Commerce makes Mass. U-turn, now supports competitive rating
One of -- if not the -- most influential industry opponents of competitive rating for the Massachusetts private passenger auto insurance system for years has changed course and says it now fully supports the Patrick Administration's plan to introduce competitive rating by April 1 of next year.
Commerce Insurance even supports the new assigned risk plan which last year it went to court to block.
Commerce, which has flourished under the current fix-and-establish rates and unique residual market rules to become the state's number one auto writer with about 32 percent of the $3.9 billion market, says its years of opposing change are behind it.
"That's all history," Gerald Fels, chief executive officer and president of the Webster, Mass.-based company, said during a teleconference with Credit Suisse. "We're going to go forward."
According to Fels, Commerce "fully supports" the decision of Commissioner Nonnie Burnes to introduce "managed" competition. He even applauded her "courage" in issuing her decision, calling it a "bold" move which along with the assigned risk plan will actually give his company more control over its own destiny.
"We totally support the Patrick Administration. We feel we got a fair decision here and we're ready to do business."
Fels seemed unfazed by the prospect of direct or online sellers like Geico, 21st Century or Progressive making inroads. He said his company competes with direct writers elsewhere and will compete in Massachusetts with its independent agents by supplying them with the best products. Commerce does not offer an online quoting service for buyers.
He cited a big market advantage for Commerce: it's arrangement with the AAA Southern New England under which it insures more than 500,000 of the state's more than 1.2 million AAA members. The program is marketed through independent agents who represent Commerce. The agreement was extended for a minimum of 20 years last December.
"It's a tremendous opportunity for us," Fels noted of the move to more competition.
Now that it is on board with Burnes, Commerce will be among the many waiting to see the details -- how she plans to transition from the current fixed prices with subsidies for urban and youthful drivers to a system where insurers set their own prices within certain regulatory parameters and state laws.
Commerce Executive Vice President James Ermilio said the company still supports subsidies that help make insurance affordable for urban and youthful drivers and was happy to see Burnes reference these in her decision.
Fels said he thought the Massachusetts approach to deregulation would be more controlled than what he termed the "free-for-all" in New Jersey several years ago. He also said he thought insurers have learned from the Bay State's own failed attempt in 1977. Finally, he said he thinks it is "unlikely" that state lawmakers would reverse the course Burnes has chosen.
Burnes called for ideas for regulations and set Aug. 1 as the submission deadline. She said she would hold a public hearing this month and issue draft regulations in September.
Her decision was endorsed by her boss, Gov. Deval Patrick. "It neither affirms the status quo nor jumps headlong or without controls into the Wild West of competition," the governor said during a news conference. "The idea is to advantage good drivers and make sure we are not harming good drivers wherever they are."
The move to turn the pricing over to insurers comes after several consecutive years of rate decreases. For 2007, the state cut auto rates by 11.7 percent. Rates were cut 8.7 percent in 2006. Industry insiders have been suggesting 2008 would see another drop of as much as 10 percent.
Insurers anticipate claims from Manhattan steam pipe blast
Consolidated Edison in New York has agreed to let two insurance companies anticipating millions of dollars in claims monitor the cleanup of last month's steam pipe explosion in midtown Manhattan, the utility's spokesman said.
The agreement between Con Ed, Travelers Indemnity Co. and Allianz Global Risks U.S. Insurance will give the companies' inspectors access to the site, Con Ed spokesman Michael Clendenin said.
A day earlier, the insurance companies filed a court petition to force the utility to preserve evidence from the July 18 blast. A ruptured pipe sent a geyser of steam, mud and asbestos-tainted debris over the neighborhood near Grand Central Terminal.
One woman died of a heart attack after the explosion. A man was critically burned over 80 percent of his body, and dozens of others were injured as a result of the blast.
The utility had inspected the intersection where the explosion took place seven hours earlier and hadn't noticed anything amiss.
It was not in the public's best interest to allow only city agencies and Con Ed, "potentially culpable parties in future possible litigation," to have sole control over the removal of evidence from the street crater created by the explosion, the insurance companies said in their court filing.
The insurance companies say they have been notified that claims will be coming from people and businesses affected by the explosion.
Meanwhile, a cosmetic dentist filed a $25 million lawsuit against the utility, claiming he has lost money and patients because of the steam pipe blast.
