Businesses protest N.Y.'s 'scaffold law' as session nears end

With the New York Legislature set to adjourn on June 21, business associations and groups representing the state's agriculture and construction industries again urged Gov. Eliot Spitzer and state legislators to dismantle the so-called "scaffold law."

The scaffold law -- also known as sections 240/241 of the Labor Law -- imposes absolute liability on New York's property owners and contractors in cases of worksite injuries.

"This means that, in claims stemming from worksite injuries, these owners and contractors cannot even defend themselves by introducing evidence of their own commitment to safety or of worker negligence," said Kenneth Adams, president and chief executive officer of The Business Council.

"In this way, New York State has abandoned the common-sense fairness standard of letting people defend themselves against accusations," Adams added. "The effects of the scaffold law are nasty: inflated business insurance costs, and higher costs of goods, services, and taxes for all New Yorkers."

The business and farm groups want the absolute liability standard replaced by a negligence-based standard.

Such reforms, sought for years, have stalled in Albany, despite concerns over how the law hurts the state's business climate. Lawmakers are scheduled to break for the summer in two weeks.

"Liability insurance costs more in New York State than anywhere else, which gets passed on to taxpayers to the tune of thousands of extra dollars in construction costs on homes and public projects. This law is hurting taxpayers and costing our state jobs. It needs to be changed," argued Chris Wiest, vice president of public policy for the Rochester Business Alliance and a representative of Unshackle Upstate.

Storms of 2007

The National Hurricane Center has identified the names that will be used during 2007 to designate storms. Names of storms that are particularly destructive or deadly are retired and replaced. Names beginning with the letters Q, U, X, Y and Z aren't used.

Andrea

Wendy

Warning: Scammers using Maine insurer's name

The Maine Bureau of Insurance is advising consumers to beware of an illegal sweepstakes scam targeting MMG Insurance Co., a Maine domestic workers' compensation insurer located in Presque Isle.

Officials at MMG notified acting Superintendent Eric Cioppa that individuals across the country have received bogus sweepstakes letters which fraudulently use the MMG logo and name without the company's knowledge or authorization.

In addition, the fake sweepstakes notifications include counterfeit MMG Insurance Co. checks for varying amounts.

Officials stress that neither MMG Insurance nor its parent, Maine Mutual Group, has offered, sponsored, or otherwise endorsed a sweepstakes of any kind.

"MMG Insurance Co. acted swiftly and responsibly to reduce the possibility of consumer harm from this deceptive activity," stated Acting Superintendent Eric Cioppa.

Cippoa urged anyone receiving the materials to ignore them.

"Recipi-ents of the fraudulent letter and counterfeit check are encouraged to destroy the documents immediately and report the incident to local law enforcement authorities."

The Maine insurance company has posted additional information regarding the scam on its Web site at the following link:

http://mainemutual.com/PDFs/SweepstakesScam0507.pdf

N.Y. vows to revamp regulation to remain financial capital

New York Gov. Eliot Spitzer has created a commission to identify ways for New York to enhance its status as a world financial capital by modernizing its regulatory scheme and perhaps merging state regulation of insurance, banking and securities.

"The financial world has changed and we must change with it to retain our leadership position," Spitzer said. "This panel will help the state bring its regulatory structure into the 21st Century, encouraging the use of cutting edge technology and techniques to provide capital, insurance and other services to companies and individuals around the country and the globe."

Spitzer asked the New York State Commission to Modernize the Regulation of Financial Services, which includes representatives from industry, consumer groups and government, to review all financial services statutes, regulations and policies and propose changes by June 30, 2008.

State Insurance Superintendent Eric Dinallo will chair the new commission. "Current laws and regulations in New York do not work for the industry or the consumer. Financial services companies claim that they face unnecessary regulatory hurdles in bringing new products to market. Consumer advocates claim that public awareness about the risks and costs of what are fundamentally the same financial products can vary depending upon the state agency that is doing the regulating," Dinallo said. "We must develop new laws and regulations that promote competition and the growth of business, while effectively protecting both consumers and honest businesses from unfair or unethical practices."

Four separate New York state agencies -- the Insurance Department, the Banking Department, the Department of State and the Attorney General's Office -- all regulate the financial services industry. This regime was created at a time when federal laws restricted the commercial activities of financial services firms and the activities of banks, insurance companies and securities firms were more distinguishable.

