Gregory's Business Insurance Blog

Business Insurance magazine has published its 2008 Readers Choice Awards. The Awards are designed to allow readers let readers "vote for the companies that they believe offer the best combination of service, value, quality and innovation."

The Awards were started in 2005 and have become a great way for business owners and those considering business insurance and insurance related products and services to research potential companies and products.

The best commercial property insurer picked by readers goes to AIG. AIG also picked up the award for the best liability carrier. Cigna was rated as the best managed care organization. This year agents and brokers were divided up into separate categories based on income. AON was rated the best large broker.

This goes in the "it's-about-time" department.

J.P. Morgan has announced it is offering the Chase Workers Compensation Card. J.P. Morgan states "that it is the first major financial institution to enable insurance companies to use prepaid debit cards to deliver workers compensation benefits to injured or disabled workers." Instead of issuing checks, the Chase system "delivers an automated, easy to manage electronic payments system that eliminates more expensive paper-based systems, but provides insurance companies with a custom-branded card designed to increase customer loyalty."

Injured employees can use the debit cards like traditional debit cards, withdrawing money from ATMs, purchasing at any location that accepts Visa cards, and the ability to check the balance immediately through a toll-free number. The injured employee avoids delays in check cashing, account holds, and transaction costs.

For business owners in Ohio interested in the program, the press release indicates that Central Mutual Insurance will be offering the program. I looked at the Central Mutual website and did not find any information specific to the plan.

According to the news release, the Insurance Information Institute estimates $17 billion was paid directly to injured workers in 2006. By implementing electronic payment solutions significant transaction costs can be eliminated. Less transaction costs (hopefully) leads to lower premiums to business owners. Good idea and beneficial to employees and employers alike.

Claims Magazine this month features a well-written cover story by attorney Suzanne Badawi entitled The “Global Warming” Insurance Claim.

The article explores the rise of regulations, restrictions, and lawsuits regarding environmental issues that businesses face. It looks at whether "such claims are excluded under a typical “absolute pollution exclusion” found in commercial general liability (CGL) policies." This is critical information for business owners. Lawsuits regarding environmental issues are expensive to defend. The business owner will want to submit the claim to their insurer and will want the insurer to assign a lawyer to defend the claim and have the insurer indemnify any judgment.

The absolute pollution exclusion is drafted to exclude coverage for pollution related claims. It is a common exclusion in CGL policies and, like many exclusions, has been interpreted differently from one court to the next and from one state to the next.

Ms. Badawi's article looks at differing court's interpretations of the exclusion in order to examine the issue of greenhouse gasses and how those gasses would be treated by examining courts. What struck me was the analysis of a 2007 U.S. Supreme Court case, Massachusetts v. Environmental Protection Agency, wherein the Court concluded that carbon dioxide was probably a pollutant and that the EPA was probably required to promulgate regulations regarding carbon dioxide. Because the EPA will likely be forced to regulate the gas as a pollutant, insurers will argue claims are excluded under the pollution exclusion.

The author concludes that an era of "Global Warming" claims lies in the future and whether insurance coverage exists or is excluded will be fought in the courts in the years to come.

Imagine overseeing an operation where 10,000 of the world's greatest employees, and a support staff of thousands, were under your protection. Imagine these employees came from 205 different countries. These employees need health care, their staff needs workers compensation coverage, and business interruption coverage is a must. Imagine finally that the whole operation was taking place in a foreign country with a predisposition against private financial markets.

Thinking about this gives just a little insight into the difficulties faced in putting together a risk management plan for the 2008 Beijing Olympics.

The International Olympic Committee (IOC) began formally insuring elements of the games in 2006 and the Beijing Organizing Committee for the Games of the XXIX Olympiad (BOCOG) purchased a liability policy for the site in December 2006 from PICC Property and Casualty (PICC P&C), China's largest public non-life insurance company. That policy covers covers public liability, product liability, professional liability and employer's liability until the close of the Paralympic Games. The cost of the policy was not disclosed and some insurance experts are concerned that none of the risk was reinsured and is, in effect, backed up by the Chinese government. PICC Property and Casualty is an official insurance partner of the Olympics.

It is estimated that the IOC has transferred nearly $1 billion to the local organizing committee for the games, but a comprehensive and unified insurance plan has not been forthcoming. Some countries, including the United States, have opted to create risk management plans of their own. Of the insurance that is in place, it consists, in large part, of interruption or cancellation coverage. Such coverage is designed to protect third-parties in the event the Beijing Olympics could not be completed. For example, a substantial policy was procured to cover NBC in case its coverage of the Games is disrupted or canceled.

The IOC, for example, purchased a cancellation policy with $415 million in limits at a premium rate of $9.38 million for the games. In all, experts estimate over $2 billion in insurance has been purchased to cover the Olympics.

The Insurance Service Office or ISO, has issued a report on catastrophes for the Second Quarter of 2008. The ISO identifies a catastrophe as any event resulting in insured claims in excess of $25 million and affecting many insureds. For example, in 2007, the ISO concluded that the United States experienced 23 catastrophes for a total of $6.5 billion in claims. That amount includes 144,000 business or commercial claims.

