Mental Health Change May Hit Insurance Rates Hard

With the national spotlight on Congress' bailout of financial institutions, little notice has been paid to another part of the law passed last month that could affect smaller businesses -- the Mental Health Parity and Addiction Equity Act.

For more than a decade, mental health and addiction treatment advocates have lobbied to bring employers' mental health insurance benefits on par with other medical benefits. In the interim, many large employers took that step on their own.

That's not necessarily the case with smaller employers.

When it goes into effect January 2010, the Mental Health Parity Act will exempt businesses with fewer than 50 employees, but those just above that level may be facing a Hobson's Choice -- either significantly upgrade their mental health and substance abuse coverage, or drop it altogether.

"For people who need mental health treatment, it [the new law] is definitely a win because it will be easier to get appropriate care," said Steven Wojcik, vice president for public policy for the National Business Group on Health in Washington, D.C. "But for those smaller employers, it's definitely going to make health-care costs more expensive, so those employers operating at the margins may have a hard time continuing to offer those benefits."

Here's why: While it's not unusual for a small- to medium-size employer to offer unlimited outpatient visits for a physical ailment, doing the same for mental health and addiction treatment can add significantly to a company's health premium. The same may hold true for inpatient hospitalizations.

For a large employer, many of whom self-insure, the risks and costs are spread out enough to be manageable. For a small-to-medium size business, both risk and cost can look daunting.

"Probably what's going to happen is that the substance abuse treatment benefit will become more generous," said Mr. Wojcik. "I can't imagine you would have limits on outpatient services for conditions like stroke, diabetes or asthma."

Under the new law, he said, if you don't limit rehabilitation services for a stroke, you can't limit them for mental health or substance abuse either.

"The timing is certainly not good, and it's ironic that this was attached to the bailout bill. The last thing you want to do is to raise labor costs at a time of rising unemployment."

Covering treatment for mental health and addiction problems is a good investment for employers if it means they retain a good employee.

As addiction treatment expert Michael T. Flaherty noted, "The positive implications of this law will by far exceed any good achieved by the economic 'bailout' over the years. Medicine can now work on finding the true origins of mental illness and empower the patient in each cure."
He added that insurance companies should welcome the change because millions more people would be added to the rolls of the insured, and conditions will be treated before they become catastrophes.

But the impact can differ depending on the size of a company, both in cost to the employee and the company.

A new Kaiser Family Foundation found that the smallest firms "are about half as likely to offer coverage to their employees" -- about 62 percent of businesses with less than 200 employees -- compared with 99 percent of firms with 200 or more employees. The study also found that employees at smaller firms generally pay higher deductibles.

But smaller businesses already have been facing up to 20 percent annual increases in their health-care costs the past three years, so any further add-on becomes a worry.

How much might premiums go up? Highmark spokesman Michael Weinstein says that "there are so many variables unknown yet on this mental health parity law that, at this point, for any insurance company not just Highmark, it's very difficult to calculate the exact impact on health benefit premiums."

Scott Lammie, chief financial officer for UPMC Health Plan, said it already offers mental health coverage as a standard benefit so the new law "is expected to have only a modest impact on premium levels, which we believe over time could also have a favorable premium impact by helping to reduce overall physical health costs."

So far, the issue apparently has not generated much discussion among small to midsize businesses.

"My suspicion is that they're not as aware [of the new law] as they should be," said Lee Taddonio of SMC Business Councils, whose 2,500 members typically have up to 150 employees. Mr. Taddonio said Pennsylvania has had mental health parity laws since 2006, and also noted that the new federal law offers an out if health-care costs increase more than 2 percent the first year, and 1 percent after that.

"My gut feeling is that I don't think it will be a that significant."

Hard Markets are on their way.

Economists at Swiss Reinsurance Co. are predicting that current financial market uncertainty is likely to continue well into 2010, and will lead to premium rate increases for insurance and reinsurance for several years to come.

Swiss Re predicted that there was a 70% chance of a deep global recession that would last until mid-2009, with continued volatility in credit and equity markets through to 2010, said Kurt Karl, the reinsurer's chief economist in the United States.

There is also a 25% chance that a severe recession—a mini depression that just falls short of the 1930s Great Depression—will last well into 2010, he added. Insurers are not immune from the crisis, according to Thomas Hess, Swiss Re’s chief economist in Zurich, Switzerland.

The insurance industry had combined $18 trillion invested assets worldwide at the end of 2007, but by September this year, nonlife insurers alone had lost 10%-15% of their shareholder equity. They also account for some $200 billion of the financial market’s total $40 trillion loss from subprime structured products, he added.

Should an insurer need to raise capital, the credit crunch would also be an issue, as it would prove difficult and expensive to raise capital and hedge against financial risks, Mr, Hess said.
Mr. Hess predicted that nonlife premium rates will rise in 2009, first for reinsurance and then for insurance. Price increases for reinsurance would result from higher demand for reinsurance at a time of reduced capacity, he added.

“There is a scarcity of risk capital, and so naturally the price of risk increases, including the price of reinsurance,” he said. “I expect prices in reinsurance to rise. It will take longer for primary insurance rates to increase, but they will also rise.”

Nonlife insurers could also take steps to improve their underwriting results, to compensate for lower investment returns, Mr. Hess said.
In a special report published Tuesday “Global Insura
nce Review 2008 and Outlook for 2009: Weathering the Storm,” Swiss Re said that refocusing on underwriting profitability was likely to lead to rate increases in lines where losses have been highest—including directors and officers, aviation, U.S. catastrophe and credit. In other lines, there will be an end to the decline on rates, it added.

