Hard Markets are on their way.

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

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

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

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

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

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

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

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

Complex Property Coverages

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

Debris Removal

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

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

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

Secret Questions

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

Successful Construction Claims

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

Florida Catastrophe Fund

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

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

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

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

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

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

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

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

Emerging Trends in Workers Compensation

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

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

Don't think you need Umbrella Coverage?

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

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

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

New York Reforms Late Notice Law

New York Amends Late Notice Law.

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

Applies to all policies except "claims made policies.

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

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

Interesting Tidbits

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

Cyber Risk Increasing as Stolen Data Becomes a Commodity

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

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

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

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

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

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

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

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

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

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

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

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

Copyright 2008 Reuters. Click for Restrictions

FMLA Expanded For Leaves related To Family Members In The Milatary

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

Individual Disability Insurance

Can You Afford Not to Have it?

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

The Pigeons Come Home To Roost

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

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

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

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

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

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

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

Large Pension Funded Status Rises

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

More Bad News For Iowa

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

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

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

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

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

Got an Extra $225 Million?

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

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

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

Employment Related Practices Update

Still think Employment Related Practices Insurance is not necessary?

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