Property insurance rate hikes in store for La.
Louisiana regulators in late May approved property insurance rate hikes of 16 percent to 51 percent for three small companies, with larger increases for homeowners along the coast.
The Louisiana Insurance Rating Commission on May 24, 2007, approved a 16 percent increase in homeowners insurance rates charged by Lafayette Insurance Co., with 10,419 policyholders, a change worth $1.4 million to the company.
Actuaries indicated the company, which raised rates 38 percent rate last year, could have justified new increases averaging another 48 percent across the state, based mostly on its losses from 2005. But company representative Michael Sheeley assured commission members that Lafayette has adequate reserves.
"We're in good shape with regard to being able to handle another storm," he said.
Though Lafayette won a statewide increase of 16 percent, its policyholders in the New Orleans area will see increases of between 20 and 25 percent.
Two smaller players in the Louisiana insurance market, Fidelity and Deposit Co. of Maryland and Empire Fire and Marine Insurance Co., won approval, respectively, for rate increases of 51 percent and 49 percent, based on average charges across the state. Each company increased its rates by nearly 10 percent within the last year.
Policy changes ordered by the two companies, affecting deductibles for wind and hail damage and discounts for burglar and fire alarms, could increase costs in many instances. But the companies, both represented by Douglas Strommen at the Baton Rouge hearing, are prepared to write more policies in storm-damaged parishes. They now have just 558 policyholders combined in Louisiana.
Strommen said an agent for the companies would be tough to find because most of the firms' Louisiana business is arranged through mortgage companies as they prepare home loans.
The commission approved rate increases for Louisiana Farm Bureau that will allow it to charge 48 percent more, on a statewide basis, for a "named peril" policy that is a more restrictive, and lower-cost, alternative to standard homeowner's insurance, and 28 percent more for a homeowner's policy for mobile homes.
But rate increases could range as high as 65 percent and 57 percent, respectively, for the two types of policies in the most vulnerable coastal areas, and new policies are not yet being written in the New Orleans area, company representative Brian VanDreumel said in an interview. The company is trying to mend from post-hurricane losses and the two programs haven't had rate increases since the 2005 storms.
"Our company is slowly starting to get back on its feet" he said. "Right now it's still fragile. We're going to be conservative in writing new business."
Copyright 2007 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Texas AG cracks down on lender for ID theft exposure
Texas Attorney General Greg Abbott says Ohio-based CNG Financial Corporation and subsidiaries Check 'n Go of Texas Inc. and Southwestern & Pacific Specialty Finance Inc. have been systematically exposing their customers to the risk of identity theft. The AG's office filed legal action against the companies that accuses Check 'n Go of violating the law by repeatedly failing to protect customer records that contain sensitive personal information.
The legal action taken against Check 'n Go is the sixth such action the AG's office has taken against business operating in Texas in recent weeks.
The AG alleges that Check 'n Go stores across Texas exposed customers' personal identifying information by discarding business records in easily accessible trash cans behind the stores. According to investigators, the records included numerous documents containing customers' names, addresses, Social Security and loan information, including several federal truth-in-lending disclosure statements.
The defendants are accused of violating the Texas Deceptive Trade Practices Act (DTPA) and the 2005 Identity Theft Enforcement and Protection Act, which requires the safeguarding and proper destruction of clients' sensitive personal information. Under the law, the attorney general's office has the authority to seek penalties of up to $20,000 per violation of the DTPA and $50,000 per violation of the Identity Theft Enforcement and Protection Act.
The AG also charged Check 'n Go with violating Chapter 35 of the Business and Commerce Code, which requires businesses to develop retention and disposal procedures for their clients' personal information. The law provides for civil penalties of up to $500 for each abandoned record.
More information on the AG's action can be found online at www.oag.state.tx.us.
Hurricane forecasters agree: busy season ahead
Weather forecasters differ somewhat in their methodologies and numbers but appear to agree on one matter: the 2007 hurricane season looks to be a busy one along the Atlantic and Gulf coasts.
They predict that anywhere from seven to 10 hurricanes will form and at least one major Category 3 or higher storm will make landfall in these U.S. coastal regions.
The Atlantic hurricane season runs from June 1 through November 30, with peak activity occurring August through October.
Experts at the National Oceanic and Atmospheric Administration (NOAA) Climate Prediction Center say there is a 75 percent chance that the Atlantic hurricane season will be above normal this year.
