Nationwide to readjust 500 Miss. Katrina claims

Nationwide Mutual Insurance Co. will readjust claims for about 500 Mississippi policyholders whose homes were reduced to foundations by Hurricane Katrina, state Insurance Commissioner George Dale said.

The so-called "slab cases" on the Gulf Coast have been the most contentious insurance issues to arise in the wake of the Aug. 29, 2005 storm. Insurance companies say their policies don't cover flood damage, including wind-driven water or storm surge.

But, under pressure from regulators and policyholders, the insurers are reevaluating that stance. State Farm Insurance Cos.' agreement with Dale calls for the company to pay at least $50 million to around 35,000 policyholders in southern Mississippi after their claims are reevaluated.

Nationwide has "voluntarily agreed to open up all of the slab cases on the coast, which should result in more money for the policyholders," Dale said. "They will be contacted by a different Nationwide adjuster than the adjustment team that initially handled the claim."

Joe Case, a Nationwide spokesman, said, "Nationwide strongly believes that it has adjusted Katrina claims appropriately. We continue to pursue every measure possible to pay for all damage from Katrina that could be identified as being caused by wind. This voluntary offer is an attempt to resolve some of the most difficult-to-adjust claims by proposing a reasonable payment to affected policyholders rather than investing time and money on less effective options."

In cases where the cause of damage could not be determined, Columbus, Ohio-based Nationwide initially refused to make any payments, Dale said, adding that the company will now review those cases to "make sure that damage potentially caused by wind would be paid."

Nationwide has resolved more than 99 percent of the 20,000 claims filed in Mississippi after Katrina and has paid out more than $270 million in covered wind damage, Case said.

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 This material may not be published, broadcast, rewritten or redistributed.

Allstate wins 29% statewide rate hike in Miss.; resumes coastal writings excluding wind coverage

Mississippi insurance regulators have approved a statewide rate increase of 29 percent for Allstate homeowner policyholders, the Northbrook, Ill.-based insurer reported.

The company, in a written statement, attributed the hike to the "increased costs of doing business in Mississippi due to the heightened risk of catastrophes."

Allstate also said that it will resume writing new homeowner policies in Mississippi's six southernmost counties for the first time since February 2006, but the policies won't include coverage for wind and hail.

Starting May 21, coastal Mississippi homeowners will be able to purchase Allstate policies for fire, theft and liability coverage, but only if they have had an Allstate auto policy for at least 60 days.

The company says it will help coastal customers purchase wind and hail coverage through the state's wind pool.

"As a major provider of insurance in the state of Mississippi, we feel it is important to take steps that help ensure we are in a position to continue to help protect as many of our customers as we responsibly can," Allstate field vice president Ron Corbin said in a written statement.

The state Department of Insurance approved the statewide average rate increases of 29.5 percent for Allstate Insurance Co. and 29.6 percent for Allstate Property and Casualty Insurance Co. The new rates take effect on May 21 or upon renewal of a policy.

"We did not make this decision lightly," Corbin said. "We understand the hardships our Mississippi customers have suffered during Hurricane Katrina and in other storms and catastrophes. We must charge rates that reflect the risk Mississippi faces every year."

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

Freeing streams of debris could stem flooding in W. Va., other states

When streams and rivers throughout West Virginia surged over their banks last week, causing millions of dollars of damage, Garrett Fork in Logan County was virtually alone in not flooding.

That's no anomaly: county officials say Garrett Fork is the one stream in Logan where a process called stream restoration was recently done.

Now Logan officials want to use the process throughout the county, and state officials including Gov. Joe Manchin say that might be the way to spare the state from some of the destruction brought by frequent floods.

But some are worried that environmental regulations about how debris and blockages can be removed from streams will slow the cleanup process.

"The hardest thing for us to do is get into a stream and clean up debris after a flood," Logan County Commission President Art Kirkendoll said last week, just as cleanup efforts were starting. "The feds are going to have to figure out a way for counties and states to get into their own streams."

