Ark. 2007 workers' comp bills include rules for second injuries, coverage waivers

The Arkansas Workers' Compensation Commission has summarized workers' compensation acts passed by the 2007, 86th General Assembly:

Act 1599: Raises the $75,000 threshold at which the Death and Permanent Disability Trust Fund assumes payments of benefits for injuries resulting in permanent disability or death. The amended act eliminates the $75,000 cap on weekly benefits paid by the employer or its insurance carrier for injuries occurring on or after Jan. 1, 2008. For those injuries occurring prior to Jan. 1, the $75,000 limit on employer/carrier liability still applies. For injuries occurring on or after Jan. 1, the employer or its carrier shall pay weekly benefits for death or permanent total disability not to exceed 325 times "the maximum total disability rate" at the time of the injury. NCCI estimates the 2008 threshold will be approximately $170,000.

Act 1415: Prohibits claims for second injuries being made under the provisions of Ark. Code Ann. - 11-9-525 after Jan. 1, 2008.

Act 546: Amends Ark. Code Ann. - 11-9-108 to include sole proprietors as among those individuals who may exclude themselves from workers' comp coverage, or who may "waive their right" to coverage or compensation for insurance purposes. Those individuals who are eligible for this exclusion are not considered "employees" and they are not required to obtain a certificate of non-coverage. Even if these elected exclusions reduces the number of employees of a business to fewer than three, the employer must continue to provide workers' comp coverage for its employees. This extension does not apply to subcontractors.

Act 398: Eliminates the requirement that a residential building contractor, who is not required to secure payment of workers' comp coverage, submit a certificate of non-coverage to the Residential Building Contractors Committee along with their application for a license or renewal of a license.
The full text of each act is available by Act number online at www.arkleg.state.ar.us.

South Texas counties at odds with FEMA over maps

Hidalgo County, Texas, officials are moving to block the release of an updated Rio Grande flood plain map that would force property owners to buy flood insurance.

The Federal Emergency Management Agency plans to release the map declaring most of the county a flood hazard area on Sept. 30.

Banks and other lending institutions would likely force every property owner in Hidalgo County with a mortgage to purchase private flood insurance, an expense business leaders said will make the area less attractive to developers and businesses.

County officials believe levee repairs would prevent the area from being a flood hazard. They have set aside $28 million of an estimated $125 million needed to repair the 180 miles of levee between Penitas and Brownsville, but they want the federal government to cover the rest.

"Our taxpayers shouldn't have to buy flood insurance because the federal government isn't living up to its responsibilities," Hidalgo County Judge J.D. Salinas said.

Salinas and officials from Cameron and Hidalgo counties planned to meet with attorneys in Washington, D.C., to discuss possible legal action.

Spokesman David Passey said FEMA would release the preliminary map as planned.

"From our perspective, if we all know the levees don't provide adequate protection, we feel the public needs to know the risk," Passey said.

FEMA is already facing litigation over its flood maps in Texas. Fair Oaks Ranch, a small city north of San Antonio, filed suit last year after the agency adjusted its flood plain map in that area.

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

U.S. Senate panel weighs funding for weather satellites

Cuts to planned weather and environmental satellites will significantly affect scientists' ability to study the Earth's climate, experts told a U.S. Senate committee recently.

The Commerce, Science and Transportation Committee also heard testimony on the aging QuikScat satellite, a hurricane forecasting tool that garnered headlines after the director of the National Hurricane Center called for its replacement but ended up replaced himself when staffers criticized his public pleas.

No decision was made on any of the nation's satellites, but the hearing came as the Senate and House consider bills that would pay for a replacement for QuikScat.

QuikScat measures wind speeds over the Earth's oceans, data that assists in hurricane forecasting. The satellite became an issue after the National Hurricane Center's now-ousted director, Bill Proenza, began speaking out about it. Proenza later came under fire from his staff, which said he damaged public confidence in their abilities, exaggerated problems and hurt staff morale. He went on leave from his position July 9.

A NOAA official submitted written testimony saying despite the fact QuikScat is operating on a backup transmitter the instrument should continue to operate for several more years and has enough fuel to last through 2011. The official, Mary Ellen Kicza, who is NOAA's assistant administrator for satellite and information services, said even if QuikScat were to fail, forecasters would not be blind.

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

Package of insurance measures passes La. legislature

Rating commission to be abolished; insurer incentive plan approved

Louisiana's Legislature in June approved a package of insurance bills promoted by Louisiana Gov. Kathleen Babineaux Blanco and Insurance Commissioner Jim Donelon. Among the bills passed were one that provides for $100 million in incentives for insurers to write property insurance in the southern part of the state and one which abolishes the Louisiana Insurance Rating Commission, the last of its breed in the United States.

