What a long, strange trip it’s been. The year started with the two Chicago-area property/casualty insurance trade groups, the National Association of Independent Insurers and the Alliance of American Insurers, merging to form the Property Casualty Insurers Association of America.
It continued with news of the St. Paul/Travelers merger and an incredible four consecutive hurricanes smashing the Southeast and portions of the mid-Atlantic, but Charley, Francis, etc. turned out to be merely anticlimactic when compared with the bombshell revelations of bid-rigging at Marsh uncovered by New York Attorney General Eliot Spitzer.
But who were the men and women who made insurance headlines here in the Midwest? Here’s our entirely arbitrary top 10. Each item is followed by a link that will take you to an IJ story on the Web for more information.
Segal Won’t Sing, So He Heads to Jail
With his brokerage all but destroyed by federal charges on 26 counts of fraud and racketeering connected to then-merely alleged looting of more than $20 million from Chicago-based Near North Insurance Brokerage’s premium fund trust, CEO Michael Segal began the year fighting for his reputation and his freedom in the pages of Insurance Journal.
Since then, the politically-connected power broker who many suspect was targeted for prosecution by U.S. Attorney Pat Fitzgerald in the hopes that he might make a deal in exchange for information about corruption among area public officials was found guilty on all counts by a jury of his peers. The firm was also charged and found guilty on all counts.
Segal, whose defense lawyers acknowledged Near North’s sloppy accounting but argued that no client was overcharged and no premium went unpaid, was denied bail and deemed a flight risk by U.S. District Court of Northern Illinois Judge Ruben Castillo. Just this month, Castillo acquitted seven of the 26 convictions, but they were relatively minor charges.
“The bottom line,” Castillo said, “is that both defendants were properly convicted of most of the charges against them after a fair trial by a competent, properly instructed jury that was presented with overwhelming evidence of defendants’ guilt.” Castillo later ruled that a case of lupus was not enough to get Segal out of prison on medical leave before his sentencing Feb. 23. Prosecutors say he could get up to 20 years.
Ryan Announces Retirement, Muffs Damage Control
After more than 40 years of building Chicago-based Aon into the world’s No. 2 insurance brokerage, Patrick G. Ryan announced in September that he would step down as CEO once a successor was found but would stay on as chairman. Given the timing of his announcement and the Spitzer suit against Marsh, rumors began to fly that Ryan was trying to beat the heat that many say is likely to fall next on Aon. The company’s stock feel by a quarter of its value within days of the Marsh revelations.
Ryan denied the rumors in a top-of-the-fold, front-page Sunday interview in the Dec. 5 Chicago Tribune, but in his rush to declare Aon innocent of any Marsh-like missteps on bid-rigging, Ryan came off as glib about the gravity of the charges that have upended the brokerage distribution channel. Only a day after the article, which ran with a headline describing Aon as “unfazed” by the ongoing investigations, Ryan issued a statement acknowledging that an internal investigation had uncovered violations of the company’s code of conduct, though no specifics were unveiled.
Going forward, Ryan and Aon’s board of directors will look to fend off possible charges from Spitzer’s office all the while looking for a new CEO to take the helm from the company’s founder, who’s still making headlines after all these years.
Reform-Friendly Karmeier Wins Supreme Court Race
In November, Republican and tort reform-friendly Judge Lloyd Karmeier won Illinois’ 5th Supreme Court Judicial District, which includes 36 southern counties and famed “judicial hellhole” Madison County. He won 54 percent of the vote over Democrat Gordon Maag, a trial lawyer, in a race that saw both sides spend a total of $9 million.
Though the race did not tilt the balance of control in the state Supreme Court, which remains 4-3 in the hands of Democrats, it was an important symbolic victory for insurers, business groups and tort reformers who poured money and time into Karmeier’s underdog race. It was widely seen as a referendum on the medical liability crisis in Downstate Illinois which has driven hundreds of specialist doctors into going without insurance, retiring or moving out of state.
The victory is important not only for Karmeier’s vote on the Supreme Court, but his power to make appointments to fill any judicial vacancies in the 36 counties his district encompasses. The win was all the more surprising in an increasingly lopsided political scene in Illinois, where all but one statewide office is held by a Democrat.
Hub’s Hughes Directs Growth Via Acquisitions
Chicago-based brokerage Hub International Ltd. continues to make a splash as CEO Martin Hughes’ strategy of acquiring regional “hub” agencies and pursuing a middle market with complex exposures but without the in-house risk-management expertise necessary to handle them appears to be succeeding. Hub saw revenues grow by 30 percent in 2004 to $335 million and gross profit grow by 38 percent to $286 million.
Much of the growth has come via acquisitions, including a deal with Albuquerque, N.M.-based Talbot Inc. The purchase of the $100 million-revenue brokerage from Safeco helped broaden the Canadian-born firm’s footprint across the South and Southwest and upped its revenue base by a third. And in October, Hub launched a branding strategy in which all of its regional firms would incorporate the “Hub International” name into their own, thus emphasizing the organization’s growing presence in the North American marketplace.
“Our goal,” Hughes told IJ, “is to try to centralize everything that does not touch the client. keep everything that does touch the client in the field.”
