Currents

N.M. regulator accused of intervening on daughter's auto claim

New Mexico State Insurance Superintendent Eric Serna intervened in an automobile accident insurance claim involving his daughter, according to documents obtained by a local newspaper, but Serna denies any wrongdoing.

"I never exerted any influence and I didn't do anything improper," said Serna, who has been placed on paid leave by the state Public Regulation Commission, which oversees the Insurance Division. That leave is unrelated to the automobile accident claim.

Serna and Erica Serna rejected an initial offer of $1,000 to settle the claim with Young America Insurance Co. over an October 2004 accident, according to documents provided to The New Mexican in response to a public records request filed by the Santa Fe newspaper.

Eric Serna last year asked John Gaherty, supervisor of the commission's Insurance Claim Bureau, to help the Sernas with the claim, the documents said. "The superintendent has requested I forward a request to you demanding your policy limits of $25,000 to bring this matter to a conclusion," Gaherty wrote in a March 16, 2005, letter to the company.

The letter was written on Insurance Division letterhead, although Gaherty's bureau is part of the commission's Consumer Relations Division.

The insurance company eventually paid the $25,000 to Erica Serna, the documents said.

Gaherty said the insurer rejected the initial claim over the accident.

In an internal memo, Gaherty said he never "applied undue influence on the insurance company due to the fact that the superintendent's daughter is involved."

Serna said his daughter's claim did not receive any special treatment, and he forwarded it to the Consumer Relations Division because he wanted to avoid any appearance of impropriety.

But Juan Rios, director of the Consumer Relations Division, criticized Gaherty's handling of Serna's complaint in an April 18, 2005, memo to Gaherty. "The manner in which this case was initiated has, at the very least, created a potential for unwarranted criticism of the Insurance Complaint Bureau, the Consumer Relations Division, the superintendent of insurance and even the Public Regulation Commission," Rios wrote.

A Legislative Finance Committee audit of the Insurance Division's management practices released last October referred to the complaint.

The audit said complaints related to commission employees received "exceptional treatment" and noted that Gaherty's letter to the insurance company mentioned the employee by name once and by job title five times. "Using the name of a specific PRC employee in written communication with an insurance company was not noted in other complaint files," the audit said.

Serna said the $25,000 settlement did not come close to covering his daughter's medical bills from the accident.

Insurance documents show $2,515 in damages to the car, but Erica Serna's medical records were removed from her file.

The PRC has extended Serna's paid leave to June 9 while the attorney general investigates a contract between the Insurance Division and a Santa Fe bank that made hefty contributions to a Serna nonprofit foundation.

Alaska Legislature rejects self-insurance bill as session comes to end

Alaska legislators concluded the 2006 regular session this month and in the final hours rejected a bill opposed by insurers that would have encouraged more employers to self-insure for workers' compensation.

Legislators also declined to pass a measure that could have irritated more consumers than it would have protected from identity theft, according to Kenton Brine, northwest regional manager for the Property Casualty Insurers Association of America (PCI).

"On the session's final day, lawmakers considered, but wisely rejected, legislation (SB 51) to create under-regulated and under-capitalized self-insurance pools for employers who would have put the safety and security of Alaska's workers at risk," Brine said.

Brine noted HB 51 would have allowed employers to join and self-insure together in order to provide benefits to workers injured on the job, rather than purchase workers compensation insurance from private carriers.

"PCI did not oppose the formation of self-insured groups, but we felt strongly that HB 51 and its companion, SB 241, failed to meet regulatory and solvency standards to protect workers in the event of a member or group insolvency," Brine said.

"And we were not alone in our opposition. Both the state Insurance Division and Labor Department -- the agencies mandated to regulate insurance and workers compensation coverage -- strongly opposed these bills."

Brine congratulated the Legislature on passage of SB 260, a measure by Sen. Ralph Seekins (R-Fairbanks), to continue the work of the Workers' Compensation Task Force - a committee made up of legislators, agency officials and representatives of the health care, business and insurance communities in Alaska. The task force was created to study ways to reduce costs in the health care treatment delivery and payment system for injured workers, which today is the nation's costliest.

"Finding ways to manage costs in the workers' comp system, as has been done in California, resulting in a 40 percent reduction in workers' compensation rates, is the best method to improve the cost of coverage in Alaska," Brine said.

"By contrast, HB 51/SB 241 would have allowed some employers to simply 'opt-out,' which would have made insurance coverage less affordable and the market for less stable."

Regarding the proposed identity theft legislation, SB 222, Brine said insurers sought to work in good faith with the business community, credit agencies and with bill sponsors.

The insurance industry offered pages of amendments that have been accepted in other states, amendments Brine said would have improved the law's ability to protect consumers from identity theft and unauthorized releases of personal information without dramatically interfering with consumers' access to their credit in order to make purchases or shop for insurance quotes.

"We applaud the efforts of Sen. Gene Therriault (R-North Pole) and Sen. Gretchen Guess (D-Anchorage) on this measure. And we appreciate how much they and their colleagues wanted to see a security breach and credit protection bill pass this year," Brine said.

"Insurers hope to continue our discussions with other stakeholder industries and policymakers to develop legislation that will protect consumers and commerce at the same time -- as we have been able to do successfully in other Northwest states in 2005 and this year."

Working with PCI and its member companies, legislators and the state Department of Health & Human Services (HSS) also made improvements to legislation the state needed to pass in order to comply with new federal deficit reduction mandates.

HB 426 now requires insurers to cooperate with HSS in identifying claimants who are also on state medical assistance programs so the state can be reimbursed for losses covered by private insurance, but no longer requires the state attorney general to approve insurance settlements for auto, property and workers' compensation claims.

"For the improvements in this bill, PCI must thank not only the Insurance Division and HSS officials, but most especially Rep. John Coghill (R-North Pole) -- the bill's sponsor -- for their recognition of the original measure's potential impact on claims settlement," Brine said.

Brine noted, too, that a measure that would have interfered in the Insurance Division's ability to enforce fair claims settlement practices died without a vote in the House. The bill, HB 350, would have allowed courts to intercede in cases where allegations of unfair claims settlement practices were alleged and levy fines without the consent of the insurance director.

"This measure would have harmed insurance consumers in the long run by causing delays in claims processing and would have undermined the authority of the state insurance director, while likely enriching plaintiffs' attorneys who would be empowered to file more lawsuits alleging unfair practices to increase the value of claims disputes," Brine said.

On the positive side, the Legislature approved a measure sought by insurers and supported by PCI to allow insurance policies and brochures to be provided to consumers in languages other than English. "Alaska's rich and diverse culture is at the heart of this legislation, and PCI supported this measure's passage," Brine said.

PCI is composed of more than 1,000 member companies, representing the broadest cross-section of insurers of any national trade association. PCI members write over $184 billion in annual premium, 40.7 percent of the nation's property/casualty insurance.

