N.H. motorcyclist covered by auto policy
An auto policy's uninsured motorist coverage is triggered for a motorcyclist killed by a hit-and-run driver after being thrown onto the roadway from his bike, which was not insured, according to the New Hampshire Supreme Court.
The victim's auto insurer, Amica Mutual Insurance, had argued it was not required to cover the biker's death because he was riding his uninsured motorcycle, not his insured auto, when the accident began. The policy's uninsured motorist coverage had an owned-vehicle exclusion.
But the state Supreme Court has ruled that the uninsured coverage applies because the victim was not actually occupying the motorcycle at the time of the hit-and-run that killed him. The victim, John Miller, had been thrown onto the road 40 feet from the bike when he was killed by an oncoming vehicle.
The victim's Amica auto policy contained uninsured motorist coverage that also included an owned vehicle exclusion precluding coverage for any injuries sustained "[b]y an insured while occupying, or when struck by, any motor vehicle owned by that insured which is not insured for this coverage under this [p]olicy." Occupying is defined as "in, upon, getting in, on, out or off" of a vehicle.
The issue became whether the decedent was "occupying" the motorcycle for purposes of the owned vehicle exclusion. Amica had contended that Miller was "occupying" the motorcycle because he had not reached a place of safety and had not severed his connection to the motorcycle. The insurer also argued that an insured could not reasonably expect coverage under the circumstances.
But the state's high court said it is reasonable to conclude that someone who has been ejected from his motorcycle, and left lying in the highway 40 feet away for between 30 seconds and one and one half minutes, "is no longer 'occupying' the motorcycle."
The court added that if Amica wishes a different result, it might redraft its policy.
N.J. bans business auto 'step-downs'
New Jersey insurance agents praised Gov. Jon Corzine for signing into law a bill that bans so-called step-down provisions in businesses' motor vehicle liability policies and frees agents from a having to advise something that their insurers will not allow.
The Professional Insurance Agents of New Jersey Inc. supported the bill, S-1666/A-3038, which reverses an effect of the New Jersey Supreme Court's decision in Pinto v. New Jersey Manufacturers Insurance Co.
In the Pinto case, the court decided that step-down provisions, which allow insurers to reduce the coverage available to employees not individually named on their employer's policy, are enforceable. Instead of receiving the uninsured and underinsured motorist limits stated on their employer's policy, an employee who is injured receives the lesser coverage limits of his own personal auto policy.
The decision placed agents in an impossible situation, according to PIANJ President Jack Lynn. The ruling held that agents have a duty to tell employers that if they want to avoid imposition of the step-down provision, they have to name their employees on their auto policy. However, most insurance companies will not allow employers to include employees as named insureds.
"The impractical duty created by the Pinto decision had substantially increased the risk of litigation against insurance producers and placed them in an untenable position with their customers," said Lynn.
The new law eliminates the need to name employees on a business auto policy and also protects employees who are injured in work-related accidents by offering the full protections afforded under their employer's insurance policy.
Tyler named Maryland commissioner
Maryland Gov. Martin O'Malley named attorney and long-time advisor Ralph S. Tyler to be the state's insurance commissioner responsible for overseeing the regulation of Maryland's $26 billion insurance industry.
Tyler had been serving as chief legal counsel for the O'Malley-Brown Administration.
Tyler will replace Peggy Watson, who served as interim commissioner after Steven Orr left.
"I am looking forward to serving the people of Maryland in a new capacity," stated Tyler. "The Maryland Insurance Administration's primary purpose is to protect Maryland consumers, and I look forward to working under Governor O'Malley to protect the working families of our state."
Tyler, 60, is an attorney with over 30 years of experience as a lawyer including more than 20 years practicing law in Baltimore City and Maryland. Tyler led the effort to reconstitute Maryland's Public Service Commission with independent and professional regulators. He served as the state's deputy attorney general from 1991 to 1996, before becoming a partner at the Baltimore office of Hogan & Hartson.
The MIA began in 1872 as the insurance department under the Comptroller of the Treasury. In 1970, it moved to the Department of Labor, Licensing and Regulation and was renamed the
Insurance Division. The agency was reorganized again in 1993. It has a budget of $22 million.
11 N.J. public officials caught in FBI insurance sting
Federal agents arrested and charged 11 New Jersey local public officials with taking bribes in exchange for giving public contracts to a fake insurance brokerage set up by investigators.
The investigation netted five members of the same local Atlantic County school board, two state Assemblymen, the mayor of Passaic and one current and one former Passaic city council member, and the chief of staff to Newark's city council president.
They were all arrested and charged with taking bribes to influence the award of public contracts, according to U.S. Attorney Christopher J. Christie and FBI Special Agent Weysan Dun.
The investigation began in mid-2006 amid evidence of corruption in the Pleasantville School District. In response, the FBI established an undercover insurance brokerage called Coastal Solutions LLC. An Atlantic County man, John D'Angelo, served as the FBI's fake insurance agent, according to reports.
Each of the 11 public officials and one associate accepted the payments from companies that offered insurance brokerage or roofing services to school districts and municipalities, according to criminal complaints.
Pleasantville School Board members allegedly took thousands of dollars in bribes. The circle of corruption widened when school board members referred the cooperating witnesses to officials in northern New Jersey, who also took bribes and, in turn, put them in touch with still other corrupt officials, the complaints said.
The investigation included hundreds of taped encounters during which the officials expressed their desire to enrich themselves using their public positions. The defendants accepted corrupt payments ranging from $1,500 to $17,500 at any one time.
"The brazen greed and callous disregard of their oaths of office displayed by these defendants as alleged in the criminal complaints is breathtaking," said Christie.
