News Briefs

ACIC OPPOSES CREDIT BILL: The Association of California Insurance Companies is opposing legislation which would eliminate rather than regulate credit-based insurance scoring, according to ACIC President Sam Sorich. The bill is SB 603 by Sen. Deborah Ortiz (D-Sacramento). “SB 603 is too extreme. The bill would ignore the proven relationship between credit history and risk, prevent California consumers from qualifying for discounts and be unfair to most policyholders,” Sorich said. He explained that there is compelling evidence from independent studies that there is a correlation between credit-based insurance scores and the likelihood of future losses by policyholders. The latest study, completed by the Texas Department of Insurance in January 2005, confirms the correlation and notes that the practice is not unfairly discriminatory. Sorich also pointed out that when insurers lose rating tools such as credit-based insurance scores, rates do not accurately reflect loss costs and some consumers must pay higher premiums to subsidize higher risk individuals. Sorich said that if insurers are forced to ignore a proven rating factor, the result will be pricing inequity; the alternative is regulation. The vast majority of states regulate the use of credit information instead of prohibiting it as an underwriting and rating tool. In California, the regulation alternative is contained in AB 1454, which is pending in the Assembly. “AB 1454 would impose, for the first time, strict regulation. This is something that has been needed for a long time. However, creating an absolute ban on the practice of using policyholders’ credit history by insurers would hurt rather than help consumers,” Sorich said.

WYO. WORKERS’ COMP RATES TO STAY THE SAME FOR NOW: Wyoming officials have declined to change the amount businesses pay for workers’ compensation insurance for the time being. An administrator at the Employment Tax Division warned that the issue has not completely gone away and the division still sees the need for change. Wyoming’s current system requires that companies pay into the state workers’ comp system, which provides benefits to cover lost wages and medical expenses of employees injured on the job. In early June, the division held a public hearing to gauge reaction to proposed changes in rates paid by companies-rates which are based in large part on the number of accidents and injuries incurred by those businesses. Some of the state’s largest employers welcomed the proposal because they said it would end their subsidizing of smaller businesses. Small businesses said they were concerned their insurance rates would unfairly increase despite maintaining good safety records. They added that they would take on a disproportionate burden of the increase. The division said it would gather representatives from a cross-section of Wyoming businesses to take a closer look at the issue. The group could meet as early as the fall or early 2006.

MOISTURE ROTTING OREGON HOMES: An investigation by The Oregonian revealed that moisture is rotting newer homes and condominiums from Portland to Seattle. The moisture is the result of a combination of new building techniques, trouble-prone materials and bad construction. Homeowners are particularly suffering in the Pacific Northwest due to the heavy year-round rainfall, resulting in a weighty financial toll on homeowners, builders, and insurance companies. Million-dollar condominiums in Portland’s West Hills have been covered with tarps for more than a year while residents settle for $5.5 million in repairs. A Lake Oswego couple sued for $898,000 to fix a leaky roof, walls and windows of their $1.8 million home. Depoe Bay time share owners are demanding $12 million for damages so extensive, the complex needs to be rebuilt, said their lawyer. The Oregonian reported that most homeowners are getting reimbursed for 50 to 70 percent of their repair costs, with the rest coming out of pocket. Builders and engineers are partly blaming construction codes dating back to the 1970s, which where strengthened throughout the 1980s and early 1990s. When the moisture penetrates walls built to current codes, they tend to stay wet, The Oregonian reported. The National Association of Home Builders pointed the finger at money-hungry lawyers for their part in the rising litigation over construction defects. Other housing professionals and builders believe that design, materials and current construction practices contribute to the problem, and some are adopting new preventive techniques. Home building is one of the nation’s biggest industries, generating about 14 percent of the nation’s gross national product, according to the NAHB. Lawsuits against builders are rampant in Oregon, Washington, California, Nevada and Colorado, a trend that has staggered the construction industry while adding thousands of dollars to home prices as insurers increase rates for builder liability policies, or refuse to cover some types of damage. At least five companies have pulled out of the contractor liability business in Oregon, saying defects and big payouts make it too risky. Builders are fighting for laws in Oregon and other states that would restrict the right of homeowners to sue for repairs. In a survey, insurance companies told Oregon regulators that they could pay out more than $125 million for construction defects on liability policies in place during 2001-03 alone. Regulators said the insurers portrayed the figure as a dramatic increase from prior years. The Oregonian confirmed that since 2001, lawsuits and settlements have totaled $70 million for Oregon and southwest Washington state homeowners.

