Donelon says interest is there for insurance incentive plan
A bill that would allow Louisiana's state government to use $100 million in taxpayer money to offer incentives for insurance carriers to write homeowner's policies in the state's southern regions is moving through the legislature and Insurance Commissioner Jim Donelon, who backs the plan, says carriers have expressed interest in it. He says at least half a dozen companies have shown interest in participating in the Louisiana Incentive Program.
"I'm very encouraged that it will be fully utilized and will have a great impact on stabilizing our market," Donelon told Insurance Journal.
The plan was originally developed by the Louisiana Association of Industry and Business, and patterned, Donelon said, after a program the state has utilized with some success to attract other industries, such as manufacturing. Three years ago with the help of the incentive program, the state was able to attract to Alexandria, in central Louisiana, the Union Tank Car Manufacturing Plant, which "is now employing 900 workers in a high paying workforce," he said.
To be eligible for the $100 million grant program, insurance companies must apply for it and have on hand a minimum of $25 million in surplus. Carriers also must "have a willingness and ability to match whatever amount of money we give them in a grant -- between $2 million and $10 million," Donelon said.
"Take $10 million for example. If we give a grant to a company of $10 million, they will be committed to matching that with $10 million of their own and writing, by the terms of the program, new business on a premium basis of two to one. ... They would be obligated to write new business totaling $40 million in new premium in property coverage, of which 25 percent or $10 million must come from the Citizens [Property Insurance Corp.] book of business, the residual market."
And they must hold onto the business for a five-year period. If not, they will be required to repay that part of the grant for which they did not meet the qualifications. If fully utilized, the program would generate $400 million in new premium, "which is 15 percent of our total marketplace," Donelon said.
In late June, the Senate Finance Committee amended House Bill 678 to give the legislature's budget committee the power to block the grants to insurers if they see the need to do so, the Associated Press reported. The bill originally gave lawmakers no influence in the process. The amended measure would allow the insurance department to approve the grants, contingent upon final approval from the budget committee.
LIRC no more?
Other legislation Donelon said he favors would abolish the Louisiana Insurance Rating Commission and transfer its regulatory functions to the insurance department. Donelon said he has long supported such a move, both as a state legislator and a regulator.
"I believe it's way past time for us in Louisiana to get past that last vestige of our bad old days where we saw three straight commissioners end up in federal prison and our reputation for unsavory politics was a deterrent to companies coming to our state to do business," Donelon said. "This last vestige being done away with will, I think, send a very positive message to the industry that Louisiana is a better place for them to look to for writing new coverages, in particular as they exit the Florida market."
He said if the bill passes, and he believes it will, the state will use "a file and use system where I'll have 45 days to act on rate requests or they will be approved. ... We're going to replicate what exists in the majority of states."
One measure Donelon says the insurance department has stated opposition to is one that would privatize the Citizens book of business.
"I wouldn't have any problem with that but I think it would interfere with our other efforts to depopulate the Citizens book of business -- interfere with it only by slowing it down," Donelon said. "If there are companies, and there are some expressing interest in taking policies out -- some or all -- we would be thrilled to have them do that. But we don't want to slow down our program of bringing companies to our state and requiring that they depopulate with some of those grant dollars we discussed earlier. We don't want to slow down the positive effects from that program."
Oil industry develops new safety standards for hazardous worksites
An oil industry trade group said it has developed standards to better protect workers from explosions like the 2005 BP refinery in Texas explosion that killed 15 people and injured 170.
The American Petroleum Institute's new standards are designed to meet the demands of the U.S. Chemical Safety and Hazard Investigation Board that made an "urgent" recommendation in October 2005, requiring refineries to limit how close workers' portable trailers can be placed near potentially hazardous operations.
The voluntary standards for refiners, such as Valero Energy Corp. and Exxon Mobil Corp., establish three "blast zones" in which portable buildings could be placed, depending on the trailer's construction material and the size of the refinery unit. For example, trailers made of light wood would not be allowed within 330 feet of a potentially dangerous area.
Red Cavaney, the association's chief executive, said refiners would decide whether and when to implement the recommended standards, but said the industry takes them "very seriously."
Cavaney defended the speed with which the industry adopted the chemical safety board's recommendations, saying they required thorough public review with input from experts in the field.
The safety board, which investigated the March 23 accident two years ago at London-based BP Plc's Texas City refinery, found that nine trailers were located as close as 121 feet from a unit that exploded. It was the worst U.S. industrial accident in more than 16 years.
Workers in trailers as far as 480 feet away from the unit were injured, the safety board found, and trailers as far as 600 feet away were damaged.
The Chemical Safety Board issued a report earlier this year that partly blamed lax oversight by the Occupational Safety and Health Administration for the accident.
William E. Wright, a member of the Chemical Safety Board, said in a statement that the API's action was encouraging and said the board will review its recommendations and vote on whether they are acceptable.
