Webb Says

Life Insurers Getting More Creative

2009-11-06T10:44:00.002-05:00

Life Insurance companies are getting more creative in the products they offer. One example is a life insurance product that offers a long term care rider. If you purchase this type of policy and rider, then if you need long term care the death benefit is available during your life to pay for long term care. You are literaly buying one policy that covers two contingencies.

Another new product is a policy that gives you a break in rates even if you are a smoker. But the rate lasts only three years. If you don't cease smoking by the third year, your life insurance premiums jump.

Also, don't forget that the estate tax rates go to zero next year, but jump back to the old rates the following year. It is time to visit your estate planning professional and life insurance agent to start examining your options.

HealthCare -- I

2009-10-28T14:42:00.002-04:00

America's healthcare system is neither healthy, caring, nor a system. --Walter Cronkite

It is time to begin the dialogue. The next few weeks we will begin a discussion of what we think Congress will do, what really needs to happen, and how we must demand from the Congressional leadership real reform not "sausage."

Let me hear from you.

Ignoring Risk Management is Risky.

2009-09-03T09:07:00.001-04:00

Corporate fraud, data theft, financial reporting risk-and a host of others-can cost organizations dearly, says Ernst & Young in a new survey. That's why it's so important for today's businesses to get their risk management strategies right. Doing so protects organizations' valuable assets, and can also create a competitive advantage.
"This financial crisis has taught us that unidentified risk can lead to catastrophe," says Ernst & Young Partner Tanya Khan. "Clearly, leadership in Canada and around the world must refocus and intensify their efforts to ensure effective risk management is tied directly to business priorities."
In The future of risk: Protecting and enabling performance, Ernst & Young finds 96% of organizations believe they can improve risk management, while nearly half say committing additional resources to risk management could actually drive a competitive edge.
Despite the tangible negative effects of neglecting this area, not everyone plans to spend now. Sixty-one percent say they won't commit more resources to risk management over the next 12 to 24 months. Instead, companies are focused on doing more with the same or less resources and budget.
The survey further finds coverage and focus of multiple risks functions has become increasingly difficult to manage and is compounded by a lack of alignment. Fifty percent of respondents say they have gaps in coverage.
"Departments tend to assess how risk affects them, not the entire organization," Khan explains. "Risk management needs to move out of its silo, and reach across an entire organization if it's going to work well. Companies need to ask: Do our efforts allow us to understand what big-picture risks might emerge 12 months from now?"
Khan adds that there can be an upside to risk. "New opportunities will emerge, even now, and companies must ask themselves how they can seize them. This is the perfect chance to make sure your business has a handle on risk management before something goes wrong."

A few questions to consider for balancing risk, cost and value:
1. Do we understand the risks that our company faces?
2. Do we have a comprehensive risk framework in place?
3. Do we have duplicative or overlapping risk functions?
4. Are the risks we take aligned to our business strategies and
objectives?
5. Are we taking the right risks to achieve competitive advantage?

ERISA Basics

2009-08-27T09:58:00.001-04:00

This article begins a series concerning Fiduciary Responsibility under the Employee Retirement Income Security Act (ERISA). Few fiduciaries understand their duties, the liabilities associated with their responsibility, or whether they are even fiduciaries. This first article provides an overview of fiduciary responsibility under ERISA and some basic practices fiduciaries must take to exercise their duties.

Basics of Fiduciary Responsibility under ERISA

The role of a fiduciary is paramount underthe Employee Retirement Security Act.[1] ERISA provides protections for participants and beneficiaries and specifies fiduciary standards of conduct. Yet many who serve as fiduciaries are unaware of their legal obligations. There is also a misunderstanding about the extent of fiduciary responsibility service providers have under ERISA.

The operation of a retirement plan requires many participants. Some are clearly identified as Fiduciaries, others actions make them fiduciaries, while a third group acts under the direction or control of a fiduciary. ERISA defines a fiduciary[2] to the extent an individual
Exercises discretionary authority or control respecting management of a plan or disposition of its assets.
Renders investment advise or has authority or responsibility to do so, or
Has discretionary authority or responsibility in the administration of the plan.

A fiduciary has four primary duties[3] which must be carried out to discharge those duties solely in the interest of the beneficiaries and participants interest.

Duty of exclusive purpose
Duty of prudence
Duty to diversify
Duty to follow plan documents.

Failure to follow these duties may expose a fiduciary to personal liability to restore losses or profits. Willful violation also exposes fiduciaries to criminal penalties.

ERISA specifies five prohibited transactions[4] that a plan may not engage in with a party in interest. They include:

A sale of property between a party in interest and the plan.
Lending money between a party in interest and the plan.
Furnishing goods or services between the plan and a party in interest.
Transfer or use of plan assets by a party of interest.
Acquiring employer securities or real property in violation of ERISA.

A fiduciary may not:

Deal with plan assets in its own account or own interest.
Act in a transaction where the fiduciaries’ interest are adverse to the plan or its beneficiaries.
Individually receive anything of value from someone dealing with the plan.

There are basically two types of fiduciaries. The first is someone named in the plan document who has responsibility for managing the plan’s assets. The other are fiduciaries by reason of his/her actions becomes a fiduciary . Named fiduciaries include:

Plan administrator
Plan Trustee

If the plan so provides any person may serve as both Plan administrator and Plan trustee.

Plan documents usually control a Plan’s administrator in this regard. However, delegating responsibility is considered a fiduciary action. The appointing fiduciary has the obligation to prudently select and monitor the performance of its appointees. Thus when a plan manager appoints an investment manager the other fiduciaries are relieved of this responsibility and, as long as the appointing fiduciary is prudently selected and monitored there is a real transfer of risk of the investment decision responsibility.

An individual or entity can also become a fiduciary by filling a void. For example, a plan sponsor’s chief financial officer may begin to make investment decisions for the ERISA plan for lack of action by the Plan administrator or expedience. By so doing the CFO becomes a fiduciary without realizing the consequences. Such a sequence of events can lead to further exposure if the CFO discovers an act of self dealing between the employer and the plan. The CFO must remember that his/her duties to the plan are paramount.

ERISA specifies three circumstances[5] that give rise to liability for a fiduciary.

A fiduciary knowingly undertakes to conceal, an act or omission of another fiduciary, knowing that such act is a breach
A fiduciary in performing its responsibilities has enabled another fiduciary to commit a breach
The fiduciary has knowledge of another fiduciaries breach and does not make reasonable efforts to remedy the breach.

A service provider can be considered a fiduciary by virtue of rendering investment advice for a fee. While some acknowledge this responsibility as a co-fiduciary this approach does not transfer liability as previously discussed. The provider may later claim advisory capacity without discretion. Thus the importance of getting a service provider’s duties and responsibilities in writing. An investment consultant must acknowledge fiduciary status so they are bound by the duties of prudence, diversification, and adherence to plan documents.

Documentation is the cornerstone of demonstrating sound fiduciary governance and prudent decision making. The first step is to formally identify all plan fiduciaries and each fiduciary’s responsibility to the plan. Second all fiduciaries should meet on a regular basis. Thirdly, no fiduciary should perform multiple functions for a plan; the opportunity for conflict of interest is just too great. Finally, all documents and paperwork that relate to the plan or the decision-making process should be organized and accessible.

Conclusion

Litigation for fiduciary breaches under ERISA is growing exponentially. The burden of proof in such cases lies with the plan fiduciaries. Liability is not necessarily determined by investment performance, but on whether prudent investment practices were followed.

The most effective strategy for achieving the “exclusive purpose” of providing benefits for plan participants is to establish and follow documented procedures that demonstrate a prudent process. Such an approach will provide greater clarity into plan composition and performance, enabling fiduciaries to make better decisions and help their plan participants retire with meaningful benefits.

[1] Brussian v. RJR Nabisco
[2] ERISA Para. 3(21) (A).
[3] ERISA Para. 404(a)(1).
[4] ERISA Para. 406(a)(1).
[5] ERISA Para. 405(a).

Off the Beaten Path

2009-08-24T13:59:00.002-04:00

Major League baseball will not let Pete Rose in Cooperstown. We condemn athletes when they bet legally on other sports in Vegas. Professional athletes are encouraged to help in the community. So what do my wonderous eyes see on TV? The Washington Redskins partnering with statewide lotteries to sell lottery tickets with the prizes being Redskins tickets, Super Bowl trips,etc.

That is right the Washington Redskins are endorsing gambling, and taxing the poorest of the poor. They are making money on the very activities that ban ballplayers from career long accolades and cause them to be pariahs in their communities. I do not know if other teams engage in this ultimate of hypocrisy. Let's hope they don't. But when this Nation's Capital sports franchise openly endorses gambling and taxing the poor, it must be condemned and treated as its ballplayers.

We should tell its owner you have lost your tax exemptions, your right to participate in the championship, and you must forfeit your ownership. Perhaps then will the NFL begin to have the social conscience it demands from its players.

Medicare,Medicaid, and SCHIP Extension Act of 2007 (the "Act").

2009-07-31T10:08:00.002-04:00

The Act requires Responsible Reporting Entities ("RREs") to report to the Centers for Medicare and Medicaid Services ("CMS") any partial payment, settlement, judgment or award made to a Medicare beneficiary. The Act, which was originally scheduled to go into effect on October 1, 2009, has been delayed by CMS until April 1, 2010.

RREs include liability insurers, no-fault insurers, workers compensation insurers and self-insureds. Hence, insurance companies are responsible for reporting under the Act for many of their insureds. If your customers must register because they fall into one of these two categories, they may designate a reporting agent. If, on the other hand, your customer has a deductible policy or a TPA with which the insurance company has contracted, makes all payments to the claimants on behalf of the customer, then they must register as the RRE and designate the TPA as the reporting agent. Instructions and additional information regarding the Act and registration can be found at http://www.cms.hhs.gov/MandatoryInsRep.

The information provided should not be relied upon on as legal advice or a definitive statement of the law of any jurisdiction. For such advice, the reader should consult with their own legal counsel. No liability is assumed by reason of the information contained herein.

Rolling The Dice in Uncertain Times?

2009-06-10T14:38:00.002-04:00

Failing economy, layoffs, high unemployment have become a drumbeat these days. So how do companies react -- cut insurance costs by dropping or lowering limits on employment related paractices insurance? Wrong move.

Employees who are laid off or terminated have one outlet -- they were discriminated. Recent EEOC numbers confirm this trend.

Discimination claims jumped 13%
Age discrimination claims jumped 22.3%
Retaliation claims jumped 18%

The cost:

The average overall jury award is $252,000.
The average settlement is $75,000.
The employers cost of defense averages $120,000 per claim.
If the employer loses add $200,000 the average cost for the employye's attorney.

So before you think about dropping EPL coverage or reducing your limits, think again.

Just to keep you from ignoring this advise ask your lawyer what Congress recently did regarding ADA and Fair Pay.

Will Wonders Never Cease?

2009-04-27T15:43:00.002-04:00

Will Wonders Never Cease?

Pension Trustees are still turning a blind eye to their own personal exposure when they continue to hire consultants to perform other functions such as purchase bonds and fiduciary insurance for the funds and the Trustees. The most glaring conflict is when an actuarial firm charged with determining the financial soundness of the plans turns around and puts on another hat and becomes the agent for the insurance company. That actuary has a fiduciary duty to the plan, but also has a fiduciary duty to the insurance company and is paid by both. No one can serve two masters but many consultants sell their multiple services to a plan offering a shopping cart of services. They ignore the very essence of a fiduciary's duty – to work in the best interest of the plan instead they line their pockets in as many ways as possible.

As a plan trustee don’t fall into this trap. The consultants may be wonderful people, take you out to dinner, or play a great round of golf, but at some point if your plan is in trouble it is your personal assets that are at risk and you do not want an attorney sitting across the table asking you, “Why didn’t you engage a consultant to do so many things, where is the diversification of the services you were provided?” In other words why didn’t you have checks and balances in the advice you were being given.

Also, be leery of actuarial firms who oppose fighting to oppose disclosure of fees regulations. For example, The Segal Company wrote the Department of Labor in 2008 that they reconsider their proposed rules for disclosure; eventhouhg their own letter acknowledged that there may be prohibitions for rebating that restrict their ability to discount insurance commissions, so they do sell insurance, but do not want to disclose what they are paid. So if they say they are not receiving commissions they may be violating the law, yet they don’t want to disclose this to the same people who they owe a fiduciary duty. I don’t want to single out Segal, but actuaries and other consultants have to be sensitive to this issue, not pretend it does not exist.

More importantly, as a plan trustee you have to be careful. Do not let “one stop shopping” entice you into personal bankruptcy, and your plan not providing the benefits it should be providing.

Connecticut AG Criticizes Bailout Money for Credit Rating Firms

2009-04-09T10:00:00.000-04:00

Connecticut Attorney General Richard Blumenthal is questioning why up to $400 million in federal bailout money is going to the big three credit rating agencies that he says helped create the economic meltdown.
Blumenthal said Monday that he is investigating why a $1 trillion government bailout program designed to unfreeze the credit markets steers money to Moody's, Fitch and Standard & Poor's and shuts out their six smaller competitors.
He said the companies may have violated antitrust laws, and he alleged they overrated toxic assets before the meltdown.
"The net result here is that up to $400 million in fees will be showered on the same ratings agencies whose mistaken ratings and inflated ratings led to the economic crisis,'' Blumenthal said. "It is another reward for failure.''
Blumenthal said he subpoenaed the companies for documents last week and asked Federal Reserve Chairman Ben Bernanke in a letter sent Monday to revise the bailout program to stop favoring the three rating agencies.
The program, created by the Federal Reserve and the Treasury Department, is called the Term Asset-Backed Securities Loan Facility.
It provides loans to big investors and companies to buy newly issued securities backed by consumer debt, stimulating lending for auto, education, credit card and other loans.
The program starts by providing up to $200 billion in financing to investors, such as hedge funds, private equity funds and mutual funds, to buy up the debt. It has the potential to generate up to $1 trillion in lending.
Blumenthal said the program requires financial institutions to have new securities rated by two or more "major nationally recognized statistical rating agencies.'' He said Moody's, Fitch and Standard & Poor's are the only raters that meet the criteria.
Spokesmen for Fitch and Standard & Poor's said they were reviewing Blumenthal's comments and would provide responses later Monday. A message was left for Moody's.
A message was also left for a Federal Reserve spokesman.
Blumenthal's new actions expand his existing antitrust investigation of the three rating agencies. He sued the firms last July, alleging they gave artificially low credit ratings to cities and towns that ultimately cost taxpayers millions of dollars in unnecessary insurance and higher interest payments.
The three firms have denied those allegations and said the lawsuit is without merit.
Blumenthal said the three agencies have become an "old boys' club'' on Wall Street and their monopoly must be broken up.
"The Fed is strengthening and entrenching the stronghold held by the Big 3,'' he said.
Securities and Exchange Commission Chairman Mary Schapiro said last month that the SEC may need to ask Congress for broader authority to supervise the Wall Street credit-rating agencies. Schapiro has suggested the SEC should explore ways to diminish the market's dependence on ratings by the big agencies. The three firms dominate the $5 billion-a-year industry.
The SEC was given new authority over them in 2006 legislation, but Schapiro has said she isn't sure whether it's enough

Misidentification Creates Problems for Insureds, Agents, Attorneys

2009-04-09T09:50:00.002-04:00

By Beth D. BradleyApril 8, 2009
Among the issues that plague coverage lawyers and insurance agents, and especially insureds, is that of a misnamed, unnamed or mischaracterized insured. All too often in insurance policies, corporations are designated as assumed names, partnerships as individuals in corporations, or the names simply do not match the insured.

The problem is compounded when there may be several related entities, all of which are insured or intended to be insured. A related problem exists when the addresses are wrong or the insured's business is not accurately described.

These issues are also problematic for agents. As the intermediary between insurer and insured, fingers may point at the agent from either direction if there is a mistake.

Even when the named insured is correctly named, the type of entity can determine coverage. Managers of a limited liability company are insured, executive officers and directors of the corporation are insured, and spouses of partners in a partnership or joint venture are insured. If an entity is not named, it may have no coverage whatsoever. Misstating the form of an entity, be it corporation, partnership or sole proprietorship, can also lead to disastrous consequences.
For example, the policy itself provides that no coverage is included for a partnership that is not named in the declarations. Accordingly, a partnership that is misnamed as a corporation or sole proprietorship may have no coverage. And, while coverage is afforded for directors or officers of the corporation, in their individual capacity, if the corporate status is not revealed, this same coverage may not exist.

