Conning Research: Personal Auto Insurers Need Better Understanding Of Distribution Channels To Compete In Softening Market

The economics of distribution channels in personal auto insurance can be difficult to understand, and this can present both opportunities and challenges in a softening rate market, according to a new study by Conning Research and Consulting.

"Many insurers now choose to distribute personal auto insurance through multiple channels, ranging from traditional independent agencies, to exclusive or captive agents, to Direct Response and the Internet," said Alan Dobbins, analyst at Conning Research & Consulting, Inc.
"The difficulty for the insurer is that standard expense measures such as the expense ratio (relative to written premium) can obscure measures of efficiency and hide emerging strategic competitive opportunities."

The Conning Research study, "The Economics of Personal Auto Distribution: Competing in a Softening Market" analyzes the issues that typically cloud an insurer's understanding of their distribution effectiveness, and the potential advantages of each channel in a softening market.
"Average premiums per policy can vary among companies by more than 100 percent.

Acquisition costs to acquire or retain policies can vary by several hundred percent. All of these factors can be influenced by strategic choices in where, when and how companies grow their business," said Stephan Christiansen, director of research at Conning Research. "The market cycle presents opportunities for both agency distribution and direct distribution insurers. Direct writers can more easily enter and exit markets, while agency writers may have particular advantages in lower-cost insurance markets and market cycles. Yet management can become too focused on standard distribution benchmarks and miss opportunities presented by their particular channel mix."

"The Economics of Personal Auto Distribution: Competing in a Softening Market" is available for purchase from Conning Research & Consulting, by calling (888) 707-1177 or by visiting the company's web site at www.conningresearch.com.

Source: Conning Research (www.conningresearch.com)

From: PR Newswire (www.prnewswire.com)

NCOIL Says Optional Federal Charter Bill Is 'Ill-Advised'

By Chris Grier
BetsWire Service

The group representing state-level insurance legislators has written to the Senate sponsors of the optional federal charter bill telling them the measure is "ill-advised" and would hurt rather than help consumers.

The National Conference of Insurance Legislators, in a letter to Sen. John Sununu, R-N.H., and Sen. Tim Johnson, D-S.D., said it strongly opposes S.40, the National Insurance Act. If the bill were to become law, the legislators would see their authority over insurance matters greatly diminished, as many insurers would opt to be regulated by the federal government, rather than by individual states. In its letter to the bill sponsors, NCOIL makes the case that policyholders would not be as well protected under that scenario, and that adding a federal regulator would complicate the regulatory landscape.

"NCOIL believes that creation of an OFC would allow insurance companies to opt out of state oversight and policyholder protections, and would ultimately impose the costs of a needless federal bureaucracy upon businesses and the public," stated the letter, which was attributed to members of NCOIL's executive committee.

The letter also said that an OFC would "result in a quagmire of federal and state directives and promote ambiguity and confusion" and would also compromise state guaranty fund coverage and cause employers to absorb losses that would otherwise be covered by those funds. "Though well-intentioned," NCOIL said, the bill "is an ill-advised proposal that would bring more harm than good to the consumers we all serve."

The National Governors Association, the National Conference of State Legislatures, the Council of State Governments, and the National Association of Insurance Commissioners have also voiced opposition to the OFC legislation.

A companion bill was filed in the House on July 25 by Rep. Melissa Bean, D-Ill., and Rep. Ed Royce, R-Calif. (BestWire, July 25, 2007).

Source: BestWire Service (www.ambest.com)

From: Insurance News Net (www.insurancenewsnet.com)

Long-Awaited Credit-Based Insurance Scoring Report Settles Little

By Chris Grier
BestWire Services

When the Federal Trade Commission released its long-awaited study on the use of credit-based insurance scoring in underwriting automobile insurance, insurers were probably hoping that would be the end of the matter.

Judging from the reaction the report has received so far, that seems unlikely. One of the FTC's own commissioners has disowned the study, issuing a detailed critique of its shortcomings, and several civil-rights and consumer advocacy groups have outright condemned it.

The 2003 law that mandated the study was passed when Congress was firmly under Republican control. That's no longer the case, and Democrats have made it clear they are inclined to look into the issue. House Financial Services Committee Chairman Barney Frank, D-Mass., has weighed in often about consumer protection issues, and Rep. Melvin Watt, D-N.C. -- who has voiced serious misgivings about the way the report was conducted -- held a hearing of that panel's oversight and investigations subcommittee on July 27 to look further into the FTC report and its research methodology.

The report itself was mandated by the 2003 Fair and Accurate Credit Transactions Act, which said the FTC must conduct "a rigorous and empirically sound statistical analysis of the relationship between scores and membership in racial, ethnic, and other protected classes." The FACT Act also requires an analysis of whether another scoring model could be used that could predict risk while resulting in smaller scoring differences based on race, ethnicity, and other protected factors.

Even some critics of insurance scoring concede that there's a correlation between a person's credit and the likelihood of filing a costly claim. Insurers say the practice leads to fairer pricing: Those who present less risk pay less, and those who present a greater risk pay more. Yet it's an open question as to how "rigorous and empirically sound" the study was.

The amount of effort the FTC put into the credit-scoring study is markedly different from the amount of effort it put into other recent studies it has undertaken. In a probe of gasoline price hikes following Hurricane Katrina, the agency used its so-called Section 6(b) powers to compel documents from the oil industry; in two other recent studies, of the pharmacy benefit-management and generic drug sectors, the FTC subpoenaed documents and information from dozens of industry participants.

The FTC did not use its Section 6(b) powers or issue subpoenas to compel the production of any documents or data when conducting the credit-scoring study. Instead, it based its study on information volunteered by five insurance companies, with no assurance from them that the data were accurate or authentic.

There are a couple of things to watch for. One is whether Congress will take up legislation to address the use of insurance scoring. The other is whether the FTC will use different methods when undertaking the second half of its mandate under the FACT Act -- an analysis of the impact of credit-scoring in homeowners insurance, which the agency said it expects to deliver to Congress in early 2008.

Source: BestWire Services (www.ambest.com)

From: Insurance News Net (www.insurancenewsnet.com)

California Foreclosures Rise 170% in First Half of Year

The number of California homes in foreclosure jumped 170 percent in the first six months of this year.

A report released Monday by Irvine-based RealtyTrac Inc., an online marketplace for foreclosed properties, shows the number of unique property addresses with some type of foreclosure action filed against them during the six-month period.

In California, 104,572 unique properties were in foreclosure, the report showed.
California ranks first in the nation in the number of properties in forclosure, nearly double the number in No. 2 Florida, which had 64,250.

This report marked the first time RealtyTrac reported unique property foreclosures.
Previously, the company reported the total number of foreclosure actions -- which could including multiple actions for individual properties.

"The addition of this metric to our foreclosure report was spurred by a data request for unique property addresses from the Federal Reserve Bank, which is using our data for market and risk analysis, and we believe it will serve as a valuable complement to the total foreclosure filing count that we have been including all along," said Rick Sharga, RealtyTrac's vice president of marketing. "It's interesting to note that the total foreclosure filings and unique property counts reveal almost identical trends on the national level: foreclosure filings are up 39 percent from the previous six months and 56 percent from the first half of 2006; unique property counts are up 32 percent from the previous six months and up 58 percent from the first half of 2006."

The consistency is similar at the state level, where the same five states have the highest numbers of households in foreclosure and foreclosure filings, and the same six states have the highest percentages of both foreclosure filings per household and percentage of households in the foreclosure process.

From: San Francisco Business Times (www.bizjournals.com)

More Auto Insurance Buyers Willing To Abandon Agents

By Mark E. Ruquet
NU Online News Service

A new survey has found that a growing number of consumers are willing to purchase auto insurance without consulting an agent first.

A survey by Baltimore-based Vertis Communications found that 40 percent of consumers in the United States are willing to purchase auto insurance directly over the phone, Internet or mail without using an agent.

This is an 11-percentage-point increase over the survey’s 2003 result, when 29 percent said they were willing to make similar purchases.

An agents' group representative said the results should serve as a “wake-up call” to agents, who should be planning ahead with new market strategies.

The report said an increasing number of adults between the ages of 35 and 49 are willing to make a purchase without an agent. The number grew from 30 percent surveyed in 2003 to 45 percent in this survey.

The survey of 2,000 consumers was done by telephone during the last few months of 2006 and has a differential rate of plus or minus 3 percent. The survey was part of a more comprehensive consumer behavior survey examining a wide range of industry segments.

Jim Litwin, vice president of market insights for Vertis, noted in a statement that the survey shows a younger generation is more willing to access information through various media, and the insurance industry has turned to new methods to reach them.

However, he noted that effective selling requires multiple avenues of contact to be effective.

The survey found that, when asked what is the most important service a company can provide, respondents noted a knowledgeable agent as their number-one choice.

The importance of an agent increased from 25 percent of those surveyed in 2003 to 27 percent of those asked in the current survey.

The second most important service was 24-hour, seven-day-a-week access. Twenty-two percent of respondents said this was most important to them, up 2 percent from 2003.

For those between the ages of 18 and 24, round-the-clock access was most important to 29 percent of those surveyed (up 6 percentage points from 2003), while a knowledgeable agent fell to second place at 22 percent of those surveyed (down 4 percentage points from 2003).

Prompt claim payment came in third at 19 percent among all adults.

Online accessibility was near the bottom at 5 percent for all adults. But the survey noted that for those adults between the ages of 25 and 34, its importance grew 7 percentage points to 9 percent, while for the 18-24 age group, the percentage increase one percentage point to 7 percent.

In marketing, the survey found that when it comes to direct mailings, men between the ages of 50 and 64 and young men ages 18-24 are more likely to read the literature—23 percent and 22 percent respectively. Among women ages 35-64, 15 percent would read direct mail. Least likely to read direct mail were men ages 25-34 and women 65 and older.

Reviewing additional survey results, Scott Marden, director of marketing for Vertis, said while direct auto marketing material was the third most read, behind health and life products, people were more willing to purchase an auto policy from that material than the others.

He also noted that one of the trends the survey shows is that older individuals are less willing to purchase auto insurance without an agent than younger people.

“It’s all about targeting your customer and how well you do it,” he said. “Baby boomers are a key target for agents. Our survey shows that half the country is willing to buy without an agent, but the other half is not. That’s plenty of people [for agents] to target.”

Madelyn Flannagan, vice president with the Alexandria, Va.-based Independent Insurance Agents & Brokers of America, said the survey does not come as a surprise. She said independent agents need to understand these changes that are taking place, and companies are pushing them in that direction.

While there remains plenty of market from older customers and those with complex risks, she advised agents that they need to plan ahead.

“Research like this should begin to give agents a wake-up call that people are looking for information and service online. Independent agents need to start thinking now about those changes and responding to those future customers,” she said. “And I hope they will look to their associations for that help.”

From: NU Online News Service (http://www.nationalunderwriter.com/)

Calif. Prosecutors to Fight ID Theft, Privacy Violations

In an effort to bolster personal privacy and intellectual property rights, California Attorney General Edmund G. Brown Jr. announced that District Attorneys in Los Angeles, Orange and San Diego will begin receiving funds for the fight against identity theft violations. The funds, which will be used to purchase specialized equipment, will also assist prosecutors in the evaluation of intellectual property rights violations and other privacy violations.

The financial disbursements are the direct result of the state's settlement of a civil case against Hewlett Packard following allegations that the company engaged in the practice of pretexting in order to gain unlawful access to phone records.

The disbursement, totaling $178,000, marks the first of many payments from the state's $13.5 million Privacy and Piracy Fund established in the wake of the settlement. The funds will be used to purchase equipment, including technology for forensic computer analysis, which will assist in the evaluation of evidence from identity theft investigations, athe AG's office said.

Brown said: "This Fund provides substantial sums to local prosecutors, over the next decade, to defend against against high-tech crimes and identity theft. This action, the first of many, is another step towards protecting personal privacy in the age of the Internet."

Today's recipients of the grant are the Los Angeles County District Attorney's Office, the Orange County District Attorney's Office, and the San Diego County District Attorney's Office.

Every year, up to $500,000 from the Fund can be distributed to district attorneys and city attorneys so that they can conduct investigations and bring prosecutions to protect privacy rights and intellectual property rights.

The civil complaint alleged that Hewlett Packard used false pretenses to obtain personal confidential information, including billing records, from phone companies.

Attorney General Brown encouraged district attorneys and city attorneys to continue submitting applications to receive disbursements from the fund at: http://ag.ca.gov/hpsettlement/.

Source: California Attorney General's Office (http://www.ag.ca.gov/)

From: Insurance Journal (http://www.insurancejournal.com/)

Many Banks Seeing Increased Income Fees from 'Wallet Share' Insurance Products

By Christopher Sheffield
Memphis Business Journal

Bank holding companies are putting more pressure on their non-bank lines of business as the interest rate environment continues to hurt profits.

And nothing has been in the cross-hairs of bank executives more than the insurance operations which holding companies, particularly the national and regional players, have steadily grown for a decade.

"The larger banks recognize that they need to smooth out the peaks and valleys of net interest margins," says Michael D. White, president of Michael White Associates, a bank insurance and economic analysis firm based in Radnor, Pa.

Casey Bowlin, president and CEO of Regions Insurance Group, a division of Regions Financial Corp., says insurance as a line of business is important for four reasons. First, it expands the concept of the bank being a trusted adviser. Second, by providing a customer with yet another service, it further ties the customer to a bank, a concept known as "wallet share." Third, it enhances financial results because it is a profitable business. And, lastly, it renews every year and grows with the economy and therefore is a "very meaningful component of non-interest income," Bowlin says.

According to White's quarterly survey, insurance brokerage fee income increased 2.4% in the first quarter compared to the first quarter of 2006. Though small, the growth set a new quarterly record of $3.1 billion.

For White's report, insurance brokerage fee income includes commissions and fees earned by a bank holding company or its subsidiaries from insurance product sales and referrals of credit, life, health, property, casualty and title insurance.

The $3.1 billion in first-quarter fee income was a 6.8% increase from $2.9 billion for the fourth quarter of 2006.

Topping the national list for the quarter was Citigroup of New York with total fees of $458 million. Regions Financial Corp. was eighth with $27.5 million in fee income, up 37.5% from a year ago, and BancorpSouth, Inc., was ranked twelfth with $19.9 million in fees, up 14% in a year.

Memphis-based First Horizon National Corp., parent of First Tennessee Bank, reported that income from insurance fees dropped 10.1% in 2006 to $48.3 million. FHN ranked 22nd in assets and seventh in the Southeast region for 2006 for total insurance fee income.

Through the first quarter of 2007, 72% of all bank holding companies were involved in insurance brokerage. Among the largest banks, those with more than $10 billion in assets, the percentage is 92%.

The growth is particularly startling given that the vast majority of the 1,453 bank holding companies that now report insurance revenue have gotten into the business since 1999 following the passage of the Grahamm-Leach-Bliley Financial Services Modernization Act. The legislation essentially gave banks the ability to buy insurance firms.

Now, bank-affiliated insurance agencies control 10% of all the U.S. property and casualty marketplace, says Bowlin, and 25 of the top 100 largest insurance agencies are bank affiliated.
Regions is relatively small in the business because it is rather late to the party, having made its first acquisition in 2004. But, says Bowlin, the goal is to be larger although he's hesitant to give any numbers.

"We're not driven by market share," he says. "We're driven by building shareholder value. We are opportunistic. We don't have any benchmark we're driving toward, but we're opportunistic, and acquisitive."

As of 2006, insurance brokerage fee income contributed 4.21% to the bank's non-interest income.

On the other end of the spectrum is BancorpSouth, where insurance brokerage fees contributed almost 34% of all non-interest income in 2006.

BancorpSouth got into the business in 2000 and has made three significant purchases in Mississippi, Louisiana and Arkansas to grow the business, says James Threadgill, BancorpSouth vice chairman over insurance, trust and investments.

Threadgill says all banks are trying to expand away from net interest margins. And with all fighting over the same loans and deposits, that net interest margin is getting tighter.

"We're all looking for ways to expand non-interest income," he says.

And insurance has been one of the biggest ventures. It has also produced some of the biggest flops, many admit.

Fifth Third Bank, once of the leaders in terms of total revenue, got out of the business two years ago. Bank of America, which saw its insurance fee income jump 80% from 2005 to 2006, has said its insurance business is up for sale.

From: Memphis Business Journal (www.bizjournals.com)

House Lawmakers Offer US Insurance Charter Bill

By John Poirier
Reuters News Service

Two lawmakers in the U.S. House of Representatives on Wednesday introduced legislation that would create an optional federal charter for companies that provide life, property and casualty insurance. - The bill, called the National Insurance Act, would mirror the current dual structure for banks that want either a federal or state charter, said Melissa Bean, a Illinois Democrat, and Ed Royce, a California Republican, who introduced the bill.

Source: Reuters News Service (www.reuters.com)

From: Insurance Newscast (www.insurancebroadcasting.com)

HMOs to Start Ad Blitz Against Medicare Cuts

By Kim Dixon
Reuters News Service

Remember Harry and Louise, who helped derail then-First Lady Hillary Clinton's universal health plan a decade ago? Now Sandi, Alvin and Charlotte are making their television debuts. - U.S. health insurers will launch one of their biggest campaigns ever on Thursday to stem the loss of billions of dollars in Medicare payments and they will feature seniors, like Harry and Louise a decade ago, fretting over their benefit coverage.

Source: Reuters News Service (www.reuters.com)

From: Insurance Newscast (www.insurancebroadcasting.com)

Kaiser Fined $3M for Lacking Oversight; $1M Will Be Forgiven if Corrected

By Kathy Robertson
San Francisco Business Times

Quality oversight and physician review at Kaiser Permanente's 29 medical centers in California are so inconsistent that it's impossible for the health-care giant to determine whether serious problems are being addressed, state regulators announced Thursday after a lengthy investigation.

The state Department of Managed Health Care levied a $3 million fine against Kaiser for failure to provide adequate oversight. The agency agreed to waive $1 million of the fine if Kaiser completes a proposed correction plan.

The probe, started as an investigation into Kaiser's now-defunct San Francisco-based Northern California kidney transplant program, was broadened last fall to cover how the Oakland-based health plan and hospital system handles consumer complaints and a wide spectrum of oversight issues.

Kaiser posted $1.3 billion in net income last year on revenue of $34.4 billion.

State regulators found Kaiser does not comply with state law in two areas. It lacks adequate health plan oversight of quality assurance programs and there's a significant variation in and inconsistent handling of complaints against doctors at individual medical centers.

The investigation looked at records from nine of Kaiser's 29 medical centers in California, including four in Northern California: San Francisco, San Rafael, South San Francisco and South Sacramento. In addition to a review of policies and procedures, quality program descriptions and work plans, state regulators looked at complaints from April 1, 2005, through March 31, 2006, to see how they were handled.

"This survey is a culmination of our investigation that began last year with Kaiser's kidney center closure into why Kaiser didn't know the problem was going on," state agency spokeswoman Lynne Randolph said. "We looked at the oversight and saw the health plan was not doing the job it was supposed to be doing at its individual medical centers."

She stressed the investigation is not a reflection of the individual quality of care patients get at Kaiser hospitals.

"We believe the survey conducted by the state was thorough, thoughtful and constructive, and we have moved full speed ahead on the corrections," said Bernard Tyson, executive vice president of health plan and hospital operations for Kaiser Permanente.

"The survey did not say we have 29 broken programs, but that they are inconsistent," he said. "(It) was not about the quality of care provided to our members, it was concerned with processes."

Five areas of deficiency were identified by state regulators:

The health plan did not have a proper system in place to monitor and evaluate the care provided by the medical groups or medical centers.

The health plan failed to inform its providers and medical centers of the scope of its quality management responsibilities or monitoring procedures.