For the Second Quarter of 2008, the U.S. was hit with 16 catastrophes for $6 billion in claims. Texas, Minnesota and Arkansas were the hardest hit according to the ISO. Second Quarter claims were double the amount in the First Quarter and almost exceed all of the claims made in 2007.

2008 is shaping up to be an expensive year for insurers.

The U.S. House Financial Services Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises advanced H.R. 5840, the Insurance Information Act of 2008 out of committee this week.

The bill would "establish an Office of Insurance Information in the Department of the Treasury." Ostensibly, such a federal office would only serve to clarify United States insurance policy to the international community.

Critics charge, however, that the bill is veiled attempt by insurers to override state regulation of insurers and set up an "optional federal charter" (OFC). Specifically, the National Association of Insurance Commissioners President, Sandy Praeger, in a letter to the Chairman of the Committee stated:

"Every insurance commissioner strongly believes that an OFC is the worst possible public policy choice for insurance. An OFC would decimate consumer protections via arbitrage, would damage the world's most competitive insurance market and would result in a massive expansion of the federal government. The NAIC unequivocally opposes any attempts to use this bill as a vehicle for such a misguided policy."

The concern is that the system now allows states to set consumer regulations, solvency requirements, and other regulatory measures that insurers must follow in order to do business in a particular state. The concern is that insurers are attempting to ignore such regulation by seeking federal registration that would preempt state laws. Recent strong consumer actions, such as those in Florida and Mississippi, would be eliminated by preempting federal legislation.

Supporters--mostly insurers--claim such a federal system would create uniform legislation across the country and allow better competition in foreign markets.

It remains to be seen whether the bill will be passed by the House and Senate.

The International Risk Management Institute (IRMI) Construction Risk Conference will be held October 27-30, 2008, in Las Vegas. The Conference is sponsored by some of the leading business insurers and brokers in the construction market, such as CNA, Zurich, and Marsh.

The agenda features classes and workshops dealing with all aspects of construction industry risk management. It is recommended by the recommended by the Associated General Contractors of America (AGC), the Construction Financial Management Association (CFMA), and the National Association of Surety Bond Producers (NASBP).

The Conference is 3 1/2 days long, but you can register for a shorter 2 1/2 day program. If you register by September 12, 2008, there is a $100 discount on registration. If you are a risk manager for a construction company, you should give serious thought to attending the Conference.

In 2007, AIG received approval from the China Insurance Regulatory Commission to incorporate AIG General Insurance Company China Limited as a wholly owned foreign enterprise in China. AIG General has operated in operated branches in Shanghai, Guangdong, and Shenzhen after consolidating after incorporation as a WOFE.

The approval to expand to Beijing fits with AIG's plan to expand its geographic presence in China's growing insurance market.

From a press release by AIG, AIG General President and Chief Executive Officer Peter H. Flint said, "Beijing is a strategically important market for AIG General. As the country's political center and seat of the central government, it offers significant growth potential. Beijing is one of the world's largest cities. In terms of Gross Domestic Product, Beijing's economy would rank among the 60 most economically developed countries in the world. We look forward to serving our local and international customers in Beijing with our expanded network, and we are proud to continue our pioneering role in product innovation and industry standards."

The announcement comes about one month after AIG committed to contributing a $1 million donation to support earthquake relief and rebuilding efforts in China’s Sichuan Province. AIG also committed to matching all employee donations made to earthquake relief.

Allstate has released a survey entitled "America's Best Drivers Report" highlighting the cities in the United States that are the safest for drivers--and, those cities that are more dangerous.

The safest city for drivers? Sioux Falls, South Dakota is tops in the survey. "The average driver in Sioux Falls experiences an auto collision every 14.6 years. Compared to the national likelihood of a collision every 10 years - Sioux Falls motorists are 31.6 percent less likely to have an accident than the national average." A list of the top safest cities is available at the Allstate website.

The survey compares gender and generation as well as location. It also lists the safest cities for drivers where the local population is over one million people. But, the survey illustrates that large city drivers face a greater risk of accident than those from less populous areas. For example, Phoenix, Arizona, was tops on the list for cities over one million residents, but was still ranked 84th overall and residents were 1.5% more likely than average to suffer a collision.

Cities from Massachusetts were not included in the survey because Allstate does not write policies in Massachusetts. So, we do not know how safe Boston is to drive in. Washington, D.C. was the lowest in the survey. Residents there are over 50% more likely to be involved in a collision and average one collision every 5.4 years.

Today is the day that West Virginia's Workers' Compensation system becomes a competitive system as opposed to a monopolistic system. A bill signed into law in 2005 started the transition from a state-run system to the private market.

According to the insurance commissioner, over 160 insurers have filed the necessary paperwork to begin offering Workers' Compensation insurance to employers in the state. In 2005, when the law was passed, the West Virginia state-run system was almost bankrupt and employees and employers alike urged their legislators to take action. Privatization and competition occurred in steps with today being the deadline for the final transition to a competitive market.