Fla., Miss., S.C. top five in flood insurance growth

Florida, Mississippi and South Carolina now rank as three of the top five states in the nation in flood insurance policy growth according to data released by the National Flood Insurance Program and FloodSmart.

In order, the top states are: Florida, Texas, Louisiana, Mississippi, and South Carolina.

Insurance Commissioner George Dale cited FloodSmart figures indicating that 80 percent of the growth in flood insurance is attributable to these top five states.

As of the end of May there were 65,480 flood insurance policies in force throughout the entire state of Mississippi. Dale said that is an increase of nearly 9,800 from the end of April. He said there are now 37,149 policies in force in the three coastal counties of Hancock, Harrison, and Jackson Counties. That is a total increase of 15,128 from the 22,021 policies that were in force when Hurricane Katrina struck on August 29, 2005.

"I am extremely pleased that so many Mississippians understand how vital it is to have flood insurance regardless of where they live," Dale said. "I am particularly happy to see so many coastal residents taking action now to prepare themselves for the next storm that may threaten our coast and I would encourage those who have not yet purchased flood insurance to please make that very important choice to get flood coverage."

County by county numbers show that there have been significant increases in flood policies in each county. In Hancock County there were 5,462 policies in force when Katrina hit, as of the end of May there are 6,755. In Harrison County there were 10,218 policies in force when Katrina hit, as of the end of May there are 15, 594. In Jackson County there were 5,913 policies in force when Katrina hit, as of the end of May there are 14,800.

Dale encouraged property owners throughout the state to sit down and carefully read their homeowner policies to become better aware of coverage.

"Remember, flooding is NOT covered under a standard homeowner's insurance policy; a separate flood insurance policy is needed," Dale said. "The water exclusion clause in the standard homeowner policy states that "flood, surface water, waves, tidal water, overflow of a body of water, or spray from any of these, whether or not driven by wind is excluded."

This clause has been used in homeowner policies since the late 1960's.

Florida offers grants to encourage hurricane damage mitigation

Florida's Department of Financial Services is working out the details of a program offering grants of up to $5,000 to homeowners who take steps to mitigate hurricane damages.

Individual matching grants of up to $5,000 will be available for homes valued up to $500,000. Low income homeowners will be eligible for $5,000 grants with no match required.

The program will cover roof deck attachments, secondary water barriers, roof coverings, brace gable ends, reinforced roof-to-wall connections, opening protection and exterior doors, including garage doors.

According to DFS, the grant process will involve a two steps: applicants must undergo a free home inspection; and they must apply for a matching grant.

Implementation of the program is subject to annual legislative appropriations.

The law calls for free home-retrofit inspections of site-built, residential property, including single-family, two-family, three-family and four-family residential units. DFS said it will solicit proposals from wind certification entities to provide at no cost to homeowners wind certification and hurricane mitigation inspections. The inspections provided to homeowners, at a minimum, must include:

1. A home inspection and report summarizing the results and identifying corrective actions a homeowner may take to mitigate hurricane damage.
2. A range of cost estimates regarding mitigation features.
3. Insurer-specific information regarding premium discounts correlated to recommended mitigation features identified by the inspection.
4. A hurricane resistance rating scale specifying the home's current as well as projected wind resistance capabilities.

Retrofit grants
The legislation also authorizes financial grants to encourage residential property owners to retrofit their properties to make them less vulnerable to hurricane damage. To be eligible for such a grant, a residential property must:

1. Have been granted a homestead exemption under Chapter 196.
2. Be a dwelling with an insured value of $500,000 or less.
3. Have undergone an acceptable wind certification and hurricane mitigation inspection.

A property which is part of a multi-family residential unit may receive a grant only if all homeowners participate and the number of units do not exceed four.

Grants must be matched on a dollar-for-dollar basis for a total of $10,000 for the mitigation project with the state's contribution not to exceed $5,000.

Over-prescribing doctor tops Florida list of 10 'costliest, boldest' scammers

The Florida Department of Financial Services has released its "Top-10 Fraud List," summarizing the 10 costliest or boldest scams investigated resulting in convictions from July 1, 2005 to June 30, 2006:

'Top-10 Fraud List'