The health plan's board of directors did not request sufficiently detailed reports or oversight activities to ensure the board would be informed of significant or chronic quality problems within the Kaiser system

Physician peer review processes in the medical centers did not consistently ensure that all quality-of-care concerns were identified and corrected.

Quality oversight systems in the medical center were not designed to consistently ensure that all quality assurance concerns were identified and corrected.

In addition to the $3 million fine, state regulators and Kaiser agreed on corrective action that requires Kaiser to establish a reporting process to allow the health plan to review and monitor changes in clinical practice, quality-of-care complaint systems and peer review programs at all 29 medical centers.

The Department of Managed Health Care will require additional corrective actions from Kaiser by Oct. 1 on standardizing peer review and quality management in its medical centers.

State regulators will also conduct site visits starting in November, but with no advance notice.

From: San Francisco Business Times (www.bizjournals.com)

Allstate Pulls Rate Hike in Texas after State Agency Won't Approve Change

By Purva Patel
Houston Chronicle

Allstate withdrew its proposed 6.9 percent statewide increase in homeowners rates on Wednesday after the Texas Department of Insurance signaled that it wouldn't approve rates.

The increase would have gone into effect today as policies came up for renewal.

"We had some concerns and they decided it would be better to withdraw and address those concerns," Jerry Hagins, a department spokesman said.

He said it would be premature for the department to discuss the questions because regulators are still reviewing the rates with the company.

"We want to make sure the rates are fair and not excessive," Hagins said. "That's about all we can really say, is they chose to withdraw."

Allstate spokesman Joe McCormick said the company withdrew the rates to give the department more time to review the proposal and discuss questions it had about the rates. Allstate will resubmit rates as soon as those questions are resolved, he said.

"We're committed to having very accurate rates and rates that accurately reflect the risk involved," he said. "I don't have any particular details about the area where there are issues."
McCormick said he wasn't aware that the department deemed its rates as being too high.

"With any rate change, there are complexities to it and there are questions that come up," he said.

Allstate, which has about 750,000 policyholders in the state, stopped writing new homeowners business in some Texas coastal areas in March 2006. Allstate said it needed the recently proposed rate increase because of rising construction costs and the cost of reinsurance, or insurance the company buys for itself to cover claims in the event of a catastrophe.

Earlier this year, a state district judge in Travis County ordered Allstate to refund $56 million in premiums to policyholders stemming from overcharges collected in 2004 and 2005.

Allstate has appealed that decision.

Allstate raised rates in 2006 a statewide average of 5.6 percent to pay for $75 million in reinsurance costs.

Last week, Farmers Insurance withdrew a statewide average rate increase of 6.6 percent in response to word that the state would likely reject the rate request.

Farmers has 630,000 homeowner policyholders in Texas.

Source: Houston Chronicle (www.chron.com)

from: Insurance News Net (www.insurancenewsnet.com)

Increase in Accidents Saps Auto Insurers' Profits

If Allstate Corp.'s experience is any guide, profits from car insurance might have peaked.
Northbrook-based Allstate, the nation's largest publicly traded car and home insurer, said this month that the rate of accident claims in its biggest auto unit rose for the second straight quarter, contributing to only the fifth quarterly decline in the company's underwriting profit in five years. Until this year, the accident rate hadn't risen since 2001.

"The easy upside is now gone," said Richard Sbaschnig, an analyst at New York-based Oppenheimer & Co. "As an investor, I would be more cautious toward the auto insurance sector."

Fewer accidents helped triple the industry's profit margins from 2003 to 2006, allowing companies such as Allstate, Progressive Corp. and Geico Corp. to compete on price, according to Bob Hartwig, president of the Insurance Information Institute.

"This isn't going to be a great business to be in over the next year or so," said Cliff Gallant, an analyst at Keefe, Bruyette & Woods Inc. in New York. "If insurers keep lowering their prices and get caught off guard by the increased frequency of claims, then we're going to have a severe decline in profitability."

Allstate's second-quarter property damage frequency, a measure of accident claims per car, rose 1.8 percent in the main auto unit. It was just the second year-over-year increase since the fourth quarter of 2001. The first quarter rate rose 4.1 percent.

When Allstate reported its quarterly results, Chief Executive Thomas Wilson said the advance doesn't signify a "major change of direction" in the collision trend.

"This is just in the normal range," he said. "We have it priced into our business, and we are earning a very attractive return in our auto business."

While industry figures for the second quarter aren't available yet, Allstate's experience mirrored the broader trend in the first quarter. For every 100 insured cars, there were 6.23 U.S. collision claims between January and March, up from 6.08 a year earlier, according to the Property Casualty Insurers Association of America. It was the first increase in more than five years.

Among Allstate's competitors, Berkshire Hathaway Inc.'s Geico unit, Travelers Cos., Safeco Corp., GMAC Insurance, United Services Automobile Association and Liberty Mutual Group had more accident claims in the first quarter. The latest numbers from Allstate raise concerns that the deviation stems from more than the winter weather that hurt several insurers in the first quarter.

"Unless the claims costs really start to improve from here, which doesn't seem likely, profitability for auto insurance probably peaked a year or so ago," said Brian Meredith, an analyst at UBS AG in Stamford, Conn.

If there's a reason to be skeptical that the trend is reversing, it's State Farm Mutual Automobile Insurance Co., the only competitor bigger than Allstate. The Bloomington, Ill.-based company, which is owned by its policyholders and doesn't report quarterly earnings, experienced falling accident rates in the first and second quarter, though the pace of decline slowed, said spokesman Dick Luedke.

The trend would be easier to predict were there a definitive cause for fewer accidents. Insurers have suggested it's because of safer cars, an aging population and rising gas prices, though most said they really didn't know.

The industry spent 95.1 cents of every premium dollar on claims and expenses last year, down from 98.4 cents in 2003, according to A.M. Best Co. The profit margins would have been wider had companies such as Geico and Progressive not increased their advertising.

Source: Bloomberg News (www.bloomberg.com)

From: Chicago Tribune (www.tribune.com)

Agencies Join Up to Probe CA State Fund

By Kelly Johnson
Sacramento Business Journal

Three separate government agencies have formed a task force to probe allegations of potential misconduct by former employees of the State Compensation Insurance Fund.

The California Highway Patrol, the California Department of Insurance, and the San Francisco District Attorney's Office announced Wednesday they will cooperate in this investigation of the state's largest provider of workers' compensation insurance. The carrier is based in San Francisco and employs more than 800 people locally.

The Department of Insurance, which has regulatory oversight of State Fund, has been conducting what it calls "an exhaustive top-to-bottom review" of the insurer since April. That audit and investigation will continue independently from the task force. The Department is expected to release its findings in the fall.

The joint-agency probe was prompted by findings from State Fund's own internal investigation. That information, which government officials received in May, raised concerns about potential improprieties of former employees, a Department of Insurance news release said. State Fund has been cooperating fully with investigators.

The task force has created a confidential toll free tip line at 877-620-2345.

The quasi-public workers' compensation insurer has been under investigation since March by the Department of Insurance and other entities for alleged fraud in the handling of its group programs. At issue are allegedly inflated "administrative fees" policyholders paid to State Fund and the administrators of these groups.

Two top executives were fired in March and two board members resigned last November, sparking an ongoing fraud probe by the DOI and other state officials. Department of Insurance spokeswoman Jennifer Kerns told the Los Angeles Times in late May that alleged fraud at State Fund might have involved $600 million or more, but State Fund officials later said that's impossible, because only about $550 million has moved through the industry-specific group programs under scrutiny over the past decade.

State Fund provides insurance to 230,000 employers in California, and wrote more than $6 billion in business last year.

Chris Rauber of the San Francisco Business Times contributed to this story.

From: Sacramento Business Journal (www.bizjournal.com)

Study Shows Immigrants, Their Children Struggling Economically

By Mike Sunnucks
The Business Journal of Phoenix

A new study shows that many immigrant families in Arizona are living in poverty or toiling near the bottom of the economic food chain.

The report released Wednesday shows that two-thirds of immigrant children in Arizona are in low-income families; 29 percent of immigrant kids live well below the poverty line and that median family income for immigrants in the state is 35,100 per year.

Non-immigrant families earn $52,600 per year and 17 percent of U.S.-born kids are living below the poverty line in the state, according to the study by the Annie B. Casey Foundation.

The Casey Kids Count 2007 report also found that 20 percent of all Arizona children live in poverty, a third of Arizona babies are born to foreign-born mothers and 28 percent of kids in the state live in immigrant families.

Arizona traditionally ranks poorly when it comes to children's indicators but the immigration numbers come at a time when illegal immigration and punishing employers who hire illegals is at the forefront of political debates.

Businesses argue that immigrant workers take jobs other won't do and are important to the economy. Others counter that businesses hire illegals because they offer cheap, sometimes under the table labor in sectors such as construction, food service, farming and tourism.

From: The Business Journal of Phoenix (www.bizjournals.com)

An FTC Member Rejects Its Credit Scoring Report

By Arthur D. Postal
NU Online News Service

One of the five Federal Trade Commission members has filed a dissent from the agency’s study of insurance industry credit scoring use, which concluded it is an “effective predictor” of risk for rating auto insurance customers.

Commissioner Pamela Jones Harbour disagreed with the methodology used in generating the report and voiced doubt over the “reliability of any conclusions the report might draw.”

Another member of the Commission had other concerns, saying that while he thought the report “makes a substantial contribution to public discussions in this area,” the results “are, of course, no cause for celebration.”

The dissent, and the concurring statement of Commissioner Jon Leibowitz, prompted Commission Chairman Deborah Platt Majoras, and the two other supporting commissioners, to issue a statement defending the report.

“While we respect the dissent’s views as to the data and methodology used here, we have confidence in the quality of the process that the Commission staff used and the soundness of the results obtained,” the report’s three supporters said.

The apparent lack of unanimity amongst the commissioners is likely to enliven a hearing on the issue scheduled for tomorrow by the Oversight and Investigations Subcommittee of the House Financial Services Committee.

Witnesses expected at the hearing include: Robert Hartwig, president of the Insurance Information Institute; Florida Insurance Commissioner Kevin McCarty; Eric Rodriguez, Policy Analysis Center director for La Raza Hispanic advocacy organization and Birny Birnbaum for The Center for Economic Justice consumer group.

A consortium of consumer groups has already asked Congress to reject the study and order the agency to conduct “an objective, independent study.”

“The relationship between insurance credit scores and race is so strong that even though the FTC used data handpicked by the industry, it found that credit scoring discriminates against low-income and minority consumers and that insurance scoring was a proxy for race,” they said, calling for a ban on credit scoring use.

The report said African-Americans and Hispanics are substantially overrepresented among consumers with the lowest scores—the scores associated with the highest predicted risk—“and substantially underrepresented among those with the highest scores.”

In her dissent, Ms. Harbour charged that the “data collection and analysis fell short of the FTC’s gold standard for rigor and completeness, and did not reflect the agency’s best practices.” She added that “better alternatives were available and should have been utilized.”

Ms. Harbour argued, “Had this report been based on the real insurance marketplace—using actual, verifiable data on individual policyholders, from a broad cross-section of insurance companies—reliable answers might have emerged.”

She said she couldn’t endorse the report “due to my grave methodological concerns. This study fell short of the rigorous research and data-collection standards to which the Commission usually adheres.”

The report, released Monday by the commission, says credit scores are an “effective predictor” of risk under automobile insurance policies.

It adds that the use of credit-based insurance scores “may result in benefits for consumers.” For example, the report says scores permit insurance companies to evaluate risk with greater accuracy, “which may make them more willing to offer insurance to higher-risk consumers for whom they would otherwise not be able to determine an appropriate premium.”

Insurance groups that have fought battles in legislatures across the country to preserve their right to use credit scoring have hailed the report as validation of a necessary industry process.

From: NU Online News Service (www.nationalunderwriter.com)

OFC House Bill Introduced

By Arthur D. Postal
NU Online New Service

Companion legislation to a Senate bill creating an option federal charter for insurers was unveiled in the House today.

Rep. Melissa Bean, D-Ill., and Rep. Ed Royce, R-Calif., introduced the bill. They said they had won a commitment from the Democratic leadership of the House Financial Services Committee to hold hearings on the legislation soon. The bill is titled The National Insurance Act of 2007. The Senate measure was introduced in May.

The OFC legislation has garnered support from 11 financial institution trade groups, including the American Insurance Association, the Council of Insurance Agents and Brokers, and the Reinsurance Association of America.

But the National Association of Mutual Insurance Companies and the Independent Insurance Agents and Brokers of America reiterated their steadfast opposition.

In a statement issued as the bill was introduced, Rep. Bean said, “Regulatory obstacles currently discourage insurance innovation and nimble product development to capitalize on emerging growth markets.”

She added, “Eliminating the need to coordinate with 51 state regulators and accelerating the time to market potential will foster greater industry innovation and agility.”

Both Ms. Bean and Mr. Royce said the current state-based regulatory system for insurance had created a $24 billion negative trade deficit in insurance markets in 2006.

They noted that banks, which have a group of federal regulators, have a substantial positive trade position.

Their legislation creates a federal system of regulation and supervision for insurers as well as agents and brokers that is similar to the dual banking system.

Under the bill, insurers and producers would both be free to elect federal or state regulation, charters and licenses, and states would maintain responsibility for regulating state-licensed insurers and producers.

Unlike legislation introduced in the Senate in 2006, the latest bill addresses the surplus lines market, clearly defining nonadmitted and surplus lines insurance, and specifically permits nationally licensed agencies to engage in the placement of policies issued by surplus and nonadmitted insurers.

The 2007 bill also removes any reference to health insurance but allows federally licensed insurance producers to sell health insurance offered by state health insurers.

The bill, like its Senate counterpart, specifically directs the insurance commissioner to establish regulations barring unfair trade and claims practices.

It also states that national insurers, as a general rule, must belong to the state guaranty association in each state in which they offer insurance.

The bill also says that if a state guaranty association does not provide policyholders with a level of protection equivalent to National Association of Insurance Commissioners model standards, a national insurer would be required to join the National Insurance Guaranty Corporation created under the law.

This corporation would have separate accounts for property-casualty insurance and life insurance, and similar to state guaranty funds, would be post-funded with assessments of its member companies.

The most controversial provision of the legislation would eliminate rate regulation, a deep concern for Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee. Rep. Frank on numerous occasions said he would support exemption from rate controls for life and commercial property-casualty writers but not for personal lines of business.

In its comments, Justin Roth, NAMIC senior federal affairs director, said “NAMIC remains steadfastly opposed to an OFC.” He added, “There is nothing to be gained, except more bureaucracy and confusion for insurance consumers.”

The IIABA in its comments said that rather than creating a massive new federal bureaucracy under an OFC, it instead supports targeted federal legislation to reform the state insurance regulatory system, which relies on the over 100 years of skill and experience of states as insurance regulators.

IIABA officials cited as an example of such a pragmatic approach H.R. 1065, the Nonadmitted and Reinsurance Reform Act of 2007, which passed the House by voice vote last month. The legislation would help create uniformity in the surplus lines and reinsurance markets.

“We share the belief held by virtually every player in the insurance market that there needs to be reform of the existing regulatory system,” said Robert Rusbuldt, IIABA chief executive officer, but he added “creation of a new federal bureaucracy is not the answer.”

From: NU Online News Service (www.nationalunderwriter.com)

New Web Site Seeks to Attract N.J. College Students to Insurance Careers

The Professional Insurance Agents of New Jersey Inc. and the New Jersey Young Insurance Professionals have teamed up to create Project Y, a Web site (http://www.projectynj.org) dedicated to generating greater interest in insurance careers among youth.

The site is intended to be a one-stop resource center for college undergraduates in New Jersey who are considering a profession in the industry.

"There is a large gap in the insurance business between the number of agents retiring and the number entering the field, which puts the future of the industry into question," said Jack Lynn, CIC, president of PIANJ. "What students don't realize is that the need for insurance is constant and always expanding, creating a continuous need for educated professionals in the industry and a great career opportunity."

Project Y is part of a broader initiative. PIANJ and NJYIP have also created The Agency Staffing Assistance Program to help PIANJ members recruit and train good employees. It is an online tool kit, featuring links to online job sites and recruitment agencies throughout New Jersey.

Project Y is the next iteration of these efforts, directly targeting college undergraduates throughout the state.

Though the initiative is in its initial stages, plans include rolling out a job center where students can post their resumes and companies can seek out potential employees.

Source: PIANJ (www.piaonline.org)

From: Insurance Journal (www.insurancejournal.com)

Consumer Group Says FTC Proves Credit Scoring Costs Minorities

A national consumer group stepped up its criticism of a recent government report on the use of credit scoring by auto insurers, claiming that the Federal Trade Commission report confirms that African American and Hispanic drivers pay more for auto insurance as a result.

"It's not fair that consumers with spotless driving records can be penalized with higher premiums just because of their credit score," said Norma Garcia, senior staff attorney with Consumers Union. "Insurance premiums should be based on the risk of an accident, not a consumer's bill paying record for other goods and services."

Insurance companies have hailed the FTC study as further proof of a connection between credit information and the risk of loss and maintained that the study finds that its use helps to increase the availability and affordability of insurance for most consumers.

But according to Garcia, the FTC report also proves that African Americans and Hispanics are "substantially overrepresented" among consumers with the lowest credit scores. It found that "more than one-half of all African Americans have credit scores in the lowest quarter of the overall score distribution, and one-half of all Hispanics have credit scores in the lowest third of the overall score distribution."

As a result, African Americans and Hispanics pay more, on average, for auto insurance coverage than non-Hispanic whites and Asians, she added.

"While insurance companies may not intend to discriminate, the result is the same," said Garcia. "Basing insurance premiums on credit scores means low income and minority consumers are forced to pay higher rates than others with the same driving record or claims history."

The insurance industry has argued that drivers with low credit scores are more likely to get into an accident but critics contend there is no evidence to support such a claim. The FTC found that there is a correlation between a low credit score and a higher chance of filing a future claim, but Consumers Union said it does not believe that justifies the practice because of its discriminatory impact.

"It's simply unfair for insurers to charge consumers more up front just because of the possibility they might use their policy at some point in the future," said Garcia. "Credit scores shouldn't be a factor when it comes to pricing insurance."

Insurance companies' scoring formulas are for the most part confidential and there is no single mathematical model for how insurers use credit information to influence insurance decisions or for how they derive insurance scores from credit information.

Because of this, Consumers Union maintains that it's hard for consumers to gauge what they can do differently to increase an insurance score, or even to know what factors are viewed more favorably by different insurers.

Using credit scores to price insurance also is problematic for consumers since the score is derived from information from credit reports, which may not be completely accurate, according to critics. A 2004 study by the U.S. Public Interest Research Group found that one in four credit reports contained serious errors.

"Insurance companies insist that credit scores are a reliable predictor of future claims and yet they have no idea whether the credit information they are using is accurate," said Garcia. "Too many credit reports contain serious errors. This can result in a lower insurance score and higher premiums. Even those consumers with good credit may have a lower than expected insurance score because of the peculiar ways insurance companies weigh credit behavior."

Source: Consumers Union (www.consumersunion.org)

From: Claims Journal (www.claimsjournal.com)

AZ Employer Sanctions Driver Fires Back at Critics of New State Law

By Mike Sunnucks
The Business Journal of Phoenix

The Arizona state lawmaker leading the charge for the new state law that punishes employers who hire illegal immigrants is firing back at business critics of the measure.

A number of business executives critical of Arizona's new employer sanctions law have taken aim at Rep. Russell Pearce, R-Mesa.

Business critics said Pearce's immigration stance will drive Hispanic workers from the state and put legitimate employers out of business for unintentional mistakes. They also contend the new sanctions law is racist against Mexicans.

