Federal court to hear Nationawide's Miss. storm surge appeal

Nearly 52 percent of U.S. urban Interstates are now congested and traffic fatality rates rose slightly, but road surface conditions and bridge conditions improved, according to the Reason Foundation's latest annual highway performance report.

"Gridlock isn't going away," said David T. Hartgen, Ph.D., the study's lead author. "States are going to have to prioritize and direct their transportation money to projects specifically designed to reduce congestion if we are going to reverse this troubling trend."

Drivers in California, Minnesota, New Jersey and North Carolina are stuck in the worst traffic, with over 70 percent of urban Interstates in those states qualifying as congested, the researchers say.

The study measures the performance of state-owned roads and highways from 1984 to 2005 in 12 different categories, including traffic fatalities, congestion, pavement condition, bridge condition, highway maintenance and administrative costs, to determine each state's ranking and cost-effectiveness.

The report finds that fatality rates vary significantly from state to state. Massachusetts reported the lowest fatality rate - 0.79 deaths per 100 million vehicle miles traveled. Meanwhile, Montana's roads were the deadliest, with 2.256 fatalities per 100 million vehicle miles. The national average was 1.453 fatalities.

The study does find some good news for drivers. The percentage of roads in "poor condition" fell sharply for both interstate highways and major rural roads. Since 1998, the percentage of poor urban interstate mileage has been reduced by 31 percent. The number of bridges deemed deficient, meaning they are eligible for federal repair dollars, also fell slightly in 2005.

In the overall rankings, North Dakota and South Carolina took the top spots for the second consecutive year. Meanwhile, New Jersey's gridlocked highways, poor pavement conditions and high repair costs put the state last in overall cost-effectiveness for the eighth consecutive year.

Florida, California, Michigan and New York are among the states joining New Jersey in the bottom 10. When it comes to comparing the most populous states, Georgia (6th overall), Texas (15th) and Ohio (16th) are the top performing large states.

"The big states that score well have been able to achieve needed improvements and adequate maintenance at relatively low costs," Hartgen explains.

The full report is available online at http://www.reason.org as is Reason's 2006 study showing how congested each city in the country will be in 2030.

W. Va.'s privatized Brickstreet makes first payment to state

West Virginia's workers' compensation insurer BrickStreet Mutual Insurance Co. has made its first scheduled payment of $5.8 million on its outstanding surplus note to the state of West Virginia,

"These payments will go directly to the benefit of the workers compensation Old Fund, helping to pay back the systems long-term deficit," Gov. Joe Manchin said in a prepared statement.

"As privatization continues to flourish, this places West Virginia on a level playing field with surrounding states to compete for economic development opportunities. I can't emphasize enough how important this process has been for our states future."

BrickStreet's surplus note balance now stands at $185 million. The company is scheduled to make its next principal payment of $40 million plus interest on June 30, 2008.

As part of 2005 legislation to privatize West Virginia's 90-year-old workers' compensation system, BrickStreet received a $200 million surplus note to establish its business practices and begin building adequate reserves to pay claims for injured workers.

Florida's workers' comp trust fund coffers overflowing with cash

It's almost unheard of for a state to try to stave off positive cash flow, but for its overstuffed workers' compensation trust fund, that's what Florida is doing.

With more than three times the amount of money in the state Workers' Compensation Administration Trust fund than is needed to cover its annual operating expenses, Florida is slashing the assessments charged against insurers' premiums. The fund currently has $297 million, while its average annual operating cost is $91 million.

Chief Financial Officer Alex Sink said next year's lower assessment could result in nearly $20 million in savings that insurers could be pass on to Florida employers. The rate will drop to 0.25 percent next year from 0.50 percent. It was 2.56 percent five years ago.

Whether employers will see that $20 million is left to the marketplace to decide.

"We're talking about a trickle-down effect," said Nina Banister, a spokesperson for the Florida Department of Financial Services. "All we can do is estimate the amount of savings that insurers can pass along to employers. Nothing is mandated."

The state fund pays for the operation of the Department of Financial Services' Division of Workers' Compensation and other programs including antifraud activities, medical services, vocational rehabilitation and child labor regulation.