"I am very pleased with the outcome of the regular session wherein the Legislature demonstrated remarkable interest and commitment to making a more attractive market for insurers doing business in our state in the aftermath of the Rita/Katrina catastrophes," Donelon said in a statement released by the Louisiana Department of Insurance. "This follows on the heels of positive steps taken in two special sessions by the Governor post Rita/Katrina that resulted in the passage of our first ever statewide building code and re-enactment of a tax credit on all assessments made by Citizens as a result of the two hurricanes."

According to LDI, the centerpiece of the Blanco/Donelon Insurance Package was HB 678, which establishes the Insure Louisiana Incentive Program. Passed on the last day of the session, it gives $100 million to qualified insurance companies in $2 million to $10 million increments if the companies match the state's portion with their funds and have a minimum of $25 million in assets. This bill includes tax credits in 2008 for policyholders whose homeowners insurance rates went up after Katrina and Rita. It allows for a credit of seven percent of premiums and will provide an estimated $105 million to $110 million in credits statewide.

According to the Property Casualty Insurers Association of America (PCI) passage of HB 960, which abolishes the rating commission as of Jan. 1, 2008, was one of the session's highlights as far as the insurance industry is concerned. Rate-setting authority will be passed to the Commissioner of Insurance.

"This has been an industry goal for many years and the move will help consumers by removing one of the major obstacles to attracting insurers to the state," said PCI Assistant Vice President and Regional Manager Greg La Cost in a statement released by the trade group. "Rating commissions add an additional layer of regulation that is unnecessary. Over-regulation adds costs, hinders competition and limits consumer choice. Consumers are better served when states operate more market-oriented approaches to insurance regulation."

In addition to HB 678 and HB 960, other approved measures from the Blanco/Donelon package include:

HB 558 - Provides for premium discounts or other adjustments for compliance with building codes and for damage mitigation. This bill will lower insurance premiums on properties constructed and/or modified to comply with the state's new building code. It mandates that an insurer requesting a rate revision shall also provide an actuarially justified discount, credit, rate differential, adjustment in deductible, or other adjustment to reduce the insurance premium when the property owner builds or retrofits a structure to comply with the requirements of the State Uniform Construction Code or installs mitigation improvements or retrofits their property utilizing construction techniques demonstrated to reduce the amount of loss from a windstorm or hurricane. Inspection and certification requirements are established regarding compliance with the bill.

SB 204: Provides that the phrase "two or more claims within a period of three years," which is an allowed reason for canceling, failing to renew or increasing a policy deductible in an insurance policy, does not include any loss incurred or arising from an "Act of God" incident that is due directly to forces of nature and exclusively without human intervention. This clarifies an ambiguity in existing law some insurers were using to non-renew homeowners policies.

SB 205: Creates an Office of Consumer Advocacy in the Department of Insurance and enforcement of an Insurance Consumers Bill of Rights by the Office, which includes a list of rights and protections for Louisiana consumers. The office will provide direct assistance and advocacy for consumers that have requested assistance from the insurance department and must be set up by Oct. 1, 2007.

SB 153: Provides for the depopulation of the Louisiana Citizens Property Insurance Corporation. This allows for policies held by Citizens to be bundled in groups of 500 and offered to insurance companies at least once a year. At least 25 percent of each bundle will be policies in the coastal parishes and 75 percent will be homeowners policies. Takes effect Nov. 1, 2007, after SB 195, which authorizes Citizens to bid out all of its business at one time.

Bills proposed by the insurance department that passed include:

HB 381: Provides that a property insurance policy may not limit the insured's right of action against the insurer to a period of less than two years when the claim is a first party claim. This bill changes the period for filing action against an insurer from 12 months to 24 months.

HB 472: Provides relative to the recoupment of Louisiana Citizens Property Insurance Corporation assessments and deletes its credit schedules under the FAIR and Coastal Plans. This bill removes premium assessment subsidies, and removes excessive and duplicative assessment charges on a policyholder. It fairly allocates Louisiana Citizens Property Insurance Corporation's assessments to all policyholders and allows for pro-rata calculation based on premium over the life of the policy.

HB 481: Provides for a flat annual $1,000 financial regulation fee per year on all companies in lieu of an hourly rate for examinations. This bill takes effect on July 1, 2007.

HB 499: Provides for fees collected by the Commissioner of Insurance. It simplifies fees and provides for an overall reduction in fees charged to insurers in Louisiana.

HB 596: Provides for the protection of innocent coinsureds and the effect of misrepresentation of an insured to an insurer. This bill preserves the right of innocent coinsureds to recover their proportionate interest under a fire policy in the event a fire related loss is determined to have been caused by another named insured.

PCI said lawmakers rejected bills that would have allowed punitive damages for insurance claims and one that would have required insurers to write any home that is constructed in compliance with the uniform building codes without regard to any other underwriting criteria.

Texas approves $1 billion in reinsurance for windstorm pool

The Texas Windstorm Insurance Association (TWIA) in early June submitted a proposal to the Texas Department of Insurance for the purchase of $1.5 billion in reinsurance under a three-tiered program. On July 11, Texas Insurance Commissioner Mike Geeslin approved the first two tiers of the proposal, which allow for the purchase for $1 billion in reinsurance that would be in effect through May 31, 2007.