Pearce counters that businesses that "play by the rules" will not be hurt by the sanctions law. He points out that only employers who "knowingly or intentionally" hire illegal immigrants could lose their state business licenses. This counters some business arguments that smaller firms and major employers could be shut down for unintentional hiring mistakes.

Pearce said states are within their rights to enforce immigration measures; that Hispanic businesses and workers are protected under existing anti-discrimination statutes; and that businesses hiring illegal immigrants are looking for cheap, under-the-table labor to gain unfair advantages over legitimate firms.

Pearce is a target of Wake Up Arizona, a new business group opposed to the sanctions law. Chairman Mac McGruder and others involved with the group have criticized Pearce, saying his immigration views are too extreme. They also point out that some right-wing immigration activists tend to be anti-Mexican and anti-Hispanic.

Last year, Pearce apologized after he forwarded to supporters an e-mail containing a commentary on the news media from a neo-Nazi group. The Republican said he was not aware the item had come from such a group.

A number of business organizations have filed suit challenging the new state sanctions law, which was approved by the Legislature and signed by Gov. Janet Napolitano.

Pearce said in an e-mail to The Business Journal that the state law is within federal and state constitutional bounds, that illegal immigration needs to be curtailed, and that public opinion polls show voters support employer sanctions.

From: The Business Journal of Phoenix (www.bizjournals.com)

CA Insurance Commissioner Announces New Service to Streamline Insurance Agency Application Process

Insurance Commissioner Steve Poizner announced today an online service for organizations applying for an insurance agency license. This online filing service will streamline the license application procedure and expedite processing time by several weeks. The Business Entity Application Service is available on the California Department of Insurance (CDI) website at www.insurance.ca.gov.

"I am a firm believer in harnessing technology to make our government more flexible and responsive to the needs of the people," said Commissioner Poizner. "I know firsthand that technology can advance entire industries, and I will continue to implement practical methods to improve the accuracy and efficiency of our system."

The Business Entity Application Service is a two-step process. The first step allows new applicants to receive necessary business name approval and reservations. The second step involves the completion of an online Business Entity Application. There is no charge to use this online application service.

Applications are frequently submitted with incomplete information, causing substantial delays in the issuance of licenses. The Business Entity Application Service is designed to assist applicants in completing their information accurately before submitting for processing, to drastically cut wait times in the license issuing process.

Prospective applicants interested in this new service should visit the CDI website for additional information.

From: California Department of Insurance (www.insurance.ca.gov)

Conn. City Offers Illegal Immigrants IDs

Dozens of people lined up at City Hall on Tuesday for municipal identification cards, the first city-issued ID cards specifically designed to bring illegal immigrants out of the shadows and give them access to community services.

The cards, available to New Haven's entire population, are meant to help anyone without a state- or federal-issued ID open a bank accounts and use other services that would otherwise be inaccessible. Advocates argue that if immigrants can open bank accounts, they will be less likely to carry large amounts of cash, a practice that makes them easy targets for robbers.

An estimated 10,000 to 12,000 of New Haven's 125,000 residents are believed to be in the country illegally.

"The simple straightforward purpose here is to build a stronger community," Mayor John DeStefano said. "You can't police a community of people who won't talk to our cops."

The mayor said the federal government had failed to address immigration-related issues, forcing cities to find ways to manage them. New Haven is simply acknowledging the people who already live there, he said.

"I think New Haven is doing something that makes sense for New Haven," DeStefano said. "Service to one another in community, more than waving an American flag, defines the spirit of our soul."

Ray Sanchez, a 36-year-old laborer waiting in line at City Hall with more than 100 others, said the card would also let him get a library card, use banks and learn English. It also would make him feel more safe, he said.

"We need to send money to the places we come from. For me, I feel better. If the police catch me, I have identification now," Sanchez said.

There also a contingent of protesters at City Hall on Tuesday. Bob Luciani, a teacher from Woodbridge, said he is concerned that that other cities may do what New Haven has done.

"It's going to metastasize across all over the country. I think this is totally illegal," he said. "If we don't go by laws, then we're going to have anarchy."

Another protesters held a sign reading: "You have cheated on those who have been waiting to enter the country legally."

The ID cards stand in contrast to new laws or proposals in more than 90 cities or counties around the nation prohibiting landlords from leasing to illegal immigrants, penalizing businesses that employ them or training police to enforce immigration laws.

New Haven already offers federal tax help to immigrants and prohibits police from asking about their immigration status. The new ID cards cost $5 for children and $10 for adults.

Shortly after city officials approved the program, U.S. Immigration and Customs Enforcement agents conducted raids that led to about 30 arrests. City officials said the raids appeared to be retaliatory, but ICE officials have said the raids had nothing to do with the city's approval of the ID program.

They would not comment on the prospects of more raids.

"ICE is mandated by Congress to enforce a wide range of immigration and customs laws and we will continue to enforce those laws in Connecticut and throughout the U.S.," the agency said in a statement.

DeStefano acknowledged that some immigrants may be reluctant to apply for an ID card because of the raids, but predicted most will still seek the ID cards.

Junta For Progressive Action, an advocacy group for Latinos, quickly ran out of 50 applications for the cards on Friday, executive director Sarahi Almonte said.

"The benefits outweigh the risks," she said.

Source: Associated Press (www.ap.org)

From: USA Today (www.usatoday.com)

Consumer, Civil Rights Groups: FTC Credit Score Report is Biased

Representatives of consumer and civil rights organizations have condemned a congressionally-mandated report on insurance credit scoring by the Federal Trade Commission (FTC) as biased insurance industry propaganda. According to a statement released by the National Fair Housing Alliance, the groups called for Congress to reject the defective study and ban the use of credit scoring in insurance.

The groups cited previous studies by the Missouri and Texas Departments of Insurance, which they say have found that insurance scoring discriminates against low income and minority consumers because of the racial and economic disparities inherent in scoring. The Missouri study concluded that a consumer's race was the single most predictive factor determining a consumer's insurance score and, consequently, the consumer's insurance premium.

According to the announcement, the relationship between insurance credit scores and race is so strong that even though the FTC used data handpicked by the industry, it found that credit scoring discriminates against low income and minority consumers, and that insurance scoring was a proxy for race.

Representatives of the Consumer Federation of America, the National Fair Housing Alliance, the National Consumer Law Center, and the Center for Economic Justice said the FTC study is fatally flawed because the insurance industry controlled the data used in the analysis. Instead of requiring the submission of comprehensive policy data by a large number of insurers, they claim the FTC used data handpicked by the insurance industry.

The groups maintain the FTC study also confirms that, despite growing reliance on credit-based insurance scores, scant evidence exists to prove there is a meaningful connection between a consumer's score and auto insurance losses.

The groups also dismissed the report for failing to respond to the Congressional mandate to examine the impacts of insurance credit scoring on the availability and affordability of auto and homeowners insurance, and for parroting insurance industry propaganda about insurance credit scoring. Section 215 of the Fair and Accurate Credit Transactions Act of 2003 required the Federal Reserve Board and the FTC to study the impact of credit scoring on the availability and affordability of credit and insurance and to determine whether credit scoring was truly related to insurance losses or simply a proxy for race, income or other factors.

The groups called on Congress to reject this study, which they say is flawed and biased, and to tell the FTC to conduct an objective, independent study. They also called on Congress to ban the use of insurance credit scoring based on the available evidence of racial discrimination.

Source: National Fair Housing Alliance (www.nationalfairhousing.org)

From: Insurance Journal (www.insurancejournal.com)

Broker Survey Says Market Pricing Continues Nose Dive

By Mark E. Ruquet
NU Online News Service

Prices in the insurance marketplace are continuing to decline sharply with few upward trends in any risks according to a market survey of leading brokers conducted by an insurance brokerage association.

The second quarter commercial market survey released by the Washington, D.C.-based Council of Insurance Agents & Brokers shows average commercial rates declined 11.8 percent in the second quarter of this year, virtually identical to the 11.3 percent decrease in the first quarter of this year.

The survey received responses from 121 of the world’s largest brokers, who are members of the association. They were asked to rate changes in premium rates over the past three months.
According the survey, rates are down by virtually the same amount as last month for all size lines of business.

Seventy-nine percent of small accounts, with commission and fees of less than $25,000 were down from 1 to 30 percent.

Ninety-two percent of medium size accounts were down by the percentage, and 83 percent of large accounts were down by the same percent. In addition, 6 percent of large accounts, more than $100,000 in commission and fees, were down 30 to 40 percent.

The downward swing was relatively similar to the first quarter.

The survey said this is the lowest point premium prices have reached since the hard market high of plus 28.5 percent in the fourth quarter of 2004.

Over the past five quarters, prices have been edging downward, the survey indicates, but did not reach double digit decreases until the beginning of this year.

Among the lines of business that have seen steepest declines in the quarter are general liability at minus 12.4 percent and commercial property at minus 12.2 percent.

However, anecdotal comments reported by the CIAB indicate that agents in some parts of the country are still experiencing increases on some lines of catastrophe business. In its own comments, the association described the market as being ‘“totally unpredictable’” in terms of pricing and underwriting.”

From: NU Online News Service (www.nationalunderwriter.com)

The Hartford Settlement with AGs Ends Agents' Contingent Commissions

The Hartford Financial Services Group, Inc. announced it has reached a settlement with the New York, Connecticut and Illinois Attorneys General resolving matters relating to their investigations of the compensation arrangements between the insurer and its property-casualty agents and brokers.

As part of the deal, The Hartford will no longer pay its property-casualty insurance agents commissions that are contingent upon growth or future performance but will implement a new supplemental payment scheme with fixed commissions per policy based more on an agency's past performance with the insurer.

In this change in compensation plans, the insurer joins others including Chubb and Travelers in instituting fixed commission plans for agents.

The company also reported a settlement regarding the New York Attorney General's investigation of market timing within the company's variable annuity products.

In settling both the market timing and broker compensation matters, The Hartford said it has agreed to pay, in total, $115 million.

The Hartford did not admit or deny any violation of federal or state law as a result of this settlement.

Other previously disclosed matters that were under investigation by these attorneys general have been concluded, according to the insurer.

In addition, The Hartford had previously disclosed an investigation by the staff of the Securities and Exchange Commission into matters related to market timing. In light of the settlement announced today, the company said that the SEC staff informed The Hartford that it has concluded its investigation without recommending any enforcement action.

The $115 million total amount consists of $89 million in restitution ($84 million for market timing and $5 million for broker compensation) and $26 million in penalties.

According to the insurer, a "substantial portion" of the cost of the settlement has already been funded by a previously disclosed reserve of $83 million set aside for regulatory matters.

Commenting on the announcement, The Hartford Chairman and CEO Ramani Ayer said, "We are pleased to have these matters behind us. Since these investigations began more than three years ago, we have cooperated fully with the attorneys general and other regulators. We have worked assiduously to strengthen and improve our business practices and will continue to do so.
We emerge from this period with an unwavering resolve to uphold our longstanding commitment to providing our customers with outstanding products and exemplary service."

Of the total settlement amount, $5 million will be paid into a fund to compensate certain commercial property-casualty policyholders "related to a limited number of isolated instances of improper quoting between 2001 and 2004."

The attorneys general found that in these instances, certain employees of The Hartford engaged in improper underwriting by providing quotes for commercial insurance that were not based on an adequate assessment of the risk. The company said these activities were not in keeping with its standards and that over the last several years, the company has voluntarily strengthened its internal controls, guidelines and training in this area.

The Hartford also agreed that it will forego paying contingent compensation in any line of its property-casualty business in which more than 65 percent of the U.S. market does not pay contingent compensation.

The Hartford said it has decided to implement a new program for 2008 to compensate property-casualty agents and brokers for their performance in these lines of insurance and in its other standard commercial lines of insurance. Under this new supplemental commission program, The Hartford will pay a fixed commission, set prior to the sale of a particular insurance policy, that is based among other things on the agent or broker's past performance.

"We value our strong partnerships with independent agents and brokers," said Ramani Ayer. "Our new property-casualty supplemental commission program reflects their feedback for a more predictable compensation package."

On its Website, The Hartford makes available information about its compensation practices and the nature and range of property-casualty agent and broker compensation. This information will be updated to include a description of the new supplemental commission program.

In addition to the property-casualty fund monies, $84 million of the settlement will be paid into a fund to compensate certain variable annuity contract holders of The Hartford for harm the New York Attorney General found to have resulted from the market timing activities of variable annuity contract holders from 1998 through 2003. The Hartford will retain an independent distribution consultant to develop a distribution plan for this fund that will be subject to the New York Attorney General's approval.

Source: the Hartford (www.thehartford.com)

From: Insurance Journal (www.insurancejournal.com)

State Farm Sues Two AZ Businesses

By Ty Young
The Business Journal of Phoenix

One of the country's largest insurance companies is suing two Scottsdale licensing businesses, claiming they threatened a patent infringement lawsuit if they did not receive royalties for business-method patents.

State Farm Mutual Automobile Insurance Co., based in Bloomington, Ill., filed a complaint in U.S. District Court of Arizona on July 10, claiming LPL Licensing LLC and Phoenix Licensing LLC began to threaten the insurance company in February.

The allegations stem from State Farm's sales and marketing practices, customer communications and advertisements, which both Arizona companies claimed were within two of their business-methods patents.

Both companies are owned by Richard Libman of Scottsdale.

Rick Tache, an attorney with Snell & Wilmer LLP in San Diego, represented the two companies when they first approached State Farm about the alleged patent violations.

According to court documents, Tache told State Farm officials in an April telephone call: "There is simply too much money on the table for LPL to walk away. LPL will eventually have to sue someone, and it might as well be State Farm ... but I can tell you that LPL is talking to litigation counsel in Texas about its litigation options on several issues."

State Farm launched a pre-emptive strike by filing its lawsuit to establish the case with Arizona jurisdiction, said Bryan Jaketic, an attorney with Benesch, Friedlander, Coplan & Aronoff LLP, who is familiar with the case.

The Cleveland, Ohio-based law firm specializes in business and intellectual property litigation.
Jaketic thinks the reference to Texas was a veiled threat from Tache and Libman to file suit through the U.S. District Court for the Eastern District of Texas, which is known for being favorable to patent holders and fast-tracking infringement cases.

Nearly 8 percent of all U.S. patent cases were filed there in 2006, the second-highest percentage in the nation.

The lawsuit did not disclose how much money State Farm wanted in damages, although Jaketic thinks it would be more than $1 million.

"Usually, when a patent case goes to litigation, it is in the millions of dollars," he said. "I can't imagine any company going to court for less."

Snell & Wilmer officials said their firm no longer is representing Libman.

Because Tache was named in State Farm's complaint, he may be called to testify for State Farm, forcing a conflict of interest between him and Libman's companies, Jaketic said.

The patents in question surround the method for using client information to automatically decide which people would receive advertising; communicating between those who have been marketed to; and automatically responding to customer questions and comments.

Libman would not answer questions when contacted by The Business Journal on July 16.
Ray Harris, an attorney with Fennemore Craig PC, is representing State Farm locally. He did not return telephone calls.

State Farm officials said it is too early in the litigation process to comment.

"As for now, our people want to let the lawsuit speak for itself," said State Farm spokesman Jeff McCollum. "Clearly, we don't think we've infringed on any patents."

From: The Business Journal of Phoenix (www.bizjournals.com)

Allstate to Add Agents in Texas

By Chad Eric Watt
Dallas Business Journal

Allstate Insurance Co. aims to add 192 new sales offices in Texas and increase its share of the Texas personal insurance business.

The company is calling that goal its most aggressive recruitment campaign in Texas ever. The company aims to put 75 to 80 of those agent offices in the Dallas-Fort Worth area, said Allstate Field Vice President Rich Crist.

Texas' growth and a good environment for the insurance business make the state appealing.

"The pie is getting bigger, and we want a bigger piece of the pie here," he said.

The North Texas insurance market is growing along with the region, said Chris Peterie of property and casualty insurance agency Swingle Collins & Associates. And that growth has attracted many competitors offering all lines of insurance, business and personal.

"The market's being driven down by tons of competition," he said. "It's a catfight."

Allstate (NYSE: ALL) is the nation's largest personal lines insurance business.

In Texas market share, it is second to State Farm in homeowners and auto insurance, with about 17% of the homeowners market, and about 15% of auto insurance market.

New agency owners get about eight weeks of training. Generally, it takes about $50,000 to $100,000 in liquid capital to cover start-up costs and the lead time for a new agency to start producing new business.

"For most agencies, the core is auto and home," Crist said.

Beyond that, insurance agents are able to sell additional insurance lines and financial service products to customers.

Allstate is planning its expansion at the same time as it is battling state insurance regulators over the rates it charges in Texas.

In May 2006, Texas Insurance Commissioner Mike Geeslin ordered Allstate subsidiary Allstate Texas Lloyds to cut rates by 5% and pay back about $56 million to Texas policyholders. Allstate is appealing the refund order in state appeals court.

Crist said the insurance company charges fair rates.

"We love the notion of growing in Texas, but if you were to tell us that we couldn't be profitable or we couldn't make an adequate return, then growth becomes a burden, as opposed to something you would run after and seek."

From: Dallas Business Journal (www.bizjournals.com)

State Farm to Drop 50,000 Coastal Homeowners Policies in Fla.

By David Royse
Associated Press

State Farm Insurance, Florida's largest private home insurer, said it will drop about 50,000 homeowners policies next year in what it considers risky areas along the coast.

Most of the homes and condos that will lose their coverage are within a few miles of the coast, but some are farther inland, said Justin Glover, spokesman for Bloomington, Ill.-based State Farm.

Glover said the move was "a very tough decision for us to make, but it is part of our decision to remain in this market.'' State Farm filed paperwork July 19 with the state Office of Insurance Regulation announcing its intention to drop the policies.

Glover emphasized that no policy holders will lose coverage during the current hurricane season, which runs through November. Customers will start to be dropped after Jan. 1, when their policies come up for renewal.

The company also said in the filings that it intends to cancel an unspecified number of wind-only policies. Those are policies the company has in certain parts of the state where homeowners have most types of damage, such as fire or theft, covered by another insurance company and State Farm covers wind damage.

State insurance regulators said they would take a hard look at State Farm's rates in light of its intention to reduce its exposure.

"If State Farm reduces exposure in Florida through the non-renewal of property insurance policies, the Office of Insurance Regulation will revisit State Farm's rates to ensure they are not excessive,'' Florida Insurance Commissioner Kevin McCarty said.

Despite repeated warnings by insurance officials that some companies still don't consider Florida's coastlines a profitable place to carry risk, reaction to State Farm's decision Thursday was one of disappointment, and in some cases surprise.

"These actions are inconsistent with State Farm's previous statements outlining their underwriting intentions,'' McCarty said in a statement released by his office. "The office is in the process of reviewing these filings to ensure they are consistent with Florida law.''

Florida Chief Financial Officer Alex Sink said it was disappointing that the largest private insurer would have such disregard for long-standing customer relationships.

State Farm has more than 1 million policies in Florida, so the number of homeowners whose policies won't be renewed is a small percentage of the company's business. State Farm will still be the state's largest private home insurer by far after the move.

Source: Associated Press (www.ap.org)

From: Insurance Journal (www.insurancejournal.com)

FTC Finds Use of Credit Helps Consumers, Insurer Group Says

The Federal Trade Commission's (FTC) study of automobile insurers' use of credit has reaffirmed the strong connection between credit information and the risk of loss and has determined that its use helps to increase the availability and affordability of insurance for most consumers, according to the Property Casualty Insurers Association of America (PCI).

"Now there should be no doubt about the value of using this highly predictive underwriting and rating tool," said June Holmes, interim CEO for PCI. "Using credit information makes underwriting and pricing more accurate and results in many consumers paying less for their automobile and homeowners insurance policies. Consumers want to pay a fair price for insurance that matches their risk of loss. To achieve the goal of pricing based on an individual's risk of loss; insurers simply want to use the most accurate, statistically valid tools available and credit information has proven to be one of the best predictors of loss. With these findings, legislators and regulators should be very comfortable with insurers' use of insurance scoring."