“A general hardening of rates across all lines will be slow to emerge in the poor macroeconomic environment. However, the expectation for rate changes will be a shift away from softening to hardening in 2009, reflecting the increased cost of insurance production due to higher capital costs and lower investment returns

Complex Property Coverages

Sadly, a lot of times clients only ask one thing about property coverages -- How much does it cost? The next few blogs are meant to highlight issues that when there is a claim the client is asking --How much is your Errors and Omission coverage.

Debris Removal

Debris removal usually only applies to insured's property covered by the policy. There is going to be property owned by the insured that is customarily not insured by the property policy, they will have to clean it up and it is not covered unless an exception is made for this property under Debris removal. ( i.e. concrete blocks, driveways, curbs, walkways are not covered and trees, shrubs and lawns are commonly excluded for wind losses).

Debris removal owned by others is not covered if it is not insured under the policy. You must get debris removal changed to include insured's property and others including outdoor property.

Most policies have very low removal limits. Always increase these limits. It is not expensive and absolutely essential coverage in a loss. It is not uncommon to have greater debris removal costs than reconstruction costs.

Secret Questions

Knowledge based authentication (KBA), or the use of secret questions to verify a person's identity, is generally safe. The most frequently used KBA questions are ones with unchanging answers, such as what is your mother's maiden name or the name of your favorite pet. The consumer selects a secret question and provides an answer himself, which the company stores in its database. These types of questions are implemented only after a relationship has been established with the consumer. However, some risk exists if an identification thief were to know the answers from common knowledge or a data breach. Another type of KBA question is the dynamic type, which is intuitive and is created spontaneously using data from a consumer's data record that is accessed in real-time. This type of question does not require a prior relationship with the consumer and can be used for such things as account origination or requesting account changes.

Successful Construction Claims

Massive documentation is par for the course in large construction projects, and lawyers can use the paper trail as evidence to aid in the defense or prosecution of a construction claim. There is a wide array of project documents, including contract documents, drawings, applications for payment and payment certificates, a bar chart and electronic schedules, minutes of site meetings, site superintendent reports, deficiency lists, handwritten notes of meetings or telephone conversations, inspection and testing reports, and contemplated change notices, site instructions, price quotations, and change orders. Organizing documents in chronological order reveals a project history that can be related in an understandable and revealing way. That narrative frequently traces the history of construction problems that may become the basis for construction claims, and the way the story is communicated may play a decisive role in the claim's success or defeat. A paper trail can determine a problem's causes, suggest ways to correct the problem, and establish which parties are responsible or contributory to the problem.

Florida Catastrophe Fund

Insurance industry groups recently warned Florida legislators that the state's underfunded Catastrophe Fund must be reformed, especially since the state is in the midst of a 20-year increased hurricane activity cycle, according to Florida Insurance Council Executive Vice President Sam Miller. The fund currently needs up to $15 billion to meet its current obligations, but bond issues are unlikely to raise enough money in this economic climate. Miller suggests legislators reduce the fund's obligations from $28 billion to $16.5 billion, which would prompt insurers to purchase additional reinsurance. He also suggests allowing insurers to increase premiums to cover the additional reinsurance costs.

Reinsurance Contracts, Insurer Solvency And Reinsurer Solvency - A Reinsurance Primer

Reinsurance in the simplest terms is insurance for insurance companies. Primary insurance carriers "cede" (place with) some portion of the risks they agree to underwrite (based on the design of the reinsurance contract) to a reinsurance carrier which is known as the "cedant." Primary insurers and reinsurers negotiate and re-negotiate these contracts based on market conditions, trends and loss history.

Negotiated reinsurance contracts influence the breadth of or even the limit on risks primary insurance carriers can and are willing to underwrite. The primary insurer's capacity and "appetite" is proportional to the availability and use of reinsurance: the lower the reinsurer's capacity, the lower the primary insurer's capacity; and the narrower the reinsurer's appetite, the narrower the appetite of the primary insurer.

Retrocession is reinsurance for the reinsurer. The reinsurer has agreed to take on risks from several primary insurers and they, in turn, place some of their financial risks in other reinsurance carriers. The number of insurance carriers, primary, reinsurers and retrocessionaires (the reinsurer of the reinsurer) on a block of risks may be surprising.

Reinsurance is vital to the entire insurance mechanism, especially in light of the global insurance economy. Reinsurance accomplishes five functions/goals:

1. Stabilizes the earnings of the primary insurer in the event of catastrophic losses;2. Increases the primary insurer's capacity by limiting its liability on individual risks;3. Provides liquidity and protects against swings in business cycles; 4. Provides underwriting expertise to the primary insurer; and5. Can partially protect the insured in the event of a primary insurer's insolvency.

Conclusion
Reinsurance is vital to the insurance mechanism as it exists today. Capacity and risk appetite are based on the capital provided by reinsurers and the contractual agreements between primary insurers and reinsurers.

Emerging Trends in Workers Compensation

The elephant in the room in Workers Compensation Costs is healthcare's rising costs. The two snakes hiding under the bed are aging in the workplace and obesity. Consider the following:

• In 1986 Medical costs represented 45% of Workers Compensation claims. It is projected that by 2016 Medical costs will represent 70% of claims. Remember health care costs are borne by the employer through premiums and experience mods.
• Workers over 65 median lost time is 50% more than younger workers.
• Indemnity costs are 11 times higher for obese workers than healthy weight workers.

