insurance companies' real time capabilities

Nearly 150 New Jersey insurance agents recently got a firsthand look at how real time transactions work and save time.

The Get Real Time program held last month in Edison, N.J. by the Professional Insurance Agents of New Jersey Inc. featured improvements in agency-company electronic communication.

Moderated by Steve Anderson of The Automated Agency Report, the event showed various transactions that companies now enable their agents to carry out in real time, using their existing agency management systems. In the first half of the program, representatives of three agency management systems -- AMS, Applied Systems and Ebix -- demonstrated various real time transactions involving accounts with the carriers that sponsored the event, including The Hartford, New Jersey Skylands, Ohio Casualty and Progressive Drive Insurance.

Starting in the client account information sections of the agency management systems, presenters showed how a single click brings agents directly to the correct screen on the carrier's own Web site. Once there, they can view the information they need or initiate an endorsement or quote request.

Since agents' various passwords and user IDs are embedded in the system, turning on the real time component of the agency system provides instant authentication and access to carriers' Web sites, eliminates continual logging in and out of carrier Web sites, and provides better security for an agency's sensitive access keys.

In most cases if an agency has any version of a mainstream management system, it can turn on real time transactions with only minor adjustments to workstations or networks, and at no additional cost.

Agents were also shown how to document precisely what they did and when they did it. In some cases this means capturing images of screens where transactions took place and attaching these to the client file.

The second half of the program provided examples of real time comparative rating, using systems provided by IVANS Transformation Station, AMS SETWrite, Webcetera's EZLynx and SeaPass. Presenters submitted a single set of data to multiple carriers electronically and received quotes back from the carriers' own rating engines.

Carolyn 'Cal' Durland of ACORD, the standards-setting organization, unveiled the Get Real Time web site, www.getrealtime.org, sponsored by a coalition that includes PIANJ.

"Thanks to much effort by a lot of people, we've reached the point where it's feasible for agents to start making real time the standard workflow in their agency," said Keith Savino, a member of the PIANJ board who also serves as PIA's ACORD representative.

"Anyone who knows me, knows I hate keystrokes," automation expert Anderson said. "Using real-time transactions originating in the agency management system, agents can overcome pain points like endlessly logging into carriers' sites with passwords and user ID's. They also avoid duplicate entry of clients' policy data, which is a major barrier to quoting new business efficiently. Agency personnel can use these savings to devote more time to building customer relationships, counseling clients individually and building a sales-oriented culture."

'Broken lawsuit system' hurts small business, dampens the spirit of entrepreneurship, study claims

The tort system in the United States cost small businesses $98 billion in 2005, with the fear of lawsuits altering the way the small business owners make decisions, according to studies released at a Congressional hearing by the U.S. Chamber Institute for Legal Reform (ILR).

"The simple fact is this: our broken lawsuit system is a serious problem for America's small businesses, costing jobs and dampening the spirit of entrepreneurship and innovation at the very core of America's greatness," ILR president Lisa Rickard told members of the House Small Business Committee.

One study, conducted for ILR by NERA Economic Consulting, found that small businesses (those with $10 million or less in annual revenue) paid $98 billion in tort-related costs in 2005, the latest year for which data is available, with $20 billion coming from the assets of the businesses rather than through insurance. For a small business with $10 million in annual revenue, that translates into about $200,000 a year that it will pay out in tort-related costs, the study says.

"The lawsuit culture transfers billions of dollars in assets critical to the continued survival of small businesses into the bank accounts of trial lawyers," Rickard said.

A second study, conducted for ILR by the nonpartisan market research firm Harris Interactive, examined the effect of lawsuits on business decisions. Harris surveyed owners and managers of small businesses who were most concerned about the tort liability systems in their own states.

Of the qualified respondents indicating that they were very or somewhat concerned about being the target of a frivolous or unfair lawsuit, six in 10 say the fear of lawsuits makes them feel more constrained in making business decisions generally, and 54 percent say lawsuits or the threat of lawsuits forced them to make decisions they otherwise would not have made.

The survey found that, if they felt like they would be protected from lawsuit abuse, 62 percent of these concerned owners say they could grow their businesses by improving their facilities or buying new equipment, increasing wages and benefits for their current employees, or by hiring new employees.

The Harris study polled 1,109 owners and managers for businesses with $10 million or less in annual revenues who had at least one employee, and who were very or somewhat concerned about being sued in a frivolous or unfair lawsuit.

Survey: 75% of consumers satisfied with insurance agents; personalized service

Three-quarters of consumers are very satisfied with the service provided by their insurance agents and remain committed to working with them in the future, according to a new survey of 1,000 American consumers commissioned by IBM.

U.S. consumers want personalized service and human interaction from their insurance providers, says the survey, which comes at a time when agent-based carriers are facing increased competition by direct channels and direct-only insurance carriers.

The study demonstrates consumers' unwavering loyalty to their insurance agent regardless of potential savings that online channels alone can provide, and it indicates how insurance carriers are providing their agents with technologies to deliver more personalized customer services.

For example, only 15 percent of respondents said they would consider dropping their agent to save $150 annually by purchasing insurance online.