Member companies write 50.8 percent of the U.S. automobile insurance market, 39.6 percent of the homeowners market, 33.5 percent of the commercial property and liability market, and 41.6 percent of the private workers compensation market.

West leads nation in car theft; Auto theft declines for second straight year

Des Plaines, Ill.-based National Insurance Crime Bureau (NICB) reported that for calendar year 2005, the West, and particularly California, leads the nation in auto theft. All of the nation's top 10 areas with the highest vehicle theft rates are in the West, with six of them in California.

For 2005 the 10 metropolitan statistical areas with the highest vehicle theft rates, in order, are: Modesto, Calif.; Las Vegas/ Paradise, Nev.; Stockton, Calif.; Phoenix/Mesa/Scottsdale, Ariz.;Visalia/Porterville, Calif.; Seattle/Tacoma/Bellevue, Wash.; Sacramento/Arden-Arcade/ Roseville, Calif.; San Diego/ Carlsbad/San Marcos, Calif.; Fresno, Calif.; and Yakima, Wash.

According to "Hot Spots," its annual report on auto theft rates, NICB reviewed data supplied by the National Crime Information Center (NCIC) for each of the nation's 360 metropolitan statistical areas (MSAs). MSAs are designated by the Office of Management and Budget and may include areas surrounding a specific city. For example, the No. 1 hot spot in the current report is Modesto, Calif. The Modesto MSA, however, includes data not only from the city of Modesto, but the entire county of Stanislaus, in which Modesto is located.

The rate is determined by the number of vehicle theft offenses per 100,000 inhabitants using the 2004 U.S. Census Population Estimates, the most current figures available.

Preliminary FBI data shows a 2.1 percent decrease in motor vehicle thefts during January to June 2005, when compared with the same period in 2004. Nationally, thats is the second straight year of decreases in vehicle theft.

"The continued reduction in auto thefts is good news for our member companies and the general public," said NICB President and CEO Robert M. Bryant. Bryant said that NICB programs, such as the bait car program, have led to significant declines in the auto theft problem.

"Bait cars are just one of the many tools that the insurance industry provides -- through NICB -- to local law enforcement to help prevent and deter vehicle theft," he said.

NICB recommends the following actions under its "layered approach" to protection that automobile owners can take to minimize their risk and prevent their car from becoming the next statistic:

Common Sense -- An unlocked vehicle with a key in the ignition is an open invitation to any thief, regardless of which anti-theft device you use. The common sense approach to protection is the simplest and most cost-effective way to thwart would-be thieves. Secure your vehicle even if parking for brief periods.

Warning Device -- The second layer of protection is a visible or audible device which alerts thieves that your vehicle is protected. Popular second layer devices include: Audible alarms, steering column collars, steering wheel/ brake pedal lock, wheel locks, theft deterrent decals, identification markers in or on vehicle, and vehicle identification number etching.

Immobilizing Device -- The third layer of protection is a device that prevents thieves from bypassing the ignition and hot-wiring the vehicle. Some electronic devices have computer chips in ignition keys. Other devices inhibit the flow of electricity or fuel to the engine until a hidden switch or button is activated. Popular third layer devices include smart keys, kill switches, and starter, ignition and fuel pump disablers.

Tracking Device -- The final layer of protection is a tracking device that emits a signal to police or a monitoring station when the vehicle is stolen. Tracking devices are effective in helping authorities recover stolen vehicles.

Montana State Fund to remain in Helena

The Montana State Fund board of directors has decided to keep its headquarters and roughly 300 employees located in Helena.

Miles City leaders asked the State Fund, which runs workers' compensation insurance for the state, to consider a move to their city. Miles City said it could give the State Fund a vacated hospital for its headquarters.

But State Fund board members voted 5-1 to explore building a new location in Helena.

Laurence Hubbard, president of the Montana State Fund, told board members the agency risked losing many valuable employees if it moved to the other side of the state.

Board members agreed.

"I think service will not be the same for quite some time if we lose a lot of employees," said board member Joe Dwyer.

The board is considering using about $20 million it currently has invested for a new building. Money that is now spent on lease payments would repay the investment.

The State Fund said it expects to grow to roughly 400 employees in the coming years.

Preliminary plans on different types of new construction were presented to the board. The proposal will be sent to the Board of Investments, which manages the State Fund's investments.

But the recent decision ensures that the State Fund will remain in Helena.

Miles City said its plan would have been cheaper for the State Fund because all it would have to do is remodel the old Veterans Administration hospital.

The facility is now mostly vacant, and Miles City said it has been given authority from the federal government to "convey" the building to anyone who has a use for it. The city also offered possible moving assistance for current employees and training for new employees at Miles City Community College.

The State Fund board was concerned about travel costs in and out of Miles City and other issues that could stem from being so far away from state government, the Legislature and other major cities.

Hawaii working to improve business climate for insurers

Hawaii is working to improve business conditions for insurers, brokers and agents, according to Jeffrey P. Schmidt, the state's insurance commissioner. Schmidt recently addressed a crowd at the opening breakfast at the 80th annual meeting of the American Association of Managing General Agents (AAMGA) in Ka'anapali, Hawaii.

According to Schmidt, the state is working to make laws conform more and be reciprocal with other states so that Hawaii becomes more business friendly. "We want to make this a better business environment for insurers in a global industry. We recognize the need to be more efficient," he said.

Schmidt said creating a friendlier environment is important for the state because internationally, Hawaii is one of the top 10 domiciles for captives. The state also ranks No. 2 in the United States for captive assets. Additionally, "Hawaii has developed a good relationship with other countries in the Pacific Rim and aims to be a very important player in the global insurance market. We are a port of entry for other insurers to access markets in the United States," Schmidt said.

In addition to adapting laws to assist the industry, Schmidt said the state also is working with the local university to develop education and training in insurance and risk management. "Everyone recognizes the real importance of insurance these days," he said.

The 80th annual AAMGA meeting was held at the Hyatt Regency Maui in Ka'anapali, Hawaii. Web site: www .aamga.org.

Insurers pleased as Colorado General Assembly keeps auto system intact

The Colorado General Assembly adjourned its concluding session, which the Property Casualty Insurers Association of America (PCI) said was marked by the defeat of a wide variety of legislation that would have forced consumers to pay higher insurance premiums and been detrimental to the insurance marketplace.

"As we expected, this was a very contentious session," said Kelly Campbell, PCI regional manager. "However, we achieved our top priority which was to preserve the current tort-based auto insurance system."

Campbell said the industry worked with lawmakers to "successfully thwart legislation that sought to roll back consumer savings and roll on mandated coverages."

Insurers also beat back legislation that has been considered during past sessions such as a proposal (SB 109) to prohibit the use of credit-based insurance scoring and an effort (HB 1097) to reverse workers compensation reforms by allowing injured employees to choose their own medical provider.

"Given the harmful legislation that the industry faced, we are pleased with the outcome of the session," Campbell said.