The cost for that $1 billion in reinsurance has risen dramatically over last year. The total cost for reinsurance for all three layers of the proposed program would be $169, 947,500, according to the commissioner's order. That number is some $100 million more than the $69.5 million TWIA paid for reinsurance last year. Reinsurance costs are paid with TWIA policyholder premiums.

The order pointed out that, "Despite the magnitude of the expenditure, the proposed reinsurance program is not sufficient to fund even a 50 year storm without resorting to member insurer assessments at a level that would qualify for premium tax credits. At the same time, TWIA's liability has approximately doubled and the anticipated premium to be collected has also doubled." According to the department this disparity "illustrates the limitations of attempting to offset ever-increasing probable maximum losses through the purchase of greater amounts of reinsurance."

The department approved the first two layers, or $1 billion, of the proposal. Reinsurance for those two layers is estimated to cost around $150 million and would be provided by "reinsurers that are rated 'A-' or better by A.M. Best or Standard and Poor's." The reinsurers are also required to maintain adequate levels of surplus.

TDI had less of an appetite for the third layer of the proposal, the funding of which would have relied on non-traditional capital sources.

TWIA's current liability is more than $46 billion and some expect that number to grow to $60 billion by the end of the year. Approximately 50 percent of that liability is located in Galveston and Brazoria counties.

In the order, the department noted the necessity of long term planning, which "should be conducted to provide both cost effective and adequate funding for TWIA" considering the "dramatic growth in the probable maximum loss for TWIA and the increased concentration of risk."

A copy of the commissioner's order (No. 07-0595) can be found on TDI's Web site at http://www.tdi.state.tx.us/orders/index.html

Wind insurance costly, scarce on Gulf Coast

A study recently issued by the RAND Corporation recognizes what many businesses along the Gulf of Mexico coast have known for a couple of years now: They have had a difficult time obtaining wind insurance coverage since Hurricanes Katrina, Rita, and Wilma hit in 2005. Plus, they are often paying more than twice as much for the insurance as they did before those hurricanes hit.

With higher wind insurance deductibles and lower limits on policy coverage, businesses are spending more for less protection from hurricanes, tornadoes and other major wind storms the study by the nonprofit research organization found. They are also having to turn more frequently to the state-run "residual" insurance markets, which provide limited insurance to businesses unable to find insurance elsewhere as the admitted markets lose their appetite for writing coverage along the Gulf Coast.

The study was conducted for the RAND Gulf States Policy Institute by the RAND Institute for Civil Justice. The report, "Commercial Wind Insurance in the Gulf States: Developments Since Hurricane Katrina and Challenges Moving Forward," says the scarcity and high cost of wind insurance has delayed some business investments in the Gulf States region since the 2005 hurricanes, but that the overall effect on the region is hard to assess because higher insurance premiums may have in part redirected economic activity to lower risk areas. Half the lenders interviewed for the study said they were aware of delayed or canceled business projects in 2006 because of high insurance prices or the unavailability of insurance.

"The plight of homeowners after Hurricane Katrina has received most of the attention," said Lloyd Dixon, a RAND researcher and lead author of the study. "But business owners -- especially small businesses in the hardest-hit areas -- had a difficult time finding wind insurance despite steep price increases, and some couldn't get insurance at any price."

Researchers interviewed commercial insurance policyholders, insurance agents and brokers, insurers and reinsurers, commercial lenders, firms that model wind and other losses for the insurance industry, and companies that provide credit ratings for insurers and other firms. The sample included large, medium and small companies. Interviews were conducted in late August and early September 2006, with follow-up interviews continuing through April of this year.

The study found that in the first three quarters of 2006 the cost of insurance for commercial property skyrocketed, and coverage became less available in areas most exposed to substantial wind risk.

"Many firms are bearing more of the risk than they did before the recent hurricanes, so they are less protected against the next big windstorm," Dixon said.

Researchers also found that small businesses in high-risk areas are less attractive to insurance underwriters, in part because they are typically less geographically diverse than large firms. Such companies are also more likely to be in a weaker bargaining position when negotiating insurance rates and often lack the leverage with lenders to negotiate insurance coverage requirements lower than their loan balance.

The study identified several reasons behind the large premium increases:

• Insurers and modeling firms increased estimates of the number of hurricanes expected to hit the region and the damage caused by hurricanes when they do occur.


• Financial rating agencies tightened capital adequacy requirements for insurers.


• Litigation and government actions following the 2005 hurricane season led to uncertainty about how insurance contracts will be enforced by courts in the region.


• The threat of large assessments on insurers after future hurricanes that cause deficits in residual markets.

"While some of the factors that caused price increases may be transitory, the expectation of more frequent hurricanes and higher repair costs will likely prevent wind insurance prices from returning to pre-Katrina levels," Dixon said.

The study is available at www.rand.org. Other authors include James Macdonald of Navigant Consulting and Julie Zissimopoulos of RAND.