The state enacted reform legislation in 2003 that appear to be working. Payments per claim for lost wages, known as indemnity benefits, fell nearly 11 percent in 2004 and while there was little change in this measure in 2003, double-digit growth had occurred in the three previous years, according to theWorkers' Compensation Research Institute.

"Five years ago Florida had one of the highest workers' comp rates in the nation," said Banister. "Since the reforms of 2003, 28 new carriers have come into the state."

With more insurance companies writing policies, there is more premium in the system to be taxed to go into the workers' compensation trust fund. Insurers are assessed on premiums that are written or renewed.

Stricter enforcement initiatives have also contributed to the increase in premiums in the system. The average penalty levied against employers who do not comply with workers' compensation requirements has risen from $7,500 to $26,000, stimulating greater compliance among employers, according to the DFS.

Gary Landry, vice president of the Florida Insurance Council, said the decrease for 2008 further shows that the reforms that have been put in place are working. "It's meeting the needs of our injured workers. It's another reason why our economy has been so robust over the past several years," he said.

Despite firefighting prowess, the Russians aren't coming

Global firefighter claims U.S. Forest Service stonewalls on Russian aid while U.S. wildfires burn

While the Southeast's largest wildfire in over a century was still smoldering in Georgia after burning 903 square miles, a fresh conflagration reared its ugly head in California, and an American pilot from Virginia -- employed by the Russian government -- says his organization could have prevented most of the destruction and loss.

The highly frustrated Tom Robinson serves as chief of Global Emergency Response and is the international liaison to the Russian government, which has offered the Ilyushin 76 (IL-76) four-engine prop plane to the U.S. Forest Service each year since 1995.

According to Robinson, the IL-76 tanker aircraft could do in days -- or hours -- what takes the U.S. Forest Service weeks and even months to accomplish.

While insurers face costly claims in high-value residential areas and, in some cases, discontinue writing policies due to wildfire proximity, Robinson said his efforts to curb the destruction are being stonewalled by the U.S. Forest Service.

Exacerbating the issue, Robinson claims, is that wildland firefighting has become a major seasonal business for thousands of vendors under USFS contract -- businesses that have become ingrained in dependent local economies.

"They (USFS) are the enemy," Robinson said. "Inflated prices on items such as equipment, fuel, box lunches, bottled water, Porta-Johns, clothing, snacks, etc., have turned wildland firefighting into a multi-billion dollar enterprise for many, while our brave firefighters are forced to risk their lives, relying on outdated and inefficient apparatus supplied by 'good old boy' USFS contractors."

Federal officials say Robinson is frustrated by a contracting process others have met.

Rose Davis, spokesperson for the National Interagency Fire Center in Idaho said the Russian planes are not certified by the Federal Aviation Administration, and that the Russian aircraft would have to go through the same pre-contractual procedures that every other contracted flyer undergoes.

"The Russian planes do not meet the requirements of the Interagency Tanker Board," Davis said. "And FAA certification is a prerequisite for all of our contractors."

While Robinson said the USFS continues to "sign contracts to utilize small, antique (WWII-vintage), ineffective and often unsafe air tankers to protect our nation from the ever-increasing damage, injuries and deaths caused by the annual wild land fires," Davis said the Forest Service has an ample fleet of various aircraft at its disposal -- and many more waiting in line to help.

"The Forest Service owns 18 aircraft of different kinds for use as smokejumper platforms, to fly infrared missions, for air attack -- also called Air Tactical Group Supervisor platform -- and a few that work in forest health monitoring doing surveys for bugs, fungus, inventory work, etc.," Davis said. "We are leasing 10 aircraft for more ATGS planes - these also double as lead planes as needed, by the way."

Robinson said they will not comply with the FAA certification process because he was told by USFS officials that the Russian tankers would not be used even if they were FAA certified.

"This is an ultra-modern plane and the only one that can fly at night when winds are calm -- the most efficient time to put a fire out," Robinson said. "This is an emergency situation; we're not asking for preferential treatment -- just a level playing field."

Maintaining that if employed, the Russian tankers would positively affect the U.S. government's bottom line -- and associated private and corporate insurance-related costs -- Robinson points to a May 2006 Government Accounting Office study titled, "Wildland Fire Management: Lack of Clear Goals or a Strategy Hinders Federal Agencies' Efforts to Contain the Costs of Fighting Fires."