Don't think you need Umbrella Coverage?

Many customers think they shouldn't "waste" money on higher limits or umbrella coverage. if you are one of them consider the following:

• 40% of companies in the annual Fulbright & Jaworski report said they had at least one lawsuit filed against them for $20 Million or more in damages.
• Having company cars is one of the most dangerous areas of exposure. 13% of the top 100 lawsuit awards last year were attributable to automobile cases. In 2006, the largest automobile award was $30.6 Million with multiple injury cases routinely settling for between $3 to $5 Million.
• Median awards in cases resulting in paralysis are more than $7 Million.

How many doughnuts does your company have to sell to have an extra $5 Million after-tax to satisfy a judgment?

New York Reforms Late Notice Law

New York Amends Late Notice Law.

For policies issued or delivered in New York on or after January 19, 2009 the Insurance Company must prove Material Prejudice caused by late notice. key provisions based on recent literature include:

Applies to all policies except "claims made policies.

Claims cannot be denied based on late notice unless the insurance company suffered material prejudice.

Burden is on the insurance company to prove prejudice for claims where notice was late by less than two years.

Interesting Tidbits

• Since 2001, premiums for PPO and indemnity plans have risen as much as 56%, according to the National Association of Dental Plans.
• Buying Long term care insurance soooner is better. Up to 33% of applicants over 60 are denied coverage.
• Dog bites now account for one-third of all homeowners claims costing over $350 Million annually.

Cyber Risk Increasing as Stolen Data Becomes a Commodity

Prices charged by cybercriminals selling hacked bank and credit card details have fallen sharply as the volume of data on offer has soared, forcing them to look elsewhere to boost profit margins, a new report says.

Researchers for Finjan, a Web security firm, said the high volumes traded had led to bank and credit card information becoming "commoditised" -- account details with PIN codes that once fetched $100 or more each might now go for $10 or $20.

In its latest quarterly survey of Web trends, the California-based company said cybercrime had evolved into "a major shadow economy ruled by business rules and logic that closely mimics the legitimate business world".

Finjan's Israel-based chief technology officer, Yuval Ben-Itzhak, said in a telephone interview that new types of stolen data were now commanding a premium, such as patient healthcare information that can be used for insurance fraud or to illicitly acquire and sell medicines.
Other premium data includes business information, company personnel files, and intercepted commercial e-mails.

MAFIA STRUCTURE
The Finjan report, partly based on contacts the company established with five groups trading online in stolen data, described a Mafia-type cybercrime hierarchy in which bosses operate as business entrepreneurs and typically leave the actual online attacks to underlings.

An "underboss", or second-in-command, provides the Trojaninfiltration software for launching attacks. The workforce that carries these out is paid according to the rate of infections achieved and the country of origin of the infected computers.

"Resellers" then trade the hacked financial data, in the same way that a criminal "fence" disposes of stolen goods.

In online exchanges with resellers, Finjan researchers were offered a menu of stolen data, with platinum, gold, and corporate card details commanding the highest prices.

Sellers promised the data was "fresh" and one even offered a 48-hour guarantee to supply new details if those originally bought were rejected by payment systems as stolen cards.
"It's like in the regular business world -- when you buy a good and it doesn't work, you go back and you want to replace it," Ben-Itzhak said.

"It indicates a competitive environment. ... They need to build reputation, they want to show they're providing high quality data for your money so you can go back and buy from them rather than go to the other groups."

Ben-Itzhak predicted banks, which until now have shouldered the burden of compensating people whose data are hacked, would seek to put some of the onus for security on the customer.
"So far the banks are not mandating the end-user to have some sort of security on their desktop. They're taking the risk, better to say they're paying the risk, when your account has been compromised," he said.

"However what we noticed recently is the volume increased significantly and the banks are starting to ask the question: did you install something or do you have something running on your desktop. ... The banks will start to ask questions of the end-users and put some responsibility at least on them."
By: Mark Trevelyan

Copyright 2008 Reuters. Click for Restrictions

FMLA Expanded For Leaves related To Family Members In The Milatary

In January Congress expanded the FMLA to require employers to provide unpaid leaves of absence for certain reasons related to family members serving in the Military. Under the new law, employees will be entitled to 12 weeks FMLA leave per year for certain "qualifying exigencies" related to a family member's active military duty. In addition, employees are entitled to take 26 weeks of leave during a single 12 month period to care for a covered family member who suffers a serious injury or illness while on active duty.

Individual Disability Insurance

Can You Afford Not to Have it?