Fifty-four percent indicated no amount would make them switch.

Forty-four percent of consumers said their insurance provider is innovative as compared to other industries, and 71 percent of respondents said they will work directly with their agent for future insurance needs.

Personalized service and human interaction emerged as key factors in driving consumer loyalty with their agents. More than half (53 percent) of consumers cite personalized service as what they like best about the services offered by their insurance agent, and quality of service topped the list of the key factors in choosing an insurance provider. For example, face-time continues to play an important role in helping agents deliver quality services; 36 percent surveyed said they like to visit their agent.

"The insurance business is still very much relationship-based, and consumers are willing to pay a premium for agents that instill trust and provide ongoing advice regarding their insurance needs," said Norbert Dick, general manager, Global Insurance Industry, IBM. "But insurers should not ignore the potential in the online channels for maintaining existing customers' loyalty and capturing additional market segments. A combination of back office process improvements and customer experience improvements across channels like the Web, e-mail and cell phones can pay dividends in terms of repeat business and brand loyalty. And for customers who are looking at direct channels, particularly younger, emerging market segments, channel investments stand to gain new business.

At last, World Trade Center rebuilding ready to begin

N.Y. Gov. Spitzer brokers $2 billion settlement between Silverstein Properties and seven insurers

New York Gov. Eliot Spitzer and Insurance Superintendent Eric R. Dinallo announced that they have negotiated a $2 billion settlement between Silverstein Properties and seven insurance companies covering all outstanding insurance claims arising from the Sept. 11 terrorist attack on the World Trade Center.

They said the agreement is the largest in regulatory history, ending almost six years of legal battling and removes the last major obstacle to development at Ground Zero.

With these insurance claims resolved, Silverstein Properties and the Port Authority can now proceed to obtain the financing needed to rebuild Ground Zero.

Silverstein Properties Inc. leased the World Trade Center from the Port Authority in July 2001. When the planes destroyed the twin towers on Sept. 11, insurance policies for the World Trade Center had not been finalized. Suits were filed in October 2001 to resolve disputes over how much the insurance companies owed.

The courts eventually determined that the most Silverstein Properties could collect was $4.68 billion. Until now, the insurance companies have paid about half of that total, leaving the remaining sum in dispute.

Beginning in late March, Dinallo held dozens of meetings with Silverstein Properties and the insurance companies. Late last month, when several outstanding issues remained unresolved, Spitzer became personally engaged in the negotiations, according to the administration.

The insurance companies involved in the settlement are Travelers Companies Inc., Zurich American Insurance Co., Swiss Reinsurance Co., Employers Insurance Company of Wausau, Allianz Global Risks U.S. Insurance Co., Industrial Risk Insurers (now owned by Swiss Reinsurance Co.) and Royal Indemnity Co.

As part of the agreement, Silverstein Properties and the insurance companies have signed confidentiality agreements requiring that specific amounts paid by each company will not be disclosed. The total for all seven companies is $2 billion. These agreements settle all outstanding court cases and related proceedings.

In September 2006, Silverstein Properties and the Port Authority achieved a global agreement for comprehensively rebuilding the World Trade Center site. The agreement called for the Port Authority to construct Towers 1 and 5, for Silverstein Properties to construct Towers 2, 3 and 4 along the eastern portion of the site, and for the Port Authority to prepare the "East Bathtub" foundation for construction of those towers. In order to help finance this rebuilding, Silverstein Properties and the Port Authority agreed to a split of the remaining insurance proceeds of approximately 56 percent to Silverstein and 44 percent to the Port Authority.

The two sides have spent hundreds of millions of dollars on legal fees and other court-related costs. Spitzer said the agreements will save additional tens of millions in legal costs and allow the Port Authority and Silverstein Properties to focus on rebuilding at Ground Zero.

"It is essential that the rebuilding at the World Trade Center site proceed as quickly as possible," said Spitzer. "The unsettled insurance claims were the last major barrier to rebuilding and have been bitterly and intensely contested for almost six years."

Dinallo said the agreement represents "government at its best, working with industry to solve a problem, rather than using the courts or fines or other adversarial procedures."

He also said the case highlights the essential role that insurance plays in modern society.

"If not for the private insurance industry providing a substantial portion of the funding to rebuild from this vicious terrorist attack, the entire cost could have been left to taxpayers," Dinallo added.

Delaware Insurance Commissioner Matt Denn was also involved in the settlement. In February, his office approved a management buyout of Royal & Sun Alliance Insurance Group's U.S. operations, known as Arrowpoint Capital. Denn said he and his staff were involved in the settlement talks and, as principal regulators of Arrowpoint, signed off on the agreement.

"My first and foremost responsibility is to ensure that Arrowpoint Capital is able to pay all of its policyholders' claims now and in the future. The agreement announced today furthers that goal. It is a fair resolution of the claims of the World Trade Center and relieves Arrowpoint of substantial uncertainty relating to the litigation of these claims," Denn said in a statement.

The Insurance Information Institute estimates insurers paid $37.0 billion (adjusted in 2006 dollars) in property, life, and liability claims for losses related to the events of Sept. 11, 2001 in New York, Virginia and Pennsylvania.