In part, the report states that "although the firefighting agencies have established a broad goal of suppressing wildland fires at minimum cost -- considering firefighter, public safety, resources and structures to be protected -- they have no defined criteria by which to weigh the relative importance of these often-competing priorities."

As a result, the report says, officials in the field lack a clear understanding of the relative importance the agencies' leadership places on containing costs and therefore are likely to select firefighting strategies without due consideration of the costs of suppression. The agencies also have yet to develop a vision of how the various cost-containment steps they are taking relate to one another or to determine the extent to which these steps will be effective, according to the GAO report.

GAO recommends that the Secretaries of Agriculture and the Interior improve cost-containment efforts by establishing clear and measurable objectives and a strategy to achieve them. The GAO wants this information in front of Congress in time to prepare for the 2008 fire season.

The Forest Service and Interior generally disagreed with GAO's findings, stating that GAO did not accurately portray some of the agencies' actions to contain costs. They neither agreed nor disagreed with GAO's recommendations, according to last year's report.

Robinson summarizes the GAO report as showing that one hand doesn't know what the other hand is doing inside the Forest Service. For him, the solution is obvious: allow the IL-76 to come in and demonstrate its capabilities. He said the insurance industry could be instrumental in lobbying for the plane's use -- and funding its introductory tour. He said for $1 million he can place a plane at U.S. hot spots for three months.

Bob Hartwig, chief economist with the Insurance Information Institute in New York, said that while insurers support all the efforts of firefighters in regard to protecting property and homes and lives, it's difficult to comment on issues concerning military aircraft and FAA certification.

"Obviously there is a more fundamental problem and I can't weigh in on the political, military and safety aspect of the issue," Hartwig said. "The solution is probably not calling in a Russian aircraft every time. Every asset that can be brought to bear would be welcome, but I am not qualified to say to the FAA that the benefits of the Russian aircraft would outweigh whatever risks there might be with that type of plane."

U.S. Rep. Dana Rohrabacher, R-Calif., said he is involved in trying to expand the availability of the tanker type aircraft in case of emergency.

"I've done my best to try to convince the Forest Service at a time when the old fleet has diminished and to take steps to increase their capacity," Rohrabacher said. "I talked to the top people at the Forest Service and they briefed me -- explained it away to their satisfaction. It's hard to understand their reasoning -- they have not taken the steps necessary for either the Russian program or in the U.S."

Rohrabacher agrees that FAA certification is not necessary and he claims the Forest Service's mindset is that of "the good old boy network."

"If they're caught without the ability to call on the appropriate measures, it will be a great disservice to our people," Rohrabacher added. "I have yet to get a satisfactory answer from the Forest Service. And insurance companies that insure homes and property should also be involved, but they're not responding."

Tenn. court: marijuana not a factor in worker's injury

The Tennessee Supreme Court has ruled that a worker whose hand was crushed by machinery at his workplace was not to blame for the accident despite his admitted marijuana use off the job.

Billy McIntosh was injured in 2004 while working for Interstate Mechanical Contractors Inc. in Knoxville when his left hand got caught in a power roller machine.

McIntosh, who was 51 at the time he was injured, testified that while showing a new employee how to use the machine, he reached over it to set a piece of metal when the new employee engaged the rollers, which then grabbed McIntosh's hand and pulled it into the rollers.

The co-worker was unable to help so McIntosh was forced to disengage the machine himself and then reverse the rollers to release his hand.

Doctors were forced to partially amputate his middle and index fingers, and McIntosh still cannot extend his fingers.

At the hospital, McIntosh tested positive for marijuana. He admitted he smoked it in the week leading up to and on the night before his injury but denied smoking it or being impaired the day of the accident.

Interstate Mechanical filed a petition in Chancery Court for Knox County alleging McIntosh violated its drug-free workplace policy and should be denied worker's compensation. The state law establishing the drug-free workplace program presumes that any injuries to an employee found to have been using drugs or alcohol were caused by the drug use. But the court noted that the law also allows employees to enter evidence to rebut that presumption.