A day after the rain stopped, Logan was still full of examples illustrating Kirkendoll's concerns about "choke points" where rivers and streams can't flow freely. Piles of wood and mud were wedged under bridges, river banks looked as though they had been covered in confetti because of all the garbage and a three-span bridge over the Guyandotte River was down to one span, the other two having been clogged with silt and debris.

Kirkendoll and emergency officials say the only way to remove much of those blockages is with heavy machinery, but they are restricted in doing so. If machinery is used in removing debris from streams, for example, that machinery has to remain on the bank, and can't touch the water without Army Corps of Engineers approval, according to Department of Environmental Protection spokeswoman Jessica Greathouse.

Counties are also barred from dredging streams -- removing large amounts of silt to deepen the channel, making the water flow faster.

"It might look like a quick fix because it provides the water a wider, deeper channel to move faster in," she said. But those living downstream of the dredging often suffer from it, because it makes the streams fill up faster during heavy rains.

The flooding that began April 14 forced hundreds from their homes while damaging roads, bridges, homes and businesses. State Homeland Security Director Jimmy Gianato estimates the final cost of the flooding will top $6 million.

Manchin -- who has applied for a federal disaster declaration in flooded areas of the state -- considers stream restoration an important way to prevent major floods in the future, according to spokeswoman Lara Ramsburg.

However, Ramsburg said, Manchin doesn't think there's a need to re-examine current regulations governing what counties and municipalities can do.

"Within the existing regulations, there's enough room to make stream restoration viable," she said.

Any dredging or stream restoration apart from some emergencies require a permit obtained through the Army Corps of Engineers. Mike Worley, chief of the corp's Huntington Division planning branch, said two types of permit exist for stream restoration, including an expedited permit available much quicker than the standard 60 to 90 day process.

"There's a misconception out there that people can't do anything to the streams," he said. "That's not true."

Work done outside a stream can be permitted relatively quickly, he said. A longer permitting process is used if workers and equipment will actually be in the stream itself.

"You can't just go in and take a shot at anything you want to do," he said. "There needs to be a plan so you don't adversely affect anyone else when fixing your problem."

The corps is looking at ways to lessen the effects of future floods in southern West Virginia, including planning a $25 million channel modification to Island Creek, which Kirkendoll said will eliminate a significant amount of the county's flood problems.

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

Agents welcome Citizens expansion of small commercial coverage statewide

Citizens Property Insurance Corp. is expanding its insurance coverage for small businesses beyond coastal areas to properties across Florida.

"Our goal is to make coverage available as quickly as possible to the Florida small business community which is in dire need of commercial coverage," said Chairman Bruce Douglas.

Florida lawmakers directed the statewide expansion of Citizens' commercial, non-residential policies during a special session in January. Citizens currently writes commercial non-residential coverage only in high-risk coastal areas.

Jeff Grady, president of the Florida Association of Insurance Agents, said the expanded coverage will fill a void. "I think it's a positive step," Grady said. "Unfortunately the private market has become an unaffordable option for many small businesses."

Grady said the private market is not responding at lower levels, especially for wind coverage: "Businesses can't get the coverage, or the available coverage bankrupts them -- and it's usually under the limits that they need," he said.

Beginning in June, Citizens will provide up to $1 million in wind coverage to businesses with no more than $10 million of total insured value. Douglas said it was important to get the coverage in place by the start of hurricane season.

By Sept. 1, Citizens will offer a commercial multi-peril policy throughout the state that includes wind coverage. This will provide the first $2.5 million of building coverage for structures with a value of $20 million or less.

Fla. Commissioner McCarty in political hot water

Fla. Gov. Charlie Crist has come to the defense of the state's insurance commissioner who hosted a fund raiser for a circuit judge candidate.

Chief Financial Officer Alex Sink last month rebuked Insurance Commissioner Kevin McCarty after he admitted seeking contributions from the industry he regulates on behalf of then-judicial candidate Robin Lotane. Sink's inspector general also is investigating whether McCarty used state equipment for political purposes.

Crist, though, downplayed the complaints against McCarty, linking them to the commissioner's efforts to cut insurance rates. "What he did wasn't right, but I don't think it's a death-sentence thing," Crist said. "Listen, we're fighting an industry here that is tenacious. When I say it, I'm not kidding around. They are."

