Currents

Colorado State University predicts fewer hurricanes in 2006

Forecasters at Colorado State University have lowered their hurricane predictions for the year, based on below-average activity in August, as well as the ocean-weather patterns they track.

"We expect slightly above-average activity in September and that October will likely have below-average activity. We now predict that total seasonal activity will be slightly below the long-term average," reported William Gray and Phil Klotzbach, the authors of the forecast.

The team still expects three hurricanes, two of them major, to form in the Atlantic basin in September. In October, the researchers said they expect two named storms, one hurricane, but zero major hurricanes. They have reduced the overall number of days they expect tropical storms and hurricanes to be active during September and October.

"Information obtained through 31 August 2006 shows that we have so far experienced only 18 percent of the average full season Net Tropical Cyclone (NTC) activity," they said. "We significantly over-estimated August activity. In an average year, 33 percent of the seasonal average NTC of 100 occurs before the end of August."

The researchers said the reduced hurricane forecast "is due to an unexpected increase in tropical Atlantic mid-level dryness (with large amounts of African dust) and a continued trend towards El Niño-like conditions in the eastern and central Pacific."

The latest forecast, as well as past forecasts and verifications, are available via http://hurricane.atmos.colostate.edu/Forecasts.

It Figures

2012
The model year automobiles will be required to have anti-rollover technology. The National Highway Traffic Safety Administration believes the new requirement will save thousands of lives annually.

14%
Increase in the injury rate from 2004 to 2003 among children ages 16 and younger from riding all-terrain vehicles, according to researchers who presented a study on ATV accidents at the 110th Annual Meeting & OTO EXPO of the American Academy of Otolaryngology -- Head and Neck Surgery Foundation. The study suggests that prohibiting ATV passengers and implementing helmet use may prevent the severity of head- and neck-related injuries in children who are victims of ATV accidents. In 2004, there were 136,100 total injuries with 44,700 of those in children less than 16 years of age.

200
Number of claims Allstate offices in Las Cruces, N.M., have received due to hail damage to homes and vehicles. Powerful storms dumped large hail and heavy rain in the southern part of the state in September. Hail was golf ball-sized, and rain measured 2.07 inches in Las Cruces and 0.60 inches in Mesilla. Allstate estimated it will receive between 250 and 300 homeowner claims.
Source: Associated Press

$60,484,656
Savings projected will be realized throughout California based on 21st Century's rate decrease filing. 21st Century is the state's fifth largest auto insurer, with more than 740,000 policy holders, and is seeking a 12 percent reduction for drivers in Los Angeles, according to the California Department of Insurance. Safeco, the eighth largest homeowners insurer in the state, is seeking to reduce rates for its policyholders statewide by 20 percent on average. That should amount to savings of nearly $36 million, the company predicted.

Judge: Landowners cannot sue Forest Service over lost homes

Bitterroot Valley, Mont., residents who alleged their homes were destroyed when firefighters lit a backburn to slow encroaching flames cannot sue the U.S. Forest Service over their losses, a federal judge ruled.

U.S. District Judge Donald Molloy said the agency and its employees are immune from such lawsuits because they were acting under a "discretionary function" exception of federal law when they set the burn.

"Whether the government employees' actions were wise, foolish or negligent is irrelevant in considering whether the exception applies," Molloy wrote in his ruling dated Aug. 31.

The case stemmed from the massive wildfires that burned hundreds of thousands of acres in the Bitterroot Valley south of Missoula, Mont., in 2000, during one of the worst recorded fire seasons in history.

In a lawsuit filed in 2003, more than 100 residents sued the Forest Service, alleging the damage and destruction to their homes was a direct result of the backburn set by fire crews.

The homeowners and their insurance companies alleged the firefighters violated their own policies when they lit the Aug. 6 backburn, and should have known there was a strong chance it would endanger lives and property in the area.

They claimed the backburn was not authorized, "highly imprudent" and set without warning area residents.

At least 10 homes were destroyed by the fire. In all, the 2000 fires in Bitterroot Valley destroyed 64 homes and burned about 300,000 acres. The plaintiffs sought $54 million in damages.

Crews set the backburn as a major wildfire burnt an area along Gilbert Creek. Residents in the area are said to have been alerted to potential danger, but a dozen or so remained at their homes. Flames engulfed the entire valley by late afternoon.

Attorneys for the homeowners could not immediately be located for comment.

A spokeswoman for the Bitterroot National Forest did not immediately return a telephone call seeking comment.

Declarations

Easy attack
"For the life of me, I cannot understand why the terrorists have not attacked our food supply, because it is so easy to do."

--Dr. Jerry R. Gillespie, director of the Western Institute for Food Safety and Security, quoting Tommy Thompson, former secretary of the U.S. Department of Health and Human Services.

No suit
"Whether the government employees' actions were wise, foolish or negligent is irrelevant ..."

--U.S. District Judge Donald Molloy said, ruling that residents who allege their homes were destroyed by a backburn that got away from firefighters cannot sue the U.S. Forest Service over their losses.

Sad goodbye
"Gary has served the people of Washington well and I am grateful to him for all his work to help Washington businesses become more competitive in this global economy."