The FTC study was designed to explore the effect that credit information has on the availability and affordability of insurance. The study considered the statistical relationship between credit information and the risk of loss. It also examined the extent to which, if any, the use of credit scoring models, credit scores, and credit-based insurance scores affect the availability and affordability of insurance by racial and ethnic minority groups and low-income groups.

The report's major conclusions are as follows:

-- Insurance scores are effective predictors of risk under automobile policies. They are predictive of the number of claims consumers file and the total cost of those claims. The use of scores is therefore likely to make the price of insurance better match the risk of loss posed by the consumer. Thus, on average, higher-risk consumers will pay higher premiums and lower-risk consumers will pay lower premiums.

--Use of credit-based insurance scores may result in benefits for consumers. For example, scores permit insurance companies to evaluate risk with greater accuracy, which may make them more willing to offer insurance to higher-risk consumers for whom they would otherwise not be able to determine an appropriate premium. Scores also may make the process of granting and pricing insurance quicker and cheaper, cost savings that may be passed on to consumers in the form of lower premiums.

--Credit-based insurance scores appear to have little effect as a "proxy" for membership in racial and ethnic groups in decisions related to insurance. The relationship between scores and claims risk remains strong when controls for race, ethnicity, and neighborhood income are included in statistical models of risk.

"The FTC study demonstrates that by looking at an insurance score there is no way to determine a person's race, ethnicity, or economic status," said Holmes. "However, a specific high or low score will offer strong evidence as to the likelihood of that person filing an insurance claim. Being able to make this distinction regarding risk of loss allows insurers to charge each individual an appropriate rate. The bottom line is that insurers underwrite individuals, not ethnic or income groups, and the use of credit information results in each individual's premium more accurately their risk of loss."

Insurance scoring has proven to be a highly accurate and objective factor. Previous studies have found that the average loss per vehicle for people with the worst scores are double that of people with the best scores and drivers with the best scores are involved in 40 percent fewer accidents than those with the worst scores. Additionally, homeowners insurance claims history for people with the worst scores are triple that of people with the best scores. Earlier studies have also demonstrated that insurance scores are among the three most important rating variables used by insurers. In fact, insurance scores were found to be a better predictor of claims than driving records.

In the 1990s the use of credit information started to become very common among insurers. During the past decade, most states have enacted laws or adopted regulations to govern insurers' use of credit information. In nearly half the states the insurance industry along with legislators and regulators have agreed that it is important to provide certain allowances for consumers facing extraordinary life circumstances such as divorce, death of a spouse, medical catastrophe, temporary loss of employment or identity theft, all of which can damage an individual's credit history. Insurers recognize these events may be beyond the control of an individual and will exempt credit from being a consideration in the underwriting and rating process. Insurers will also reconsider a score when there is an error found on a credit report.
These important safeguards allow consumers some leeway in the event they encounter difficult circumstances while at the same time it offers benefits to most consumers.

"Experience has shown that fiscally responsible consumers with good credit histories have fewer losses than individuals with poor financial track records," said Holmes. "Because these individuals represent a lower risk to insurance companies, they pay a lower rate for their coverage. By using credit information along with a variety of other factors -- including years of driving experience, previous crashes, and the age of the vehicle -- insurers can more accurately gauge the risk characteristics of each consumer and charge a premium that accurately reflects the amount of risk presented by each individual policyholder. Each underwriting factor is applied to each individual in exactly the same way, ensuring that the process is objective and colorblind. Based on real world experience and backed up by studies such as the FTC's, insurers have found that the use of credit information is one of the most accurate ways to differentiate between lower and higher insurance risks."

Source: Property Casualty Insurers Association of America (www.pciaa.net)

From: Insurance Journal (www.insurancejournal.com)

Allstate 2nd Quarter Earnings Rise 16 Percent, Fall Short of Estimates

Allstate Corp., the nation's No. 2 property and casualty insurer, said Wednesday its second-quarter profits climbed 16 percent on strong auto insurance sales but operating income fell as the company paid significantly more in catastrophe-related costs.

The results fell short of Wall Street's expectations and Allstate's stock edged lower in after-hours trading.

Net income for the April-through-June period was $1.40 billion, or $2.30 per share, up from $1.21 billion, or $1.89 per share, for the same period a year earlier.

The Northbrook-based company said operating earnings were $1.07 billion or $1.76 per share.
That was 4 cents per share less than the estimate of analysts surveyed by Thomson Financial.
Revenue increased 7 percent to $9.46 billion from $8.88 billion, or better than the $9 billion forecast by analysts.

Allstate said its auto insurance business continued to grow, adding 300,000 customers for its Your Choice Auto in the quarter to bring the total for that relatively new program to 2.4 million.
Operating income, which excludes investment gains, fell 15.7 percent because of increased costs for reinsurance and catastrophes, or events generating more than $1 million in claims.

Catastrophe losses for the quarter jumped 70 percent to $433 million from $255 million a year earlier. While losses from hurricanes in the period were comparable to those in 2006, the company said claims from past storms cost more than it had previously estimated.

Moving to lessen the impact of future catastrophes also hurt results. Allstate bought billions of dollars in reinsurance earlier this year to cover the costs of future natural disasters and claims in New York, New Jersey, Connecticut and Florida.

Total underwriting income dipped to $845 million from $1.2 billion, which the company said was due to lower premiums earned as a result of the expanded catastrophe reinsurance program and the change in last year's catastrophe reserve estimates.

Allstate Financial posted record quarterly net income of $200 million but also experienced a nearly 4 percent decline in operating income.

Despite missing expectations, Chief Executive Thomas Wilson maintained it was a great quarter for Allstate.

"We are driving profitable growth in the competitive auto insurance business, while mitigating our exposure to mega-catastrophes in higher-risk geographic areas,'' he said in a statement. "While operating income declined due largely to increased reinsurance and catastrophe costs, the underlying run rate of our business continues in line with our expectations.''

Analyst Donald Light of Celent, a Boston-based financial research and consulting firm, said the results were good by historical industry standards but nonetheless "uninspiring.''

"Allstate continues to sacrifice new business growth in order to manage its catastrophe exposure in homeowners insurance,'' he said, citing a 16.5 percent decline in new homeowners applications. "More worrisome, new issued applications in auto insurance, where Allstate does not want to pull back, dropped 4.8 percent nationally.''

For the first six months of the year, net income was $2.90 billion, or $4.71 per share, up 11 percent from $2.62 billion, or $4.08 per share. Revenue was $18.79 billion, up 5 percent from the first half of 2006.

Allstate shares declined 55 cents in after-hours trading after gaining 14 cents to $60.56 in the regular session. The stock is down 7 percent in 2007.

Source: Associated Press (www.ap.org)

From: Claims Journal (www.claimsjournal.com)

Countrywide CEO Doesn't See Mortgage Rebound Until 2009

By Mark Calvey
San Fransisco Business Times

Countrywide Financial Corp. CEO Angelo Mozilo told those attending the California Mortgage Bankers Association conference in San Francisco this week that he expects more trouble for the mortgage industry this year and next.

He sees a rebound in 2009, marking a retreat from his prior comments this year that the industry would start turning around in 2008.

"We're going through an enormous correction period, and we have a long way to go," Mozilo said. "This is just the beginning of the process."

But leave it one of the nation's largest mortgage lenders to see a silver lining to the subprime mortgage mess. Mozilo told his audience, "If this thing is really bad, it could bring down interest rates."

Calabasas-based Countrywide (NYSE: CFC) and Washington Mutual (NYSE: WM) have reportedly dropped hybrid mortgages in which rates are fixed for two or three years and then adjust for the remainder of the loan. Investors on Wall Street have little interest in buying such loans from lenders given the turmoil sweeping through the subprime market.

From: San Francisco Business Times (www.bizjournals.com)

Alaska Airlines Details Hispanic Marketing Efforts

Alaska Airlines said it's increasing its marketing effort to Hispanic audiences, citing a recent rollout of a Spanish-language ad campaign in Los Angeles.

That's coupled with other recent endeavors to appeal to Hispanics, said officials at the airline, a subsidiary of Seattle-based Alaska Air Group Inc. (NYSE: ALK). Alaska was the No. 4 airline at Sacramento International Airport in 2006, carrying more than a half-million passengers.

Executives point to a Spanish-language version of the airline's Web site that rolled out last October, as well as bilingual signs that will soon be unveiled in Los Angeles and other airports.

The airline admitted it needs to hire additional bilingual reservations agents at its Phoenix, Boise and Seattle call centers. About 2 percent of callers to the centers prefer to speak Spanish, Alaska said.

About 12 percent of Alaska Airlines' ad budget is devoted to Spanish-language materials, officials at Alaska said.

"Speaking their language and understanding the Hispanic culture is the right thing to do socially and morally. But Latin America is also good for our business," said Don Garvett, vice president of strategy and corporate development for Alaska Air Group, in a statement.

From: Sacramento Business Journal (www.bizjournals.com)

Insurance Commissioner Appoints Deputy for Rate Regulation

By Chris Rauber
San Francisco Business Times

California Insurance Commissioner Steve Poizner has named a longtime department veteran to be deputy commissioner of rate regulation at the state Department of Insurance, effective Aug. 1.

Woody Giron, a veteran of more than 30 years at the DOI, replaces David Diehl, who left the department to return to the Maryland Department of Insurance, officials said late Thursday.
Diehl had been in the California job for three years, after serving as chief administrator for the DOI in Maryland for five years. A spokeswoman for Poizner said Diehl returned to Maryland to be closer to his family.

Giron had been the DOI's deputy commissioner of consumer services and market conduct, and earlier established the consumer services bureau that eventually evolved into that unit. He has also served as chief of the department's financial analysis division.

A replacement for the position Giron is vacating will be named Aug. 1, department officials said.

From: San Francisco Business Times (www.bizjournal.com)

California Health Care Coalition Selects Blue Shield of California as Exclusive Health Plan Partner

After a competitive process, the California Health Care Coalition (CHCC) announced today that it has selected Blue Shield of California as its exclusive health plan partner to improve the quality and affordability of hospital and physician care in California. CHCC currently represents 43 public and private sector employers, unions and trust fund member organizations, with a combined membership of 3 million Californians (see attached list of CHCC member organizations).

From: Insurance Newscast (www.insurancebroadcasting.com)

P-C Insurers’ Future Is Difficult, Says Conning

Following 2006’s banner year, the property-casualty industry faces new challenges for the rest of the decade, according to a new Conning study.

Property-casualty insurers had a successful year in 2006 due to relatively light catastrophes. “Yet while 2007 is certainly off to a good start, the next two and a half years will likely be pressured by a return to more normal catastrophe activity,” the report notes.

A combination of deteriorating premium rate adequacy, increasing loss severity and limited growth in investment yields will add to the pressure, according to the most recent forecast of the property-casualty industry by Conning Research and Consulting.

Stephan Christiansen, director of research at Conning Research & Consulting Inc., noted that the implied Generally Accepted Accounting Procedures return on equity was a “remarkable” 13.6 percent, with a positive cash flow of over $58 billion.

Policyholder surplus grew $64 billion, or 14.5 percent, to $506 billion; premium grew at a modest 4.4 percent. “That imbalance, along with a strong loss reserve position, is fueling the potential for a competitive market," Mr. Christiansen said.

The Conning Research study identifies the key drivers of the industry and forecasts industry growth and performance for 2006-2009.

"The key questions driving our forecast into 2009 are what catastrophes will do this year and next, and whether the market is on the precipice of a market cycle meltdown with price cuts that undermine premium and rate adequacy," said Mr. Christiansen.

Other concerns that could impact results are loss reserve strength, general U.S. economic growth, inflationary forces, investment returns and changes in the regulatory environments.
“Overall, we expect that the gap between superior-performing insurers and industry results is likely to increase as overall margins narrow during the coming soft market part of the insurance cycle," he added.

From: NU Online News Service (www.nationalunderwriter.com)

Bank Insurance Brokers Quarterly Fee Income Hits $3.1B

Insurance brokerage firms owned by banks saw their first-quarter fee income increase 2.4 percent to $3.1 billion, according to a consulting firm.

Michael White Associates Bank Insurance Consultants reported that bank holding company insurance brokerage firms recorded a new quarterly record based on nearly 1,000 top-tier large bank holding companies.

The report was compiled by the Radnor, Pa.-based consulting firm and sponsored by Symetra Financial, a Bellevue, Wash.-based life and benefit holding company.

The figures represent an increase of almost 7 percent over last year’s fees of $2.9 billion, Michael White noted, adding that close to 72 percent of bank holding companies engage in insurance brokerage activities.

Leading the list of the top 15 bank holding companies was Citigroup, which saw its insurance brokerage fee income increase 6 percent to $458,000,000.

Citigroup was followed by Wells Fargo & Company, with a 24 percent increase in fees at $357,000,000 and BB&T Corporation, whose first-quarter fees were up 12 percent to $195,324,000. Michael White said BB&T owns more agencies than any other financial holding company.

From: NU Online News Service (www.nationalunderwriter.com)

Hartford Adds A System To Aid Agents

The Hartford Financial Services Group Inc. has launched a new automated system it said should make it faster and easier for agents to service and modify their clients’ personal lines insurance policies with the company.

According to the Hartford, Conn.-based carrier, Hartford’s Personal Lines Policy Change Center will enable agents and their customer service representatives to manage auto policy changes in real-time, immediately providing information.

Agents will be able to quote different scenarios, such as adding a new car to a policy, and quickly determine how these changes will affect their client’s premium. Agents can also save quotes for future reference, get a detailed view of how changes can impact future policy bills, and print new identification cards and supplemental applications online, The Hartford said.

More than 90 percent of the auto policy changes made through the center can be completed within minutes, according to the carrier.

Initially, the technology will support the most common policy servicing changes, including adding or removing drivers and vehicles on a policy; modifying vehicle-specific coverages, such as collision protection; and updating a policyholder’s address. The ability to make changes to policy level coverages will be rolled out in different markets later this year, The Hartford said.

The Personal Lines Policy Change Center is accessed through The Hartford’s Electronic Business Center, located at https://ebc.thehartford.com.

From: NU Online News Service (www.nationalunderwriter.com)

NCOIL To Discuss McCarran Repeal

The National Conference of Insurance Legislators said its summer meeting that starts tomorrow will consider opposing federal legislation to eliminate state control of insurance regulation.

NCOIL also said it will release the first phase of its comprehensive study on state regulation of insurance at the session in Seattle.

The agenda contains a resolution opposing the bill in Congress to repeal the McCarran-Ferguson Act—the basis of state regulation of insurance.

McCarran repeal will be just one aspect of the study of the state regulation of insurance that NCOIL will look at.

NCOIL executive director Susan Nolan said there has been an ever-increasing blurring of the lines of responsibility with regard to state insurance regulation.

“The study will scrutinize the system now in place in order to make necessary improvements,” she said.

Insurance industry trade representatives are expected to urge support of the measure opposing repeal of the 1945 legislation.

“It is critical that NCOIL take a strong stance in support of the limited exemption from federal antitrust laws currently in the McCarran-Ferguson Act and voice their opposition to Congressional efforts to repeal that exemption,” said Tammy Velasquez, American Insurance Association vice president and director, state affairs.

The McCarran-Ferguson Act delegates authority to regulate the business of insurers to the states. McCarran creates a limited exemption from federal antitrust laws to the extent that the business of insurance—not the business of insurance companies—is regulated by the states.

The limited exemption from federal antitrust laws is designed to prevent federal antitrust enforcement from undercutting insurance regulatory systems established by the states, Ms. Velasquez said.

From: NU Online News Service (www.nationalunderwriter.com)

Online Insurance Sales To Double By 2011, Says Researcher

By Ara C. Trembly
NU Online News Service

Celent, a Boston-based research group, projects that online insurance sales will double by 2011, and that the Web will play a major role in most personal insurance purchases across auto, life and health.

Celent said its latest report, “Online Insurance Sales and Marketing: What’s Happening and What’s Next,” is an update to its 2002 report, “Online Insurance Sales and Marketing: Practices and Profiles.”

According to the new report, the Web has become an increasingly important communication channel between sellers and buyers of personal insurance. “Most consumers’ purchasing process is ‘Web influenced,’” the firm said.

In addition, search engines like Google and Yahoo! are “critical” channels for insurers that cannot afford mass consumer marketing campaigns to drive shoppers directly to their sites, and more insurers are turning to search engines to help capture these shoppers.

Pure online sales are growing but will still account for less than 15 percent of sales, even in personal auto, said Celent.

The report estimates the current breakdown of "Web-influenced," "Web-initiated" and "100 percent online" sales across personal auto, individual life and individual health sales.

“While 100 percent online sales are unlikely to exceed 30 percent in any area, the Web will be a major influencer for nearly all sales within five years,” said Matthew Josefowicz, managing director of Celent’s insurance group and co-author of the report.

According to the report, buyers and sellers have a number of ways to reach one another, such as direct between the consumer and the carrier, through online marketing driven by search engines, and through online agencies or agents’ Web sites.

“Insurers need to manage and direct those interactions or risk losing shoppers’ attention to intermediaries that may direct prospects elsewhere,” noted report co-author Mark Kautz, senior analyst in Celent’s insurance group.

To demonstrate the varied landscape of online marketing and sales, Celent said this report provides snapshots of Web activities for top carriers, aggregators and online agencies in three areas: personal automobile, life and individual health.

Personal automobile includes State Farm, Allstate, Progressive, Geico and Nationwide.
Life includes AIG, MetLife, Northwestern Mutual, Prudential and New York Life.

Individual health includes UnitedHealth, WellPoint, Kaiser Permanente, Aetna and the Health Care Service Group.

Aggregators and online agencies include eHealthinsurance, Insweb and Esurance.

Further information on the report is available at info@celent.com.

From: NU Online News Service (www.nationalunderwriter.com)

RIMS Benchmark Survey™ Reports Commercial Insurance Premiums Continue to Decline During Second Quarter

Commercial insurance premiums continued to decline during the second quarter of 2007, according to the RIMS Benchmark Survey™, the industry’s leading comprehensive survey of current policy renewal prices as reported by corporate risk managers. -- RIMS Benchmark Survey™ second quarter reports show that directors and officers liability (D&O) continued to drop, falling an average of 7.29 percent since last year. Workers’ compensation also continued its steady downward slide, though at a lesser pace, to 1.82 percent as compared to -3.8 percent in the first quarter.

From: Business Wire (www.businesswire.com)

Car Insurance Rates Continue to Decline in 2007, Reports Insurance.com

Insurance.com, the largest online auto insurance agency in the United States, reports that car insurance rates continue to decrease depending on geographical location. The company’s "2007 Mid-Year Auto Insurance Pricing Report" shows a national decline in annual premiums of 1% or approximately $20 so far in 2007. - Based upon data drawn from the lowest average car insurance rates viewed by almost 700,000 consumers in the first half of 2007, the Mid-Year Report gives interesting insights into state-specific pricing trends, as well as the general trends of insurance premiums.

From: Business Wire (www.businesswire.com)

Humana Launches Flexible Individual Health Plans in Six States

By Angela Gonzales
The Business Journal of Phoenix

Humana Inc. is introducing a flexible individual health insurance plan in six states, including Arizona.

Humana's new portfolio of individual health insurance plans is being introduced under its HumanaOne Portrait in Arizona, Illinois, Louisiana, Michigan, Ohio and Texas.

Each of the plans can be personalized with optional benefits, such as dental insurance, life insurance and supplemental accident coverage.

"With the U.S. market for individual health insurance at 18 million and growing, we recognize that personal health insurance plans cannot be 'one size fits all,'" said Jerry Ganoni, president of HumanaOne, HumanaDental and Humana Small Business.