McCarty works for Crist and the three-member state Cabinet, including Sink who said insurance representatives have complained McCarty pressured them to contribute to Lotane and a March of Dimes campaign. State Attorney Willie Meggs fired Lotane and she dropped out of the judge's race. She is married to Bob Lotane, who resigned as McCarty's communications chief after admitting he used a state computer for his wife's campaign.

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

Fortified building standards: Gulf Coast market salvation?

An agent, an engineer and a non-profit push fortified structures as key to region's economic and insurance revival

Concrete houses sprouting up in southern Alabama, Missis-sippi and elsewhere in the Gulf Coast region are more than just fortified structures that will protect their owners from up to 250 mph winds and 36 foot storm surges -- they are symbols of a grass roots movement that is determined to make the region insurable once again.

The movement is being spearheaded by a growing band of pioneers whose experience and talents have been fused by a passion to educate and motivate others to take action to fortify the region's buildings and to bring insurance companies back to the battered Gulf Coast states.

Agent of change
Knowing the value of an easily insurable risk, Carl Schneider of Schneider Insurance Agency Inc., in Mobile, Ala., built a concrete home for his family in Daphne, Ala. in 2001.

Today, Schneider is tirelessly crisscrossing the region and beyond on his own dime, trying to educate consumers and legislators in the practical applications of home fortification. In concert with subject matter experts, he hopes to convince fleeing insurers to return to the coastal market but in a way that homeowners can afford.

Consumers, particularly those in south Mississippi, have an opportunity to take the first crucial steps when rebuilding homes on the blank landscape left in the wake of Hurricane Katrina. Schneider has made contacts in Mississippi and Florida in hopes of strengthening his crusade to revive the coastal insurance market.

According to Schneider, Alabamans can realize up to a 75 percent premium deduction if their homes -- even existing structures -- are properly fortified, but only if legislators adopt wording from an Institute for Building and Home Safety program already in place in Florida. He said an existing discount in Alabama is specific to fire resistant homes only. "Fire resistance has nothing to do with wind mitigation," he said.

According to the Tampa-based IBHS, a nonprofit association, its "Fortified...for safer living" program specifies construction, design and landscaping guidelines to increase a new home's resistance to natural disaster from the ground up. Fortified Program Administrator Chuck Vance said his group's program is one that any builder can employ.

Fortified homes are built with extra attention on areas of a home that make it vulnerable to disasters, including openings (windows and doors); roofs and gables, and load path - a path from the peak of the roof to the foundation which greatly reduces the potential of a home coming apart during a windstorm.

While he realizes that not all builders will see the immediate advantages of fortified construction practices, Schneider is optimistic. "Some is better than none," he says.

The independent insurance agent believes that an area with builders who are trending toward fortified standards is inviting to insurers and will ultimately contribute to improved market stabilization. Schneider said there is currently a "huge disconnect" between engineers, architects, builders and the insurance industry. "The builders want to build affordable to maximize potential revenue," he said. "The problem is the incentives to build to the fortified standards are not in place."

Alabama, Mississippi, Louisiana and Texas do not have mandatory standard building codes in place, but some individual counties or districts have adopted their own codes. Schneider said Mississippi is using the 2003 International Building Code, which he terms the minimum standard. He said to reach a point where homes are able to withstand catastrophic storms, they must be built to the maximum standard outlined in the IBHS program.

"We need an environment where we can enable contractors to do the right thing," Schneider said. "Proper avenues of education and support from within the industry will help to bring about change."

Sundberg house
Scott Sundberg is one Katrina survivor who knows the value of fortified construction. He is building a concrete house across Highway 90 from the Gulf of Mexico in Pass Christian, Miss. Sundberg is also a design engineer and a major contributor to the Federal Emergency Management Agency 550 report published in July 2006. The FEMA report, titled "Recom-mended Residential Construction for the Gulf Coast: Building on Strong and Safe Foundations," details procedures for rebuilding homes destroyed by hurricanes. It also provides guidance in construction of new homes that will be less vulnerable to catastrophic storms.