NOAA scientists predict 13 to 17 named storms, with seven to 10 becoming hurricanes, of which three to five could become major hurricanes of Category 3 strength or higher, according to retired Navy Vice Adm. Conrad C. Lautenbacher, Ph.D., undersecretary of commerce for oceans and atmosphere and NOAA administrator.
An average Atlantic hurricane season brings 11 named storms, with six becoming hurricanes, including two major hurricanes.
Last year, seasonal hurricane predictions proved to be too high when an unexpected El Niņo rapidly developed and created a hostile environment for Atlantic storms to form and strengthen.
Some uncertainty
"There is some uncertainty this year as to whether or not La Niņa will form, and if it does how strong it will be," said Gerry Bell, Ph.D., lead seasonal hurricane forecaster at NOAA's Climate Prediction Center. If La Niņa develops, storm activity will likely be in the upper end of the predicted range, he added.
The up-and-coming hurricane researchers who accurately predicted a mild 2006 storm season, despite dire predictions of more established forecasters, also say the 2007 season will be much more active -- especially in the Gulf of Mexico.
Two teams of researchers at North Carolina State University this season released separate results for the first time.
One team projected that 16 to 17 named storms would form in the Atlantic basin, including eight to nine hurricanes. Two or three hurricanes will make landfall on the East Coast, while one or two will strike the Gulf Coast, according to team predictions.
"Everything shows that it's going to be a much busier year than last year," said Len Pietrafesa, a professor of oceanic and atmospheric science at N.C. State who contributed to the team.
The second squad of N.C. State forecasters estimated the Atlantic basin will brew 12 to 13 named storms and eight to nine hurricanes, including four or five major hurricanes. These researchers said there is a 75 percent chance a hurricane will make landfall along the eastern seaboard and an equally strong chance that a hurricane will hit the Gulf of Mexico coastline.
This team also estimated a 56 percent chance that a major hurricane will strike the Gulf Coast, and a 10 percent chance of a major hurricane striking the southeast coast.
"We're seeing a very active Gulf of Mexico, similar to some of the past active seasons," said lead researcher Lian Xie, an N.C. State professor of meteorology and physical oceanography. He added that the eastern seaboard will have above-average activity in the south and a calm season in the north.
Republic CEO: P/C mergers and acquisitions likely to 'skyrocket'
The statutory surplus for property and casualty insurers is at a record $488 billion, according to the CEO of one Dallas-based regional carrier, and they are going to be looking for somewhere to put that cash to work. Mergers and acquisitions, bringing with them opportunities to create efficiencies and to enter new classes of business, are likely targets for that excess capital.
The property and casualty industry, especially reinsurers, enjoyed a favorable pricing environment during 2006, and catastrophe exposures were relatively light. As a result, "every carrier out there thinks they're flush with cash," said The Republic Group President and CEO Parker Rush, speaking at the May 15, 2007, meeting of the Independent Insurance Agents of San Antonio.
Rush said in 2005 more than $20 billion in new capital poured into the industry from Bermuda and in 2006 the industry's combined ratio was -- on the books at least -- 92 percent. Now, there's "a lot of pent up capital in a number of carriers," he said.
Unfortunately, "our industry as you know does not handle prosperity well," Rush noted. "Whenever everybody thinks they're in times of prosperity typically everything heads South." One indication? A slowdown in premium growth. Net premium increased only 3 percent in 2006 and expectations are that premium growth in 2007 will be about 1 percent.
With competitive pressures mounting, carriers will not only want to move into new business classes and perhaps employ their capital in new markets -- some of which they may not have experience in -- they will utilize mergers and acquisitions to make up for the lack of organic growth. In addition, the ease of borrowing money in the current market is another incentive for carriers to combine and purchase, Rush said.
"The merger and acquisition side of our business I believe is going to skyrocket," he said. "I think we're going to see unprecedented mergers for insurance companies, as well as for brokers and regional types of insurance agencies like we've never seen before. Why? There's excess capital. You've got to do something with it and in our business we're lousy at returning the money to the shareholders. That's usually not choice number one."
The amount carriers are willing to pay for acquisitions is going up dramatically, Rush said, and "the amount they are paying far exceeds what the net income projections are."
He cited recent announcements regarding Liberty Mutual's purchase of Ohio Casualty and QBE's acquisition of Winterthur U.S.