Dr. Bruce Haber says he has not been able to get into his 25th-floor office across the street from Grand Central Terminal since the explosion.
His lawyer, Alan Schnurman, said the lawsuit accuses Con Ed of "negligence to the point of gross recklessness."
Also, a woman filed a negligence suit in Brooklyn against Con Ed, saying the utility failed to maintain the ruptured steam pipe properly. Francine Dorf says she was in a building on East 42nd Street when the pipe exploded.
"I thought a building was going to collapse," said Dorf, a legal secretary whose lawsuit claims she is suffering from post-traumatic stress disorder and asks unspecified damages.
Dorf's sister, Maria La Vache, was an employee of insurance giant Marsh & McLennan and was on the 99th floor of the World Trade Center's north tower during the Sept. 11, 2001, terrorist attacks. Her body was never recovered.
Copyright 2007 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Court challenge to Va.'s bad driver fees delayed
The first court challenge to prohibitive fees Virginia is imposing on bad and dangerous drivers was postponed in a Henrico County court late last month.
Anthony Price, charged with his fifth violation for driving on a suspended license, was unaware his citation would have become a test case for challenging the new civil remedial fees that can total several thousand dollars and are assessed only on Virginia residents.
His lawyer said that Price was not present because he did not know that his original Aug. 8 court date had been moved up, and representatives of the commonwealth's attorney's office asked for more time, forcing General District Judge Archie Yeatts to postpone the proceeding.
Virginians upset at the size of the fees and outraged that nonresidents don't pay them have clamored to have the law swiftly struck down by a court or repealed by the General Assembly.
Lawyers and judges across the state had hoped the Henrico hearings might provide the first indication whether the law violates the 14th Amendment guarantee of equal protection under the law. Because nonresidents don't pay the fees, some defense lawyers say it violates that principle.
The law's abusive driving penalties target specific traffic offenses committed after July 1. The fees, collected in three yearly installments, range from a total of $750 for driving with a revoked or suspended license to $3,000 for driving-related felonies. They are paid along with some of the nation's steepest fines.
Also, repeat speeders who accrue at least eight demerit points incur a $100 annual surcharge plus $75 for each point beyond eight. Judges have no power to lower or waive the fees once someone is found guilty. The revenue is earmarked for highway maintenance.
Copyright 2007 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
N.H. town scraps public event insurance requirement
Faced with a possible First Amendment lawsuit, selectmen in Jaffrey, N.H., have rescinded their new guidelines requiring people or groups holding events on town property to buy $1 million insurance coverage.
The New Hampshire Civil Liberties Union challenged the rule on behalf of resident Jean Coutu, who applied to hold an annual Live Free or Die political celebration.
Acting Town Manager Randall Heglin said the town is revising the policy because of the Civil Liberties Union challenge. He indicated that town counsel and Jaffrey's insurance company, Primex Insurance Brokers Inc., reviewed the complaint.
The New Hampshire Civil Liberties Union says requiring a $1 million commercial general liability insurance policy to hold events on public property in Jaffrey violates constitutional free speech rights. The group threatened to sue if the town applied the rule to the annual Live Free or Die Celebration this month.
Barbara Keshen, civil liberties union staff attorney, said requiring a $1 million insurance policy "chills free speech and constitutes an unlawful restraint on First Amendment speech."
Coutu, a Jaffrey resident, said he applied in May to use the town common for his event but did not receive a copy of the new insurance policy until June. Coutu believes the town policy was in response to his application.
But Heglin said the town began considering requiring insurance during the winter when department heads voiced concerns the rising costs of events. Heglin said the town and insurer developed a policy to protect public properties.
Pa. says now's not the time to reduce state's medical malpractice coverage participation
There is not evidence of sufficient market capacity at the current time to mandate an increase in primary medical malpractice insurance limits in Pennsylvania, Deputy Insurance Commissioner Randy Rohrbaugh has ruled.
He was responding to a proposal in state law to raise to $750,000 from $500,000 the primary coverage limits health care providers must obtain from private commercial insurance carriers, thereby allowing the state to reduce its participation in the second layer of coverage. He determined that the private marketplace is not in a position to provide the higher primary limits.
