Currents

$660 million will settle church abuse case

Negotiations have produced a landmark $660 million settlement between the Roman Catholic Archdiocese of Los Angeles and more than 500 alleged victims of clergy abuse has concluded, with insurers picking up a large part of that tab.

Attorneys from both sides, as well as Cardinal Roger Mahony, entered a formal settlement agreement with Judge Haley Fromholtz. The deal marks the end of more than five years of negotiations.

Mahony, leader of the country's largest archdiocese, apologized to the hundreds of clergy sex abuse victims who will receive a share of the settlement.

"There really is no way to go back and give them that innocence that was taken from them. The one thing I wish I could give the victims ... I cannot," he said.

"Once again, I apologize to anyone who has been offended, who has been abused. It should not have happened and should not ever happen again."

Mahony said the settlement will not have an impact on the archdiocese's core ministry, but said the church will have to sell buildings, use some of its invested funds, and borrow money. He said the archdiocese will not sell any parish properties or schools.

The settlement also calls for the release of priests' confidential personnel files after review by a judge.

The deal settles all 508 cases that remained against the archdiocese, which also paid $60 million in December to settle 45 cases that weren't covered by sexual abuse insurance.

The archdiocese will pay $250 million, insurance carriers will pay a combined $227 million and several religious orders will chip in $60 million. The remaining $123 million will come from litigation with religious orders that chose not to participate in the deal, with the archdiocese guaranteeing resolution of those 80 to 100 cases within five years, said Michael Hennigan, archdiocese attorney. The archdiocese is released from liability in those claims, said Tod Tamberg, church spokesman.

Plaintiffs' attorneys can expect to receive up to 40 percent of the settlement money -- or $264 million -- for their work.

The settlements push the total amount paid out by the U.S. church since 1950 to more than $2 billion, with about a quarter of that coming from the Los Angeles archdiocese.

Previously, the Los Angeles archdiocese, its insurers and various Roman Catholic orders had paid more than $114 million to settle 86 claims.

Hawaii governor vetoes workers' comp bills

The Hawaii Legislature has failed to override Gov. Linda Lingle's vetoes of two workers' compensation bills. A two-thirds majority vote was required in both the House and Senate to override the vetoes. Both bills failed to receive the required votes so will not become law.

SB 1060 Workers' Compensation System, the "omnibus" workers' compensation bill would have required that physicians be mutually selected by the employer and the claimant, and would have prohibited the termination of medical benefits and temporary disability without a prior order of the Director of the Department of Labor and Industrial Relations.

HB 855, the Uninterrupted Medical Treatment bill, would have ensured that uninterrupted medical care is provided to an injured employee, including when doctors clear workers to return to work, until the director of labor and industrial relations rendered a final decision on the matter.

Local businesses likely were pleased with the Governor's decision, as the Chamber of Commerce indicated that SB 1068 alone would have increased costs in the workers' comp system by $68 million.

Study: Calif. workers' comp reforms working

California experienced the largest decrease in average workers' compensation costs per claim among 14 states, after years of double-digit cost growth and in the wake of reforms that took effect 2003 through 2006, according to a new study by the Workers' Compensation Research Institute.

According to the study, "Early Evidence of the Impact of the Multiyear Reforms in California: CompScope Benchmark, 7th Edition," workers' comp costs per claim in California dropped by 15 percent in 2004-2005, after a 4 percent increase in 2003-2004, and double-digit growth in previous years.

Legislation in California from 2003 to 2006 revised the state medical fee schedule, increased the maximum weekly benefits, limited chiropractic and physical therapist services, replaced vocational rehabilitation benefits with the Supplemental Job Displacement Benefit, revised the permanent disability schedule and permanent partial disability benefits, and placed a 104-week cap on temporary disability benefits.