Federal regulators say they are stepping up scrutiny of oil refineries to identify any problems contributing to a spate of fatal accidents in recent years. Since 1992, 36 refinery accidents involving hazardous chemicals have caused 52 deaths and 250 injuries, making the industry the most dangerous in the country, according to OSHA.
Other fatal accidents have occurred at refineries in Bakersfield, Calif., and Gallup, N. M.
In March 2007, on the second anniversary of the explosion, House members called for OSHA reforms, arguing that it had not enforced safety rules.
Lawmakers also criticized the industry's trade group for failing to expel members who don't follow safety standards.
Assistant Labor Secretary Edwin G. Foulke Jr. said in March that OSHA would double to 280 the number of workers trained to conduct advanced inspections of refineries.
Copyright 2007 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Auditor says probe of La. Citizens was blocked
Louisiana's legislative auditor claims his investigators have been blocked in their probe of the state-backed "insurer of last resort" by the group whose staffers perform much of the insurance company's work.
Steve Theriot said his investigators have been denied access to tax forms, computer records, contracts, payroll records and other records concerning Louisiana Citi-zens Property Insurance Corp. Theriot said in a letter to state Sen. James David Cain that his office "has been advised that some records ... are in danger of being altered or lost."
At issue is a dispute between Theriot and the Property Insurance Association of Louis-iana, an association of property insurers that contracts to perform work for Citizens, which has few employees of its own. Theriot believes that PIAL is subject to state "open meetings" laws, meaning his office should have access to its documents and records.
In May, Theriot asked the state attorney general's office for a ruling on the matter.
PIAL argues it is a private industry group, not public, and not subject to open meetings laws.
"We are of the opinion that PIAL is not public or quasi-public under any laws," A.J. Herbert III, a Baton Rouge-based lawyer for PIAL, said in a letter to the attorney general.
Theriot's office is performing a series of audits on performance at Citizens. Among other things, auditors discovered that Citizens' is unable to balance several years of bookkeeping. They also found that Citizens lacks paperwork on most of the $300,000 it paid for expenses and consultant services from 2004-06. That money went to PIAL without proper contracts or documents for $187,000 of that money, an audit found.
Cain, R-Dry Creek, chairman of the Senate Insurance Com-mittee, received the letter from Theriot's office on June 22. He informed colleagues of Theriot's allegations on the Senate floor.
Copyright 2007 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Former Ark. agent gets jail time for second fraud conviction
Former Arkansas insurance agent Beverly Gowan was sentenced in White County Circuit Court to 18 months detention with the Department of Community Correction for two counts of insurance fraud and one count of Theft of Property which is a class C Felony. According to Arkansas Insurance Commissioner Julie Benafield Bowman, Gowan received an additional 18 months suspended sentence and was ordered to pay $3,600 in restitution.
Gowan, age 66, is a repeat offender, the insurance department said in announcing the sentencing. He previously was convicted of insurance fraud in 1999 when he sold insurance to his sister and did not forward the premiums to the company. Her house burned and upon filing a claim, the sister discovered she was not covered. Gowan pleaded guilty in that instance and lost his license.
"I am pleased at the conviction of anyone who perpetrates such a crime against consumers; but I am especially pleased when we are able to convict someone who is bold enough to try it again," Commissioner Bowman said in the announcement.
The most recent charges against Gowan stem from an incident occurring in October 2000. Johnny and Ruthie Foster purchased vehicle insurance from Dairyland Insurance at $208 per quarter and Beverly Gowan provided them with proof of insurance cards. Following an automobile accident in 2005, Johnny Foster filed a claim with Dairyland only to discover the company had never heard of him.
This case was prosecuted with the assistance of the Criminal Investigation Division of the Arkansas Insurance Department.
Judge sides with Okla. AG on challenges to suit
A federal judge in mid-June sided with the state of Okla-homa on several legal challenges brought by the poultry industry in an attempt to dismiss a lawsuit filed by Oklahoma Attorney General Drew Edmondson.
After two days of hearings in federal court in Tulsa, U.S. District Judge Gregory Friz-zell denied the poultry industry's requests to dismiss the case on procedural grounds.
Among its victories, the state won a challenge to Edmondson's contract with private lawyers that calls for them to be paid a percentage of any funds recovered should the state win its case.
Jay Jorgensen, an attorney for Springdale, Ark.-based Tyson Foods and its affiliates, argued that the state constitution prohibits the use of contingency fee lawyers because it would create a "bounty system" whereby the attorneys' private interests would influence their decisions.
At issue was a contract signed by Edmondson in July 2004 to employ three law firms to prosecute the case against 13 poultry companies accused of polluting the Illinois River watershed with excessive amounts of poultry waste.
Edmondson, who has rarely attended hearings in the case, personally argued for the contingency fee lawyer contract. He said the state has the authority to use the contingency fee arrangement if the office doesn't have the re-sources to handle a case by themselves.
Should the state be unable to use contingency fee lawyers, it's "entirely likely the state would not be able to continue" with the lawsuit and the pollution of the Illinois River watershed would continue, Edmondson said.