1. First do no harm--Dr. Thomas Merrill was convicted in Apalachicola on 98 felony counts for over-prescribing controlled substances to patients, six of whom died of drug overdoses.
2. Classic Ponzi scheme --In Palm Beach, Tho-mas A. Masciarelli and Steven P. Petrarca, received 25 years for offering 30 investors a 9 percent return, never investing the funds and diverting $1.2 million.
3. Preying on the elderly--Brian Lee Shechtman, a former Hollywood insurance agent, switched health insurance to low-cost policies, overbilled and applied for other policies. He received 30 months in prison for defrauding 1,200 South Florida seniors, with 15 years probation and must pay $1.4 million in restitution.
4. Empty promises--Carmelo Zanfei and William Paul Crouse sold bogus health insurance plans in Florida and 43 other states. The principals of TRG Marketing, LLC, were sentenced last August to two years and four years in prison, respectively.
5. A friend indeed--Charles "Gary" Cowden, of Sanford, faces six to eight years in prison. He bilked a friend and others out of over $1 million for fictitious annuities.
6. Sing it from the rooftop--Todd Woods, owner of A-1 Construction, presented certificates of liability insurance to a roofing contractor, the City of St. Cloud, and Osceola County, but it was valid only in Louisiana. He must participate in the Pre-Trial Diversion Program and pay a $10,000 fine and investigative costs.
7. Trust fund tackle--Louanne Hickey stole more than $140,000 from John Galletta Jr., a St. Johns County attorney. She received 10 years probation, with three years on community control and must pay $42,000.
8. 'Churning' sensation--Tampa Insurance Agent Herman Roger Letchworth III churned thousands of dollars by pilfering and falsifying 60 customers life insurance applications. He was convicted of insurance fraud and ordered to pay $81,000.
9. A cash infusion--Michael Andre Griffin of Tampa approached patients at St. Anthony's Out-Patient Clinic offering $100 a week and grocery coupons to seek HIV treatment at North Tampa Medical Center. Griffin received 151 days in county jail.
10. Double rip-off -- A dozen individuals pleaded guilty to buying the identities of customers at a Miami auto dealership and creating driver's licenses for imposters to present at area clinics.

Florida moving ahead with commercial lines reinsurance pool

Florida is moving to reactivate a state-run reinsurance pool for commercial lines insurance to help businesses obtain insurance.

The Commercial Joint Underwriting Association (JUA) is intended to provide property insurance coverage to business owners who have been unable to secure it from private insurance companies.

Florida Gov. Jeb Bush had announced late last month he was considering the idea of a state-run reinsurance pools, saying that if companies can't get coverage, it could lead to an economic downturn.

On Aug. 1, his Cabinet voted to authorize the JUA's reactivation.

Tom Gallagher, Florida's chief financial officer, applauded the decision by the Bush and Cabinet.

"Eight storms inflicting $38 billion in insured losses have created a crisis in Florida's property insurance market, and our state's homeowners and business owners are being held hostage as a result," said Gallagher.

The decision was met with caution by insurers, however.

Cecil Pearce, American Insurance Association vice president, for the Southeast, urged that the JUA's mission be strictly defined.

"Any commercial joint underwriting authority (JUA) must be carefully targeted to address the real problems that exist in the market, while not unintentionally creating additional problems. To that end, we urge the Office of Insurance Regulation to clearly define the scope and extent of the current market difficulties and to design the commercial property-casualty JUA to resolve those specific difficulties."

Pearce said insurers consider a commercial JUA to be a temporary, short-term fix for the current availability problems in the commercial property market.

"Long-term, we urge Florida policymakers to focus on solutions that address the fundamental challenge of attracting sufficient private insurance capital to Florida to support a growing and dynamic state," he said.

Reinsurance back-up
Bush said he favors a program that would offer reinsurance to back up private insurance companies, rather than a program that would sell insurance directly to businesses. Reinsurance is coverage that insurers have to protect against their own losses from paying claims.

The Republican governor had asked Insurance Commissioner Kevin McCarty to prepare a plan for a business insurance pool for the Cabinet's approval.

Bush's proposal came after Senate President Tom Lee and CFO Gallagher suggested resurrecting such a pool. It existed before Hurricane Andrew in 1992, but was disbanded.

The problems that many homeowners and businesses in Florida have in getting coverage for hurricane damage are well known, and state policy makers have tried to deal with that issue for years. Citizens Property Insurance Corp. is a similar pool that sells hurricane damage policies for those who can't get it in the private market.

But businesses in Florida have reported trouble getting any kind of coverage and had their policies canceled and rates increase. Insurance companies have been reluctant to offer policies because they've had a hard time getting reinsurance. Some companies can't get wind coverage either, and can't get Citizens coverage because of where they are.

Creating an insurance pool that would guarantee companies could at least find a policy would add some stability to the state's insurance market, Bush said.

The governor's idea is slightly different from Gallagher's. The Republican candidate for governor envisions a pool to underwrite the risk for business policies but with insurance companies continuing to sell and process claims. Gallagher said that a pool should only be used when no other insurance is available.

Gallagher is also proposing having reinsurance more available by making it easier for companies to tap into the state's reinsurance fund, the Florida Hurricane Catastrophe Fund, or CAT fund. Currently companies can tap into it to back themselves up once their losses hit $5.2 billion. Gallagher is suggesting lowering the threshold to $3 billion.

Lee is proposing expanding the amount of reinsurance coverage available from the CAT fund if the insurers agree to take over coverage of homes that would otherwise have to be covered by Citizens. He also proposed using surpluses in the state's affordable housing trust fund to help pay to strengthen the homes of poor people in the hopes of lowering their insurance premiums.