Under the standard ISO general liability form, the policy provides limited coverage for newly acquired or formed organizations, but only for 90 days unless they become named insured. Even this coverage, however, does not extend to unnamed partnerships.

A twist on these issues is created by the complaint allegation rule. If there are entities that might otherwise be entitled to coverage, they may not be if the pleadings do not match the policy names or reveal the corporate relationship.

On a related note, failure to include the proper address or addresses for the insured may also impact coverage, especially where an endorsement limits coverage to designated premises or projects.

Similarly, failure to properly describe the operation may limit coverage, if there is an endorsement for designated operations, or may lead to a claim from the insurer, if an unknown operation, for which no premium was charged, leads to coverage.

Liability policies are not the only ones impacted. Ownership of autos is another area ripe for unintended consequences under commercial auto policies, where coverage may be determined by ownership of the auto. In Houston General Ins. Co. v. Owens, 653 S.W.2d 93 (Tex. App. - Amarillo 1983, writ ref'd, n.r.e.), Ralph Owens formed a trucking company, Ralph Owens Trucking Co. Inc. The corporation engaged in the trucking business, but the trucks were owned individually by Owens. As the individually owned trucks were traded for replacements, the replacements were acquired in the corporation's name.

Although Owens testified he requested that the agent procure coverage in the names of both the corporation and Owens, individually, the primary policy was issued in the names of both entities but the umbrella policy was issued in the name of Ralph Owens only. The insured prevailed at trial, proving he had requested the coverage and establishing that the agent was acting on behalf of the insurer, but the case then proceeded to appeal.

On appeal, the court reversed, finding that while coverage existed under the umbrella based on a provision stating that any insured in the underlying was also an insured, the insured had failed to prove that the settlement was actually an amount it became legally obligated to pay because of an accident.

The entire mess likely would have been avoided had the insured been properly named in the policy.

Bradley is a partner in the Dallas law firm of Tollefson Bradley Ball & Mitchel LLP.
Editor's Note: The above is edited from an article, "What's In a Name? Or: A Rose by Any Other Name Is Not an Insured," that appeared in the March 23, 2009, edition of Insurance Journal South Central.

Job Bias Charges Hit All Time High

2009-03-19T10:00:00.001-04:00

The U.S. Equal Employment Opportunity Commission (EEOC) announced that workplace discrimination charge filings with the federal agency nationwide soared to an unprecedented level of 95,402 during Fiscal Year (FY) 2008, which ended Sept. 30. This level is a 15 percent increase from the previous fiscal year. The FY 2008 enforcement and litigation statistics, which include trend data, are available online at http://www.eeoc.gov/stats/enforcement.html.

“The EEOC has not seen an increase of this magnitude in charges filed for many years. While we do not know if it signifies a trend, it is clear that employment discrimination remains a persistent problem,” said the Commission’s Acting Chairman, Stuart J. Ishimaru. “The EEOC is committed to vigorously enforcing federal laws prohibiting employment discrimination and will continue to invest in programs such as its systemic litigation program to maximize its effectiveness.”

According to the FY 2008 data, all major categories of charge filings in the private sector (which includes charges filed against state and local governments) increased. Charges based on age and retaliation saw the largest annual increases, while allegations based on race, sex and retaliation continued as the most frequently filed charges. The surge in charge filings may be due to multiple factors, including economic conditions, increased diversity and demographic shifts in the labor force, employees’ greater awareness of the law, EEOC’s focus on systemic litigation, and changes to EEOC’s intake practices.

The FY 2008 data also show that the EEOC filed 290 lawsuits, resolved 339 lawsuits, and resolved 81,081 private sector charges. Through its combined enforcement, mediation and litigation programs, the EEOC recovered approximately $376 million in monetary relief for thousands of discrimination victims and obtained significant remedial relief from employers to promote inclusive and discrimination-free workplaces.

D&O Costs for Financials Skyrocket

2009-03-03T10:56:00.000-05:00

CHICAGO, March 2 /PRNewswire-FirstCall/ -- Directors' and officers' liability insurance costs for the S&P Financials Sector increased 50 percent in the fourth quarter of 2008 compared to that of 2007 according to the Quarterly D&O Pricing Index released today by Aon Corporation's (NYSE: AOC) Financial Services Group.

Time to Call a Certified Risk Manager?

2009-02-27T11:21:00.001-05:00

Today's degenerating business circumstances have forced companies to examine their risk management programs to identify the significant risks that were minimized or overlooked. The financial free fall brought attention to six primary risks: short-term investments, financial firms, business associates, insurance providers, emerging risks, and costs. Short-term investments were revealed to carry high liquidity risks. Financial institutions neglected to limit their exposures only to their capital, entered into agreements that placed credit lines in peril, and enacted policies that placed a concentrated portion of financial risk onto individual institutions. The collapse of Bear Stearns demonstrated why businesses must pay more attention to their business-partner-related exposures and monitor the financial health of affiliated institutions. The near-collapse of American International Group pushed companies to consider alternative means of limiting exposures, such as self-insurance and captives. Sixteen months ago, businesses paid less attention to emerging risks related to changing business conditions, overall economic conditions, and governmental policies. Finally, businesses failed to garner a return-on-investment in risk management spending by drafting policies that were reactive instead of proactive in nature.

Where Were All The Investment Evaluators and Actuaries?

2009-02-23T10:45:00.002-05:00

At the height of the Watergate scandal, Judge Scirica was reported asking, "Where were all the lawyers?" Now as we are embroiled in a financial breakdown especially of the America's pension and retirement assets, someone should start asking, "where were those experts who evaluated pension funds about their investments and the actuaries? Bernie Madoff has become a household name, investment advisors are closing shop, and pension trustees are calling lawyers and notifying their fiduciary carriers. Yet the same old crowd is out there advising pension and health and welfare funds offering "one store shopping." "Buy fiduciary insurance from us when we wear one hat, let us evaluate your investment portfolio wearing another hat, and we will also be your actuary and give you assurances of your plan's stability with your insurance carrier and to your members with another hat," they advertise. They even tell the fiduciaries they can "save them a little money if we do it all." Try telling your spouse you have to move out of your home because you saved a few bucks for the Pension Fund you used to sit on their Board.

Reports of over $1 Million dollar losses involving Bernie Madoff are common place these days. Individuals, charities, and pension funds were enticed by someone selling them something that seemed to be "to good to be true." Plan fiduciaries should be looking at those multiple hat firms with the same skepticism as if Bernie Madoff came in their office today offering them a guaranteed return on their investment. We have written for years advising to be careful of "Cowboys wearing multiple hats" regardless of where they are headquartered. As a fiduciary whose personal assets are at risk, we recommend in this time of uncertainty employ a certified risk management expert to do an evaluation of your plan from top to bottom. Listen to them and heed their advise. You will sleep better and so will your plan participants.

Footnote: The author of this is employed by Creative Risk Management and The McLaughlin Company who are both proud to say we did not have one client invest with Madoff. This footnote is more disclosure and transparency then you will ever have received from "the cowboys above described."

Bad Timing?

2009-02-23T10:41:00.000-05:00

401(k) plan sponsors, unable to persuade employees to enter into plans in the 1980s and 1990s, were finally seeing broad participation in 2008, just before the financial markets all but collapsed. Now, employers are in the unenviable position of defending workers' investment in high-return, risky assets. According to Greenwich Associates' new U.S. Defined Contribution (DC) Pension Plan Research Study, enrollment of eligible employees into corporate 401(k) plans was 79 percent in 2008, up several percentage points from 2006. More than four out of 10 large DC programs and almost 50 percent of smaller programs automatically enroll workers into corporate 401(k) plan unless they opt out. As businesses have begun adopting automatic enrollment, they have also been changing default investment options from conservative funds to target retirement date funds that frequently expose the funds' equity to more risk. Participants in these plans are hit particularly hard by recent economic failures, as many employees have a large chunk of their personal equity--and in some cases, their total retirement savings--bound up in a DC plan.

Investment Performance Leads to Claims

2009-02-03T10:07:00.001-05:00

When investments don't perform well, clients get upset. Here are the professional liability insurance claim ramifications and how to guard against claims.

"The potential for investment-related claims in the current, de-leveraging economy will probably be highest for investments that have significant exposures to leveraged transactions such as real estate deals, hedge fund programs, and collateralized transactions," says Ric Rosario, CEO of CAMICO Mutual Insurance Co. (camico.com). "The more traditional direct exposures would include raw land developments, residential and commercial projects underway, which are always a little risky in the first place. Also, any activity or entity that pools invested funds in an unregulated environment is very problematic."

The current economy spurs some investors to blame the financial planner or investment advisor for having recommended an investment that ended up being disappointing, he adds. "It may be that the general partner or president of an investment entity was reassuring investors through newsletters that the investment was still performing when the investment was actually going south. The client may see the planner or advisor as the trusted professional who was responsible for exercising due diligence over the client's entire financial picture."

Tough Economy's Effects

"In the current economy, it will be very difficult for clients to make successful claims alleging that their investment advisor guided them into bad investments, as opposed to other, safer choices that might have been selected by a more prudent professional," says Michelle Duffett, executive VP for Insight Insurance Services (insightinsurance.com). "Virtually all investments have declined in value and all investment advisors are in the same situation to varying degrees. That said, we expect that claims will increase. Clients are more likely to sue in tough economic times," she adds.

Gary Sutherland, CEO of insurer NAPLIA (naplia.com), likewise believes that the current downturn won't produce "a significant amount" of additional claims against CPA investment professionals. "This obviously assumes that these advisors have advocated a conservative portfolio management strategy and have kept their clients fully informed of market developments," he adds. "There is the possibility of claims arising from the use of non-standard or alternative investments, because of the potential for consumers to allege that they were mislead or poorly informed about the risks involved in such investment vehicles. Additionally, we've encountered situations where claims have arisen because the advisor didn't update the original risk assessment worksheet and failed to reflect appropriate investment strategies or risk tolerance for current market conditions."

Investment fraud is always a problem that can cause claims, says Rosario, and it can encompass: 1) financial statement fraud; 2) fraud perpetrated though other forms of false information (e.g., e-mail, newsletters); and 3) Ponzi, pyramid, and other schemes like the recent headline scandals involving financier Bernard Madoff.

"It can strike in large dollar amounts and affect a variety of engagements such as reviews, audits, tax advice, and investment advice," Rosario adds. "The more time that a CPA has been associated with fraudulent activity before it is uncovered, the more likely the CPA will be perceived by juries to have 'validated' the fraud, unwittingly or not." Jury research, he adds, also shows that the public, including clients, perceive that the CPA's fundamental job is to advise clients of opportunities and warn them about risks.

"Also, looking at a situation in hindsight means that the history of it can be rewritten in a manner that benefits the client and portrays the CPA as having failed to warn the client," Rosario says, adding this can also happen in any financial statement services or even non-attest or consulting engagements.

Bill Thompson, president of CPA Mutual (cpamutual.com), says that so far investment performance-related claims are "no worse than other accountants' claims. Most of our members are sophisticated enough to obtain client agreements with their investment clients, in which the client assumes some responsibility for their investment selections," he says. "Most of their clients also realize that the CPA can't guarantee investment performance and that markets are cyclical. Our folks do a pretty good job educating their clients, and, for the most part, have investment-savvy clientele. A lot of our insureds are fee-for-service, too, so this helps mitigate losses as opposed to commissioned-based investment advisors."

Speaking for CNA (cna.com), assistant VPs Joseph Wolfe (risk control), Jeffrey Day (underwriting), and Melissa Thomas (claims) point out that most accountants don't have investment advisory practices. "Investment advisors will experience some claims to the extent they recommended investment in derivative securities or auction rate securities "which lost substantial value or could not be readily sold in the marketplace." The general dip in the markets, however, "is less likely to result in increased claims activity unless investment advisory clients are retired or close to retirement, and their portfolios incurred significant losses. Risks are elevated for trustees and accountants providing family office services based upon the fiduciary duties assumed in these roles," they say.

Duffett says she anticipates that claims will also arise against the CPA firms involved in the headline Madoff fraud. "Although this situation is extreme in the dollar amounts involved, this type of fraud isn't new," she points out. "When government regulations fail to keep investments safe from criminals, it's typical for investors to sue the directors, officers, lawyers, and accountants who reviewed the company's activities. Already investment advisors who didn't promote the Madoff funds are claiming to have been skeptical of the prospectus. Other experts are stating that the fraud should have been apparent, as the investor statements reflect option transactions beyond the total market activity for the day. With hindsight, clients will find a myriad of small cracks and hints to find fault with the accounting professionals that reviewed the criminal's work."

Typical Claims

Many of these claims allege that the accountant was negligent in referring the client to a specific investment advisor, and in many cases allege that while the accountant wasn't the primary investment advisor, they should have recognized that a particular investment wasn't suitable for that client and advised the client of that. Additionally, when an accountant mentions a particular investment opportunity to a client, the client generally will assume that this is equivalent to a recommendation.

One typical claims scenario, Rosario says, involves an older client who has a lot of funds to invest but does not want to be bothered with details. The client is successful in his or her own profession, is demanding, but has little patience for, or understanding of, financial concepts, rather just wanting the financial planner to handle all of the decisions. "The planner recommends a significant portfolio shift from fixed income to equity at a time when equity investments are doing well. The planner also recommends an investment advisor," Rosario says. "The client is so pleased with the returns first produced by the equity investments that they invests even more of the fixed income funds into equity. When the next economic downturn comes along, the client's portfolio loses over one-third of its value, and the client is extremely disappointed. The planner's engagement letter mentions investment risks, but it was never signed or acknowledged by the client, whose files only include the planner's recommendation to invest more aggressively. The client sues the planner, alleging that the planner had a total responsibility for his overall financial well-being and should have warned him of all the risks he had taken. A good risk management technique is to refer the client to more than one investment advisor, thus avoiding the appearance that the planner made the decision for the client."
Thompson likewise says he's seen several types of investment-related claims based on:

1. Allegations of "churning," or recommending allegedly inappropriate investments which generate commission income;
2. Allegations of lack of appropriate investment diversification;
3. Alleged failure to identify or follow (often perhaps more a failure to properly document than follow) a client's risk tolerance; and
4. Alleged confusion regarding how independent entities are affiliated and the services the client thinks they are providing.

A common cause of financial planning and investment management claims is the allegation of a conflict of interest, Duffett says, which "will arise from the referral fee or commission collected by the CPA firm for sending a client to a particular investment advisor. We've found these types of conflicts to be nearly impossible to defend. Once a CPA is paid in any form by an investment firm, 'independence' is a myth. A conflict of interest may also arise from directing the client into a private investment managed by another client, or in which the CPA has invested personally. Even with disclosures, clients and third parties have a tendency to disown knowledge of the conflict, deny their understanding of the conflict, or claim they were unduly persuaded by their professional accountant's involvement.

"It's difficult to be a competent CPA and an accomplished securities broker," Duffett adds. "The body of knowledge is simply too great. Many CPA firms have hired investment professionals to help bridge the knowledge gap. But compared to standard investment advisors, CPAs have more professional liability risk. It's common for professional liability claims against CPAs to include an allegation that the accountant's personal knowledge of the client's finances should have required the CPA to take additional precautions to protect the client's assets. A full-time securities broker on staff or in a wholly-owned subsidiary doesn't protect the CPA firm from claims that there was a need for the firm to analyze the client's ability to absorb risk and guide their investments."
Impact on Premiums?

While voicing no current plans to raise premiums, insurers hold out the right to bump up rates if claims from the down economy escalate. "A key factor is that the largest 'cost of goods' for an insurance company is claims and the related defense costs, which will usually be 70 to 80 cents on the premium dollar collected," Rosario points out. "If claims tick up significantly further than we have currently planned for, it's inevitable that carriers will have to raise rates. The wild card is the loss prevention activity that CPA firms have taken in advance of the recession. A CPA firm may not be able to stop clients from filing lawsuits to cover their own losses, but if the firms have taken the right actions, the overall severity (cost of claims) could be significantly reduced, taking some pressure off rates."