This year, none of the problematic interim auto insurance committee bills passed, PCI said. Defeated were bills to require consumers to purchase medical payments coverage (HB 1036), to convert auto liability coverage into a form of no-fault auto insurance (HB1044) and to require purchase of "emergency medical payments coverage" (SB 19).

The General Assembly also defeated legislation (HB 1043) to create an insurance consumer board as well as an attempt (HCR 1011) to place on the November ballot the issue of whether the state should have an elected insurance commissioner.

A bill, HB 1203, which would have given the Public Utilities Commission the power to review insurer rate filings was also defeated.

A bill pushed by the Speaker of the House and the President of the Senate that initially would have required insurers to reveal what they felt was sensitive claim reserve information and to base rates exclusively on Colorado experience was substantially amended and made much more palatable for insurers. Through HB 1006, insurers were relieved of the requirement to mail a copy of the entire statute to persons making auto collision claims.

On the other hand, a primary seat belt proposal (HB 1125) that was supported by insurer groups was defeated.

First quarter financial results upbeat, but some note disaster fallout

The financial results are in. Insurers generally had positive first quarters, although some were hurt by higher health care costs and continued fallout from last year's natural disasters. Below are the financial highlights, compiled by KMPG, of some of the nation's largest insurers and brokers.

Allstate Corp.: Allstate reported net income of $1.42 billion, or $2.19 per share, for the first quarter, compared with $1.12 billion, or $1.64 per share, for the same quarter last year. Operating income was $1.3 billion, compared with $1.14 billion a year ago. Property liability premiums written for the quarter were $6.73 billion, compared with $6.58 billion in the first quarter of 2005; the increase was mainly driven by standard auto and homeowners increases of 4.1 percent and 2.4 percent, respectively. Total quarterly revenue was $9.08 billion, compared with $8.7 billion a year ago. The first quarter's property-liability combined ratio was 81.9 percent, down from 85.3 percent in the first quarter of 2005.

Aon Corp.: The broker reported fiscal first-quarter net income of $198 million, or 57 cents per share, compared with $200 million, or 59 cents per share, for the same quarter of 2005. Net income from continuing operations was $198 million, compared with $198 million a year ago. Revenue from risk and brokerage services was $1.66 billion for the first quarter, compared with $1.67 billion for the first quarter of 2005. Total revenue was $2.52 billion, compared with $2.46 billion in Q1 2005. Aon's previously announced three-year restructuring plan, which includes employee termination, lease consolidation expenses and asset impairments, is expected to result in cumulative pre-tax charges of $290 million.

CNA Financial Corp.: The Chicago-based carrier reported net income of $229 million, or 82 cents per share, for the first quarter of 2006, compared with net income of $185 million, or 66 cents per share, a year earlier. Operating income was $234 million, compared to operating income of $192 million in the first quarter of 2005. The company experienced $8 million in after-tax catastrophe losses due to first-quarter hurricanes. Net written premiums for property and casualty operations were $1.76 billion, compared with $1.77 billion in the same period a year ago. The first quarter's total combined ratio for property/casualty operations was 96.9 percent, compared with 99 percent a year ago.

The Hartford Financial Services Group:
The Hartford reported net income of $728 million, or $2.34 per share, for the first quarter, compared with $666 million, or $2.21 per share, for the first quarter of 2005. Core earnings, which is Hartford's Non-GAAP measure of operating income, was $797 million for the quarter, compared with $582 million a year ago. Net written property/casuatly premiums for the first quarter were $2.6 billion, a 2 percent increase year-over-year. The company reported a combined ratio of 87.9 percent in ongoing operations compared to 86.8 percent in 2005.

Lincoln National Corp.: The Philadelphia-based company reported net income of $221 million, or $1.24 per share, for the first quarter of 2006, compared with $179 million, or $1.01 per share, for the same quarter in 2005. Total revenue was $1.41 billion for the quarter, compared to $1.31 billion a year earlier. In the company's retirement segment, income from operations was $123 million, compared with $98 million a year ago. Gross deposits in the segment were $2.9 billion.

Progressive Corp.: Progressive reported first-quarter net income of $437 million, or $2.21 per share, compared to $413 million, or $2.04 per share, for the same quarter a year earlier. The Mayfield Village, Ohio-based insurer said net premiums earned were $3.5 billion, compared to $3.35 billion in the first quarter of 2005. The combined ratio for the fourth quarter was 85.2 percent, up slightly from 85 percent a year ago. Total revenue for the first quarter was $3.66 billion, up 5 percent over the same period last year.

Prudential Financial: The Newark, N.J.-based carrier reported net income of $675 million, or $1.38 per share, for the first quarter of 2006 for its financial services businesses, compared to $766 million, or $1.49 per share, for the same quarter in 2005. Operating earnings were $669 million, compared with $601 million in the year-ago quarter. Total operating revenue was $6.13 billion, compared to $5.59 billion in last year's first quarter. Assets under management on March 31, 2005, were $547 billion, up from $496 billion a year earlier.

Safeco: The Seattle-based insurer reported net income for the first quarter of $208 million, or $1.69 per share, compared to $212 million, or $1.65 per share, in the year-ago quarter. Operating earnings were $198 million, compared with $190 million in the first quarter of 2005. Safeco's net earned premiums were $1.42 billion for the quarter, relatively unchanged from a year ago. The company reported total quarterly revenue of $1.56 billion, compared to $1.58 billion a year earlier. The property and casualty combined ratio for Q1 was 86.9 percent, compared with 88.5 percent in the first quarter of 2005.

St. Paul Travelers Cos.: St. Paul Travelers reported net income of $1.01 billion, or $1.41 per share, compared to $212 million, or 31 cents per share, a year earlier. Operating income for the first quarter was $1.01 billion, compared to $859 million in the first quarter of 2005. Net written premiums for the quarter were $4.77 billion, virtually unchanged from last year's first quarter. Total revenue for the company was $6.05 billion, compared to $6.11 billion in the year-ago quarter. The quarterly combined ratio was 88.9 percent, down from 90.5 percent in the first quarter of 2005.

The information was obtained from the individual company financial statements. KPMG has not verified the information and does not endorse any of the numerical information provided.This article is being reprinted with permission from KPMG's "Insurance Insider." Copyright KPMG LLP.

The Hartford settles with N.Y., Conn. over annuity compensation

The Hartford Financial Services Group, Inc. has settled with both the Connecticut and New York attorneys general regarding The Hartford's use of expense reimbursement agreements in its terminal/maturity funding group annuity line of business.

Under the terms of the settlement, The Hartford will pay $20 million, of which $16.1 million will be paid to certain plan sponsors that purchased terminal or maturity funding annuities between Jan. 1, 1998 and Dec. 31, 2004, with the balance of $3.9 million to be divided equally between the states of New York and Connecticut.

The costs associated with the settlement have already been accounted for with reserves previously established. As part of the settlement, The Hartford will accept a three-year prohibition on the use of contingent compensation in its terminal/maturity funding group annuity line of business.