"This represents the most significant product expansion for HumanaOne since its inception in 2002," he said.

HumanaOne Portrait is for people who are security-minded and want benefits like those provided by big employers.

HumanaOne Autograph is for people who want flexibility to fit their financial plans. Three of five Autograph plans qualify for health savings accounts.

HumanaOne Monogram is for the young and invincible at heart -- those who want a low-cost plan with a safety net just in case, Ganoni said.

The same product line was launched in May in Colorado, Florida, Kentucky, Tennessee and Wisconsin. By early 2008, Humana plans to introduce the new portfolio in all 26 states where HumanaOne operates.

Deductibles range from $1,000 to $7,500 for single coverage and from $2,000 to $15,000 for family coverage. Premiums start as low as $30 a month for single coverage on Monogram and extend upward according to the plan, options and level of benefits.

For more: www.humana-one.com.

From: The Business Journal of Phoenix (www.bizjournals.com)

Check Point Inks Sales Deal with U.S. Government

Check Point Software Technologies Ltd. said Tuesday it will sell its data protection and encryption products to various government agencies under a Department of Defense program.

Redwood City-based Check Point (NASDAQ: CHKP) will work with McLean, Va.-based ImmixGroup Inc. in this program, which lets local, state and federal government agencies buy protective software from approved vendors like Check Point.

The software approved under the program is meant to encrypt and protect data on mobile devices like laptops, hand-held devices and removable media.

Check Point didn't give financial details of the deal.

From: San Francisco Times (www.bizjournals.com)

Wells Seen on Acquisition Trail as it Posts Higher Earnings

By Mark Calvey
San Francisco Business Times

San Francisco-based Wells Fargo posted a 9 percent gain in second-quarter profit, as analysts speculated on how acquisitive the bank is likely to be as the shares of smaller banks come under pressure.

Wells said it earned $2.28 billion, or 67 cents per share, in the second quarter compared with profit of $2.09 billion, or 61 cents per share, a year ago.

Revenue climbed 13 percent to $9.89 billion, which was the biggest quarterly increase in almost two years.

"We continue to earn more business from current customers and invest in future growth through internal investments and acquisitions," said John Stumpf, president and CEO at Wells.
In recent weeks, Wells has closed its purchase of Placer Sierra Bancshares and the constructing lending business of CIT Group (NYSE: CIT). Wells is also acquiring East Palo Alto-based Greater Bay Bancorp (NASDAQ: GBBK), which operates a collection of community banks throughout the Bay Area.

"It now seems likely that the bank will accelerate its acquisition program since the prices of bank stocks in general are falling and Wells Fargo (NYSE: WFC) is maintaining its value," said Dick Bove, an analyst with Punk, Ziegel & Co.

From: San Francisco Business Times (www.bizjournals.com)

Encompass Rolls Out Product in Colorado

Encompass Insurance, part of the Allstate group of companies, has developed a product specifically for Colorado drivers and homeowners, called Encompass Edge.

Encompass Edge, through a pricing model, is designed to provide every customer with a more precise price for his or her auto and homeowners insurance. The product includes:-- broad underwriting guidelines;-- new coverage limits;-- expanded deductible options for property ($10,000); and,-- a package discount for auto and homeowners insurance.

In addition, customers may earn discounts when they:-- pay their premiums on time;-- pay using the debit Encompass Easy Pay Plan;-- own a residence;-- buy a policy at least seven days prior to the effective date; orare new homebuyers.

Part of the Allstate group of companies, more than 8,800 independent agencies sell Encompass, Allstate and Deerbrook-brand automobile, homeowner and related insurance products nationwide.

Source: Encompass Insurance (www.encompassinsurance.com)

From: Insurance Journal (www.insurancejournal.com)

Strong Earthquake in Japan Takes 7 Lives, Destroys Hundreds of Homes

By Koji Sasahara
Associated Press

A strong earthquake struck northwestern Japan on Monday, destroying hundreds of homes, buckling seaside bridges and causing a fire at one of the world's most powerful nuclear power plants. At least seven people were killed and hundreds were injured.

The quake, which left fissures 3 feet wide in the ground along the coast, hit shortly after 10 a.m. local time and was centered off Niigata state. Buildings swayed 160 miles away in Tokyo. Sirens wailed in Kashiwazaki, a city of about 90,000, which appeared to be hardest hit.

Japan's Meteorological Agency measured the quake at a 6.8 magnitude. The U.S. Geological Survey, which monitors quakes around the world, said it registered 6.7.

"I was so scared -- the violent shaking went on for 20 seconds,'' Ritei Wakatsuki, who was on her job in a convenience store in Kashiwazaki. "I almost fainted by the fear of shaking.''

Flames and billows of black smoke poured from the Kashiwazaki nuclear plant -- the world's largest in terms of power output capacity -- which automatically shut down during the quake.

The fire, at an electrical transformer, was put out shortly after noon and there was no release of radioactivity or damage to the reactors, said Motoyasu Tamaki, a Tokyo Electric Power Co. official.

Tsunami warnings were issued along the coast of Niigata but later lifted.

A series of smaller aftershocks rattled the area, including one with a 5.8 magnitude. The Meteorological Agency warned that the aftershocks could continue for a week.

The quake hit on Marine Day, a national holiday in Japan, when most people would have been at home.

Four women and three men -- all either in their 70s or 80s -- were killed, according to the National Police Agency in Tokyo and NHK, the national broadcaster. NHK reported more than 800 people were hurt, with injuries including broken bones, cuts and bruises.

Nearly 300 homes in Kashiwazaki -- a city known mainly for its fishing industry -- were destroyed and some 2,000 people evacuated, officials said.

A ceiling collapsed in a gym in Kashiwazaki where about 200 people had gathered for a badminton tournament, and one person was hurt, Kyodo reported. The quake also knocked a train car off the rails while it was stopped at a station. No one was injured.

Several bullet train services linking Tokyo to northern and northwestern Japan were suspended.

Prime Minister Shinzo Abe, campaigning in southern Japan for parliamentary elections later this month, was to return to Tokyo to deal with the quake, and the government had set up a task force, reports said.

"We want to do all we can to ensure safety ... and to quell everyone's concerns,'' he said.
Japan sits atop four tectonic plates and is one of the world's most earthquake-prone countries. The last major quake to hit the capital, Tokyo, killed some 142,000 people in 1923, and experts say the capital has a 90 percent chance of suffering a major quake in the next 50 years.

In October 2004, a magnitude-6.8 earthquake hit Niigata, killing 40 people and damaging more than 6,000 homes. It was the deadliest to hit Japan since 1995, when a magnitude-7.2 quake killed 6,433 people in the western city of Kobe.

Source: Associated Press (www.ap.org)

From: Claims Journal (www.claimsjournal.com)

Ill. Governor Uses Executive Authority to Limit What Insurers Can Charge

Ill. Gov. Rod Blagojevich used his executive authority last week to make a rule that prevents insurance companies from considering someone's health when deciding what premium to charge when renewing an individual policy.

His action comes as the Democratic governor's sweeping health care initiative to extend coverage to the uninsured founders in Springfield, where he and lawmakers are locked in a budget disagreement.

The administration contends it's trying to keep individuals from being priced out of their health plans once they've had an illness or injury. Insurers only would be able to consider demographics and medical cost inflation when setting individual renewal premiums under the rule. It doesn't apply to insurance policies that cover large groups of people because they are more insulated from price fluctuations because the risk is spread out.

"Insurance companies shouldn't use someone's illness as an excuse to raise profits. It's wrong and we intend to stop it,'' Blagojevich said during an event at the University of Illinois at Chicago medical center.

The governor's rule still must be reviewed by a 12-member bipartisan legislative oversight committee that with a super-majority vote could prohibit it from taking effect, said Susan Hofer, a spokeswoman for the Illinois Department of Financial and Professional Regulation.

But some said the governor's move could do more harm than good by driving insurers out of the market and thus putting insurance farther out of reach for many people.

"Insurance reforms must go hand in hand with universal access,'' said Karen Ignagni, head of the Washington-based trade group America's Health Insurance Plans.

Insurance experts in the General Assembly reserved judgment on Blagojevich's action.
House Insurance Committee Chairman Frank Mautino, a Spring Valley Democrat, said only eight other states have similar programs. Some have seen insurance premiums increase and companies stop writing policies, he said.

"It has the tendency to reduce the amount of coverage available within the market and also to raise the price because the pool within that structure tends to be a sicker pool,'' Mautino said.

The Senate's Insurance Committee chairman, Alton Democrat Bill Haine, called the plan "a worthy goal'' and said insurance companies might be able to absorb the cost because the proposal covers only existing policyholders wanting to renew.

He said the reporting requirements of the plan would benefit ratepayers.

Mautino said he wasn't certain the governor had the authority to implement the idea without legislation.

The governor also announced rules that would require insurers to report quarterly what they collect in premiums and how much they spend on claims.

Source: Associated Press (www.ap.org)

From: Claims Journal (www.claimsjournal.com)

Progressive's Direct Business Lowers Auto Insurance Rates in Colorado Seven Times Since 2003

The Direct Business of the Progressive Group of Insurance Companies, which sells insurance by phone at 1-800-PROGRESSIVE (1-800-776-4737) and online at progressive.com, announced today that it is lowering auto insurance premiums in Colorado by an average of 5.2 percent for new and renewing customers effective July 11 and August 20, 2007, respectively.

"The combination of the shift from a no-fault to a tort-based system and lower claims costs in Colorado is really paying off for drivers here and we couldn't be happier," said Michele Strub-Heer, senior product manager, Progressive's Direct Business. "We're thrilled to pass these savings on to our customers."

This is the seventh time Progressive's Direct Business has lowered its rates since July 2003 when the state's auto insurance reforms took effect, for a cumulative reduction of nearly 37 percent.

From: Insurance News Net (www.insurancenewsnet.com)

Study Exposes California Industries with Lowest Worker Health Coverage

Job-based health coverage - the bedrock of the US health insurance system - is fractured and uneven throughout California and particularly scarce in some of the state's largest and lowest-paying industries, a new study reveals.

The study by the Center on Policy Initiatives (CPI) found wide disparities in employer-provided health coverage among the state's 17 major industries. Overall, less than half of working adults in California get health insurance through their jobs. In the hotel and restaurant industry, it's only 20%.

The erosion of employment-based health coverage leaves almost 5 million California workers dependent on publicly funded health programs or completely uninsured, according to the study results.

"The findings are stark, that some industries are trying to do their fair share and others are putting the burden onto taxpayers and other employers," said Murtaza Baxamusa, CPI Research and Policy Director. "The healthcare crisis is exacerbated when industries add large numbers of jobs with low rates of employer-provided insurance."

CPI, a nonprofit research and advocacy organization located in San Diego, analyzed data from the California Health Interview Survey (CHIS) 2005, a UCLA survey of 45,000 households, and from the California Employment Development Department. The research is funded by private foundation grants.

The CPI study exposes stress points in the state economy where workers are least likely to have health insurance and the cost of their medical care is shifted to the public through taxes and higher hospital and premium charges. The major findings include:

-- Most uninsured adults in California are workers.
-- The proportion of workers with employer-provided health coverage ranges from 20% to 74% across California industries. Only three major industries cover more than 60% of their workers: Education, Information and Public Administration.
-- Some of the state's largest industries, such as Retail Trade, have the lowest rates of employer-provided coverage.
-- Low-wage workers, who are least able to afford medical expenses on their own, are least likely to have employer-provided health coverage.
-- More than one in four (28%) of working adults in the state receive their medical care through means funded directly by taxpayers or indirectly by all healthcare purchasers.

The report concludes public policies must be implemented to ensure job growth improves access to affordable, comprehensive health insurance. Effective policies may include economic development strategies, the use of government purchasing power as leverage to require healthcare standards of contractors, and state legislation setting an equitable employer contribution to fund healthcare coverage.

CONTACT: Center on Policy Initiatives Susan Duerksen, 619-804-1950 or 619-584-5744 ext.64

Source: Business Wire (www.businesswire.com)

From: Insurance News Net (www.insurancenewsnet.com)

Bush Says No To National Healthcare

U.S. President George Bush Tuesday accused Democrats of going too far afield in their plans to expand the State Children's Health Insurance Program.

In a speech to Cleveland businessmen, Bush said he's all in favor of covering poor children with health insurance but cannot justify expanding the program to families making as much as $80,000 annually.

In other words, the program is going beyond the initial intent of helping poor children, Bush told the Greater Cleveland Partnership. It's now aiming at encouraging more people to get on government healthcare. That's what that is. It's a way to encourage people to transfer from the private sector to government healthcare plans.

Bush said a better approach is to provide people with incentives to buy private insurance. Bush called for pools to enable small businesses to band together, expansion of health savings accounts, tax incentives and great use of information technology.

The whole point I'm trying to make is there is an alternative to the federalization of healthcare, Bush said. It doesn't make a nice, neat soundbite. It's not, you know, it's not something that's easy to sell. ... But nevertheless it is an alternative that will work and it is working right here in American today.

Source: United Press International (www.upi.com)

From: Insurance News Net (www.insurancenewsnet.com)

Insurance Agency Must Pay $5.8 Million to SoCal Firm

An insurance agency must pay $5.8 million to a small business that discovered it lacked workers' compensation coverage after a burned employee sued.

An agent for Hilb, Rogal and Hamilton Insurance Services improperly failed to tell the company that it wasn't covered, a Los Angeles County Superior Court judge found. On July 2, he ruled in favor of John Williams and Steven Simon, owners of Rhino Linings Santa Fe Springs.

The company lines pickup trucks with plastic.

The suit by the owners said they only learned about their lack of coverage after a jury in 2004 found against them in a personal injury suit. They were ordered to pay $5.6 million to an employee who suffered second- and third-degree burns in an explosion.

Another insurer paid $1 million but the remainder, including interest, totaled $5.8 million.
Hilb, Rogal and Hamilton claimed their agent told Rhino owners they should get workers compensation insurance and they didn't want it, "but there was never anything in writing to indicate that," said Patrick Vastano, the attorney for the owners.

A call to the attorney who represented the insurance agency in the case was not immediately returned.

Source: Associated Press (www.ap.org)

From: Insurance JOurnal (www.insurancejournal.com)

Calif. State Fund Offers Policyholders Credit Extension

California's State Compensation Insurance Fund announced that it will extend credit to policyholders who have suffered a financial loss or business disruption caused by recent wildfires that ravaged the Lake Tahoe area.

The fires caused havoc, burning some 3,100 acres, destroying more 250 buildings and forced the evacuation of over 2,000 people. Shortly after the fires subsided Governor Schwarzenegger declared El Dorado County a disaster area.

"State Fund policyholders in the Lake Tahoe and El Dorado County area range from large construction businesses to small retail shops and have been in business for years," said State Fund Interim President Larry Mulryan. "We recognize that the fires caused a significant disruption and hardship for some of our policyholders and they will need help in the weeks and months to come. Our offer of credit relief is one way to help them and their businesses return to normal operations."

State Fund will work with employers who were unable to report payroll figures or submit payments as a result of the emergency. Dedicated customer service lines have been set up to provide assistance to El Dorado County policyholders whose operations were impacted.

Policyholders are encouraged to contact State Fund's Customer Service Center at 800-388-0902 to make arrangements for June 2007 payroll reports and payments. This program will be offered to employers through a series of newspaper announcements and mailings to all State Fund policyholders in the affected area.

For more information, visit www.scif.com.

Source: State Compensation Insurance Fund (www.scif.com)

From: Claims Journal (www.claimsjournal.com)

Deerbrook Insurance To Leave Calif.

By Mark E. Ruquet
NU Online News Service

Deerbrook Insurance Company, a writer of nonstandard personal lines auto insurance, is leaving California because the long-term prospects for profitability are just not there, a company executive said.

The company, a subsidiary of Northbrook, Ill.-based Allstate Insurance Group, filed its plan for withdrawal on May 31, said Roger Odle, senior state manager for Encompass and Deerbrook in California. Both companies are the independent agent distribution arm for Allstate.

Mr. Odle said that Deerbrook made its decision because the challenges within the California market “made it difficult to achieve long-term growth,” which is the company’s major objective.

“We feel this is the right decision for Deerbrook,” Mr. Odle noted.

Deerbrook’s decision does not impact any other markets the company writes in, he said, and does not affect business written by Encompass in the state or elsewhere. Encompass writes a range of other personal lines insurance throughout the United States.

Deerbrook already stopped writing new policies, and unless advised otherwise by the California Department of Insurance by the end of July, it will begin sending out nonrenewal notices by the end of this year.

Mr. Odle went on to say that Deerbrook advised agents of its plans so agents can make appropriate arrangements with their customers.

“We do not want to disrupt the insurance coverage they can provide,” he said, adding that the company is confident there are plenty of other carriers available to provide coverage.

The company provides insurance in 18 states, excluding California. According to National Underwriter’s Highline Data service, California accounted for 34 percent of the company’s direct written premium in 2006 at more than $25 million. It was followed by Florida, which accounts for 21 percent at $16 million. The company reported total direct written premium of $75.45 million in 2006.

The action, Mr. Odle said, is not tied to Allstate’s decision to no longer write new property business in the state, which received heavy local criticism. The independent agent company operates separately from Allstate’s exclusive agent operations, he explained. He also said the company re-evaluates its markets, possibly indicating a return to the state is not ruled out in the future.

In terms of automobile insurance, according to Highline Data, Allstate is ranked fifth in the marketplace, with $1.84 billion in direct premium written. Deerbrook would account for less than 2 percent of Allstate’s market in the state and less than 1 percent of the total auto market in California in terms of direct premium written.

Molly DeFrank, deputy press secretary for the California Department of Insurance, said that other insurers are not following Deerbrook’s move and the automobile market “remains steady.”

Earlier this week, California Insurance Commissioner Steve Poizner extended the state’s low cost automobile insurance program to nine counties, making it available in a total of 31 counties.
The program allows low-income good drivers to purchase liability coverage for under $400 a year.

From: NU Online News Service (www.nationalunderwriter.com)

Cincinnati Financial To Agents: Spurn Underpriced Business

Cincinnati Financial Corp. management in a meeting with agents yesterday told them to “walk away” from business that competitors are chasing with lowball prices, the company said.

The statement from the firm also said that its independent agents were told increased competition will lead to an overall second-quarter decline of about 1 percent in Cincinnati Financial Corp.’s net written premiums.

Key remarks were delivered by Chief Financial Officer Kenneth Stecher at Cincinnati Insurance Companies’ 2007 President’s Club meeting in Cincinnati.

“As lower pricing prevails, we believe it’s more important than ever to carefully select and underwrite risks. Our agents are helping us do that, although it means we will walk away from accounts that we believe other carriers have seriously underpriced,” Mr. Stecher was quoted as saying.

He added that the firm relies “on our agents to identify and attract those policyholders who seek the best value, including superior claims service, broad coverages, high financial strength ratings and three-year commercial policies.”

“In the commercial lines segment that accounts for almost 80 percent of our property-casualty written premiums, new business declined approximately 19 percent for the second quarter and 11 percent for the six months,” he reported.

In personal lines, Mr. Stecher said the company changed the structure of premium credits to better position agents to sell home and auto policies. The changes, he said, resulted in improved policy retention of about 90 percent.

“Lower premiums per policy continued to reduce personal lines total written premiums, which declined about 7 percent for the second quarter and about 6 percent for six months,” he said.
Mr. Stecher said he now anticipates the second-quarter combined ratio to come in at between 89 and 91, compared with 94.5 for the second quarter in 2006.

“Our weather-related losses were unusually light this quarter,” he said.

The company estimates $11 million in net pretax catastrophe losses during the second quarter, compared with $64 million in the same 2006 period.

