S.C. expands wind pool to more coastal towns
A state-run insurance program has been expanded slightly to provide relief for some South Carolina coastal homeowners grappling with skyrocketing premiums, and Gov. Mark Sanford and other lawmakers promised a tax-incentive plan to help, too.
The state-run program, known as the wind pool, was expanded some on March 21 in the coastal counties of Horry, Georgetown and Charleston.
The move comes as insurers dump policies and raise premiums along the coast, leaving thousands of property owners uninsured or struggling to pay for protection in hurricane-prone areas.
Sanford and other lawmakers want to offer tax incentives to residents who make their homes more hurricane resistant. The legislation also would allow homeowners to create hurricane savings accounts exempt from state taxes, Sanford said during a news conference.
Insurance Department Director Scott Richardson signed an order to slightly expand the state-run program beyond the sliver of land along the coast. The program helps provide coverage in areas where private insurers don't offer protection.
Richardson said he did not know how many homeowners will be affected.
In Charleston County, parts of several islands were added to the pool, but Myrtle Beach gets the most help, Richardson said. The wind pool line there will move at most a couple of miles inland.
"That's where the market's so messed up, there's no rhyme or reason," said Richardson, who resigned from his Senate seat last month to lead the agency.
Rep. Harry Cato, chairman of the House Labor Commerce and Industry Committee, plans to introduce the legislation.
Fla. considers claims law glitch, storm tax break
Flashlights, radios, tarps and other hurricane supplies would be tax free for 12 days at the beginning of hurricane season, under a measure the Florida House has under consideration.
Floridians received a similar tax break last year leading into hurricane season, which begins June 1.
The House is also debating a measure aimed at fixing technical glitches in a broad hurricane insurance bill lawmakers passed in January. That bill was meant to force property insurance rates lower, after residents complained of huge increases in property insurance costs since the devastating hurricane seasons of 2004 and 2005.
But what was supposed to be a simple technical fix generated a largely partisan debate on how quickly insurance companies must deal with hurricane claims.
The 90-day Prompt Pay provision of the new law requires insurers to investigate and either pay or deny claims within three months.
The glitch bill (HB 7077) the House is considering would remove condominium associations and businesses from the law, meaning insurers wouldn't have to follow the 90-day rule for that type of property.
Democrats complained the measure backtracked on the consumer-friendliness in the law enacted in January. But the Republican-dominated House voted 63-47 to keep the changes in the bill.
S.C. audit calls for closing of 2nd injury fund
Part of South Carolina's workers' compensation system should be phased out because it fails to lower businesses' insurance costs, according to a state audit.
The Legislative Audit Council report found that a program, known as the Second Injury Fund, does not protect employers from higher insurance costs if they hire the disabled and those with previous workplace injuries.
The audit's release comes amid legislators' attempt to overhaul the workers' compensation system. Business leaders and lawmakers say South Carolina's high workers' compensation premiums make the state less attractive to companies and hurt job recruitment.
Sen. Larry Martin said the audit reiterates the need to eliminate the fund, and a bill headed to the Senate floor would do just that. "The cost savings will be experienced by businesses large and small," said Martin, R-Pickens.
Businesses' contributions to the fund have skyrocketed over the past decade, from a statewide total of $57.8 million in 1997 to $253 million in 2005, said Marcia Purday of the South Carolina Chamber of Commerce, which also supports eliminating the fund.
"It's had a huge negative impact on small businesses," she said. Businesses could use that money to hire more employees, she added.
According to the audit, 24 states have second injury funds, though South Carolina's is larger than others. Also, more than a dozen states have eliminated their funds since 1992.
Fla. lawmakers face future of no-fault law
After her car accident, Sarah Capps suffered from a sore shoulder and back. What she thought were common pains turned out to be six herniated discs.
Were it not for the protective medical coverage that every Florida car insurance holder must pay for in a policy, Capps would never have known in 2004 about her more severe injuries. Just starting a new job, she didn't yet have health insurance and couldn't pay for the doctor visit on her own.
"If there wasn't anything there I wouldn't be getting help," said Capps, a program organizer for the Florida Consumer Action Network, which supports the continuation of Personal Injury Protection.