Commenting on the announcement, The Hartford's Chairman and CEO Ramani Ayer said, "We have apologized to plan sponsors for not having provided full disclosure of the compensation paid. Resolving this matter was important for our company. We have cooperated fully with regulators during their investigations and will continue to do so."

The settlement concludes an investigation that focused on The Hartford's compensation arrangements with certain producers specializing in the sale of terminal and maturity funding group annuities. Both products involve the purchase of a single premium group annuity by a plan sponsor to assume all or a portion of the pension plan's liabilities. A terminal funding annuity is used when a company terminates its pension plan. A maturity funding annuity is used by an ongoing business to satisfy its future obligations to pension plan participants.

To compensate producers who sold those annuities, The Hartford typically paid them a standard commission. In addition, The Hartford also had an expense reimbursement agreement with certain producers. During the six year period, 1998 - 2004, the company paid four producers a total of approximately $4 million. While The Hartford disclosed to plan sponsors the amount of standard commission paid, it did not disclose the additional payments made pursuant to the expense reimbursement agreements.

In 2004, The Hartford voluntarily eliminated the use of expense reimbursement agreements for producers in the terminal/maturity funding group annuity line of business.

"The Hartford was at the hub of a series of secret conspiracies that enriched both the brokers and The Hartford at the expense of their customers," Conn. AG Richard Blumenthal said. "Our evidence shows a shocking systematic scheme that betrayed their moral and legal duties."

According to Blumenthal, the brokers involved included Dietrich & Associates Inc., Brentwood Asset Advisors, Glastonbury-based USI Consulting Group and BCG Terminal Funding.

"There is no pleasure in uncovering wrongdoing by one of Connecticut's best respected corporate citizens. Our continuing investigation of The Hartford and others must be pursued wherever the evidence leads. The Hartford has cooperated -- taking the high road -- and we hope others will as well. The message is that no one in this industry -- insurers or brokers, big or small -- can break the law and betray their trust," Blumenthal added.

"Our reforms -- stopping contingent commission agreements -- will help prevent future insurance abuses. This investigation was spurred by a whistleblower, and we hope others with knowledge will come forward."

N.Y. Attorney General Eliot Spitzer said the contingent commission scheme allowed Hartford to sell more than $800 million worth of group annuity pension plans from 1998 to 2004. According to Spitzer's investigation, companies and institutions that faced increased costs as a result of the scheme included: Montgomery Ward Co.; Bennetton Sportssystem USA Inc; PriceWaterhouseCoopers; and Mt. Sinai Medical Center of Florida.

"This investigation shows how payoffs and deception influenced major deals for retirement products," Spitzer said. "This was wrong. But the company at the center of the scandal has acknowledged misconduct, provided compensation for those who were harmed and implemented reforms that will help protect retirees in the future."

As part of the settlement, The Hartford announced it would also:

Provide Web site disclosure relating to compensation practices and policies in the terminal/maturity funding annuity line of business, and provide plan sponsors with information about all compensation paid, or to be paid, to producers in this line of business;

Support legislation that would eliminate contingent compensation for group annuity products and that would increase disclosure of compensation; and

Implement written standards of conduct and provide training to relevant employees regarding compensation paid to producers of terminal/maturity funding annuity products.

The Hartford says it has also heightened its focus on business ethics and increased accountability within its lines of business to strengthen day-to-day operational compliance with its guidelines and the laws governing all of itsbusinesses.

The Hartford, a Fortune 100 company, is a financial services and insurance company with 2005 revenues of $27.1 billion.

Arizona lawmakers pass security breach legislation

The Arizona legislature has passed security breach legislation that would provide notice to consumers when there has been an unauthorized breach of their personal information. The bill was sponsored by Sen. Huppenthal, and drafted by a broad-based business coalition. Senate Bill 1338 was one of the last security breach bills standing after more than 20 were introduced on the first days of session.

The Property Casualty Insurers Association of America, commenting on the bill, said it supports reasonable security breach legislation. "Because insurers rely on the accuracy of personal information, they clearly understand the need to maintain the security of this information," said Kelly Campbell, regional manager for PCI. "Insurers take very seriously the responsibility to safeguard their customers' personal information and to maintain its integrity."

In addition, the legislation would also require law enforcement agencies to create and maintain an information security policy that includes notification procedures for a breach of the security system of a law enforcement agency, prosecuting agency or the courts.

"All consumers should be assured that no matter where they live, their personal information retained by commercial, academic or governmental entities is secure from unauthorized access," added Campbell. "We are pleased lawmakers have taken action to protect the security of consumer information."

Blackmail allegations heat up California auto reforms debate

John Garamendi has called for an investigation into an apparent campaign attacking him and his proposed auto insurance rate regulations in California. Supposedly waged by insurance industry officials and advocates, Garmendi said the campaign opposes this plan to downgrade geography as a factor in setting auto insurance rates. The campaign is due to launch just before he faces voters at the polls as a candidate for lieutenant governor.

Up to this point, the courts have upheld the contention that when pricing auto insurance, location factors into the equation. If a policyholder lives in a rural area in which there are fewer people on the road and there is less crime, including auto theft, there is less of a chance to get into an accident or file an auto insurance claim; therefore insurance rates are less. As for those living in heavily populated areas such as Los Angeles and San Francisco, the risks are higher, therefore the rates are higher.

Insurers say no to reform
Opponents of the reforms cite an actuarial study conducted by the California Department of Insurance Commission revealing that if the reforms were to be implemented, rates for drivers in 52 of the state's 58 counties would increase. The general position of the commissioner and CDI is that if reforms are implemented, rates can be lowered in urban areas without raising rates in rural areas by using a driver's past record, not location.

The industry says that not only has Garamendi provided no proof that this plan is viable, but that it can't possibly work.

Industry ultimatum
The commissioner claims he received an ultimatum from certain insurance industry officials to postpone the proposed rate regulations or face a $2 million political campaign attack against him. He has asked the Federal Bureau of Investigation, the U.S. Attorney's Office and the Attorney General of California to investigate.

The alleged threats came to Garamendi as the CDI began to finalize the new auto regulations that give greater weight to how people drive rather than where they live.

The message was allegedly delivered in a telephone call from Darry Sragow, a Los Angeles lawyer and Democratic strategist, according to Garamendi.

In response to whether the insurance industry's courtesy call was illegal, Sragow told the Sacramento Bee on May 9, "I would not convey a message that I thought was any violation of the law."

The industry denies any illegal attempts of extortion or blackmail and says it has adamantly opposed such changes for two years now.

According to Sara Lee, consultant for the Coalition of Californians Against Unfair Rate Increases, "It is unfortunate that [Garamendi] is choosing not to focus on the issue." She said the commissioner's appeal for an investigation is "a diversionary tactic to shift focus away from what these regulations would do if implemented."