--Gov. Chris Gregoire, commenting on the resignation of Washington State Department of Labor & Industries Director Gary Weeks. Weeks announced he will be leaving the state agency that oversees Washington's workers' compensation system, and workers safety and health on October 13 to become the executive director of the Washington Health Care Association. Weeks is credited with helping small business, including creating a Small Business Liaison, for aggressively pursuing fraud, and for promoting a healthy balance between voluntary workplace-safety efforts and enforcement.

New wage
"Raising the minimum wage is something I have wanted to do for a long time and I am happy that this year, we have the right bill and the powerhouse economy we need to get this done."

-- California Gov. Arnold Schwarzenegger, commenting on his signing of Assembly Bill 1835, which will raise the minimum wage to $8 per hour by Jan. 1, 2008. When the minimum wage rate goes into effect, it will be greater that the minimum wage rates in any other state.

Produce recall
"It is possible that the recall and the information will extend beyond Natural Selection Foods and involve other brands and other companies, at other dates."

-- Dr. David Acheson, chief medical officer with the Food and Drug Administration's Center for Food Safety and Applied Nutrition, commenting on the voluntary recall by Natural Selection Foods of product containing its spinach. The San Juan Bautista, Calif.-based company's spinach is believed to be the source of an E. coli outbreak that has killed one person and sickened nearly 100 others in 19 states. As of September 18, 29 people had ben hospitalized, 14 with kidney failure.

Hawaii, Washington, Wyoming bringing down workers' comp rates

Hawaii, Washington and Wyoming proposed lowering workers' compensation rates in their states from 2 percent to 12.3 percent.

The Hawaii Department of Commerce and Consumer Affairs' Insurance Division announced that the National Council on Compensation Insurance (NCCI) filed a request for a decrease of 12.3 percent in the workers' compensation loss costs. The filing would affect premiums beginning Jan. 1, 2007.

Hawaii Insurance Commissioner J.P. Schmidt attributed the rate decrease to a continuing reduction in the number of claims filed in 2004 (the last year complete data is available, which helps to determine trends for 2007). Last year, the commissioner approved a decrease of 18.2 percent in loss costs as evidence began showing a significant reduction in claims.

"Claim frequency is down due to the great efforts by Hawaii's employers in providing a safer work place for workers," Schmidt said. "We have made a concerted effort to encourage employers to implement work place safety programs and thereby qualify for insurer's discounts."

Additionally, the Department of Labor and Industrial Relations, Hawaii Occupational Safety and Health (HIOSH) Division made great strides toward partnering with Hawaii's employers and labor organizations in enforcing the state's workplace safety and health laws, the Division said. That collaborative effort led to exemplary safety and health programs that directly resulted in less workers' compensation claims being filed.

Medical and indemnity costs also showed a slight decrease. The Division indicated that decrease should bring some additional relief in 2007 to Hawaii's businesses that have had to pay some of the highest workers' comp premiums in the nation. According to a 2003 Oregon national study, the only states with higher rates than Hawaii were California and Florida, both of which recently enacted significant workers' comp reforms.

In Washington, the Department of Labor and Industries proposed lowering workers' compensation rates next year by an average of 2 percent, the first general rate reduction in six years. It is expected to save employers about $31 million in premiums. A final decision on rates will be made in late November following four public hearings.

Gov. Chris Gregoire said the lower rates are an indication that the state's economy is strong.

L&I Director Gary Weeks, agreed, crediting the proposed rate reduction on a strong economy, good return on investments and L&I's ability to control its health care costs. He said the rate proposal is in keeping with his and the governor's goal of making minor annual adjustments in the rates to avoid the kind of big rate increases that occurred in 2003 and 2004.

Weeks said his rate proposal would have a minimal impact on the State Fund's large, $1.7 billion contingency reserve -- the difference between assets and anticipated liabilities over the next 40 to 60 years.

L&I's proposal for a 2 percent rate reduction includes:

Lowering the average Accident Fund rate by 5 percent. Employers contribute premiums to the fund, which pays partial wage-replacement, disability and pension benefits to workers injured so severely they miss work.

Leaving the average Medical Aid Fund rate the same as it is this year. Employers and workers contribute equally to this fund, which provides health care, as well as vocational-rehabilitation counseling, to injured workers.

Increasing the Supplemental Pension Fund rate by 7 percent. This fund pays cost-of-living increases for injured workers receiving long-term wage-replacement benefits. Employers and workers contribute equally to it.

The proposed 2007 workers' compensation rate is estimated to bring in $1.62 billion in premiums -- about $31 million less than this year's rates are expected to produce.

Meanwhile, Weeks announced he will be leaving L&I, effective Oct. 13.

In Wyoming, the Department of Employment proposed a workers' comp rate decrease of 5 percent across the state. Some industry classes with better-than-average loss experiences could see rates drop as much as 10 percent, while no industry classes would see an increase under the state proposal.

Gov. Dave Freudenthal said the decrease is good news and further establishes Wyoming's business-friendly climate.

"I'm pleased that safety played a role in the decreasing rates, as the health and well-being of the Wyoming work force is a tremendously important factor in keeping Wyoming families strong," Freudenthal said.

Cindy Pomeroy, director of the employment department, said losses across the state are showing signs of tempering. Pomeroy also said that with more people working in Wyoming, there's more money coming into the workers' compensation fund.

"A renewed commitment by the employers and employees of Wyoming to work safely also has contributed to the decrease in workers' compensation rates," Pomeroy said.