Also known as Florida's no-fault law, PIP is set to expire in October if lawmakers do nothing -- which is exactly what the majority of the powerful insurance lobby wants to happen. The system is wrought with fraud that artificially drives up costs for insurers and consumers, they said, and is broken beyond repair.
Reform attempt
The Senate Banking and Insurance Committee rebuffed those claims on March 27, unanimously approving SB 1880 that attempts to reform PIP and extends it until January 2009.
PIP currently covers up to $10,000 - 80 percent of medical expenses, 60 percent of loss of income and a $5,000 death benefit - for a driver no matter who is at fault in an accident.
Trying to partially placate insurers, the bill also contains a cap on medical reimbursements they would have to pay to the hospitals, doctors and clinics that treat accident victims - an idea those powerful interest groups oppose.
The compromise is the "last ditch effort to save this bill for the people who really need it," said Sen. Bill Posey, R-Rockledge, the bill's sponsor.
Most people agree that the premise behind PIP - that motorists can get basic medical care if they are in an accident, even if they don't have health insurance - was a noble one. But most now agree that the system, instituted in 1971, is too easily defrauded, mostly by greedy businessmen who run shady clinics that bill multiple times for the same service, or charge for services that aren't necessary.
Deal for crooks
"It's probably a good deal for the average guy in the street," Posey said. "It's also a good deal for the crooks."
In fiscal year 2005-2006, 3,159 PIP fraud tips were received by the Florida Department of Financial Services. Those tips resulted in 307 arrests and 225 fraud convictions, according to the department.
Mike Stangherlin, a Temple Terrace chiropractor, said he sees about five PIP patients a year who have previously gone to other clinics that used up all $10,000 worth of coverage through fraudulent billing. These patients haven't received the appropriate care by the time they get to Stangherlin, while the previous clinic gets the reimbursement.
"We just need to crack down on these clinics that kill the PIP in a month doing unnecessary stuff," Stangherlin said.
Most car insurance companies don't believe anything can be done to adequately protect PIP from fraud. They want PIP - which was formed to keep lawsuits following car accidents at a minimum - to give way to a system where lawsuits will determine who is at fault and how much they should pay.
State Farm said they will reduce rates an average of $180 a car if PIP is allowed to expire. The company makes money on PIP, said spokesman Justin Glover, but believes consumers pay a lot more for the coverage than what they get in return.
"Our view is there's too many problems and it's not politically possible to get the reforms that are required to fix the problems," Glover said. Without PIP, insurance companies would offer optional medical benefits coverage to consumers, he said.
But hospitals, doctors and health providers said the insurers want to shift the cost burden onto the health industry, which is already plagued by skyrocketing rates.
The $350 million that is paid out under PIP by insurance companies every year will have to be made up somewhere, they said. They argue that local taxes may have to be raised to help emergency rooms - which by law cannot turn anyone away - treat accident victims without health insurance.
"We're going to create a huge new growth spurt in our uninsured and our cost shift to private health insurance," said Rich Rasmussen, spokesman for the Florida Hospital Association. "We are the only provider in this whole network of service providers where someone presents himself and we have to treat them no matter what."
Copyright 2007 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Florida officials: Education, job rating 'unintentionally' harms minorities
A Florida report on the use of occupation and education in underwriting and rating auto insurance asserts that while the practices "unintentionally harm minorities and low-income individuals," they are nonetheless legal.
"Let me be perfectly clear -- this practice is legal under current Florida law," Insurance Commissioner Kevin McCarty said. "However, similar to insurance companies' past use of credit scoring, this practice creates unintended effects that policymakers may find unacceptable."
Insurers blasted the report and urged officials not to restrict their ability to use the criteria.
In 2004, the OIR informed the industry that utilizing occupation and education for underwriting and rating was questionable, and they advised the industry to cease within one year.
Florida Chief Financial Officer, Alex Sink said, "Just because something might be legal doesn't make it right. I don't see how someone's job reflects on how they drive or what rates they should pay. Rates should be fair and based only on actual risk."
The OIR reviewed GEICO, Liberty Mutual and AIG to evaluate their use of occupation and education for rating and underwriting. All three insurers utilizing these practices claimed they were doing so on a "color-blind" basis as they do not collect race or income information. Yet these companies also acknowledged that they have not researched the potential impact on vulnerable classes of consumers.