A medical toxicologist testified "that the level of THC in McIntosh's system at the time of the injury would have impaired his reaction time."

The co-worker and the shop foreman testified that McIntosh didn't appear to be impaired by marijuana use before the accident.

McIntosh contended the injury was caused by the actions of an inexperienced employee.

The trial court ruled in favor of McIntosh and the state Supreme Court upheld. "In this case, the undisputed evidence ... was that there would be no time to react if a person had a hand next to a roller when it was engaged," Justice William M. Barker wrote.

"The rollers immediately grabbed McIntosh's hand. McIntosh had no time to react," said his lawyer.

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

U.S. Senate panel weighs funding for weather satellites

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

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

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

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

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

Fla. CFO Sink halts department's disposal

A Florida agency has stopped disposing of records related to consumer disputes with insurance companies after lawyers and open records advocates decried the loss of a wealth of information that could be used to hold the industry accountable.

The Florida Department of Financial Services decided last year the state's broad public records law did not apply to supplemental information consumers sent in with a required notice that they intend to sue their insurer. The agency, which gets about 10,000 notices a year, said it did not have the manpower to handle the unsolicited background material.

Department of Financial Services legal counsel Dennis Silverman said the initial filing is evidence enough to track abuses. But lawyers said the supplemental paperwork provides crucial insight into bad business practices and can prove consumer problems are not isolated.

"You're destroying legal records the court needs to hold these companies accountable," said Jamie Payne, a former Department of Insurance employee who tracks civil remedy notices for lawyers throughout Florida.

Florida's Chief Financial Officer Alex Sink put a hold on the destruction of records, which began under the previous administration, said her spokeswoman Tara Klimek.

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

Insurers refute Fla. Gov. Crist's 'broken promises'

Insurance companies have taken exception to a reported accusation by Florida Gov. Charlie Crist that the insurance industry has broken its promises to lower rates.

In the July 3, 2007, edition of the South Florida Sun-Sentinel, Crist is quoted as accusing the insurance industry of "breaking its promises" and suggesting that the industry was behind asking the state to assume more risk.

The Property Casualty Insurers Association of America (PCI) shot back with a response from William Stander, its regional manager. "To be clear, the 24-percent rate reduction was never a promise made by the insurance industry. This was an estimate from state officials and regulators who failed to realistically portray the reductions consumers could expect," Stander maintained.

"Furthermore," Stander continued, "the insurance industry did not ask Gov. Crist or the state of Florida to take on more of a role in the insurance market or assume an increased level of risk. In fact, this decision was made against our recommendations and is seen as a flaw in the current system."

S.C. sponsors free mitigation workshop

Scott H. Richardson, South Carolina insurance director, recently unveiled the department's new grant initiative, SC Safe Home.

The program is a component of the recently-enacted Coastal Omnibus Act of 2007 which focuses on the availability and affordability of insurance coverage for coastal South Carolina property owners.

The program partners, including the Federal Alliance for Safe Homes, The Home Depot, The Charleston Metro Chamber of Commerce and the Member Companies of the South Carolina Wind and Hail Underwriting Association, sponsored free how-to clinics recently in Charleston. Engineering and construction experts in hazard mitigation provided hands-on demonstrations for the steps toward a wind-resistant home including construction and installation of plywood shutters; use of rafter glue to strengthen roof connections; installation of weather-stripping for windows; throw lengths of dead bolts; reinforcement of garage doors and installation of head and foot bolts for French and double-entry doors.

Tenn. tightens liability leash on dog owners

Tennessee Gov. Phil Bredesen (D) has signed a bill creating stricter liability for pet owners or sitters whose dogs injure others.

This new law imposes liability on a dog's owner for damages suffered by a person who is injured by the dog while in public or lawfully on private property. This liability attaches regardless of whether the dog has a history of vicious behavior or whether the dog's owner had knowledge of the dog's viciousness.

There are a few exceptions. A dog's owner would not be liable if the dog is a military or police dog and the injury occurs during the course of the dog's official duties; if the injured person is trespassing upon the private property of the dog's owner; or if the injury occurs while the dog is protecting the dog's owner from attack by the injured person.