Agents question SDR on Texas Select unearned commissions policy

The Special Deputy Receiver (SDR) for Texas Select Lloyds, in response to a request from the Independent Insurance Agents of Texas for clarification on the billing of former Texas Select agents for unearned commissions, has offered additional information about the billing policy. The billing, began June 25 as a result of the liquidation of Texas Select in August 2006 by a Travis County district court, according to IIAT.

IIAT's request came on the heels of agency members' questions and comments as a result of the billing.

Texas Select was the sixth largest writer of homeowners insurance in Texas with more than 150,000 policyholders. The insurance commissioner designated the company as impaired, triggering action by the state guaranty fund to pay policyholder claims and refund unearned premiums. All policies were canceled effective Aug. 24, 2006.

The SDR answered these 10 commonly asked questions about the billing policy:

1. I don't see where I have been given credit for my July commission check that was returned for insufficient funds.
Response: The SDR has been informed that the majority of commission checks that were issued, but not cashed or were returned as insufficient funds, have been voided in the commission system and thus credit has been included on this statement. If you believe that the check you received has not been credited properly, please mark the policy transactions in dispute, provide a copy of the cancelled check and the associated commission statement and submit payment for the undisputed amount.

2. The Attached Billing Statement contains "+" and "-" symbols. Please explain what these mean?
Response: The billing statement includes a summary of all transactions for each policy written by the agent that was in force as of Aug. 1, 2006. Positive commission amounts represent unearned commissions. Negative commission amounts represent earned commissions, usually on policies in which commission was earned and either never paid to the agent due to suspension of commission payments, or may represent amounts included in checks that were issued, but not cashed or returned for insufficient funds.

3. Will a payment plan be considered?
Response: The SDR will consider a short term payment plan in situations where a financial hardship can be demonstrated. The payment plan may include a signed note by the agent/agency with financial disclosure requirements and a personal guarantee.

4. I do not believe that the SDR has the legal right to make such a demand for repayment.
Response: All agents should consult with an attorney in the event that they dispute the SDR's rights to recover funds. The SDR will review all letters from attorneys representing agents and assign them to counsel for proper review, consideration and response.

5. I concur with some of the amounts noted on the billing but dispute others? What do I do?
Response: It is recommended that you complete the form provided and note your disputes. These disputes will be reviewed. You can send funds to the SDR for those commissions that are not in dispute and you will receive proper credit.

6. I sold the agency and you sent me the bill. What do I do?
Response: The billing reflected the agent of record. You should consult your attorney related to your ongoing obligations to repay the due commissions. Your sales agreement may address this matter. In the event that you received prior approval of the company to sell the book of business, please provide that approval with your submitted information.

7. I incurred expenses in moving these policies and need to be reimbursed. Can I deduct these expenses from the billed amount?
Response: You cannot deduct these expenses from the billed amounts. You can and should file a Proof of Claim for those expenses. Go to www.sdrtx.com for Proof of Claim instructions.

8. Many of the noted policies on the billing were associated with the ASI assumption. Certainly the SDR does not hold the agent responsible for these agent balances?
Response: The SDR is in discussions with ASI representatives related to those policies and the obligation of the agents to refund commissions. At this time it is advisable for the agents to note on the listing which of the policies were transferred to ASI and provide that information to the SDR. The agent can make a partial payment of the undisputed owed agent commissions with a note related to the ASI policies as an issue in dispute.

9. Will the SDR consider any extension to the due payment date?
Response: The SDR will consider extensions in the event that a substantial hardship can be demonstrated by the agent.

10. Will the SDR take any regulatory action against my agency in the event that I do not pay the due agent commissions?
Response: The SDR will provide the Texas Department of Insurance with information related to the non-payment by agents. TDI will review this information and make appropriate decisions related to possible actions to take against agents for non-payment.

Agencies that have questions not addressed above may use an online form provided on IIAT's Web site, at http://www.iiat.org > Governmental Affairs > Insurance Regulation.

Okla. court says law can't bar evidence in workers' comp case

State senator vows effort to address issue
The Oklahoma Supreme Court invalidated a portion of a state law that prohibits medical evidence to be presented in a workers' compensation case from a doctor hired by an injured worker. The co-chairman of the Oklahoma Senate Judiciary Committee said he will do everything possible to amend the law so that its effect will be that which legislators intended.

The court said in mid-July that it is unconstitutional to restrict the Workers' Compensation Court from hearing all medical evidence relative to a workers' comp claim.

"Absolutely, we will do everything we can to accomplish our goal with that legislation by changing the wording or do what is necessary to meet the constitutional issues that were brought up by this decision," said Sen. James R. Williamson, R-Tulsa.

The law was approved at a special legislative session in 2005 and signed by Gov. Brad Henry. It represented a compromise after lawmakers could not agree during the regular session. Senate President Pro Tem Mike Morgan, D-Stillwater, and then-House Speaker Todd Hiett, R-Kellyville, were principal authors.