The Associated Press contributed to this article.

California State Compensation Insurance Fund appoints Tudor president

The California State Compensation Insurance Fund's Board of Directors appointed James C. Tudor as the organization's president. Tudor's appointment caps an extensive four month national search for a permanent State Fund CEO.

Jeanne Cain, chair of the State Fund Board of Directors, said, "The executive search firm, IR Group, provided the Board of Directors with a field of highly qualified candidates. During the final interview process, the Board of Directors unanimously voted to appoint Mr. Tudor. Jim has the vision that this Board believes is critical to lead State Fund through current and future market challenges."

Tudor's insurance career spans 35 years with State Fund. He has been the organization's acting president for the past 18 months.

The Board's selected search firm IR Group, which specializes in strategic planning and executive recruitment in the financial and insurance sectors, stated, "Jim has demonstrated management ability, the experience of running a large operation, knows the California workers' compensation market, and has the expertise in virtually all major areas of the State Fund. He has been through the ups and downs with the State Fund and now serves as the current acting president. He has the ability to cope and manage the largest State Fund in the country and can make the hard decisions when needed."

Tudor said he "looks forward to the opportunity to lead State Fund as it continues to provide accessible and affordable workers' compensation coverage to California employers and fair and equitable treatment of their employees."

State Fund has approximately 232,000 policyholders ranging from small businesses to large group associations. Created by the California Legislature in 1914, State Fund is a nonprofit, self-supporting, fairly competitive public enterprise that guarantees a permanent workers' compensation insurance marketplace at cost for California employers.

Oregon voters to decide on credit scoring for insurance

Insurance companies can use a person's gender and age to determine what they pay for insurance. Oregon voters will decide in November if insurers should be able to use a person's financial history too.

In 2003, the Oregon Legislature prohibited insurance companies from using the credit information of existing policyholders to decide whether to raise rates or drop a policy. Ballot Measure 42 would take the restrictions further.

If passed, it would ban insurance companies from using the credit history of new customers to set rates or premiums.

Insurance companies have long used a person's credit history in their underwriting process. Companies found that a person's credit history is a good predictor of insurance claims. Although it cannot be done in every state, about 90 percent of the market uses credit scoring, according to the Insurance Information Institute.

The practice has come under fire in recent years.

Critics of credit scoring say it targets lower-income people and minorities who tend to have poorer credit history. And many critics say it is done without a clear understanding of the customers affected. At least 18 states have considered clamping down on the practice in 2006.

"I heard this was going on ... and I couldn't believe it at first because it seemed so illogical," said Bill Sizemore, an anti-tax activist and prolific filer of ballot measures, who launched Measure 42. "It's a way to gouge the people least likely to fight back."

He said current Oregon law discourages competition. Consumers may be protected from credit scoring at their current company, but would be subject to it at a new one. Additionally, he said credit information can be inaccurate, making it a weak tool.

Insurance companies and some business groups are vehemently opposing Measure 42, saying the new regulations will raise rates for most people.

"It has many unintended consequences," said Pat McCormick, spokesman for Oregonians Against Insurance Rate Increases, the group fighting the measure. "There are about 60 percent of Oregonians whose rates are going to go up. Those with good credit histories are going to subsidize those with bad credit histories."

Additionally, the companies say credit scoring is done without information about income, race or where a customer lives -- not making it possible to target certain minority groups.

The anti-42 group plans to launch television ads to get their word out. Sizemore said there are no television ads planned for the campaign yet, but some may be launched with the support of various outside groups.

If approved, the measure would take effect 30 days after it is approved by the state.

Other states will be watching the outcome of the election because if it passes, it would affect both personal and commercial lines, according to Nicole Mahrt, a representative with the American Insurance Association in Sacramento. Furthermore, if Measure 42 passes, it could be replicated in other areas of the country, she said.

Buyer found for Hawaiian Insurance & Guaranty Ltd.

Hawaii Insurance Commissioner J.P. Schmidt, as liquidator of The Hawaiian Insurance & Guaranty Co. Ltd., announced that an agreement has been reached with a buyer for HIG.

At press time, the commissioner's office said the name of the buyer was confidential. However, Great Northwest Insurance Co. is rumored to be the buyer. The St. Paul, Minn.-based company has an article by the Honolulu Advertiser on its Web site about HIG's pending sale.

According to the Commissioner's office, HIG will assume all of the company's current policies to provide continuous coverage to HIG policyholders.

"We were in negotiations until 1 a.m. this morning, and the agreement was finally agreed upon and signed this afternoon," Schmidt said on September 13.

The First Circuit Court held status conferences on the progress of HIG's liquidation in early September. The mainland-based officers of HIG, Vesta Insurance Group, the holding company of HIG, and J. Gordon Gaines, a VIG-affiliated management company, have filed a motion to intervene as a party in the liquidation action.

"VIG's intervention in the case essentially killed an agreement I was negotiating with a different company," Schmidt said. "I have not seen any basis for the intervention or objections, but we will have to proceed through the court process."

California associations, businesses oppose punitive damages bill

The American Insurance Association (AIA), Civil Justice Association of California (CJAC), California Chamber of Commerce (CCC) and Association of California Insurance Companies (ACIC) have joined forces to oppose Senate Bill 832, which would mandate 75 percent of punitive damages awards be directed to the State of California.

