ANTHEM, WELLPOINT GET MERGER APPROVAL FROM CDI:
Anthem Inc. and WellPoint Health Networks Inc. announced that John Garamendi, Commissioner of the California Department of Insurance (CDI), has granted his approval for their pending merger. In July of this year, the companies received approval from California's Department of Managed Health Care (DMHC) after a several months-long, comprehensive review of the proposed merger. The companies are now communicating with regulators in other states in order to complete the merger as quickly as possible. In working with Commissioner Garamendi, the companies made a number of commitments designed to address some of the most pressing problems in California's health care system. The commitments further build upon the agreements negotiated with the DMHC in its approval for the merger earlier this year. Specifically, in addition to the commitments previously made to the DMHC, Anthem and WellPoint have agreed to allocate an additional $100 million of high-quality portfolio investments through the Investment in a Healthy California Program. These investments are targeted at health care facilities and services in underserved communities over the 20-year life of the program. Anthem will also contribute $50 million to support community clinics and the training of nurses through California community colleges to address the state's nursing shortage.
MMC TO LAY OFF 3,000:
Marsh & McLennan Companies Inc. (MMC) revealed it would lay off about 3,000 employees to reduce annual expenses by $400 million. About three-quarters of the layoffs will occur in the insurance and risk management sectors. Market services revenues declined to $46 million in the third quarter of 2004 from $177 million in the prior year. In addition, in its third quarter report, MMC announced new initiatives that will lead to annual cost savings of approximately $400 million. MMC also established a $232 million reserve to be used in connection with any settlement agreement that may be reached with the New York Attorney General; and a $40 million settlement agreement in principle reached with the SEC concerning Putnam's disclosure of brokerage allocation practices prior to 2004. Third quarter 2004 consolidated revenues increased 5 percent to $3 billion; net income was $21 million or $.04 per share; and operating cash flow was strong in the third quarter. Since the New York Attorney General filed a civil lawsuit on Oct. 14, MMC said it has "acted quickly and decisively" to address legal and regulatory issues and restore confidence in the company. New leadership was installed. Michael Cherkasky was named president and CEO upon the resignation of Jeffrey Greenberg, former chairman and CEO. "This has been a difficult time for the company," Cherkasky said. "We recognize the seriousness of the problems we are facing and are moving quickly to correct them." Cherkasky addressed the issue of employee morale. "Employees are the lifeblood of our organization, and we know they have been hurt by the situation at Marsh. As a result, we are in the process of developing compensation programs to retain, motivate, and reward employees." He said MMC is examining all parts of the company's cost structure to identify areas where expenses can be reduced appropriately. "Unfortunately, we must also adjust staff levels based on the realities of the marketplace and our current situation. On a global basis, we are reducing staff by five percent, or approximately 3,000 positions, with three quarters coming from risk and insurance services. This is a difficult but necessary step, and we are committed to carrying out these reductions fairly." He said the 3,000 jobs to be cut include those tied to the previously announced combination of the defined contribution administration business of Putnam with Mercer's human resources outsourcing operations as well as the integration of Kroll. MMC expects this latest round of decisions to result in pretax restructuring charges of approximately $325 million over the next six months. The elimination of certain discretionary expenses and the effect of the restructuring should result in annual cost savings of approximately $400 million when fully implemented.
VOTERS KEEP OREGON'S SAIF SAFE:
Voters in Oregon said yes to keeping state-run workers' compensation carrier SAIF Corp. from being abolished by rival Liberty Northwest, according to the Associated Press. Supporters of the abolishment said that the measure would have decreased insurance rates if the market is left to private insurers, an argument rejected by opponents. The $8 million dollar initiative measure broke a state record for spending. Liberty Mutual reportedly spent $5.3 million in its campaign to abolish SAIF, with another $2.5 million being spent by The Committee for SAIF Keeping, a group of small businesses in support of the state-run carrier. Voters also said no to a measure that would cap pain and suffering--winning by a slight margin with 50.5 percent of the vote. The measure would have put a $500,000 cap on non-economic damages in addition to allowing juries to fully award compensation for lost wages and medical costs.