In addition to an actual owner, a person harboring or keeping a dog would be considered to be the dog's owner for the purposes of this law.

After review of mine tragedies, U.S. promises stricter inspections

Federal inspectors missed obvious problems and failed to follow procedures at the Sago Mine in West Virginia and two other underground coal mines where 19 men died in high-profile accidents last year, the Mine Safety and Health Administration said.

Numerous steps are planned to correct problems MSHA uncovered during reviews of its actions in the three accidents. One is the creation of an internal accountability office charged with avoiding lapses in enforcement policies and procedures, according to MSHA's director Richard Stickler.

MSHA's internal review found lax enforcement at Sago, Massey Energy Co.'s Alma No. 1 Mine in Logan County or the Darby Mine in Kentucky. At the Alma mine, inspectors missed a majority of the violations the agency later determined contributed to the deaths of two miners in a conveyer belt fire Jan. 19, 2006. Inspectors failed to strictly enforce federal law and failed to conduct thorough inspections, the agency said.

Likewise, federal inspectors failed to address potential hazards at Darby before a methane gas explosion in an abandoned, sealed area of the mine killed five miners in May 2006. Specifically, inspectors did not always issue citations after finding faulty seal construction, MSHA said.

At Sago, MSHA faulted itself for setting the strength requirement for so-called alternative seals too low. A methane gas explosion in a sealed area of the mine destroyed 10 seals and allowed blast forces to enter the mine's active workings. Thirteen miners were unable to escape after the explosion and all but one died.

MSHA also determined that its personnel failed to follow established inspection procedures. The accident also pointed out numerous areas where MSHA's ability to respond to an emergency could be improved.

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

N.C. braces for flood insurance rate surge under new building code

Thousands of coastal North Carolina residents could see insurance rates surge this fall as state regulators weigh higher insurance costs against the rising cost of protecting homes.

The North Carolina Building Code Council has balked at new international building codes for wind-borne debris. The code would require protective plywood panels, hurricane shutters or expensive shatter-resistant windows on new homes as far inland as Burgaw, about 25 miles away from the ocean.

Currently, only new homes within 1,500 feet of the ocean shoreline must have the added safety features.

Council members say the new regulations, if adopted, will price middle- and lower-income residents out of the housing market. Developers claim the code could add thousands of dollars to the price of new homes.

"We just have to look at this extremely carefully because affordable housing keeps going up, and suddenly it isn't so affordable anymore," said Dave Smith, a Wilmington custom-home builder and chairman of the building council's residential standing committee.

Meanwhile, without the new code, North Carolina residents are poised to pay more for their flood insurance. The lack of new regulation will dock municipalities discount points awarded by the National Flood Insurance Program's Community Rating System.

Policyholders in Wrightsville Beach, who currently receive a 25 percent discount, are slated to drop to 10 percent in October. In Ocean Isle Beach, insurance discounts will drop from 15 percent to 10 percent.

The North Carolina Department of Insurance, backed by the insurance industry, would like the council to adopt the international code. South Carolina adopted the code two years ago. The state adopted it in part because coastal communities protested the loss of flood insurance discounts, said Gary Wiggins, administrator for the South Carolina Building Codes Council.

Wiggins said builders have adapted by designing homes with less glass and are now using the shatter-resistant glass as a selling point.

"That added security factor is what a lot of buyers in the coastal areas are now looking for, especially with insurance rates already so high," Wiggins said.

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

Industry supports terror bill but not all agree with NBCR mandate

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

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

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

It would also change the law's definition of terrorism to include acts of domestic terrorism; set the program trigger at $50 million; add group life insurance to the lines of insurance for which terrorism coverage must be made available; decrease deductibles and triggers for areas previously impacted by a significant terrorist attack; and continue to require studies of the development of a private market for terrorism risk insurance.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Hartwig was not alone in questioning the NBCR mandate.

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

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

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

FBI data mining targets include insurance fraud suspects

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

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

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

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

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

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

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

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

The five other databases detailed in the report include:

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


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


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


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


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

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

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

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

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

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

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

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

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

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

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

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

P/C industry net income, overall profitability slips

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Supreme Court raises bar for investors bringing securities fraud suits

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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