Adds Sutherland, "There's a move by the more forward-thinking firms to purchase separate coverage for financial planning to isolate the potential of claims from this area of activity from eroding coverage for the traditional practice areas. The trigger seems to be about 15 percent of revenue from PFP. The advantage over adding coverage by endorsement to an accountants' professional liability policy is the separate limit of coverage, and any claims won't adversely impact the core practice."

Encouraging Feedback During a Downturn

Advisors often let fear rather than client feedback take hold during uncertain markets, says Julie Littlechild, president of Advisor Impact, a New York-based consultancy to financial advisors and accountants. "Market downturns," she says, "are when advisors need to step up and identify opportunities that result from gathering feedback from clients. The recent downturn has created an environment in which many investors need and want more frequent and reassuring contact with their advisors." Pinpointing what is most important personally to clients often occurs only when times are tough, she claims, and "client feedback" means more than asking clients to rate satisfaction. It's also a chance to understand what's most important to them and the additional services they need.

Best Practice Tips

Insurers offer these tips in a troubled investment landscape:
* Monitor clients and make sure investment allocations are as agreed in the client file (Bill Thompson, CPA Mutual).
* Don't make unusual offers or "sell away" from your broker/dealer's standard menu of investments. No private offerings or derivatives, for instance (Thompson).
* Obtain signed engagement letters yearly for all financial planning and investment advisory engagements. These letters should clearly define the timing and scope of services and client responsibilities, and include loss-limitation and alternative-dispute resolution clauses and disclaimers regarding investment performance and the volatility of market conditions (Joseph Wolfe, Jeffrey Day, and Melissa Thomas, CNA).
* Document all client conversations, even "casual" inquiries that may come up in social contact with clients. Respond to ad hoc requests for financial planning or investment advice by recommending that the client or prospect contact your office to set up an in-office consultation (Wolfe, Day, Thomas).
* Document who's authorized to provide instruction to you on behalf of the client. If you don't have discretionary authority over the investment of client funds but transmit instructions to others on the client's behalf concerning investments, create a form the client is required to complete and convey to you containing their instructions and approval to request the completion of the transaction. Conveying investment instructions to others on behalf of clients creates a fiduciary duty to the client (Wolfe, Day, Thomas).
* Accountants who perform administrative services for employer-sponsored benefit plans should avoid providing investment advice to plan participants (Wolfe, Day, Thomas).
* Regarding state and federal licensing rules applicable to investment advisory services, consider situations wherein services may be rendered in jurisdictions other than where your firm is domiciled, and research applicable state securities laws (Wolfe, Day, Thomas).
* Background, credit, and reference checks should be obtained before accepting any significant engagements. Risk factors can be determined in interviews or by checking with the client's prior accountant. If the CPA doesn't perform due diligence work regarding the investments, he or she should determine who's taking responsibility for performing the work (Ric Rosario, CAMICO).
* Meet with clients quarterly to make sure they understand new developments impacting their financial and investment plans. Periodic re-balancing of asset allocation also can be conducted. Update the documents to reflect changes and obtain client signatures (Rosario).
* Insist that any professionals involved in related financial planning functions have errors and omissions insurance to help insure the client against losses and help protect you from claims directly related to their work. Some accountants' professional liability policies don't provide coverage if a commission is involved, so additional coverage may be needed. When dealing with a high-value trust, consider higher limits. In any event, ask for coverage clarification in writing from your carrier to avoid misunderstandings (Rosario).
* Don't provide referrals to relatives, to financial advisors with whom you have personal investments, or from one client to another. Refer at least three fully independent options to your client and document that you aren't recommending any one of them specifically. Never accept any type of remuneration from any investment firm (Michelle Duffett, Insight).
* Utilize a strongly worded contract that specifically identifies out the services, costs and administrative items, and utilize a risk-tolerance worksheet and update it annually or when a customer's personal circumstances change (Gary Sutherland, NAPLIA).

Washington DC Water and Sewer Back up Claims

2009-01-13T11:34:00.002-05:00

Washington DC's water and sewer utility has put out the following notice:

We're reviewing our claims program as it relates to water main breaks and sewer back ups. Our current policy is we generally do not pay for cleanup costs or damages that result from sewer backups or main breaks. We seek to determine the cause of the backup, if we had prior notice of a problem and whether we failed to timely fix the problem before WASA can consider payment of any claims. The property owner is also required to maintain and remove any clog in the sewer service line that extends from the building to the main sewer line.

Stringfellow Decision

2009-01-13T11:22:00.001-05:00

On January 5, 2009, the California Court of Appeal issued its long-awaited decision in the Stringfellow insurance coverage case. The court held that a policyholder facing long-term property damage or personal injury claims may be entitled to indemnity under all years of insurance policies that were in effect while the damage took place. State of California v. Continental Ins. Co., 09 Cal. Daily Op. Serv. 161. The court also disapproved precedents in California and elsewhere that have limited policyholders to collecting only one year's policy limits for continuing injury claims.
This landmark decision, which is likely to influence courts around the country, potentially multiplies the amount of insurance that policyholders can use to pay for claims under standard general liability policies. It is especially significant for policyholders (such as manufacturing, chemical, pharmaceutical, construction, and waste disposal companies) that routinely face claims for progressive property damage or personal injuries that might have started years ago.
The case started in 1993, when the State of California sought indemnity from its insurers for its estimated $700 million cost to clean up industrial waste near the Stringfellow acid pits in Riverside County, California. The State demanded coverage up to the combined limits of all its liability policies that were in effect during all the years when the contamination took place and continued to migrate offsite. Following an earlier Court of Appeal decision in FMC Corp. v. Plaisted & Cos., 61 Cal. App. 4th 1132 (1998), the trial court finally ruled in 2004 that the State could not "stack" or combine its successive years of policy limits as it sought to do, but instead had to pick one year's policies and demand payment under them. This ruling meant that the State could not collect more than the maximum ($48 million) in insurance limits it had purchased in any one policy year.
The Court of Appeal reversed the trial court's ruling on the "stacking" issue, and held that the State could collect the combined limits of all policies in effect when the contamination occurred and while it continued to migrate offsite. Noting that the standard language in each of the State's liability policies promised to pay "all sums" for any "occurrence" that caused property damage or bodily injury during the policy period, the court held that each policy had an independent contractual liability to pay regardless of whether the State had purchased similar policies in other years that might also be obligated to pay. In so holding, the court disapproved of FMC and other "anti-stacking" cases, in which courts have ignored the literal language of the standard liability policies and tried to impose limits on the number of policies under which an insured can collect.

Mental Health Change May Hit Insurance Rates Hard

2008-12-11T10:37:00.003-05:00

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.

2008-12-11T09:39:00.000-05:00

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

2008-12-05T14:55:00.002-05:00

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

2008-12-03T11:33:00.000-05:00

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

2008-12-02T10:21:00.000-05:00

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

2008-12-01T11:57:00.000-05:00

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

2008-10-27T09:50:00.002-04:00

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

2008-10-20T15:05:00.002-04:00

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?

2008-09-22T10:18:00.002-04:00

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

2008-08-25T10:24:00.001-04:00

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

2008-07-30T11:19:00.002-04:00

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

2008-07-18T09:20:00.003-04:00

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

2008-07-16T14:43:00.002-04:00

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

2008-07-14T10:19:00.001-04:00

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

2008-06-25T10:02:00.002-04:00

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

2008-06-18T11:22:00.000-04:00

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

2008-06-18T11:18:00.000-04:00

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

2008-06-17T10:48:00.002-04:00

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?

2008-06-12T11:08:00.004-04:00

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

2008-06-12T10:40:00.002-04:00

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

2008-06-04T15:11:00.002-04:00

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

2008-04-11T10:46:00.000-04:00

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

2008-04-03T10:06:00.002-04:00

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

2008-03-04T10:26:00.002-05:00

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

2008-02-29T11:18:00.002-05:00

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

2008-02-22T14:32:00.002-05:00

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

2008-02-20T15:04:00.002-05:00

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

2008-02-19T11:20:00.000-05:00

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

2008-02-13T11:55:00.002-05:00

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

2008-02-13T09:56:00.000-05:00

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

2008-01-30T11:36:00.000-05:00

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

2008-01-10T09:45:00.000-05:00

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

2008-01-10T09:36:00.001-05:00

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

2008-01-10T09:14:00.000-05:00

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?

2008-01-04T10:10:00.000-05:00

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

2008-01-02T10:05:00.000-05:00

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.

Federal Terrorism Insurance Law Extended

2007-12-28T11:56:00.000-05:00

Just five days before it was set to expire, President Bush has signed into law a seven-year extension of the federal terrorism insurance backstop.

Bush was aboard Air Force One, en route to his ranch in Crawford, Texas, when he signed the terrorism bill, along with legislation to fund the federal government and troops in Iraq.
The president did not comment on the terror bill specifically, but expressed concerns about the number and cost of earmarks in the federal budget, adding that Congress could do more to rein in government spending.

But Marc Racicot, the president of the American Insurance Association, said the reauthorization of the terrorism program, known as the Terrorism Risk Insurance Program Reauthorization and Extension Act of 2007, was essential to maintaining the nations economic security. He said the coverage has been critical to businesses that have relied upon the program for the stability and certainty it provides the private marketplace.

The seven-year extension ... will help remove the risk, uncertainty and instability in the market and will foster long-term investment and economic growth, Racicot said.

Joseph Annotti, senior vice president of the Property Casualty Insurers Association of America, also praised the presidents action.

This seven-year extension brings unprecedented certainty and stability to the terrorism insurance market and keeps in place an extremely successful and important public/private partnership that helps commercial insurance buyers and the entire economy protect themselves from the financial devastation of a future terrorist attack.

The Terrorism Risk and Insurance Act was first enacted in 2002 in the aftermath of the Sept. 11, 2001, attacks to provide $100 billion in reinsurance capacity for terror-related commercial property/casualty risks. When the original legislation expired in 2005, Congress passed a two-year extension. The current authorization was scheduled to expire Dec. 31.

By a 360-53 margin, House members voted Dec. 18 to approve a seven-year extension of the Terrorism Risk Insurance Program (BestWire, Dec. 18, 2007). The vote followed two prior attempts by the House the first in September and the second earlier this month to authorize a long-term extension of the program. Though both efforts passed by wide margins, they each were subject to veto threats from the White House, which objected to language adding group life insurance to the backstop and lowering the program's "trigger" level, among other provisions.
In the version passed, the House took up legislation that mirrored a version passed by the Senate last month. The bill eliminates the current program's distinction between foreign and domestic acts of terrorism, but otherwise keeps the program intact under roughly its current terms through 2014.

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

CLAIMS NOT COVERED BY EPL POLICY

2007-12-10T10:09:00.000-05:00

CLAIMS NOT COVERED BY EPL POLICY

We recommend that all companies purchase Employment Practices Liability insurance. If you haven’t done so, make sure to discuss this program with your broker.

However, it’s important to understand that EPLI does not cover claims involving:

Charges, audits, and claims by the Federal Contract Compliance Programs
Workers Compensation claims
Unemployment insurance claims
Disability benefits claims, including ERISA
Any breach of independent contractor services agreement
Violations of the Fair Labor Standards Act and state equivalents
Workers Adjustment and Retraining Notification Form
COBRA
OSHA
National Labor Relations Act (union claims)
US Longshoremans and Harbor Workers Compensation Act
The Jones Act
The Labor Management Relation Act
Breach of contract claims
And other exclusions

Of course, other coverages (such as Workers Compensation, Directors & Officers, and General Liability insurance) might cover some of these exposures. The point: Be very clear about which risks you have covered with which policies and which risks remain uninsured.

No One is Immune

2007-10-08T09:36:00.000-04:00

Think it cannot happen to you. "I don't need to waste money on Employment Related Practices Coverage," is said to me day after day. Well read on.

It was announced today that Sidley Austin, one of the nation's largest law firms, agreed to pay $27.5 million to 32 former partners to settle a closely watched age-discrimination lawsuit brought by the federal Equal Employment Opportunity Commission. In this case not one of the partners even filed a complaint with the EEOC. read on.

American Ballet Theater fired a trumpeter in its orchestra because it believed he was too old, the federal Equal Employment Opportunity Commission charged in an age discrimination lawsuit. The musician, Henry Nowak, was let go in 2005 at age 74, says the suit, filed on Thursday in United States District Court in Manhattan.

No one is immune. Including you.

Could You Financially Survive Such a Verdict

2007-10-03T09:45:00.000-04:00

NEW YORK_In an end to a salacious three-week trial, a jury ordered the owners of the New York Knicks to pay $11.6 million to a former team executive who allegedly endured crude insults and unwanted advances from coach Isiah Thomas.

This blog doesn't comment on the merits of the lawsuit. Despite my love of sports I ignored the articles and broadcasts, focusing on an exciting end of the regular baseball season and the beginning of college and Pro football.

This verdict caught my eye though. Time and time again, I counsel clients to consider D&O, EPL, or Union Liability Insurance to protect themselves from such a verdict and the tens of millions of attorneys fees that have been incurred and will increase through an appeal and possible retrial. The usual response is "we don't have that problem" or " we have a human resources department that takes care of those things" or " I can't afford that coverage right now."

As a risk manager, time and time again, I encourage clients to adopt procedures and give trainings on Employment Related Practices only to receive a response "we don't have the time or the money" to do that.

Here are a few facts to consider if you have given such a response:

1. Three of five businesses will be sued this year by an employee or a former employee over an employment practice

2. Employment practices suits account for 20% of all Federal Court filings

3. 56% of all employment practice filings going to trial result in a verdict for the plaintiff employee

4. The average jury award is S250.000, with 15% exceeding $1 million

5. 33% of wrongful termination verdicts have punitive damages equal to or exceeding compensatory damage.

Today's sports headlines should represent a "wake up call." yesterday's verdict did not include punitive damages, did not include Plaintiff's attorneys fees, did not include all the attorneys fees that the defendant incurred and will incur, did not include the damage to the reputation of the Defendant's and the PR costs they will now incur to remedy.

Talk to your Independent Agent or your Certified Risk Manager. " Do not Pass Go, or someone will be collecting a lot more than $200 from your wallet."

Servicemembers Civil Relief Act

2007-09-20T10:45:00.000-04:00

The Servicemembers Civil Relief Act (SCRA) helps military,
reservists and National Guard members meet financial and legal obligations at home while they fulfill active-duty assignments. Though the SCRA has been active for some time, the military and the lending community still need better awareness of this law and its provisions, which can be extremely beneficial to deployed servicemembers and their families.

The SCRA requires mortgage lenders, landlords and other creditors to grant
you special status. By law, they cannot immediately foreclose on your mortgage or other loans and cannot evict you as a tenant. But that’s not all: SCRA also requires lenders to lower the interest rates you pay on existing mortgages, credit cards and personal loans. And lenders must make sure the lower interest rates translate into lower monthly payments.

Some of the SCRA’s most helpful provisions include:

Reduced interest rates and loan payments: Lenders must lower interest rates to six percent on your pre-existing home mortgages, credit cards, car loans
and other personal loans. Any interest you owe above six percent during your period of active duty will be forgiven, not just deferred.

Property protection: Lenders cannot foreclose on your home mortgage or other loans without proving legally that your military duty did not affect your ability to make payments.

Rent protection: If your rent is less than $2,465 per month, your landlord cannot evict you or your family for late payments or any reason without petitioning for a court order.

Rental/auto lease protection:
When you are deployed or relocated, you can terminate a preexisting residential or automobile lease. To terminate a lease, you generally need to give the landlord or lender 30 days written notice.

State tax support: If your spouse works and owes tax in a state other than the state of your permanent legal residence, SCRA will protect your family from double taxation. When that state determines the tax rate on your spouse’s income, they will exclude your servicemember income.
Legal postponement: If your deployment prevents you from attending court or legal meetings related to a divorce or other legal process, you can request deferral for 90 days or longer. To do so, submit a written request to the court along with a letter from your commander that explains why you cannot attend proceedings before a specified date.

In order to claim the SCRA benefits, you’ll have to request them from your lenders and provide proof of your active
status. Although most lenders comply readily when you disclose your military status, some may not be aware of the law. If you encounter any problems, contact your military legal assistance officer.