"The entire timeline of this campaign was based on the timeline of when these regulations were released -- the hearings, when the revisions came out and nothing else," Lee said, adding, "The entire thrust of the campaign is targeting the proposed regulations and the Department of Insurance, not Garamendi."

"In public issue campaigns, it is normal to alert someone who runs a department that is going to be a target of a campaign," she said. "That is how business is done, and it happens on a regular basis on these types of issues. That is all that was done this time as well."

Norman Williams, a CDI spokesman, said he's not sure the industry was merely giving the commissioner a heads-up. "If that were the case, I think the message would have been delivered in quite a different matter than having a person such as Sragow deliver it in the manner he did."

Lee said, "The industry has an obligation to let its customers know what these regulations are going to do to their rates."

Williams added, "[Garamendi] fully considers this blackmail, and that is why he has asked the FBI to investigate."

Among others, State Farm, Farmers, Allstate, Safeco and 21st Century Insurance are said to be financing the campaign.

Americans increasingly traveling overseas for cheaper surgeries

Americans looking to save money on medical procedures are increasingly traveling overseas for surgeries not covered by their insurance to avoid costly hospital stays in the U.S.

The trend is being driven by rising health care costs and frustrated ranks of uninsured American workers, said John Knox, a spokesman for MedSolution, a Vancouver, B.C.-based company that brokers transactions between American patients and foreign hospitals.

Many Americans choose to go overseas because they face crippling medical expenses for treatments performed in the U.S., said Peter Lindland, chief executive of Medical Nomad, a Florida-based Web site providing information for prospective medical tourists.

Surgeries are cheaper in Third World countries where salaries and litigation expenses are lower, Lindland said. "They have a choice between their health and their financial solvency," he said.

The practice is called "medical tourism" in the United States because many Americans take a vacation at the same time.

Investment manager Howard Aschwald, 52, of Belvedere, said he saved nearly $4,000 on a laser eye procedure that was not covered by his insurance and nearly $2,000 on a heart screening he had done in Bombay, India.

Aschwald and his wife also scored a long-awaited vacation to India, but at a cost: They paid nearly $3,000 for their combined airfare and stayed in a $185-a-night hotel.

Freelance writer Jeannine Walston, 32, of San Rafael, Calif. is planning a trip this month to Cologne, Germany, for a series of cancer treatments to boost her immune system, rather than save money on a medical procedure or have surgery not covered by her insurance. She estimates the treatments will cost her up to $40,000.

"Conventional cancer care in the U.S. does not address the underlying causes of disease," she said.

But some experts warn about the danger of unregulated facilities.

"You do hear nightmare stories in this industry about people who set up ad hoc surgical centers in their garage and they're not qualified to be performing surgeries," Knox said. "It does happen out there."

Peter Warren, of the California Medical Association, predicted the practice will not likely have widespread appeal. "There will be a few people in the upper strata of society who will take advantage of it, but it's not going to deal with the 7 million uninsured in California, it's not going to bring down the price of premiums for health care, and it's not going to unclog the emergency rooms," Warren said.

Washington lowers fine, penalties against self-insured contractor Skanska

Upon further review of more detailed audit information, and as a result of Skanska's improved handling of workers' compensation claims, the Department of Labor and Industries (L&I), Tumwater, Wash., has, in a negotiated settlement, cut nearly in half the $136,264 fine it levied a year ago against Skanska USA Building Inc. The final penalty is $68,272.

"Our goal, always, has been to make sure that when a Skanska employee or any other Washington state employee is injured on the job, he or she receives the medical care and other benefits they are entitled to," said Robert Malooly, L&I's Insurance Services Division head. "We've monitored Skanska's performance over the past 12 months, and it has improved dramatically. This is a way of acknowledging that Skanska is doing right by its employees."

That sentiment is echoed by Michael Settles, business representative for the Pacific Northwest Regional Council of Carpenters, who spoke for all unions at Skanska when he praised the cooperative settlement, calling it a "win-win resolution." Settles said: "All the issues were laid out, discussed and finally resolved. L&I sent a strong message to the employer community that it takes the safety of Washington workers very seriously. The labor community stands behind both the Department of Labor and Industries and Skanska as the rights of injured workers were maintained."

A year ago, following an audit of the self-insured company, L&I put Skanska USA, a commercial and residential contractor based in New Jersey, on "corrective action," levying $136,264 in penalties and ordering the company to repay its workers $124,811 in wage-replacement benefits the audit found they had been denied. L&I identified 461 cases in which workers' compensation claims could or should have been filed by or on behalf of Skanska employees. All 461 claims have now been filed.

Skanska, which purchased Baugh Construction in 2000, took steps to improve its handling of claims, fully cooperated in L&I's investigation, but also protested the audit's findings, according to officials. As part of that protest, Skanska produced records showing the company had already paid a significant portion of the employee benefits originally identified by the audit as unpaid.

Bob Babitisky, Skanska's area general manager, said that "Skanska is committed to protecting the health and safety of its workers and to ensuring that anyone injured on the job receives the benefits to which they are entitled."

Malooly said every worker owed back benefits will receive them.

Washington law allows companies that meet established financial and safety criteria to manage their own workers' comp claims. L&I audits those companies to ensure claims are being managed properly. About 385 companies in Washington -- employing about one-third of the workforce -- are self-insured.

Safeco adds online distribution strategy to sell direct to consumers

Seattle-based Safeco Insurance Companies has decided sell products via the Internet to supplement its existing and preferred sale channel of independent agents, the company reported. The company began exploring this new distribution strategy in March, and based on feedback it received from agents, it believes online sales will help it reach a new customer segment that prefers purchasing insurance on the Web without an agent's assistance.

According to Michael LaRocco, president and COO, Safeco believes it can expand its reach to new customers while maintaining its primary focus on the independent agent channel. "Our desire is to grow as a company and become a better partner for you," he told agents. "Extending our distribution reach in non-traditional ways will help us strengthen our brand recognition and improve our knowledge of the marketplace in ways that will benefit Safeco and you."

Safeco plans to conservatively market to two groups:

Auto consumers who prefer buying online from a company Web site.

Auto consumers who prefer to buy directly from an insurance company by phone.

A small call center of licensed sales professionals has been established to support consumers who wish to buy over the phone from Safeco. Direct marketing mailings will suggest consumers either click Safeco.com or call (800) 4Safeco.

Meanwhile, the company hopes to better leverage Safeco.com using Internet advertising, direct marketing and other promotions to reach consumers who want to buy policies online from an insurance company Web site. Those consumers will be given an opportunity to close the sale themselves at Safeco.com without being assigned to an independent agent. However, agents will be featured on Safeco.com, giving consumers the choice in how they want to do business with Safeco, LaRocco said.

According to LaRocco, the company incorporated much of the feedback it received from agents since March, when it announced it was exploring the new distribution strategy. Based on that information, Safeco has developed five principles to direct the supplemental distribution strategy:

All consumers should have the opportunity to purchase a Safeco policy according to their buying preferences.