The report indicates that payments for lost wages, otherwise known as indemnity benefits, per claim with more than seven days of lost time changed little in 2004-2005, after growth of 7 percent in 2003-2004 and increases of 4 percent to 7 percent in the previous years. However, that result masked two opposing trends, the report indicated.

Duration of temporary disability fell by 1.5 weeks after increasing by almost one week per year since 1996, except for 2003-2004 when there was little change. Also, there was a 6.5 percent increase in the average weekly temporary disability benefit, the result of a 21 percent increase in the statutory minimum weekly temporary disability benefit under 2002 legislation.

The study noted that defense attorney involvement changed little over the study period. Payments to defense attorneys increased 8 percent in 2004-2005, about double the growth rate in each of the previous two years.

For more information, visit www.wcrinet.org/

Agency must pay $5.8 million to SoCal firm

An insurance agency must pay $5.8 million to a small business that discovered it lacked workers' compensation coverage after a burned employee sued.

An agent for Hilb, Rogal and Hamilton Insurance Services improperly failed to tell the company that it wasn't covered, a Los Angeles County Superior Court judge found. On July 2, he ruled in favor of John Williams and Steven Simon, owners of Rhino Linings Santa Fe Springs.

Rhino Linings Santa Fe Springs lines pickup trucks with plastic.

The suit by the company's owners said they only learned about their lack of workers' comp coverage after a jury in 2004 found against them in a personal injury suit. They were ordered to pay $5.6 million to an employee who suffered second- and third-degree burns in an explosion.

Another insurer paid $1 million but the remainder, including interest, totaled $5.8 million.

Hilb, Rogal and Hamilton claimed their agent told Rhino's owners that they should get workers' compensation insurance and they did not want it. However, "there was never anything in writing to indicate that," said Patrick Vastano, the attorney for the owners, noting the lack of documentation.

A call to the attorney who represented the insurance agency in the case was not immediately returned.

Calif. low cost auto insurance program expanded to nine counties

California Insurance Commissioner Steve Poizner announced his determination to expand the state's Low Cost Auto Insurance Program to Solano, Marin, Santa Cruz, Madera, Napa, Yolo, Mendocino, Kings and Lake counties. The program is expected to go into effect in early September, once rates are set in each of the newly added counties.

Commissioner Poizner's announcement follows a series of community town hall meetings in each of the counties to examine the need for the program.

"Many drivers simply cannot afford insurance, but uninsured drivers put all travelers at risk," Poizner said. "The expansion of this program in nine additional counties will better enable Californians to comply with the law and protect all motorists from potential losses."

The low cost auto insurance program provides eligible low-income good drivers with auto liability coverage for less than $400 a year and as little as under $300 a year in many counties.

The program began in 1999 as a pilot in Los Angeles and San Francisco. A new law, SB 20, authorized the Commissioner to launch the program throughout the state upon his determination of need in each county. Beginning in April 2006, the department began expanding the program statewide.

The program is now available in Los Angeles, San Francisco, Alameda, Fresno, Orange, Riverside, San Bernardino, San Diego, Contra Costa, Imperial, Kern, Sacramento, San Joaquin, San Mateo, Santa Clara, Stanislaus, Merced, Monterey, Santa Barbara, Sonoma, Tulare, and Ventura Counties. With the inclusion of latest nine counties, the program will be available in 31 California counties. Since its inception, more than 33,000 policies have been issued.

To be eligible for the program, an applicant must be a "good driver" with no more than one at-fault property damage only accident, or one point for a moving violation in the past three years; no at-fault accident involving bodily injury or death in the past three years; and no felony or misdemeanor conviction for a violation of the Vehicle Code.

Additionally, family income cannot exceed 250 percent of the federal poverty level ($25,525 for a single person, $34,225 for two persons and $51,625 for a family of four). The value of an insured vehicle must not exceed $20,000.

Oregon fines nine AIG companies $5 million

The Oregon Department of Consumer and Business Services (DCBS) has imposed a $5 million fine on nine insurers in the American International Group (AIG) for numerous violations of Oregon insurance aTITLE: nd workers' compensation laws, some of them dating back to 1985.