Associated Press reports were used in this story. Copyright 2006 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Citizens agrees to renew, write new builder's risk coverage in Florida

Citizens Property Insurance Corp. has reversed a June decision to cancel its builder's risk program and agreed to renew existing builder's risk policies and write new policies in Florida until the end of the year.

The shift in policy was unanimously approved by the board of governors during a July 21 emergency meeting. The vote came after Florida Chief Financial Officer Tom Gallagher and Insurance Commissioner Kevin McCarty asked the insurer to reconsider its decision to stop selling builder's risk policies in light of the lack of a voluntary market for the risks.

The board also approved a reclassification of continuous-care residential communities' coverage.

An emergency meeting was necessary due to Citizens June decision to scale back its builder's risk coverage, effective July 15. Citizens carries about 6,000 builder's risk policies that cover about $4.5 billion in properties under construction.

"As you know our decision in June to discontinue builder's risk coverage has caused quite a ripple throughout Florida, particularly in South Florida, but not necessarily just South Florida," explained Bruce Douglas, Citizens board of governor's chair. "Our decision was the right one in our opinion, in the opinion of the Office of Insurance Regulation and the Chief Financial Officer of the state."

The board unanimously agreed that Citizens would effective immediately renew existing builder's risk policies, but only at actuarially sound rates, until Dec. 31, 2006.

Also, Citizens agreed to not cancel existing builder's risk policies other than for standard cancellation reasons.

The decision to write the policies until the end of the year is intended to give the market time to stabilize, after which it is hoped that the voluntary and surplus lines markets will resume writing these policies.

The new policy will be reviewed by the Citizens board at its November meeting.

Douglas defended the June decision to cancel the builder's risk program as the correct response at the time to inquiries from some of the same public officials who have since asked it to reinstate the program.

"The Office of Insurance Regulation wrote asking us to justify why we write builders risk," Douglas said, "and in researching we could not find any reason, order, statute or direction saying that we should or should not write builder's risk. In response, we made our decision at the June meeting."

Now, despite the absence specific statutory provisions requiring it to write builder's risk, board members have agreed to reinstate the program.

"Our action today is a serious response to the market conditions for builder's risk," Douglas said. "We have been in this business since the 1970s, nothing by law or directive says that we must carry builder's risk but we are doing this because the market demands it, the economy of Florida needs some interim plan to get us through."

"While Citizens made the right decision 30 days ago and under normal times we should not be in this business, these are not normal times and builder's risk coverage is virtually unavailable in Florida," said Jay Odom, a Citizens board member. "I have searched high and low for builders' risk insurance for my own company. At this point of time for the Florida economy we don't have any choice but to do this."

CFO, OIR requests
The day before the program was about to be cancelled, July 14, Florida CFO Gallagher sent Douglas a letter asking the board to "revisit (its) previous decision to non-renew and cancel builder's risk policies" because "there is no viable private sector coverage available."

Gallagher said Florida could face an economic crisis if builders could not obtain coverage. He maintained that, because OIR had not specifically ordered Citizens to stop writing the policies, he believed "this coverage should be made available through Citizens."

Citizens also heard from Insurance Commissioner McCarty, who in a July 20 letter expressed his "concern about the current non-availability [of builder's risk coverage] and asking us to reconsider," Douglas said.

Board members at the meeting included Bruce Douglas, chairperson; John Collins; Earl Horton Jr.; John Collins, Jr., chairperson of the Reinsurance Committee; Jay Odom and Gloria Fletcher.

"The prospects for us depopulating in general continue to look bleak," Douglas said. "We need to start rethinking our role as an interim solution."

Douglas said he felt that while the initial mission of Citizens was as a five or seven year solution, Florida now needs a long-term solution for its economy and for its insurance market.

"Mississippi, Alabama, Texas, Louisiana and all those other states are now wishing that they were where the state of Florida is now with Citizens," Odom commented. "More than 1.3 million Florida citizens now have insurance that would not have it otherwise."

Bob Ricker, Citizens president, advised any builder that applied for a builder's risk policy during the past week and was turned down, to reapply. He said that after this decision anyone who is issued a new policy will be covered on an ongoing basis. He said policy will not be backdated.

Continuing care residential policies
The second item on the agenda related to continuing care residential communities.

Douglas said Citizens reclassified residential communities as commercial residential communities, stipulating that no single building has less than 75 percent residents.

Now Citizens will not cover a building that provides medical or hospital service in excess of 25 percent of the total building. Other buildings in these communities, in which the individual building has 75 percent or more of individual residents, will be covered as a commercial residential property.

Before this decision, these types of properties were classified as commercial non-residential risk in Citizens high-risk account.