Taft Forges Ahead on Asbestos, Tort Reforms
The insurance industry probably couldn’t have asked for anymore than what was delivered in 2004 by Republican Gov. Robert Taft and a GOP-controlled General Assembly. In June, Taft pushed for and got legislation setting medical criteria to prioritize asbestos claims in the courts, the first of its kind in the nation. At the same time, a similar bill on silica dust was passed, setting models for the rest of the nation. Taft was able to capitalize on the flow of manufacturing jobs overseas to argue that the asbestos litigation was partly to blame.
Taft repeated this success just this month when a package of comprehensive tort reforms passed the General Assembly and were headed for his signature (see page 6). Senate Bill 80 caps noneconomic damage awards at $350,000 and places a 10-year statute of limitations on products liability, while protecting food merchants from “frivolous” obesity lawsuits.
Womer Benjamin Makes Malpractice Reform a Priority
Taft’s appointee as insurance director, Ann Womer Benjamin, demonstrated her own understanding of an issue important to insurers and agents—medical malpractice. In January the department’s push for a bill to set aside $12 million to set up a medical liability underwriting association in the event of a crisis in the availability and affordability of such insurance was only the first step.
Since then, she has chaired the state’s medical malpractice commission, which features a panel of lawyers, doctors, hospital and insurer representatives and has focused on reforms to improve the Buckeye State’s med-mal marketplace. The commission issued an interim report in March calling for mandatory reporting of malpractice lawsuit data, screening of cases before they get to trial, and a state patient compensation fund. While these reforms have not yet seen passage, it’s clear Womer Benjamin is passionate about the issue and that Taft is no stranger to tort reforms.
Granholm and Watters Push Rule to Ban Insurance Scoring
While many agents in the Midwest and around the country have complained often and loudly about insurers’ use of credit scores in the underwriting of auto and homeowners insurance, a consensus on allowing but restricting the practice seems to have emerged from the trade group representatives and insurance legislators.
However, two Midwest states took the opposite approach and opted to try for a complete ban on the practice, which opponents said would lead to less risk differentiation and higher rates. One of these states was Michigan, where in May Gov. Jennifer Granholm and Office of Financial and Insurance Services Commissioner Linda A. Watters announced they would pursue a ban on any insurer use of credit scoring via the administrative rule process.
This came after months of negotiations in the legislature on a compromise bill along the lines of the National Conference of Insurance Legislators’ model act. Granholm, an attractive Canadian-born Democrat who many speculate would seek the presidency if the Constitution were amended to allow the foreign-born to run, argued that the state’s Essential Insurance Act made insurance scoring illegal because it was unfair and discriminatory to minorities.
A series of raucous hearings was held and OFIS will compile a report and soon pass the rule on to the Office of Regulatory Reform. The rule is all but certain to pass, though Michigan insurers are considering a legal challenge.
Holden and Larkin Call for Scoring Ban, Lose Office
The other Midwestern state to make a run at insurance scoring was Missouri, where Democratic Gov. Bob Holden seized on a study produced by Director Scott Lakin’s insurance department to call for banning the practice. The study argued that the practice has a disparate impact on the poor and minorities, who on average had worse credit scores, and was tantamount to a proxy for race and class. Holden, however, could not get his proposal through the General Assembly and went on to lose a primary race to challenger Claire McCaskill. She went on to lose to Republican Matt Blunt.
This is not to suggest that Holden’s position on insurance scoring affected his popularity in any way, but insiders told IJ that if it was a ploy to turn the tide of public opinion with the Democratic base, it didn’t work.
Brooke’s Orr Finds Formula for Franchise Success
Robert D. Orr, CEO of Overland Park, Kan.-based agency franchisor Brooke Corp., began his career in the world of bank-owned insurance agencies before hitting upon the idea that seems to have taken off. In November alone, Brooke acquired 21 franchise locations and took in consulting fees of about $2.9 million. The target agencies are directly monitored and managed by Brooke in exchange for access to the company’s vast loan reserves and standard and preferred insurance markets. Brooke’s credit subsidiary reported loan portfolio balances of $179 million in November.
Brooke now has 380 franchise locations, all of which are branded as “Brooke Insurance” combined with the agency’s town/location.
Poolman Steps Down as NAIC Vice President
On the verge of becoming president of the National Association of Insurance Commissioners after a year as vice president, Commissioner Jim Poolman turned down the opportunity shortly after former president Ernst Csiszar left his South Carolina post in September to head up PCI. Poolman cited “family responsibilities.”
He also had an election to win, which he did handily, garnering nearly 65 percent of the votes to auto-glass repair shop owner Terry Barnes’ 35 percent. During several campaign appearances, Poolman jokingly thanked Barnes for his suggestions and offered Barnes a job in the insurance department if he lost the election. Barnes, apparently not getting the joke, repeatedly wrote and e-mailed Poolman regarding the job, only to be rebuffed by the commissioner. Barnes said his experience made him perfect to be a kind of liaison to the public on insurance issues.
A version of this story appeared in the Dec. 20 edition of Insurance Journal Midwest. To subscribe, click here.