According to DCBS, AIG must pay $1 million of the fine within 45 days. DCBS has suspended the remaining $4 million and will withdraw or impose it next year, depending on whether the companies meet certain conditions.

AIG has agreed to the fine and the conditions.

DCBS cited the AIG companies for failing to comply with Oregon laws for processing claims of injured workers and reporting proof of insurance coverage. For example, the companies have failed to meet state standards in such areas as timely payment of medical benefits to injured workers and accurate reimbursements of costs for related services.

"We take these issues very seriously," said DCBS Director Cory Streisinger. "Injured workers depend on their insurance carriers to pay claims accurately and on time, and our other major carriers succeed in doing so. AIG hasn't lived up to the standards Oregon injured workers are entitled to expect, and it's our job to hold them accountable."

DCBS also cited the AIG companies for using insurance policy forms that hadn't been approved by the state. Advance approval of policy forms by DCBS is required to protect workers and ensure that policies comply with Oregon regulations, DCBS said.

In addition, DCBS found that the AIG companies failed to accurately report workers' compensation premiums and claims data, which the department uses to develop the base rates employers pay to cover their workers. Premium information also is used to calculate each insurer's assessments to fund parts of the state workers' compensation system.

AIG's inaccurate reporting led to an underpayment of required assessments, and in addition to the fines imposed, AIG has paid DCBS approximately $3 million in previously unpaid assessments and interest.

The DCBS order gives the AIG companies 60 days to provide documentation showing whether additional assessments are due.

DCBS said the recent problems in Oregon came to light following an investigation of AIG's financial statements by state and federal regulators in New York, where most of the companies are headquartered. Prior enforcement actions against AIG companies in Oregon include a suspension in 1989, followed by a settlement in 1991; an average of 36 civil penalties per year for claims and coverage compliance violations between 1990 and 2004; and an average of 68 civil penalties per year for claims and coverage compliance violations in 2005 and 2006.

The corrective actions include meeting state compliance standards for claims processing and proof of coverage reporting, and not issuing or renewing any policies using unapproved policy forms. Streisinger will decide whether to withdraw or impose the suspended fine by Sept. 30,
2008.

According to DCBS, AIG companies have already demonstrated improvement in some of these areas, and DCBS will be closely monitoring their performance over the next year.

AIG is the third-largest provider of workers' comp insurance in Oregon. Member companies covered by the Oregon settlement are AIU Insurance Co., American Home Assurance Co., AIG Casualty Co., Commerce and Industry Insurance Co., Granite State Insurance Co., Illinois National Insurance Co., National Union Fire Insurance Co. of Pittsburgh PA, New Hampshire Insurance Co., and The Insurance Co. of the State of Pennsylvania.

Fireman's Fund launches Bay Area wildfire readiness program

With wildfire season in full force, Novato, Calif.-based Fireman's Fund Insurance Co. has launched a wildfire readiness program to help San Francisco Bay Area homeowners protect their property from wildfires.

Depending on topography and landscape, California law requires homeowners to create a defensible space between 30 to 100 feet around their homes by clearing brush and grass. However, many residents don't know exactly what to cut or how to do it, the company said.

Consequently, Fireman's Fund has set up a toll-free Wildfire Readiness Helpline (800-317-0575), that Bay Area homeowners can call to receive a free onsite inspection of their home.

In partnership with FireProtec, a vegetation removal company, the visit will be conducted by a firefighting professional who will provide customized advice on how to create a defensible space around the person's home. The analysis will include tips on what brush, grass and trees need to be cleared. Homeowners will have the option of getting the brush professionally removed at a 10 percent discount, an offer typically only available to Fireman's Fund policyholders, the company said.

The free program is available to homeowners in Alameda, Contra Costa, Marin, Napa, San Francisco, San Mateo, Santa Clara, Solano and Sonoma counties.