"The distinction we are making is that as a risk continuing care residential communities are generally residential in nature," Douglas explained. "We are making a clarification to our rules that if a CCRC qualifies as a commercial residential risk, then we look at the occupancy of each of the buildings in the complex to determine if the character of that building is residential in nature, and if so, that building may be written as a commercial residential risk on a Citizens policy throughout the state.

"We have done a good thing for the many, many people who live in those communities," Douglas concluded.

Vesta liquidation by Texas felt from Florida to Mass.

Some 70,000 Florida, 150,000 Texas, 5,200 Massachusetts and 11,000 New Jersey policyholders are among those affected by the liquidation of Vesta Fire Insurance Co. and its subsidiaries.

Texas regulators placed the company into liquidation in July and its affiliates are issuing notices to agents to cease writing new and renewal insurance business. Also all policies with the companies will be canceled on Aug. 23 in most states.

Vesta is the parent company of four Texas-domiciled insurers: Texas Select Lloyds Insurance Company, Vesta Insurance Corp., Shelby Casualty Company and Shelby Insurance Company.

Texas Insurance Commissioner Mike Geeslin said Vesta's problems include a series of hurricane losses driving a long-term need for capital. Negotiations with potential buyers for certain Vesta insurers failed.

"We moved in this direction simply because the company did not have the capital to cover the risk to which they were exposed and we felt policyholders were at risk," Texas department spokesman Jim Hurley said.

Regulators in Hawaii and Florida have also taken control of Vesta subsidiaries--the Hawaiian Insurance & Guaranty Company Ltd. (HIG) and Florida Select Insurance Company.

Florida Select, a Florida corporation that was licensed in 1996, is headquartered in Birmingham, Alabama and has additional offices in Sarasota, Florida. Florida Select was writing homeowner's multi-peril, allied lines, and fire insurance coverage. Florida Select has approximately 70,000 homeowners policies in Florida. The company also writes business in South Carolina.

Hawaii Insurance Commissioner, J.P. Schmidt said HIG policies were not being canceled and circumstances may not be dire in his state.. "We were able to obtain reinsurance to cover the book of business for HIG so that the people would have cover," he said.

Agents in Texas are finding some insurers coming to the rescue. Both the Independent Insurance Agents of Texas and the Professional Insurance Agents of Texas have lists of companies willing to take over some of Texas Select's business on their web sites.

But in Florida, agents are not so fortunate.

"We cannot afford to have more policies canceled or non-renewed. Citizens really can't take on any more and they are trying to do their best--you really have to give them credit," said Dulce M. Suarez-Resnick, past president of the Latin American Association of Insurance Agencies Inc. in Miami.

She said insurers have tightened their underwriting guidelines or reduced the number of policies they write. "It's a prudent thing to do considering the past two storm seasons and the predicted storm season ahead. They don't want to end up like the five companies that have faced solvency issues due to the 2004 and 2005 hurricane seasons."

According to Suarez-Resnick, time is a factor. "We are urging people not to wait until Aug. 23 to move their business. Agents are working very hard to make their policyholders aware of this and are moving their customers as rapidly as possible," she said.

In February, A.M. Best downgraded the company's subsidiaries' ratings to C++ (Marginal) from B (Fair). Best's said Vesta's capital and surplus had declined over recent years due to higher than anticipated losses from the 2004 and 2005 hurricane seasons, combined with other declines in statutory surplus attributable to changes in accounting estimates. While Vesta successfully executed several capital enhancement plans, which included the sale of its life insurance and automobile insurance operations, hurricane losses largely offset the surplus realized through those transactions.

House bill would establish national disaster commission with agent member

Legislation that would establish a bipartisan national commission tasked with recommending policies to help the federal government prepare for and manage disaster response has been introduced in the House of Representatives.

H.R. 5891, the Catastrophic Disaster Risk and Insurance Commission Act, would attempt to mitigate future costs, reduce the likelihood of fraud and abuse in a federal repayment program, and hedge any risk exposure assumed by the government in the adoption of a national catastrophe program.

The bill was introduced by Rep. Debbie Wasserman-Schultz, D-Fla., and cosponsored by nine other representatives, including Rep. Mike Castle, R-Del., Rep. Patrick McHenry, R-N.C., and Rep. Charlie Melancon, D-La.

Conceptually, the House legislation is similar to the Commission on Natural Disaster Risk and Insurance Act, introduced in the Senate by Sen. Bill Nelson, D-Fla., and Sen. Mary Landrieu, D-La., in May. The legislation would establish a 17-member bipartisan commission and include an independent insurance agent as part of that commission.

The Independent Insurance Agents and Brokers of America expressed their strong support for the bipartisan legislation.

"Independent insurance agents and brokers are an integral part of the insurance marketplace, and this commission would give a crucial part of the industry a place at the table in the process of making important public policy," said Charles E. Symington Jr., IIABA senior vice president for government affairs and federal relations. "Our members serve as the conduit between consumers and insurance companies, and they understand from experience the marketplace disruption caused by natural disasters."

