Mich. study: Industry can be key player in economic recovery

The results of a new study indicate that the insurance industry will lead the state in job creation in the coming decade, resulting in more than 16,000 total new jobs by 2014, helping transition the state to a high-tech 21st century economy and providing a much-needed stabilizing influence on Michigan's turbulent economy. The study, "Insuring the Future: The Economic Importance of the Insurance Industry in Michigan," was commissioned by the Michigan Insurance Coalition and underwritten in part by the Life Insurance Association of Michigan.

The new study, conducted by GSP Consulting of Pittsburgh, examined the role Michigan's insurance industry will play as the state evolves from an industrial-based economy to one that is a leader in technology and services. The study found:

• The insurance industry has been an important, yet undervalued economic growth driver for the state of Michigan.


• Employment in the insurance industry will grow nearly 10 percent by 2014, creating nearly 6,000 new direct jobs and more than 16,000 total jobs dependent on the insurance industry, generating more than $124.9 million in additional state and local tax revenue.


• Employees in Michigan's insurance industry enjoy a strong standard of living. Wages are above the average for private industries in Michigan and 40 percent pay a median annual salary of $40,000 to $60,000.


• The insurance industry is critical to the stability and growth of Michigan's economy, helping businesses and individuals financially recover from both minor and catastrophic losses. In 2005, insurers paid nearly $27.6 billion in claims and benefits to Michigan businesses and residents.

"Most people don't realize the impact Michigan's insurance industry has on the overall state economy," said MIC President James Miller. "The purpose of this study is to show that, despite Michigan's lagging economy, there are bright spots where industries are growing and creating jobs, and insurance is one of those bright spots."

Miller said this study should be informative for lawmakers as they work this summer to replace Michigan's Single Business Tax, which is set to expire on Dec. 31, 2007.

According to Bureau of Economic Analysis data, the Michigan insurance industry contributes $7.7 billion to the annual gross state product. Of that, $3.9 billion was in compensation to the more than 56,000 workers employed by the industry.

Source: Michigan Insurance Coalition

In Wis., adult children can collect for suffering in wrongful death suits

Adult children whose parents die can collect damages for pain and suffering in wrongful death lawsuits, a state appeals court ruled on May 31.

Madison-based American Family Insurance had argued that only minor children could recover damages for loss of society and companionship after the death of a parent.

The appeals court rejected the argument in its first interpretation of a state law that limits such damages to $350,000 for a deceased adult. Only spouses, children or parents can collect.

American Family had argued "children" meant only those under the age of 18 but the appeals court said the term includes all offspring.

The court's decision reinstates a damage claim filed by the adult daughter of a woman killed in a snowmobile accident in 2002. A Lincoln County judge had tossed out the claim, siding with American Family.

Christina Pierce filed suit against American Family because the driver of the snowmobile carrying her mother, Shirley Pierce of Tomahawk, had a liability insurance policy through the company.

Although the claim for her loss of companionship was dismissed, a jury awarded Pierce $234,000 in damages for lost economic support and inheritance.

The appeals court also upheld that award, rejecting American Family's claims that it was excessive and based on flawed expert testimony.

The decision sends the case back to Lincoln County for additional proceedings on the pain and suffering claim.

American Family spokesman Stephen Witmer said the ruling's effect was unclear.

"It's difficult at this point to predict an impact on business practices or future court rulings," he said.

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

N.D. workers' comp officials appear in court on felony charges

The executive director of the North Dakota State Workers' Compensation agency and an agency investigator were released after their first court appearances on felony charges involving questionable spending and possible illegal use of driver's license photos.

Workforce Safety and Insurance Exec-utive Director Sandy Blunt is charged with two counts of misapplication of entrusted property, and he and Romi Leingang, WSI fraud investigator, are charged with conspiracy to disclose confidential information.

South Central District Judge Robert Wefald released Blunt and Leingang after their appearances on May 30, pending future hearings. A preliminary hearing date was not immediately set.

Assistant State's Attorney Cynthia Feland asked that the two be released on a personal recognizance bond, saying she does not see either as a flight risk.

The misapplication charges stem from an audit of Workforce Safety and Insurance that found more than $18,000 in questionable spending on restaurant gift certificates and cards, and expenses for gifts from a shopping mall and lunch for state legislators.

The conspiracy charges involve what auditors said was improper use of state driver's license photos, which are confidential records under state law. WSI investigators allegedly used photos to try to track down an employee who was e-mailing agency salary information to the press and others. The salary information is public record.

Attorneys for Blunt and Leingang have said they will plead not guilty. Both are on paid administrative leave from the workers' compensation agency, which provides medical, wage and rehabilitation benefits for employees who are injured on the job.

Leingang's attorney, Tim Purdon, asked Wefald to set aside an entire day for the preliminary hearing, which will determine if there is enough evidence to take the case to trial.

The charges against Blunt, two counts of misapplication of entrusted property and one count of conspiracy to commit disclosure of confidential information, together carry a maximum penalty of 20 years in prison and a $20,000 fine. The charge against Leingang carries a maximum of five years in prison and a $5,000 fine.

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

Neb. bill: Adults would be liable for damages if alcohol given to kids

A Neb. bill, LB573, passed by the Legislature would make adults who sell or give alcohol to underage drinkers liable for damages or injuries caused by intoxication.

People who host so-called keggers or other social functions where alcohol is served to minors could also be liable. Graduation parties where alcohol is served, for example, could land adults in court.

But if intoxication was found not to be the cause of negligent conduct, those who provided the alcohol would not be liable.

Retailers could be shielded from liability if courts determined they were fooled by fake identification that would appear valid to a reasonable person.

At this writing, Gov. Dave Heineman has not signed the legislation into law.

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

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.

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