CALIF.'S DWC REGS GET BACKING FROM OAL:
The California Division of Workers' Compensation (DWC) has received approval from the Office of Administrative Law on the first set of regulations implementing SB 899, workers' compensation reforms passed by the Legislature and signed by Gov. Schwarzenegger last April. The emergency regulations became effective Nov. 1 and will be used by employers or insurers to establish medical provider networks (MPNs). "MPNs will ease access to treatment for workers," said DWC Administrative Director Andrea Hoch. "Delays brought on by insurer objections to proposed treatments will be reduced because insurers will be more confident MPN doctors are following appropriate treatment guidelines." An MPN is an entity or group of providers set up by an insurer or self-insured employer and approved by DWC's administrative director to treat workers injured on the job. Each MPN must include a mix of doctors specializing in work-related injuries and doctors with expertise in general areas of medicine, and MPNs are required to meet access standards to care for common occupational injuries and work-related illnesses. Further, the regulations require MPNs to follow all medical treatment guidelines established by the DWC and must allow employees a choice of provider(s) in the network after their first visit. Self-insured employers and insurers may obtain information about the application process to establish an MPN by e-mailing the Division of Workers' Compensation at dwc@dir.ca.gov. Properly completed applications will be processed within 60 days. The DWC now has 120 days to adopt permanent regulations for medical provider networks, a process that includes formal public hearings. The emergency regulations are posted on the Department of Industrial Relations Web site at www.dir.ca.gov. Click on rulemaking in the left navigation bar.
CONSTRUCTION DEFECT LEGISLATION DEFEATED IN COLO.:
Voters in Colorado Nov. 2 overwhelmingly turned back an effort to amend the state's constitution and gut a construction defects reform measure passed by the legislature last year. In a victory for consumers and the real estate industry alike, voters defeated Amendment 34 by a more than 3-to-1 margin, protecting Notice and Opportunity to Repair legislation that has significantly reduced frivolous lawsuits since its passage. The Colorado legislature passed Notice and Opportunity to Repair legislation in 2003, joining 22 other states with similar legislation on the books. NOR encourages non-litigious settlement of construction disputes while preserving the right of homeowners to sue if issues cannot be resolved. The legislation ensures that homeowners and homeowner association boards notify builders and developers that a problem exists, and provide a chance for the complaint to be addressed, before filing a costly lawsuit. The number of lawsuits filed annually by the state's top construction defect law firms fell dramatically under the new law, according to data obtained from the Colorado State Judicial Administrator. During the five years prior to the 2003 passage of the NOR legislation, 556 construction defect lawsuits were filed in Colorado, including 140 in 2002 and 80 in the first four months of 2003. So far this year, just 22 have been filed.
2004 HURRICANE SEASON NOT SO UNUSUAL AFTER ALL:
According to an analysis conducted by AIR Worldwide (AIR), a risk modeling company, the 2004 hurricane season should not be considered rare. The analysis, based on the AIR hurricane model, revealed that insurers should expect to see four hurricanes make landfall in the U.S. approximately once every 12 years. The expected frequency of four loss producing hurricanes in Florida is about once every 150 years--still within the range to which most insurance companies manage their catastrophe risk. AIR also analyzed the financial impact of the season, which according to preliminary loss estimates from ISO's Property Claim Services (PCS), will likely exceed $20 billion. The analysis indicates that insurers should expect to see similar aggregate losses in a single season about once every 13 years for the U.S. and about once every 24 years for Florida. For many insurers the potential loss from individual hurricanes, rather than the accumulation of losses from multiple events, has been the dominant issue when analyzing catastrophe risk. "For the past 15 years a single event has driven most of the annual hurricane losses," said Uday Virkud, AIR senior vice president. "However, this past season, which is not unusual when compared with long-term historical experience, demonstrates how important it is for companies to recognize the likelihood of multiple-event seasons when analyzing catastrophe risk." Although the 2004 hurricane season was the most active since 1986, when six hurricanes made landfall in the U.S., there have been six years since 1900 with at least four hurricanes making landfall in the U.S. Furthermore, AIR's analysis also revealed that 2004 would be one of eight years in the last 100 in which losses would exceed $20 billion, adjusting for current property densities and values. "The 2004 hurricane season is above average, but not extraordinary from either a frequency or an aggregate loss perspective," said Virkud. "Fortunately, tools are available that enable insurers to manage the risk to their portfolios from active seasons like this one."