Combat Zone Protection Active-duty military personnel in combat zones receive certain tax breaks and privileges that help keep their minds on the job at hand.

As a member of the military, you are eligible for an interest-free extension to pay your income taxes because service in Iraq, Afghanistan and other locations may have seriously impaired your ability to pay or file a return. The extension lasts for the initial period of service plus six months and covers a soldier’s spouse as well, regardless of whether they file joint. or separate returns. The extension applies only to federal income taxes. Individuals serving in a combat zone as support for the U.S. armed forces, such as Red Cross workers, accredited correspondents and civilian personnel acting under the direction of the U.S. armed forces are also entitled to the extension.

Active-duty pay earned by U.S. armed forces personnel performing duties in a combat zone is not subject to federal income tax (soldiers are still obligated to pay Social Security and Medicare taxes.) Additionally, active-duty pay is not taxed in the state in which military personnel are currently stationed, only in their official home state of record. Most states exempt all or part of active-duty pay.

Calling home is also encouraged, because telephone calls placed to the United States from a combat zone by a member of the U.S. armed forces are exempt from the federal excise tax on toll telephone service. If you already paid the excise tax, you can file IRS Form 8849 to obtain a refund.

Combat zone military personnel, still under the combat extension, are eligible to make qualified contributions to an IRA for the 2006 tax year after April 16, 2007. Servicemembers who are entitled to a refund but who do not file until they return home from combat duty will receive interest on the refund amount from the IRS. However, the tax return must be filed within the six-month extension window to be eligible for the interest payment.

TRIA Extension -- Global Impact

2007-09-17T11:47:00.000-04:00

At the Les Rendez-Vous des Septembre, Munich Reinsurance Company Chairman of the Reinsurance Committee Torsten Jeworrek indicated that global governments should not rely on reinsurers to fill in capacity gaps should they decide not to back state terrorism insurance pools. Of particular concern is the German government's recent decision to not extend its 8 billion euro guarantee for the EXTREMUS Versicherung A.G. national terror insurance pool. German insurance market insiders are hopeful the German government will change its mind once the U.S. federal government extends its own terrorism insurance pool. Jeworrek said, "We will continue to make use of our flexibility and creativity to find solutions for complex risk situations. However, risk-adequate prices, terms and conditions are a prerequisite for complex risk maintaining stable income and financial strength over the long term, and in the interests of our clients, shareholders and staff." Other participants at the meeting agreed the private terrorism risk market did not have enough capacity to stave off risks related to those events without high premium levels; and in many cases, private insurance capacity for terrorism risks would be inconsistent.
Source: Business Insurance**http://www.businessinsurance.com/cgi-bin/news.pl?newsId=11066

More On Next Year's Premiums

2007-09-17T11:44:00.000-04:00

TWO years of unexpectedly quiet hurricane activity in the US have caused a dramatic drop in insurance premiums that, experts say, could spark consolidation amongst brokers and underwriters.

The chief executives of the world's largest insurers and brokers are predicting cover for hurricanes in the US will tumble by at least 10pc in 2008 - on top of a 20pc slump in premiums this year.

They forecast the sharp falls as they headed out to Monaco, where they meet over the next few days to estimate demand for next year's policies. The annual Monte Carlo Rendezvous is the most important event in the industry's calendar where reinsurance companies, which provide cover to insurance businesses, unveil their demands for 2008. Insurance companies tend to pass on any premium changes to their policyholders.

Grahame Chilton, chief executive of the world's third largest reinsurance broker Benfield, said despite some major hurricanes such as Felix, this has been a benign storm season.
"In 2007, catastrophe reinsurance fell by around 5pc and insurance was off by more than 20pc,'' he said. "Without a major loss, we are expecting a reduction of between 5pc to 10pc for reinsurance and for insurance, much more.''

It is thought insurers at Lloyd's of London could reduce the maximum amount of business they can underwrite in 2008 as a result of the sharp premium falls. This could lead to total capacity at the world's largest insurance market dropping from a record level of pounds 16.1bn.
Although a quiet hurricane season could lead to record profits, a fall in prices combined with the negative impact of a weak dollar may lead to takeover activity in the sector. Mr Chilton said: "There will be further consolidation.''

He said the growth of capital markets is likely to continue, with more demand for catastrophe bonds, which give investors a generous interest rate if they take on risk. "For the first time in 2007, cat bonds were more competitive than reinsurance,'' he said.

Stephen Catlin, chief executive and deputy chairman of Catlin - the largest syndicate in Lloyd's - agreed the relationship between reinsurance and capital markets will be a major discussion point. "Some people are always quite protective of their own position,'' he said "But I think there is not enough capital in the reinsurance market to pay for the big exposures in places like Florida. As such, using the capital markets as a buffer is evidently sensible.''

As Reinsurance Prices Drop, Insurers More Likely To Buy

2007-09-17T11:41:00.000-04:00

Tue Sep 11, 2007 13:48:00By Lavonne Kuykendall Of DOW JONES NEWSWIRES

CHICAGO (Dow Jones)--The price of reinsurance for U.S. exposures peaked last year in the aftermath of 2005's record storm season, but prices have dropped since and will continue to drop into the beginning of 2008.

A quiet 2006 storm season and a so-far-light U.S. hurricane season this year, along with an increase in available capital, all contributed to a stabilizing of reinsurance rates, according to insurance brokers.

As reinsurers meet this week at an annual conference in Monte Carlo, a series of reports predict falling reinsurance prices as insurers keep more risk on their own books or use catastrophe bonds or other capital markets solutions to reduce their exposure to big insurance claims.
Reinsurance is fast becoming a lower-cost alternative to catastrophe bonds, giving reinsurers an opportunity to grab more business from property/casualty insurers, after two years of seeing risk financing move away from reinsurers to capital market structures such as bonds, according to a report published this week by insurance broker Aon Corp.'s (AOC) reinsurance brokerage unit.

"We see the 2008 market cycle as an exciting and challenging one as reinsurance has the opportunity to play a larger role in capital management strategies," said Bryon Ehrhart, president and chief executive of Aon Re Services, in a Sunday press release.
Large buyers of reinsurance will still expand their use of capital markets, said Aon Re, but will use reinsurers for the majority of their risk financing, as credit market risk spreads continue to widen or become more expensive.

Barring a major catastrophic event, which could send prices back up, insurers will be more likely to use reinsurance markets than equity and debt markets, Aon Re said.
Guy Carpenter, the reinsurance brokerage unit of Marsh & McLennan Cos. (MMC), said in a report this week that the growing popularity of catastrophe bonds has helped discourage startups in the reinsurance market.

In the first half of this year, 15 catastrophe bonds with a total value of $3.2 billion have been created, and the total for the year is expected to easily surpass the total for 2006 of 20 transactions totaling $4.69 billion in risk capital.

Twelve new reinsurers were created in 2006, but only four started up in the first half of this year "as the perceived market opportunity diminished," the report said.
A Fox-Pitt Kelton Cochran Caronia Waller note estimated Tuesday that reinsurance prices will drop by between 5% and 10% for renewals that occur Jan. 1.

-By Lavonne Kuykendall, Dow Jones Newswires; 312-750-4141; lavonne.kuykendall@dowjones.com
(END) Dow Jones Newswires
09-11-07 1348ET
Copyright (c) 2007 Dow Jones & Company, Inc.- - 01 48 PM EDT 09-11-07 This is a real-time news story and may be updated in the near future.

Significant Workers Comp. Change In NY

2007-09-16T16:07:00.000-04:00

WC Policy Change Affects Insured Employers in NY

Under a new law that took effect on Sunday, September 9, insured employers who have employees in New York must provide "full" workers compensation coverage in the state, according to the state's Workers Compensation Board.Before this law was enacted, a multi-state employer could cover employees in New York under an "all states" endorsement to its workers comp policy unless the employer exceeded certain benchmarks, such as the amount of money its workers earned while in the state, stated Steve Carbone, head of education for the board's Bureau of Compliance.

With this new law, all insured employers must specifically state that they have coverage for New York workers under item 3A of a policy's information page, Mr. Carbone said. The new mandate stems from a workers comp reform law signed into law on March 13, 2007.

Mr. Carbone was unable to elaborate as to why legislators made the policy language mandatory. But he noted there have been instances of out-of-state contractors failing to adequately insure when hiring New York-based subcontractors with New York employees.Employers that are self-insured in other states, but not New York, must also comply, Mr. Carbone said. Penalties for failing to comply can add up, according Mr. Carbone.The statutory penalty for failing to comply is $1,000 for each 10 days that an employer does not have coverage. In addition, a noncompliant employer with five or fewer employees can be found guilty of a misdemeanor and fined an additional $5,000.An employer who has six or more employees can be found guilty of a felony and fined an additional $50,000. Employers without adequate workers compensation coverage can also be sued by an employee in civil court.

2007-09-16T16:02:00.000-04:00

New Jersey insurance agents praised Gov. Jon Corzine for signing into law a bill that bans so-called step-down provisions in businesses' motor vehicle liability insurance policies and frees agents from a having to advise something that their insurers will not allow.

The Professional Insurance Agents of New Jersey Inc. supported the bill, S-1666/A-3038, which reverses an effect of the New Jersey Supreme Court's decision in Pinto v. New Jersey Manufacturers Insurance Co.

In the Pinto case, the court decided that step-down provisions in business auto policies, which allow insurance companies to reduce the coverage available to employees not individually named on their employer's business auto policy, are enforceable. Instead of receiving the uninsured and underinsured motorist limits stated on their employer's policy, an employee who is injured while occupying a business vehicle receives the lesser coverage limits of his own personal auto policy or that of a family member if he does not have his own policy.

The decision placed agents in an impossible situation, according to PIANJ President Jack Lynn. The ruling held that insurance producers have a duty to tell employers that if they want to avoid imposition of the step-down provision, they have to name their employees on their auto policy. However, most insurance companies will not allow employers to include employees as named insureds on a business auto policy.

"The impractical duty created by the Pinto decision had substantially increased the risk of litigation against insurance producers and placed them in an untenable position with their customers," said Lynn.

The new law eliminates the need to name employees on a business auto policy in order prevent the step-down provision. It also protects employees who are injured in work-related accidents by offering the full protections afforded under their employer's insurance policy.

Market Risk

2007-09-16T15:48:00.000-04:00

Location: New YorkAuthor: Beaumont VanceDate: Thursday, September 13, 2007

One of my favorite sources of business wisdom comes from a Sufi sage named Nasurdin. Many of his stories are applicable to risk management, probably because he was fond of pointing out where people are most blind or foolish; we just happen to be blind and foolish when it comes to risk and uncertainty.

As I read through the parade of daily articles about the current subprime meltdown, each trying to be more hysterical than the last, I am reminded of one of these famous Sufi stories. While traveling down the road one day, Nasurdin ran into a man who was depressed. The man revealed that he had suffered a long string of bad luck and, as a result, had lost everything except for the belongings he was carrying in his bag. So Nasurdin, being something of a mischievous sage, stole the man's remaining belongings and ran away down the road.

A mile ahead, Nasurdin placed the bag he had just stolen in the middle of the road, and hid in the bushes. Some time later the destitute man whom Nasurdin had robbed came upon his bag and started jumping up and down for joy. "What luck! What fantastic luck" the man exclaimed at having recovered his lost goods. Nasurdin, watching from the bushes shook his head and said, "What it takes to make some people happy!"

We often focus on our current state of loss to determine our level of happiness. If we win $100, and then lose $50, we often are unhappy, perceiving a loss. But if we lose $100, and then get it back, we are happy, perceiving a gain. Our perception of loss or gain depends not on the net result, but on how we frame it. Kahneman and Tversky devoted a great deal of time and effort to detail how framing radically changes the way we make decisions involving risk.

They showed that very often what we decide depends far more on how we frame a problem than on the actual facts. When it comes to assessing risk and probabilities, we are often fools. The subprime meltdown is a case-in-the-making for this foolishness. Of the many articles I have read in different, well-respected publications, none makes any mention of the amount of money that has been made to date on the mortgage market. None note that billions of dollars have been earned over the past years prior to the current losses. It is a grave omission; by discussing only the current loss, divorced of any reference to related past gains, the net result of the business is thoroughly obfuscated. This matters immensely in how we react to the current losses.

If a company like Goldman Sachs has earned $100 billion on mortgage backed securities over the past 5 years (I am just making this up for argument's sake) , then is a current loss of $5 Billion truly significant? Well, it is if Goldman forgets about the $100 billion and takes a highly risk averse stance. Being overly risk averse can cause as much loss as being overly risk taking.
But there is far more at stake here. Already many banks, perceiving only the downside, are pulling back their capital. Their peers, sensing that this is the right thing to do are also pulling out capital. The current mind set is "psychotic " according to Tony Crescenzi, a broker on Wall Street. The virtual cessation in trading of commercial paper has threatened to arrest the short term borrowing upon which many businesses rely to conduct operations. The effect is that of a run on the bank. When capital dries up, the economy slows and everyone loses.

Taking risks is what business is all about. Taking risks means that there will most likely be losses. If one is fortunate enough to suffer a loss of $95 for every $100 made, the net effect is still a positive cash flow. But if one forgets the gains and makes decisions based only on the losses, money can't be made. One becomes like those who endured the Great Depression and kept all of their money hidden in their mattresses.

Risk aversion can be an appropriate response. But it depends on the facts. As past sages such as Nasurdin, Kahneman and Tversky have shown us, our position on risk is often based on emotion or self deception rather than realities. This is why it is so incredibly important that specialists in risk and uncertainty (not just mathematical models, but the concepts) must be involved in strategic decision making. I fear that if we are not there to bring some sanity and logic to decision making, we will continue to get irrational exuberance followed by runs on the bank. We don't have to live this way.

DOL Adopts Stricter Enforcement Initiative

2007-08-20T10:50:00.000-04:00

In some recent audits and unofficial public statements EBSA (Employee benefits Security Administration officials have advanced a strict application of the ERISA Section 406(b)(3) provision prohibiting a fiduciary from receiving any consideration for his or her own personal account from any party dealing with a plan in connection with a transaction involving plan assets. Under this stricter application, any gift or entertainment by a current or prospective service provider for a multiemployer plan for which the recipient serves as a trustee, was deemed by EBSA to be prohibited. Apparently EBSA deemed the trustee to be receiving the gift or entertainment as a result of his or her position as a trustee to persuade the trustee regarding the affected service provider. It has been recognized for sometime that substantial amounts for entertainment or gifts to a plan fiduciary by a service provider could run afoul of the ERISA Section 406(b)(3) prohibition and in fact, there have been published cases to that effect. What appears to be developing now is a zero tolerance application of this prohibition by extending the prohibition to any item of value regardless of whether, based on the facts and circumstances, the amount is likely sufficient to persuade a fiduciary in a transaction involving plan assets. Items with a value less than the de minimis amount for LM-30 and LM-10 reporting would be prohibited under the zero tolerance application.

Many commentators on the subject of service provider entertainment have previously suggested that service providers for a plan can pay expenses for trustees which could be properly paid by the multiemployer plan such as a reasonable meal in conjunction with a Trustees' meeting. It is unclear whether the zero tolerance application extends to payments by service providers of expenses properly payable by the plan. It is also unclear what level of enforcement will be sanctioned by the EBSA for small gifts or entertainment amounts. What is clear is that some EBSA examiners have demanded that the trustees repay the amount of any meal or entertainment provided by a service provider involved plus 20% of that amount as a civil penalty. It is currently uncertain whether such a demand will be the subject of an enforcement action where the trustee refuses to reimburse the amount involved.

While the enforcement initiative appears to be focused on multiemployer plans, the rationale cited by the EBSA offices in applying the zero tolerance application would extend to any fiduciary of a plan covered by ERISA. Another thing that appears clear is that unlike the LM-30 and LM-10 reporting which is directed at Union Trustees, the zero tolerance application of ERISA section 406(b)(3) applies to all fiduciaries. Furthermore, a process that has assisted EBSA in identifying items of value provided to a trustee is the information furnished on the LM-30 and LM-10 forms.

Long Term Care Misconceptions

2007-08-02T11:41:00.000-04:00

Misconceptions:

LTC Insurance is too expensive, the government will take care of me, I already have disability insurance, and it is only for old people.

Truth:

The average annual cost for long term care is over $70,000 and predicted to double by 2020.