Liberty Mutual announced it offered $44 per share for Ohio Casualty, but Ohio Casualty's share price before the announcement was $36. "They went for 1.65 times book value, which is huge," Rush said. He added that Liberty Mutual is "paying 15 times today's earnings to acquire that company. That is a huge premium in our business. Typically you'd pay eight to nine times earnings."
QBE meanwhile paid 1.35 times book value for Winterthur U.S., and its subsidiaries Unigard and General Casualty, which had been for sale for three years, Rush said.
Unprecedented reserve releases
Rush said reserve releases by insurance companies in 2006 at least partly contributed to the industry's favorable bottom line and its lower combined ratio. However, he noted, while releasing reserves creates money in the short term, it also creates a strain on the company's "rainy day fund" and it takes a long time to build the reserves back up again.
"So what's happened in '06 is, there have been reserve releases at an unprecedented level in the property/casualty insurance business," he said. "So I would be willing to argue that even if everybody produces the exact same results this year on their operating business, we will get nowhere close to [a combined ratio of] 92. Because once you release the reserves you've got to earn them for a considerable period of time before you're going to be able to release them again."
For 2007, a combined ratio in the mid-90s is more likely, as long as it's "a relatively average cat year. If it's higher than that, the combined ratio will go a little higher," Rush said.
Off to Bermuda?
Rush speculated that with the Democrats now in power in the U.S. Congress, one thing they will likely do is try and close tax loopholes to increase the amount of money flowing into the U.S. Treasury. One way to do that is to look to Bermuda and the U.S. companies that are re-forming themselves there and in the Cayman Islands, Rush said.
"I'm always fascinated by U.S. carriers that merge or acquire a Bermuda company, primarily solely for the reason of saving tax dollars," he said. "The latest example of that is obviously Argonaut acquiring PXRE."
With that acquisition, San Antonio-based Argonaut Group will redomicile and become a Bermuda company. The majority of Argonaut's business is U.S.-related, Rush said, and "PXRE is in run off so the only reason to do that deal is to save taxes."
Rush believes Congress will begin to look at the number of insurance carriers that have re-formed as Bermuda or Cayman Island companies.
"I think you're going to see at least a discussion about, 'Hey is this fair and equitable for all of the U.S. corporations that pay U.S. taxes.' I don't know if anything will come of it but I think ultimately that's something that's in danger," he said.
La. sees rate decreases in workers' comp filings
Workers' compensation insurance rates are decreasing in Louisiana, according to Commis-sioner of Insurance Jim Donelon. Donelon attributes the positive change to a significant drop in loss costs for insurers.
According to the Louisiana Department of Insurance workers' comp carriers in Louisiana use the National Council on Compensa-tion Insurance (NCCI) annual loss cost filing report to help formulate their insurance rates. A recent NCCI lost cost filing showed Louisiana with the nation's largest percentage drop in loss costs, at 15.8 percent. Several companies recently have filed for a rate decrease with the department, which said filings are still being received and expects the this trend will likely continue.
The following table shows the companies with a statewide market share of 0.1 percent or more requesting a rate decrease over the past month. The 27 companies shown are collectively requesting an average 15.9 percent decrease in rates. The total Louisiana workers' compensation market is estimated at $1.03 billion. These 27 companies account for $230 million or approximately 22.4 percent of the market.
Oklahoma trails nation in funding for uninsured
Despite its high percentage of uninsured residents, Oklahoma trails 48 other states in garnering its share of federal funding to provide health care for those without insurance, according to state officials.
Oklahoma has 11 federally qualified health centers, or FQHCs, a designation that brings block grants and other benefits to help states provide primary medical care to the uninsured, regardless of the patient's ability to pay.
Nationally, the average number of FQHCs per million residents is 11.5, according to the University of Oklahoma Center for Health Policy Research.
Oklahoma's ratio is 4.6 sites per million residents, second lowest in the nation. Even Rhode Island, the smallest state in the country, has more than twice the number of FQHCs as Oklahoma, said Judy Grant, director of community development for the Oklahoma Primary Care Association
Oklahoma has more than three times that state's population, with 18.4 percent of the population uninsured, according to the United Health Foundation America's Rankings 2006 report. In comparison, 11.4 percent of Rhode Island's population is uninsured, the report said.