"In making this decision, our priority was to protect the consumers who are accessing health care in the state," Rohrbaugh said. "We did not want to prematurely raise the limits before there is adequate capacity in the medical malpractice insurance marketplace, as this could have an adverse effect on the availability of health care."
He said the market would not be able to absorb greater risk, "so it would be irresponsible to allow an increase in limits to $750,000 at the primary insurance layer."
Providers are required to carry $1 million insurance: the first $500,000 from a commercial insurer and the remaining $500,000 from the Medical Care Availability and Reduction of Error (Mcare) Fund.
Sept. 11 workers sue WTC insurance fund for sick pay
Ailing ground zero workers have gone to court to demand that the company overseeing a $1 billion Sept. 11 insurance fund uses it to pay for their health care.
Attorneys for the workers argue that federal officials meant for the money in the WTC Captive Insurance Co. to be used as compensation for sick workers.
The workers have already filed a class-action lawsuit claiming the toxic dust from the World Trade Center site gave them serious, possibly fatal diseases. On July 17 they sought compensation from the company in charge of money appropriated by Congress to deal with Sept. 11 health-related claims.
"The WTC Captive has consistently refused to pay any of the ground zero workers who have become ill on the work site, including any compensation" for lost salaries, pain and suffering, medical treatment, medical monitoring or burial expenses, said the suit filed in Manhattan's state Supreme Court.
City officials have long said that the money must first be used to litigate claims before it goes to workers. But attorneys filing the lawsuit argue that the money was created to reimburse ailing workers, not fight them in court.
"She hasn't paid a penny to one of my 10,000 people," David Worby, an attorney representing the workers, said of the company's CEO, Christine LaSala. "It was their mandate."
Congress directed the Federal Emergency Management Agency in 2003 to appropriate up to $1 billion "to establish a captive insurance company or other appropriate insurance mechanism for claims arising from debris removal, which may include claims made by city employees."
The lawsuit, relying on testimony from federal officials, said officials meant for the money to be used to compensate ailing workers. Federal and state governments never said "that a captive insurance company be established solely to defend the city of New York and its contractors from all rescue, recovery and debris removal related claims, at all costs," the lawsuit said.
Since it began operating in 2004, the company has spent more than $73 million of the insurance money in legal fees and other expenses, the lawsuit says.
Roy Winnick, a spokesman for WTC Captive, said he could not comment on the claim until the lawsuit was filed.
More than 100 of the plaintiffs in Worby's lawsuit have died of respiratory diseases and cancers since the post-Sept. 11 cleanup. Last year, the largest study of ground zero workers determined about 70 percent suffer respiratory disease years after the cleanup.
Bloomberg and other city officials have estimated the cost of caring for the workers who are sick or who could become sick at $393 million a year and urged the federal government to pay for their treatment and monitoring.
Copyright 2007 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Webster Bank looks to sell Conn.'s largest agency
Connecticut's Webster Financial Corp., parent of Webster Bank that owns the state's largest insurance agency, could be out of the insurance agency business soon.
Following a strategic review begun last September, the bank has decided to focus on its core business of retail and commercial banking in New England and explore the sale of its sizable insurance agency, Webster Insurance.
"We are exploring strategic alternatives that will likely result the sale of Webster Insurance and ideally will include a partnership to continue to sell insurance products," the bank revealed in a July 24 report to investors.
For the year ended Dec. 31, 2006, Webster Insurance's revenue was $38.8 million, a decrease of $5.2 million or 11.8 percent, compared to 2005, primarily due to reduced retention and a decline in contingent revenue.
A regional insurance agency, Webster Insurance sells property/casualty, benefits and other insurance products in Connecticut, Massachusetts and Rhode Island. It is the largest insurance agency based on revenues in Connecticut.
Headquartered in Meriden, it also has offices in East Haven, Vernon, Waterford and Westport as well as an office in Harrison, New York.
The bank built its insurance operations in part by acquiring several established and well-known agencies during the early 2000s. The acquisitions included Mathog and Moniello, Wolff-Zackin and Musante-Reihl.
The Hartford settlement ends agents' contingent commissions
The Hartford Financial Services Group Inc. announced it has reached a settlement with the New York, Connecticut and Illinois attorneys general resolving matters relating to their investigations of the compensation arrangements between the insurer and its property/casualty agents and brokers.