Medicaid is only available for the totally impovrished.

Disability Insurance does not address health care.

In 2006, 58% of the LTC claims were made by those under 65

Fraud Alert

2007-07-27T10:01:00.000-04:00

Insurers like Travelers work very hard to fight insurance fraud. Travelers feels that every dollar they can keep out of the hands of criminals will benefit Traveler's customers, their business partners, and ultimately, the entire U.S. economy.

That's why they wanted to make everyone aware of a scam involving bogus checks with Travelers name and what appears to be a Travelers claim number.

Here are the details: To date, about 250 people have received a letter purporting to be from "Indemnity Financial - A Subsidiary of Travelers Indemnity Company" and containing a counterfeit Travelers Insurance Company check. The letter informs the victim they have won either a "North American Prize Pool" valued at $250,000 or a $65,000 Readers Digest / Publishers Clearing House Online Sweepstakes. The letter also references a "claim number" which is not a valid Travelers claim number. The letter instructs recipients to call a phone number, where they are advised to deposit the check to their bank account and wire the funds to an individual in Canada. They have also learned that other insurance companies' names have been used in the same scam.

If you receive a check from "Travelers Indemnity Company" accompanied by a request similar to this one, please do not deposit the check. You should contact their local law enforcement authority instead. By being alert to this scam, you may be able to help others avoid being victimized by criminals who are using Travelers' name to prey on the public. If you have any questions, you can contact KWJONES@Travelers.com.

DOL Finalizes LM-30 Rules

2007-07-16T10:05:00.000-04:00

The U.S. Department of Labor has finalized the rules for disclosure form LM-30. This form requires officers and employees of labor organizations to report specified financial transactions and payments received to effect public disclosure of any possible conflicts between their personal financial interests and their duty to the labor union and its members. This rule clarifies the Form LM-30 and its instructions by explaining key terms and providing examples of the financial matters that must be reported, eliminates or modifies administrative exceptions in the old Form LM-30 that impeded the full disclosure of financial matters that constitute conflicts, or potential conflicts, of interest, and improves the usability of the reports by union members and the public.

The final regulations change the longstanding de minimis exception by adopting a quantitative standard of $250 as the amount above which a report is required and $20 as the amount above which payments or benefits must be counted when calculating whether the union official’s $250 reporting threshold has been met. The rule also includes a limited exclusion for widely attended gatherings, allowing union officials to attend two such gatherings without incurring a reporting obligation provided the employer or business paying for the gathering spent $125 or less per attendee per gathering. The rules are effective August 16, 2007.

Risk Managers Urged To Plan for Pandemic

2007-07-06T09:14:00.000-04:00

It's not a question of if a pandemic will happen, but a question of where and when, said Michael Osterholm, director for the Center for Infectious Disease Research and Policy.

Osterholm was the keynote speaker April 30 at the RIMS annual conference in New Orleans. He urged risk managers to take the lead in planning how to respond to a pandemic for their companies, their communities and their families.

The risk of a flu pandemic spreading across the globe is greater today than it was in 1918, when a deadly flu killed about a half million people in the United States alone.

Osterholm said with improved transportation, diseases can be spread through airplane travelers very quickly.

Also, while some argue that improved medical technology would help prevent a flu pandemic from taking so many lives, Osterholm said there's a shortage of hospital beds and medical staff personnel.

For instance, there are only 105,000 ventilators in U.S. hospitals, which tend to keep a two-day supply of oxygen on hand, Osterholm said. "We'd run out of oxygen before we ran out of ventilators," Osterholm said.

In addition to the medical system being overwhelmed, Osterholm said, communities would have to find a way to manage the number of corpses.

"We'd run out of caskets overnight," Osterholm said. "Most communities don't have plans."
And a pandemic would also have tremendous economic ramifications. In the recent SARS outbreak, 80% of flights into and out of Hong Kong were canceled for 10 weeks.

IRS Eliminates Form 5500 Schedule P

2007-07-05T09:26:00.000-04:00

To reduce administrative burdens of employers, plans, their administrators and trustees and custodians, and in anticipation of the transition to a wholly electronic filing environment under the ERISA Filing Acceptance System (EFAST), the Internal Revenue Service (IRS) has said in Announcement 2007-63 that the continued use of a Schedule P, Annual Return of Fiduciary Benefit Trust, in connection with the filing of a plan’s Form 5500 is no longer necessary. The elimination of Schedule P is effective for the 2005 and later plan years for Form 5500-EZ filers. For all other Form 5500 series filers, the elimination of Schedule P is effective for the 2006 and later plan years.

California Lawyers Must Disclose Malpractice Coverage

2007-07-03T10:42:00.000-04:00

California lawyers will have to tell their clients whether they carry malpractice insurance under a proposed rule that opponents say could add to the costs of going to court.

About 20% of the state's 150,000 lawyers don't have malpractice coverage, according to Jim Towery, chairman of the State Bar of California task force that drafted the proposed rule.

Towery and others who support the rule said most clients want to know whether a prospective lawyer has insurance, or a history of complaints, but many fail to ask.

Opponents fear that requiring disclosure might effectively force all lawyers to buy such insurance and pass on the costs -- up to $9,000 a year -- to clients.

Most of those who lack the insurance are sole practitioners who represent accident or consumer fraud victims.

"They're the people who really provide access to justice, as opposed to tall-building lawyers," said Diane Karpman, a legal ethics expert who predicted that some small practitioners would be put out of business.

The number of disgruntled clients who sue their attorneys is small relative to other types of civil lawsuits but the number of claims is rising, according to an American Bar Assn. study. For instance, legal malpractice cases worth $2 million or more jumped 60% between 1996 and 2003, the latest year for which data are available. In most cases, clients ask for much less, but the number of claims under $10,000 has risen too, by 8% in the same period.

Most legal malpractice claims result from personal injury and real estate cases, according to the study, and close to 70% of these suits were lodged against sole practitioners or members of firms with 10 lawyers or fewer.

"There are so many ways that the lawyer can make an error," said Edith Matthai, a Los Angeles lawyer who generally represents other lawyers in malpractice cases.

Proponents of the rule, including lawyers who handle malpractice cases for plaintiffs, say the requirement would protect consumers whose claims are mishandled.

"Prospective clients should at least know that an attorney chooses to practice without insurance or is unable to get it," said Robert Sall, a Laguna Beach lawyer.

In the '90s, Sall said, he represented an Orange County woman whose divorce lawyer "failed to take the most basic steps to protect the marital assets." The woman's estranged husband squandered hundreds of thousands of dollars before the divorce was final.

She sued the lawyer for malpractice, winning a $450,000 judgment but collecting a tiny fraction of it because the lawyer, who had no liability coverage, filed bankruptcy. The woman, then in her 60s and with meager resources, had to move in with one of her children.
"There are victims here," Sall said.

Some lawyers feel uncomfortable carrying malpractice insurance. Newport Beach plaintiffs' lawyer Mary Shea has never been sued for malpractice but carried insurance for 10 years. Financial and philosophical reasons prompted her to let her policy lapse in 2005.

The premium took a big bite out of her income, she said, and she felt there was an inherent conflict of interest in relying on the same insurance companies she often sued on behalf of wronged clients to defend her if she herself was sued.

The American Bar Assn adopted a model insurance disclosure rule in 2004, and 20 states now embrace some form of it. Several others are considering proposals. The requirement was in effect in California between 1992 and 2000 but the Legislature let the rule sunset during an unrelated dispute over State Bar funding.

The proposed rule would have to be approved by the State Bar's Board of Governors and the California Supreme Court.

The State Bar's comment period closes Aug. 6. To submit comments, go to the State Bar's website at calsb.org, click on "public comment" and search for "insurance disclosure."

molly.selvin@latimes.com

Copyright 2007 Los Angeles Times

As Predicted -- Pension Plan Consultant's Conflicts under Scrutiny

2007-06-29T15:59:00.000-04:00

Copyright 2007 Los Angeles TimesAll Rights Reserved
Los Angeles Times
June 29, 2007 Friday Home Edition

Conflicts of interest may hurt pension plans; Unreported business dealings can affect consultants' advice and drive down returns, a federal agency finds.
Jonathan Peterson, Times Staff Writer

WASHINGTON
Undisclosed conflicts of interest by pension consultants could be taking a bite out of your retirement plan.

In a report released Thursday, the Government Accountability Office said such conflicts appeared to drive down annual returns for traditional pension plans by 1.3% a year.
Pension consultants advise pension plans on a range of matters, such as investment goals, where to allocate assets and whom to use as money managers. Conflicts may arise if a consultant's advice is influenced by other, unreported business dealings.

Though lower returns are borne by the employer in such pensions, they can add up significantly over time and ultimately lead to benefit cuts, said lawmakers who requested the report.
The findings are the latest piece of evidence that retirement savings may be affected by business decisions made in pursuit of fees and profits rather than the worker's best interest. They follow congressional hearings on the effect of hidden fees and conflicts on 401(k) plans, and seemed likely to stir new calls for stricter oversight of the business arrangements that may affect retirement savings.

"Our overarching concern when it comes to hidden fees or conflicts of interest is this: Are the people entrusted with managing other people's money held to the highest possible ethical standard?" asked Rep. George Miller (D-Martinez), chairman of the House Committee on Education and Labor. "Are they looking to serve the best interests of the pensioners, or are they looking to line their own pockets? That's what this is all about."

Miller is preparing legislation that would address concerns about conflicts of interest and hidden fees in retirement plans, including traditional pensions and 401(k) plans.

In the report, government auditors described the lower returns as "suggestive" of the effect of undisclosed conflicts but stopped short of saying there was an absolute connection. The finding "nevertheless illustrates the importance of detecting the presence of undisclosed conflicts of interest" in pension plans, the GAO said.

The study built on a 2005 analysis by the Securities and Exchange Commission, which scrutinized the dealings of 24 pension consultants and concluded that 13 had conflicts that should have been revealed.

For example, the SEC found that pension consultants were often affiliated with brokerage firms that provided brokerage services to the consultants' client pension plans. It also found that pension consultants sometimes charged money managers to attend conferences and sold them software.

"Concerns exist that pension consultants may steer clients to hire certain money managers and other vendors based on the pension consultant's (or an affiliate's) other business relationships and receipt of fees from these firms, rather than because the money manager is best suited to the clients' needs," the SEC said in its analysis.

At the request of Miller and Rep. Edward J. Markey (D-Mass.), the GAO tried to figure out whether such conflicts cost people money.

Based on the finding, Miller said in a statement that there was "potentially a significant cost to workers and retirees when consultants or money managers have conflicts of interest."
Not everyone shared the concern, however. Mark Ugoretz, president of a group that represents major corporations on pension matters, said the report produced scant evidence of damage and based it on shaky assumptions about business relationships.

"They have made assumptions that these are conflicts of interest, and when they made these assumptions they found a minimal effect," said Ugoretz, of the ERISA Industry Committee (ERISA is an acronym for the Employee Retirement Income Security Act, the 1974 law that set pension standards). "That's not a sound basis on which to take legislative action."
Members of Congress, however, seized on the findings as a further sign that retirees could be victimized by obscure conflicts in the investment world.

"When it comes to the management of pension funds and workers' hard-earned savings, investment decisions should be driven by thorough analysis and research, not by the pursuit of fees that pad profit margins of consultants to the detriment of fund beneficiaries," Markey said.
Questions about the proper handling of retirement savings by financial professionals have become increasingly widespread in recent years, particularly as members of the baby boom generation start to reach their 60s.

The Labor Department is reviewing pension disclosure requirements and expects to unveil soon a proposal that would require pension consultants and other pension service providers to disclose details of their direct and indirect compensation, fees and "other financial arrangements," Bradford P. Campbell, an acting assistant Labor secretary, told the GAO in a letter.

Obesity and Workers Comp. Claims

2007-06-29T11:38:00.000-04:00

Duke Hospital conducted a study on obesity and Workers' Comp. Results:

There was a clear linear relationship between BMI (Body Mass Index) and rate of claims
Employees in obesity class III (BMI40) had 11.65 claims per 100 FTEs, while recommended weight employees had 5.80

The effect on lost workdays (183.63 vs 14.19 lost workdays per 100 FTEs)

Medical claims costs ($51,091 vs $7,503 per 100 FTEs)

Indemnity claims costs ($59,178 vs $5,396 per 100 FTEs) was even stronger The claims most strongly affected by BMI were related to the following:

Lower extremity, wrist or hand, and back (body part affected)

Pain or inflammation, sprain or strain, and contusion or bruise (nature of the illness or injury)

Falls or slips, lifting, and exertion (cause of the illness or injury) The combination of obesity and high risk occupation was particularly detrimental.

This information should really cause you to consider an obesity program in your business.

Dear Doctor: What You Need To Know About Own Occupation Disability Insurance Policies

2007-06-28T11:04:00.000-04:00

You've worked hard to get through medical school, gone on to specialize and now, you need to protect one of your most important assets: your income stream, says Frank N. Darras, the nation's leading disability and long-term care insurance lawyer.

Purchasing disability insurance, however, can be tricky and expensive. Policy features, advantages and benefits vary greatly. While some policies are iron-clad and pay benefits when you need them, others have holes and can cause financial disaster, should you become disabled. See http://www.darrasnews.com.

Darras offers the following tips:

-- Always buy as much individual coverage as you can afford. While doctors think (like everyone else) that they will never become disabled, the reality is that one third of all Americans between the ages of 35 and 65 will become disabled for more than 90 days.

-- Buy your policy as soon as you can, as coverage is the cheapest when we are young and healthy.

-- Even if your practice offers a group policy, be sure you buy your individual coverage first, and pay the premiums for the policy yourself so any benefits will flow tax-free. With individual coverage you also have more rights and remedies in the event your claim is wrongfully denied.

-- Only purchase "non-cancelable" and "guaranteed renewable" coverage. These features mean the insurance company cannot cancel your policy, increase your premiums or change the contract language as long as you pay your premiums on time -- even if the insurer is "taking a bath" on the claim side or decides to stop writing new business in your state.

-- Obtain the longest benefit period possible -- lifetime if available, but at least until you reach age 65. Always buy "own occupation" coverage.

-- Remember, when it comes to insurance, "the big print giveth ... the small print taketh away," so be careful and read the fine print.

-- Be a smart shopper and don't miss a premium payment.

"Finally, physicians often make fatal mistakes early in the claim process," says Darras. "Be sure to seek out the most experienced disability counsel before you file your claim so the carrier doesn't schnooker you with legalese or fine print.

Webb's Tip -- Use a qualified Independent agent to help you. For more information contact us at info@mclaughlin-online.com

"Feds Indict Adviser for Huge Borrowing"

2007-06-26T14:09:00.000-04:00

The adviser, who managed investments for the Ohio Bureau of Workers' Compensation, allegedly borrowed 4500 percent of a fund's assets.

Charging Mark D. Lay with failing to report to investors overleveraging that had grown to more than 4000 percent, U.S. attorneys for the Northern and Southern Districts of Ohio indicted the investment manager on four counts concerning his handling of an offshore hedge fund that allegedly resulted in the Ohio Bureau of Workers Compensation losing $216 million of its $225 million investment.

In directing the bulk of the trade activity of the MDL Active Duration Fund, an investment consisting primarily of government, corporate, and mortgage-backed fixed-income securities, Lay far exceeded the fund's pre-set limit of 150 percent in borrowing, according to the indictment issued Friday. In an April 2004 meeting with the workers' comp board's chief investment officer, Lay did not admit that the fund's leverage was 900 percent, according to the U.S. attorneys.

In September 2004, the CIO and CFO of the board confronted Lay about the fund's poor performance, which by then had a value of $57 million despite the $200 million the workers' comp board had invested, according to the indictment. While Lay admitted at that meeting that the fund was overleveraged, he "falsely" told the board executives that he had only borrowed 900 percent of the funds assets while knowing that the leverage exceeded 4500 percent, the U.S. attorneys contended.

The indictment charges that Lay, the chairman and chief executive officer of MDL Capital Management, hid the true nature and effect of the use of leverage in the fund by failing to disclose the overleveraging and its effect on the investment funds to the comp board, thus breaching his fiduciary role as an investment advisor. He was charged with investment advisory fraud, mail fraud, and conspiracy to commit mail fraud and wire fraud.