Burnes: four insurers eyeing deregulated Mass. auto market
Massachusetts Insurance Commissioner Nonnie Burnes says four insurers not now writing auto insurance in the state have said they might enter if her plan to allow competitive pricing goes forward.
Burnes is not naming the companies but when asked if any had signaled they would come into the state, she responded, "The number is now up to four."
Burnes spoke with Insurance Journal after releasing her draft regulation governing the transition from the state's strict fix-and-establish auto insurance rate system to a deregulated system giving insurers more pricing and underwriting freedom.
Under the plan, competitive rating would begin April 2008. By October, Burnes hopes to finalize the regulation with input from the public, the industry, lawmakers and others.
New Jersey deregulated in June 2003. Since then GEICO, State Farm Indemnity, Mercury General and Esurance have entered the state.
Burnes said she has spoken with officials from New Jersey and other states where auto insurance has been deregulated in recent years, although she cautioned that these other states "started in a very different place" from where her state begins its transition.
According to a recent report from a gubernatorial task force, there are 19 insurers now writing in the Massachusetts private passenger auto market. More than 60 percent of the business is written by companies that write either exclusively or primarily in Massachusetts.
Insurers now writing or considering entering Massachusetts, however, will face at least one obstacle they do not deal with elsewhere: a prohibition on using a host of socioeconomic factors in their pricing and underwriting.
The draft regulation makes years of driving experience, driving record and a vehicle's model features as the primary rating and underwriting factors. It bans insurers from using gender, marital status, education, occupation, national origin, religion and homeownership for either rating or underwriting.
The regulation bans the use of credit scores in pricing but only within the first year. Burnes wants more time to study whether to lift that ban after the first year.
While credit scores may not be used for pricing, the regulation as now written does not clearly prohibit their use for underwriting. How credit scores can be used in the future may depend upon how underwriting is defined. Burnes said she thinks placing risks in various rating "tiers" or subsidiary companies using credit, or using credit for qualifying drivers for certain discount plans, might constitute rating, not underwriting. The regulation does not deal with so-called "tiering," although in recent testimony before a legislative panel, Burnes indicated she opposed the practice.
"This is a process," she said, adding that she expects the public review will answer many of the questions.
For the first year, Burnes says she hopes that rates for "good drivers will go down" and "rate spikes" for drivers will be avoided.
She rejected a suggestion by some lawmakers that her regulation should list all factors insurers can use in setting prices, rather than offering a list of prohibitions. Listing the factors insurers may use is "not a good idea" because "we are trying to deregulate this market for consumers and to identify only three or four factors could limit the competition and benefits for consumers," she maintained.
N.Y. moves to end bureau-filed rates for workers' comp
Workers' compensation rates in New York State should be determined by more competition among insurance carriers, instead of through the current rating board that now proposes these rates, Insurance Superintendent Eric Dinallo has recommended.
While Dinallo recommended that the current rate-making body, the private carriers' Compensation Insurance Rating Board (CIRB), no longer file rates, he said it should continue to collect and analyze the data necessary for the rate-making process. Individual insurers' rates would still need state approval under his plan.
Currently, CIRB proposes rates on behalf of all insurance carriers after adding industry overhead and other factors into the process.
Under the proposed new system, aggregate industry-wide costs and expenses would be published. Taking those factors into account, each insurance carrier would then file rates based on its individual risk, underwriting experience and expenses. Rates would be subject to the prior approval of the department.
"This will result in greater transparency in the rate-making process, increased price competition and lower premiums for employers because it will drive carriers to achieve greater efficiency. Fostering competition will also make the state more attractive to new insurers," Dinallo said.
In addition to stripping CIRB of its rate-making authority, Dinallo's plan calls for a restructuring of CIRB. He wants to add representatives of labor, employers and the insurance department to CIRB's governing committee. This will result in the added directors and the State Insurance Fund constituting a majority of the Governing Committee.
Dinallo said this would ensure "a truly independent CIRB that acts transparently from a public interest perspective."
Under his proposal, CIRB would be able to continue, at least in the short term, collecting and analyzing the industry-wide data that is required in the rate-making process. CIRB will not be authorized to perform its current functions as of Feb. 1, 2008, under the reform law passed in March.
"The absence of accurate industry-wide claims data would lead to a disastrous situation for the workers' compensation insurance market because the health and stability of the system depends on the ability of insurers to accurately evaluate the cost of workers' compensation risks," Dinallo said.
CIRB has functioned as the system's rate-making and data-gathering entity for 90 years.
His recommendations are contained in a report sent to Governor Eliot Spitzer and the Legislature as part of the 2007 Workers' Compensation Reform Act passed in March.
Dinall said that the workers' compensation reforms implemented by department already have saved more than $1 billion this fiscal year. "Establishing a rate-making system that ensures openness and competition will allow us to achieve even greater savings," claimed Dinallo.
N.J. hockey case could redefine spectator liability
Denise M. Sciarrotta was thrilled with the seats her family had for the minor league hockey game. They were close to the action as they watched players take practice shots.
It was going to be a special night: her 12-year-old daughter was going to sing the national anthem with her high school choir. Then a puck ricocheted off a goal post and slammed into Sciarrotta's head. Blood poured from a gash above her left temple.
More than four years later, Sciarrotta said she bears a 21/2-inch scar and permanent brain damage from an incident she maintains could have been prevented with proper safeguards.
Her negligence lawsuit could become a landmark case, as the New Jersey Supreme Court has decided to consider if fans have the right to sue for injuries that happened during warmups. A ruling is not expected for about a year.