Is the U.S. prepared for a cyber catastrophe? Business executives say, 'no'

Testifying before a Senate Homeland Security and Government Affairs Subcommittee, Karl Brondell of State Farm Insurance Companies warned that the U.S. is not adequately prepared for a cyber catastrophe.

The insurance executive outlined what a recent Business Roundtable report identified as gaps in current response plans for restoring the Internet following a catastrophic cyber disruption.

Brondell, a strategic consultant with State Farm, also detailed a series of Roundtable recommendations for government and businesses to improve identification and assessment of cyber disruptions, to coordinate responsibilities for Internet reconstitution, and to make needed investments in institutions with critical roles in Internet recovery.

The Roundtable report, Essential Steps Toward Strengthening America's Cyber Terrorism Preparedness, found the U.S. is ill-prepared for a cyber catastrophe due to a lack of coordination between the public and private sectors that would be critical to restoring the Internet following a disaster.

"Progress has been made over the past decade on technical issues, such as establishing computer security readiness teams in government and gaining a better understanding of cyber risks," Brondell testified.

Strategic issues
"However, other issues have not been addressed, such as strategic management and governance issues around reconstituting the economy and shoring up market confidence after a widescale Internet failure."

Business Roundtable is an association of 160 CEOs of U.S. companies, and State Farm leads the Roundtable's Cyber Security Working Group. The Roundtable report identified major gaps in the U.S. response plans to restore the Internet:

Inadequate Early Warning System -- The U.S. lacks an early warning system to identify potential Internet attacks or determine if the disruptions are spreading rapidly.

Unclear and Overlapping Responsibilities -- Public and private organizations that would oversee recovery of the Internet have unclear or overlapping responsibilities, resulting in too many institutions with too little coordination.

Insufficient Resources -- Existing organizations and institutions charged with Internet recovery should have sufficient resources and support. For example, little of the National Cyber Security Division's funding is for support of cyber recovery.

In its report, the Roundtable concluded that these gaps in response plans mean the U.S. is not sufficiently prepared for a major incident that would lead to disruption of large parts of the Internet and the economy.

Protecting your most valuable assets overseas

Foreign voluntary workers' compensation, kidnap & ransom, and accident coverage help mitigate losses

A business has many valuable assets, but perhaps none as critical to success as its employees. Businesses depend on their senior management, leading sales executives and other top talent to guide the company, plan for the future and help manage growth.

As midsize and smaller companies expand their operations into countries outside the United States, their management relies heavily on these A-level employees to negotiate with foreign business leaders overseas or manage critical foreign operations.

Senior and mid-level executives at U.S. corporations have been traveling to Europe for years, but business trips to India, China and developing countries are becoming more common. Although most companies have workers' compensation and other insurance policies to protect their employees while they are working in the United States, those policies may not provide adequate protection when employees travel abroad.

Hazards when traveling abroad
The potential for accidents, injury or illness in a foreign country is very real. Because they face a broad array of unfamiliar exposures, employees are more likely to be injured at work when they are outside the United States than when they are on home turf. A 1997 study of the health-insurance records of 10,800 employees of the World Bank found that employees who routinely traveled on business accounted for 80 percent more medical claims than employees who did not travel. Among the common problems found with frequent travelers: intestinal and diet complaints, vascular troubles, respiratory infections, back aches and higher levels of complaints about occupational stress and anxiety. With international and business travel expected to rise this year, according to the Travel Industry Association of America, the risk of illness or injury while traveling abroad remains high.

Business people can become sick or injured anywhere, but traveling overseas presents a number of unique risks due to language barriers, jet lag, inherent driving hazards and infectious diseases. Employees are at greater risk for an illness if they are traveling to a foreign country where they may become exposed to infectious diseases, such as malaria, that are not common in the United States.

These risks are further compounded by the difficulty employees may have in finding appropriate or specialized medical care in a foreign country. Although many countries have excellent medical facilities for nationals, finding translation services to assist with interpretation of symptoms, medications and conditions is difficult at best and strained when pressed with an emergency.

Global travel also brings the risks of injury from terrorist attacks and kidnappings. Travel to the Middle East and some countries in Africa and Latin America may be especially dangerous, but as last year's attacks in London and Madrid demonstrate, employees could be at risk even when traveling to seemingly safe countries. Beyond terrorist attacks, kidnapping is a very real threat and they are not confined to remote or difficult regions.

Because senior management, key executives and other high-level performers frequently travel on business outside the United States, they are the people most exposed to risk and the ones a company can least afford to lose to illness or injury.

The right insurance protection
To ensure that valued employees get the best possible care and protection when working outside the United States, businesses should purchase foreign voluntary workers' compensation and kidnap and ransom insurance along with other insurance, such as a controlled master policy for property and liability, to protect them from international exposures.