Disability Insurance protects your most valuable assets and your ability to earn an income. Without this coverage, your financial means for continuing your daily financial lifestyle could be in serious doubt. Listed below are some interesting facts regarding individual disability insurance.
Each year 12% of the adult population suffers a long term disability.
1 out of 5 people age 35-65 will become disabled for 5 or more years before they reach age 65.
A worker who is 20 years old today has a 30% chance of becoming disabled before he or she ever reaches retirement age.
At age 32 your chances of suffering a 3-month or longer disability is 6 times more likely than death.
At age 35 your chances of suffering a 3-month or longer disability is 44%.
If you are 45, your chances of having a work disability are 3 times as high as a person in their 20’s.
On average 7 out of 10 claims for Social Security disability benefits are refused the first time requested.
About 110 million Americans do not have long term disability insurance.
About 8 million adults have some disability that limits or prevents them from working.
Disabilities are not just the result of accidental injury. Common chronic health conditions can cause disabilities that limit your ability to work. In fact, the top 3 chronic health conditions that can cause work limitations are back disorders, heart disease and arthritis.
If you pay the premium, the benefits are normally received free from income tax. If the premium is paid by an employer, the benefits are taxable as ordinary income

The Pigeons Come Home To Roost

Since 2004, we have warned Fiduciaries of ERISA Plans about the Plans’ Consultants wearing multiple hats and performing multiple responsibilities. We repeatedly said the way to avoid conflicts of interest is to only do one thing: actuaries be actuaries, investment advisors monitor investments, insurance agents sell insurance, etc.

On June 19, 2008 the U.S. Supreme Court sent out its own red flag in the monumental decision Metropolitan Life Insurance Company et. al. v. Glenn. This decision addressed the standards of conflict of interest for Plan advisors and the consequences to a Plan if it allows its consultants to engage in conflicts of interest. Although the decision is initially limited to insurance companies acting as disability plan administrators and providing benefits as well (which is huge by itself), the decision will have repercussions in the Pension and Health and Welfare industry for years and decades to come. How far down the totem pole the decision will go is not known, but as they say in the media, “here is what we do know:”

Any fiduciary or plan which doesn’t carry fiduciary insurance is at extreme risk.
Any fiduciary that allows its consultants to provide “other services” places the Plan and himself/herself at risk.
Any fiduciary who allows its consultants and insurance companies to combine in some sort of joint venture where denial of benefits accrue to the benefit of the consultants and insurance company puts the plan at risk.
Plan fiduciaries cannot waive conflicts of interest.

In other words the consultants and insurance companies must wear one hat and one hat only.

Here are a few words of wisdom from the “Supremes.”

· A benefit determination is a fiduciary act (i.e. an act which the … owes a special duty of loyalty to the beneficiaries.)
· Conflict of Interest is a “real or seeming incompatibility between one’s private interests and one’s public or fiduciary duties.”
· … the fact that a settler approves a … conflict does not change the need for a Judge to take account of that conflict in reviewing the Trustee’s decision making.”
· ERISA imposes higher-than-marketplace quality standards on insurers.

Next Time a Plan Consultant Offers to Place Your Plan’s Insurance – Just Call McLaughlin.

Large Pension Funded Status Rises

Defined benefit pension plans closed out 2007 with a median funded status of 94 percent, according to a Mercer analysis of 377 S&P 500 publicly traded U.S. companies. That figure is up from the 2006 readings of 89 percent. The plans reported having a total of $1.56 trillion in assets and $1.5 trillion in pension liabilities at the end of 2007. Sponsors invested 60 percent of their plan assets in stocks, achieving an average asset return of 9.6 percent, down from 13 percent in 2006.

More Bad News For Iowa

National Flood Insurance Program Spokesman Butch Kinerney said recently that the flood insurance program does not expect losses related to the flooding in the Midwest to be high. Kinerney noted, "The fact is we just don't have a whole lot of policies out in that area," with only about 700 flood policies in force in Cedar Rapids, Iowa, which was hit hardest by flooding. Insurance carriers have up to 60 days to file claims information with the program, and the program is not likely to have a total loss estimate soon. While the program continues to pay ongoing claims from the 2005 hurricane season, it is not expected to repay its debt or the interest on the $20 billion it borrowed from the U.S. Treasury. However, that debt could be eliminated once flood insurance program reforms are passed by Congress.

Isn't it worth a call to find out how much Flood insurance costs for your home or building?

More Reasons To Obtain Union Liability Coverage and an Individual Labor Leader Endorsement

Labor Organization Annual Financial Reports: Notice of Proposed Rulemaking and Request for Comments

The Office of Labor-Management Standards (OLMS) on May 12, 2008 published a Notice of Proposed Rulemaking (NPRM) to (1) make several revisions to the current Form LM-2 that will provide additional information on labor union sales and purchases of investments and fixed assets and disbursements to officers and employees (Form LM-2 Schedules 3, 4, 11 and 12), and add itemization schedules corresponding to categories of receipts, and (2) establish a procedure and standards by which the Secretary of Labor may revoke for a limited time a particular labor organization’s privilege to file the simplified Form LM-3, where appropriate, after investigation, due notice, and opportunity for a hearing. The proposed changes are made pursuant to section 208 of the Labor-Management Reporting and Disclosure Act (“LMRDA”). The proposed rule will apply prospectively.

Got an Extra $225 Million?

A former racing official has sued NASCAR, saying she was subjected to racial and sexual discrimination in her two years as an employee. The complaint lists 23 incidents of sexual harrassment and 34 incidents of racial and gender discrimination beginning in 2005 and ending when she was fired in 2007. The official is 32 years old and she alleges that her co-workers called he racially insensitive nicknames and that male collegues made sexual advances. Do you have $225 Million "in your wallet?" I do not think your Mastercard will cover this either. Might be time to "just call McLaughlin" about EPL coverage.

