DAILY INSURER: September 2009

Tuesday, September 8, 2009

We'll Be Back.......

Daily Insurer is undergoing some maintenance and will return. Thanks for reading.

Thursday, September 3, 2009

California Insurance Commissioner Steve Poizner has issued final pay-as-you-drive regulations, which will enable insurers to offer consumers another auto insurance option, allowing rates to be based on actual miles driven as opposed to estimated miles driven. Commissioner Poizner originally proposed pay-as-you-drive regulations in September 2008.

The pay-as-you-drive program will enable insurers to offer a new option for consumers who choose to take advantage of it. Companies can continue to offer traditional insurance based on estimated mileage. However, as soon as regulations go into effect, they can also offer a verified mileage program instead of, or in addition to, a traditional estimated mileage program.

Poizner originally proposed the pay-as-you-drive regulations last summer to make a new, more mileage-accurate auto insurance option available for California consumers. The regulations were last revised in August 2009. Revisions made to the regulations in August are reflected in the final regulations.

The regulations also allow insurers to offer discounts to drivers who opt to purchase a mileage verification policy. Any auto insurance program, including a pay-as-you-drive program, must be approved by Poizner before being placed on the market for consumers to purchase.

If a driver elects to purchase a pay-as-you-drive policy, the insurer would verify the driver's miles through a variety of methods, including odometer readings taken by the insurer or its agents or vendors, auto repair dealers, smog check stations, self-reporting by the policyholder or a technological device placed in the consumer's vehicle. The final regulations explicitly prohibit insurers from gathering location data from consumers for automobile rating purposes through the addition of a technological device. The regulations would not affect existing multipurpose devices such as GM's Onstar system or the use of a technological device as part of an emergency roadside assistance program.

The final regulations incorporate changes based on feedback from consumer groups, the insurance industry and other interested parties. The primary changes from the initially proposed regulations to the final, submitted regulations include:

Language that encourages insurers to offer a price per mile, or prepaid mile option for drivers.
An allowance for insurers to apply to sell mileage verification policies in addition to mileage estimation policies; or they may apply to sell mileage verification policies only.
Language that requires an insurer that offers a pay-as-you-drive plan to specify when filing with the department the exact types of mileage verification the insurer will accept.
The final regulations explicitly require insurers to offer and make available all mileage verification methods equally, to all applicants and insured drivers with a mileage verification policy.
The use of location data is still prohibited for most purposes. The final regulations make it clear that they do not prohibit insurers and motor clubs from offering optional devices to drivers to identify the location of the vehicle for the purpose of an emergency road service, theft service, map service or travel assistance service.

Last August, the Environmental Defense Fund estimated that if 30% of Californians participate in pay-as-you-drive coverage, California could avoid 55 million tons of CO2 emissions between 2009 and 2020, which is the equivalent of taking 10 million cars off the road. This would save 5.5 billion gallons of gasoline and save Californians $40 billion dollars in car-related expenses. Additionally, the California Air Resources Board has recommended the adoption of pay-as-you-drive as one of the means to meet future climate change gas reduction targets.

The final regulations will go into effect pending approval by the Office of Administrative Law, which has 30 days to approve the regulations. As soon as regulations are in effect, which could be as soon as October 2009, insurance companies may apply to offer pay-as-you-drive plans. Pending the Commissioner's approval of a pay-as-you-drive insurance plan submitted to the Department, consumers will be able to purchase a pay-as-you-drive policy.

EASTERN NEWS ZONE......

The owner of a Hauppauge, New York contracting company was arrested Aug. 27 for lying about the number of people who worked for him so he could lower the cost of his company’s workers’ compensation insurance, the New York State Insurance Department reported.

The office of Suffolk County District Attorney Thomas Spota arrested John Rusnak, 48, of Syosset for workers’ comp fraud. Rusnak is the owner of Colt Contracting Corp.

Francis Hunt, an investigator with the Insurance Department’s Frauds Bureau, said Rusnak is accused of defrauding the state Insurance Fund of $104,000 in lost workers’ comp premiums by concealing the payroll of eight workers.

Rusnak could be sentenced to up to four years in prison if he is convicted. A hearing will be held in Suffolk County Court.

MIDWEST NEWS ZONE......

Ohio Department of Insurance Director Mary Jo Hudson announced that a Franklin County Grand Jury indicted Luther Watts, Lysandrous Mullins, Jr., and Patricia Irene Mullins on eight counts of insurance fraud each. Watts and Mullins, Jr. are residents of Columbus whileMullins resides in Harts, West Virginia.

In May 2006, the Ohio Department of Insurance, the Delaware County Sheriff’s Office, the West Virginia State Police and the West Virginia Office of the Insurance Commissioner began investigating the three individuals as they had filed a significant number of insurance claims. Claims filed included acts of arson, theft, auto accidents and disability / personal injury claims.

The investigation revealed the three suspects would purchase vehicles from local car dealerships using fraudulent documents and employment information, and would take out credit disability insurance. Shortly after obtaining vehicles, the suspects would then contact the insurance carrier and report they were injured and/or disabled. In order to maximize the length of time the insurance company would have to pay on the vehicle, the suspects would alter disability forms obtained from their provider and submit them to the insurance carriers.

The three individuals are scheduled to be arraigned on Sept. 9.

INTERNATIONAL NEWS ZONE......

As Hurricane Jimena made landfall in Mexico, signaling the advent of hurricane season, a new analysis of property insurance trends sheds light on the effects of regulation in the aftermath of natural disasters.