According to Sundberg, the FEMA report would be a "very valuable addition to the list of design references" for anyone involved in planning a home or even a small commercial building in a hurricane storm surge zone. The report defines the many terms involved with coastal design. It also provides useful prototypes of foundations that are adaptable to homes of various sizes and configurations.

The cost of insurance should reflect the risk involved, Sundberg said. If the government merely underwrites or becomes the "backstop reinsurer" for wind insurance, the region runs the risk of rewarding poor practices and thereby putting its economy in peril, he added.

"It has been estimated that half the nation lives by a coast. We know how to build strong enough to mange the risk of wind damage at our coasts," Sundberg said. "We should focus on guaranteeing that the risk of wind damage will be managed for whoever picks up the tab, whether it is the private sector, the government sector, or both."

Sundberg's concrete house is a weekend project in its eighth year of development. While nearing its final phase, the unfinished structure showed up in post Katrina aerial photos as the only building left standing in a debris field that once hosted a vibrant and moderately populated section of Pass Christian -- an inkling of encouragement for insurers.

Sundberg designed his house based on the storm surge created by 1969's Hurricane Camille. He allowed 22 feet from the base flood elevation to the bottom of the concrete beams that support the structure. He said Katrina created a 28 foot storm surge.

Sundberg is concerned that if local builders do not step up to the plate on building to maximum fortified standards, more than insurance markets will suffer.

"This makes good economic sense from day one. There is an immediate cost benefit positive ratio," Sundberg said about investing in fortified construction. "What will kill us as a nation is if we continue to underwrite bad practices. You don't only mitigate to protect your own assets; you mitigate as an obligation to your community and your neighbors."

Schneider became concerned when he observed a new home being built up the street. He noticed that the builders were placing brick veneer on the wood frame home without the use of brick ties, which he said undermines the integrity of the effort to stabilize the insurance market along the Gulf Coast.

"We want to create a minimum uniform code for the entire region," Schneider said. "Building codes by themselves do nothing -- unless they are enforced consistently and equitably. Let's not build to the lowest standard. We've got to come up with a long term solution. The survival of my business and the coast -- and the country -- depends on it."

Building standards
According to IBHS, building standards must be engineered by licensed, accredited professionals and there must be a verification process in place for the entire insurance industry. The IBHS verification process involves pre-qualified inspectors meeting with the builder prior to construction to discuss the appropriate criteria and to review the building plans. The inspector visits the site about four times during construction verify compliance with the standards. After the last inspection, the builder or homebuyer receives a certificate from IBHS designating compliance with the Fortified Program.

"We need a program like Scott's and like the IBHS'," agent Schneider said. "If we don't guard against failure, we'll be back in the same predicament as we've been seeing in the18 months since Katrina hit -- the wind versus water claims issue."

Schneider said FEMA developed a so-called SLOSH model (sea, lake, overland surge from hurricanes) as a tool for catastrophe evacuation purposes, which he claims discredits maps developed by the National Flood Insurance Program. He said agents relied on the FEMA NIFP maps to be correct and accurate.

"Unfortunately many of the NFIP maps were inadequate, outdated and did not take into consideration the potential surges associated with hurricanes," Schneider said. "The SLOSH model is a better indicator of the true risk of hurricane storm surge. If only agents had been aware that the SLOSH model existed, they would have had the necessary information to advise consumers of the potential risk of storm surge, and the need to purchase federal flood coverage. The same holds true for insurance carriers who provided coverage on the coast. Had carriers been aware of the true risk of storm surges, many would not have written coverage in the surge areas without proof of adequate flood coverage."

Sundberg said the SLOSH model takes into account factors such as the depth beneath the water and elevation of the land objects that may divert water. "It's a very sophisticated calculation," he said.

Advancing technologies
In the eight years since Sundberg began his project, new building technologies have surfaced. A.J. Scardino Jr., a residential and industrial construction consultant, specializing in insulated concrete forms, is building a 4,200 square foot concrete house in Bay St. Louis, Miss. One obvious feature on Scardino's house not present on Sundberg's is the addition of hydrostatic relief corners, which Scardino says will act like spoilers and provide directional flow to damaging winds.