Insured Property Loss...Remains the Largest In the Last Decade

The number of Tornadoes in the U.S. during the first quarter of 2008 surpassed the previous four year average and ISO estimates insurers will pay $3.35 Billion in first-quarter catastrophe claims. Also, insured losses of $1 Billion and higher from single events are becoming more frequent as we approach Hurricane season.

Employment Related Practices Update

Still think Employment Related Practices Insurance is not necessary?

• EEOC Claims are at their highest volume since 2002.
• Cost of Defense alone averages $125,000.
• Plaintiffs are now winning at the rate of 63%.
• Age discrimination claims are up 15% last year and retaliation and third party claims are skyrocketing.

Subprime Liability Claims Could Reach $4B

Fitch Ratings reported that subprime mortgage-related liability litigation would reach between $3 billion and $4 billion in directors and officers' (D&O) and errors and omissions (E&O) losses. However, if credit woes continue to spread into sectors indirectly linked to the subprime mortgage market, loss claims could rise significantly and lead to a hike in the number of bankruptcies. Subprime investments, according to Fitch, will continue to decline in value throughout the year. The ratings agency stated, "Further, highly illiquid, volatile market conditions have spread somewhat to other asset classes, which could impact insurers' broader investment portfolio performance."

CyberRisk in the News

Two articles in today's business news stood out to me.

• TJX paid over $24 Million to MasterCard for a massive breach that exposed millions of payment card holders to hackers. This is on top of the $40.9 Million they paid to Visa.
• At least 8.3 Million records were breached in the 1st quarter of 2008.

39 states and DC have laws now requiring organizations to notify consumers of a data breach that jeopardizes their personal or financial data. That notification in itself can be very expensive; however, in many states businesses have to go further and pay for a years' worth of credit monitoring.

Several insurance companies have relatively inexpensive coverages to this growing risk. Today, many business and non-profit organizations keep financial and personal data on their employees, their customers, and their members. Don't become a Headline! Call your independent insurance agent.

Smaller Firms and Unions Face Data Theft Risks

Hackers try new targets as big companies tighten security.

Identity theft and data security breach incidents are on the rise, but many companies and unions are not prepared to deal with this risk. Small and mid size companies are the most vulnerable. Bigger companies have gotten the message and stepped up their security efforts. Now data thieves are working their way down the food chain.

The FTC estimates as many as 9 million Americans have their identities stolen each year. A 2007 FTC report estimates that identity thieves steal $48 Billion from businesses and $5 Billion from consumers annually.

Insurance companies are finally writing policies to cover this exposure. Contact your Independent agent today.

Long Term Care Facts From Unum

• 57% of LTCI Claimants are under 65
• The average age is 54
• More that 15% under 45
• Nearly 2/3rds of claims are paid to ages 55-65
• The leading causes of claims under 65 are cancer, trauma,stroke or neurolical disease
• More than 70 % of claimants received care at home.

Theft of Personal Data More Than Triples This Year

Theft of sensitive data from companies, government agencies, colleges and hospital more than tripled in 2007 to more than 162 Million in 2007. People's names, birth dates, account and Social Security numbers are highly coveted. The amount of such information generated as they convert from paper into digital records is swelling.

U.S. Supreme Court opens Floodgates to Retirement Plan Participants Lawsuits

Participants in 401(k) and other retirement plans can file lawsuits claiming their individual accounts were mishandled, the U.S. Supreme Court ruled in a decision that bolsters the legal rights of 70 million people.

The justices today unanimously allowed a suit by a man who says he lost almost $100,000 because his employer didn't make investment changes he requested. The court rejected business contentions that participants can sue only to enforce the rights of the entire plan, not to recover losses incurred by a single account.

The ruling affects participants in so-called defined- contribution retirement programs -- a category that includes 401(k), employee stock ownership and profit-sharing plans. Those accounts hold $3.3 trillion in assets.

In the case before the justices, James LaRue says he tried to change the investments in his 401(k) plan in time to avoid the brunt of the 2001-02 stock market plunge. LaRue claims his employer, Dallas-based management-consulting firm DeWolff Boberg & Associates, didn't follow his instructions, costing him almost $100,000.

The 4th U.S. Circuit Court of Appeals in Richmond, Virginia, barred the suit, saying it wasn't allowed under the 1974 Employee Retirement Income Security Act, known as ERISA.
The Supreme Court today rejected that reasoning, saying Congress intended to provide broader protection to participants in retirement plans.

"Whether a fiduciary breach diminishes plan assets payable to all participants, or only to persons tied to particular individual accounts, it creates the kinds of harms that concerned the draftsmen'' of ERISA, Justice John Paul Stevens wrote for the court.

DeWolff Boberg argued that ERISA entitles LaRue to a court order directing the plan to change his investments but not to recoup the money he says he lost.

LaRue's legal team, backed by the Bush administration, said that approach would leave participants in defined-contribution plans with no recourse in the event their accounts are mishandled by the fiduciaries who administer the plan.

LaRue no longer works at DeWolff Boberg. In 2006, he closed his 401(k) account and withdrew the $119,000 balance.

Offered by employers, 401(k) plans let workers put a percentage of their paychecks into a tax-deferred investment account.

The case is LaRue v. DeWolff Boberg, 06-856.

ERISA Claim

U.S. Department of Labor Sues Advisers to Pension Plan

Co-advisers of a Michigan pension plan were sued by the U.S. Department of Labor for alleged violations of their fiduciary duties under the Employee Retirement Income Security Act (ERISA) in connection with the sale of real estate held by an employee pension plan.