The company will report second-quarter figures in detail on Aug. 7.

From: NU Online News Service (www.nationalunderwriter.com)

Governor Seeks Support for Health Care Plans

By Michael Fitzhugh
Sacramento Business Journal

Gov. Arnold Schwarzenegger urged East Bay business leaders Thursday to call state legislators to support his health care reform ideas and ask for specific changes instead of simply calling for change.

"Now it is time for you to commit and to send a clear signal to the Legislature. Up until now, the business community in California has been saying, 'Yes, we need health care reform.' ... But now you have to be more specific, now you have to narrow it down," Schwarzenegger told a packed auditorium at AT&T (NYSE: T) West's San Ramon headquarters.

"Just as we did with workers' compensation, we have to fix our broken health care system once and for all because it is the poison of our economy and it is hurting everybody," said Schwarzenegger.

"He's saying get involved and stay involved, said Bay Area Council president and CEO Jim Wunderman. "We generally agree with the basic elements of his plan, but not with every specific part."

The governor called for "shared responsibility" for the rising premiums costs, split between employers, healthcare providers, individuals, and the federal and state government.

Wunderman said the council is concerned the business community not bear the full brunt of that cost.

"I think he's done a lot for the state and I recognize he's really crossing the aisle to deal with a tricky area," said audience member Robert Edmondson, CEO of the San Francisco-based elder-care provider On Lok Inc.

During a half-hour presentation that alternated between humor and earnestness, the governor referred frequently to a "hidden tax" that is "punishing" state businesses, which he says are footing the bill for the state's uninsured.

AT&T West CEO Tim Harden said he feels the pain.

"We have one of the largest healthcare bills of anyone in the country," Harden said. "AT&T spends about $5.5 billion a year on healthcare to cover about 1.2 million workers, including current employees and retirees. We're very interested in looking at any initiatives that can constrain the rising cost of health care."

From: Sacramento Business Journal (www.bizjournals.com)

Gov's Aide: Required Individual Insurance Vital to Health Reform

By Kathy Robertson
Sacramento Business Journal

A requirement that all individuals have health insurance is crucial to Gov. Arnold Schwarzenegger's healthcare reform plans, the governor's top policy advisor on the subject told a business audience Friday.

The so-called "individual mandate" is not included in Assembly Bill 8, the bill pending at the Capitol that combines Assembly and Senate reform proposals.

The issue is important to business because of worries that it will be difficult to make healthcare affordable unless everyone is required to carry insurance. An employer mandate -- which requires businesses to provide health coverage -- fails to include part-time or seasonal workers and unemployed, uninsured Californians.

"The individual mandate is a key part of what we think will fix the healthcare system," Herb Schultz said at the Business Journal's annual healthcare breakfast Friday. Essential elements of the plan include coverage for all, he said, because that's the way to spread the risk.

Intense work on the reform plan will commence as soon as the state budget is approved, Schultz said.

"We have an enormous opportunity over the next two months to really enact comprehensive healthcare reform in California," Schultz said. The governor's plan was released in January, he said, and "as of July 13, everyone is still at the table."

From: Sacramento Business Journal (www.bizjournals.com)

AAA Study Shows Risk of Teen Drivers

By Jerry Dickinson
NU Online News Service

Sixty-one percent of teens admit to engaging in one or more dangerous habits such as speeding, cell phone use and text messaging while driving a vehicle, according to a survey announced yesterday.

The study was conducted in April by the American Auto Association and Seventeen Magazine.

“Motor vehicle crashes are the leading killer of teens, and these types of behaviors can set the stage for tragedy,” said Patrice Frazier, managing director of community affairs for the Automobile Club of Southern California.

The nationwide survey involved 1,000 16- and 17-year-old respondents, AAA said.

Of the 1,000 respondents, 66 percent said they have exceeded speed limits by 10 mph or more; 51 percent admitted to talking on the cell phone; 46 percent said they text message while operating the vehicle; and 11 percent have driven while under the influence of alcohol, the study revealed.

But what makes these statistics unique when adults are prone to such habits?

“The difference between students and adults is when a 16- or 17-year-old driver is doing these activities, they don’t have experience to be driving safely while using them,” said Marie Montgomery, spokesperson for AAA of Southern California. “Adults can have a conversation in the car because we’ve been driving for a longer time and have the experience.”

Ms. Frazier echoed the problem of inexperience.

“Teens are inexperienced drivers who need to focus on driving and not be distracted by friends or other activities,” added Ms. Frazier.

Rates for teenagers are consistently higher versus the rates for adults, said Ms. Montgomery.
“People are rated based on experience, and teen drivers tend to have higher insurance rates,” she added.

California ’s legislature, in an effort to reduce distractions, passed the Graduated Driving License Law, which requires teens not to carry passengers under the age of 20.

Teens are also prohibited from driving between 11 p.m. and 5 a.m. in California unless accompanied by a licensed driver age 26 or older, AAA noted.

From: Online News Service (www.nationalunderwriter.com)

Minimum Auto Coverage Bills Lose In 8 States

By Steve Tuckey
NU Online News Service

Insurance organizations said they are hoping Louisiana’s governor will make it the ninth state to reject an increase of the minimum liability insurance required of the drivers.

Democratic Gov. Kathleen Blanco has until next Wednesday to sign into law or veto legislation that would more than double the limits currently required of state drivers.

Similar measures have failed to win enactment this year in eight states. Only in Texas has legislation enforcing higher limits opposed by the insurance industry and advocated by a variety of forces been signed by the governor into law.

On the issue of raising limits in general, David Snyder, assistant general counsel for the American Insurance Association, said that such moves impose an undue economic burden on motorists.

“These increases often lead to counterproductive and anticompetitive political intervention to suppress rates that in turn actually harm consumers by inhibiting competition, availability and affordability,” he said.

Both the AIA and Property Casualty Insurers Association of America (PCI) actually oppose compulsory auto insurance in general.

PCI representative Lynn Knauf said that laws mandating consumers buy auto insurance do not reduce the number of uninsured motorists and are virtually impossible to enforce. “States have implemented elaborate systems and spend great sums of money to address this issue, yet the number of uninsured motorists is still [in the] double digits nationally, and some states have more than 25 percent uninsured,” she said.

Mr. Snyder said the impetus for such legislation comes from plaintiffs’ attorneys, “who like to have more money to go after to increase their fees.”

In Alabama, Gov. Bob Riley vetoed a mandated coverage bill primarily because he felt it did not allow insurers enough time to make the changes that would be involved in implementing the law.

Legislation in Connecticut, Florida, Kentucky, Louisiana, Nebraska, North Carolina and Ohio has died this year somewhere in the legislative process, according to Ms. Knauf.

In Louisiana, S.B. 223 will raise the current $10,000 for bodily injury liability to one person, $20,000 for bodily injury liability for two or more, and $10,000 for property damage liability to new limits of $25,000/$50,000/$25,000.

The Texas legislation that was signed into law earlier this year will increase the minimum to $25,000/$50,000/$25,000 immediately and then to $30,000/$60,000/$25,000 four years from now.

Louisiana Insurance Commissioner James Donelon has endorsed raising his state’s limits, which he noted are the lowest in the country. “As a result, victims of the negligent acts of underinsured drivers and their caregivers are being left holding the bag for the negligence of those drivers,” he said in a letter to the governor.

The state’s Independent Insurance Agents and Brokers Association unit has remained officially neutral.

PCI regional manager Greg LaCost urged the governor to veto the bill because of the increased premium costs it will place on drivers, who he said already have the fourth highest auto insurance rates in the country.

The legislation passed the House by a vote of 77-23 and Senate by a vote of 25-12. The governor has until July 18 to decide whether to sign or veto the bill. Both houses are controlled by a Democratic majority.

From: NU Online News Service (www.nationalunderwriter.com)

Report: California Had Second Highest June Foreclosure Rate

Foreclosures in California declined by 2 percent from May to June, but the state had the second highest rate of filings in the country, a report issued Thursday said.

With one foreclosure filing for every 315 households, more than double the national average, the state moved up a notch on the monthly ranking done by RealtyTrac Inc.

The state reported 38,801 foreclosure filings during the month, the most of any state for the sixth month in a row and more than three times the number reported in June 2006.

With one foreclosure filing for every 175 households in June, Nevada led the nation in foreclosure rate for its sixth month in a row. The state reported 4,722 foreclosure filings during the month, a decrease of 10 percent from the previous month but more than three times the number reported in June 2006.

No. 3 Colorado had a foreclosure filing for every 317 households in June, down 10 percent from May.

From: Silicon Valley / San Jose Business Journal (www.bizjournals.com)

Travelers Letter To Agents: No Contingent Fees

By Mark E. Ruquet
NU Online News Service

Travelers has written a letter to agents and brokers emphasizing to them that controversial contingent compensation payments are not part of the company’s current fee system.

The company in an open letter to independent agents and brokers, posted on a company Web site accessible only to producers, said it will drop the word “supplemental” when discussing the commission agents receive because it is causing confusion among some who believe it remains a form of contingent compensation.

A copy of the letter was provided by a company representative.

Contingent payments have been in the spotlight ever since an investigation by the New York Attorney General’s Office into commercial insurance placements found evidence they served as hidden kickbacks in bid-rigging activity. Subsequent settlements by brokers have included agreements to forego such payments.

The Travelers’ letter said it has followed with interest recent commentary on producer compensation, particularly on the company’s plan to eliminate contingent compensation.
Its new program, introduced this year, eliminates contingent compensation for all personal insurance and “for all commercial insurance placed through those producers who have elected the new compensation program, which accounts for a significant majority of all our commercial insurance premium,” the letter said.

“We now recognize that the program may be misunderstood by some,” the letter continued, and went on to explain what the program is.

The letter, dated July 10, was signed by Joseph P. Lacher Jr., executive vice president, personal insurance and select accounts; Samuel G. Liss, executive vice president, strategic development, financial and professional, and international insurance; and John J. Albano, executive vice president, business insurance—all from the Hartford, Conn., office.

Travelers said under its new commission program:

• The commission rate for a policy is fixed at the time the policy is placed. There is no change in the rate by any action the producer or company takes during the policy period.
• The commission rate and amount for any policy can be fully disclosed to the policyholder.
• Commission rates among producers differ based on the historical value of “the relevant business to Travelers.”

“The rate is 100 percent fixed at the time the policy is placed and is not contingent or dependent upon any action whatsoever,” the letter said.

Travelers said to avoid confusion in the future, it will refer to the program as “a fixed, value-based commission program.”

The carrier added that it is not always privy to the details of producer and client relationships concerning fee arrangements.

Generally, Travelers said, it does not pay commissions if it is aware the customer is paying a fee.

The letter went on to say that if the producer or customer feels the payment of the commission “creates an inappropriate conflict of interest,” the producer is free to refuse the compensation and agree on alternative compensation arrangements with the customer.

Agent sources with knowledge of the plan, who declined to be identified because they were not authorized to speak for the company, said that where in the past contingent commissions were based upon the growth of the business, now there is no pressure. Instead, the producer’s commission rate will in part be determined by the historical profitability of the book of business.

According to one source, an agent may receive a commission base of 15 percent. If the book of business is profitable, it could add another 8-to-10 percent to that commission base.

That commission figure, the source noted, is guaranteed for the period of the contract. The advantage of the program is it allows the agency to do better planning for the future because the agency knows up front how much money is coming into the agency.

It also alleviates pressure to grow individual books of business. The downside is if the business is not profitable, the commission would take a hit on renewal, it was explained.

Last year, both Chubb and Travelers said they would end their practice of paying contingent commissions and instead go to a supplemental commission program.

Chubb has entered into a similar commission payment program, sources said, paying supplemental commissions based on the historical profitability of the business.
The commission scale is not the same for each producer and is negotiated individually, taking into account the variables of historic profitability, according to the sources.

From: NU Online News Service (www.nationalunderwriter.com)

Calif. DOI Conducts Search for General Counsel

California Insurance Commissioner Steve Poizner announced that Patricia Staggs will serve as interim general counsel and Susan Stapp will serve as interim deputy general counsel at the Department of Insurance. The announcement comes on the eve of Gary Cohen's departure as general counsel, and upon the announcement that current Deputy General Counsel Connie Perry will retire.

Staggs has served as assistant chief counsel at the Department DOI for 15 years and has supervised a bureau in the Legal Division since 1989, including the Corporate Affairs Bureau, Policy Approval Bureau, and Conservation and Liquidation Bureau.

Stapp has servedat the DOI 18 years, as assistant chief counsel for the Policy Approval Bureau, as assistant chief counsel for the Corporate Affairs Bureau and previously as senior staff counsel.

The DOI is conducting a nationwide search for General Counsel.

From: Insurance Journal (www.insurancejournal.com)

Study: Calif. Workers' Comp Reforms Working

California experienced the largest decrease in average workers' compensation costs per claim among 14 states, after years of double-digit cost growth and in the wake of reforms that took effect 2003 through 2006, according to a new study by the Workers' Compensation Research Institute.

According to the study, "Early Evidence of the Impact of the Multiyear Reforms in California: CompScope Benchmark, 7th Edition," workers' comp costs per claim in California dropped by 15 percent in 2004-2005, after a 4 percent increase in 2003-2004, and double-digit growth in previous years.

Legislation in California from 2003 to 2006 revised the state medical fee schedule, increased the maximum weekly benefits, limited chiropractic and physical therapist services, replaced vocational rehabilitation benefits with the Supplemental Job Displacement Benefit, revised the permanent disability schdule and permanent partial disability benefits, and placed a 104-week cap on temporary disability benefits.

The report indicates that payments for lost wages, otherwise known as indemnity benefits, per claim with more than seven days of lost time changed little in 2004-2005, after growth of 7 percent in 2003-2004 and increases of 4 percent to 7 percent in the previous years. However, that result masked two opposing trends, the report indicated. Duration of temporary disability fell by 1.5 weeks after increasing by almost one week per year since 1996, except for 2003-2004 when there was little change. Also, there was a 6.5 percent increase in the average weekly temporary disability benefit, the result of a 21 percent increase in the statutory minimum weekly temporary disability benefit under 2002 legislation.

The study noted that defense attorney involvement changed little over the study period. Payments to defense attorneys increased 8 percent in 2004-2005, about double the growth rate in each of the previous two years.

For more information, visit www.wcrinet.org.

Source: Workers' Compensation Research Institute (www.wcrinet.org)

From: Claims Journal (www.claimsjournal.com)

Calif. Earthquake Authority Pushes for Industry Assessments

Negotiations are continuing in the California insurance industry, as the state's Earthquake Authority (CEA) continues to seek a way to make up $2.183 billion first industry assessment layer. At its recent governing board meeting, held June 26, the CEA emphasized the urgency to maintain its claims paying capacity.

Insurance companies that sell CEA policies currently contribute funds to the CEA to help it insure for a 600-year event. However, the assessment layer is set to expire in December 2008.
At the meeting, representatives from the Association of California Insurance Companies, American Insurance Association and Personal Insurance Federation made statements that they would like to see the first industry assessment layer reduced after 2008. A representative from USAA insurance indicated that his company would prefer the first industry assessment layer be reduced to cover a 300-year event.

California Commissioner Steve Poizner expressed concerns with consumers' take up rates for the earthquake insurance, and emphasized that despite the industry versus CEA's differences, that it is important to work with insurers who are responsible for selling the earthquake insurance policies.

The CEA governing board ultimately directed its staff to continue negotiating the matter, with the goal of seeking legislation in 2007 that addresses the issue. All noted the time available to seek a legislative solution was limited, given how late it is in the current legislative session.

The next CEA board meeting is scheduled for July 24.

From: Insurance Journal (www.insurancejournal.com)

California Quake Insurer Requests Rate Hike

By R.J. Lehmann
A.M. Best Company

The California Earthquake Authority is hopeful a newly approved reinsurance program and an anticipated rate hike will provide a solid foundation for its 2008 claims-paying capacity. But most of the state-run insurer's assessment authority is scheduled to expire December 2008.

Created in 1996 to fill the gap left by widespread earth movement exclusions adopted by private insurers following 1994's devastating Northridge earthquake, the CEA has statutory authority to assess its 20 participating insurers up to $3.66 billion, if needed, to pay claims arising from a catastrophic quake. Together with its reserves and reinsurance program, the insurer is structured to provide up to $8.3 billion in coverage to its more than 750,000 policyholders.

CEA's governing board announced at its recent public meeting it has approved contracts with 43 reinsurers for a total of $2.27 billion of 2008 coverage, leaving it capable of paying all claims from a 1-in-600-year earthquake or series of quakes and with a 99.8% certainty it could pay any claims that arise through November 2008. Lead reinsurers of the multiple layer catastrophe reinsurance contract include Swiss Re, XL Re Ltd., Partner Re Ltd., Transatlantic Re., Ace Tempest Re Ltd., Ace Bermuda Ltd., Federal Insurance Co., Hannover Ruck, Renaissance Re and Axa Re.

The insurer also is requesting a 3.5% increase in the base rate for all policies. If approved by Insurance Commissioner Steve Poizner, the rate hike would go into effect Jan. 1, 2008. Annual premiums per $1,000 of coverage under the basic policy currently average $2.79 and range from $1.05 to $5.25.

But under the law that created the authority, the CEA's first industry assessment layer of $2.18 billion is set to sunset in December 2008. The first assessment layer currently provides $317 million of coverage excess of $4.3 billion and $311 million excess of $5.42 billion, but it has shared a $628 million overlap with the CEA's collateralized reinsurance layer, first transformer reinsurance layer and first MLCRC reinsurance layer, according to an A.M. Best Co. report.

According to the CEA, its staff has "advised it is highly desirable to find a method of replacing this claim-paying capacity to ensure the continued strong financial backing of CEA policies."

"The governing board discussed this matter and directed staff to seek the enactment of legislation in 2007 to address this issue, including the consideration of replacing the expiring assessment authority with new assessment authority," CEA said in a statement.

But what that new assessment authority may look like remains a subject of debate. Sam Sorich, president of the Association of California Insurance Companies, noted the industry overwhelmingly supports allowing the layer to expire. Sorich said one option proposed by CEA staff will involve creating a new assessment layer that would be "placed on top of the layer cake," rather than serving, as is now the case, as a primary layer.

"We've been talking to the CEA staff for a couple of months now, and at least on the part of ACIC, we're committed to strengthening the CEA," Sorich said. "I think the initial reaction from companies is that there's some willingness to accept at least a portion of that new layer, but we would like to explore supplementing insurer assessments with other sources of income."

The CEA wrote $501.4 million of direct premium in 2006 through 17 active members, which combine to represent more than 70% of the homeowners insurance market in California.

However, the recent decision by Allstate Corp., the CEA's third-largest member, to cease offering new homeowners insurance and landlord-package insurance policies in California could impact the CEA's 2007 and 2008 results. The authority estimates the decision by Allstate, effective July 1, could reduce the CEA's gross written premium by roughly $10 million over the next 12 months.

"Future estimates of the effects on the CEA of Allstate's decision to stop offering new homeowners policies and landlord-package policies in California would depend on the duration and breadth of Allstate's actions, any increase or decrease in Allstate residential property insurance rates and in CEA earthquake insurance rates, other conditions that may develop in California's insurance market, and California regulatory or legislative activity," CEA staff said in a statement.

The California Earthquake Authority currently has a Best's Financial Strength Rating of A- (Excellent).

In 2006, the top five writers of homeowners multiperil in California, according to A.M. Best state/line data and based on direct written premium, were State Farm Group, with 21.7% market share; Farmers Insurance Group, with 16.6%; Allstate Insurance Group, with 13.4%; California State Auto Group, with 6.3%; and USAA Group with 4.5%.