The bill, authored by Senator Don Perata, D-East Bay, was waiting Gov. Arnold Schwarzenegger's signature at press time.

According to the Civil Justice Association of California, existing law provides that in an action for the breach of an obligation not arising from contract, where there is proven evidence that the defendant has been guilty of oppression, fraud or malice, the plaintiff, in addition to the actual damages, may recover damages to set an example and punish the defendant. SB 832 would apportion punitive damages to actions filed after Aug. 16, 2004, that result from a final judgment or settlement that is rendered on or before June 30, 2011, and includes punitive damages. According to the formula, 25 percent of punitive damages would be paid to the plaintiff, and 75 percent of the award would be paid to the director of the Department of Finance for deposit into the Public Benefit Trust Fund. Of the amounts deposited into the fund, 25 percent would be continuously appropriated to pay the plaintiff's attorney, and the remainder would be available for annual appropriation in the Budget Act, to be used for purposes consistent with the nature of the award.

Sen. Perata's Press Secretary, Alicia Trost said, "The purpose of punitive damage awards is to punish a wrongdoer and discourage future unfair and illegal behavior. And since plaintiffs are already compensated, it's appropriate to use punitive damages for public benefit. This bill just extends the sunset of an existing statute that is a couple years' old and hasn't had enough time to work. That is why we did the bill."

The legislation says the jury cannot be advised that the state will get a large amount of the award money, although opposing groups fear that information would be widely known by the public and seen as an opportunity to fund the state.

"I think the business community generally has a problem with this concept because we are afraid the word will get out," said Jeffery Fuller, executive vice president and general counsel for ACIC. "If you have a jury of 12 people, one of them is going to know that most of the punitive damages awards will go to the state of California. It will essentially become a funding source for state government, and it was never intended for that purpose."

ACIC and the other opposition groups believe the bill would increase the frequency and severity of punitive damages awards, thereby creating a negative business environment in California.

In a letter to Governor Schwarzenegger requesting a veto on the bill, CJAC President John H. Sullivan stated, "SB 832 is almost certain to increase the size and frequency of punitive damage claims and will worsen California's already deplorable reputation for fairness in the area of punitive damages."

He based CJAC's opposition on four key defects:

The bill was a last minute "gut-and-amend" that did not receive the benefit of full procedural input and vetting in the legislature;

The bill is retroactive and applies to pending cases;

The bill creates conflicts of interest with the plaintiffs' bar and their clients by unjustifiably and unnecessarily enriching lawyers, and puts the state in an inappropriate position; and

The bill is likely to increase the size and frequency of punitive damage claims, which will harm California's economy.

Nicole Mahrt, public affairs director for the western region of the American Insurance Association, said, "All [SB 832] is going to do is get the plaintiff attorney a percentage of a bigger pot of money and increase costs for businesses."

ACIC's letter to the Assembly stated the bill's concept makes no public policy sense from a fiscal or legal perspective.

It claimed, "As fiscal policy, the bill would burden certain defendants in civil actions with a new obligation to fund the operations of state government. As a revenue source, punitive damage awards would be both unpredictable and unreliable, thereby rendering rational fiscal planning illusory. The bill's limitation on use of the punitive damage awards is meaningless. The restriction is so broad that practically any governmental function could be funded from this source. From a legal perspective, the bill would encourage exorbitant punitive damage awards."

According to ACIC, in a typical lawsuit, a punitive damage award of $100,000 would be split as follows: State receives $56,250; plaintiff's lawyer receives $27,000; and injured party receives $16,750.

Farmers vows to appeal California court ruling

Farmers Insurance Exchange will appeal a decision by a San Diego Superior Court regarding premium payment plans offered to its customers in California and Nevada.

In September, San Diego County Superior Court Judge Jay M. Bloom ruled that Farmers Group Inc. illegally charged service fees to customers who paid by monthly installment. The fee was more than premiums specified in the policies approved by the California Department of Insurance, the court said. Farmers was ordered to pay $115 million to California and Nevada consumers who paid an additional $60 to $95 on their policies because of the installment plan.

Jeff Beyer, senior vice president and chief communications officer, said, "This legal ruling erroneously interprets fees for our billing options as insurance premium payments, which they are not. There was no dispute over the fees charged -- the ruling said we had the right information on the wrong piece of paper. We cannot agree with this decision."

Farmers was named a class action defendant in 2004 as part of a wave of lawsuits nationwide challenging insurance company premium payment options, disclosures and service fees for both life and property and casualty insurers. Other insurance companies are receiving judgments for the same type of lawsuit, according to the company.

The lawsuit did not dispute a fee could be charged for the billing options, nor did it dispute the amount to charge. The only dispute was the location of where the fee is shown, according to Farmers. In the 44 years monthly payment billing options have been offered to Farmers customers in California and Nevada, the company has not shown the billing service fee on the policy declarations page because it is not considered part of the premium.

"We dispute every aspect of today's ruling," Beyer said. "We will aggressively challenge this erroneous legal decision."

Owners often overlook need for business interruption coverage

Although most small business owners know they need property and casualty insurance for their premises, many don't realize they need specialized insurance coverage to limit their losses from a disaster.