The Department of Labor alleged in its complaint filed in the U.S. District Court for the Eastern District of Michigan on December 28, 2007 (Case No. 2:07-CV15519), that Fifth Third Bank and Carrie Milestone Advisors, LLC violated their fiduciary obligations to their client, Operating Engineers Local 324 Pension in Troy, Michigan, by abruptly selling investment property held by the plan when they informed the plan they would be managing this real estate asset as a long-term investment. The complaint states that the advisors' fiduciary violations caused the plan to sell a $28-million property for $4.5 million.

The Department of Labor asked the Court to prevent the defendants from acting as ERISA fiduciaries in the future and to order compensation to the plan for its losses.

Eleventh Hour Authorization of TRIA

After much wrangling in the Senate and the House, just shy of the December 31, 2007 expiration date, Congress enacted legislation (H.R. 2761) and the President signed into law the Terrorism Risk Insurance Program Reauthorization Act of 2007 on December 26, 2007 extending the widely relied upon Terrorism Risk Insurance Act of 2002 (TRIA) until 2014. TRIA was enacted in 2002 to respond to the disruption in the insurance market created after the 9/11 terrorist attacks. TRIA requires commercial property and casualty insurers to offer clients insurance coverage for damages caused by terrorist attacks. In return, the federal government provides a backstop for the insurance industry against truly catastrophic aggregate terrorism losses that exceed $100 million. Since its inception in 2002, TRIA coverage has been widely accepted and used by many as a primary means of terrorism insurance.
This reauthorization significantly changed the definition of an "Act of Terrorism" removing the previous limitation that only acts of terrorism committed "on behalf of any foreign person or foreign interest" are covered under TRIA. Many insureds complained that TRIA's limitation in applying only to acts of terrorism committed on behalf of foreign persons or interests left insureds vulnerable to losses from "homegrown" terrorists such as those that masterminded the Oklahoma City bombings and the 2005 London bombings. With this limitation removed, TRIA now includes coverage for acts of terrorism committed by any "individual or individuals acting as part of an effort to coerce the civilian population of the United States or to influence the policy or affect the conduct of the United States government by coercion."
The revision of the definition did not, however, amend the requirement that only damages within the U.S. or outside of the U.S. to an air carrier, vessel or U.S. mission are covered under TRIA. This limitation may create an incongruous situation for those Sellers of SAFETY Act approved technologies that rely on TRIA to satisfy their SAFETY Act insurance requirement and deploy their technologies outside the U.S. For instance, under the SAFETY Act's definition of an Act of Terrorism, the Department of Homeland Security has concluded that the SAFETY Act applies extra-territorially and that Acts of Terrorism may be certified that occur on foreign soil "if it causes harm to a person, property, or an entity in the United States." Because TRIA's definition is narrower, a Seller could find that its SAFETY Act coverage protects it from an Act of Terrorism abroad but its insurance does not apply.
For certified Acts of Terrorism, the Reauthorization Act of 2007 maintains the annual liability cap of $100 billion for the U.S. and insurers meaning that neither the U.S. nor insurers are responsible for paying losses that exceed $100 billion in the aggregate unless Congress acts otherwise with respect to these losses. The Act has always contemplated pro rata payment to insureds when the aggregate losses exceed $100 billion and now requires insurers to "provide clear and conspicuous disclosure to the policyholder" of this annual liability cap in policies issued after the Reauthorization Act of 2007. In addition, instead of leaving the pro rata determinations to the Secretary of the Treasury, the Act now requires the Secretary to issue final regulations within 240 days for determining the pro rata share to be paid by insurers when the aggregate insured loss exceeds $100 billion.
While many had pushed for coverage of losses from terrorist acts involving nuclear, biological, chemical, or radioactive materials, this reauthorization does not require insurers to offer such coverage. The Government Accountability Office has been tasked to study and issue a report in the next year on the availability of terrorism insurance specifically for acts of terrorism using nuclear, biological, chemical, or radioactive materials.
TRIA was intended to provide a temporary mechanism, expiring at the end of 2005, to allow the marketplace to adapt after the economic dislocations caused by the 9/11 attacks. While the market for terrorism insurance has improved since 2002 when TRIA was first enacted, clearly this reauthorization until 2014 reflects the fact that doubts remain as to the capacity of the private sector to insure against large-scale terrorism risk in the U.S. With this reauthorization, insureds can breathe easier that they are covered for certain catastrophic terrorist losses, at least until 2014.

Confined Space Work Rule Upsets Small Contractors

The U.S. Occupational Safety and Health Administration extended the deadline for comments on a proposed rule for construction in confined spaces from Jan. 28 to Feb. 28 following vocal opposition from utility contractors and others in the construction industry. The proposed rules were issued unexpectedly on November 28, 2007, and establishes four classifications for confined spaces - isolated hazard, controlled atmosphere, permit required, and continuous system permit required. OSHA started work on the rule in 1993 at the behest of the construction industry; previous OSHA training and education offered little guidance. Contractors have been using the general industry standard as a result, and they say that the new classification system is confusing and that it is now unclear which category to use at particular sites. The proposed rule would also put all liability on the primary contractor and imposes onerous and costly mandates for work in trenches, manholes, and other confined spaces, say utility contractors. Ted Saito of the Engineering and Utility Contractors Association says that requirements such as early warning systems, reevaluation of procedures, and additional reassessments in the event of an emergency or ventilation failure will "cause an enormous amount of record keeping for training ... that will result in financial hardship to all employers without increasing employee safety." Another provision, that a rescue team be on standby in some cases, is cost prohibitive to smaller contractors, says George Kennedy, vice president of safety at the National Utility Contractors Association.