In New Jersey and many states, sports spectators take a chance when they enter an arena or stadium. States generally mandate that fans assume some risk when they go to a game, said Joe Capobianco, a New York lawyer not involved in the New Jersey case.
If New Jersey's highest court allows the puck lawsuit to proceed, "It could be an expansion of liability for sports owners," Capobianco said.
The state Supreme Court made it tougher for baseball clubs in fall 2005 when it sided with a baseball fan who was hit with a foul ball while on line to buy beer.
The added liability, however, was short-lived. Within months, the New Jersey Legislature passed a law barring spectators from suing club owners "for injury resulting from the inherent dangers and risks of observing professional baseball ...."
The bill was titled the "New Jersey Baseball Spectator Safety Act of 2005," although it was the owners that got protection. It was signed into law early last year.
Sciarrotta's case stems from her visit to the Sovereign Bank Arena in Trenton on Jan. 4, 2003 before a game featuring the Trenton Titans, now called the Trenton Devils. She was seated along the side of the rink, higher than the clear, plastic barrier that encircles the ice. The sides of hockey rinks are not protected by the netting that shields spectators behind the goals. The NHL and other leagues mandated the nets after an Ohio girl was killed by a puck in 2002.
Alleging negligence in allowing a dangerous condition and failing to provide proper safeguards, Sciarrotta sued the team, the ECHL, and the arena.
Superior Court Judge Paul Innes in Mercer County dismissed the suit, but it was revived in April by an appellate panel that relied heavily on the high court's baseball ruling.
The baseball decision found that fans deserve greater protection in areas of the stadium, such as concession stands, where it is expected they would let their guard down.
In restoring Sciarrotta's lawsuit, the appellate panel observed that the number of pucks used during warmups posed special dangers. "A spectator during warm-ups is not so readily able to provide for her own safety ...and a greater portion of the stands than just the end zones and the corners become the areas of vulnerabilit," the panel wrote
Without ruling on the merits, the panel said a jury should answer some questions, including whether there were adequate warnings about dangers inherent in pre-game activities.
"It's physically impossible to watch every single one at that time," said Sciarrotta, now 42, of Lawrenceville. "I never saw it coming toward me. I felt like I was shot in the head."
The defendants appealed, and the state Supreme Court agreed to hear the case.
The defense lawyer, Scott D. Samansky, believes the appellate ruling improperly departed from the reasoning in the baseball case. "It would seem, under that theory, nobody can be in the stands during warmups," Samansky said.
His position got some reinforcement last month when a state appellate panel upheld the dismissal of a lawsuit filed by a baseball spectator who was hit in the shoulder by a ball thrown during warmups.
If the Supreme Court ultimately orders a trial in the Sciarrotta case, the defendants would maintain they took appropriate safety steps, Samansky said.
As for the baseball case, although the state Supreme Court gave the green light, it never went to a jury. Louis Maisonave, who was hit by a ball at a 1999 Newark Bears game, settled on the eve of trial. Terms were confidential.
Copyright 2007 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed
Allstate to comply with N.Y. anti-tying rule
Allstate Insurance Co. and its affiliates have agreed to comply fully with a directive by the New York State Insurance Department that insurance companies may not refuse to renew homeowners insurance policies based on whether a policyholder also has an automobile or life insurance policy with the same company, according to Insurance Superintendent Eric Dinallo.
On Aug. 28, Dinallo's department issued a directive (Circular Letter 11) instructing all property/casualty insurers to discontinue the practice.
On Aug. 31, the department issued a citation to Allstate following what the department said was the company's refusal to comply with the letter. The department called for a Sept. hearing and threatened fines and disciplinary action against Allstate. However, according to the department, Allstate has since agreed to fully comply with the circular letter, so the department will have no public hearing.
State officials had said previously that there would be no discussions until and unless Allstate first agreed to comply. "We are willing to dialogue with Allstate once they are in compliance," a department spokesperson told Insurance Journal.
Allstate has said it believes it is within its rights to non-renew based in part on whether the insureds also have auto or life policies with the company. The non-renewal tactic is part of its strategy to reduce its coastal exposure. The insurer maintains that its practices comply with state insurance law.
R.I. wants paint makers to pay $2.4 billion
Three former makers of lead paint that lost a landmark Rhode Island lawsuit, including Cleveland-based Sherwin-Williams Co., would have to pay an estimated $2.4 billion to clean up hundreds of thousands of homes contaminated with lead under a state proposal.
The cleanup plan provides the most detailed roadmap to date for the mammoth undertaking of ridding Rhode Island homes of lead paint contamination. It would involve 10,000 workers and is projected to take four years.
The state filed the plan in Superior Court. The plan is subject to approval by a court, which could order less sweeping measures. The companies, Sherwin-Williams Co., NL Industries, Inc. and Millennium Holdings, also are appealing the February 2006 jury verdict. They have until Nov. 15 to respond to the $2.4 billion clean up proposal.
"It's a big number by any stretch of the imagination," said Jack McConnell, a lawyer for the state. "But it's also a big problem that's gone on for a long time that requires a permanent solution."
Scott Smith, a lawyer for Millennium Holdings, called the plan a "boondoggle," saying it was unworkable, too expensive and likely to disrupt people's lives. "We think the state's proposed plan is, in a word, ridiculous," he said.
The proposal estimates it will cost an average of $11,250 to clean a home, although a report issued this year said it could cost as much as $18,500. It covers the roughly 240,000 homes in Rhode Island believed to contain lead paint.