Source: A.M. Best Company (www.ambest.com)

From: Insurance News Net (www.insurancenewsnet.com)

California Predicted to Hit 60 Million People by 2050, Majority Hispanic

California's population will rise to 60 million by 2050 from 36 million today, and by 2042 Hispanics will be in the majority, according to a state report released Monday.

Hispanics will make up 52 percent of the state population by mid-century, the state Department of Finance forecast. Whites will comprise 26 percent, Asians 13 percent, blacks 5 percent and multiracial residents 2 percent.

In Santa Clara County, where the population is expected to grow from 1.7 million to 2.6 million, the report said the white population will comprise 28 percent by 2050, down from 45 percent today. The Hispanic population will grow to 36 percent from 24 percent today, while the Asian population will grow slightly to 26 percent from 25 percent.

Southern California is expected to have the highest rates of growth. Los Angeles County is expected to have more than 13 million, an increase of 3.5 million people by 2050.

From: Silicon Valley / San Jose Business Journal (http://www.bizjournals.com/)

CA Insurance Commissioner Steve Poizner to Expand Low Cost Automobile Insurance Program to Nine Additional Counties

Insurance Commissioner Steve Poizner today announced his final determination of need for the California Low Cost Automobile Insurance program in Solano, Marin, Santa Cruz, Madera, Napa, Yolo, Mendocino, Kings and Lake Counties. The program is expected to go into effect in early September, once rates are set in each of the newly added counties.

Commissioner Poizner's announcement follows a series of community town hall meetings in each of the nine counties to examine the need for the program. Based on those meetings and a determination of need analysis conducted by the California Department of Insurance (CDI), the Commissioner determined that the program should be expanded to include these nine additional counties.

"Driving without insurance is illegal, and nearly 100,000 motorists in these nine counties are uninsured," said Commissioner Poizner. "Many drivers simply cannot afford insurance, but uninsured drivers put all travelers at risk. The expansion of this program in nine additional counties will better enable Californians to comply with the law and protect all motorists from potential losses."

Motorists driving without insurance can have their vehicle registrations suspended as part of SB 1500, a new law designed to reduce the risk of economic losses sustained as the result of collisions involving uninsured motorists.

The low cost auto insurance program provides eligible low-income good drivers with auto liability coverage for under $400 a year and as little as under $300 a year in many counties.
The California Low Cost Automobile Insurance Program initially begun in 1999 as a pilot program in Los Angeles and San Francisco. A new law, SB 20, also authorized the Commissioner to launch the program throughout the state upon his determination of need in each county.

Beginning in April 2006, the department began expanding the program statewide. The program is now available in Los Angeles, San Francisco, Alameda, Fresno, Orange, Riverside, San Bernardino, San Diego, Contra Costa, Imperial, Kern, Sacramento, San Joaquin, San Mateo, Santa Clara, Stanislaus, Merced, Monterey, Santa Barbara, Sonoma, Tulare, and Ventura Counties. With the inclusion of Solano, Marin, Santa Cruz, Madera, Napa, Yolo, Mendocino, Kings and Lake Counties, the Low Cost Auto Insurance Program will be available in 31 California counties.

Since its inception, over 33,000 policies have been issued. Program policies are issued by California licensed insurers and the program is administered by the California Automobile Assigned Risk Plan. Rates are set in each county so that premiums are sufficient to cover losses and expenses in each county to ensure the program is self-sustaining.

To be eligible for the program, an applicant must be a "good driver" - no more than one at-fault property damage only accident, or one point for a moving violation in the past three years; and no at-fault accident involving bodily injury or death in the past three years; and no felony or misdemeanor conviction for a violation of the Vehicle Code.

Additionally, family income cannot exceed 250 percent of the federal poverty level ($25,525 for a single person, $34,225 for two persons and $51,625 for a family of four). The value of an insured vehicle must not exceed $20,000. For more information about the program, call 1-866-60-AUTO-1 (1-866-602-8861)

From: California Department of Insurance (www.insurance.ca.gov)

Republic Companies Acquires Southern States General Agency

Dallas-based insurer Republic Companies Inc. (Republic) announced that it has acquired Southern States General Agency Inc. (SSGA) from Unitrin Inc. The acquisition was effective July 9.

SSGA President Mickey Slaughter and his team joined the Republic organization. SSGA provides a complete selection of specialty commercial and personal lines property and casualty insurance products through independent insurance agents in Louisiana, Arkansas, Texas and Mississippi.

Philo Smith & Co. facilitated this transaction and acted as financial advisor to Republic.

Source: Republic Companies, Inc. (www.republicgroup.com)

From: Insurance Journal (www.insurancejournal.com)

Few Changes In Evaluation Of Lloyd’s Syndicates

Standard & Poor's mid-year assessment of most Lloyd’s syndicates registered few changes for the group despite several units posting record returns.

Standard & Poor's credit analyst Matthew Day said the agency has raised its assessment on one syndicate and downgraded two others. In addition, one assessment has been assigned for the first time, and three others withdrawn.

"Our assessments had already factored in the expected benefits following the hardening of the insurance markets post hurricanes Katrina, Rita, and Wilma," said Mr. Day. "In fact, in a large number of cases the sustainability of the strong turnaround in performance remains untested by more challenging underwriting conditions."

In total, Standard & Poor's assesses 40 out of the 66 syndicates trading in the Lloyd's Market (Lloyd's or the Market; A+/Stable), 11 on an interactive basis. These 40 syndicates account for 71 percent of the Market's 2007 underwriting capacity (80 percent in 2006). In addition, two of the unassessed syndicates carry an insurer financial strength rating, based on an explicit parental guarantee, accounting for a further 6 percent of capacity.

Standard & Poor's Lloyds Syndicate Assessment evaluates the relative dependency of syndicates on Lloyd's infrastructure and Central Fund, reflecting their ability to offer business continuity to policyholders. Standard & Poor's financial strength rating on Lloyd's is the principal measure of financial strength to be applied to all syndicates underwriting in the Lloyd's Market.

"As the LSAs are a relative assessment, they have not been directly affected by the upgrade of the Market on April 23, 2007. There may, however, be potential benefits to some syndicates over the medium term as the overall attractiveness of the Market has improved," said Mr. Day.

From: NU Online News Service (www.nationalunderwriter.com)

Oregon Fines AIG On WC Violations

The Oregon Department of Consumer and Business Service on Thursday imposed a $5 million fine on nine insurers in the American International Group for violations of Oregon insurance and workers' compensation laws—some of them dating back to 1985.

According to a DCBS statement, AIG must pay $1 million of the fine within 45 days. DCBS has suspended the remaining $4 million and will withdraw or impose it next year, depending on whether the companies meet certain conditions.

AIG has agreed to the fine and the conditions.

DCBS cited the AIG companies for failing to comply with Oregon laws for processing claims of injured workers and reporting proof of insurance coverage.

For example, the companies have failed to meet state standards in such areas as timely payment of medical benefits to injured workers and accurate reimbursements of costs for related services.

DCBS Director Cory Streisinger said injured workers depend on their insurance carriers to pay claims accurately and on time, and other major carriers succeed in doing so. “AIG hasn't lived up to the standards Oregon injured workers are entitled to expect, and it's our job to hold them accountable," she said.

DCBS also cited the AIG companies for using insurance policy forms that had not been approved by the state. Advance approval of policy forms by DCBS is required to protect workers and ensure that policies comply with Oregon regulations.

In addition, DCBS found that the AIG companies failed to accurately report workers' comp premiums and claims data, which the department uses to develop the base rates employers pay to cover their workers. Premium information is used to calculate each insurer's assessments to fund parts of the state workers' comp system.

AIG's inaccurate reporting led to an underpayment of required assessments, and in addition to the fines imposed, AIG has paid DCBS approximately $3 million in previously unpaid assessments and interest, according to DCBS.

From: NU Online News Service (www.nationalunderwriter.com)

A.M. Best: P/C Industry Posts 1Q Underwriting Profit

The U.S. property/casualty industry followed record profits in 2006 with continued favorable trends in first quarter 2007, posting net income after taxes of $16.7 billion. An underwriting gain of $8.0 billion and net investment income of nearly $14 billion propelled the industry's strong operating results, according to a special report by A.M. Best Co.

As a result of the industry's strong operating performance, its after tax return on equity (return on surplus), which measures the industry's overall after tax profitability from underwriting and investment activity, was a healthy 14.0 percent for the 12 months ended March 31, 2007, up from 11.0 percent for the 12 months through March 31, 2006.

The U.S. property/casualty industry recorded a combined ratio of 92.4 in first quarter 2007, compared with 91.5 in the same period of 2006. Despite continued price softening across virtually all lines, the industry's strong underwriting results benefited from continued pricing adequacy, prudent underwriting practices and favorable prior year loss reserve development.

The personal lines segment reported a combined ratio of 94.5, compared with 91.2 recorded in first quarter 2006. The commercial lines segment reported a combined ratio of 90.4, compared with 90.9 in first quarter 2006. The U.S. reinsurance segment experienced very strong underwriting results as evidenced by a reported combined ratio of 89.3, compared with 98.2 a year earlier.

While the industry sustained solid operating results, competition continues to intensify in virtually all personal and commercial lines as insurers pursue near-term growth targets and at least stable market share. Consequently, rates declined sharply in first quarter 2007, and the U.S. property/casualty industry's net premiums written (NPW) declined 1.3 percent to $111.8 billion for the quarter.

As a result of the industry's strong operating performance, its surplus position grew $4.8 billion, or 1.0 percent, to $506 billion through first quarter 2007 from $501.2 billion at year-end 2006. Furthermore, with the industry reporting record setting results in 2006, policyholder surplus grew 12.8 percent for the 12 months ended March 31, 2007.

With competition expected to continue intensifying in most property/casualty lines through 2007, premiums are expected to decline, and near-term underwriting results are likely to deteriorate. However, A.M. Best still expects the overall industry to turn another profit in 2007.

Source: A.M. Best Company (www.ambest.com)

From: Claims Guides (www.claimsguides.com)

Calif. Man Mangles Hand in Alleged Insurance Scam

A man who allegedly tried to burn down his recently remodeled house now has a mangled hand and is facing arson and fraud charges.

Sutter County prosecutors say 29-year-old Juan Jose Luna was trying to collect insurance money on his home in Live Oak, Calif.

Instead, they say he set off an early morning explosion that blew out the walls and sent glass flying 90 feet.

"Some type of accelerant" was being used, but it exploded rather than burned when it was ignited, Sutter County Undersheriff J. Paul Parker said.

Luna was found wandering two blocks from the burning house with a badly injured hand after the explosion June 12. Luna lost at least one finger, said Live Oak Fire Capt. Dan Yager.

Luna isn't talking to investigators, Parker said. He is free on $100,000 bond while he awaits a July 23 arraignment in Sutter County Superior Court.

Source: Associated Press (www.ap.org)

From: Insurance Journal (www.insurancejournal.com)

N.J. Agents Hope to End Auto Insurance Quote Requirement

New Jersey agents no longer want to be required by state law to provide quotes from all of their auto insurance companies to all auto insurance applicants.

The Professional Insurance Agents of New Jersey Inc. and the Independent Insurance Agents and Brokers of New Jersey have secured introduction of a bill (A-3863) to change that law as well as a requirement that insurers provide three possible insurance premium scenarios to applicants.

According to PIANJ President Andrew H. Anderson, these requirements are no longer appropriate in the current automobile insurance market.

"The requirement for agents to provide quotes for all their represented companies places an unnecessary obligation on insurance agents and does not serve consumers because it fails to take into account all factors that agents consider when offering coverage options to consumers," said Anderson in recent testimony on the bill.

He maintained that not every company an agent represents offers appropriate coverage options for a customer. For example, an agent should not be required to provide a quote for a company that is facing financial problems, or for a company that offers the same coverage as another, but at a higher premium. Nor is it appropriate to provide quotes for all other companies when a consumer asks to purchase insurance from a specific insurance company, he stated.

"Insurance agents do not need to be told how to best serve the interests of their customers," Anderson told lawmakers.

The Assembly Financial Institutions and Insurance Committee unanimously approved the bill in May.

The agents' bill would also eliminate the requirement for insurers to provide each applicant seeking automobile insurance, and each insured upon request, with three premium scenarios demonstrating the effect of different coverage choices.

"Experience has shown that this requirement offers very little benefit to consumers, who disregard these hypothetical coverage scenarios that are often not based on the individual's circumstances. Insurance professionals advise their customers about the different coverage options available to them as part of what they do every day," according to Anderson.

Source: PIANJ (www.pia.org/nj)

From: Insurance Journal (www.insurancejournal.com)

Kaiser Records 2.7M Patient Emails, 8M Online Visits

By Chris Rauber
San Francisco Business Times

Millions of Kaiser Permanente members are using emails and other online features to replace doctor's office visits and phone calls, the health system found. Kaiser released results late Thursday of what it called "the largest study to date" on how email changes the way patients access medical care.

The Oakland-based healthcare giant said more than 1.4 million enrollees have signed up to use the KP HealthConnect online service, generating more than 2.7 million email messages since September 2005. And 1.9 million of those messages -- or 70 percent -- were generated by Kaiser enrollees in high-tech-happy Northern California, said Holly Potter, an Oakland-based Kaiser spokeswoman for the HealthConnect program.

"We are also seeing steady increases in the number of members registered and using these features each month," Potter told the San Francisco Business Times. "In the month of May alone (the latest month for which numbers are available) 191,661 messages were sent by members in Northern California."

The HealthConnect service is available in seven of eight Kaiser regions nationwide, said Potter, and will roll out to 150,000 Kaiser enrollees in Ohio in October. Overall, Kaiser has 8.7 million enrollees in nine states and the District of Columbia; three-quarters of them reside in California. Kaiser Foundation Health Plan is the largest HMO in Greater Sacramento, with enrollment of about 650,000 in the four-county area.

Potter said the relatively low usage rate of email so far -- about two messages per registered online user -- is actually good news, because "one of physicians' fears is that they'll be overwhelmed" by patients' emails.

In addition, Kaiser tabulated 8 million online visits by enrollees during the same time period "to all of the online features," and nearly 1 million enrollees have reviewed 7 million lab test results online during Kaiser's "rolling deployment" of the HealthConnect services, Potter said.

The Kaiser study, entitled "Patient access to electronic health record with secure messaging: impact on primary care utilization," was published in the American Journal of Managed Care and examined use of enrollee-generated emails to Kaiser physicians. Among the highlights, Kaiser said July 5:

Many patients with online access to an electronic health record (EHR) are choosing to use e-mail, thereby decreasing the number of primary-care office visits and telephone contact rates.

Use of e-mail linked to an EHR reduced the number of annual primary-care outpatient visits by adults from 7 percent to 10 percent, resulting in 14 percent fewer phone contacts by those enrollees than by those who didn't use email.

From: San Francisco Business Times (www.bizjournals.com)

Bill Could Create State License for Title Insurance Sales Reps

The California Land Title Association has sponsored a bill that would create a state licensing system with "more uniform and consistent enforcement" for title insurance sales representatives.

State Sen. Sam Aanestad, a Republican from Grass Valley, has introduced SB 133, which earlier this week passed the Assembly Insurance Committee with a 9-0 vote. The Assembly Appropriations Committee is expected to discuss the bill soon.

Under the bill, title insurance sales representatives would register with the California Department of Insurance. Sales representatives could be suspended if they participate in prohibited activities.

"The strict licensing requirements provided by SB 133 enhance consumer protection while maintaining the healthy competitive title insurance marketplace in California," Craig Page, executive director of the association, said in a news release Thursday. "The CLTA acknowledged concerns regarding the interpretation and enforcement of laws regulating marketing practices in the title insurance industry. The CLTA sponsored legislation several years ago that enhanced penalties for violations of the title insurance law and has encouraged the Department of Insurance to issue rulings on specific marketing practices."

California Insurance Commissioner Steve Poizner has said changes are being looked at for the title insurance industry during his first several months in office.

Homebuyers purchase title insurance to protect against back taxes, legal judgments, undisclosed liens and other potential problems connected to a property.

From: Sacramento Business Journal (www.bizjournals.com)

Farmers Insurance Group Completes Acquisition of Bristol West Holdings, Inc.

Farmers Insurance Group(R), already the nation's third-largest insurer of personal lines autos and homes, has just gotten bigger by announcing the completion of its acquisition of non-standard auto insurer, Bristol West Holdings, Inc.

The acquisition by Los Angeles-based Farmers Insurance Group(R) of Bristol West Holdings, Inc., which is based in Davie, Fla., was described as a "great fit" by Farmers officials and will enable Farmers to continue on its path of overall business growth. Bristol West is an experienced, industry leader in the growing non-standard, automobile insurance market. Bristol West began providing private passenger auto insurance to Florida residents in 1973. Since that time, it has grown to be a leading provider of liability and physical damage insurance at competitive prices. Bristol West operates in 26 states.

"Adding Bristol West's non-standard auto insurance business to the Farmers platform is a great fit and will contribute to increase our outreach," said Paul N. Hopkins, Chief Executive Officer of Farmers Group, Inc. "Their innovative product capabilities combined with Farmers' distribution breadth and operational excellence will benefit our entire organization and, most importantly, our customers."

"Among the many things we like about Bristol West is its reputation for stressing high-quality service to its customers and agents alike," said F. Robert Woudstra, President and Chief Operating Officer of Farmers Group, Inc. "They are the best in class when it comes to providing leading edge tools to manage their business, improve efficiencies, and deliver great service. Combine that with the overall strength and great reputation of Farmers and you have a winning combination with a very bright future."

The non-standard auto insurance market is a growing one in the United States as it focuses on consumers with below-average driving records; consumers who drive unusual vehicles; and consumers who purchase short-term or limited auto coverage policies.

Source: Farmers Insurance Group (www.farmersinsurance.com)

From: Insurance News Net (www.insurancenewsnet.com)

AIG Fined $5m For Workers' Comp Violations

The Oregon Department of Consumer and Business Services fined nine insurers owned by the American International Group, or AIG, $5 million for numerous violations of Oregon insurance and workers' compensation laws.

AIG must pay $1 million of the fine within 45 days, according to the July 5 order, but regulators have suspended the remaining $4 million depending on whether the companies meet certain conditions. New York-based AIG (NYSE: AIG) has agreed to the fine and the conditions.

The company has also paid Department of Consumer and Business Services approximately $3 million to address underpayments to the state workers' compensation fund. AIG is the third-largest workers' compensation insurance provider in Oregon.

"AIG hasn't lived up to the standards Oregon injured workers are entitled to expect, and it's our job to hold them accountable," said Cory Streisinger, director of the Oregon Department of Consumer and Business Services.

From: Insurance News Net (www.insurancenewsnet.com)

Survey: P-C Carriers Adept At Online Business

Leading insurance carriers have become adept at dealing with customers and business partners online, according to survey by a technology solutions provider.

Brookfield, Wis.-based Fiserv, Inc. said today that it found those results in its online survey on property and casualty insurance technology.

According to the survey, however, “Virtually all carriers recognize that not only is there room for improvement but that they must continuously improve their underlying technology to better serve their customers and enhance their competitive position.”

The Fiserv results follow a study of auto insurers released last month by Customer Respect Group, Ipswich, Mass., finding that carrier replies to e-mails were generally quick, but not always helpful. Some 74 percent of e-mails were found to be answered within 24 hours (30 percent more than the comparable all-industry figure), but only 43 percent of replies fully answered the questions (35 percent below the all-industry figure).

The results from the latest Fiserv survey identified critical business needs, and the projects and technologies insurance carriers have underway to address them, the company said.

Seventy-five percent of respondents agreed that one of their next three large-scale projects would involve core systems for maintaining insurance coverage information, said Fiserv. Sixty-seven percent said that agency interface or comparative rating projects would be planned.

In addition, billing and claims projects designed to make things smoother for the customer were both mentioned by 42 percent of respondents, the company noted.