Critics believe the current structure results in burdensome and inconsistent state regulation.

Among its charges, the commission is to identify ways regulatory powers might be integrated and changed.

Spitzer named CEOs from AXA Equitable, American International Group and MetLife to the panel along with representatives from banking, securities, legal, consumer, and regulatory and business communities.

R.I. House members forward coastal measures

The leaders of a special Rhode Island House commission studying the effects of natural disasters on property insurance costs have introduced legislation they say is aimed at protecting coastal homeowners from "unreasonable" rate hikes to insure their homes for hurricane damage or from having their policies canceled because of their location near a coast.

The two bills are the first bills to come out of the work of the commission, which began meeting last summer to address post-Katrina insurance issues affecting homes near the state's coast.

Some insurers have been raising rates for coastal homes, requiring owners to make modifications to prevent storm damage or dropping them altogether. Some have also expanded their definitions of hurricane risk, so some homes miles from the coast have been affected.

The first bill, sponsored by special commission chairman Paul W. Crowley (D-Dist. 75, Newport), would ban any insurance company doing business in Rhode Island from canceling or refusing to issue insurance to any owner-occupied home "primarily" because of its location. Current law bans such cancellation based "solely" on location, but the change of that single word would expand protection to more homes in the state, according to Crowley.

The second bill, sponsored by Rep. Brian Patrick Kennedy (D-Dist. 38, Hopkinton, Westerly) would institute several limits on what insurers can demand from policyholders when it comes to protecting against hurricane damage.

The bill would require that all insurers that require mandatory hurricane deductibles offer customers a choice between flat-dollar and percentage-basis deductibles, and provide a notice to the policyholder that fully explains both options. The bill also stipulates that insurers should consider waiving the deductible for policyholders who take steps to prevent hurricane losses, such as installing storm shutters or roof tie-downs.

The Kennedy bill also stipulates that the deductible shall go into effect from the moment a National Weather Service hurricane watch or warning is issued for any part of the state in which the insured property is located. That provision is meant to provide a uniform definition of when a hurricane begins and ends for the purposes of insurance.

Finally, the bill requires that the amounts of all deductibles, waivers and credits must be supported with actuary evidence.

The commission has argued that insurers have offered little scientific evidence to back up their claims that Rhode Island homes are facing any kind of increased risk for hurricane damage.

"The insurance industry relies very heavily on modeling numbers and research, because insurers have to be able to absorb substantial risk," said Kennedy, who is chairman of the House Corporations Committee and serves as vice president of the National Conference of Insurance Legislators.

"If insurers are going to charge homeowners excessive premiums for some perceived risk, then they should supply solid research and actuarial studies to back up their assertions. We are taking proactive steps to give Rhode Island home owners new protections to ensure storm-related claims will be covered properly by insurers."

Crowley emphasized that the two bills are only the beginning of the commission's work.

"The huge rate increases we've been experiencing, the demands for structural changes to people's homes, and the dropped policies are not going to go away unless we take the insurance companies -- or the reinsurance companies -- to task. We have to demand that they either show us the data justifying the costs they're passing on to homeowners or stop charging homeowners so much," said Crowley.

MarshMac blasts N.Y. Post over ad photography criticism

Marsh & McLennan Companies has vigorously defended its use of photographs in a recent ad campaign against the suggestion in a New York newspaper article that they contain images of the Twin Towers of the World Trade Center.

The risk and insurance firm, which lost 355 employees in the Sept. 11, 2001 terrorist attacks on the World Trade Center, called the New York Post article "not only wildly wrong, but cruel and despicable."

The New York Post article that ran June 11 quoted relatives of people who died in the attacks as saying the reflections in the eyes of the people photographed look like the Twin Towers.

"As a company that lost 355 colleagues in the 9/11 terror attacks, MMC is outraged that the New York Post would run a story designed to resurrect the pain and anguish experienced by MMC colleagues and, in particular, the families of those colleagues who perished on September 11, 2001," MMC said in a statement.

The photos used in the campaign were taken by portrait photographer Martin Schoeller, whose work is characterized by a lighting technique in which he reflects light from two five-foot high light stanchions into the subject's eyes. He has used the technique for more than a decade and has photographed hundreds of people using it, including President Bill Clinton and numerous celebrities, according to the company.