As part of the deal, The Hartford will no longer pay its property/casualty insurance agents commissions that are contingent upon growth or future performance but will implement a new supplemental payment scheme with fixed commissions per policy based more on an agency's past performance with the insurer.
In this change in compensation plans, the insurer joins others including Chubb and Travelers in instituting fixed commission plans for agents.
The company also reported a settlement regarding the New York Attorney General's investigation of market timing within the company's variable annuity products.
In settling both the market timing and broker compensation matters, The Hartford said it has agreed to pay, in total, $115 million.
The Hartford did not admit or deny any violation of federal or state law as a result of this settlement.
Other previously disclosed matters that were under investigation by these attorneys general have been concluded, according to the insurer.
In addition, The Hartford had previously disclosed an investigation by the staff of the Securities and Exchange Commission into matters related to market timing. In light of the settlement, the company said that the SEC staff informed The Hartford that it has concluded its investigation without recommending any enforcement action.
The $115 million total amount consists of $89 million in restitution ($84 million for market timing and $5 million for broker compensation) and $26 million in penalties.
According to the insurer, a "substantial portion" of the cost of the settlement has already been funded by a previously disclosed reserve of $83 million set aside for regulatory matters.
"We are pleased to have these matters behind us," commented The Hartford Chairman and CEO Ramani Ayer. "Since these investigations began more than three years ago, we have cooperated fully with the attorneys general and other regulators. We have worked assiduously to strengthen and improve our business practices and will continue to do so. We emerge from this period with an unwavering resolve to uphold our longstanding commitment to providing our customers with outstanding products and exemplary service."
Of the total settlement amount, $5 million will be paid into a fund to compensate certain commercial property/casualty policyholders "related to a limited number of isolated instances of improper quoting between 2001 and 2004."
The attorneys general found that in these instances, certain employees of The Hartford engaged in improper underwriting by providing quotes for commercial insurance that were not based on an adequate assessment of the risk. The company said these activities were not in keeping with its standards and that over the last several years, the company has voluntarily strengthened its internal controls, guidelines and training in this area.
The Hartford also agreed that it will forego paying contingent compensation in any line of its property/casualty business in which more than 65 percent of the U.S. market does not pay contingent compensation.
The Hartford said it has decided to implement a new program for 2008 to compensate property/casualty agents and brokers for their performance in these lines of insurance and in its other standard commercial lines of insurance. Under this new supplemental commission program, The Hartford will pay a fixed commission, set prior to the sale of a particular insurance policy, that is based among other things on the agent or broker's past performance.
"We value our strong partnerships with independent agents and brokers," said Ayer. "Our new property/casualty supplemental commission program reflects their feedback for a more predictable compensation package."
In addition to the property/casualty fund monies, $84 million of the settlement will be paid into a fund to compensate certain variable annuity contract holders of The Hartford for harm the New York Attorney General found to have resulted from the market timing activities of variable annuity contract holders from 1998 through 2003.
House panel votes to add wind to flood program
Private insurance companies are balking at a decision by a key House panel to expand the federal flood insurance program to include wind coverage. The House Financial Services Committee voted late last month to add wind coverage to the National Flood Insurance Program (NFIP).
"We continue to believe that adding wind coverage to the NFIP is not the right solution," commented American Insurance Association (AIA) President Marc Racicot.
AIA commissioned a study by Towers Perrin showing that adding wind could cost taxpayers as much as $100 billion to $200 billion if the federal government began displacing the private market by providing wind coverage.
At a recent hearing, AIA was joined by other insurer groups in opposing the expansion. They included the Property Casualty Insurers of America and the Reinsurance Association of America.
PCI told lawmakers that, while the inclusion of wind coverage within the federal program is well-intentioned, it may produce unintended negative consequences for millions of American insurance consumers.
"Including wind coverage within the NFIP will create artificial subsidies, thereby essentially raising rates for consumers in inland parts of the country who are not subject to the same kind of wind-damage risks faced by policyholders on the coasts," said Ben McKay, PCI's senior vice president, federal government affairs. "It is hard to believe that Congress wants to give more responsibility to a failed government program. I wouldn't invest in a company that had inadequate cash flow and $17.5 billion of debt."