New Media Exposures With Online Publishing

Companies, Unions, and Not-For- Profit Associations must be careful to avoid a host of legal pitfalls when publishing content, regardless of what medium they use to publish, that include: defamation, publicity/privacy rights violations, copyright infringement, and trade secret misappropriation.

SubPrime Litigation May Dent D&O Insurers

State Street Corp.'s (STT) decision to set aside $618 million to cover subprime litigation costs has increased concern that insurers offering policies covering such expenses could be hit with big claims from the credit crisis.
State Street said the reserve was needed to pay for lawsuits and possible settlements stemming from complaints about the fixed-income strategies managed by its State Street Global Advisors investment arm. The funds were hit by exposure to falling subprime mortgage markets and a lack of liquidity, the company explained.
State Street has insurance covering legal costs and expects to get some of the money back from claiming on the policy, Ronald Logue, chief executive of State Street, told analysts and investors during a conference call Thursday. The value of that coverage wasn't included in the reserve for accounting reasons, he added.
Logue was likely referring to directors and officers insurance. These D&O policies protect executives and members of a company's board from liability in the event of a lawsuit against them claiming wrongdoing in connection with their firm's business. The coverage usually pays for the cost of defending lawsuits, after a deductible, and also a portion of any settlement. Errors and omissions policies offer similar professional liability coverage.
Chubb Corp. (CB) and American International Group Inc. (AIG) are the biggest D&O insurers. Ace Ltd. (ACE), XL Capital Ltd. (XL), Travelers Cos. Inc. (TRV) and Hartford Financial Services Group Inc. (HIG) also offer coverage.
Some D&O insurers suffered earlier this decade after the collapse of Enron and WorldCom sparked a flurry of class-action lawsuits against companies and investment banks. But tort reform then made it more difficult to start such litigation, and the number of cases dwindled.
Almost 500 federal securities class-action lawsuits were filed in 2001, making that year by far the most active since 1995, according to Stanford Law School, which tracks such litigation. That dropped to 118 suits in 2006, the lowest in a decade.
The declines appeared on course until the middle of 2007, when litigation activity jumped as the subprime credit crisis hit: 100 companies were sued in the second half of last year. That reversed a trend of eight consecutive quarters with below average litigation, Stanford said in a study released Thursday.
The financial-services sector was hardest hit, with 47 companies sued in 2007, up from 11 in 2006, Stanford said. More than half of those suits are related to subprime market disclosure issues, the law school noted.
That could bode poorly for D&O insurers such as Chubb and AIG, but it's too early to tell how much their earnings could be dented, according to one industry analyst.
"People are starting to worry about it. But it's too early to say that we've got a problem," Paul Newsome, a managing director and insurance analyst at Sandler O'Neill & Partners, said. "If the market continues to fall and if we have more prolonged problems, we will have a lot more lawsuits and it will compound itself."
AIG spokesman Chris Winans said the company is monitoring the development of such claims, but said that, at the moment, it doesn't see any "unusual activity." A Chubb spokesman declined to comment.
It's tough to tell which D&O insurers might be exposed because companies in the business don't usually disclose which industries or specific businesses they've sold coverage to, Newsome added.
Similar concerns emerged in 2006 after the stock-option backdating scandal shook the technology industry. But claims didn't end up being very large, partly because the share prices of the companies involved didn't fall much.
"What saved the industry was the fact that stock prices didn't fall, so there weren't any losses to be recouped," Newsome said.
The subprime mortgage crisis has taken a much heftier toll on share prices though. Bank and brokerage shares have lost roughly a fifth of their value in the past year. Shares of some mortgage lenders have slumped by more than half and others have filed for bankruptcy, leaving shareholders with nothing.
Still, Newsome said the impact may not take a big bite out of the D&O businesses of insurers such as Chubb and AIG. That's because there's still a long-term, broader trend of falling securities class-action litigation. Financial-services companies may make lots of D&O claims, but overall D&O losses may remain in check, Newsome said.
"There may be losses, but results may be so good overall in the D&O business that this might not show up on the radar much," Newsome said.
-By Alistair Barr; 415-439-6400; AskNewswires@dowjones.com
(END) Dow Jones Newswires
01-03-08 1951ET
Copyright (c) 2008 Dow Jones & Company, Inc.- - 07 51 PM EST 01-03-08

Commercial Lines Pricing

During 2006, commercial line carriers achieved unprecedented underwriting profits, due to low combined ratios. Those stellar underwriting results, combined with a quiet hurricane season, suggest that 2007 will be another lucrative year for the property-casualty insurance sector. In addition, reserve deficiencies from prior years are now mostly financed. For profitable lines of commercial insurance, competition is mounting and is already testing major carriers' underwriting discipline. Experts predict that between 2008 and 2012, the insurance sector will experience an interval of comparative steadiness. In 2008 and the first six months of 2009, prices are expected to drop by between 5 percent and 15 percent. If price increases do commence in 2009, as per the traditional underwriting pricing cycle, the increases will be moderate, unless big catastrophe losses occur, according to analysts.