"The mere suggestion that MMC would include, suggest or disregard 9/11 imagery in its ad campaign is not only wildly wrong, but cruel and despicable. Indeed, it is the Post's own bizarre theory that the photographs are in some way connected to the tragedy of 9/11," MMC added.

In a letter accompanying MMC's statement, the agency for the photographer explains the signature lighting technique used and maintains that "nothing was super-imposed in the eyes and all elements of each of the images are created in camera." It said any statement indicating otherwise would be "false and inaccurate."

The matter may not be over, as the insurance firm vowed to seek remedies:

"It is unfortunate that the Post chose to publish this story with so little regard for the emotional toll it might take on the 9/11 families and survivors. The decision to do so in the face of all evidence to the contrary is highly irresponsible and a regrettable example of tabloid journalism that puts sensationalism ahead of the truth. The firm will explore all possible remedies against the newspaper in connection with this matter."

Violent and property crime down in Northeast, reports FBI

Violent crime increased 1.3 percent in 2006 when compared with data from 2005. However, property crime decreased 2.9 percent for the same time period, according to the FBI.

Violent crime was up, except in the Northeast. Motor vehicle thefts went down while arson incidents rose across the country.

For 2006, property crime decreased 2.9 percent when compared with 2005 data. Motor vehicle theft offenses dropped 4.7 percent and larceny-theft offenses were down 3.5 percent. Burglary offenses increased slightly (0.2 percent).

Property crime decreased in all of the nation's city population groups, ranging from a 3.4-percent decline in cities with populations of 100,000 to 499,999 persons to a 2.1-percent decrease in cities with 500,000 to 999,999 inhabitants.

Nonmetropolitan and metropolitan counties also had declines in property crime, down 4.2 percent and 2.2 percent, respectively, when 2005 data were compared with 2006 reports.

Motor vehicle theft and larceny-theft decreased in all population groups.

For burglary, non-metropolitan counties had the greatest decrease (4.6 percent) among the population groups, and cities with 500,000 to 999,999 inhabitants had the greatest increase (3.3 percent).

Three of the four regions saw decreases in reports of property crime from 2005 to 2006. However, property crimes were virtually unchanged (+0.1 percent) in the Midwest.

By offense type, each region experienced declines in the number of larceny-thefts and motor vehicle thefts.

Arson offenses, which are tracked separately from other property crime offenses, increased 1.8 percent from the previous year's number. All population groups had increases in arson offenses except for cities with populations of 250,000 to 499,999 inhabitants (-3.4 percent) and those cities with 100,000 to 249,999 persons (-0.8 percent).

Regarding volent crime, three of the nation's four geographic regions had increases in violent crimes from 2005 to 2006. The Northeast was the exception as the number of violent crimes remained virtually unchanged (-0.1 percent) from the previous year.

By violent crime category, robbery offenses increased 6.0 percent and murder and nonnegligent manslaughter increased 0.3 percent. The number of forcible rapes decreased 1.9 percent, and aggravated assaults were down 0.7 percent.

Risk managers take strong stand against contingent commissions

RIMS issues new policy statement denouncing such incentive pay for all agents and brokers, whether Wall Street or Main Street

The largest association of commercial insurance buyers has stepped-up its opposition to the acceptance of contingent compensation by any agent or broker, calling such compensation "an inherent conflict of interest" in a strongly worded policy restatement.

The 10,000-member Risk and Insurance Management Society (RIMS) said it is "troubled" that some in the insurance industry continue to promote contingent compensation even after "recent investigations, admissions and fines demonstrate how these practices can be manipulated to the disadvantage of the insurance buyer."

"RIMS supports a business model for the insurance industry which does not provide for, offer or make available contingent commission arrangements for the brokerage industry," the group said in its revised policy statement.

For any broker or independent agent to accept these fees "represents an inherent conflict of interest," according to RIMS, which called for an end to contingencies.

RIMS had issued a policy position in 2005 that criticized contingencies but which did not call upon the insurance industry to discontinue them as the current policy does.

According to Terry Fleming, RIMS board member and risk manager for Montgomery County (Maryland), the association's members have been asking the group to come out with a stronger position against these supplemental compensation programs.

He said the organization decided to produce the new policy statement after a number of CEOs at the recent RIMS annual meeting took a "wait-and-see" attitude towards proposed alternative supplemental payment plans, some of which pay contingent fees prospectively or vary with the size of the account or brokerage involved.