Judge throws out all federal antitrust charges against insurers, brokers
No evidence found to support charges of a global conspiracy among commercial brokers and insurers
Finding the charges lack any factual support, a federal judge has dismissed a big antitrust conspiracy case that was lodged against large commercial insurance brokers and insurers back in 2004 when bid rigging and account steering probes were in full sway.
In dismissing the antitrust complaint for the second time, Chief Judge Garrett E. Brown Jr. of the U.S. District Court for New Jersey said the plaintiffs had no proof that there was any sort of conspiracy among insurers and brokers to secretly allocate accounts, refrain from competing, or pay incentive bonuses on certain commercial accounts.
The plaintiffs alleged that the defendants had engaged in both a global conspiracy and so-called "hub and spoke" conspiracies in which brokers acted as hubs to coordinate illegal distribution of commercial insurance accounts among insurers (the spokes).
Defendants in the suit that have now been cleared of federal antitrust charges are some of the largest insurance companies and brokerages including American International Group, The Hartford, Fireman's, Liberty Mutual, American Re, Travelers, Chubb, Marsh, Willis, Aon and Hilb Rogal & Hobb.
Consolidation of suits
The case was a consolidation of suits from around the country brought under federal antitrust statutes. It developed in the wake of investigations by state attorneys general including New York's Eliot Spitzer over alleged bid rigging, account steering and improper contingent commission payments.
These consolidated lawsuits took those charges to another level claiming that they were part of a conspiracy among certain large insurers and insurance brokers and accusing the players of antitrust violations and racketeering.
Earlier this month, Brown put the antitrust conspiracy charges to rest in granting the defendants' motions to dismiss. He had also agreed with defendants in April but gave plaintiffs one last chance to amend their complaint.
But Brown found the amended complaint was even less convincing than the earlier one. In completely dismissing the conspiracy allegations, Brown wrote:
"While this Court previously held that the conspiracy allegations were faulty because they failed to show some sort of recognizable allocation of the market (a way for the insurers
to understand what they were actually agreeing to divide), it appears that the allegations as presently drafted suffer from a more serious defect. This hub and spoke conspiracy is devoid of a factual basis for this Court to infer that an agreement existed among the competitors -- in this case, the Insurer Defendants. Plaintiffs want this Court to view the specific facts regarding the 'incumbency protection racket' through their lens -- which colors each demand from a broker to an insurer as being part of an agreement to restrain competition that already exists. However, when stepping back and viewing these facts in the aggregate, there is nothing in this record to suggest that there was any sort of express agreement among the insurers. While it is not necessary for the agreement to be explicit, the facts are simply too tenuous to intimate an implied agreement -- a rim to this hub and spoke conspiracy. The brokers demanded certain behavior of the insurers, but that does not constitute a horizontal agreement among insurers to collude."
No global conspiracy found
Brown found no evidence to support the charges of a global conspiracy among brokers to keep secret
their contingent commissions and not tell clients about them. Plaintiffs had argued that the defendants' membership in the same trade group, the Council of Insurance Agents and Brokers, was proof. But for Brown, "membership in various trade groups and the sharing of information are insufficient to support an inference of actual concert of action."
He wrote that since plaintiffs failed to prove that the insurer defendants colluded among themselves in the broker-centered conspiracies, "it is improbable that they colluded to further this global agreement as well."
While this dismissal affects the antitrust complaint brought against the defendants, charges of violating federal racketeering laws are being judged separately and remain before the court.
Some insurers and brokers have settled similar antitrust complaints with officials in New York, Connecticut and other states, although they have not admitted doing anything illegal. Among those that have settled are insurance broker Arthur J. Gallagher & Co. and Zurich American Insurance Co.
Industry skeptical, while Treasury opposes natural disaster pool
Federal legislation that encourages states to pool their catastrophe pool risks and then transfer them to the private market has been greeted with a lukewarm insurance industry reaction at best and outright opposition from the Bush Administration.
The bill, H.R. 3355, the Homeowners' Defense Act of 2007, introduced by Representatives Ron Klein, D-Fla., and Tim Mahoney, D-Fla., on Aug. 3, aims to address the availability and affordability of homeowners insurance by providing an opportunity for states to plan for disasters ahead of time, while also offering emergency relief for those states that may be in lower-risk regions.
Insurance industry representatives testified on the proposal this month before a joint hearing of the House Committee on Financial Services Subcommittee on Housing and Community Opportunity, and the Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises.
Agents suggested that the legislation, while it has some commendable provisions, is not the answer.
The Independent Insurance Agents & Brokers of America, the nation's largest insurance association, said that the bill deserves serious consideration when addressing the growing problem of natural disaster risks, but did not offer its full support of the legislation as is.
Steve Spiro, an independent agent and president of Spiro Risk Management Inc., in Valley Stream, N.Y., testified on behalf of IIABA, saying proposals such as this bill could potentially be a part of a comprehensive solution to the problem of natural catastrophe insurance. But he also pointed out that the key to the success of any solution is how the private market will react and whether it will result in increased coverage.
"We strongly believe our industry must come together with policymakers to find a common solution that will encourage participation in at-risk markets," Spiro said.
Robert Joyce, chairman and CEO of Ohio-based Westfield Group, who testified on behalf of the Property Casualty Insurers Association of America (PCI), said one of the most promising aspects of the bill is a provision to create a federal liquidity facility to provide financial support for qualified state catastrophe funds.
"The liquidity facility proposed in the bill has considerable merit and could play an instrumental role in a long-term solution to America's natural disaster problem," Joyce said. "The liquidity proposal would offer solvency protection to state catastrophe funds in order to stabilize markets." However, Joyce also said that any federal program must be carefully structured so that it does not mask the true cost of insuring against catastrophes, encourage reckless development in high-risk areas, or hinder the flow of new private capital to the market.