The company will continue supporting and appointing independent agents because many consumers value the choice and consultation independent agents offer.

The company will resolve distribution channel conflicts in favor of customer choice first, the agent second and Safeco third.

The company will continue to manage each segment of its business to profitability over the long term.

The company will give consumers the option of choosing an independent agent whenever they like.

"Every decision we make regarding product distribution will be informed by these five guiding principles, which are designed to benefit consumers, agents and investors," LaRocco said. "No one should expect a $600 million advertising campaign or a Hollywood spokesperson."

Safeco also said it has attempted to integrate agents into the online sales process through its Virtual Producer program, and plans to increase efforts to support agents in their online efforts. Business written through agency Web site links to Safeco.com will pay full commission on sales and renewals, LaRocco said.

He noted the Virtual Producer Select program will be discontinued as of June 1, 2006, and the 120 agents participating in that program will be notified soon.

Overall, LaRocco said the company believes the supplemental channel will add value for its core agency partners.

"Safeco has enjoyed a long and successful history selling our products through independent agents and brokers. That won't change," he said. "With a creative, collaborative approach, we both can win in the entire consumer marketplace."

Fire safety leaders tackle how to reduce smoking related fires

Acting United States Fire Administrator Charlie Dickinson and National Fire Protection Association President and CEO James Shannon have completed a report on behavioral mitigation to reduce the number of fires caused by smoking.

"Smoking continues to be the No. 1 cause of residential fire deaths, which justifies a new look at research about the role of

behaviors in causing those deaths," Dickinson said. "Through this partnership with NFPA, hopefully, we can reduce fire deaths from this cause."

Smoking-material fire deaths are more likely to involve a fire that begins very close to the victim. The percentage of smoking-material fatal fire victims who are "intimate" with ignition is three times the corresponding percentage for fires due to other causes, according to the report. Fatal victims of smoking-material fires are, therefore, less likely than fatal victims of other kinds of fires to be saved by strategies and technologies that react after ignition, such as smoke alarms. For many, if not most, of those victims, there is no substitute for prevention. The report further noted that one in four fatal victims is not the smoker whose cigarette started the fire.

NFPA's Shannon said it "is clear from the report we must continue to educate smokers and their families and friends about the strategies that will have the greatest impact on this tragic ongoing loss of life."

The project recommends the use of general messages and several specific messages aimed at specific audiences. The recommended messages are:

If you smoke, smoke outside.

Wherever you smoke, use deep, sturdy ashtrays. Ashtrays should be set on something sturdy and difficult to ignite, like an end table.

Before you throw out butts and ashes, make sure they are out. Dowsing in water or sand is recommended as the best way to do that.

Check under furniture cushions and in other places people smoke for cigarette butts that may have fallen out of sight.

Smoking should not be allowed in a home where oxygen is used.

If you smoke, choose fire-safe cigarettes.

To prevent a deadly cigarette fire, be alert. You won't be if you are sleepy, have been consuming alcohol, or have taken medication or other drugs.

Those messages have been applied to existing USFA educational materials and are being adopted into NFPA educational messages as they come up for routine revision.

The full report can be found at: http://www.usfa.fema.gov /research/other/smoking- mitigation.shtm. USFA became part of the U.S. Department of Homeland Security on March 1, 2003. More on NFPA can be found at www.nfpa.org.

Senate Republicans fail again in efforts to cap medical malpractice awards

Senate Republican leaders have again failed in their efforts to place limits on medical malpractice pain and suffering awards.

Senate Democrats successfully stymied two Republican bills, one a broad bill affecting medical malpractice claims against all providers and the other, a measure dealing only with obstetricians and gynecologists.

Republicans sought to cap pain and suffering damages at $750,000. Claimants would still have been able to recover for lost wages and medical care.

Both bills fell short of the 60 votes needed for them to be advanced for debate by the full Senate when a handful of Republicans joined Democrats in opposition. The 60 votes were needed to invoke cloture on the Medical Care Access Protection Act and the Healthy Mothers and Healthy Babies Access to Care Acts as the measures were titled.

Senate Majority Leader Sen. Bill Frist (R-Tenn.), himself a physician, lamented the Senate's failure to advance the bills.

"Five times in the last four years, Senate Democrats have obstructed meaningful medical liability reform that would have ensured access to quality, affordable health care," Frist said.

Frist and many Republicans maintain so-called frivolous lawsuits force doctors out of business, drive up medical costs and jeopardize the health of all Americans.

"It's unfortunate that Democrats have chosen to help line the pockets of trial lawyers rather than to help meet the health care needs of this nation," Frist charged. But Democrats and a few Republicans maintain such caps protect insurance company profits more than they do doctors or patients.

"These measures do not represent a serious attempt to improve health care or civil justice in the United States," said Senate Democratic leader Harry Reid of Nevada.

Reid said both bills contain "the same one-size-fits-all cap on damages that this body has rejected time and time again. Both contain the same unjustified protections for hospitals, HMOs and insurance companies from previously discarded bills. In fact, these proposals are virtually identical to legislation we turned aside three times last Congress. These bills are the same old song."

Reid maintained that there is a health care crisis in this country, but it has nothing to do with tort laws. "It is a crisis when 46 million Americans have no health insurance. It is a crisis when health care is too costly for average Americans. It is a crisis when medical errors are the sixth leading cause of death in America," the Democrat stated.

"We should not reward insurance companies making record profits. We should help doctors by reforming the insurance industry rather than undermining the legal rights of seriously injured malpractice victims," Reid added.

Four out of 10 medical malpractice cases are groundless; majority dismissed without payout

About 40 percent of the medical malpractice cases filed in the United States are groundless, according to a Harvard analysis of the hotly debated issue that pits trial lawyers against doctors, with lawmakers in the middle.

Many of the lawsuits analyzed contained no evidence that a medical error was committed or that the patient suffered any injury, the report said.

The vast majority of those dubious cases were dismissed with no payout to the patient. However, groundless lawsuits still accounted for 15 percent of the money paid out in settlements or verdicts.

The study's lead researcher, David Studdert of the Harvard School of Public Health, said the findings challenge the view among tort reform supporters that the legal system is riddled with frivolous claims.

"We found the system did reasonably well in sorting the good claims from the bad ones, but there were problems," he said.

However, the American Medical Association, which favors caps on malpractice awards, called the study proof that a substantial number of meritless claims continue to slip through the cracks, "clogging the courts" and forcing doctors to waste time defending them, association board member Dr. Cecil Wilson said in a statement.

The findings were published in the New England Journal of Medicine this month.

The study found 3 percent of claims analyzed were filed by patients who had no injury. Of the claims that involved injuries, two-thirds were caused by medical error. But the remaining injury claims, or 37 percent, lacked evidence of a medical mistake, and most of those -- 72 percent -- were thrown out or otherwise resolved without a payout to the patient.