The provision in question allowed the employer to choose the "treating physician" in a workers' comp case who would rate a worker's percentage of disability. A second physician called an "independent medical examiner" also could be brought in to rate the injury.

The law allowed a judge to choose either recommendation or a percentage between the recommendations of the two doctors. Evidence from the personal doctor of a worker could not be presented, however.

Williamson joined a spokesman for The State Chamber, which represents scores of businesses across the state, in criticizing the opinion.

"It is disappointing that we seem to be fighting not only the trial lawyers but the Supreme Court in getting this pro-business workers' comp reform passed and upheld," Williamson said.

"Frustration," was how Mike Seney, senior vice president for operations at the Oklahoma Chamber, characterized his feelings about the ruling. He said the bill was vetted by attorneys inside and outside the Legislature and seemed to be a good solution to what he said was a problem of plaintiff workers' comp attorneys bringing into a case "doctors who are hired guns and give a higher rating that what is appropriate."

Ivan Holmes, state Democratic chairman, hailed the ruling in a statement.

"The Oklahoma Legislature has no right to take away from an injured worker's right to present evidence from their own medical expert regarding the extent of their injuries, so this was the only logical decision the Oklahoma Supreme Court could have made," said Holmes.

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

Industry supports terror bill but not all agree with NBCR mandate

At a congressional hearing in Washington, D.C. last month, insurance industry group representatives generally spoke in favor of a bill that would extend the federal backstop for terrorism insurance coverage for another 10 years. The Bush administration opposed this extension of the federal program, arguing no program would be better than a bad one, while insurers themselves split over a new provision mandating nuclear-biological-chemical-radioactive (NBCR) coverage.

Two Massachusetts Democrats -- U.S. Rep. Mike Capuano and the Chairman of the House Financial Services Committee Barney Frank -- introduced HR 2761, the Terrorism Risk Insurance Revision and Extension Act of 2007 (TRIREA). Supporters of the bill, which extends the Terrorism Risk Insurance Act (TRIA) for 10 years, contend it will spur the development of a private market for terrorism risk insurance.

TRIREA would extend TRIA for 10 years with current co-payments and deductibles for conventional terrorism acts as well as expand TRIA's "make available" requirement to include NBCR coverage.

It would also change the law'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.

Not all industry representatives agreed on all aspects of the bill, however, notably the requirement that insurers make NBCR coverage available on the same terms and conditions as "conventional terrorism" coverage.

Agents back the plan
Still, two leading insurance agent trade groups, the National Association of Professional Insurance Agents and the Independent Insurance Agents and Brokers of America, both support a long-term extension of the terrorism insurance act and both see the need to address NBCR coverage in the bill.

Sharon Emek, a managing director and partner at the CBS Coverage Group, a regional agency with locations in New York City, Plainview, Saratoga and West Hampton Beach, N.Y., spoke to the subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises on behalf of the IIABA.

"The current public-private partnership created by TRIA, and extended in TRIEA, has worked well and generally as intended, allowing businesses across America to continue operating and growing, and preserving jobs in the process," Emek stated in her testimony.

Emek said IIABA believes that the 10 year extension of the federal backstop is a "reasonable length given current market capacity."

Emek also pointed out that even though NBCR losses would stem from "the most catastrophic types of terrorist attacks," currently there is little coverage available in the marketplace for such events, other than in statutorily mandated lines such as workers' compensation. There is essentially no reinsurance capacity for NBCR losses, she added.

No PIA representative spoke to the subcommittee, but on its Web site, PIA expresses its support for "a long-term mechanism for terrorism coverage to ensure the viability of the existing domestic insurance market."

The Bush administration, through Treasury Assistant Secretary for Financial Institutions David G. Nason, opposed HR 2761. Nasson told the subcommittee that TRIA should be phased out in order to stimulate private sector participation in providing terrorism risk coverage.

Nason said the Treasury would support an extension only if it assured that the program remain temporary and short-term; private sector retentions are increased; and there is no expansion of the program.

Without those "critical elements," the Treasury department would be unwilling to support an extension of the Act. "In Treasury's view, from both a market and economic perspective, it would be better to have no TRIA than a bad TRIA," Nason stated.

I.I.I. weighs in
But insurers, even though some don't like all the provisions, argued that the extension is needed for the economy and government to function properly.

"Implementation of a long-term terrorism risk insurance program is an essential component of the nation's effort to protect the financial homeland," said Robert Hartwig, president and chief economist of the Insurance Information Institute in a statement.

Hartwig said the program's benefits will be felt immediately across all economic segments but stopped short of praising all elements of the bill.

Hartwig said the provision that compels insurers to cover NBCR risks poses a concern. He pointed out that private markets "have little to no experience insuring against these risks."

Hartwig was not alone in questioning the NBCR mandate.