Perhaps the biggest omission owners make when buying a commercial policy is business interruption insurance, according to Loretta Worters, vice president for communications of the Insurance Information Institute, a New York-based trade group. "They fail to think about what would happen if their business couldn't open again," she said.

Worters noted that business interruption insurance should be part of a company's business plan, and the blueprint needed for any kind of loan or financing. Even the many owners who fund their companies themselves should buy this type of insurance -- or they could see their hard work and dreams become a casualty of a fire, flood, earthquake or storm, she added.

Business interruption insurance covers profits that are lost and expenses that continue to be incurred when a company is forced to shut down by a disaster, or even by an event such as an extended power outage. Policies typically have a 48-hour waiting period before coverage starts, but, depending on how much coverage a business buys, interruptions up to 360 days can be covered.

Among the expenses that business interruption insurance covers are salaries, rent and electricity -- costs that businesses still need to pay although they may not be able to operate.

How much business interruption insurance a company should buy is, of course, an individual decision, Worters said, but it should be considered along with a disaster recovery plan. If businesses are certain they could quickly relocate operations to another site and keep working, they might not want to buy the maximum amount available. However, disasters like the Sept. 11, 2001, terror attacks and Hurricane Katrina have shown that the unthinkable can happen -- companies can be uprooted and put out of commission for months. Without business interruption insurance, many have failed, she said.

"The biggest hazard of all is being shut down," said Carol Chastang, a spokeswoman for the Small Business Administration. "Business interruption insurance is absolutely vital."

A type of coverage related to business interruption insurance and also often overlooked is extra expense insurance, which reimburses a business for costs related to having to shut operations down, including expenses such as moving costs, new equipment and supplies.

Companies also can buy contingent business insurance to prote themselves from the fallout from a disaster that befalls a critical supplier -- for example, a company that custom manufactures a part that the business depends on to produce its own goods.

"If it [a disaster] shuts down a business and it affects business, it helps to defray the costs," Worters said.

Damage from flooding is not covered by a typical commercial package; it must be purchased separately. The same goes for earthquake insurance.

There are even more specialized kinds of disaster insurance that companies should consider, including "boiler and machinery" insurance, which covers damage to premises caused by a sudden and accidental equipment breakdown.

Companies in specific industries should consider purchasing policies tailored to their line of work. For example, food purveyors should have food spoilage insurance to cover their losses from a power failure, she added.

Sorry, Catbert! Study shows cutting employee incentives hurts

Contrary to the nefarious plots of Catbert, the "evil director of human resources" character depicted in the popular Dilbert comic strip, a study of nearly 20,000 organizations shows that employee incentives really are good for business.

Data from 19,319 organizations reveal that when a company emphasizes human resource activities such as incentive pay and flextime, it can enjoy a 10 percent to 20 percent improvement in employee retention, employee productivity, profitability, and stock price, according to an upcoming study in Personnel Psychology. Meanwhile, companies that cut these programs can expect a 10 to 20 percent reduction in their bottom line.

"Over the last 25 years, corporate America has debated whether the human resources function adds value or if it is just a necessary evil," noted Dave Ketchen, study co-author and Lowder Eminent Scholar at Auburn University. "Our results show that negative images of human resource managers miss the mark. Skilled HR managers can make the difference between a company making a profit or losing money."

The study found that performance improvements are stronger when companies take a systematic approach to human resources rather than implementing one or two practices.

"A firm can't view training or team-building as a magic bullet that will deliver profits," said Ketchen. "Executives need to adopt a strategic view of the human resource function and create sets of practices that reinforce each other."

The study also found that human resource activities make a bigger difference among manufacturing firms than among service firms. "Manufacturing jobs often involve complex and dangerous machinery," said Ketchen. "In high performing companies, the services that the human resource function provides, such as safety and training, support other programs such as quality management and lean manufacturing systems to make sure that workers are safe, motivated, and productive."

The study combined the findings of 92 previous studies published since the mid-1980s. Co-authors with Ketchen on the project were James Combs, Yongmei Liu and Angela Hall, all of Florida State University.

Survey: young agents value rates, technology, products from insurers

The five most important things carriers can offer independent insurance agencies are: competitive rates; technology that helps them more easily write business and service customers; a variety of markets and products; competitive commissions and support provided by service personnel via phone.

That's what younger agents -- those 40 or younger, or those who have been in the industry less than 10 years -- think, according to a survey by Drive Group of Progressive Insurance Companies.

Nearly all young agents (94 percent) also say a carrier's commitment to building a brand on behalf of independent agents is important.

The insurer conducted a countrywide online survey of young independent insurance agents on everything from business growth opportunities and technology to the skills necessary to succeed and the challenges faced by the industry. More than 750 young independent agents responded.

Importance of technology
The survey clearly shows that technology is important to younger agents. The majority of young independent agents (79 percent) say technology has been significant in helping them grow their business.

The top technologies young independent insurance agents use to manage/grow their business are carrier Web sites; agency management systems; downloads from carriers; real-time interfaces with carriers; comparative raters and, sixth, the Internet for prospecting, selling or informational purposes.

Only 11 percent of young independent insurance agents have an interactive Web site where people can quote, buy and contact them. Thirty-four percent have a static Web site and 40 percent don't have a Web site at all.