Including the liquidity proposal, the bill has three parts.
According to the sponsors, the bill sets up a consortium for state-sponsored insurance funds to voluntarily pool their catastrophe risk with one another, and then transfer that risk to the private markets through the use of catastrophe bonds and reinsurance contracts. Sponsors maintain that following the risk transfer, state-sponsored insurance funds would be better protected and increasingly able to provide services for those who are not able to find insurance on their own.
The second part, the "liquidity loan" program, contains a provision that would make credit financing available to qualified state catastrophe funds.
The third part would make loans to state or regional catastrophe funds that are not qualified reinsurance plans or to state residual market entities.
Joyce noted that the bill's provisions do not specify how catastrophe loans would be repaid.
Opposition
The U.S. Treasury Assistant Secretary for Economic Policy Phillip Swagel testified that the Treasury strongly opposes H.R. 3355 because its provisions are at odds with its goal to ensure that there is a stable and well-developed private market for natural hazard insurance and reinsurance.
Allowing private insurance and capital markets to fulfill their roles is the best way to maintain the economic sustainability of communities at greatest risk of natural catastrophes, Swagel testified. "Federal government interference in a functioning natural hazard insurance market would crowd out an active and effective private market, increase the incentive for people to locate in high-risk areas, result in potentially large federal liabilities, and be unfair to taxpayers."
The Reinsurance Association of America (RAA) also testified that the reinsurance industry does not support the Homeowners Defense Act of 2007 citing concerns with provisions of the legislation that would unnecessarily disrupt private reinsurance market dynamics.
"We cannot support this legislation as introduced because of the emphasis on encouraging the creation of state catastrophe reinsurance funds," said Franklin W. Nutter, president of RAA. "Notwithstanding the extraordinary losses from natural catastrophes in 2004 and 2005, the capital markets and the insurance and reinsurance industry have shown their ability to meet natural catastrophe risk transfer needs of insurers and consumers when market dynamics are allowed to work."
Nutter added that the legislation appears to provide incentive for states to replace or compete with the private sector by under-pricing catastrophe risk. "These programs," he said, "serve to concentrate catastrophe risk in a state, rather than spread it to the global private reinsurance markets, turning sound risk management on its head."
Nutter said that while RAA could not support the legislation as introduced, he expressed the desire to work with the committee to improve HR 3355 as it moves through the legislative process.
Health premiums rise 6.1%; average family coverage costs $12,000
Premiums for employer-sponsored health insurance rose an average of 6.1 percent in 2007, less than the 7.7 percent increase reported last year but still higher than the increase in workers' wages (3.7 percent) or the overall inflation rate (2.6 percent), according to the 2007 Employer Health Benefits Survey released by the Kaiser Family Foundation and Health Research and Educational Trust.
The 6.1 percent average increase this year was the slowest rate of premium growth since 1999, when premiums rose 5.3 percent. Since 2001, premiums for family coverage have increased 78 percent, while wages have gone up 19 percent and inflation has gone up 17 percent.
The average premium for family coverage in 2007 is $12,106, and workers on average now pay $3,281 out of their paychecks to cover their share of the cost of a family policy.
"We're seeing some moderation in health-cost increases, but premiums for family coverage now top $12,000 annually," Kaiser President and CEO Drew E. Altman, Ph.D. said. "Every year health insurance becomes less affordable for families and businesses. Over the past six years, the amount families pay out of pocket for their share of premiums has increased by about $1,500."
"The number of options for low wage earners is limited and the greatest burden of all health care costs falls to this segment of the population," said Health Research and Educational Trust President Mary A. Pittman, Dr. P.H. "Although the economy seems to be strong, between 2005 and 2006 the total number of uninsured still rose by 5 percent, including a 9 percent increase in the number of uninsured children."
The annual Kaiser/HRET survey provides a detailed picture of how employer coverage is changing over time in terms of availability, costs and coverage for the 158 million people nationally who rely on employer-sponsored health insurance. It was conducted between January and May of 2007 and included 3,078 randomly selected, non-federal public and private firms with three or more employees (1,997 of which responded to the full survey and 1,081 of which responded to a single question about offering coverage).
While premiums continue to rise faster than workers' wages, this year's gap of 2.4 percentage points is much smaller than the 10.9 percentage point gap recorded four years ago, when premiums rose 13.9 percent and wages grew just 3 percent.
However, "despite the comparatively low rate of increase in premiums and a strong labor market, the percentage of the workforce obtaining coverage from employer-sponsored plans remained unchanged since 2006," reports the Health Affairs article by Kaiser's Gary Claxton and coauthors. The 60 percent of firms offering health benefits to at least some of their workers is statistically unchanged from last year's offer rate (61 percent). The offer rate remains significantly lower than it was in 2000, when 69 percent of firms offered health benefits. Nearly all (99 percent) large businesses with at least 200 workers offer health benefits to their workers this year, but fewer than half (45 percent) of the smallest firms with three to nine workers do so.
Contributions, cost-sharing
Covered workers on average pay 16 percent of the overall premiums for single coverage and 28 percent for family coverage -- shares that have remained relatively stable over the past years. However, workers in small firms (three to 199 workers) pay significantly more on average toward the cost of family coverage ($4,236 annually) compared to larger firms ($2,831 annually). For single coverage, the opposite is true, with workers at small firms annually contributing less on average than workers at large firms ($561 vs. $759).