Foreign voluntary workers' comp insurance provides workers' comp and employers liability protection specifically for employees who are working overseas. Although some protection may be afforded by a domestic workers' comp policy, this protection may not be sufficient. Domestic workers' comp policies often provide medical and wage benefits for short-term assignments outside the United States, but the extraterritorial provisions of these contracts generally exclude endemic disease or accidents that occur outside of work hours. The distinction between work and non-work activities may be blurred when employees are working abroad, creating a gray area that could be confusing to the insurance buyer. An added incentive for purchasing a foreign voluntary workers' comp policy is that claims for foreign exposures will not have a negative effect on the domestic experience modification for the U.S. workers' comp program, leading to higher U.S. premiums at renewal.

Foreign voluntary workers' comp insurance provides employees with wage continuation while recovering from illness or injury and pays the expenses incurred for repatriation. Repatriation expenses include those incurred for emergency medical treatment, transportation and mortuary services when an employee becomes ill, is injured or dies while traveling on business outside the United States and transportation expenses for an accompanying spouse and children. These expenses can be costly. The average cost of a medical helicopter evacuation, for instance, is about $60,000. Domestic workers' comp protection does not pay for this kind of expense.

Travel accident policies may be an appropriate alternative to buying foreign voluntary workers' comp insurance in some circumstances. A travel accident policy provides an employee with lump sum compensation for an injury and access to good medical care. However, keep in mind that unlike foreign voluntary workers' comp policies, travel accident policies do not include wage continuation or repatriation expenses.

Kidnap and ransom insurance is also important for traveling executives. Under a kidnap and ransom policy, clients are reimbursed for property or money surrendered as a ransom payment. A kidnap and ransom policy also provides defense and indemnity in the event of a lawsuit alleging negligence on the part of a customer in a hostage retrieval operation or in the prevention of a kidnapping. Moderate limits for kidnap and ransom insurance can be found under an exporters' package policy as well as a controlled master program. For higher limits, a monoline contract can be purchased.

Finding the right carrier
When choosing an insurer, look for a carrier with extensive international experience, a strong branch network and a reputation for reliable, quality loss control and claims services. It is also important that the insurance carrier is familiar with rules and regulations in countries around the world. Buyers should make sure the insurer can support its agents through connected and supported correspondent brokers who work together to service the company's needs on a local basis worldwide.

The challenges of operating a global business are many. By understanding the risks, companies can make educated decisions about the purchase of appropriate foreign insurance. With foreign voluntary workers' comp, kidnap and ransom and travel accident policies, businesses can mitigate any potential losses and help keep their most valued asset--their employees--safe and productive.

Kathleen S. Ellis is a senior vice president of Chubb & Son, and manager of Multinational Risk Group - Global Accounts.

Congressional hearing held on terrorism and insurance

Agents, risk managers and insurers press Congress for long-term TRIA solution

Two U.S. House subcommittees--the Committee on Financial Services, Subcommittee on Oversights and Investigation, and the Homeland Security Subcommittee on Intelligence, Information Sharing, and Terrorism Risk Assessment--held a hearing late last month to examine the ongoing issue of insuring the U.S. economy against terrorist attacks.

The hearing marked the first-ever joint inquiry into the issue by the two congressional subcommittees. The panel was convened by Homeland Security Committee Chairman Peter King, R-N.Y., Oversight and Investigations Subcommittee Chair Sue Kelly, R-N.Y., and Intelligence, Information Sharing, and Terrorism Risk Assessment Subcommittee Chair Rob Simmons, R-Conn. Its purpose was to re-examine the issue of terrorism risk insurance, focusing in particular on challenges faced by the insurance industry with regard to its ability to assess such exposures.

The hearing, "Terrorism Threats and the Insurance Market," took testimony from several industry groups, including agents, brokers, risk managers and insurers.

The Independent Insurance Agents and Brokers of America gave testimony in support of a long-term solution for terrorism insurance after the expiration of the Terrorism Risk Insurance Extension Act (TRIEA) on Dec. 31, 2007.

The IIABA expressed concern that consumers will face sunsets and exclusion clauses in policies as TRIEA nears expiration without a long-term solution that addresses the issue. The IIABA highlighted findings that there is only a limited amount of private-sector terrorism reinsurance available and that the unique and unpredictable nature of terrorist attacks makes it difficult for insurers to calculate risks.

"The issue of terrorism risk insurance has too many variables to assess with the accuracy needed to provide effective private coverage," said Charles E. Symington Jr., IIABA senior vice president for government affairs and federal relations. "It remains virtually impossible to determine when or where an attack may occur, or how serious it will be in terms of its effects, and these facts continue to make it extremely difficult for the insurance marketplace to provide adequate coverage for such an event."

Terry Fleming of the Risk and Insurance Management Society Inc. delivered testimony on behalf of RIMS and said that the potential inability for risk managers to purchase terrorism insurance in the event that the TRIEA is allowed to sunset at the end of next year is particularly critical.