State officials said they are concerned that this practice could proliferate as other insurers are forced to use them to effectively compete.
Insurance Consumer Advocate Bob Milligan weighed-in. "I will support the efforts of the Office of Insurance Regulation as they move to fix this egregious situation through quick legislative action and appropriate rulemaking," he said.
Insurers' response
Florida insurers hammered the OIR, calling its claims that the use of these factors unfairly affects lower income and minority consumers "entirely bogus and unsubstantiated."
The Florida Insurance Council maintains that there is no unfair bias in the use of education and occupation. "While critics argue that certain levels of educational attainment or occupation are associated with certain income levels, they fail to associate risk or cost with education or occupation," the FIC stated in a release. "Once risk is associated, insurers have found that occupation and education are not only actuarially valid predictors of risk, but that they are not unfairly discriminatory."
FIC cited a study last year by the Maryland Insurance Admin-istration, which it says found that the use of education and occupation is reasonable.
Insurers pointed out that no insurer uses education or occupation as the only factors. Instead, they use as many as 20 different ones including territory, gender, make of car, driving record, miles driven, location, driving experience and others.
Ga. court cites 'continuous employment' in workers' comp award
In approving workers' compensation benefits for the family of deceased Florida resident Howard King, the Georgia Supreme Court cited a doctrine of "continuous employment" in its 4-3 decision, voiding two previous rulings.
The State Board of Workers' Compensation affirmed the court's decision in case number S06G0891, Ray Bell Construction Co. et al v. King.
King died from injuries sustained in an auto accident that occurred on Aug. 11, 2002, while he was driving a truck provided by his employer. He lived in a Fayetteville, Ga., apartment, which was also provided by Bell Construction Co. as a condition of employment while working as a superintendent of a construction project in Jackson, Ga.
When King's former wife sought dependency benefits for King's now 11-year old son, the employer and its insurer refuted the claim saying that King's death did not occur in the course of his employment.
Off duty at the time of the accident, King was using the company vehicle to move furniture from Tennessee to a storage facility in Georgia, according to the ruling.
However, the appellate division of the State Workers' Compensation Board determined King suffered a compensable injury because "at the time the injury was sustained, he was an employee in continuous employment driving an employer-provided vehicle who had concluded a personal mission and had resumed the employer's business because he was driving to either his job site or to his employer-provided housing."
Under Georgia's doctrine of continuous employment there is broader workers' compensation coverage afforded an employee who is required by his employer to live near a company work site.
The ruling stated that the employee was "in effect, in continuous employment, day and night, and activities performed in a reasonable and prudent manner for the health and comfort of the employee, including recreational activities, arise out of and are in the course of the employment."
It was undisputed that King engaged in a personal mission when he delivered family furniture to his storage shed. However, the appellate division found that King's deviation from his employment had ended and he had resumed his employer's business by the time he sustained the injury.
57,000 Fla. customers of liquidated Vanguard given policy options
Leon County (Florida) Circuit Court Judge Terry P. Lewis approved an order on March 27 allowing Royal Palm Insurance Co. and Security First Insurance Co. to offer new coverage to the 57,000 homeowner policyholders currently with Maitland-based Vanguard Fire & Casualty Co.
The order followed one Judge Lewis signed a week earlier naming the Department of Financial Services as receiver for Vanguard for purposes of liquidation, effective March 26, and ordering current policies canceled at 12:01 a.m. on April 25.
Each policyholder will receive an offer of new coverage from either Royal Palm or Security First, effective April 25, or upon expiration of the policyholder's Vanguard coverage, whichever occurs first. Policyholders also will be free to choose other companies for coverage.
Vanguard claimants who need to check on the status of an existing claim, or report a new claim should call the Florida Insurance Guaranty Association at 866-928-4310.
Questions relating to current Vanguard policy, coverage and claim issues should be directed to Vanguard Fire & Casualty Co. at 866-830-6423. Policyholders with questions regarding the offers of new coverage should contact their agent or call Royal Palm and Security First at 866-351-3060.
The Department of Financial Services was named receiver in January for purposes of rehabilitation and has paid more than $6 million in claims using company assets, but determined the company's cash and reserves are not enough to keep up with claims.