Scardino said the cost of a home like his is only five to seven percent more than the cost to build a wood frame house. His savings in utility bills alone will compensate for the additional upfront money.

Schneider returns to the insurance ramifications. "We don't want insurance companies to be susceptible to assessments because we didn't enforce a building code on the Gulf Coast," Schneider said.

Right now, these pioneers note, there is an inadequate supply of design engineers who know the ins and outs of designing in a flood zone. They hope that can be remedied because as Scardino pointed out, "when you begin building repetitively, insurance costs will come down for consumers."

Sundberg and Schneider agree there is a need to not only define a higher standard building code along the Mississippi and Alabama Gulf Coast, but to also carefully enforce it. "We want a unified standard for the entire nation." Schneider said. "We need to use the fortified standard as a carrot to draw carriers back into the region."

"We know what to do and how to do it," Sundberg added. "Until everyone has to adhere to the same standards, it's a bitter pill to swallow. We really don't have an option. To me it is not a question of can we afford to build right; it's a question of how can we afford not to. The best insurance is assurance and time is of the essence."

Schneider said he went to Alabama state officials prior to Hurricane Katrina and reported that the coast would be in extreme trouble when a catastrophic storm event occurs. They said there was no immediate or urgent concern.

"Unaffordable insurance rates have stop commerce dead in its tracks," Schneider said.

GAO report welcomed

The GAO's report, commissioned by the Senate Committee for Homeland Security and Governmental Affairs, chaired by Sens. Joe Lieberman, an Independent (ex-Democrat) from Connecticut, and Susan Collins (R-Maine), has garnered generally favorable reviews.

Collins, the committee's ranking Republican, indicated that the GAO's conclusions support the rapidly mounting evidence that climate change is a reality and a threat to the environment. She also noted that it places a potential burden on consumers and taxpayers that could add "billions of dollars" in costs, "as insured losses from floods and storms cause increases in federal spending and insurance premiums." While Collins praised private insurers for "paying serious attention" to the increased risks presented by climate changes, she chided federal programs for their failure to do so.

Claire Wilkinson, the International Insurance Institute's vice-president-Global, thinks the GAO report will be felt. "The report will increase U.S. attention [on the problems posed by climate change]," and will "have an impact on the current scientific debate," she said in an interview.

She strongly agreed with the GAO's conclusions that a lot more attention should be paid to where and how buildings are constructed in risk-prone areas. "The insurance industry has been involved for many years in strengthening building codes," Wilkinson said, "especially in areas like Florida and Louisiana." She acknowledged, however, that enforcing those codes is equally important.

However, Wilkinson said, "the many variables surrounding climate change make it difficult to relate increased losses directly to the weather, the links are too uncertain." She pointed out that each private insurer is different, and that, while practically all of them are aware of the potential dangers posed by climate change, each would most likely seek its own solutions to deal with the risks.

The federal agencies came in for some harsh comments from the Natural Resources Defense Council (NRDC), an environmental group. "We commend Senators Lieberman and Collins for exposing the inadequacies of federal insurance programs to protect taxpayers from catastrophic losses due to global warming," stated David Tuft, campaign director of the NRDC's Climate Center on the Group's Web site (www.nrdc.org).

"Not only has our federal government thus far failed to take action to prevent the worst consequences of unchecked global warming pollution, but it has failed fundamentally to take reasonable precautions against global warming-induced storms and drought, and the high costs that will be borne by families, businesses and ultimately, taxpayers." He called the government "woefully ill-prepared to protect its citizens against catastrophic losses," and, citing the GAO, said it has "blown the whistle on how ill-prepared we are as a nation for further destruction."

Commercial property/casualty premiums drop, underwriting relaxes, 1st quarter survey finds

Commercial property/casualty premiums for all sizes of accounts dropped sharply during the first quarter of 2007, with indications that insurance companies are starting to loosen underwriting standards and price aggressively to get business, according to the latest Commercial Property/Casualty Market Index by The Council of Insurance Agents & Brokers

"Once again, underwriting is out the door as the companies fight for growth/premium," observed an agent from the Southwest.