According to PCI, the combination of homeowners insurance coverage, state wind pools and flood coverage available through the NFIP already provide consumers protection from wind and water damage. Moreover, the current system provides consumers the opportunity to purchase coverage at a price that reflects the risk based on the location of the property and the likelihood of a loss.
"State residual market mechanisms provide wind coverage where there is no market, and private insurers provide wind coverage where there is a market," McKay said. "The Taylor bill simply creates a federal government fund that will compete with existing state funds and potentially with the private sector."
Franklin W. Nutter, president of the Reinsurance Association of America (RAA), also argued that the expansion provision was unnecessary because private sector insurers, reinsurers, capital market participants, and residual market programs already provide wind coverage.
In a letter sent to Chairman Barney Frank, D-Mass., and Ranking Member Spencer Bachus, R-Ala., of the House Financial Services Committee, Nutter said that it "fundamentally alters who bears the risk of loss from wind. Instead of spreading this risk throughout the private worldwide insurance marketplace, this legislation puts the entire burden of deficits on the U.S. taxpayer. This fundamental shift is not needed."
Insurers had hoped lawmakers would have instead pursued a proposed six-month study by the Government Accountability Office, which they said would have provided an analysis of adding wind coverage to the NFIP and provided a better understanding of the real cost of adding wind.
The measure approved by the House Financial Services Committee is H.R. 3121, the "Flood Insurance Reform and Modernization Act of 2007," which also includes other reforms to the NFIP that insurers support
Sandy Praeger, president-elect of the National Association of Insurance Commissioners (NAIC) and Kansas Insurance Commissioner, testified earlier in July before the Subcommittee on Housing and Community Opportunity on the merits of all-perils insurance coverage.
The NAIC stated that it believes adding wind coverage to the NFIP would help resolve potential conflicts between consumers and insurers regarding the cause of damage to their homes during a hurricane, but would also move the line of contention to other perils, such as fire or earthquake damage.
Praeger suggested that instead the NFIP could be restructured to function as a reinsurer. Alternatively, the private market could offer all-perils coverage and be supported by a federal backstop or credit line that would cap the industry's share of such catastrophic losses.
Agents say 'no' or nothing to adding wind coverage in flood program
Some independent insurance agents are taking a "neutral" position when it comes to adding in wind coverage in the National Flood Insurance Program (NFIP). Still others say "no" to wind entirely.
Patrick Royal of the Independent Insurance Agents and Brokers of America says his association remains "neutral," neither supporting nor opposing adding wind coverage to the flood program.
But the Professional Insurance Agents agents seem to be pleased that H.R. 3121, the "Flood Insurance Reform and Modernization Act of 2007" is moving forward, but disagree on some of the "language" in the bill.
"PIA is pleased the flood proposal is moving forward," said Patricia A. Borowski, PIA senior vice president. "However, we continue to be disappointed by and oppose the House's inclusion of Rep. (Gene) Taylor's language attaching a multi-peril (wind) coverage."
Borowski said that if the NFIP added wind coverage to policies, in essence those policies would have to become comprehensive property policies.
"PIA understands, appreciates and agrees with the challenge that Rep. Taylor is trying to resolve for constituents, that is to be sure that people have coverage that will respond no matter whether the damage is from flood or wind or water surge, etc.," she said. "However, the specific approach Rep. Taylor has selected and now is in the House version is highly defective and will not resolve the fundamental problem. It just adds more cost for insurance coverage for consumers and increases the number of parties and coverage forms that could be drawn into a claims coverage controversy."
Borowski said the challenge with adding wind to flood policies is that most states do not exclude wind from private property policies.
"So, now you have a problem with a person with a flood policy with wind coverage, and a property policy with wind coverage," she noted. And when there's a flood "who pays?" she asked. "Whose limits pay? Who's in control? Who makes the decisions?"
While Borowski added that PIA "absolutely understands Mr. Taylor's position" this concern has to be worked out in a different way.
"Imposing wind in the NFIP truly is not a solution," she said. "If this goes through we might be here three years later and have the same loss circumstance and those people who will have a flood policy with wind coverage, a property policy and a wind policy, will still be left short."
Borowski added that the PIA is currently working with the Senate "to fix this problem aspect of the bill."