Holocaust insurance claims top $300 million
The International Commission on Holocaust Era Insurance Claims concluded its claims processes. More than $300 million in awards were distributed to more than 48,000 Holocaust survivors and their heirs.
The ICHEIC was established in 1998 by the National Association of Insurance Commissioners with European insurers, governments, Holocaust organizations, and Israel to ensure payment of valid insurance claims.
"In point of fact, we will never be able to make true reparation for the horror or misery they endured, but we can and have held insurance companies responsible to pay for the promise of protection offered by Holocaust-era insurance policies," said ICHEIC Vice Chairman Diane Koken.
ICHEIC conducted an archival matching process that resulted in offers to 8,000 claimants, totaling nearly $100 million on claims that originally did not name an insurance company. ICHEIC also paid $30 million for claims on policies written by companies nationalized or liquidated after World War II and for which no present-day successor could be identified. ICHEIC extended an additional 31,000 humanitarian awards totaling $31 million on eligible undocumented claims that contained anecdotal information regarding insurance but could not be matched against company records. For more information, visit www.icheic.org.
Top 10 data loss disasters in 2006
Data recovery firm says no matter how bad the loss, there's a chance for recovery
Data recovery experts worldwide from Minneapolis, Minn.-based Ontrack Data Recovery chimed in for a poll to name the top 10 remarkable data loss disasters in 2006. While the data disasters could have been catastrophic for the companies and their customers, the company reported that all of its top 10 data disasters recovered at least some, if not all, of the lost data for its clients.
10. Helicopter Hi-jinks -- Employees of a global telecommunications company dropped a laptop computer while working from a helicopter in Monaco. Vital files on the laptop were retrieved and sent through an FTP server for a meeting in Hong Kong the very next day.
9. Wash the Data Away -- On a flight from London to Warsaw, a passenger packed his laptop and toiletries in the same bag. Unfortunately, his shampoo leaked and flooded everything in the bag, including the laptop, causing the hard drive to fail. Engineers had to clean the hard drive and other components in order to get the drive functioning.
8. Not a Jolly Occasion -- British comedian Dom Joly, presenter and co-creator of Trigger Happy TV, dropped his laptop, damaging a hard drive that held 5,000 photos, 6,000 songs, half a book he was writing and all of his old newspaper columns. Having read the tragic story in a newspaper column written by Mr. Joly, Ontrack contacted him and was able to recover everything.
7. Rescuing the Research -- A leading UK research university suffered a catastrophic data loss after a fire broke out in the computer science department on a weekend morning, damaging computer equipment with smoke and water from the fire department's efforts. Thirty computers were rescued and more than a terabyte of data recovered.
6. Beware of Bananas -- A customer left an old banana on the top of his external hard drive which proceeded to seep its contents into the drive, ruining the circuitry. The drive would no longer run, but was the drive was cleaned and the circuit board repaired so the drive would spin long enough to recover his data.
5. Hard Drive Speed Bump -- It happens every year, but people continue to leave computers and hard drives in the path of moving vehicles. This year, data was recovered from a laptop that was run over by a "people mover" at the airport, and more data recovered from several external hard drives stuffed in a backpack that was backed over by a truck.
4. Tenth Time's the Charm -- A man reformatted his hard drive not once, not twice, but 10 times before he realized there was some valuable information he needed recovered.
3. Finding Nemo -- A customer returned from the vacation of a lifetime in Barbados to discover that he couldn't access any of the snorkeling photos he took on his new "waterproof" digital camera. It seems the camera wasn't as waterproof as advertised, so all of his prized tropical fish photos had to be rescued.
2. Squeaky Drive Gets the Grease -- A university professor heard a squeaking noise from the drive of his new desktop computer. To solve the annoying problem, he opened the case and sprayed the inside of the drive with WD-40. Although successful in stopping the drive from squeaking, his actions also prevented the drive from booting up. But the drive was saved and his data recovered.
1. Sock it to Me -- Although the circumstances of the original data loss were unremarkable, the problem was intensified when the customer shipped his drive to Ontrack in a pair of dirty socks. The old socks didn't provide the necessary protection during shipping and the resulting damage made the recovery more challenging than normal. Next time, he'll stick with bubble wrap.