CFO.com could not reach Lay at press time for comment on the indictment. Lay stated last week, however, that "Recent reporting and comments concerning MDL Capital Management and its investment performance have painted an inaccurate and misleading picture of the Company and our track record." Lay claimed that all his company's fixed-income products, with the exception of the one the workers' comp board invested in, had made money.

The indictment seeks forfeiture of nearly $1.8 million , which represents the amount of compensation MDL received from the workers' comp board for managing the Fund. If convicted, Lay faces up to 20 years in prison and a fine of $500,000.

Lay is the 19th person to be charged in the case, according to the Columbus Dispatch. So far, the task force probing the fraud has produced 16 convictions, the paper added."

Next time your Pension Fund Trustees meet, maybe you should ask about Fiduciary Insurance and your limits. If one of your advisors also sells insurance to the fund, maybe its time to make a change. That advisor may not want an Independent agent asking hard questions.

U.S. Supreme Court to decide right to sue for mishandling 401(k) plans.

2007-06-20T09:42:00.000-04:00

The U.S. Supreme Court will decide whether a federal pension law gives workers who participate in 401(k) plans the right to sue claiming their accounts were mishandled.
The justices on Monday agreed to hear arguments from a man who says his retirement account is $150,000 short because the consulting firm that employed him didn't make investment changes he requested. A federal appeals court barred the suit.
The case will shape the rights of participants in "defined contribution" plans, a category that also includes employee stock ownership and profit-sharing plans. Together, those plans hold more than $3.2 trillion in U.S. employee assets.
The case before the court concerns James LaRue, who says his employer, management-consulting firm DeWolff Boberg & Associates, didn't follow his investment instructions in 2001 and 2002. He sued the firm, the administrator of the plan, in 2004 in federal court in Charleston, S.C. The suit invokes the 1974 Employee Retirement Income Security Act.
The 4th U.S. Circuit Court of Appeals in Richmond, Va., said the pension law allows suits for damages only when a participant is seeking to vindicate the rights of a plan "as a whole," not just the interests of a single account.
DeWolff Boberg urged the Supreme Court not to hear the case, saying the appeals court correctly applied a 1985 Supreme Court ruling.

Fast-Growing, State-Run Property Insurers Pose Risk for Taxpayers

2007-06-11T11:01:00.000-04:00

Exponential growth of state-run property insurers of last resort ultimately may shift much of the long-term risk of hurricane-related losses to policyholders and taxpayers, even those who live nowhere near the coast, reports the private insurance industry's Insurance Information Institute.

By year-end 2006, total exposure to loss in state-run property insurers is estimated to have surged to more than $600 billion, compared with $54.7 billion in 1990. Total policies in force had also risen to in excess of 2 million.

The explosive growth in these plans is attributable to a number of factors, including the rapid rise in coastal development and property values, and the changing shape and role of state-run property insurers in a number of states, according to a new study from the I.I.I.

'While state-run insurers of last resort fulfill a key role by ensuring that policyholders can obtain insurance coverage, many have morphed from their traditional role as urban property insurers into major providers of insurance in high-risk coastal areas," said Dr. Robert P. Hartwig, president and chief economist of the I.I.I.

According to Dr. Hartwig, this shift of high risk exposure away from the private property insurance market is placing an enormous financial burden on state-run insurers, leaving a number of them operating at substantial deficits. As a result, state-run insurers of last resort may end up shifting the long-term risks of hurricane-related losses to policyholders and taxpayers who do not live near the coast.

"Depending on the state, the redistribution of costs is commonly achieved via laws that allow state-run insurers (which are often the largest insurers in the most hazardous areas) to recover their losses in excess of their claims-paying resources by assessing (effectively taxing) the insurance policies of homeowners and business owners throughout the state, including those well away from the coast and those who have never filed a claim," Dr. Hartwig said. "In some cases, even unrelated types of insurance such as auto insurance and commercial liability coverage can be assessed."

"Even in states where the value of insured coastal property represents a relatively small percentage of total insured property values, this does not mean that state-run property insurers are not experiencing rapid growth," added Claire Wilkinson, vice president, Global Issues at the I.I.I. and co-author of the study.

For example, North Carolina's $105.3 billion in insured coastal exposure represents just 9 percent of the state's total insured property values. Yet the state's beach and windstorm plan saw its exposure and total policy count more than double between 2003 and 2006.

"The insurance industry is committed to working in partnership with public policymakers, consumers and businesses in developing solutions to the formidable challenges posed by catastrophe risks in future," said Dr. Hartwig.

Cyber Insurance

2007-05-29T10:02:00.000-04:00

So-called cyber attacks threaten businesses of all sizes, yet business use of various insurance products to protect against such attacks substantially differ among insurers, industry experts say.

According to American International Group Inc., cyber attacks compromised nearly 90 million identities in the United States since 2005.

Of 200 data breach claims, AIG said 33% were from hacking, 25% were from stolen equipment, 10% were from missing or lost data, 7% were from dishonest insiders and 22% from ``other security failures,'' with 3% unaccounted for.

``The victim must determine what happened, how information was accessed, what was accessed and if it was criminal,'' said Nancy Callahan, vp of AIG's identity theft and fraud division. ``If it was criminal, they have to bring in law enforcement.''

``The sheer magnitude of the loss of almost 90 million customer records and the variety of causes is shocking,'' Ms. Callahan said. ``It's urgent to protect middle-market companies and small businesses against the aftermath of an identity breach theft.''

Experts estimate indirect costs for lost productivity from stolen or misplaced data average $15 per customer record, while lost customers and recruiting new customers costs $75 per customer record.

Ms. Callahan said the average total cost of an information breach is $50 million.
Data security breaches pose an enormous threat and cost businesses a huge amount of money, said Kate Armfield, co-chair of RiskProNet International's marketing/placement practice group, a network of 28 independent brokers in the United States and Canada. She is also principal-account marketing at brokerage Armfield, Harrison & Thomas Inc. in Leesburg, Va.
Examine differences
``We have reviewed multiple forms that provide this type of coverage and caution there are differences that need to be reviewed during the placement process,'' Ms. Armfield said. ``Some, for example, provide coverage for `Dumpster diving' or data from stolen laptops and others do not.''

Businesses have been slow to buy technology and cyber liability coverage for several reasons, said Patrick Deaver, vp of operations at digital media company i-Mark Inc. in Holly Springs, N.C.
``This is still a concept. There is a lack of awareness due to slow rollout and penetration among business insurers,'' Mr. Deaver said.

``Where the coverage has been promoted, the value of the coverage has yet to exceed the cost. The insured is still willing to accept the risk of exposure due to a lack of monumental cases that illustrate true impact dollars resulting from security breaches,'' Mr. Deaver said.
Kirk Sexton, former chief information officer with CHOICE Medical Management Services L.L.C., a Tampa, Fla.-based workers compensation and disability management services provider, has used data breach insurance provided by Unisource Administrators Inc., its parent company in Sarasota, Fla. Mr. Sexton, now an independent consultant, said data breach claims were part of a roll-up technology/Internet rider attached to a general liability policy.

``There were some general conditions that we put into internal policy that helped protect ourselves and lower the premium cost as well,'' Mr. Sexton said. ``Among those were the policy of requiring our trading partners to carry a minimum of a $10 million policy as well.''
Data security breach coverage can be purchased as part of a technology liability policy or on a stand-alone basis, said Joshua Gow, vp of Philadelphia-based ACE Professional Risk, a unit of ACE USA.

``We are seeing a lot of demand from a lot of industries that do not have full-line professional liability exposure like retail, hospitality, restaurant chains,'' he said.
``Companies outsource a ton of different tasks from payroll to accounting to consulting contracts and call centers,'' Mr. Gow said. ``The natural result is that they are taking their confidential client information and entrusting it to third parties.''

``If I am entrusting my payroll to an outside company, I say, `Fine, as part of our contract you are required to maintain $5 million coverage in private liability limits,' '' Mr. Gow said.
Data security policy limits are available from $1 million to $50 million.

Responsible outsourcing

``It's a matter of going in and transferring liability,'' Mr. Gow said. ``Even though I have outsourced that service to a third party, if that third party loses my customer data, the customers are going to sue me. I'm the one who trusted this third party to handle the data.''
``So I want my own insurance and I want them to have insurance to subrogate against in case there is a problem,'' Mr. Gow said.
Numerous insurers write data security coverage.
Mark Ware, director of IMA Financial Group Inc.'s technology industry practice, a Denver-based brokerage, said the market penetration is low because some brokers do not understand the issue and companies with strong information technology departments think they are beyond claims.

``Cost of such insurance depends on what a company considers to be its exposure,'' said David Halstrom, an underwriter at Beazley Group P.L.C. in Farmington, Conn. ``A risk manager and a company protecting stakeholders (are) going to have elaborate and technologically related controls available to fend off these risks.

``It's going to be a risk/reward related to the premium vs. the protection you get,'' Mr. Halstrom said. ``Also, it is a matter of do you include that into your total risk management process as a risk manager.''

``There are a lot of moving parts to these issues. At the end of the day, the good guys in network security are having trouble keeping up with the bad guys,'' Mr. Halstrom said. ``At the end of the day, that is when insurance is there to protect against those types of situations, where the companies we insure did all that they could, but weren't able to fend off.''

Copyright 2007 Crain Communications Inc.

U.S. Supreme Court Toughens Standards for Antitrust Suits

2007-05-23T11:53:00.000-04:00

The justices, in a 7-2 opinion, ruled that an allegation that two or more companies are acting in parallel isn't enough for an antitrust lawsuit to proceed. Even if the result benefited the companies and diminished competition, the plaintiffs must go further and include some allegation indicating that the companies were actively working together.

When independent self-interest also could explain the conduct, Justice David Souter wrote for the court, plaintiffs must allege "some factual context suggesting agreement" to restrain trade.

The ruling doesn't radically upend the rules for antitrust actions. Nevertheless, it marks the latest in a sequence of cases where the court has tightened the scope of the Sherman Antitrust Act, the 1890 statute that took aim at monopoly by outlawing any "contract, combination . . . or conspiracy in restraint of trade or commerce."

Business interests contend that many companies are forced to settle even meritless lawsuits, because the cost of discovery may dwarf a payment that would make the case go away. But the court was vague about what it had in mind as the minimum allegation for a suit to proceed.

Justice Souter wrote that "the problem of discovery abuse" could cost innocent defendants huge sums. In the telecom case, "determining whether some illegal agreement may have taken place between unspecified persons at different [companies], (each a multibillion dollar corporation with legions of management level employees) . . . is a sprawling, costly and hugely time-consuming undertaking."

The 1996 Telecommunications Act sought to foster competition by allowing the so-called Baby Bells, the Bell System's successors, to sell long-distance service while also requiring them to open their local exchanges to rival carriers. But instead of promoting a robust marketplace for local telephone service, the Baby Bells largely declined to enter each others' regions and, plaintiffs alleged, they made it hard for upstart competitors to use their exchanges.
Citing this parallel conduct, plaintiffs, represented by the class-action firm Milberg Weiss Bershad & Schulman, filed suit. They alleged that the mutually beneficial parallel conduct by the Baby Bells -- which, after various mergers and name changes, now include AT&T Inc., Qwest Communications International Inc. and Verizon Communications Inc. -- suggested some sort of agreement. Plaintiffs sought to begin discovery in search of evidence supporting the claim.

A federal judge in Manhattan dismissed the case, ruling that plaintiffs must also allege facts that tend "to exclude independent self-interested conduct as an explanation for defendants' parallel behavior."

But the Second U.S. Circuit Court of Appeals, in New York, reinstated the case, citing a 1957 Supreme Court opinion that a suit shouldn't be dismissed "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim." Since a conspiracy was a conceivable explanation for conduct that undercut competition, the court ruled the case could proceed.
Not so, wrote Justice Souter, joined by Chief Justice John Roberts and Justices Antonin Scalia, Anthony Kennedy, Clarence Thomas, Stephen Breyer and Samuel Alito.

In this case, Justice Souter wrote, the plaintiffs didn't list "a single fact in a context that suggests an agreement." The Baby Bells, he observed, descended from a world where telecom was a monopoly and "doubtless liked the world the way it was." Thus, "a natural explanation for the noncompetition alleged is that the former government-sanctioned monopolists were sitting tight, expecting their neighbors to do the same thing."

In dissent, Justice John Paul Stevens, largely joined by Justice Ruth Bader Ginsburg, contended that the majority was driven not by settled law but a "transparent policy concern" to protect antitrust defendants from litigation costs.

I have health insurance -- Why do I need Workers Compensation?

2007-05-23T10:28:00.000-04:00

This question highlights the need to use a full service Independent Agent qualified to coordinate Health, Disability and Workers Compensation coverage. Many health insurers are starting to qualify or exclude coverage for work-related injuries under group health plans yet the old rule of thumb was exclude corporate officers from Workers Compensation to save money. A corporate President injured in an auto accident or by a falling file cabinet may face a huge medical bill with no insurance unless all the company's coverages are coordinated.

In most states, sole proprietors and partners are not covered as employees under the Workers Compensation act, but may elect to be covered. In some states the option to be covered applies only to sole proprietors and partners whose employees are covered under the act (either by law or by the employer's election).

With respect to executive officers of a corporation, the general rule is the opposite of the general rule for sole proprietors and partners. In most states, the officers of a corporation (including the executive officers) are covered, but provision is made for at least some officers to exempt themselves from coverage under the act. Many states allow only the corporation's executive officers to exempt themselves; which officers are considered executive officers may or may not be spelled out in the act. Other states do not specify which officers can exempt themselves, but allow only a specified number of corporate officers to exempt themselves.

A number of states address the status of limited liability company members and managers. This relatively new type of legal entity is a hybrid that combines features of both corporations and partnerships.

Keep in mind that, in many states, those who voluntarily exempt themselves from coverage under the act retain the right to sue the employer for damages caused by the employer's negligence. However, the standard endorsement used to exempt corporate officers and others from coverage under the employer's workers compensation insurance policy eliminates both workers compensation and employers liability coverage for injury to these individuals.

Bottom line, coordinate coverages -- don't just try to save a WC penny and end up having multiple pounds of your own pocketbook eroded.

Employment Liability Practices Coverage -- Think you don't need it? Consider this.

2007-05-21T11:08:00.000-04:00

Scary Compliance Facts:

-Tens of Thousands of employment practices claims filed every year (DOL)
-Employees win 63% (Jury Verdict Research)
-Average verdict exceeds $250K (JVR)
-Sex discrimination easiest for plaintiffs to win (JVR)
-Age discrimination highest average verdict- over $275K (JVR)
-Awards even higher in state court (JVR)
-Retaliation is fastest growing claim category (DOL, JVR)
-Median Settlement $89K (JVR)
-Entry level settlement $30K (JVR)
-Top filings in health services, business services, eating and drinking places (GenRe)
-None of these figures includes cost of legal fees, loss of time and emotional strain

While You Are Sleeping?

2007-05-03T10:09:00.000-04:00

You have read a lot and taken steps to limit your children's access to certain areas of the Internet, but have you given a minute of thought or checked with your Independent Insurance Agent about exposure to personal injury claims? You should have, especially if you have adolescent children.

Up until 10 or 15 years ago, chances were remote that a household would be sued for libel, slander, invasion of privacy, or some other offense. Unless they were picked up in a publication, damaging comments tended to remain within small circles of people and faded away soon after they were uttered.

In the Internet age, however, the potential for personal injury claims has increased substantially. Thanks to the global reach of e-mail, blogs, and shared sites such as MySpace and YouTube, damaging comments can be instantly transmitted to millions of people throughout the world and live on, so to speak, in electronic files that may never be fully expunged.

The growth in personal electronic communications is staggering. According to an August 2006 report by General Reinsurance Corporation, an estimated 57% of American teens had posted material on the Internet; and more than 53 million American adults had created online content. Those figures do not include the text and photos shared in supposedly private e-mails.

As a result of this communications revolution, households and personal lines insurers are seeing personal injury suits filed by individuals who have been ridiculed in electronic communications or had embarrassing information or photos of themselves posted online. Businesses are also taking legal action against “gripe sites” and individuals who post disparaging comments about their products and services online.