Oklahoma fell behind from the beginning when President Johnson created the program in the 1960s, said Michael Brown, director of the Oklahoma State Health Department's Office of Primary Care and Rural Health Development.
Grant said funding for new centers dried up during the presidency of Ronald Reagan, but the program was revived by President Bush in 2001.
An estimated 700,000 Okla-homans are uninsured, a fact that continues to burden the state's hospital emergency rooms with those patients seeking primary care, according to Brown.
Grant said three more applications are going in during the latest application cycle, which is focused on high-poverty counties. In Oklahoma, only Sequoyah, Alfalfa and Comanche counties qualified to apply and are seeking FQHC status.
She said her agency is awaiting word on the fate of six applications that went out in early December to designate FQHCs in Porter, Wetumka, McAlester-Hartshorne, Lawton, Muskogee and Oklahoma City.
Copyright 2007 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
'Broken lawsuit system' hurts small business, dampens the spirit of entrepreneurship, study claims
The tort system in the United States cost small businesses $98 billion in 2005, with the fear of lawsuits altering the way the small business owners make decisions, according to studies released at a Congressional hearing by the U.S. Chamber Institute for Legal Reform (ILR).
"The simple fact is this: our broken lawsuit system is a serious problem for America's small businesses, costing jobs and dampening the spirit of entrepreneurship and innovation at the very core of America's greatness," ILR president Lisa Rickard told members of the House Small Business Committee.
One study, conducted for ILR by NERA Economic Consulting, found that small businesses (those with $10 million or less in annual revenue) paid $98 billion in tort-related costs in 2005, the latest year for which data is available, with $20 billion coming from the assets of the businesses rather than through insurance. For a small business with $10 million in annual revenue, that translates into about $200,000 a year that it will pay out in tort-related costs, the study says.
"The lawsuit culture transfers billions of dollars in assets critical to the continued survival of small businesses into the bank accounts of trial lawyers," Rickard said.
A second study, conducted for ILR by the nonpartisan market research firm Harris Interactive, examined the effect of lawsuits on business decisions. Harris surveyed owners and managers of small businesses who were most concerned about the tort liability systems in their own states.
Of the qualified respondents indicating that they were very or somewhat concerned about being the target of a frivolous or unfair lawsuit, six in 10 say the fear of lawsuits makes them feel more constrained in making business decisions generally, and 54 percent say lawsuits or the threat of lawsuits forced them to make decisions they otherwise would not have made.
The survey found that, if they felt like they would be protected from lawsuit abuse, 62 percent of these concerned owners say they could grow their businesses by improving their facilities or buying new equipment, increasing wages and benefits for their current employees, or by hiring new employees.
The Harris study polled 1,109 owners and managers for businesses with $10 million or less in annual revenues who had at least one employee, and who were very or somewhat concerned about being sued in a frivolous or unfair lawsuit.
Survey: 75% of consumers satisfied with insurance agents; personalized service
Three-quarters of consumers are very satisfied with the service provided by their insurance agents and remain committed to working with them in the future, according to a new survey of 1,000 American consumers commissioned by IBM.
U.S. consumers want personalized service and human interaction from their insurance providers, says the survey, which comes at a time when agent-based carriers are facing increased competition by direct channels and direct-only insurance carriers.
The study demonstrates consumers' unwavering loyalty to their insurance agent regardless of potential savings that online channels alone can provide, and it indicates how insurance carriers are providing their agents with technologies to deliver more personalized customer services.
For example, only 15 percent of respondents said they would consider dropping their agent to save $150 annually by purchasing insurance online.
Fifty-four percent indicated no amount would make them switch.
Forty-four percent of consumers said their insurance provider is innovative as compared to other industries, and 71 percent of respondents said they will work directly with their agent for future insurance needs.
Personalized service and human interaction emerged as key factors in driving consumer loyalty with their agents. More than half (53 percent) of consumers cite personalized service as what they like best about the services offered by their insurance agent, and quality of service topped the list of the key factors in choosing an insurance provider. For example, face-time continues to play an important role in helping agents deliver quality services; 36 percent surveyed said they like to visit their agent.
"The insurance business is still very much relationship-based, and consumers are willing to pay a premium for agents that instill trust and provide ongoing advice regarding their insurance needs," said Norbert Dick, general manager, Global Insurance Industry, IBM. "But insurers should not ignore the potential in the online channels for maintaining existing customers' loyalty and capturing additional market segments. A combination of back office process improvements and customer experience improvements across channels like the Web, e-mail and cell phones can pay dividends in terms of repeat business and brand loyalty. And for customers who are looking at direct channels, particularly younger, emerging market segments, channel investments stand to gain new business.