Ontrack Data Recovery can be found at: www.ontrack.com.
Bipartisan flood insurance 'modernization' bill boosts borrowing, maximum limits
Agents generally support legislation, but insurers caution changes could result in additional costs
U.S. Reps. Judy Biggert, R-Ill., and Barney Frank, D-Mass., introduced bipartisan legislation to revamp the National Flood Insurance Program that boosts the program's borrowing authority to $21.5 billion, increases the maximum coverage limits and provides for business interruption coverage.
Backers of H.R. 1682, the Flood Insurance Reform and Modernization Act of 2007, say it will increase accountability, eliminate unnecessary federal subsidies, and update the flood insurance program to meet the needs of today.
The bill seeks to address a number of weaknesses in the NFIP that some say were exposed by the unprecedented 2005 hurricane season. In an effort to make the program more actuarially sound, the NFIP phases out subsidized rates on vacation homes and second homes. Under this bill, small business owners will be eligible to purchase business interruption coverage in order to meet payroll and other obligations in the event of flooding.
Also, for the first time since 1994, the bill updates maximum insurance coverage limits for residential and nonresidential properties. The current NFIP coverage limits are $250,000 for a residential structure, $100,000 for contents, and $500,000 for a commercial structure. The legislation would raise limits for homes from $250,000 to $335,000; for contents from $100,000 to $135,000; and for businesses from $500,000 to $670,000.
The bipartisan bill is also sponsored by Reps. Earl Blumenauer, D-Ore., Gary Miller, R-Calif., Gene Taylor, D-Miss., Richard Baker, R-La., Doris Matsui, D-Calif., JoAnn Davis, R-Va, Maxine Waters, D-Calif. and Ginny Brown-Waite, R-Fla.
"This bill has been very carefully drafted and has passed out of the House before," said Rep. Frank, chairman of the House Committee on Financial Services. "It gives members an unusual chance to respond to the concerns of those who are pressing to reduce government expenditures and those who want to enhance environmental protection."
"The 2005 Gulf Coast hurricanes showed the nation how important the National Flood Insurance Program is to the average homeowner," said Rep. Biggert, ranking member of the House Financial Services Subcommittee on Housing and Community Opportunity. "We must act to strengthen and pull the program into the 21st century and before the next major disaster hits. The program needs to provide a financial safeguard for homeowners while protecting the interests of taxpayers. This bill strikes the right balance."
Bill provisions
Under the NFIP, which is administered by the Federal Emergency Management Agency (FEMA), flood insurance that could not be purchased in the private marketplace is made available to homeowners, renters and business owners in more than 20,000 communities across the country.
The bill seeks to improve accountability and financial responsibility at the NFIP. FEMA is required to report to Congress on the financial status of the NFIP and conduct a thorough review of the nation's flood maps. The bill makes the updating and modernization of flood maps an ongoing process, and calls for greater disclosures to consumers about flood insurance.
In addition to boosting NFIP's borrowing authority to $21.5 billion from $20.775 billion, the bill increases the amount FEMA can raise policy rates in any given year from 10 percent to 15 percent.
In order to help ensure that those homeowners who should have flood insurance do have flood insurance, the bill increases the fines on lenders who do not enforce the mandatory flood insurance policy purchase requirement for those who live in a floodplain and hold a federally-backed mortgage.
In addition to providing for optional business interruption coverage, the bill calls for additional living expenses coverage, optional replacement cost coverage for contents and optional finished basement coverage.
Agents approve; insurers cautious
The legislation met with approval from agents, while insurers reacted more cautiously.
The Independent Insurance Agents and Brokers of America noted the legislation incorporates many of the provisions it has recommended, including the higher maximum limits and business interruption coverage.
"Hurricanes Katrina and Rita clearly showed that homeowners and businesses need higher coverage limits by the NFIP in order to properly insure their properties," said John Prible, Big "I" assistant vice president for federal government affairs. "An increase in the maximum coverage limits will better allow both individuals and commercial businesses to insure against the damages that massive flooding can cause, and we're grateful that this increase was included."