Fleming said RIMS is "extremely concerned" that some of the same brokers that promised risk managers they would not accept contingent fees a few years ago are now considering reneging on that promise and accepting alternative contingent fees.

New compensation plans
The compensation plans being questioned traditionally involve payments to brokers after they place a certain volume of business with an insurer or meet other performance criteria such as profitability or business retention.

However, the structure of contingent plans has been changing in response to criticism. Several insurers, including Chubb and Travelers, are promoting alternative supplemental plans, which pay brokers prospectively for achieving certain volumes or performance goals. Critics say these prospective plans have the same effect as traditional retrospective plans.

Fleming said the RIMS opposition to contingencies applies to prospective as well as retrospective plans and to agents and brokers regardless of size.

At a CEO panel during the RIMS annual meeting in early May, executives from several large brokerages were given an opportunity to denounce contingent payments but did not clearly do so.

Marsh CEO Brian Storm claimed the issue must be addressed as part of the bigger issue of how to pay for improvements brokers make in the insurance process.

"Marsh is going to take its time with this issue. We want to know how our clients, how the industry feels about it. We certainly understand transparency as well or better than anyone. I think that we'll come to a conclusion that is good for the industry, not just for Marsh," Storms told the RIMS audience.

Gregory C. Case, president and CEO, Aon Corp., indicated that contingencies were still in play at his firm.

"One observation I would make, and from Aon's standpoint, we don't know what the definition of supplemental is. We can't take the answer as 'no' right now. I don't know what it means," Case maintained.

Patrick Gallagher Jr. chairman, president, CEO, Arthur J. Gallagher & Co., suggested that the commitment that his firm and others have made to making all compensation plans transparent eliminates any potential conflict of interest cited by critics of contingencies.

Absent from the RIMS panel was Joseph Plumeri, CEO of the large broker Willis Group Holdings. Plumeri's firm has stood out for its strong vow not to accept any form of contingent payments, which is now the RIMS position.

After a review of the prospective compensation plans recently proposed by certain carriers, Willis renewed its vow. Plumeri said his firm would not be accepting these new incentive arrangements because in its opinion they fail to fix the conflicts associated with the contingent commissions they are meant to replace.

"They have performance-driven elements that make lump-sum payments contingent on factors such as retention, growth and profitability -- features that rendered contingent commission plans incompatible with conflict-free transparency and our clients' best interests," Willis said in its statement.

Anti-contingency policy
RIMS is urging its members to enforce the anti-contingency policy in their dealings with brokers but Fleming said the risk managers would also support a prohibition through legislation or regulation.

He said risk managers can't tell the insurance industry how to structure its compensation but the group can make known its opposition to a particular form of compensation.

The large risk management organization is also supporting full disclosure of "all sources of compensation, direct and indirect, now or in the future" even where buyers fail to request it.

"Failure to disclose such arrangements runs counter to the spirit of partnership that risk managers seek to achieve with their brokers, vendors, and insurers," the RIMS policy says.

RIMS urged its members to evaluate their relationships with brokers and take action to correct situations where transparency and full disclosure are not followed.

Fast-growing, state-run property insurers pose risk for taxpayers

Exponential growth of state-run property insurers of last resort ultimately may shift much of the long-term risk of hurricane-related losses to policyholders and taxpayers, even those who live nowhere near the coast, reports the private insurance industry's Insurance Information Institute (I.I.I.).

By year-end 2006, total exposure to loss in state-run property insurers is estimated to have surged to more than $600 billion, compared with $54.7 billion in 1990. Total policies in force had also risen to in excess of two million.

The explosive growth in these plans is attributable to a number of factors, including the rapid rise in coastal development and property values, and the changing shape and role of state-run property insurers in a number of states, according to a new study from the I.I.I.

"While state-run insurers of last resort fulfill a key role by ensuring that policyholders can obtain insurance coverage, many have morphed from their traditional role as urban property insurers into major providers of insurance in high-risk coastal areas," said Dr. Robert P. Hartwig, president and chief economist of the I.I.I.

According to Hartwig, this shift of high risk exposure away from the private property insurance market is placing an enormous financial burden on state-run insurers, leaving a number of them operating at substantial deficits. As a result, state-run insurers of last resort may end up shifting the long-term risks of hurricane-related losses to policyholders and taxpayers who do not live near the coast.