In "Catastrophes and Performance in Property Insurance," a policy report from the Independent Institute, economists Patricia Born and Barbara Klimaszewski-Blettner reveal that post-disaster property insurance regulation actually drives up the prices it purports to control. Drawing data from the National Association of Insurance Commissioners, and the Swiss Re Sigma reports, the scholars argue that strict regulatory environments induce higher losses from unexpected catastrophes, as firms are unable to adjust prices in light of changing conditions. Notably, commercial insurers experience less loss following catastrophes than the homeowners insurance market due to greater flexibility and fewer constraints.

The authors demonstrate that in states such as Florida, regulations that include premium limitations or exit restrictions can cause severe market distortions that may result in "an inadequate supply of insurance coverage." When restrictions on premium adjustments are enforced, insurers "may choose to exit the market if rates are not adequate to maintain solvency. This, in turn, prompts regulators to impose exit restrictions or cancellation bans." Addressing wide variations in state-level regulation, Born and Klimaszewski-Blettner dissect the phenomenon of "regulatory chain reactions," in which one intervention seems to establish the "necessity" for more government action. This snowball effect actually exposes taxpayers and consumers to greater risk when disaster hits.

Considering the staggering losses by insurers in 2005 -- $45 billion for Hurricane Katrina alone -- the authors propose several reform measures to protect both insurers and policyholders. They propose deregulating prices and a reform of residual market solutions "with emphasis on allowing market forces to operate more freely in responding to the insurance needs." In considering low-income people in affected areas who are unable to move or afford coverage, they suggest that even direct state subsidization of premiums is preferable (but hardly ideal) to keeping premiums artificially low, while cautioning that "incentive-incompatible subsidization of premiums -- for example, for new buildings in high risk areas" -- must be avoided.

According to empirical analysis, "the natural disasters of 2005 cannot be seen as unusual outliers, but reflect the continuing trend" of increasingly frequent and severe natural disasters. Given this trend, the conclusions and recommendations in "Catastrophes and Performance in Property Insurance" arrive at just the right time.

Wednesday, September 2, 2009

NATIONAL NEWS ZONE......

A study of agent compensation and management practices for property/casualty insurance companies is being conducted by Ward Group.

The results of the survey will provide information regarding agency compensation practices, commission structures, incentive awards, travel and other data related to agent management practices. This insurance company survey is free of charge to Ward Group clients and a summary of results will be made available to all participating individuals. Companies may also contact Ward Group to see if they are eligible for discounted or waived participation fees through membership with Ward alliance organizations.

This study will be conducted from Sept. 1 – Oct. 15, 2009 and results will be distributed by December 1, 2009. Participants are invited to attend a webinar presentation on the study’s findings conducted by Ward Group in December.

To participate or to request more information on the survey, contact Vince Albers at valbers@wardinc.com.

A recent analysis of the latest government data by the American Insurance Association (AIA) shows that auto and traffic safety efforts over the past 40 years have significantly reduced the number of accident-related injuries and fatalities.
Recently released federal highway data shows a continuing drop in motor vehicle fatality rates over the 40-year period from 1968 to 2008, as well as a decline in the motor vehicle traffic injury rate despite an increase in vehicle miles traveled.
For example, Americans drove close to one trillion miles in 1968, compared to nearly 3 trillion in 2008. Over those four decades, the motor vehicle traffic fatality rate dropped from 5.19 deaths per-100 million vehicles miles traveled in 1968 to a record-low 1.27 deaths per-100 million vehicle miles traveled in 2008. Additionally, over the past 20 years the injury rate has dropped from 169 injuries per-100 million vehicle miles traveled in 1988 to 80 injuries per-100 million vehicle miles traveled in 2008. By examining the underlying rates rather than simply looking at the total number of deaths and injuries, these statistics take into account any fluctuations in vehicle miles traveled and show that improved safety measures are the leading cause for the pronounced reduction in fatalities and injuries.
AIA’s analysis goes a step further to highlight how the safety-promoting efforts of the insurance industry and other groups have made a critical difference. By looking at the current year vehicle miles traveled and using the fatality rate of historical years, AIA has estimated the amount of people that would have been killed or injured had there been no improvements at all in vehicle and traffic safety. Even with these positive trends, drivers should always drive defensively.
A copy of AIA’s analysis can be found at: http://www.aiadc.org/AIAdotNET/docHandler.aspx?DocID=327085

WESTERN NEWS ZONE......

State Compensation Insurance Fund announced that it will extend credit to policyholders who have suffered a financial loss or business disruption caused by several wildfires that are ravaging parts of Northern and Southern California. State Fund has more than 100,000 policyholders in the areas.

The fires are spread from as far north as Siskiyou County to Riverside County in Southern California.

By Tuesday, there were seven major fires across the state. The devastation was more severe in the Station Fire which so far has destroyed 18 residences and consumed 121,762 acres in Los Angeles County. Another fire which ravaged 63 homes and businesses near Auburn, was 80 percent contained by Tuesday afternoon.

During a press conference on Tuesday at a command center in Southern California, Gov. Arnold Schwarzenegger declared a state of emergency in San Bernardino County in the wake of two major fires that have led to the evacuation of Oak Glen as well as hundreds of other evacuations in nearby Yucaipa.

State Fund will work with policyholders in the devastated areas who are unable to report payroll figures or submit payments as a result of the emergency.

State Fund has set up dedicated customer service lines to provide assistance to Southern California policyholders whose operations were impacted. Policyholders are encouraged to contact State Fund's Customer Service Center at (800) 388-0902 to make arrangements for September 2009 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.