"All of the carriers want and need new business, and they are willing to do anything to get it," said another broker.

The Council members write 80 percent of the premiums annually in the United States. The Council's market surveys, which have been conducted since the fourth quarter of 1999, ask respondents to compare market conditions and premiums quarter-to-quarter.

Sharp declines
One broker from the Northeast, calling the premium drop "dramatic," said rates in the most recent quarter fell more sharply than during all of 2006.

Eighty-one percent of the survey respondents said their small account premiums for January through March 2007 were down 1 percent to 30 percent, while 97 percent said their medium accounts were down 1 percent to 30 percent. Ninety percent said their large accounts premiums were down 1 percent to 30 percent.

An analysis of the survey findings by Lehman Brothers placed the average premium decrease for accounts in the first quarter at 11.3 percent. The Lehman analysis said premiums for all sizes of accounts were at their lowest point since they peaked in the fourth quarter of 2001 following the 9/11 terrorist attacks.

Easier underwriting
Although the premium rate decreases have been evident in the last several market index surveys, this was the first time that less restrictive underwriting was widely reported. Brokers and agents from every section of the country said carriers were writing and quoting accounts that a year ago they would not consider.

"Underwriters are buying new business in the Midwest," one broker reported.

"More companies jumping in on each line. It's going to get more competitive still," said a broker from the Pacific Northwest.

Coastal property/casualty, wind coverage and California earthquake coverage remained tough to find and expensive, but no worse than previously reported, the agents and brokers said.

Key subcommittee chairman favors six to eight-year terrorism insurance extension

Insurance industry pushes for longer period with some in favor of 20 years or more

In his opening statement as chair of a U.S. House of Representatives subcommittee considering extension of the Terrorism Risk Insurance Act (TRIA), Rep. Paul E. Kanjorski of Pennsylvania said he believes the act should be extended for a period of six to eight years.

At a hearing on April 24 in Washington, D.C., Kanjorski asserted that this length of time "is long enough to provide greater certainty to the marketplace and short enough to encourage the private sector to develop its own solutions to the problems posed by conventional terrorism."

Congress enacted TRIA after the Sept. 11, 2001, terrorist attacks as a temporary program designed to give the private insurance markets time to develop models and pricing for terrorism risks. The act was extended in 2005 for two more years and is set to expire at the end of 2007.

"While TRIA has increased the availability and affordability of terrorism risk insurance, the market place is still tenuous," Kanjorski said. "Insurers still have limited capital to cover terrorism losses alone and without federal assistance." He noted that the property/casualty industry had $164 billion reserved for terrorism losses in 2005 but "according to the Insurance Information Institute, some models have predicted terrorism losses of more than double this number."

Insurance industry representatives who spoke at the hearing supported a longer period of time, with some in favor of extending the act for 20 years, and others proposing no expiration date. But Kanjorski said a 15 to 20-year or more extension would "for all intents and purposes" result in a loss of institutional memory of the topic at the committee level.

Brian Dowd, chief executive officer, Insurance-North America, for the ACE Group, appeared on behalf of both ACE and the American Insurance Association. In a list of principles supported by both the AIA and the Coalition to Insure Against Terrorism that Dowd submitted with his written testimony, he asserted that "the program should have no expiration date, and thereby end only when Congress determines terrorism is no longer a threat."

Vincent T. Donnelly, president and CEO of Pennsylvania-based PMA Insurance Group, who spoke on behalf of PMA and the Property Casualty Insurers Association of America, told the subcommittee that the need for market stability should be considered "so that we're not looking at this issue every two years." He said that a 10 to 15 year extension would add some permanency and enable the market "to react in a stable fashion."

According to Kanjorski, an in depth study of the terrorism insurance issue is needed. Such a study, he said, was lacking in the original TRIA legislation and without it "we're doing patchwork and that really does disturb me."

He said the committee needs to explore how to "add nuclear, biological, chemical and radioactive (NBCR) coverage to TRIA." The marketplace believes that in the event of an NBCR attack, "the federal government will step in and respond," he said. "We therefore should explicitly address the government's role."