Skills for success
The respondents reported that the top five skills needed to become a successful independent insurance agent are: product and risk management knowledge; sales skills and people management skills (tie); initiative; being a self starter; business management skill and, fifth, empathy for customers.

The top five most significant challenges faced by independent agents are: attracting new customers; increasing competition from companies selling direct; finding and retaining good people; having the variety of markets and products to meet customers' needs and retaining existing customers.

The three most important ways young agents say they attract new business are:

Personal lines. Referrals from existing customers; cross selling new coverages to existing customers; and traditional advertising/marketing.

Commercial lines. Referrals from existing customers; cross selling new coverages to existing customers; and referrals from other organizations and area professionals.

Ninety-three (93) percent of young agents surveyed are targeting personal lines as a growth area while 75 percent are targeting commercial lines.

A majority (67 percent) say they have a succession plan in place.

Cutting the fat in state regulation

Are we doing things we really should be doing from a regulatory standpoint to cut the cost of regulation? asked Property Casualty Insurers Association of America President and CEO Ernie Csiszar during the International Insurance Society's 42 Annual Seminar in Chicago in late July. "What factors would make a difference on the overall cost of state regulation?" he asked.

The panel, chaired by Csiszar, addressed the cost cutting issue as well as everything from harmonization and federal oversight to the European Union's Solvency II initiative. Panel members included Reinsurance Association of America President Frank Nutter; Dr. Bassel Hindawi, director general and vice chairman of the Board of the Insurance Commission of Jordan; Walter Bell, Alabama's insurance commissioner, and Alessandro Iuppa, Maine insurance superintendent and president of the National Association of Insurance Commissioners.

Cutting the fat
Reaction to the question about cost cutting efforts in the regulatory regime had panelists muttering that nailing down inefficiencies in the system would be a challenge.

Alabama's Bell responded, "There is a cost to regulation and the better the regulation probably the more it costs. The industry has become very complex as it has become more global in the last 25 years and that creates the need for good regulation. Regulators are dealing with complex security and financial issues in a global insurance world as they never did before. "

Panelists sparred over which areas of regulation were the ones that could actually be cut.

"For example, if we drop the regulation on collateralization in the U.S. of international companies is that going to create more capacity in U.S.?" Bell asked. "No one can answer that question. If we have just one federal regulator, will that reduce the cost of regulation? No one knows the answer to that question either."

One panelist responded that the money saved from having just one federal regulator would go back to profit lines, policyholders and shareholders of the companies.

Bell responded by saying, "that's okay, but how does the consumer benefit from less costs in the system of regulation?"

"I get 30,000 phone calls per year, and no consumer complains about being over regulated," Bell added. "How will consumers benefit if we reduce the cost of the regulatory system?" he asked.

Side-stepping the consumer angle, panelists agreed that some of the cost of regulation is the actual need for resources and the infrastructure necessary to respond to consumer complaints and in the rate review process.

"I suspect that most of the costs come from companies internally having to deal with multi-state compliance rules and the resources needed to do that," said RAA's Nutter. "However, having said that, the NAIC has done a great job of working toward finding efficiencies in the regulatory system. It seems to me that it's hard to make a case for the type of regulation needed in terms of the cost of the regulators and their offices being too high. I do agree that there may be areas of company compliance where better efficiency could have a real impact."

NAIC Interstate Compact
Bell countered by saying that on the life side of the industry a giant step had been taken with the implementation of the Interstate Compact.

"Twenty-seven states have joined the Compact and now those companies will have a single point of entry to send their products for approval. And when they receive approval, it will be an approval for all 27 states," Bell said. He added that over 40 percent of the market share is represented with the 27 states currently in the Compact.

"Creating the Compact has been one of the biggest improvements in achieving regulatory efficiency for the companies, consumers and regulators," Bell said.

Panelists did not address whether the same type of compact could or should be considered for the property casualty side of the industry where forms, in particular, are not as universal as life insurance forms.

A look abroad
Panelists also debated whether U.S. regulators should look at the European Union's regulatory system and whether the E.U. should consider having just one regulator, rather than one for each country, as is does now.

"We have raised the question with China and the European Union about the regulatory differences and conflicts," said NAIC's Iuppa, who chairs the Executive Committee of International Association Insurance Supervisors.

Iuppa added that the on-going dialogue with the international community has helped the lines of communication stay open, but that regulators can only advise and discuss.

Bell said that many states such as California and New York are bigger than many of the jurisdictions in Europe. Having separate regulators in each country has not stopped business from coming to the U.S. or companies writing abroad, he said.

Most Americans favor mitigation policies while opposing subsidies for high risks

Most Americans favor public policies that could help to mitigate the damage caused by catastrophic natural disasters before they happen, but many Americans remain unprepared for a disaster in their own homes and communities.

Nine out of 10 adult Americans support the enforcement of building codes to make new homes stronger and safer. And two-thirds (67 percent) support building codes even when they would add 6 percent to the cost of a new home, according to a report, Public Attitude Monitor 2006, Issue 1, Natural Disasters, from the Insurance Research Council (IRC).

While the survey found strong support for government policies aimed at mitigating risk before a natural disaster, it found strong opposition to programs and policies that subsidize the cost of insurance for people in high-risk areas. Asked to consider the National Flood Insurance Program as an example, almost six in 10 (59 percent) indicated that it is unfair to use taxpayer dollars to subsidize the cost of insurance in high-risk areas.