"Depending on the state, the redistribution of costs is commonly achieved via laws that allow state-run insurers (which are often the largest insurers in the most hazardous areas) to recover their losses in excess of their claims-paying resources by assessing (effectively taxing) the insurance policies of homeowners and business owners throughout the state, including those well away from the coast and those who have never filed a claim," Hartwig said. "In some cases, even unrelated types of insurance such as auto insurance and commercial liability coverage can be assessed."

"Even in states where the value of insured coastal property represents a relatively small percentage of total insured property values, this does not mean that state-run property insurers are not experiencing rapid growth," added Claire Wilkinson, vice president, Global Issues at the I.I.I. and co-author of the study.

For example, North Carolina's $105.3 billion in insured coastal exposure represents just 9 percent of the state's total insured property values. Yet the state's beach and windstorm plan saw its exposure and total policy count more than double between 2003 and 2006.

"The insurance industry is committed to working in partnership with public policymakers, consumers and businesses in developing solutions to the formidable challenges posed by catastrophe risks in future," Hartwig said.

Court sides with insurers on credit reporting case

The Supreme Court has sided with two insurance companies in a case involving alleged violations of the Fair Credit Reporting Act. The law requires insurance companies and other businesses to notify customers who are charged more because of their credit ratings.The law requires insurance companies and other businesses to notify customers who are charged more because of their credit ratings.

In a unanimous decision, the justices said Geico General Insurance Co. did not violate the law and that Seattle-based Safeco might have, but did not do so recklessly.

The insurance industry said a decision against it could have subjected companies to billions of dollars in punitive damages for failing to notify customers.

The Property Casualty Insurers Association of America agreed that the ruling by the U.S. Supreme Court clarifies significant issues related to the rules regarding insurers' requirements to provide adverse action notice to consumers.

"Today's ruling reverses the appeals court decision that said the defendant insurance companies had acted in 'willful disregard' of the law for failing to send adverse action notices," said Kathleen Jensen, senior legal counsel for PCI. "We contended in our amicus that the 9th Circuit Court used a very low standard for determining whether insurers acted in willful disregard for the law."

The court also ruled that the benchmark for determining whether FCRA notice is required at new business should be the rate the applicant would have had if the company had not taken his credit score into account, not a benchmark of what the "best" rate is. The court further clarified that once a consumer has learned that his credit report led the insurer to charge more, he has no need to be told over again with each renewal if his rate has not changed.

Thirteen state insurance commissioners said that a lower threshhold for proving liability, adopted by the 9th U.S. Circuit Court of Appeals in San Francisco, would motivate compliance with the law.

To find liability, a company's conduct must be more than "merely careless," wrote Justice David Souter.

Souter said that a company's conduct must entail an unjustifiably high risk of harm that is either known to a company or is so obvious that it should have been known.

The appeals court warned companies against relying on "creative lawyering that provides indefensible answers." Liability, the appeals court said, could stem from a company's "deliberate failure to determine the extent of its obligations."

Relying on implausible interpretations of its obligations may constitute reckless disregard for the law and therefore amount to a willful violation, the appeals court said.

The Supreme Court adopted a notification requirement favored by the industry. The standard limits the circumstances in which customers must be told their premiums are higher because of their credit ratings. The appeals court and lawyers for consumers said they must be notified any time they pay more than the lowest rate available to customers with the very best credit scores.

"Geico has the better position," the Supreme Court said.

Geico did not owe a prospective customer such notification, the court said. The company had offered him a rate that was the one he would have received if his credit score had not been taken into account.

Safeco did not notify two of its customers because it thought the law did not apply to initial applications, a mistake that left the company in violation of the law.

"The company was not reckless in falling down on its duty," Souter wrote.

Under a more expansive notification standard, Safeco would be required to send adverse action notices to 80 percent of the company's new customers, Maureen Mahoney, an attorney defending the two companies, said at arguments in the Supreme Court in January. At Geico, just 10 percent of new customers qualify for the top tier of credit, Mahoney added.

There are credit reports on 200 million Americans, and consumer information is used by an array of lenders, retailers, employers and government agencies. Credit reporting agencies generate 1.5 billion consumer reports per year.

Congress passed the credit reporting act in 1970 to protect consumers from flaws in the system and improve the reliability of reports so that the business sector can accurately gauge risk. Consumer groups point to the notification requirement as the cornerstone to cleansing credit reports of inaccurate information.

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