IIABA did not make a specific dollar recommendation for raising coverage limits, but instead recommended that Congress raise them to "correspond with modern-day real estate prices and to consider periodic adjustments to reflect inflation," Prible noted.
While agents generally applauded the bill, insurers cited some concerns.
"Certainly, it is imperative that we address the solvency of the NFIP, both in the short term and in the long term, because this is a vital, necessary program for consumers," said Ben McKay, senior vice president, federal government relations for the Property Casualty Insurers Association of America (PCI). "A number of the bill's provisions work toward those goals, by increasing the borrowing authority in the short term and enhancing mitigation efforts and homeowner outreach for the long term. But we must be careful not to cancel out those positive steps by creating additional costs for a program that is already drowning in debt."
Of particular concern to insurers is a provision that would triple the time period, from 60 to 180 days, for policyholders to file proof of loss. This provision "could add significant costs both immediately and in the future, with such additional costs ultimately to be borne by taxpayers," according to PCI.
PCI cited the increase in borrowing authority, increased funding for mitigation programs and mapping updates, and increased outreach to encourage the purchase of flood insurance as positives however.
A.M. Best cites 15 P/C insurers as financially impaired in 2006
Seventeen U.S. insurance companies became financially impaired in 2006, despite a respite for property/casualty insurers from two consecutive turbulent hurricane seasons and more diversified asset portfolios among life/health insurers.
That is according to two new A.M. Best Co. special reports, "2007 Annual U.S. Life/Health Impairments" and "2007 Annual U.S. Property/Casualty Impairments."
The property/casualty report found 15 insurers in those lines of business became impaired last year, a rate of 1-in-233 companies.
While any impairment can be a hardship to policyholders and employees, 2006's impairment rate is half the historical rate of the past 38 years. So far in 2007, A.M. Best has identified one public impairment -- Vanguard Fire and Casualty Co. Florida. Regulators placed that company in rehabilitation in January. Vanguard Fire and Casualty was never rated by A.M. Best.
The majority of last year's impaired property/casualty companies were affiliated with either Poe Financial Group or Vesta Insurance Group.
Of the two life/health companies identified as impaired in 2006, one is a known confidential supervision. The other impairment is Security General Life Insurance Co., which was issued a cease-and-desist order by the Oklahoma Insurance Department last September. It was placed in rehabilitation in November. The company was not rated by A.M. Best at the time of impairment. 2006's impairment rate of 1-in-769 life/health companies continues a seven-year trend of below-average impairment rates.
"We have a circumstance with confidential supervision," said John Williams, senior business analyst at A.M. Best. "The states take action to try to prevent problems for companies that they see in financial trouble. We picked up three additional impairments for 2005 and there's a fair shot that you'll see a fair jump in the 2006 numbers as we go forward -- enough that they won't be the lowest numbers on record."
A.M. Best designates an insurer financially impaired as of the first official regulatory action taken by an insurance department. That marks the point when an insurer's ability to conduct normal insurance operations is adversely affected, capital and surplus have been deemed inadequate to meet legal requirements, or the company's general financial condition has triggered regulatory concern. The financially impaired companies identified in these studies might not technically have been declared insolvent. The definition of financially impaired is broader than that of a Best's Rating of E (under regulatory supervision), which is assigned only when an insurer is no longer allowed to conduct normal ongoing insurance operations.
Study claims U.S. 'tort tax' amounts to $865 billion cost each year
America's legal system imposes an economic cost of more than $865 billion, or more than $9,800 per family, every year, according to a new study released by the Pacific Research Institute (PRI), a free-market think tank based in San Francisco.
This figure is 27 times more than the federal government spends on homeland security, 30 times what the National Institutes of Health dedicate to finding cures for deadly diseases, and 13 times the amount the U.S. Department of Education spends to help educate America's children.
The authors of "Jackpot Justice: The True Cost of America's Tort System" calculated that the nation's tort system imposes a yearly "tort tax" of $9,827 for a family of four and raises health care spending in the U.S. by $124 billion.
According to the study's lead author, Dr. Lawrence J. McQuillan, unlike previous studies, Jackpot Justice calculates both the direct and indirect costs of America's legal system.