"Without coverage, many companies will be vulnerable to bankruptcy and extreme financial losses, which ultimately could adversely impact the nation's economy," according to Fleming. RIMS considers the availability of adequate insurance for acts of terrorism not just an insurance problem, but a national security and economic issue.

Terrorism is an uninsurable risk
Insurers also believe a long-term solution to terrorism risk insurance is needed, maintaining that catastrophic terrorism is uninsurable.

"The threat of a terrorist attack on U.S. soil remains very real, and, unfortunately, so do the many difficulties insurance companies face in trying to manage this volatile risk without some form of government involvement," said Drew Cantor, American Insurance Association director of federal affairs. "The potential magnitude of loss from a terrorist strike greatly exceeds the available capital in the private sector insurance market."

Cantor said that catastrophic terrorism is uninsurable by the private sector alone for other reasons, including the inability to model attack frequency and the interdependent nature of the risk. "These problems are exacerbated for the private market with regard to the possible use of nuclear, biological, chemical and radiological weapons," Cantor said. "It is vital the federal government remain a partner in insuring this risk."

"The further away we get from 9/11, the easier it becomes to forget about the enormous risk to the economy that terrorism presents," said Ben McKay, senior vice president, federal government affairs for the Property Casualty Insurers Association of America.

McKay also said that terrorism is an uninsurable risk because of the industry's inability to accurately predict the frequency or severity of future attacks, the broad range of possible targets, and the potential that damages from some attacks could exceed the industry's capital base.

PCI in particular supports an approach that would establish a "middle layer" of reinsurance coverage to fill the gap between the losses for which the industry is responsible and those losses which would be paid by the federal government. Such a program would enhance the development of a viable private terrorism insurance market. However, PCI claims that a federal backstop would still be needed to stimulate such a market and to ensure that the economy was protected from the impact of a cataclysmic attack.

"We've got one chance to get this right before TRIA expires in December 2007," McKay said. "We are working with a broad-based coalition of businesses to secure passage of a long-term solution that will eliminate the need to ask Congress for an extension of TRIA every two years. Continued extensions are not in anyone's best interest, least of all the businesses that need such coverage in place."

Post 9/11 for U.S. businesses
After Sept. 11, 2001, and before the passage of TRIA, many risk managers and their companies found it difficult to purchase property insurance, including coverage for terrorism on buildings and construction projects, reported RIMS' Fleming, who says it is critical that a program be developed to provide continued coverage for acts of terrorism, including nuclear, biological, chemical, and radiological acts. NBCR attacks can vary widely in their effects, says the IIABA, that there is an inability to predict with any certainty or probability their severity.

One influence that might sway Congress to take action is the President's Working Group on Financial Markets (PWG) study on long-term availability and affordability of insurance for terrorism, which is due to Congress by Sept. 30.

"The PWG study is an important piece of information as the Administration, Congress, policyholders and insurers work to create a workable long-term solution for protecting the U.S. economy against the threat of terrorism," AIA's Cantor stated. "We also hope that policymakers will look beyond that study--as they are doing with this hearing--to gather other vital information as we all look at how best to maintain the vital economic security net currently provided by the federal terrorism risk insurance program."

Directors and officers market ripe for U.K. buyers

There are small but significant gains to be made for insureds in the current London directors and officers market, according to the majority of underwriters surveyed in the Willis Index tracking the D&O market.

In the second quarter of 2006, the Willis Index found competition for business in the London market is being driven by a more than adequate supply of capacity and a willingness to negotiate on coverage not seen for some years. With many insurers having recently overhauled their wordings, and with others due to do the same, the buyer's market looks set to continue into the third quarter.

The Willis Index--a quarterly survey of London market insurers--asks participants for their views on the underwriting market over the past three and for the next three months. There are four surveys in the series with each Index exploring a different coverage area.

All respondents agreed that primary premium rates had fallen in the preceding quarter, with 66 percent reporting decreases of 10 percent or less, and the remaining 34 percent noting larger reductions of up to 20 percent. Over the next three months the trend looks set to continue, with a massive 75 percent predicting reductions of up to 10 percent and only a few of the brave (8 percent) suggesting that rates could flatten out.

While the overwhelming majority of respondents noted reductions in excess layer pricing over the last three months, a small but noteworthy group of 8 percent suggested that rates actually remained static overall during this period, indicating that there could be more resistance to declining rates among excess insurers where competition has been the greatest. For the next three months this small group of respondents remains of the opinion that rates will be static. However, of the rest, 84 percent agreed that reductions will be less than 10 percent.

St. Paul Travelers' 2nd quarter profits dip 9%

Insurer St. Paul Traveler's Companies Inc. said its profit fell 9 percent in the second quarter, but still beat analysts' expectations.