Kanjorski also favored eliminating the distinction between foreign and domestic terrorism events. He noted the "need to make sure to move this legislation as soon as possible," and said the committee would try to move it along in the next few months.

Another report details property/casualty insurers' 2006 profitability, escape from storms

Warns falling prices mean profits are at, or are steadily, approaching the cyclical peak

Another report on the insurance industry confirms and details what has been widely acknowledged: a sharp decline in catastrophes in 2006 contributed to improved underwriting results for the year.

The U.S. property/casualty industry posted a $31.2 billion net gain on underwriting for the year. The net gain on underwriting in 2006 stands in stark contrast to the $5.6 billion net loss on underwriting in 2005.

The industry's overall profitability was the highest in 20 years.

The industry's positive underwriting results contributed to an increase in its net income after taxes to $63.7 billion in 2006 from $44.2 billion in 2005. Reflecting the increase in net income after taxes, the industry's rate of return on average policyholders' surplus (net worth) rose to 14 percent in 2006 from 10.8 percent in 2005, according to Insurance Services Office (ISO) and the Property Casualty Insurers Association of America (PCI).

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. property/casualty insurers.

Overall profitability
Insurers' overall profitability as measured by their statutory rate of return on average surplus -- net income after taxes divided by average surplus during the year the income was earned -- climbed to 14 percent in 2006 from 10.8 percent in 2005. The rate of return for 2006 was the highest since 1986, when it equaled 15.1 percent, but it remained well below the record 23.1 percent statutory rate of return for 1977.

By decade, insurers' average rate of return climbed from 9.5 percent during the ten years ending 1976 to 13 percent during the ten years ending 1986 but has since fallen to 9.5 percent during the ten years ending 1996 and to 7.9 percent during the ten years ending 2006.

"The insurance industry's profitability last year compares quite favorably with its own results during the previous 20 years. But escalating competition and falling prices in insurance markets mean that insurers' profitability is at or near a cyclical peak, even though their rate of return is no better than that of firms in most other industries," said Michael R. Murray, ISO assistant vice president for financial analysis. "In fact, the insurance industry has a long history of being less profitable than other industries, with insurers' rate of return being less than that of the Fortune 500 in 21 of the 23 years from 1983, when ISO's data for the Fortune 500 starts, to 2005. During that span, insurers' rate of return averaged 8.2 percent -- 5.6 percentage points below the 13.8 percent average rate of return for the Fortune 500."

Catastrophe losses
According to ISO's Property Claim Services (PCS) unit, direct insured losses from catastrophes dropped to $9.2 billion in 2006 from $61.9 billion in 2005.

"Insurers and residents of coastal states dodged a bullet last year," noted Murray.

"Much of the improvement in insurers' underwriting and overall results last year reflects the decline in catastrophe losses from 2005's record high. Allowing for losses from Katrina, Rita, and Wilma that didn't emerge until after insurers closed their books for 2005 -- and factoring out losses covered by residual market insurers, the Florida Hurricane Catastrophe Fund, and foreign insurers -- ISO estimates the catastrophe losses included in private U.S. insurers' net financial results declined by $21.9 billion to $11.7 billion in 2006 from $33.6 billion in 2005. ISO also estimates that catastrophe-related net loss adjustment expenses declined to $0.6 billion in 2006 from $1.2 billion in 2005, contributing another $0.6 billion to the improvement in underwriting results."

But experts warned that despite the experience of 2006, catastrophe losses remain a threat.

"While meteorological anomalies confounded the experts and helped the U.S. escape major hurricane strikes in 2006, the threat of more frequent and severe storms, combined with the growing population and the increased value of property in the highest risk areas of the country, means that the threat of enormous losses from natural disasters is a financial problem the nation must deal with," said Genio Staranczak, PCI's chief economist.

Underwriting results
The improvement in underwriting results in 2006 reflects both growth in premiums and a decline in loss and loss adjustment expenses.

Net written premiums climbed $18.3 billion to $443.8 billion in 2006 from $425.5 billion in 2005, with written premium growth accelerating to 4.3 percent in 2006 from 0.3 percent in 2005. Net earned premiums rose $18.2 billion last year, increasing to $435.8 billion in 2006 from $417.6 billion in 2005. Earned premium growth accelerated to 4.4 percent in 2006 from 0.9 percent in 2005.