Among firms that offer health benefits, 10 percent vary how much workers contribute based on the workers' earnings, about the same share as in 2005. About 6 percent of firms vary premium contributions based on employees' participation in wellness programs, up from 3 percent in 2005. In addition, 10 percent of firms offer financial incentives for workers to enroll in a spouse's health plan, which can reduce the firm's health care costs.
In spite of the extensive attention paid to consumer-driven health plans, the survey finds that these relatively new types of arrangements have made only a small inroad into the employer market. Such plans cover about 5 percent of all covered workers, which is not statistically different from the 4 percent share recorded in 2006.
Overall, an estimated 3.8 million workers are enrolled in consumer-driven plans, about equally divided between high-deductible plans that qualify for a Health Saving Account (HSA) and plans with a Health Reimbursement Arrangement (HRA). These plans feature a high-deductible plan and a tax-preferred savings option, from which employees can pay for their out-of-pocket medical expenses. Such plans are often described as consumer-driven because people pay directly for a greater share of their health care and may have an incentive to minimize its cost. They also may offer tools to help consumers choose providers based on cost and quality.
This year, 10 percent of firms offered a consumer-driven plan to their workers, up from (but not statistically different than) the 7 percent of firms reporting this for 2006. Firms with at least 1,000 workers are more likely to offer such plans, with nearly one in five (18 percent) offering one. Looking toward 2008, few firms that don't already offer such plans report that they are very likely to add a HRA plan (3 percent) or a HSA-qualified plan (2 percent).
Premiums for these high-deductible plans are generally lower than for other types of plans, though in addition to the premiums, employers may also contribute money to the savings accounts. The survey finds that firms on average pay a total of $7,815 toward the cost of family coverage for a HSA-qualified plan (including $714 for the account) and $10,179 toward the cost of family coverage for a high-deductible plan with a HRA (including $1,800 for the account). Compared to the $8,879 average firm contributions for other types of plans, employer contributions are lower for HSA-qualified plans and higher for plans with HRAs.
Businesses made no contribution at all to the savings account for roughly half of all workers enrolled in an HSA for family coverage, leaving workers to pay the generally higher out-of-pocket costs associated with their high-deductible plan.
"Consumer-driven plans have established a foothold in the employer market, but they haven't grown as much as one might think, given all the attention that they receive," said Kaiser Vice President Gary Claxton, co-author of the study and director of the Foundation's marketplace research.
"Despite the economic expansion that added 2 million new jobs from April 2006 to April 2007, the employer-based system can do no better than tread-water," said co-author Jon Gabel, senior fellow at the National Opinion Research Center at the University of Chicago.
Other findings
Cost-sharing. In 2007, for firms with deductibles, the average general annual deductible for single coverage is $461 for PPOs, $401 for HMOs, $621 for POS plans and $1,729 for consumer-driven plans. For plans with three- or four-tiered drug cost-sharing, the average co-payments were $11 for generic drugs, $25 for preferred drugs, and $43 for non-preferred drugs. Co-payments for fourth-tier drugs, which may include costly biological agents and lifestyle drugs, averaged $71.
Domestic partner benefits. Nearly half (47 percent) of all firms that offer health benefits make them available to unmarried opposite-sex domestic partners, and nearly 37 percent offer such benefits to same-sex partners. Large firms (with at least 200 workers) were less likely than small firms to offer domestic partner benefits to unmarried opposite-sex partners at 28 percent.
Market share of health plans. Preferred Provider Organizations continue to dominate the employer market, enrolling 57 percent of covered workers. Health Maintenance Organizations cover another 21 percent of workers, with 13 percent in Point-of-Service plans, 5 percent in consumer-driven plans, and 3 percent in conventional indemnity plans.
Other pre-tax benefits. Overall, 61 percent of firms that offer health benefits allow workers to use pre-tax dollars to pay for their share of their health premium costs. Fewer firms (22 percent) offer a Flexible Spending Account, in which workers can set aside pre-tax money to cover out-of-pocket health care spending. In both cases, large firms are far more likely to offer these benefits than smaller firms.
Future outlook. Many employers indicate that they expect to make significant changes to their health plans and benefits in 2008. Overall, 21 percent of firms say they are "very likely" to raise workers' premium contribution next year. Some firms also say they are "very likely" to increase office visit cost-sharing (13 percent), increase deductibles (12 percent) and increase prescription drug cost-sharing (11 percent). Very few firms say they are "very likely" to restrict eligibility for coverage or drop coverage altogether.
Progressive combines personal lines management
The Progressive Corp. in Mayfield, Ohio, is consolidating management of its two distribution channels for personal lines. Since 2000, Progressive's personal lines segment has been organized into two businesses -- the agency business and the direct business. The company said it will continue to price products based on how they are distributed to reflect the channel cost structure, but it is combining the operations of the two businesses into a single personal lines organization, consolidating the product research and development and management functions.
The new personal lines organization will be led by John Sauerland, currently president of the direct business group.
John Barbagallo, currently the agency group president, will become commercial lines group president, assuming responsibility for the commercial auto business and professional liability business. He will continue to manage the company's agent relationships and field sales.
Earlier this year, Brian Silva, currently the commercial auto group president, will retire in mid-2008. After helping with the transition, Silva will shift his focus to several of the company's key projects until his retirement date.
U.S. reinsurers report premiums dropped in 2Q
The Reinsurance Association of America (RAA), a group of 22 U. S. property and casualty reinsurers, reported writing $12.2 billion of net premiums during the six-months ended June 30, 2007, a decrease of $7.5 million from the same period in 2006.