These include not just the direct cost of annual damage awards, plaintiffs' attorney fees, defense costs, and administrative costs from torts but also the indirect cost of the legal system's impact on research and development spending, the cost of defensive medicine, the related rise in health care spending and reduced access to health care, and the loss of output resulting from deaths due to excess liability.
"America's legal system doesn't just transfer wealth from companies to personal injury lawyers," said Dr. McQuillan. "It also changes behavior in economically unproductive ways. Any true estimate of the economic cost of our tort system must include these dynamic, negative-spillover costs."
Among the report's findings
The $865 billion annual cost of America's tort system is equivalent to the total yearly sales of the entire U.S. restaurant industry.
Every day, the American economy takes a $2.4 billion hit to sustain its legal system.
More than 51,000 U.S. jobs have been lost due to asbestos-related bankruptcies alone. Employees at these bankrupted companies have lost $559 million in pension benefits.
The liability system increases the cost of many risk-reducing products and services and health care services, making them less accessible, and in some cases unavailable to consumers. PRI estimates that more than 114,000 people would be alive and working today, but are not due to inefficiencies in the tort system over the last two decades.
The practice of "defensive medicine" by litigation-fearing physicians increases U.S. health care costs by $124 billion per year and adds 3.4 million Americans as uninsureds.
American companies suffer over $367 billion per year in lost product sales because spending on litigation curtails investment in research and development.
Lawsuits against American corporations generate an annual loss of $684 billion in shareholder value. Half of all Americans own stock either directly or indirectly through 401(k)'s or pensions.
According to another study cited by PRI, the U.S. spent 2.2 percent of its GDP on tort costs, compared to 0.7 percent for the United Kingdom, 0.8 percent for Japan, and 1.1 percent for Germany. The authors project that America wastes $589 billion per year on excessive social tort costs, equivalent to the total annual output of Illinois, compared to competing foreign countries.
"An efficient tort system provides proper incentives to firms to produce safe products in a safe environment and ensures that truly injured people are fully compensated for their injuries," said Dr. McQuillan. "Through tort reform, the U.S. can become a more favorable place to invest human, physical, and financial capital -- the ingredients for self-sustaining economic growth and a rising standard of living for all Americans."
For the full study see www.pacificresearch.org.
Insurers advise Congress private markets should handle most disasters
But mega-cats need a public-private partnership, first responders and industry agree
The best way for the federal government to help property owners recover from a natural disaster is to let private insurers do what they know, except in the case of a megadisaster, when federal aid would be needed. That was what insurer representatives told the House Financial Services Subcommittee on Housing and Community Opportunity, which held a hearing on whether the country needs a national disaster plan.
According to Chuck Chamness, president and chief executive officer of the National Association of Mutual Insurers, for the vast majority of natural disasters, government need not be involved. "We believe the private insurance, reinsurance, and capital markets can serve as the predominant source of risk management for natural disasters -- unless it's a mega disaster."
For mega catastrophes, a coalition of first responders, emergency management experts, businesses agreed with insurers that a comprehensive public-private, federal-state partnership is needed to protect against a massive hurricane or earthquake.
"Catastrophe protection and preparation is a nationwide priority that must be addressed immediately, before the next catastrophe strikes," according to Robert W. Porter, executive director of ProtectingAmerica.org.
However a catastrophe comparable to the 1906 San Francisco earthquake could potentially exceed private market capacity, Chamness said. "To prepare for a disaster of this magnitude, it is appropriate for policymakers to consider whether government programs should be created to supplement the supply of private-sector capacity," Chamness testified.
American Insurance Association President Marc Racicot urged Congress to take a holistic approach to addressing the problems posed by natural catastrophes.
"The reality is that there are no quick fixes or easy answers to the very difficult challenges we face," Racicot said.
"Large natural catastrophes are a national economic problem, not simply a local insurance problem," said Florida Insurance Commissioner Kevin McCarty, who also chairs the National Association of Insurance Commissioner's Catastrophe Insurance Working Group. "Congress and the states need to work together to develop a comprehensive plan today to better manage and mitigate the natural catastrophic events of tomorrow."
AIA's Racicot outlined specific measures that Congress and state legislatures can take to increase preparedness for and expedite recovery from devastating natural disasters. The proposals include measures to protect people and property in harm's way; regulatory and legal reforms to improve the stability of the insurance market; tax incentives for individuals to take a greater role in disaster preparation and response; and National Flood Insurance Program reforms.