Altogether, the Harvard researchers reviewed 1,452 malpractice claims randomly selected from five insurance companies. The cases were resolved -- meaning they ended in a verdict, a settlement or a dismissal -- between 1984 and 2004. The claims resulted in a combined $449 million in verdicts and settlements.

The researchers examined medical records, depositions and court transcripts to determine if the patients were injured and whether the injury was due to a medical error.

The study also confirmed that defending a claim is expensive and long, taking an average of five years to resolve. It also found that for every dollar awarded to patients, about half went to cover lawyers' fees and other expenses.

The report also found that an overwhelming number of malpractice claims (97 percent) involved a severe disability or death. Seventy-three percent of all of the injury claims that were due to medical error were settled with a payment.

Additionally, in about a quarter of cases where a groundless claim was settled, the average payout was lower than that given to a legitimate claim ($313,000 versus $521,000).

Insurers should not underestimate next influenza pandemic's severity, risk experts say

Risk experts are warning insurance companies that they may be underestimating their risk if they assume that a new influenza pandemic would be no worse than the 1918 influenza pandemic.

While some published studies have already illustrated the effects of various pandemic scenarios, most commonly a repeat of the 1918 influenza pandemic that had a mortality level of 0.67 percent in the U.S. and even more severe effects in other countries, RMS says its analysis of the virology and epidemiological science shows that more severe pandemics are possible. There is a one in five chance of a pandemic that is more severe than that experienced in 1918.

H5N1, the virus that recently caused avian flu in Asia, has viral characteristics that will increase the likelihood of a virulent pandemic if it provides genetic material for human-to-human influenza transmission, according to RMS. (See related article on N12.)

The RMS probabilistic model assesses the risk of influenza pandemics across multiple countries. The RMS Influenza Pandemic Risk Model is intended to help insurers assess the losses they will experience from pandemics with all of the different permutations of potential characteristics and outcomes. It incorporates over 1,800 pandemic influenza scenarios that take into account such factors as likelihood of the pandemic occurring, infectiousness and lethality of the pandemic, demographic impact, country of outbreak, vaccine production, and national countermeasures.

RMS believes that many companies may be underestimating their risk if they assume that the 1918 pandemic is the worst-case scenario.

"Pandemic influenza could potentially deal insurers a triple whammy, simultaneously causing unprecedented life and health claims losses, investment portfolio downturns at a time when insurers most need liquidity, and reduced staff and management productivity through the spreading of sickness among company personnel," stated Dr. Andrew Coburn, RMS project lead on influenza pandemic risk modeling.

"Moreover, influenza pandemics can last two to three years, making it essential for insurers to put in place a multi-year risk management strategy that considers the reinsurance crunch that will likely occur in the event of a pandemic"

Life and health insurance portfolios are very different than property portfolios. The RMS model enables insurers to incorporate detailed analysis of their own specific portfolio, allowing the characteristics of individual company's policyholders to play an important role in the risk assessment process.

Another potential application of the model involves securitizations of influenza pandemic risk for companies looking to find capacity in the capital markets.

The model will be presented at an RMS Seminar on the Management of Influenza Pandemic Risk being held June 1, 2006 in New York City. The seminar will feature a guest presentation, "Understanding the Threat of Pandemic Influenza," by Professor Marc Lipsitch of the Department of Epidemiology, Harvard School of Public Health. Advanced registration and approval by RMS required. For more information: www.rms.com.

Despite catastrophe losses, soft pricing continues in commercial insurance market, buyers report

Although property and general liability insurance rates increased in the first quarter of 2006, all indications point to a continuing soft commercial insurance market, according to the Risk and Insurance Management Society Bench-mark Survey. The survey, conducted by Advisen Ltd., analyzes current policy renewal prices as reported by corporate risk managers.

In keeping with the soft market conditions evidenced in the past six quarters, directors and officers premiums dropped 3.5 percent in the first quarter of 2006 and workers' compensation rates declined just more than 3 percent.

The property/casualty insurance industry overall turned a profit in 2005, according to survey officials, despite ever-dropping prices and a projected $58 billion in hurricane losses. That could suggest that competition among carriers is providing for a continuing soft market.

The effect of last fall's hurricane season was still evident in property premium renewals as 70 percent of survey respondents reported higher premiums. Average rates rose by nearly 7 percent in the first quarter of this year, although Advisen analysts suggested the market buoyancy was due more to underwriter support than to underlying market conditions. Property premiums increased in the fourth quarter of 2005 after having steadily declined since the third quarter of 2003.

General liability rates experienced an upward swing of 5.1 percent; previous quarter survey data showed steadily falling premiums since the fourth quarter of 2003. Advisen analysts believe that general liability premiums may have been temporarily pulled higher by the spike in property premium levels, but will return to the pervasive softening trend by next quarter.

U.S. insurers withstood record catastrophe losses in 2005

Strong capitalization, sound risk management and efficient global risk sharing enabled the U.S. property/casualty insurance industry to withstand record-setting catastrophe losses in 2005, according to Frank J. Coyne, chairman, president and CEO of ISO.

Coyne also cautioned the industry to keep its eye on emerging risks.

At $57.7 billion, "last year's catastrophe losses dwarf even those from 9/11 and Hurricanes Andrew and Iniki in 1992," Coyne said, at the recent 80th annual meeting of the American Association of Managing General Agents convention in Ka'anapali Beach, Hawaii.

"That insurers have been able to cover those losses is a testament to their strong capitalization prior to last year's storms and their risk management," he said.

The industry's ability to withstand the record losses driven by hurricanes Katrina, Wilma, Rita and others "is also a testament to the efficiency and scale of global risk-sharing mechanisms," Coyne said.

Although catastrophe losses totaled nearly $58 billion, ISO estimates U.S. insurers will be responsible for just $31 billion to $36 billion on a net basis after reinsurance recoveries, according to Coyne.

Rates continue to fall
ISO's chairman reminded more than 300 wholesale property/casualty managing general agents and other insurance professionals that rates on commercial renewals have been dropping, according to ISO MarketWatch and the Council of Insurance Agents and Brokers, with rates declining an average of almost 3 percent for all commercial accounts in the first quarter of 2006.

The only exception, Coyne said, was in commercial property coverage, which rose about 2 percent as a result of increases in catastrophe-prone areas. Coyne cited extraordinary catastrophe losses as the driver for the upswing in commercial property rates.

"Excluding amounts covered by residual market mechanisms, the hurricanes of 2005 caused $25 billion of insured losses on residential and commercial properties in Louisiana alone," Coyne said. "That's $3 billion more than all the premiums insurers charged for property insurance in the state during the 23 years from 1982 to 2004."

Moreover, reinsurance rates are now rising substantially for U.S. risks in catastrophe-prone areas, increasing primary insurers' costs, he added.