A similar percentage indicated that it is unfair to require policyholders in non-coastal areas of a state to subsidize the cost of insurance for wind damage in coastal areas.

Two-thirds (67 percent) also disagreed with the idea of using taxpayer dollars to subsidize the cost of insurance to encourage new building in coastal areas.

States debating
Certain public policies relating to natural disaster loss mitigation now being discussed in state legislatures around the country and in Congress enjoy strong support, according to the survey. A large majority (70 percent) of those surveyed favored the adoption of laws and regulations restricting the construction of new homes in disaster-prone areas, including coastal areas, and 82 percent favored government action and public spending to preserve and rebuild coastal wetlands that act as buffers against hurricanes.

These views toward government policies aimed at mitigating the damage caused by catastrophic natural disasters before they happen, contrast sharply with private actions. Only 26 percent of those surveyed said they are personally prepared for a natural catastrophe in their community, and only 38 percent have a disaster preparedness kit containing enough food, water, and essential supplies to last at least three days.

Insurance attitude
The contrast between public views on the role of government in mitigating damage from natural disasters before they happen and personal actions to minimize the personal disruption and financial loss following a natural disaster is particularly stark when it comes to insurance. A large majority (80 percent) of those surveyed favored laws that would require people who live in disaster-prone areas to purchase insurance covering the particular risk involved. However, according to the survey, many homeowners have not purchased insurance to cover disaster risks, even though they indicate they may be at risk for those disasters.

For example, of those who report living in an area where a flood could occur or has occurred in the past (not including those also at risk of hurricane), only 20 percent said they have purchased flood insurance coverage. Of those who report living in an area at risk of having a severe earthquake, 42 percent say they have purchased earthquake insurance coverage.

"Americans clearly want government to take steps to mitigate the damage from catastrophic natural disasters before they occur," explained Elizabeth A. Sprinkel, senior vice president of the IRC. "This enthusiasm, however, appears to stop at the front door of many households, as many homeowners have not pursued personal strategies to minimize the disruption and reduce the financial impact a natural disaster would cause."

The results of IRC's report are based on a survey conducted by Harris Interactive. The survey consisted of online questionnaires completed by more than 1,400 members of the Harris Interactive consumer survey panel. The online surveys were completed during a two-week period in late July and early August 2006.

For more information visit IRC's Web site at: www.ircweb.org.

Specialty program market continues to grow, but new business still a challenge

The program administrator specialty market continues to grow, according to survey results by Guy Carpenter & Company Inc. More than 65 percent of survey respondents estimate the size of the program administrator specialty program market segment at between $20 billion and $40 billion of annual gross written premium.

Though specialty program writers cite new business production as their greatest challenge, prospects for future growth are bright, with 65 percent of survey respondents viewing program market results over the last three years as more profitable than the standard market. More than half of all respondents indicate that they see market conditions remaining consistent through 2007.

"Across the specialty programs segment, we are seeing new opportunities developing, from both existing business and new players entering the market," said Carl Bach, senior vice president and head of Guy Carpenter's Program Manager Solutions Specialty Practice. "By providing greater insight into what specialty programs carriers are seeking, where market opportunities are and what program carriers require from their program administrators, we hope to help all participants operate with maximum efficiency as they build their business."

Key findings
The specialty programs market continues to change and evolve rapidly, with the introduction of new markets, new program administrators and new products, as well as a rise in merger and acquisition activity, an increasing number and variety of third party service providers and more frequent use of non-admitted paper and alternative risk mechanisms. Respondents projected that they will write a total of at least 80 to 100 new programs in 2006.

Specialty program markets are actively seeking profitable new business, as they increase underwriting activity across multiple commercial and personal lines. On the commercial side, all respondents noted an appetite for general liability insurance, with a majority also indicating an appetite for property, inland marine, automobile liability, professional liability and umbrella liability.

The most significant change from 2005 is evidenced in commercial umbrellas, with some 65 percent expressing a willingness to underwrite that line, compared with 52 percent last year.

With respect to personal lines, only 30 percent of respondents indicate a desire to write homeowners, 25 percent indicate an appetite for auto and 10 percent for umbrella.

Regional or national programs
Responding carriers seem to vastly prefer programs that are regional (65 percent) over national (25 percent) and single-state (10 percent) programs. This is a dramatic shift from 2005, when respondents were fairly evenly split, with preferences divided among regional, national and single-state programs.

While many carriers continue to feel that their in-house claims departments have the experience and expertise to manage specialty program claims, there appears to be more flexibility with respect to the use of third party administrators. While 40 percent prefer to use their own in-house claims department, 45 percent always use a TPA.

Copies are available at www.guycarp.com.

Reinsurers adopt 'wait and see' posture at Rendezvous

For the first time in two years the high and mighty from the reinsurance world gathered for their annual Rendezvous in Monte Carlo without having to face the consequences of an ongoing catastrophe (Ivan in 2004 and Katrina last year). Sunny skies and warm weather, coupled with solid first half profits and the absence of natural disasters, generally produced an upbeat outlook. The atmosphere was more reminiscent of the '90s than the 21st Century.