Overall loss and loss adjustment expenses declined $27.9 billion, or 9 percent, to $283.7 billion in 2006 from $311.6 billion in 2005. Non-catastrophe loss and loss adjustment expenses declined $5.4 billion, or 1.9 percent, to $271.4 billion in 2006 from $276.8 billion a year earlier.

Underwriting expenses -- primarily acquisition expenses, other expenses associated with underwriting, pricing and servicing insurance policies, and premium taxes -- rose $7.7 billion, or 7 percent, to $117.5 billion last year from $109.8 billion in 2005.

The net gain on underwriting in 2006 amounts to 7.2 percent of the $435.8 billion in premiums earned during the period, whereas the net loss on underwriting in 2005 amounted to 1.3 percent of the $417.6 billion in premiums earned during that period.

The combined ratio improved 8.5 percentage points to 92.4 percent in 2006 from 100.9 percent in 2005.

Study: Obese workers drive up workers' compensation costs

Gaining too much weight can be as bad for an employer's bottom line as it is for a person's waistline.

A Duke University Medical Center analysis found that obese workers filed twice the number of workers' compensation claims, had seven times higher medical costs from those claims and lost 13 times more days of work from work injury or work illness than did nonobese workers.

Workers with higher risk jobs were found to be more likely to file workers' compensation claims, and obese workers in high-risk jobs incurred the highest costs, both economically and medically.

Although workers' compensation plans vary from state to state, they all require that employers carry insurance policies to cover their employees should they be injured on the job. The plans can pay for employee medical costs, compensation for loss of current or future wages, or compensation for pain and suffering.

"We all know obesity is bad for the individual, but it isn't solely a personal medical problem -- it spills over into the workplace and has concrete economic costs," said Truls Ostbye, MD, PhD., professor of community and family medicine.

The results of the study were published April 23, 2007, in the Archives of Internal Medicine. The study was supported by a grant from the National Institute for Occupational Safety and Health.

"Given the strong link between obesity and workers' compensation costs, maintaining healthy weight is not only important to workers but should also be a high priority for employers," Ostbye said. "Work-based programs designed to target healthful eating and physical activity should be developed and then evaluated as part of a strategy to make all workplaces healthier and safer."

The researchers looked at the records of 11,728 employees of Duke University who received health risk appraisals between 1997 and 2004. Duke collects this information anonymously in order to identify areas of potential occupational risk and to develop plans to reduce that risk. The analysis covered a diverse group of workers, such as administrative assistants, groundskeepers, nurses and professors.

The researchers looked at the relationship between body mass index (BMI) and the rate of workers' compensation claims. Because the BMI takes into account both a person's height and weight, it is considered the most accurate measure of obesity. For Americans, a BMI of 18.5 to 24.9 is considered normal; 25 to 29.9 is considered overweight, and 30 and above is considered obese. (See BMI calculator here.)

The researchers found that workers with a BMI greater than 40 had 11.65 claims per 100 workers, compared with 5.8 claims per 100 in workers within the recommended range. In terms of average lost days of work, the obese averaged 183.63 per 100 employees, compared with 14.19 per 100 for those in the recommended range. The average medical claims costs per 100 employees were $51,019 for the obese and $7,503 for the non-obese.

The body parts most prone to injury among obese workers were the lower extremity, wrist or hand, and back. The most common causes of these injuries were falls or slips, and lifting.

"The primary message is that we need to reduce the burden on workers' compensation by intervening not only on individual risk factors such as obesity but also within the workplace to reduce the risk of injury," Dement said. "By targeting obesity and workplace risks simultaneously, we can reduce absenteeism, increase the overall health of our workers, and decrease the cost of health care for all employees."

Duke has a number of programs available to encourage employees to adopt more healthful lifestyles and occupational safety and health programs to reduce the risk of injuries. Future research is aimed at testing different strategies to see if they are effective in creating healthier and safer workplaces, and then determining whether or not they are cost effective.