“The concern [today] is that the trickle of claim activity may become a torrent, as Internet usage continues its sharp growth among younger, and perhaps less worldly, insureds.” one report begins.

The American Association of Insurance Services (AAIS) has responded to the transformation in personal injury exposure by introducing new policy language for personal injury coverage.
AAIS is a national advisory organization that develops policy forms and rating information used by more than 600 property/casualty companies throughout the United States. Several states have already approved a comprehensive revision of the AAIS Homeowners forms, due to take effect in some states on July 1, 2007.

Among other things, the revision introduces several changes in wording in the optional endorsement for providing personal injury coverage.

First, the definition of “personal injury” is modified to explicitly include injury that arises from electronic publication of material that slanders or libels a person or organization, disparages the products or services of a person or organization, or violates another’s right to privacy.

With coverage for electronic publication established, the revised AAIS endorsement then clarifies the extent of coverage for electronic
publication by implementing a new exclusion that includes a key exception. This new provision generally excludes coverage for personal injury arising from “chat rooms,” "bulletin boards,” “gripe sites,” and other electronic forums that an insured hosts or controls. However, it contains an exception that preserves coverage for personal injury arising from content posted or provided by an insured.

Thus, in a general sense, the exclusion and exception are crafted to preserve coverage for an insured’s own comments, but not for his or her potential liabilities as a publisher of the comments and ideas of others.

In today’s world, one’s liability for personal injury does not necessarily end after a libelous, slanderous, or compromising comment is transmitted for the first time. A key characteristic of modern electronic communications is that the person initiating a communication usually loses control of it once it is released into cyberspace. No one can completely prevent others from forwarding malicious e-mails, or from copying malicious Web content and passing it along, even if the original is “taken down.”

This characteristic of electronic communications is raising legal questions that are now being weighed in the courts. When does publication happen? Is existing content on a blog re-published anew—and, thus, potentially a new offense—every time the blog is updated with additional new content? What is the extent of liability for the originator of injurious content when others link to it, or when it finds its way into search engines?

The one thing you can do is make sure your Homeowners Insurance has the broadest coverage possible for this activity, that you have an Umbrella policy that gives you comfort so you can go back to sleep.

Canadian Excise Tax on Insurance

2007-05-02T11:44:00.000-04:00

The Canadian federal excise tax imposes a 10 percent premium tax on entities resident in Canada, including international corporations, that place insurance against risk in Canada with insurers not authorized by federal or provincial insurance authorities. The tax is also applicable when coverage is placed by a non-resident broker or agent — even if the insurer is authorized in Canada.

The tax furthermore applies to master controlled programs where a non-Canadian parent company purchases insurance for a Canadian subsidiary. The involvement of a
Canadian broker or the Canadian branch of a global broker or underwriter may or may not
change the situation. For the Canadian government, the primary source of coverage takes
precedence.

The local buyer must be able to prove that the Canadian agent/broker was not merely processing the document(s). On admitted master controlled programs, the primary non-resident broker is typically considered the original point of contact and therefore the Canadian government considers the tax applicable.

Canadian tax authorities recently changed the way the federal excise tax on insurance premiums is collected. The tax authorities will no longer forward tax notices to insurance buyers but instead the insurance buyer must file an excise tax return (form B243E) and remit the federal excise tax by April 30 of each year. Previously, the tax authorities invoiced insurance buyers by forwarding to them a Notice of Excise Tax. These notices were derived from the excise tax returns submitted by brokers or insurers.

If the Canadian federal government discovers unpaid premium taxes, they will likely charge the 10 percent tax, plus interest, for current and prior years. They may also disallow the insurance premium (current and prior years) as a legitimate business expense for other tax purposes. Sorting out such problems can be time-consuming and costly.
In addition to the federal excise tax, there are provincial taxes on unlicensed coverage. The tax rates range from two percent to 50 percent. The latter is imposed by the province of Alberta.
Ontario, Quebec and Newfoundland have an additional provincial sales tax on insurance premiums. Ontario charges eight percent on all lines except Auto, for which there is no tax in respect of any premium payment due after March 31, 2004. Quebec levies nine percent for all lines except Auto (for which the rate is five percent). Newfoundland charges 15 percent on all lines. Some lines are exempt in some provinces — automobile, surety, agriculture and reinsurance contracts to name a few.

Some classes of insurance are exempt entirely under the Federal Excise Tax Act. These include Personal Accident, Life, Sickness and Marine. The point -- If you are insured or insuring in Canada check with your accountant.

Risk Managers Urged To Prepare For Pandemic

2007-05-01T10:49:00.000-04:00

It's not a question of if a pandemic will happen, but a question of where and when, said Michael Osterholm, director for the Center for Infectious Disease Research and Policy.

Osterholm was the keynote speaker April 30 at the Risk and Insurance Management Society's annual conference in New Orleans. He urged risk managers to take the lead in planning how to respond to a pandemic for their companies, their communities and their families.

The risk of a flu pandemic spreading across the globe is greater today than it was in 1918, when a deadly flu killed about a half a million people in the United States alone. Osterholm said with improved transportation, diseases can be spread through airplane travelers very quickly.
Also, while some argue that improved medical technology would help prevent a flu pandemic from taking so many lives, Osterholm said there's a shortage of beds in hospitals and medical staffs.

For instance, there are only 105,000 ventilators in U.S. hospitals, which tend to keep a two-day supply of oxygen on hand, Osterholm said. "We'd run out of oxygen before we ran out of ventilators," Osterholm said.

In addition to the medical system being overwhelmed, Osterholm said communities would have to find a way to manage the number of corpses. "We'd run out of caskets overnight," Osterholm said. "Most communities don't have plans."

And a pandemic would also have tremendous economic ramifications. In the recent SARS outbreak, 80% of flights in to and out of Hong Kong were cancelled for 10 weeks.

(By Meg Green, senior associate editor, Best's Review: Meg.Green@ambest.com) Copyright 2007 A.M. Best Company, Inc.

Read The Fine Print - Part II

2007-04-25T10:12:00.000-04:00

Previously, we have cautioned about contractual indemnity language and how if you are not careful you can become exposed as a result of contractual risk transfer. Well contractual risk avoidance is present even where you might not expect it, such as insurance policies. Exclusions to coverages are a traditional way of insurance companies saying you are covered on one hand and taking it away with the other. If you and your Independent Agent aren't careful what you do every day may be the one thing excluded from your insurance. Here are just a few examples -- Lobbyist Policies containing an exclusion for Lobbying activities; Union Insurance excluding Organizing activities; Law Office E&O coverage excluding attorneys acting as Fiduciaries; the list of exclusions to coverage is growing faster than Kudzu in a swamp.

When that policy arrives in the mail don't just stick it in a drawer. More importantly, make sure that your Independent Agent has a good understanding of what you do so he/she can review the exclusions when they come in as well. Finally, just because the original policy doesn't obtain an exclusion do not assume at renewal that the new policy is identical to the old policy.

TV commercials make you think that purchasing insurance is just like buying a book on Amazon. Nothing can be further than the truth. If you are not careful and well advised you may "save 15%," but get nothing for the 85% you pay.

Terrorism Insurance

2007-04-25T08:53:00.000-04:00

If the terrorism insurance program were allowed to expire, coverage would become largely unavailable and unaffordable, and the gears of commercial real estate would grind to a halt, according to the National Association of Realtors(R) and the Coalition to Insure Against Terrorism.

"The potential unavailability of terrorism risk insurance at the end of this year impacts our financing agreements and potentially hurts the commercial real estate market," said Joseph Ditchman, former president of the Ohio Association of Realtors(R) and a partner at Colliers Ostendorf-Morris, one of Cleveland's largest commercial real estate firms.

Speaking on behalf of NAR and CIAT in testimony before the House Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises, Ditchman urged Congress to extend the coverage that was originally enacted after September 11, 2001, and extended in September 2005. "This hearing recognizes that the essential facts have not changed from when Congress enacted the Terrorism Risk Insurance Act in 2002. Terrorism continues to be an unpredictable threat."

NAR agrees with a set of joint principles that the new legislation should contain that were developed by CIAT, along with the American Insurance Association. "We agree that the new legislation should be long term, eliminate the distinction between foreign and domestic acts of terrorism, and ensure coverage against losses from nuclear, biological, chemical or radiological events (NBCR)," said Ditchman.

NAR believes including those principles in legislation will strengthen the terrorism risk program. "The principles strengthen the economic security provided to the commercial real estate market by reducing the uncertainty of terrorism coverage availability, and covering most conceivable forms of terrorist activity," according to Ditchman.

In earlier reports, the Government Accountability Office and the President's Working Group on Capital Markets determined that no meaningful amount of insurance against NBCR events is available in the property market today, notwithstanding that TRIA backstops such insurance. NBCR events have been described as virtually uninsurable and there does not appear to be any mechanism to price such coverage. "To make sure businesses have access to this important coverage, we urge Congress to ensure that NBCR perils be added to the 'make available' requirements under TRIA," Ditchman said.

NAR testified that it believes that the "proper" long-term solution should focus on what private markets have been unwilling or unable to do. "The ideal solutions must enable businesses to purchase insurance for the most catastrophic conventional terrorism risks, provide adequate insurance capacity in all major commercial real estate markets, particularly in high-risk urban areas, and provide meaningful insurance against the so-called NBCR risks," said Ditchman.
NAR believes that this comprehensive approach can be an ideal program that will over time seek to reduce the federal role in the conventional terrorism markets and will maximize long-term private capacity by facilitating entry of new private capital.

Long Term Care Costs are Skyrocketing

2007-04-04T09:39:00.000-04:00

Yearly Long Term Care Costs Increase 15% Since 2004 to Nearly $75,000 in 2007 According to Annual Study by Genworth Financial

Additional Polling Shows 75% of Americans Have No Long Term Care Plans
RICHMOND, Va., April 3 /PRNewswire-FirstCall/ -- Genworth Financial's (NYSE: GNW) 2007 Cost of Care Survey found the average national cost of care for nursing homes, assisted living facilities and in the home has steadily increased over the past four years and has reached new highs that exceed most household incomes in the U.S.(1) The rising costs of long term care may, therefore, present difficulties for many Americans should they need to pay for long term care out of their own pockets.

A separate national poll conducted by Public Opinion Strategies for Genworth Financial with input from the Alzheimer's Association found that 75 percent of Americans have made no long term care plans and 59 percent expressed concern about being able to pay for long term care. Almost half of the respondents (44 percent) incorrectly believe that Medicare or their private health insurance will pay for their long-term care needs. In actuality, health insurance and the federal Medicare program do not generally cover long-term care.

Genworth's annual benchmark study surveyed more than 11,000 nursing homes, assisted living facilities and home care providers in all 50 states and the District of Columbia. It was conducted by CareScout between January and February 2007 to gain a comprehensive view of long-term care expenses. The 2007 Cost of Care Survey, which offers national, state, and local cost information is available at http://www.genworth.com.

According to the 2007 Cost of Care Survey, the average national cost in 2007 of a single year in a private nursing home room is $74,806. To put this into context, one year in a private nursing home room costs nearly double the average full 4-year college degree in the U.S., including tuition, room and board (College Board's national average for public colleges is $51,184 for four years, making a single year in a nursing home 46 percent more expensive).

Seventeen U.S. Insurance Companies became Financially Impaired in 2006

2007-03-28T10:05:00.000-04:00

Seventeen U.S. insurance companies became financially impaired in 2006, despite a respite for property/casualty insurers from two consecutive turbulent hurricane seasons and more diversified asset portfolios among life/health insurers, according to two new A.M. Best Co. special reports, "2007 Annual U.S. Life/Health Impairments" and "2007 Annual U.S. Property/Casualty Impairments."

The property/casualty report found 15 insurers in those lines of business became impaired last year, a rate of 1-in-233 companies. While any impairment can be a hardship to policyholders and employees, 2006's impairment rate is half the historical rate of the past 38 years. So far in 2007, A.M. Best has identified one public impairment: Vanguard Fire & Casualty Co. Florida regulators placed that company in rehabilitation in January. Vanguard Fire & Casualty was never rated by A.M. Best.

Of the two life/health companies identified as impaired in 2006, one is a known confidential supervision. The other impairment is Security General Life Insurance Co., which was issued a cease-and-desist order by the Oklahoma Insurance Department last September. It was placed in rehabilitation in November. The company was not rated by A.M. Best at the time of impairment. 2006's impairment rate of 1-in-769 life/health companies continues a seven-year trend of below-average impairment rates.

A.M. Best designates an insurer financially impaired as of the first official regulatory action taken by an insurance department. That marks the point when an insurer's ability to conduct normal insurance operations is adversely affected, capital and surplus have been deemed inadequate to meet legal requirements, or the company's general financial condition has triggered regulatory concern.

State actions include supervision, rehabilitation, liquidation, receivership, conservatorship, cease-and-desist orders, suspension, license revocation and certain administrative orders. The financially impaired companies identified in these studies might not technically have been declared insolvent. The definition of financially impaired is broader than that of a Bests Rating of E (under regulatory supervision), which is assigned only when an insurer is no longer allowed to conduct normal ongoing insurance operations.

In addition to the regulatory actions that are announced publicly, there also are actions that insurance regulators undertake on a confidential basis. When A.M. Best becomes aware of an active confidential regulatory action, the impairment is counted in the aggregate analysis but is not reported on a company-specific basis to protect confidentiality.

Property/Casualty Impairments

The performance of property/casualty insurers was bolstered by a dearth of hurricanes and near-record underwriting profits, which were parlayed into a combined ratio that stands at its lowest level since 1953. "It speaks favorably to the capital strength of the property/casualty industry," said John Williams, senior business analyst at A.M. Best. "What we found with most of these companies, both in property/casualty and in life/health, the impaired companies and those that became impaired either had vulnerable A.M. Best ratings, or were not rated at all by A.M. Best."

The majority of last year's impaired property/casualty companies were affiliated with either Poe Financial Group or Vesta Insurance Group.

Poe Financial Group was formed in 1996 by Tampa Mayor Bill Poe, who later established Southern Family Insurance Co. The company acquired Atlantic Preferred Insurance Co. and Florida Preferred Insurance Co. in 2003. By July 2004, Poe Group had become the largest privately held property insurance organization in the Florida market and the third-largest property insurance organization in Florida overall. The hurricanes and storms of 2004 and 2005 prompted policyholders to submit more than 120,000 claims, which cost more than $2.1 billion. Vesta's family of companies were domiciled in Texas, Florida and Hawaii. Most were placed into rehabilitation in June, 2006 after being hit hard by hurricane claims and were unable to pay claims.
The sector's outlook for the remainder of this year is bright. David Small, an equity analyst at Bear Stearns, said both publicly traded and mutual insurance companies are in a strong position going forward in terms of capital and funding. "One could argue that aggregate amounts (of capital) measured by standard surplus is at record levels. That is one of the reasons we see rates softening," Small said. "You could argue that some of the publicly traded companies have excess capital on their balance sheets."
Small said one major hurricane this season should not adversely affect property/casualty companies. "When you look back at 2005, the industry still grew a surplus and that was after Katrina, Rita and Wilma. The companies generated so much investment income the way they're set up that one good storm isn't going to knock them out," Small said.

Life/Health Impairments
One life/health company, Oklahoma-based Security General Life Insurance Co., was placed in rehabilitation in September 2006. Another company was taken under a confidential supervision impairment. While the 2006 life/health impairment rate represents a new 31-year low, additional confidential supervision impairment could rise.

"We have a circumstance with confidential supervision," said Williams. "The states take action to try to prevent problems for companies that they see in financial trouble. We picked up three additional impairments for 2005 and there's a fair shot that you'll see a fair jump in the 2006 numbers as we go forward-- enough that they won't be the lowest numbers on record."
The recent improved annual impairment rates for life/health insurers reflects an improving operating environment since 2001, industry efforts to diversity its asset portfolios and consolidation of some of the more thinly capitalized insurers with stronger companies.

(By Tom De Martini, associate editor, BestWeek: Thomas.DeMartini@ambest.com) Copyright 2007 A.M. Best Company, Inc.

Insurance Industry Mergers On the Rise.

2007-03-22T11:15:00.000-04:00

Insurance industry mergers and acquisitions transactions in the US increased in 2006 to the highest level since 2001 and may foreshadow an acceleration of activity into 2007-2008, according to a new study by Conning Research and Consulting.