Warren Heck, chairman and CEO of Greater New York Mutual Insurance Co., testifying on behalf of the National Association of Mutual Insurance Companies and the Property Casualty Insurers Association of America, favored the long-term extension of TRIA but said the bill should not mandate that insurers provide NBCR coverage.

"Attacks utilizing weapons of mass destruction (NBCR) are the ultimate in uninsurable events and they can have qualitatively different consequences than non-NBCR attacks," Heck told the subcommittee.

The American Insurance Association (AIA), on the other hand, praised the NBCR provisions. AIA President Marc Racicot, said, "Creating a long-term program which addresses the NBCR and conventional terrorism risks brings much needed stability and certainty to the market, without which long-term investment, economic development, and growth are clearly and substantially threatened."

FBI data mining targets include insurance fraud suspects

The FBI is gathering and sorting information about Americans to help search for potential terrorists, insurance cheats and crooked pharmacists, according to a government report.

Records about identity thefts, real estate transactions, motor vehicle accidents and complaints about Internet drug companies are being searched for common threads to aid law enforcement officials, the Justice Department said in a report to Congress on the agency's data-mining practices.

In addition, the report disclosed government plans to build a new database to assess the risk posed by people identified as potential or suspected terrorists.

The chairman of the Senate committee that oversees the Justice Department said the database was "ripe for abuse." The American Civil Liberties Union immediately derided the quality of the information that could be used to score someone as a terror threat.

The report, sent to Congress this month, marked the department's first public detailing of six of its data-mining tools, which look for patterns to catch criminals. The disclosure was required by lawmakers when they renewed the USA Patriot Act in 2005. It comes as the Justice Department faces sharp criticism from Congress and civil liberties advocates for violating peoples' privacy rights in terror and spy investigations.

Justice spokesman Dean Boyd said the databases are strictly regulated to protect privacy rights and civil liberties.

"Each of these initiatives is extremely valuable for investigators, allowing them to analyze and process lawfully acquired information more effectively in order to detect potential criminal activity and focus resources appropriately," Boyd said in a statement.

All but one of the databases -- the one to track terrorists -- have been up and running for several years, the report showed. The lone exception is the System to Assess Risk, or STAR, program to rate the threat posed by people already identified as suspected terrorists or named on terror watch lists.

The five other databases detailed in the report include:

• An identity theft intelligence program, used since 2003, to examine and analyze consumer complaints to identify major identity theft rings in a given geographic area.


• A health care fraud system that looks at billing records in government and private insurance claims databases to identify fraud or over-billing by health care providers. It also has been running since 2003.


• A database created in 2005 that looks at consumer complaints to the Food and Drug Administration to identify larger trends about fraud by Internet pharmacies.


• A housing fraud program that analyzes public data on real estate transactions to identify fraudulent housing purchases, including property flipping. The database was built in 1999.


• A system that compares National Insurance Crime Bureau information against other data to crack down on fake car accident insurance claims and
  identify major offenders.

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

GAO: Identity theft cases limited compared to number of security breaches

While the Government Accountability Office fell short of offering recommendations, it released a report stating that many entities in the private, public, and government sectors have reported the loss or theft of sensitive personal information in recent years.

A rapidly developing crisis, GAO says data breaches are frequent but the full extent of the problem is unknown, though evidence of resulting identity theft is "limited."

The law of averages dictates that as the number of data breaches increases, so will the incidences of follow-on identity theft. The GAO report released last month said more than 570 data breaches were reported in the news media from January 2005 through December 2006, according to lists maintained by private groups that track reports of breaches.

Account fraud (such as misuse of credit card numbers) or unauthorized establishments of new accounts (such as opening a credit card in someone else's name) are common examples of identity theft resulting from data breaches.

While many states have enacted laws requiring entities that experience breaches to notify affected individuals, Congress is considering legislation that would establish a national breach notification requirement as well.

GAO analyzed 24 large data breaches, and gathered information from federal and state government agencies, researchers and consumer advocates. The Office examined the incidence and circumstances of breaches, the occurrence of identity theft resulting from breaches and issues related to breach notification requirements.

These incidents varied significantly in size and occurred across a wide range of entities, including federal, state, and local government agencies; retailers; financial institutions; colleges and universities; and medical facilities.

The extent to which data breaches have resulted in identity theft is not well known, largely because of the difficulty of determining the source of the data used to commit identity theft. However, available data and interviews with researchers, law enforcement officials, and industry representatives indicated that most breaches have not resulted in detected incidents of identity theft, particularly the unauthorized creation of new accounts.

In reviewing the 24 breaches reported in the media from January 2000 through June 2005, GAO found that three included evidence of resulting fraud on existing accounts and one included evidence of unauthorized creation of new accounts. For 18 of the breaches, no clear evidence had been uncovered linking them to identity theft; and for the remaining two, there was not sufficient information to make a determination.