Sub-Prime Meltdown

To date, more than $170 billion has evaporated from the balance sheets of companies around the world as the result of the meltdown of the U.S. subprime mortgage market. Commercial banks and investment banks have been the hardest hit, with write-downs by Citigroup and UBS alone accounting for more than $28 billion. Losses have been nearly evenly split between U.S. and non-U.S. companies.

Identity Theft -- Are you a victim, the source, or both?

8.3 million people or almost 4% of American adults were victims of identity theft in 2005. Not suprising is that over 56% of those did not know how the information was stolen, but what is suprising is that 16% knew the thief personally. Companies can really provide a benefit to their employees at little cost by purchasing for them identity theft coverage. It is the cheepest protection an employer can buy to keep its employees productive. An employee who has had his/her identity stolen is not thinking about work.

Almost all business keep data. If your data is stolen, hacked, or destroyed more than likely you are not covered for the losses you suffered or even greater the losses the theft caused for others. Just recently Insurance companies started offering this coverage. Consult your Independent Agent or you may be more of an Indentity Theft victim than you think.

Sub-Prime Liability

The subprime mortgage crisis may lead to a surge in professional liability claims that will spread across the United States and global economies in ways that havent been seen from one event.
With past stock-options scandals and the savings-and-loan collapses of the 1970s, the lawsuits involving directors and officers or errors and omissions covers that followed were fairly tightly focused on the companies or industries involved.

But here the losses have a ripple effect that goes out through the economy as whole, because of the way these were marketed, said Bill Boeck, senior vice president of the Financial Service Group at Lockton Cos. Inc., and a lawyer with more than 20 years of experience in professional liability litigation.

In a briefing paper, Guy Carpenter & Co. said one "reason why the impact is likely to be greater than it appears is that investors may begin to file against companies not involved in subprime lending but which felt the disruption caused by the subprime mortgage market.

An example cited by Carpenter, Boeck and others is the fate of U.K. mortgage lender Northern Rock, which was not involved in subprime lending. It did heavily utilize short-term debt to fund its lending, however, and when that financing dried up in the subprime-sparked credit crunch, the company needed emergency funding from the Bank of England to stay afloat. But it lost 90% of its market value, said Guy Carpenter: The net result, of course, was litigation, with various institutional investors filing lawsuits against Northern Rocks directors.

Stanford Law Schools Securities Class Action Clearinghouse Web site listed 32 class-action lawsuits filed in relation to subprime-related issues. The companies involved run the gamut from direct mortgage companies and banks, home builders, Wall Street firms, Moodys Corp., the rating agency, and the parent of rating agency Standard and Poors, McGraw-Hill Cos.

You see the banks and lending institutions, not surprisingly, said Robert P. Hartwig, president of the Insurance Information Institute. And there are a number of suits against builders, who have been hard hit by this.

The Guy Carpenter brief predicted that more litigation is on the horizon for 2008.
The classes that appear to have the most exposure are alternative investment funds (e.g. hedge funds, private equity funds), real estate agents and mortgage brokers, said the brief. While hedge funds historically have not been large purchasers of insurance (10% to 15% of 8,000-plus funds), their increased interest in buying D&O and/or E&O, as well as the significant rate hardening on existing funds, seems to indicate that attitudes are changing.

Individual lawsuits are also blossoming, said Boeck, targeting bond insurers, appraisers and accounting firms that worked for companies directly or indirectly involved in subprime lending, and managers of 401(k) plans and pensions that lost money because of subprime investments.
There are various suits against people in the real estate industry -- anybody involved in funneling a borrower to a lender, he said.

As the subprime crisis continues to unfold, and the credit crunch and other related issues spread out in the economy, it is difficult for the industry to be sure how big the insurance impact will be. These kinds of professional liability claims trail well behind the breaking events that give rise to claims and litigation.

Hartwig noted that some investment banks and others had reported possible insured losses ranging into the low billions of dollars as the subprime mess began attracting attention earlier this year, but most have refrained from doing so of late. Theres a sense there that they dont have a lot of good information on which to base it, he said.

Boeck said that it could be a year to 18 months before the volume of litigation is understood, with three troublesome issues of securitized subprime mortgages resetting to higher payment rates between spring of 2008 and spring of 2009, and with a large number of foreclosures likely to follow.

At that point, well be outside of the blast zone, he said, but added that it could be late 09 or afterward before definitive answers are available.

A hardening of reinsurance pricing in 2008 seems unlikely, Carpenters brief said, except for insurers who are overweight in the affected sectors (e.g. home builders, subprime lenders).
An exception to the soft market, Boeck said, is companies affected by subprime issues.
The market is soft, and it is very competitive, he said. We frequently are able to negotiate premium reductions while getting enhancements. But for companies that are in the middle of all this, the negotiations can be brutal. If youre a lender involved in subprime and youve seen claims, perhaps even a securities suit, youre renewal can be an absolute nightmare. Weve seen that happen. These negotiations can be an absolute nightmare.

Some clients have been nonrenewed by insurers because of subprime problems. I wouldnt say its common, but it has happened, Boeck said.

At the end of the day, their decision is going to be motivated primarily or significantly by their feelings about the management of the company, Boeck said of the insurers. If they feel the managers of the company screwed up and may screw up again, then theyll walk.

(By Alyn Ackermann, senior associate editor, BestWeek: Alyn.Ackermann@ambest.com)Copyright 2007 A.M. Best Company, Inc.