RISK RETENTION GROUP PREMIUM SOARS ABOVE $2B: As the number of risk retention groups has skyrocketed in the past three years, so has the premium generated by these member-owned insurers enabled by the 1986 Liability Risk Retention Act. Since year-end 2001, the number of RRGs has risen by more than 100, bringing the total number of RRGs to 186 at year-end 2004, and to 194 as of June 2005, according to Risk Retention Reporter. Annual premium for RRGs in 2004 totaled $2,197.1 million, as compared to 2003 premium of $1,737.7 million, an increase of $459.4 million. Over the last three years, year-to-year percentage increases have been in the double digits, with RRG premium increasing by 34 percent in 2002, 37.4 percent in 2003, and 26.4 percent in 2004. RRG premium development reflects hard and soft market cycles. By contrast to the last three “hard market” years, year-to-year percentage increases during the last of the “soft market” years were in the single digits, with RRG premium increasing by 1.7 percent in 1998, 0.7 percent in 1999, and 4.3 percent in 2000. While RRG formations have slowed in the first half of 2005-11 compared to 25 in 2004 for the same period-premium generated by these entities can be expected to continue an upward trend, as existing RRGs expand their scope of operations and new RRGs continue to form.

RECENT CALIF. QUAKES REMINDER OF POSSIBLE FINANCIAL AFTERSHOCKS: After two sizeable earthquakes in less than a week, Californians have had a jarring reminder of their unsettled landscape. But with less than 15 percent of California homeowners purchasing earthquake policies, are their finances on equally shaky ground? With recent changes in bankruptcy laws, walking away after a natural disaster may not be a viable solution for uninsured losses. Homeowners who decide to forego earthquake insurance nonetheless often take few measures to reduce earthquake losses. Most experts recommend that uninsured homeowners retrofit their home for seismic safety and maintain a savings account in case disaster strikes. While some consumers feel “it won’t happen to them,” others believe that they would receive government relief for disaster losses. However, such a decision could carry serious consequences. Federal aid is not available for all disasters and even then, it is available as low-interest loans that must be paid back. Homeowners who plan to “walk away” from damaged property may find that new bankruptcy laws leave them in a deeper financial hole than they had expected. Many homeowners make the decision to purchase earthquake insurance based on the equity they have in their homes. However, with California’s hot real estate market, homeowners may underestimate their equity. The contents of the home may also get overlooked. Many homes today have expensive electronics, furniture and collectibles that need to be inventoried in the event that they are stolen or destroyed. IINC offers the following tips to homeowners on preparing financially for an earthquake: Evaluate your finances. Take another look at the equity you have in your home and inventory your property. It may be more than you realize, and you may decide you want to protect your investment. Retrofit your home. In some cases, taking simple steps such as bolting wood-frame homes to the foundation could dramatically cut the risk of earthquake damage and even reduce earthquake insurance premiums. Smaller steps such as strapping your water heater to the wall, bracing large appliances and bookshelves, and using museum cement to secure fragile collectibles can also save you money and headaches. Shop around for insurance. There is a competitive market for earthquake insurance in California. Several companies also offer supplemental policies to increase contents coverage or lower insurance deductibles. Talk to your insurance agent for more information.

ACIC OPPOSES SMALL CLAIMS COURT LEGISLATION: The Association of California Insurance Companies is opposing Small Claims Court legislation that would hurt consumers by reducing the ability of insurers to represent their policyholders in court. Jeff Fuller, ACIC’s executive vice president and general counsel, said the legislation, SB 422, would increase the jurisdiction of Small Claims Court from cases with $5,000 in damages to cases with $7,500 in damages. Because attorneys-and insurers-cannot represent clients in Small Claims Court proceedings, SB 422 would reduce the number of cases in which insurers would be able to defend their policyholders. The Senate-approved bill by Sen. Joe Simitian (D-Palo Alto) is scheduled to be heard next by the Assembly Judiciary Committee. “Policyholders, under this bill, will suffer,” Fuller said. “First, insurers would be unable to meet their contractual obligations to defend their policyholders. Second, consumers would be deprived of a benefit under their insurance policies for which they pay a premium.” If SB 422 becomes law, insurers likely will have little choice but to appeal Small Claims Court decisions that they feel are questionable. In such appeals to Superior Court, insurers would be able to represent their policyholders. “The number of such appeals would increase substantially, which in turn will result in higher costs to the judicial system-precisely the opposite effect of the intended purpose of operating small claims courts in the first place,” Fuller said.

Topics California Catastrophe Carriers Legislation Claims Workers' Compensation Homeowners Market Oregon Construction