The 2,000 plus insurers and reinsurers from around the world who attended the 50th installment of the annual event that marks the beginning of the upcoming reinsurance treaty renewal season, therefore took advantage of the interlude to reflect on their past and evaluate the future.

Julian James, Lloyd's director of Worldwide Markets, joined by Chairman Lord Peter Levene and Franchise Director Rolf Tolle, indicated that the event acts as a timely opportunity to re-evaluate the past year. "It gives the market a chance to look back at the past 12 months and chart the progress it has made," he stated in an interview on the Lloyd's Web site. "When you look back to last year, we were still coming to terms with Hurricane Katrina and working on the issue of process reform."

Swiss Re took the opportunity in press briefing on Sept. 11 to highlight its positive first half results, with nary a word about the date's significance. For the future Swiss Re noted that "demand for cat cover has been growing by almost 10 percent annually, more than most other lines of business." As a result "significant portions of the peak scenarios are increasingly passed on to the capital markets (e.g. ILS, ILW, sidecars)." It also indicated that "investors (and rating agencies) expect risk adequate and stable returns," and that the "finance industry is confronted with increased volatility, more sophisticated risks and demand for increased capacity."

Underwriting profits
Munich Re's Chairman of the Board of Management Nikolaus von Bomhard at another press conference stressed the Group's ongoing commitment to maintaining underwriting profits. Munich Re "stands by its proven principle of writing business only at risk-adequate prices, terms and conditions," he stated. "We have satisfactorily absorbed -- also in comparison with our competitors -- the large losses from natural hazards events over the past two years. This is due to our consistent underwriting policy, our integrated risk management and our diversification."

James added Lloyd's endorsement to the sound underwriting mantra, indicating that the London market needs to maintain its discipline in the face of pressure to cut rates in areas outside of the United States. He signaled Lloyd's September announcement of its results, noting they "have been strong." However, he cautioned that this is a time when the industry needs "to maintain their discipline and stick with the commitments they made to the market. We have to avoid the temptation to ease that discipline."

September comes too early
James and his colleagues noted that for the first time for many years there was no overriding issue which would dominate the discussion in Monte Carlo. "In some respects September is too early this year," he indicated. "The market will not be able to make any cast iron decisions so early in the year because they are waiting to see what the tail end of the North Atlantic hurricane season will bring."

Ironically the Rendezvous crowd almost seemed to miss the crisis atmosphere that has besieged the gathering in recent years. The absence of any major hurricanes, terrorist attacks or other disasters to focus on led to a wait and see attitude. At this point the hurricane threat seems to have receded. The forecasters have all lowered their previous estimates on how many storms to expect. Studies have appeared linking their diminution to everything from a resurgent El Niño to North African sandstorms. For the moment at least the reinsurance industry seems fairly confident that it will be able to keep the profits it made in the first half of the year.

That doesn't mean they have become complacent. "Particular challenges at the moment are increasing risks from natural catastrophes and from the risk of terrorism," von Bomhard explained. "Besides this, inflation of serious personal injury losses has been noticeable in some markets; the causes are partly of a global nature (technical and medical advances) and partly the result of national developments (impacts of reforms, changes in legal conditions, organization of healthcare systems)."

If anything the current lull has given companies like Munich Re an incentive to become even more cautious. Last year's events also produced a more sanguine view of the industry's reliance on cat models. "These challenges exemplify the fact that risks and loss potentials are steadily changing," von Bomhard continued. "The permanent analysis of such changes means that models and calculations -- and thus also prices, terms and conditions -- have to be constantly adjusted."

Amid all the positive news reinsurers might do well to count their blessings. The people of New Orleans, Florida and along the Gulf Coast are certainly more than pleased not to have to face yet another season of terrifying storms.

Agency growth and performance study reveals higher productivity

The latest edition of the Growth and Performance Standards (GPS) study by the Austin, Texas-based National Alliance Research Academy has just been released, giving the insurance industry some new benchmarks for comparing independent agency performance trends. The GPS has been setting comparison standards for the industry since publication of the first edition in 1988.

Some information released from this new study include:

Average growth in total agency revenues is 10 percent.

Eight percent of all surveyed agencies purchased or merged with another agency within the past year.

Average pre-tax profit is 11.58 percent, up from 9.80 percent in 2003.

Average agency revenues per person increased 29 percent from 2003.

Average commercial lines commission per account is $1,266, up from $886 in 2003.

Personal lines CSRs handle an average of $149,224 in commission, a 15 percent increase from 2003.

Independent insurance agency owners use the results of the GPS study to compare their agency's performance against their agency "peer group," giving owners direction for future decision-making. The study provides averages, but also offers critical performance indicators of the top 25 percent best performing agencies.

The GPS study provides comparison benchmarks for:

Agency profile standards;

Income and expense averages;

Balance sheet ratios; and

Agency productivity measures.

A CD that allows agencies to input their own financial numbers produces variance reports comparing agency results to the GPS standards.

Comparison standards in the Growth and Performance Standards study are based on agency size and region, as well as national results.

Agencies use the GPS study to help improve their growth, profitability, and productivity levels. By comparing to industry norms and noting where significant variances occur, agencies can pinpoint the areas where they excel, and note those that need most improvement, says The National Alliance.

Growth and Performance Standards (GPS) study is available for purchase at: www.TheNationalAlliance.com/publications, or call 800-633-2165.