"This program leverages our preexisting relationship with the fire service to help protect our policyholders and all residents of the Bay Area," said Robert Courtemanche, president of Personal Insurance at Fireman's Fund.

California's two most devastating fires, the 2003 Cedar Fire in San Diego County and the 1991 Oakland Hills Fire, destroyed a combined 7,747 homes.

"No one wants to be included in those types of statistics," said Marin County Fire Chief Ken Massucco. "Creating a defensible space is the most important factor in protecting your home."

Additionally, the company said it will offer an expanded home inspection to all of its homeowner's insurance policyholders. A Wildfire Home Protection Review valued at $150 will be available at no charge, to provide a more comprehensive assessment of all dangers in and around the homeowner's property.

The expanded analysis evaluates a range of risks, from easy-to-fix items such as removing propane tanks from under decks to more extensive items such as replacing flammable roofing materials.

Thousands of Washington homes threatened by faulty fire sprinklers

Washington Attorney General Rob McKenna and the Office of the State Fire Marshal are warning Washington apartment homes and hotels that their fire sprinkler systems may be defective.

The Washington State Fire Marshal's Office says up to 500,000 fire sprinkler heads in Washington may be defective -- and officials don't know where they are located.

"Somewhere in our state, there are 500,000 sprinkler heads that may fail in an actual fire," said Assistant State Fire Marshal Anjela Foster. "We think they are in hotels, apartments and homes. It's a serious threat to homes and occupants.

"What's more, property owners have only a short time to fill out the paperwork needed to receive free replacement sprinkler heads. Those who miss the deadline will pay big bucks to do the work themselves," Foster added.

Central Sprinkler Co., an affiliate of Tyco Fire Products, began a voluntary replacement program in July 2001 to replace 35 million "O-ring" style heads nationwide at no cost to property owners. The program ends on Aug. 31, 2007, under an agreement between Tyco and the Consumer Product Safety Commission.

Meanwhile, about 500,000 of the 1.3 million sprinkler heads that were installed in Washington schools, hotels, apartments, homes and commercial buildings remain unaccounted for, the Attorney General's office said.

If property owners fail to take advantage of the program, they will be required by law to replace the sprinkler heads at an estimated cost of $50 per device to $75 per device. Since many residences have multiple sprinklers, owners of multiplex apartments and hotels who miss the deadline could pay $100,000 or more, the AG's office estimated.

The recalled heads were blamed for at least two fires in Washington. A kitchen fire spread to a Renton apartment home, causing substantial damage but no injuries. A sprinkler head finally activated three hours later. And an outdoor sportsman show at the Puyallup Fairgrounds was interrupted when linseed oil caught fire. Three nearby sprinklers failed.

The dangerous O-ring heads have a flat circular ring at the base, while the safer "Belleville bottom" heads are cone-shaped. But identifying defective sprinklers can be tricky; 65 different models were included in the recall and some heads may be concealed with a ceiling plate. The State Fire Marshal's office said it is willing to help property owners determine whether their sprinkler heads are included in the recall. Those who need assistance are being directed to call 866-977-7366.

More information about the recall and claims procedures are on Tyco's Web site at www.sprinklerreplacement.com

Property owners who submit claims before the Aug. 31 deadline will still need to wait up to two years for the free replacements due to the large number of claims that have yet to be processed, the AG's office said.

Oregon's Ario tapped to be Pennsylvania commissioner

Oregon's Department of Consumer & Business Services announced that Insurance Administrator Joel Ario will be leaving the Beaver State to become Pennsylvania's insurance commissioner.

As the insurance administrator with the Oregon Department of Consumer & Business Services since 1994, Ario has promoted new consumer protections involving credit scoring and other risk-rating practices; advanced health reforms that give small businesses better pooling options; built a coalition between employers, insurers and providers to create greater transparency in health care pricing by insurers and hospitals; and streamlined producer licensing and the review process for new insurance products.