"Despite headlines about rate rises in areas devastated by last year's catastrophes, the Consumer Price Index for tenants' and household insurance dropped 2.2 percent in the first quarter of 2006. In sum, insurance markets are softening -- not hardening as the pundits predicted. ... Insurers' rate of return was virtually flat in 2006. That set the state for further market softening. ... Low investment yields have lowered insurers' ability to use investments to offset underwriting losses," he added.

Insurers may flee some markets
Coyne also noted that competition and technology may push out some market players.

"Intensifying competition has taken its toll on underwriting results," he said. "Technology has advanced insurers' ability to hone in on the right price to risk. ... There are powerful models that don't use credit. [The industry can now] operate with scalpels instead of meat cleavers."

As technology improves, Coyne said the "chasm is growing between state-of-the-art technology haves and have nots. The have nots will fall victim to adverse selection, and the haves will prosper," he said.

In his remarks on the state of the property/casualty industry, Coyne cited analyses by ISO's catastrophe modeling subsidiary AIR Worldwide to show how the industry's growing exposure accounts for increasing catastrophe loses. The AIR models adjust for increases in the costs of construction and the number of residential and commercial buildings, plus changes in their characteristics.

"AIR's analysis, indicates catastrophe losses double about every 10 years, just because of exposure growth. AIR modeling indicates Hurricane Katrina was just a one-in-30 year event and catastrophes causing $100 billion or more in insured losses are easy to imagine," he said.

Increased risk along the coastline
Even if weather-related events don't get worse, Coyne said there is potentially more exposure, particularly in coastal areas. Today, there are more homes in risky areas, and those homes are larger and have more amenities than their predecessors, he said. Replacement values, both in residential and commercial property, also are higher because of construction costs. Construction costs have increased 40 percent in the past 10 years, he said.

Furthermore, the insured value in the population on the coast has increased. Coyne noted Florida and Texas are the two states most frequently struck by hurricanes, and the populations also are growing the fastest in those states.

In the near term, ISO expects the industry's strong capacity, with surplus having risen to $427 billion at year-end 2005, to fuel further rate cuts in 2006, Coyne said. He projected industry premium growth for 2006 would be less than 1 percent.

"But despite weak premium growth, we expect insurers' underwriting results to improve as catastrophe losses recede from 2005's record level," he said.

Coyne challenged the managing general agents and the industry at large to "do well by doing good -- seeking opportunities to profit by helping society meet its changing insurance needs."

Highlights of the TMPAA Best Practice Administrator Process:

There are 6 steps:

1 -- Application/Survey

2 -- Confidentiality/Evaluation Waiver

3 -- On-site Evaluation/Consultation

4 -- Evaluation/Consultation Recommendation

5 -- Best Practice Committee Review

6 -- TMPAA Designation

Only the program business functions of agencies are to be evaluated for this designation. The process begins with the completion of the Best Practice Survey. Members who choose to pursue the designation must sign a confidentiality/evaluation waiver, which protects the member applicant and the evaluating entity. All evaluations will be conducted in confidence and no evaluation information will be released without the consent of the member applicant.

The on-site evaluations/consultations are expected to require no more than seven and a half hours. An evaluation checklist is provided beforehand.

Following the on-site evaluation, the evaluating entity reports its findings. If a Best Practice Designation is not being recommended, the evaluation entity will provide specific reasons for the decisions, as well as solutions to remedy the function or process that does not currently meet the standard.

If the evaluating entity recommends the TMPAA Designation, the evaluation summary will be provided to the Best Practice Committee for approval. Once approval is granted, the member agency will be provided with the TMPAA Best Practice logo seal, for inclusion on their agency Web site.

The TMPAA Best Practice Designation remains in effect for two years, with a re-certification paper review after the first completed year.

The certification process will need to be repeated after a period of two years.

The TMPAA Best Practice Designation fee to cover the costs of the evaluation process is $2,000 plus travel.

For more information on the TMPAABest Practice Designation process, visit: www.targetmkts.com.

Auto insurance costs hold steady; industry cites safety, less accidents as the cause

The cost of auto insurance is expected to rise by just 0.5 percent in 2006, the smallest increase in six years, reports the Insurance Information Institute.

A declining number of auto accidents, safer cars and fraud-fighting efforts are some forces contributing to the cost slowdown. However, rising medical care and vehicle repairs continue to put upward pressure on rates, along with hurricane-related claims, the industry group noted.

The average cost for auto insurance nationwide for 2006 is estimated at $867 -- an increase of just $4 per vehicle from last year, according to the I.I.I., despite record vehicle-related losses arising from the 2005 hurricane season. The projected increase represents a continued slowdown from 2005 when auto insurance costs rose by 2.5 percent.

"The cost of auto insurance is increasing by about one-sixth the rate of inflation and little more than a single gallon of gasoline," said Robert Hartwig, senior vice president and chief economist of the I.I.I.

Hartwig cited the declining number of auto accidents, safer cars, new auto theft technology, fraud-fighting efforts and graduated licensing laws for teen drivers as additional key factors contributing to the cost slowdown.

However, he observed that rising costs for medical care and vehicle repairs as well as defense costs and jury awards remain a problem, according to I.I.I.'s analysis.

Restrictions on the use of credit-based insurance scores in several states are also a cost threat to millions of drivers, the I.I.I. said.

Katrina and the auto market
Record catastrophe losses associated with Hurricanes Katrina, Rita, Wilma, Dennis and Ophelia (the five storms that hit the Southeast in 2005) and predictions by leading meteorologists of more of the same for the next 15 to 20 years are putting pressure on the cost of auto insurance in some parts of the country.

Insurers received nearly 674,000 claims for vehicles that were damaged or destroyed by last year's storms. Those claims occurred across a wide swath of southern states and cost insurers some $3.2 billion, said Hartwig.

Florida, Louisiana and Missis-sippi saw the most claims, but large numbers of claims were also filed in Texas, Alabama, Georgia and North Carolina. Even the landlocked states of Arkansas and Tennessee reported significant numbers of claims despite being located hundreds of miles from where the storms made landfall.

Claim severity rises
"Unfortunately, while drivers today are filing fewer claims, those that are filed cost more," Hartwig said. "It costs more to repair cars, particularly following accidents involving sport utility vehicles."

This year insurers will pay between $15 billion and $20 billion in medical claims, the I.I.I. reported. Higher costs for hospitalization and pharmaceuticals, and state regulations that encourage abuse of medical treatments and associated legal costs are also to blame.

"Collectively, these high costs in some states more than offset the decline in accident frequency, pushing overall rates upward," Hartwig observed.

Cost drivers
Medical costs are an important factor in the auto insurance market. More than one in four auto accidents resulted in injury claims in 2003, according to the Insurance Research Council.

Higher jury awards in vehicular liability cases and auto theft are also significant factors that continue to put additional upward pressure on auto insurance rates.

"About 60 percent of auto premiums paid in 2005 -- almost $60 billion -- was for liability coverage," said Hartwig. As we look at 2006 and into 2007, we see this trend continuing."

And according to the FBI, an automobile is stolen every 26 seconds in the United States.