"Insurance industry mergers and acquisitions transactions in 2006 increased due to a significant increase in the distribution sector. This is the highest level of transactions since 2001, yet the total value of these transactions was USD8bn lower than 2005 levels," said Clint Harris, senior analyst at Conning Research & Consulting. "The property-casualty sector led public offerings, including secondary offerings, with eight of the nine IPOs and nine of the fourteen secondary offerings."

The Conning Research study, "Mergers & Acquisitions and Public Equity Offerings -- 2007 Edition" continues Conning's annual review of insurance industry M&A and its effects on the industry.

"While transaction level increases in the insurance industry have kept pace with the broader marketplace over the past five years, the annual value of transactions has been very volatile," said Stephan Christiansen, director of research at Conning Research & Consulting. "Despite this, we forecast an increase in acquisition transaction values in the next 12-18 months, due to the continuing increase in surplus in the industry, along with private equity's increasing involvement in insurance. The ability of these firms to access large amounts of capital, and their ability to secure relatively inexpensive debt layers, means that they can be part of transactions exceeding USD10bn. Therefore, we expect more transactions valued between USD1bn and 5bn, with perhaps a few USD10bn or higher. Of course long-term drivers of scalability of data and process and global trends in business continue."

This article is supplied by Insurance Newslink (www.insurancenewslink.com).

Copyright 2007 Shillito Market Intelligence

Data Loss Seen as Most Serious Global Risk

2007-03-19T16:44:00.000-04:00

More than one-third of a group of senior executives and risk professionals surveyed earlier this year view loss of data as among the most serious threats facing their organizations.

In fact, loss of data was the most commonly cited threat in a new global risk report put out by the London-based Economist Intelligence Unit for ACE European Group, IBM Corp. and KPMG L.L.P. Thirty-six percent of the 181 participants ranked it among the types of threats "seen to be most important in your organization’s consideration of operational risk management planning."

Human error followed closely, being cited by 35% of the participants, and systems failure ranked third at 31%. Natural disasters, terrorism and pandemics showed up much lower on the list, behind such exposures as supply chain disruption and attacks on information technology systems.

"The survey shows that risk managers clearly understand the value of data and, increasingly are focusing on its associated losses," Gareth Tungett, senior underwriter specializing in IT and cyber risk at ACE, said in a statement released Friday discussing the survey’s results.

The survey—"Business Resilience: Ensuring Continuity in a Volatile Environment"—is available at www.aceeuropeangroup.com.

Survey: Most Workers Underestimate Chances, Impact of Disability

2007-03-15T10:51:00.000-04:00

While growing number of American workers are forecasted to experience a disability during their career, more than 80 percent of workers said they believe their chances of becoming disabled are far lower than actual statistics report, according to a new survey. The 2007 Disability Awareness Survey, released today by the Council for Disability Awareness (CDA), said the majority of workers are not concerned about the possibility of becoming disabled – an accident or illness that will keep them out of work at least three months.

Data from the survey underscores the need to better inform America's workforce about the likelihood of experiencing a disability, as well as the potential financial consequences that may accompany a disability. The CDA is embarking on an outreach effort to increase public dialogue about disability awareness.

"Preparing for an unexpected disability has never been more important for America's workforce – especially as more American workers are suffering from income-limiting disabilities that can leave them and their families vulnerable to severe financial hardship," explained Robert Taylor, executive director of CDA. "It's important that workers recognize the growing threat that disability can pose to their financial security."

Since 2000, the number of disabled workers in America has increased by 35 percent according to recent Social Security Administration data. At the same time, the financial health of many American workers has declined. Workers are not only spending their earnings, but also are dipping deeper into their savings and going into debt to make ends meet. The overall 2006 U.S. savings rate was negative 1 percent – the worst since the Great Depression. These statistics are distressing, considering two-thirds of respondents with a 401k or IRA plan are unaware of what would happen to their retirement savings should they become disabled and unable to earn an income.

Given this unsteady financial situation, it's alarming that nearly 60 percent of workers surveyed said they haven't discussed how they would manage an income-limiting disability. In fact, almost half of these workers haven't thought at all about the need to plan for the financial impact of a disability.

On the other hand, more than 80 percent of workers who have planned financially for a disability are confident about their ability to cover living expenses if a disability strikes.

The CDA survey also showed that:
* The majority of workers (56 percent) didn't realize that their chances of becoming disabled had risen over the past five years.
* Nine out of 10 (90 percent) workers underestimated their own chances of becoming disabled.
* More than one-third (35 percent) of workers with 401k or IRA plans said they haven't thought about or don't know what would happen to their contributions if they were unable to earn an income for a period of time.

As responsibility for long-term financial security continues to shift to the American worker, the need to incorporate disability planning into each person's financial security plan has become more critical," Taylor said. "Fortunately, with good planning, American workers can dramatically improve their chances of financial stability should a disability strike."

Source: Council for Disability Awareness, www.disabilitycanhappen.org.

The McLaughlin Company Speakers Bureau

2007-03-14T11:42:00.000-04:00

Over the years, we have seen an increase in the need for professional speakers in the Insurance and Risk Management area. Ted Pappas, Webb Hubbell, Brenda Mantz and Cheri Brewer represent over 100 years of experience in these areas. To make it more convenient for your organization to utilize their abilities, The McLaughlin Company responded by creating a speakers bureau specifically focused on those areas. Each speaker has become fluent in the issues and trends surrounding the insurance and risk management industries. Our speaker's bureau coordinator, Julie Johnson will strategically work with you to define your exact needs in a speaker. Contact her at speakersbureau@mclaughlin-online.com

Our Insurance and Risk Management speakers address many areas including:
Specific insurance and/or risk management topics
Continuing education and training Industry trends
Market transformations
Dynamic sales and management techniques
Insurance Programs and Risks specifically designed for Labor Unions
Fiduciary Insurance and Risk Avoidance
Risk Management for Pension Real Estate Investments
The Hidden Costs of Workers Compensation Insurance
The Pension Protection Act of 2006

To learn more about our speakers go to www.mclaughlin-online.com

Backdating -- What's in your D&O Wallet?

2007-03-09T10:35:00.000-05:00

Stock option backdating and financial restatements will bring on a surge of shareholder class actions and drive the cost of D&O coverage upward in 2007. Numerous suits were filed at the end of 2006 and the SEC is investigating over 100 other backdating charges. Although insurers continue to say that they look at each company on a case-by-case approach pressure continues to grow to raise D&O rates for all companies.

Identity Theft Update

2007-01-29T14:09:00.000-05:00

An announcement from Aetna detailing the theft of sensitive personal information of l30,000 plan members from a field office of a company that provides medical claim audit services highlighted a year of data loss and theft throughout the insurance industry in 2006.
More than 10 such announcements from insurers were reported last year as Companies dealt with the fallout of customer privacy missteps including the loss of names, addresses, birthdates, drivers license numbers and social security numbers of its insured. Some instances included loss of sensitive medical information.

Aetna’s December announcement of late October event was the second for the company in 2006.

In May 2006, the company also reported the loss of information of 38,000 of its members resulting from a theft of an employee’s laptop.

Other insurers reporting data breeches last year included Aflac, Allstate, American Family Insurance, American Insurance Group (AIG), Blue Cross - Blue Shield, Kaiser Permanente, Progressive Casualty Insurance, Sentry Insurance Virginia Bureau of Insurance and Wellpoint.

The announcements of each of these data loss incidents typically included the disclaimer that any personal information would be difficult to access by thieves, with many adding that the sensitive data was simply part of a burglary of property that could be sold for cash and that identity theft was not an intended goal. But with identity theft three times greater than the aggregate of all U.S. property crimes (burglary, larceny and motor vehicle theft), the cause for concern is high.

Big I opposes Spitzer decision

2006-12-12T10:24:00.000-05:00

ALEXANDRIA, Va., Nov. 30, 2006-The Independent Insurance Agents & Brokers of America (the Big "I") disagrees with, and is disappointed by, New York Attorney General Eliot Spitzer's decision that four leading companies can no longer offer incentive compensation to agents and brokers selling their products.

Spitzer today announced that he has notified ACE, AIG, St. Paul Travelers and Zurich that, under agreements reached with his office earlier this year, they may no longer offer this form of legal compensation because they have crossed the 65-percent "tipping point" in those agreements as to homeowners', personal auto, boiler and machinery and financial guaranty insurance. Those agreements bar carriers from paying incentive compensation to their sales forces when more than 65 percent of that line of insurance is sold by companies that do not pay incentive compensation.

"The independent agent and broker community is greatly distressed by this development," says Big "I" CEO Robert A. Rusbuldt. "These carriers are now unable to use what otherwise is a perfectly legal way to compensate their sales forces, just as is done in virtually all industries across America. It is ironic that the illegal activities uncovered by Mr. Spitzer occurred in commercial lines, not personal lines, and yet, it is largely in personal lines that the fallout is being felt today. The solution imposed on carriers and agents of banning incentive compensation is totally misplaced and directed at business that was never a problem to begin with."

The Big "I" continues to defend incentive compensation as a legal, legitimate form of compensation that is employed in all sales-based industries. Any compensation system can be abused, but the problem lies with those few who abuse it, not the system itself.

"There is no doubt that a few bad actors in the commercial lines area abused the system, and we have always agreed that those who break the law should be punished to the fullest extent possible," Rusbuldt says. "But it is absolutely wrong and indefensible to penalize the innocent majority for the misdeeds of a handful of people. This decision will impact thousands of agencies across the country as they face reductions in compensation that will hamper their ability to create jobs in their communities, train staff, invest in their agencies, and provide consumers access to insurance. On behalf of the hundreds of thousands of agents and brokers across America who had no part in the dishonest activity of a few, we will continue to fight to preserve the right of companies to pay legal incentive compensation." www.independentagent.com

ICE -- In Case Of An Emergency

2006-10-12T16:17:00.000-04:00

In a recent article from the Toronto Star, "the ICE idea", is catching on and it is a very simple, yet important method of contact for you or a loved one in case of an emergency. As cell phones are carried by the majority of the population, all you need to do is program the number of a contact person or persons and store the name as "ICE".

The idea was thought up by a paramedic who found that when they went to the scenes of accidents, there were always mobile phones with patients, but they didn't know which numbers to call. He therefore thought that it would be a good idea if there was a nationally recognized name to file "next of kin" under.

Following a disaster in London The East Anglican Ambulance Service has launched a national "In case of Emergency (ICE)" campaign. The idea is that you store the word "ICE " in your mobile phone address book, and with it enter the number of the person you would want to be contacted "In Case of Emergency ". In an emergency situation, Emergency Services personnel and hospital staff would then be able to quickly contact your next of kin, by simply dialing the number programmed under "ICE".

It really could save your life, or put a loved one's mind at rest. For more than one contact name simply enter ICE1, ICE2, ICE3 etc.

DISB approves new Annual Workers Compensation Rates

2006-09-15T09:44:00.000-04:00

NCCI received approval for its filing of workers comp loss cost and rates effective November 1, 2006 for new and renewal policies. This filing proposes an overall pure premium level decrease of 7.9% for the voluntary market and an overall rate level decrease of 5.8% for the residual market. The following gives a breakdown of the overall indication for the voluntary market: Change in experience and trend: 8.5%; Change in Benefits (increase in Maximum benefits): +0.2%; Change in Loss Adjustment Expense: 0.4%; Overall indication: -7.9%. Circulars are posted at NCCI’s website (www.ncci.com).

The ABCs of indemnity agreements and additional insured endorsements

2006-09-12T16:20:00.000-04:00

Understanding your business’s risk exposures is the cornerstone to managing them. Whether your business relies on outside vendors to provide goods and services, or you’re a provider of goods and services to your clients, you should be aware of how to take contractual precautions to protect your business against potential losses or damages. An indemnity agreement secured by an additional insured endorsement is a risk-transfer tool that can help insulate your business from potential risks.

Indemnity and additional insured endorsements

It is a common practice to enter into contractual agreements with those involved in a project to formalize the terms and responsibilities for all parties. These contracts often include an indemnity agreement, also known as a hold harmless agreement, as a means to transfer the risk of future losses or damages from one party to another.
There are basically three kinds of indemnity or hold harmless clauses typically contained in contracts.
1.Limited - obligates the indemnitor (the party paying compensation) to hold harmless the indemnitee (the party receiving compensation) only for the indemnitor’s own negligence
2.Intermediate - obligates the indemnitor to hold harmless the indemnitee for all liability except that which arises out of the indemnitee’s sole negligence.
3.Broad form - obligates the indemnitor to hold harmless for all liabilities, including the indemnitee’s negligence.
Carefully review the indemnity agreement prior to finalizing the contract to determine the extent of your company’s liability. Once the scope is understood, you may want to negotiate the terms to limit your exposure. The application and enforcement of an indemnification agreement does, however, depend upon the statutory and common law of the jurisdiction in which enforcement is sought.

To support the terms of the indemnity agreement, the contract will often include insurance requirements. These spell out the insurance required by the various parties entering into the contract. It is common for one party to include another as an additional insured under its Commercial General Liability (CGL) policy. For example, owners or general contractors of construction projects commonly require those who are actively involved in the project operations, such as subcontractors, to sign a contract and name them as an additional insured on their CGL policy to limit their liability for damages caused by the subcontractor.

Additional insured status

When reviewing the insurance requirements section of a contract, pay particular attention to the additional insured requirements. There are numerous additional insured endorsements. The specific additional insured endorsement, required in the contract, must be reviewed in order to determine the scope of coverage. Contact The McLaughlin Company] to obtain sample endorsement wording.

The Insurance Services Office (ISO) released new additional insured endorsements in 2004. The intent of the endorsements is to provide liability coverage for additional insureds (typically the general contractor or project owner) with respect to damages caused by the named insured (subcontractor). The endorsements do not provide coverage for the additional insured’s sole negligence, but they can provide coverage for the additional insured’s contributory negligence. Make sure that the actual additional insured endorsement satisfies contract requirements.

What’s in a name?

Don’t be confused—additional insured coverage is different than “additional named insured” coverage. An additional named insured usually is an affiliate of the primary insured. You will not be able to add or be added as an additional named insured. If this is part of the contract, it should be removed.

Understanding your coverage

Understanding the terms of the contract, the extent of liability assumed in the indemnity agreement, and the insurance requirements—including the coverage provided or afforded by the additional insured endorsement—are critical to minimizing future liabilities and exposure to losses.
Keep in mind, the liability assumed in the indemnification agreement of the contract can be broader than the coverage provided under the additional insured endorsement. A comparison of the two should be done to determine what is covered by insurance and what is not.
Many businesses choose to transfer or accept risk through contracts, purchase orders and lease agreements. However, not all contracts or endorsements are created equal. Contact The McLaughlin Company to learn more about contractual risk transfer and how it can be a part of your overall risk management program.

New California Sexual Harassment Training Guidelines Released

2006-08-29T14:47:00.000-04:00

New California Sexual Harassment Training Guidelines Released

Last year California passed legislation that requires employers with 50 or more employees to train their managers and supervisors on sexual harassment. Because some felt that the law was too broad and general, the California Fair Employment and Housing Commission has drafted more detailed guidelines to help California employers. “Commission provides definitive guidelines for sexual harassment training,” San Diego Daily Transcript as reported in www.yahoo.news (Aug. 15, 2006).

The guidelines, which may go into effect as soon as three months, include these points:

The trainer must possess a certain level of expertise – either a law degree or practical experience in prevention training and knowledge of California law;
Online training must be interactive so that a trainee can pose a question and receive an answer within two days;
All live training must be interactive presumably permitting questions and answers;
Employers must keep a training record for each individual supervisor; and
Employers must distribute their harassment policies and incorporate these policies into the training.

Commentary

The proposed guidelines eliminate from consideration any training where a trainee sits and watches a video without a trainer or person present to answer questions. It also eliminates any training where an employer simply reads from a training manual without any form of interaction.

Employers that utilize online training should make certain that the training allows trainees to ask questions and that the training records participation for each individual trainee. California employers should also make certain that employees acknowledge reading and understanding their sexual harassment policy just prior to taking any training and that they are provided the name of a person to ask questions about their policy.

Live training requires that employers do their homework to make certain that the trainer is qualified and that the materials can pass muster if questioned.