The company also disclosed a $42 million charge "for an additional legal provision related to investigations of various business practices by certain governmental agencies."

St. Paul Travelers said it earned $970 million, or $1.36 a share, down from almost $1.07 billion, or $1.52 a share during last year's quarter, which included a $138 million gain on the sale of Nuveen Investments Inc.

Revenue increased 3.6 percent to $6.25 billion, up from almost $6.04 billion during the same period last year.

Analysts surveyed by Thomson Financial were expecting $1.29 per share on revenue of $6.2 billion.

The company said premiums grew 8 percent. Chairman and Chief Executive Jay Fishman said the company was putting in significant premium increases for insuring coastal property in the Southeastern U.S. St. Paul Travelers is one of the largest insurers in the Gulf Coast region, and it suffered $1.47 billion in cat claims last year. He said pricing in the rest of the country was stable.

Higher interest rates and strong operating cash flows drove the company's investment income to $874 million before taxes, up 13 percent from the same period last year.

St. Paul Travelers raised its earnings guidance for the year to $4.90 to $5.10 per share, up from $4.70 to $5 a share announced in May. It said the new guidance assumes pre-tax catastrophe losses of $385 million for the rest of 2006 and no change in its reserve for settling claims from last year.

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Sample Partnership

State Farm has launched a series of initiatives to expand its markets while contributing to the economic vitality and safety of low-income neighborhoods. To help reach its goals, State Farm has developed a long-term, strategic business relationship with Neighborhood Reinvestment Corporation and community-based nonprofits that make up the NeighborWorks network.

In Chicago, State Farm partnered with Neighborhood Housing Services (NHS) of Chicago to form the Home Safety Program. Working with the Chicago Fire Department, NHS sponsors inspections of potential safety hazards such as furnaces and electrical systems and provides loans if repairs or replacements are needed. State Farm funds the loans once the homeowners have undergone training in repair and fire safety. The company also established home buying seminars in cooperation with NHS. Corporate representatives explain the home and insurance purchasing process, help with credit repair, and educate prospective buyers on property inspection and upkeep.

Source: www.winwinpartner.com, reprinted with permission.

Employers' workers' comp costs rose faster than benefit payments in 2004

Employers' costs for workers' compensation grew faster than combined cash benefits for injured workers and medical payments for their treatment, according to a new study issued by the National Academy of Social Insurance. The cost increase in 2004 (the most recent year for which data are available) continues a trend that began after 2000, when workers' compensation costs and benefits relative to wages were at their lowest point in the last 15 years.

Total workers' compensation benefit payments for injured workers rose by 2.3 percent to $56.0 billion, while employer costs rose by 7.0 percent to $87.4 billion.

"The fact that employer costs rose faster than payments for benefits and medical care reflects broader developments in the insurance industry," according to John F. Burton Jr., of Rutgers University, who chairs the panel that oversees the report. "Employer costs reflect rising premiums insurers charge to cover future benefit costs," he explained. "The recent rise in costs appears to be part of a longer cycle of ups and downs in the insurance market."

Relative to wages of covered workers, benefit payments fell by 3 cents for every $100 of wages in 2004--from $1.16 to $1.13.

Most of this national decline can be attributed to changes in California, where medical benefits dropped by 10 cents per $100 of covered payroll. Nationally, the costs to employers--primarily the premiums they pay for workers' compensation insurance (or the benefits they pay plus administrative costs if they self insure)--rose by 3 cents per $100 of wages, to $1.76 in 2004. The increase in costs in 2004 was the smallest annual increase since the current cycle of higher costs began in 2001, and Burton suggests, "This development may signal a period of more modest increases in workers' compensation costs."

Despite the recent rise in costs, both costs and benefits in 2004 remain far below their peak levels relative to wages. Total benefits peaked in 1992 at $1.68 per $100 of covered wages, which is 55 cents higher than the most recent figure. Costs to employers peaked in 1990 at $2.18 per $100 of wages, which is 42 cents higher than in 2004.

"The decline in employer costs in the 1990s occurred as favorable investment returns led insurance companies to cut premiums in order to expand their market shares," according to Burton. "Costs also declined in the 1990s because of the drop in benefits paid to workers. After 2000, low interest rates and poor stock market returns led insurers to raise premiums in order to cover future benefit costs."

Since 2000, the growth in benefit payments all stemmed from increased spending for medical care. Spending for medical treatment grew from 47 cents per $100 of wages in 2000 to 53 cents per $100 in 2004. Spending for cash payments to workers relative to wages was the same in 2004 as in 2000--60 cents per $100 of wages.

The new report, "Workers' Compensation: Benefits, Coverage, and Costs, 2004," is the ninth in a NASI series. The study provides estimates of workers' compensation payments--cash and medical--for each state, the District of Columbia, and the federal programs providing workers' compensation benefits.

The full report and state-specific information are available from the Academy's Web site at www.nasi.org.