P/C industry net income, overall profitability slips

The U.S. property/casualty insurance industry's net income after taxes dipped to $15.8 billion in first-quarter 2007 from $16.7 billion in first-quarter 2006 and $17.7 billion in first-quarter 2005, according to industry analysts at the ISO and the Property Casualty Insurers Association of America (PCI). Reflecting the declines in net income, the property/casualty industry's annualized rate of return on average policyholders' surplus (statutory net worth) dropped to 12.9 percent in first-quarter 2007 from 15.5 percent in first-quarter 2006 and 17.9 percent in first-quarter 2005.

"Insurers' 12.9 percent rate of return for first-quarter 2007 was 1.8 percentage points above insurers' 11.1 percent average first-quarter rate of return since the start of ISO's quarterly data in 1986, but it fell short of the rates of return typically earned by firms in other industries," said Michael R. Murray, ISO's assistant vice president for financial analysis."

Premium growth slows
Contributing to the $0.9 billion, or 5.5 percent, decline in net income in first-quarter 2007, the industry's net gain on underwriting receded to $8.3 billion in the first three months of this year from $8.4 billion in the first three months of 2006, as net written premium growth versus year-ago levels slowed to 0.8 percent in first-quarter 2007 from 1.8 percent in first-quarter 2006.

Also contributing to the decline in net income, the industry's federal income taxes rose to $5.4 billion in first-quarter 2007 from $5.3 billion in first-quarter 2006. But much of the decline in first-quarter net income reflects a special transaction in which one U.S. insurer assumed $9.3 billion in liabilities from a foreign entity in exchange for considerations valued at $7.1 billion.

"Seasonal patterns in the data also suggest that insurers' rate of return will decline later this year," said Genio Staranczak, PCI's chief economist.

"Insurers' profitability in the first quarter usually exceeds their profitability later in the year, in part because of the timing of weather-related catastrophe losses. The Atlantic hurricane season runs from June 1 to Nov. 30."

The figures are consolidated estimates for all private property/casualty insurers based on reports accounting for at least 96 percent of all business written by private U.S. P/C insurers.

Net written premiums grew $0.9 billion to $111.4 billion in first-quarter 2007 from $110.5 billion in first-quarter 2006, but written premium growth slowed to 0.8 percent in the first quarter of this year from 1.8 percent in the first quarter of last year, the analysts reported.

"Similarly, net earned premiums rose $2 billion to $108.6 billion in first-quarter 2007 from $106.6 billion in first-quarter 2006, as earned premium growth slowed to 1.9 percent during the first three months of 2007 from 2.7 percent during the first three months of 2006," analysts said.

"At 0.8 percent in first-quarter 2007, net written premium growth was the weakest for any first quarter since 1992," said Murray. "Market surveys and U.S. government data indicate that escalating competition and declines in the price of insurance are cutting into premium growth."

"In first-quarter 2007, net written premiums were up 0.8 percent from a year ago, while the nation's gross domestic product (GDP), which takes into account both inflation and real growth, increased 4.6 percent during the same time frame," Staranczak said. "That premiums grew only about one-sixth as much as GDP is an indication that intensifying competition is leading to lower prices for most coverages in most locations, though property insurance remains scarce and expensive in some coastal areas."

Loss expenses increase
Overall loss and loss adjustment expenses increased $1.1 billion, or 1.6 percent, to $70.4 billion in first-quarter 2007 from $69.3 billion in first-quarter 2006, the analysts reported. Non-catastrophe loss and loss adjustment expenses rose $1.3 billion, or 1.9 percent, to $69.1 billion in first-quarter 2007 from $67.8 billion in first-quarter 2006. But according to ISO's Property Claim Services (PCS) unit, direct insured losses from catastrophes dropped to $1.3 billion in the first three months of 2007 from $1.5 billion in the corresponding portion of 2006.

Other underwriting expenses -- primarily acquisition expenses, other expenses associated with underwriting, pricing and servicing insurance policies, and premium taxes -- rose $1.1 billion, or 3.8 percent, to $29.6 billion in first-quarter 2007 from $28.6 billion in first-quarter 2006.

Combined ratio
The combined ratio rose to 91.7 percent in first-quarter 2007 from 91.1 percent in first-quarter 2006, with the change in the combined ratio reflecting imbalances between the growth in premiums and the costs of providing insurance.

Bermuda shorted as more U.S. captives form onshore, Aon reports

Bermuda's reign as the undisputed global leader among captive domiciles is being challenged by U.S. companies that are increasingly leaning toward onshore domiciles for their captive insurance companies.

That is among the findings of Aon's new Global 1500 (G1500) research report on captives and their owners.

The latest Aon report indicates that the gap between onshore and offshore captive growth in the Americas has narrowed. While Bermuda remains the domicile of choice for the G1500 (with over a quarter of all G1500 captives), Bermuda's biggest growth as a captive domicile was between 1995 and 2000. Between 2000 and 2005 Bermuda grew by just 21 percent, whereas Vermont grew by 60 percent.

Large U.S. companies clearly more often favor establishing an onshore U.S. captive -- about two-thirds of U.S. parented captives established in the last five years have been based in U.S. onshore domiciles.