At last, World Trade Center rebuilding ready to begin
N.Y. Gov. Spitzer brokers $2 billion settlement between Silverstein Properties and seven insurers
New York Gov. Eliot Spitzer and Insurance Superintendent Eric R. Dinallo announced that they have negotiated a $2 billion settlement between Silverstein Properties and seven insurance companies covering all outstanding insurance claims arising from the Sept. 11 terrorist attack on the World Trade Center.
They said the agreement is the largest in regulatory history, ending almost six years of legal battling and removes the last major obstacle to development at Ground Zero.
With these insurance claims resolved, Silverstein Properties and the Port Authority can now proceed to obtain the financing needed to rebuild Ground Zero.
Silverstein Properties Inc. leased the World Trade Center from the Port Authority in July 2001. When the planes destroyed the twin towers on Sept. 11, insurance policies for the World Trade Center had not been finalized. Suits were filed in October 2001 to resolve disputes over how much the insurance companies owed.
The courts eventually determined that the most Silverstein Properties could collect was $4.68 billion. Until now, the insurance companies have paid about half of that total, leaving the remaining sum in dispute.
Beginning in late March, Dinallo held dozens of meetings with Silverstein Properties and the insurance companies. Late last month, when several outstanding issues remained unresolved, Spitzer became personally engaged in the negotiations, according to the administration.
The insurance companies involved in the settlement are Travelers Companies Inc., Zurich American Insurance Co., Swiss Reinsurance Co., Employers Insurance Company of Wausau, Allianz Global Risks U.S. Insurance Co., Industrial Risk Insurers (now owned by Swiss Reinsurance Co.) and Royal Indemnity Co.
As part of the agreement, Silverstein Properties and the insurance companies have signed confidentiality agreements requiring that specific amounts paid by each company will not be disclosed. The total for all seven companies is $2 billion. These agreements settle all outstanding court cases and related proceedings.
In September 2006, Silverstein Properties and the Port Authority achieved a global agreement for comprehensively rebuilding the World Trade Center site. The agreement called for the Port Authority to construct Towers 1 and 5, for Silverstein Properties to construct Towers 2, 3 and 4 along the eastern portion of the site, and for the Port Authority to prepare the "East Bathtub" foundation for construction of those towers. In order to help finance this rebuilding, Silverstein Properties and the Port Authority agreed to a split of the remaining insurance proceeds of approximately 56 percent to Silverstein and 44 percent to the Port Authority.
The two sides have spent hundreds of millions of dollars on legal fees and other court-related costs. Spitzer said the agreements will save additional tens of millions in legal costs and allow the Port Authority and Silverstein Properties to focus on rebuilding at Ground Zero.
"It is essential that the rebuilding at the World Trade Center site proceed as quickly as possible," said Spitzer. "The unsettled insurance claims were the last major barrier to rebuilding and have been bitterly and intensely contested for almost six years."
Dinallo said the agreement represents "government at its best, working with industry to solve a problem, rather than using the courts or fines or other adversarial procedures."
He also said the case highlights the essential role that insurance plays in modern society.
"If not for the private insurance industry providing a substantial portion of the funding to rebuild from this vicious terrorist attack, the entire cost could have been left to taxpayers," Dinallo added.
Delaware Insurance Commissioner Matt Denn was also involved in the settlement. In February, his office approved a management buyout of Royal & Sun Alliance Insurance Group's U.S. operations, known as Arrowpoint Capital. Denn said he and his staff were involved in the settlement talks and, as principal regulators of Arrowpoint, signed off on the agreement.
"My first and foremost responsibility is to ensure that Arrowpoint Capital is able to pay all of its policyholders' claims now and in the future. The agreement announced today furthers that goal. It is a fair resolution of the claims of the World Trade Center and relieves Arrowpoint of substantial uncertainty relating to the litigation of these claims," Denn said in a statement.
The Insurance Information Institute estimates insurers paid $37.0 billion (adjusted in 2006 dollars) in property, life, and liability claims for losses related to the events of Sept. 11, 2001 in New York, Virginia and Pennsylvania.