The combined ratio for the group was 90.0 percent, an improvement from the 96.5 percent combined ratio reported for the same period in 2006. The combined ratio is attributable to a 62.8 percent loss ratio and an expense ratio of 27.2 percent, according to RAA.
Policyholders' surplus was $77.3 billion.
According to RAA, its underwriting members and their affiliates write more than two-thirds of the gross reinsurance coverage provided by U.S. professional reinsurance companies.
Insurers have manageable exposure to subprime turmoil, report says
The vast majority of U.S. insurers have little or no exposure to the volatility in the subprime mortgage market because a substantial percentage of their investments are in the highest-rated bonds or stocks with no direct ties to lenders, according to an Insurance Information Institute (I.I.I.) white paper, "Subprime" Home Mortgage Loans and the Insurance Industry.
"This conclusion is based on the recognition that both by law and by the nature of their business, insurers generally limit themselves to the low-risk end of the investing universe. Even for the very small share of their investments directly exposed to subprime and near-prime loans, insurers mainly invest in 'slices' of those investments that, according to the bond-rating agencies, are as safe as the safest corporate bonds," writes Dr. Steven Weisbart, the I.I.I.'s vice president and chief economist. "Thanks to conservative portfolio management strategies and restrictive state regulations, insurance companies have a very small portion of their total investments in risk loans of any type."
The I.I.I. report notes that about 53 percent of life/health insurers' invested assets were in the highest-rated class of bonds and 19 percent were in the next highest-rated class as of year-end 2006. The comparable percentages for the invested assets of property/casualty insurers in the bond market were 67 percent and 4 percent, respectively, the white paper says.
"Common and preferred stocks are a small part of the investments of life/health insurance companies, at 4.6 percent of net admitted assets, as of year-end 2006," Dr. Weisbart adds. "They are a moderate part of the investments of property/casualty companies, at 16 percent, as of year-end 2006." While a comparatively small percentage of insurers' investments, insurers do have sizable equity stakes in U.S. markets. U.S. life/health insurers, for instance, cumulatively owned preferred and common stocks valued at $138 billion as of Dec. 31, 2006, according to the National Association of Insurance Commissioners' (NAIC) annual statement database. This figure stood at $237 billion for U.S. property/casualty insurers, as of year-end 2006, the NAIC reported.
"Insurers' portfolios are still vulnerable to broad market sell-offs caused by fears originating in the subprime sector, such as occurred during July and August 2007," Dr. Weisbart states. "Nevertheless, direct losses will be very limited and insurers' tendency to hold securities on a long-term basis implies that the effects of short-term market volatility will likely be minimal."
The I.I.I.'s analysis of the subprime mortgage market's recent turmoil did hold out the possibility that claims may be filed by directors and officers liability insurance policyholders as well as those with errors and omissions coverage.
"It is likely that some actions will be brought that will trigger the defense benefits in these policies, and possibly also some payouts under the liability benefit provisions. Typically, these claims take a long time to develop. As such, it is much too early to estimate the dimensions of the claims experience that may emerge from the recent credit market developments," Dr. Weisbart writes.
"Major providers of D&O coverage tend to be among the largest and most financially sound insurers."
U.S. fire report: More fires; fewer deaths and injuries; rise in property losses
Fire departments in the United States responded to an estimated 1.6 million fires during 2006. These fires caused 3,245 civilian deaths and 16,400 injuries, according to the National Fire Protection Association (NFPA).
The number of fires increased slightly by about 3 percent from 2005 to 2006 while fire deaths fell 12 percent and fire injuries were down by 8 percent.
The total number of people who died from fires in 2006 (excluding firefighters) was the lowest since NFPA began collecting this data in 1977, and 4 percent lower than the previous low of 3,380 in 2002. The number of fire death varies from year to year, with most of the variation in fire deaths occurring in communities with populations under 10,000.
NFPA's study, Fire Loss in the United States During 2006, offers a detailed account of fire loss for the previous year and an analysis over time based on new information.
In 2006, the annual snapshot of fire loss in the United States showed that every 19 seconds a fire department responded to a fire somewhere in the U.S. Someone died every two hours and 42 minutes from a fire and someone was injured every 32 minutes. A fire occurred in a structure every minute, in a residence every minute and 16 seconds, and in a vehicle nearly every 2 minutes.
Direct property loss from fires in 2006 was roughly $11 billion, an increase of 6 percent from 2005. Nearly $7 billion of these losses resulted from fires in residential dwellings.
As in previous years, most fire deaths occurred in homes; home fires accounted for about 80 percent of all fire deaths. Eighty percent of all structure fires also occurred in the homes. One and two-family dwellings accounted for 58 percent of the structure fires and apartments accounted for 17 percent. In 2006, 2,580 people died from home fires, a decease of 15 percent from the prior year.
Although vehicle fires declined 4 percent from the previous year, they remained second to structures as the second leading cause of fire deaths in the United States in 2006. There were 278,000 vehicle fires that resulted in 490 deaths, 1,200 injuries, and $1.3 billion in property damage.
Guy Carpenter finds Lloyd's market at its 'healthiest in 300 years'
Findings boast stellar results for London market with Lloyd's leading the way
Guy Carpenter & Co., Marsh's reinsurance broker and risk management division, has released "The Lloyd's Market in 2007," its fifth annual review of Lloyd's financial and operational performance.
The finding are exceptionally good -- overall Lloyd's is probably in the healthiest position it has been in for the last 300 years. It reported record results for 2006, with net pre tax profits of £3.662 billion ($7.417 billion*), gross premiums written of £16.414 billion ($33.25 billion*), and a combined ratio of 83.1 percent. Underwriting capacity for 2007 is at an all-time high of £16.1 billion ($32.61 billion).