Respondents identified the top three most important technologies for their organizations as a data access layer (67 percent) that allows easier availability of decision-making information,
business process management (46 percent) to streamline processes for highest efficiency, and Java technology (42 percent), said Fiserv.

“The survey results show an increasing focus by p and c insurers on effectiveness as well as efficiency,” said Todd Eyler, chief technology officer of Fiserv Insurance.

Mr. Eyler said, “The most important technology focus is now on data accessibility so companies offer the best insurance products for their markets and make better decisions using business intelligence/analytics applications.

“P and c insurers want to improve effectiveness in key areas like their pricing and rating approaches, their customer segmentation and marketing approaches, and their underwriting and claims outcomes,” he continued. “This level of focus on data and analytics is a new emphasis for most p and c insurers.”

Survey responses also indicated that improved customer service, enhanced business management and ease of conducting business with a carrier were the most important business requirements for innovation, said Fiserv.

“P and c insurers continue to focus on simplifying their operations between their customers and agents, and their technology infrastructure,” said Gary Sherne, president of P&C Systems Solutions for Fiserv Insurance. “This focus is driving the interest in Web-based rating and more efficient information sharing between insurance carriers and agents for prompt customer service.”

More information and copies of survey results are available online at www.fiservinsurance.com under “What’s New.”

From: NU Online News Service (www.nationalunderwrite.com)

Insurer Group Asks La. Gov. to Veto Hike in Minimum Insurance Limits

The Property Casualty Insurers Association of America (PCI) announced it has requested that Louisiana Gov. Kathleen Blanco veto SB 233, which the insurer group says would dramatically raise the state's minimum automobile liability insurance limits and increase auto insurance premiums for more than 40 percent of of the state's drivers.

Senate Bill 233 would increase the current minimum limits by 2.5 times up to 25,000 for bodily injury liability to one person, $50,000 for bodily injury liability for two or more persons injured in any one accident, and $25,000 for property damage liability. The group suggests that premiums could rise between 30 and 50 percent if the bill is allowed to become law.

According to PCI, the increase in minimum limits acts to create larger targets for plaintiff's attorneys. With "deeper pockets" of coverage available, there is often added incentive to litigate -- and the resulting larger settlements can also result in higher costs for all policyholders, the group said. During legislative debate on this issue, the insurance committee amended the bill to put fewer burdens on the consumer by increasing the limits slowly over time. However, the amendment was stripped away on the floor.

Source: Property Casualty Insurers Association of America (www.namic.org)

From: Insurance Journal (www.insurancejournal.com)

Fla.'s Citizens Gets Line of Credit

Florida's Citizens Property Insurance said this week it has lined up $1 billion in credit and closed a deal to issue bonds for nearly another billion to pay hurricane claims if needed.

The state-backed company is now Florida's largest property insurer.

Citizens Chief Financial Officer Sharon Binnun said the company closed the two separate deals, giving the company a total of more than $9.4 billion readily available to pay storm claims if needed.

In one transaction, the company lined up a $1 billion line of credit with a syndicate of banks led by Citigroup and J.P. Morgan. In the other, it announced a $950 million taxable auction-rate bond issue with a group of investment banks led by Citigroup.

Source: Associated Press (www.ap.org)

From: Insurance Journal (www.insurancejournal.com)

Governor Signs Employer Sanctions Bill, Business Groups Denounce Action

By Jonathan J. Cooper
Business Journal of Phoenix

Arizona Gov. Janet Napolitano on Monday signed into law a bill imposing strict sanctions on employers that knowingly hire illegal immigrants.

Local business groups quickly denounced the governor's decision, saying the law will depress the Arizona business climate.

House Bill 2779, also called the Legal Arizona Workers Act, will become law Jan 1.
Arizona businesses that "knowingly" or "intentionally" hire illegal immigrants face a temporary license suspension. A judge could order the employer to immediately terminate all undocumented workers and impose a three- to five-year probationary period.

A second violation during the probation period would result in a permanent revocation of the business's operating license.

The Arizona Chamber of Commerce and Industry denounced the bill, calling it "a blow to Arizona businesses" and "a devastating setback to the state's economy."

Employer sanctions are a necessary piece of comprehensive immigration reform but should be enacted at the federal level, said Glenn Hamer, president and chief executive of the Arizona Chamber of Commerce and Industry.

"Arizona's elected officials have caved to the political pressure of this emotional issue and deflected the burden for a national immigration problem onto the backs of businesses in Arizona," Hamer said in a written statement.

Rep. Russell Pierce, R-Mesa, a key sponsor, called the bill "the most significant piece of legislation passed in the nation," and said it protects businesses that follow the law.

"We have an obligation to protect Arizona's honest employers and go after the illegal employers," Pierce said. "This is a huge win for honest, law-abiding citizens in the state of
Arizona."

The law requires employers to verify their workers are legal U.S. residents through a federal application known as the Basic Pilot Program.

Business leaders have criticized the program, calling it inadequate and flawed.

"It's extremely difficult to comply with a bill that requires use of a flawed database. Nearly impossible, actually," said Spencer Kamps, vice president of legislative affairs for the Home Builders Association of Central Arizona. "At the end of the day you're never going to know if they're legal residents of the United States or not."

Although she said immigration should be addressed by the federal government, Napolitano signed the bill because Congress has failed to act.

"It is now abundantly clear that Congress finds itself incapable of coping with the comprehensive immigration reforms our country needs," Napolitano said in a written statement released by her office Monday. "I signed it, too, out of the realization that the flow of illegal immigration into our state is due to the constant demand of some employers for cheap, undocumented labor."

The governor signed the bill despite several "drafting problems and omissions," which she detailed in a letter to Speaker of the House Jerry Weiers, R-Phoenix.

Napolitano said she would call the legislature into special session later this year to address those issues, which include a lack of funding and a failure to protect critical infrastructure such as hospitals and power plants.

Napolitano also sent a letter to U.S. Speaker of the House Nancy Pelosi, D-Calif., and Senate Majority Leader Harry Reid, D-Nev. asking for a prompt review of the Basic Pilot Program.

The federal government must ensure the pilot program can handle a significant increase in use, she said.

The pilot program now encompasses about 15,000 businesses nationwide. Arizona's law will add 130,00 to 150,000 businesses by the end of the year.

From: Business Journal of Phoenix (www.bizjournals.com)

Calif. High Court Upholds WC 2nd Injury Restriction

The California Supreme Court has upheld a provision of the state’s 2004 workers’ compensation reform legislation defining the limits of an employer’s responsibility when the injured employee has a prior medical condition.

On Friday, the court refused to take up the appeal of an injured electrician whose comp disability award was partially reduced because he had an arthritic condition prior to his injury on the job.

By denying an appeal, the high court affirmed the ruling that an employer is not responsible for permanent disability it did not cause.

The case, Larry Gossett vs. WCAB and Morrow-Meadows Corporation, questioned whether an employer is responsible for all of an injured worker's permanent disability where there was preexisting arthritis, but the injured worker had no symptoms for many years before his 2003 workers' compensation injury.

A workers' compensation arbitrator initially ruled that part of the injury could not be apportioned to the prior condition and it did not apply. He awarded Mr. Gossett 76 percent disability.

The Workers' Compensation Appeals Board, on appeal, overturned the arbitrator's award and issued one allocating 15 percent of the permanent disability to the pre-existing arthritis.

When his award was reduced to 65 percent, Mr. Gossett then appealed the new WCAB award, contending there should be no apportionment of the permanent disability because there were no symptoms in nearly ten years before the recent injury.

The Court of Appeal rejected Mr. Gossett's argument and the Supreme Court on Wednesday subsequently refused to grant the Petition for Review.

According to the attorney who represented the employer at trial, Kent Ball, the ruling upholds a portion of California Gov. Arnold Schwarzenegger's 2004 workers' compensation reform package,

“The Supreme Court, in affirming the lower court's decision, is placing a stamp of approval on the 2004 reforms,” Mr. Ball said.

In its ruling, the court allocated responsibility to the employer for only that portion of the injury which the employer caused.

"It's basically a fairness concept and encourages California employers to hire the disabled, those with prior injuries, even the elderly, without concern of liability for pathology which was not caused on their watch," he said.

From: NU Online News service (www.nationalunderwriter.com)

Insurers Winning Battles Over Use of Credit Scoring in Most States

By Joe Mullin
Associated Press

As Ed Rathje sees it, his first foray into the Nevada Legislature as a citizen-activist ended in "total defeat'' earlier this month when a bill he was pushing to limit the insurance industry's use of credit histories to set rates was "incredibly watered-down.''

The insurers' scoring models are "a credit electronic Ouija board,'' Rathje, a Reno flight instructor, had told lawmakers, and should be banned until insurers agree to make their models more transparent.

Instead, the Nevada state Senate shot down a bill that would have banned insurers from considering the opening and closing of accounts when calculating "insurance scores,'' and replaced it with a requirement that insurers provide more information when credit adversely affects insurance rates.

For consumer advocates around the country who share Rathje's goal, that one-line change in law may be one of a very few successes in 2007.

"I was stunned that we couldn't move that bill,'' said Nevada Assemblywoman Debbie Smith, D-Sparks. "I was trying to hone in on one piece of (insurance scoring), that I thought was outrageous.''

Some type of scoring is used by most insurers, especially for homeowners' and auto policies. Insurance scoring in its modern form has been used for more than a decade, but political resistance to it got charged up several years ago, when the practice became widespread.

Insurance scores are created when companies run a consumer's credit history through a computer model that extracts certain criteria, such as when the first credit card was issued, or how many accounts were recently opened.

The results are used to estimate the risk that someone will file a claim and can dramatically change rates. Rathje's rates more than doubled over a two-year period.

Exactly what the criteria are, and how they are weighted, is proprietary information that insurers are loathe to divulge.

Nevada regulators are moving in for a closer look at the industry's arcane algorithms, reflecting continuing discomfort with the increasingly complex "insurance scoring'' models, which consumer advocates have said leave people confused about how to improve their rates.

But a review of this year's legislative action shows that insurance scoring has become at least entrenched, if not quite welcomed.

This year, lawmakers in more than 20 states introduced proposals to either ban or limit insurers' use of credit information to set rates, calling the practice unfair, nonsensical, and possibly discriminatory.

Nearly all those proposals have died, or appear stalled in committees.

Last year, Oregon voters rejected an initiative, strongly opposed by insurance companies, to ban insurance scoring.

From Missouri and West Virginia, where legislatures let a dozen bills on the issue die in committee, to New York, where a lawmaker's proposals to ban insurance scoring have failed every year since 2003, insurance companies flexed their considerable political muscles to protect a tool that has become an industry standard.

"The insurance industry is a very powerful interest in the state capitol,'' said New York Rep. Jim Hayes, the bill's sponsor. "They don't seem to know why (insurance scoring) exists. But they certainly are willing to use it to charge higher premiums to customers.''

Insurance lobbyists say credit histories strongly correlate with a tendency to file more claims. Taking credit into consideration is fair, and lowers rates for most consumers, who have decent or better credit, they say.

"Over the last three or four years, this issue has kind of calmed down,'' said Sam Sorich, a vice president with Property Casualty Insurers Association of America, an insurance industry trade group. "More and more consumers now understand that their credit will be considered. There's a growing acceptance of it. Frankly, most people are helped by the fact an insurance company is using credit.''

Robert Hunter, who follows the insurance industry for the Consumer Federation of America, says the issue is far from dead. But he concedes it's less widely debated today than a few years ago when more than 40 states were debating the issue every year.

That's partly because about half of the states have adopted a 2003 model law proposed by the National Conference of Insurance Legislators, or NCOIL.

The model law prohibits companies from "solely'' using credit information to set rates.

Proponents of stiffer legislation say the model law doesn't do much because insurers prefer to also consider other, noncredit data anyway.

"I think the NCOIL model really snuffed out a lot of the activity,'' Hunter said. "It gave the legislators a way to look like they were doing something without offending the insurance companies.''

Some states have gone further, adding restrictions, including Washington and most recently Delaware, where insurance companies can apply credit models to only new customers.

In 2002, Maryland became the first state to ban insurance scoring for homeowners' premiums. Hawaii doesn't allow scoring for homeowner's insurance either, and regulators in California and Massachusetts don't let companies consider credit when setting auto insurance rates.

Congress ordered the Federal Trade Commission to study the issue of credit-based scoring in 2003, and whether it discriminates against minorities. That study was due out last year but stalled. An FTC spokesman said it should be out this summer.

Insurers say that scoring models are not only race-blind, but income-blind, a provision that can throw customers like Rathje for a loop. Since they look at how you manage credit, even individuals who have high incomes but are sparing with credit sometimes don't get the best ratings.

Early concerns that the models discriminate are giving way to a simpler question that consumers, regulators, and even many insurance companies find themselves in the dark about _ how do the models work, and why?

Studies done by insurers and a few independent studies show a correlation between some credit information and a tendency to file more claims.

"The relationship is there, and the relationship has been verified,'' Sorich said. "Why that exists, we're not quite sure.''

Under federal law, insurers must give some explanation whenever they give a lower rate because of a customer's credit.

Insurance companies find themselves caught between legal disclosure requirements and political pressure to tell their customers more about the systems, and wanting to protect the competitive advantage they believe they get from their model.

Smaller insurance companies often hire third-party vendors to provide them with insurance scoring models, and their agents don't always have deep knowledge about how the systems work. Fair Isaac, the company that created the credit score, is a major vendor of insurance scoring models. Larger companies can afford to create their own models, which they believe give them an edge over competitors.

During hearings on the Nevada bill, a lobbyist for State Farm insurance told a panel of lawmakers that his client had spent millions of dollars on a credit-based insurance scoring system for one simple reason -- it works.

That answer hasn't been good enough for consumers like Rathje, who began his crusade against insurance scoring after his auto insurance company of more than 40 years raised his premiums dramatically.

That prompted the 64-year-old engineer to get his first-ever credit report, which he found riddled with errors. Among other things, the report stated he had a spouse named "Steve,'' and that his Reno apartment was a military base. Rathje, who had divorced long ago, has a son named Steve, and has never been in the military.

He was able to repair his credit report, but not his insurance score. State regulators were alarmed that it took an extraordinary time and effort for a consumer as stubborn and well-educated as Rathje to understand his own insurance rates.

"He could explain it in a way that got everybody's attention,'' said Charles Knaus, lead actuary for the Nevada Division of Insurance. "You have a very intelligent man who could not sort through his record with his insurance company and see what was wrong.''

Knaus said state regulators are going to take a closer look at the scoring models, which are more complicated than the kinds of statistical analysis regulators typically use. He hopes the new Nevada law will allow regulators to end the sometimes vague explanations given to consumers about why they didn't get better rates.

"It's a matter of how far statistical correlation should go in determining things that may not have common sense appeal,'' Knaus said.

Source: Associated Press (www.ap.org)

From: Insurance Journal (www.insurancejournal.com)

Stricter CA Auto Insurance Laws Have Little Effect on Market

After new state laws went into effect last year to root out uninsured drivers, auto insurance brokers have seen only a slight boost in business.

Senate Bill 1500 requires the California Department of Motor Vehicles to suspend a vehicle's registration if the driver doesn't have valid insurance coverage.

Although signed into law in 2004, enforcement didn't kick in until October of last year when the DMV began searching its records for proof of auto insurance.

A related law, Assembly Bill 2709, gives law enforcement officers the ability to tap into the database and verify if a driver has auto insurance.

As of May 31, the DMV had sent out 2.1 million warning notices to drivers without valid insurance and suspended registrations for 1 million motorists, DMV spokesman Armando Botello said.

The warning notices give drivers 30 to 45 days to get insurance and avoid suspensions of their car registration. Drivers who show proof of insurance within the required time period must pay a $14 processing fee, but if they don't comply and get caught with suspended registration, they are subject to fines and court costs of up to $1,000.

California drivers were already required by law to have auto insurance, but some residents were able to get around that by showing invalid proof of insurance or canceling their policies shortly after getting their cars registered.

Hoping to capture new customers, many agents and brokers in the nonstandard insurance market advertised through direct mail and in their offices to educate consumers about the new law.

Progressive Corp. saw an initial spike in business in October, possibly because of media coverage of the new law, said Mark Niehaus, Progressive's general manager for the West. But since then, the insurer has noted only slight increases in requests for quotes and sales of new policies.

"It hasn't been a tidal wave by any means," he said. "I don't think it's eradicating the problem of uninsured drivers."

Retention, though, has improved a bit. More drivers are maintaining their insurance, he said.

The law has had some impact at Titan Auto Insurance Inc. "We've seen drivers come into our offices because they received warning letters," Brian McGrail, California sales officer said.

But the impact is hard to measure. Titan just entered the California market last year, so comparing business before and after the change is difficult. The company, part of Nationwide Financial Services Inc., also purchased Eastwood Insurance Services Inc., an Anaheim Hills-based insurance agency, and Carmichael-based Nielson Byers Insurance, known as NBI and Golden Oaks.

From: Sacramento Business Journal (www.bizjournals.com)

U.S. Captive Domiciles Gaining In Popularity

By Caroline McDonald
NU Online News Service


The number of captive insurance companies domiciled in the United States is increasing at a growing rate, and the trend is likely to continue, with more U.S. companies establishing domestic captives, according to a brokerage study.


Vermont dominates in the United States, with more than four times the number of top global 1,500 companies than all the other U.S. domiciles combined, according to Aon’s new Global 1,500 (G1500) research.


The report indicates that the gap between captive growth offshore and onshore in the Americas has narrowed.


"When you look at the world count of captives—about 4,900—a significant chunk of those (515) relate to the U.S. It's very substantial," Andrew Tunnicliffe, group managing director, Business Development, Aon Global Risk Consulting, told National Underwriter.


He added that large companies in the United States are more often establishing captives onshore, with about two-thirds of U.S. parented captives established in the last five years domiciled in the United States.


"Utilization of captives in the U.S. is significant," he said. "It's probably explained by the significant amount of foreign-direct investment from U.S. organizations all over the world and the need to have captive strategy to satisfy regulation."


The dominating onshore domicile, he added, is Vermont. "I really think there's a big first-to-market here, where Vermont got its regulation in place, got its marketing in place, was able then to compete with the offshore environment."


While a number of other states have introduced captive regulations, "the catch-up equation is quite difficult to achieve," he said. According to the study, Hawaii is the next most popular with 20 captives, followed by New York, Arizona and South Carolina.


About 12 percent of Vermont's captives are owned by non-U.S. parented companies, the report found. "That's where foreign-direct investment flow is coming into the U.S. They need to insure their assets and liabilities, and want to do it on a direct basis," Mr. Tunnicliffe said. "That is also likely to add to the growth for onshore domiciles in the U.S."


The study found that while Bermuda remains the domicile of choice for the Global 1,500 (with more than a quarter of all G1500 captives), Bermuda’s biggest growth as a captive domicile was between 1995 and 2000.


Between 2000 and 2005, Bermuda grew by just 21 percent, whereas Vermont grew by 60 percent.


Findings show that U.S. companies account for more than a third of the G1500 and account for nearly half of all captives owned. Of the 10 G1500 companies with five or more captives, seven have their parent companies in the United States.


The research also highlights that, contrary to popular belief, the captive market remains underdeveloped, with more than half (53 percent) of the current Global 1500 companies not currently owning a captive.


Sectors that are using captives less include manufacturing and communications, where 55 percent and 62 percent, respectively, do not have captives. Even sectors that have greater take-up still show room for growth, the study found. For example, 44 percent of the largest financial and insurance companies and 39 percent of mining companies still do not use captives.


Mr. Tunnicliffe said in a statement that "the captive market is set to grow further. G1500 companies currently have 1,061 captives. As the benefits of captives become clear, I believe that this figure will rise to at least 1,200 by the year 2010.”



From: NU Online News Service (http://www.nationalunderwriter.com/)