Earlier in his career, Ario was executive director of the Oregon State Public Interest Research Group, where he led legislative and ballot campaigns for pollution prevention, recycling and campaign finance reforms.

"I was a consumer advocate before I became a regulator in 1994," Ario said. "I approach issues from a consumer protection perspective, with the understanding that an innovative and vibrant insurance marketplace serves both consumer and business interests."

Pending confirmation by the Pennsylvania Senate, Ario will succeed Randy Rohrbaugh, who was named Pennsylvania's acting insurance commissioner when Diane Koken resigned in February. Koken served three governors and was the longest-serving insurance commissioner in the state's modern history.

Ario, 53, earned a degree from Harvard Law School in 1981. He also holds degrees from Harvard Divinity School and Saint Olaf College in Northfield, Minn.

He has been with the Oregon DCBS since 1994 and has been administrator of the insurance division since 2000. He has served as vice president of the National Association of Insurance Commissioners and currently chairs the NAIC committee on health insurance.

"This is a great opportunity for Joel, but a significant loss for Oregon," said Cory Streisinger, director of DCBS.

According to Diane Childs of DCBS, the position in Pennsylvania is a "significant role for Joel in state government" in that the Pennsylvania insurance commissioner oversees all insurance regulatory issues.

In Oregon, the Insurance Division is part of the DCBS, so the director of DCBS serves as state's insurance commissioner, with the DCBS director overseeing the administrator position.

Tahoe fire losses could reach $150 million, victims may be underinsured

Insured loss estimates for the Angora Fire that burned south Lake Tahoe have been upped to $100 million to $150 million, according to Risk Management Solutions, a Newark, Calif.-based risk modeling company. Candysse Miller, executive director of the Insurance Information Network of California said at least 415 claims have been filed for home, renter and auto losses.

However, the California Department of Insurance predicted many homeowners could be underinsured to rebuild. CDI also is cautioning against working with fraudulent contractors who may be uninsured or unlicensed.

The wildfire, located in El Dorado County, Calif., consumed approximately 3,100 acres and more than 300 structures by the time it was put out on June 29. More than 3,000 people were evacuated from the area while firefighters managed the blaze.

"The Angora fire is the largest to have occurred in the Tahoe region in over four decades," commented Don Windeler, RMS director of wildfire risk modeling.

Meanwhile, CDI is trying to determine whether being underinsured will be a problem for victims. "There is a serious problem with underinsurance in the state of California," Insurance Commissioner Steve Poizner said.

Many homeowners who thought they were fully insured found their policies left them tens of thousands -- sometimes hundreds of thousands -- of dollars short of what they needed to rebuild following fires that destroyed more than 3,600 homes in Southern California in 2003, Poizner explained.

Dozens of homeowners told state officials after those blazes that insurers wrote their policies based on their estimate of a home's replacement cost. In many cases, those estimates turned out to be grossly inadequate.

Poizner urged homeowners to meet with their insurance agents to determine if they have enough coverage.

Those who have adequate funds to pay for repairs are being warned that they should verify potential contractors are properly licensed and insured. On July 5, CDI announced five contractors had been arrested for operating illegally.

The California Department of Insurance's Enforcement Branch set up a sting operation to identify unlicensed public adjusters as well as unlicensed and uninsured contractors.

In the meantime, RMS and IINC said they will continue to monitor the fallout from the fire and will update loss and claims estimates as appropriate.

The Associated Press contributed to this article.

Industry supports terror bill but not all agree with NBCR mandate

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Hartwig was not alone in questioning the NBCR mandate.

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

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

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

FBI data mining targets include insurance fraud suspects

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

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

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

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

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

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

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

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

The five other databases detailed in the report include:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

P/C industry net income, overall profitability slips

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Supreme Court raises bar for investors bringing securities fraud suits

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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