In other developments in the case, a hearing on a request by the poultry companies to seek a jury from outside the federal court's northern district has yet to be scheduled.
Copyright 2007 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
House bill renews federal terrorism reinsurance for 10 years
Congress officially has a new bill to reauthorize the federal terrorism reinsurance program. Two Democrats from Massachusetts -- U.S. Rep. Mike Capuano and the Chairman of the House Financial Services Committee Barney Frank -- have introduced HR 2761, the Terrorism Risk Insurance Revision and Extension Act of 2007 (TRIREA).
The bill extends the Terrorism Risk Insurance Act (TRIA) for 10 years and, its supporters contend, will spur the development of a private market for terrorism risk insurance.
The Terrorism Risk Insurance Revision and Extension Act of 2007 (TRIREA) includes provisions to: Extend TRIA for 10 years with current co-payments and deductibles for conventional terrorism acts; Expand TRIA's "make available" requirement to include nuclear biological chemical and radiological (NBCR) coverage; Change TRIA's definition of terrorism to include acts of domestic terrorism; Set the program trigger at $50 million; Add group life insurance to the lines of insurance for which terrorism coverage must be made available; Decrease deductibles and triggers for areas previously impacted by a significant terrorist attack; and, Continue to require studies of the development of a private market for terrorism risk insurance.
After the 9/11 terrorist attacks, many insurance companies excluded terrorism events from their insurance policies. As a result, Congress in 2002 passed TRIA, which created a federal backstop to protect against terrorism related losses. In 2005, the measure was extended for two years and currently is set to expire at the end of 2007.
"TRIA has helped make terrorism insurance available and affordable to businesses, particularly those in our major urban areas. Improving and extending the program will help stabilize the economy, as well as help protect American workers and our communities against possible terrorist attacks," stated Rep. Capuano.
"We need to keep in perspective that this bill is necessary for economic development and to protect property owners, building tenants, developers and people who work or live in high risk areas," Frank said.
While the TRIA program has been credited with keeping terrorism insurance affordable, the President's Working Group on Financial Markets last year concluded that a private market for terrorism insurance is not yet commercially viable, especially with regard to insurance against nuclear biological chemical and radiological (NBCR) acts of terrorism.
P/C insurers invest $320 billion in public projects
The insurance industry holds investments in municipal bonds worth more than $320 billion, investments that help fund construction of schools, roads, and hospitals, and support a variety of other public sector activities, according to a new industry study.
The report issued by the Insurance Research Council (IRC) found that nearly one-fourth of all of those investments by property/casualty insurers at the end of 2005 funded education-related activities and projects.
The report, "Municipal Bond Holdings of Property-Casualty Insurance Companies," analyzes the types of public projects funded through municipal bonds purchased by insurers.
The report reveals that municipal bonds for projects involving public utilities made up 15 percent of the total combined value of all municipal bonds held by P/C insurers. Transportation-related bonds accounted for 12 percent of insurers' municipal bond investments.
Insurance companies invest the premiums paid by policyholders to ensure that the money to pay claims is available when the need arises. Municipal bonds make up a large portion of the investment portfolios of many P/C insurers.
"Property/casualty insurers' impact on the economy goes beyond insurance," explained Elizabeth A. Sprinkel, senior vice president of the IRC. "Insurers also provide a major source of capital for the public sector."
The findings of the IRC report are based on data compiled by A.M. Best Co. IRC analyzed municipal bond data to determine the bonds' purpose and the state in which they were issued. Bonds held by insurers as of Dec. 31, 2005, were analyzed.
Supreme Court ruling limits investors' antitrust
Last month's U.S. Supreme Court's ruling that blocks investors from suing Wall Street investment banks under antitrust laws could save Wall Street firms a bundle by limiting investors to smaller recoveries.
In a case dating back to the dot-com bubble, the high court ruled Monday that antitrust suits would pose a "substantial risk" to the securities market. Damages in antitrust cases are tripled, in contrast to penalties under the securities laws.
The ruling struck down a lower court decision that would have allowed investors to go after Wall Street firms that they say engaged in anticompetitive practices by conspiring to drive up prices on about 900 newly issued stocks in the late 1990s.
Because the well-documented implosion of names like Enron Corp. swallowed any serious money that investors might hope to recover from that and other flame-outs, some investors have turned to the banks and other Wall Street regulars such as accounting firms that did work for such companies.
"The fact that these antitrust cases have been thrown out on these grounds I think will send a high profile message to would-be plaintiffs who were thinking of bringing antitrust claims in the securities context," said Wesley Powell, an antitrust lawyer with Hunton & Williams in New York.
Lawyers for investment banks say the difference between legal and illegal activity is a highly technical matter that must be left to highly trained securities regulators to decide, rather than to courtroom juries.
Powell noted that not only do those pressing claims under securities laws not have the triple damages awarded in antitrust cases, but such claims also have to meet a higher legal burden than claims made under antitrust laws.
Copyright 2007 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed. AP writer Pete Yost contributed to this report.