The report indicated that the strong performance was chiefly "driven by rising rates on U.S. catastrophe-exposed business, favorable claims experience and improved returns on investment. It also stressed that Lloyd's is "in an increasingly strong competitive position, as recognized in recent rating upgrades to 'A+' from both Standard & Poor's and Fitch."
Guy Carpenter's CEO Nick Frankland pointed out: "In 2006, leading players demonstrated once again that it is possible to achieve outstanding returns on equity at Lloyd's, which is crucial to the continuing strength of the market. In addition, the significant strengthening of the balance sheet over the last five years provides a good platform for the future."
The author of the report, Senior Vice President Mike Van Slooten, added: "Substantial mitigation of legacy issues has resulted in a reappraisal of the market's competitive advantages, with the result that new investors are being attracted to the platform. Lloyd's focused efforts to reduce the cost of mutuality, widen access to the market and improve service standards can only be to the benefit of policyholders."
Legacy issues
The "legacy issue" Lloyd's managed to get rid of were the liabilities it has carried since 1996 when it set up Equitas as a run-off vehicle for its pre-1992 claims, principally asbestos and environmental. In March Lloyd's completed the first phase of the transfer of its Equitas liabilities to National Indemnity Company (NIC), a member of the Berkshire Hathaway group of insurance companies.
The arrangement with NIC initially reinsures all of Equitas' liabilities, and provides a further $5.7 billion of reinsurance cover to Equitas. In addition NIC acquired Equitas Management Services Limited and will continue to conduct the run-off of its liabilities. The transaction received the approval of the UK's Financial Services Authority (FSA) and the Equitas Trustees.
The record underwriting capacity (up 8.9 percent compared to 2006) was bolstered by six new start-ups, who contributed a further £217 million ($440 million). Guy Carpenter's study indicated that, given the excellent result, "investor interest remains strong, driven by Lloyd's wide access to business and strong ratings."
The report also noted:
1) "Reinsurance recoverables have reduced by a third, with no collection issues reported on the 2005 hurricanes. Net resources (defined as total assets less policyholder and other liabilities) have increased by 21 percent to £13.3 billion [$27 billion]," bolstering Lloyd's balance sheet strength.
2) The issuance of £500 million [$1.014 billion] of debt in June 2007 "has allowed syndicate loans to be repaid and discontinued and will facilitate an expected halving of the Central Fund contribution rate for 2008." As a result, Lloyd's has reduced the amounts the Syndicates are required to contribute to the Central Fund. The ending of these assessments makes doing business at Lloyd's less expensive and more competitive.
3) "Business process reform has significantly improved controls over placement and is continuing to improve the control environment for claims and accounting and settlement."
Changes at Lloyd's
In recent years, Lloyd's brokers and underwriters have experienced vast changes in how they conduct business. Chairman Lord Peter Levene, who just announced that he will seek a third term in the post, former CEO Nick Prettejohn and his successor, Richard Ward, are dedicated to seeing that the mountains of paper Lloyd's produces, eventually joins the sailing ships Lloyd's used to insure in the pages of history.
After a few false starts -- notably the Kinnect fiasco -- they're now on the way to achieving that goal. Xchanging and RI3K, who just introduced a new e-message system, have rolled out complementary platforms and software that are broker/underwriter friendly, use ACORD standards, and enable more and more of Lloyd's back office work to be processed electronically. The days of the slipcase appear to be numbered.
Two factors have made the changeover a first priority at Lloyd's. The FSA has said in no uncertain terms that the policies based on "deal now, details later" are no longer acceptable. London got the message. In January the FSA acknowledged that "90 percent of contracts in the subscription market [Lloyd's] and 88 percent in the non-subscription market are now achieving contract certainty."
The second factor is cost. Lloyd's is more expensive than places like Bermuda, and, unless it brings those costs down, it stands to lose business. Companies like Hiscox, Catlin and Kiln moved their respective domiciles to Bermuda because it's quicker, easier and cheaper to do business. Instituting electronic processing will cut the costs of doing business in London, and make the entire market, especially Lloyd's, more competitive.
Market access, cats and the cycle
Guy Carpenter's report also listed:
Market Access: Lloyd's continues to focus on enhancing local distribution platforms in emerging markets and streamlining the broker accreditation and cover-holder approval process.
Catastrophe Exposure: Lloyd's reports that, based on its Realistic Disaster Scenario output, U.S. windstorm exposure has been reduced by one third since 2005, and
Cycle Management: The Franchise Performance Directorate is expected to be successful in limiting the downside of underwriting in softening market conditions.
Concerning that last point, Frankland observed: "The primary threat to Lloyd's remains the possibility of a marked downturn in the insurance cycle. In the absence of a major loss, we expect underwriting conditions to become difficult in most classes as we move into 2008, presenting a significant challenge to the Lloyd's franchise model.
We are already seeing leading players returning capital to shareholders and proposing sizable capacity cuts for next year, but it remains to be seen whether the same degree of discipline will extend across the broader market. There is no room for complacency if Lloyd's is to emerge in a position to fully capitalize on the next upswing."
At this point complacency doesn't appear to be a significant concern. Lloyd's leaders have their priorities firmly in mind and the reins of control, in the form of the Franchise Board, firmly in their hands.
A full copy of the report is available for download at: www.guycarp.com. Printed copies can be obtained by contacting Guy Carpenter at: marketing@guycarp.com.
Editor's Note: * The recent strength of the pound, currently worth more than $2.00, has somewhat inflated the dollar equivalent figures since they were first calculated.