Among the domiciles within the U.S., Vermont has been and continues to be the location of choice. The Green Mountain State has more than four times the number of G1500 captives as all the other U.S. onshore domiciles combined. Hawaii is the next most popular with 20 captives, followed by New York, Arizona and South Carolina.

Findings show that U.S. companies account for more than a third of the G1500 and account for nearly half of all captives owned. Of the ten G1500 companies with five or more captives, seven have their parent companies in the United States.

The research also highlights that contrary to popular belief, the captive market remains underdeveloped with more than half (53 percent) of the current global 1500 companies not currently owning a captive. The outcome is that insurance buyers within the world's largest companies are failing to achieve a better quality of cover as well as cost savings of typically 10 percent to 15 percent, through economies of scale, efficient use of capital, leverage and more efficient use of senior management time.

Sectors missing an opportunity include manufacturing and communications, where 55 percent and 62 percent respectively do not have captives. Even sectors that have greater take-up still show room for growth. For example, 44 percent of the largest financial and insurance companies and 39 percent of mining companies still do not use captives.

"G1500 companies currently have 1,061 captives, as the benefits of captives become clear, I believe that this figure will rise to at least 1,200 by the year 2010," said Andrew Tunnicliffe, group managing director, Business Development, Aon Global Risk Consulting.

Supreme Court raises bar for investors bringing securities fraud suits

The U.S. Supreme Court last month imposed a strict standard that investors must meet to keep alive their lawsuits alleging securities fraud.

In an 8-1 decision, the justices said that courts must weigh possible innocent explanations for defendants' conduct at the very start of a securities fraud case. Doing so can lead to early dismissal of investors' lawsuits.

The ruling came in a shareholders suit against high-tech company Tellabs Inc.

The firm misled investors by engaging in a scheme to inflate Tellabs' stock price from December 2000 to June 2001, according to the lawsuit. It said the company's CEO provided false assurances of robust demand for the company's products.

A lawsuit will survive only if the facts alleged in it are "cogent and compelling" in pointing to an intent to deceive, wrote Ruth Bader Ginsburg. Those factual allegations must be at least as compelling as "any opposing inference" suggesting innocence, she added.

The Supreme Court decision comes as the corporate world pushes regulators to roll back some safeguards put in place after the accounting scandals that brought down Enron Corp. and WorldCom Inc.

The business community says the Tellabs case is the kind of meritless claim that Congress intended to prohibit when it reformed securities law 12 years ago.

Under the 1995 reforms, a securities fraud complaint must allege facts giving rise to a "strong inference" that defendants acted with an intent to deceive investors.

The 7th U.S. Circuit Court of Appeals had ruled against Tellabs, saying the complaint should survive if a reasonable person could infer from the allegations that defendants' conduct was intentionally deceptive.

"That one-sided approach, we hold, was erroneous," Ginsburg said in court.

The justices sent the case back so that the lower courts can assess whether the lawsuit should survive.

The court dealt another setback to investors when it sided with Wall Street investment banks that allegedly colluded to drive up the price of 900 technology stocks in the late 1990s. Shareholders subsequently lost billions when the dot-com bubble burst.

Next fall, the court will consider a case that could make it impossible for Enron shareholders to recover money from Wall Street institutions that allegedly assisted the energy company in disguising its financial problems.

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

Treasury chief Paulson vows review of U.S. financial services regulation

The Bush administration plans to review the U.S. government's regulatory system for financial institutions with the goal of making changes to better reflect modern markets.

Treasury Secretary Henry Paulson said the review, which will be conducted by officials at his department, will examine the system for all companies that provide financial services. The blueprint for recommended changes will be released early next year, he said.

"To maintain our capital markets' leadership, we need a modern regulatory structure complemented by market leaders embracing best practices," Paulson said in a statement announcing the review. "The steps we are announcing today will help to strengthen our global competitiveness."

Paulson did not spell out any proposed changes but other officials said that Treasury would look into consolidating overlapping regulatory functions. Previously, the Clinton administration considered merging the Office of the Comptroller of the Currency and the Office of Thrift Supervision.

Paulson, the head of investment giant Goldman Sachs before taking the Treasury post a year ago, said in a speech last November that he planned an extensive review of the regulations governing America's financial markets to make sure they were not harming the country's ability to compete in the global economy.

He held a conference on capital markets in March where billionaire investor Warren Buffett, former Federal Reserve Chairman Alan Greenspan and other titans of U.S. finance got together to discuss whether an overregulated financial system is putting the country at a disadvantage in attracting foreign investment.

Paulson said that the regulatory review now being conducted was part of a second stage of his capital markets competitiveness plan. The goal will be to recommend changes that will improve oversight, increase efficiency, reduce overlap and support the ability of regulators to adapt to constantly changing investment strategies.

He said he would also encourage the development of best practices for asset managers and investors in hedge funds and work to modernize the Treasury Department's management of the government's finances and borrowing procedures.

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