To the extent government gets involved for megadisasters, such programs would need to be carefully designed to avoid undermining the private insurance market and "distorting public perceptions of the risk associated with living and doing business in disaster-prone areas," according to NAMIC.
"The question lawmakers ought to be asking is, 'What mix of policies will maximize the private sector's ability to provide property insurance in disaster-prone areas while minimizing the risk associated with living and doing business in these areas?'" asked Chamness.
Study: homeowners more volatile than private passenger auto
The homeowners insurance line was three times more volatile than private passenger auto during the 14-year period 1992-2005, due in large part to the active 2004 and 2005 Atlantic hurricane seasons, according to a recent study by Aon Re Global.
The study shows that the private passenger auto line experienced the lowest volatility during that period, followed by the auto physical damage, commercial auto and workers' compensation lines. Excluding catastrophe losses, the homeowners line has a risk level comparable to the commercial auto line. Liability lines and medical malpractice also have significantly above average volatility.
Aon Re's Insurance Risk Study quantifies the systemic risk for each line of business, representing the risk to a large portfolio from non-diversifiable risk sources such as: changes to market rate adequacy and underwriting terms and conditions; misestimating plan loss ratios; frequency and severity trends; weather-related losses; legal reforms and court decisions; level of economic activity and macroeconomic factors.
For large books of non-cat-exposed business, systemic risk is the major component of underwriting volatility.
The report examined volatility in nearly two dozen lines including commercial multi peril, other liability (occurrence and claims made), fidelity and surety, and medical malpractice.
The Insurance Risk Study applies sophisticated techniques from risk theory to a database of National Association of Commissioners' Annual Statement data from accounting years 2001-2005 for 1,875 individual U.S. groups and companies. The database, covering all 21 Schedule P lines of business, contains more than 800,000 observations.
Judge rules Spitzer suit may continue; Liberty Mutual not giving up fight
Liberty Mutual has vowed to continue its court fight against charges begun by former New York Attorney General Eliot Spitzer that it engaged in anti-competitive bid-rigging and broker compensation practices after a judge declined the insurer's bid to dismiss the attorney general's suit.
New York Supreme Court Judge Bernard Fried ruled late last month that the state's suit could go forward against Liberty Mutual subsidiaries that do business in New York, although he did agree that Spitzer's office had no jurisdiction over Liberty Mutual's Boston-based holding company and dropped that entity from the suit.
"Liberty Mutual is both pleased and disappointed with the court's ruling," John Cusolito, Liberty Mutual vice president and manager for external relations, said in a statement. "We are pleased that Liberty Mutual Holding Co. was dismissed from the matter. We are disappointed that the court did not accept our substantive arguments."
Cusolito said the court case will continue. "We continue to believe that the matter needs to be resolved through the judicial process. This is the first step in that process and we fully expect that we will prevail eventually."
Unlike American International Group, Zurich, ACE and other insurers that have settled similar charges, Liberty Mutual Insurance Group decided last May to fight allegations of anti-competitive practices brought against it by the attorneys general of New York and Connecticut.
The Boston-based insurer has maintained that charges regarding improper commissions and bid-rigging are untrue and overblown and has refused to settle with the states. Last May, Liberty Mutual said it had been unable to reach a resolution and believed the states' settlement demands were excessive.
The insurer took its stand following the filing of complaints by then-New York Attorney General Eliot Spitzer and Connecticut Attorney General Richard Blumenthal. The complaints described alleged cooperation of Liberty Mutual employees from 2001 through 2004 in a bid-rigging scheme.
The complaints also found fault with Liberty Mutual for paying contingent commissions -- or what the attorneys general call "kickbacks" and "payoffs" -- to insurance brokers and independent agents.
The case is now being pursued by Spitzer's successor as attorney general, Andrew Cuomo.
A number of other insurers agreed to alter their commission payment practice to settle with the states. But Liberty Mutual has defended its compensation practices as appropriate and lawful. As for the bid-rigging charges, Liberty Mutual has not denied that former employees engaged in bid-rigging but insists it is not a common practice as alleged.
