Piracy is an increasing threat. Recent news reports from the southern Somalia/Kenya region have raised awareness of the threat.

From a business insurance aspect, such threats have a direct relationship to shipping costs. Since piracy in a particular well-known and well-traveled area has increased, premiums and reinsurance costs will increase. Maritime insurance is typically provided as a percentage of hull value and insurers and reinsurers are busy setting marketable increases based upon the risk. Sometimes the increases will not be in proportion to the actual threat. Rather, the increases will have a publicity or psychological aspect. This is similar to what happened after September 11. Prior to September 11, 2001, insurance for terrorism was a "throw-in" coverage added with most commercial policies. After September 11, terrorism insurance was removed, reinsurance for insurers dried up and premiums for a formerly "free" coverage became prohibitive and unrelated to the actual risk. Consumers are unlikely to notice the increase of maritime insurance premiums because the cost is spread over the cost of the entire cargo, but small percentage increases equate to millions of dollars.

What do these pirates look like? How pervasive is the threat? In 1992, the International Maritime Bureau established the Piracy Reporting Centre (PRC) in Kuala Lumpur, Malaysia. It is a twenty-four hour reporting center for acts of piracy. The Reporting Centre's website features a "live piracy" map, warnings and a weekly piracy report. The site also has photos of suspected pirate "mother" ships. These are not the mythical rogues of Hollywood imagination, these are lawless criminals affecting the price of everything shipped in global commerce.

When you write a story about a well-managed business insurer paying dividends back to policyholders, other insurers want to be noticed for their good news as well.

First, commenter Bruce Stein noted that Illinois medical malpractice insurer, ISMIE Mutual is also paying dividends to its policyholders. My blog yesterday did not mean to suggest that PLICO was the only business insurer paying dividends, only to point out that well-managed business insurers are out there and doing fine.

Second, I received an e-mail about an insurance brokerage in New Hampshire that has developed a great way of assisting its customers.

"Seeking to prevent loss of life and property, and to raise awareness of improper heating systems, local Concord Group Insurance Companies is giving $500,000 to their policyholders for the purchase of home heating fuel this winter season. More than 58,000 individuals and families across New England are eligible for Concord Group's one-time "A Warm Hand: Policyholder Heating Lottery" program." Concord serves businesses and homeowners in New England. Policyholders in Vermont and Maine can apply online for vouchers to assist with safe home heating this winter.

With financial markets in a state of disarray and insurers suffering just as much as banks and brokerages from mortgage losses, one needs to dig a bit to find "good" business insurance news.

As any professional will tell you, professional liability insurance can be the fourth largest cost to any professional office (after rent, employees/taxes and health insurance). For doctors, medical malpractice insurance is a necessity and a cost that rises year after year. Large insurer programs for doctors are more likely to fail than to reward physicians who are long-time customers. In a 2003 report to congress, the American Medical Association estimated 18 states had a "medical malpractice insurance crisis" where physicians could not find appropriate or affordable coverage. In the late 90's, PIC Insurance in Pennsylvania and P.I.E. Mutual in Ohio were put in receivership and eventually liquidated - leaving their insured physicians in limbo.

Physicians Liability Insurance Company of Oklahoma, on the other hand, was founded in 1980 and, as noted on its website:

"PLICO is currently in its 29th year of serving Oklahoma physicians. Our only interest is providing a stable and physician friendly professional liability insurance market. We look forward to serving the needs of the physicians of Oklahoma for many years to come."

This approach to professional liability insurance appears to be paying dividends - literally. PLICO announced that it will pay a 3% to 6% dividend to policyholders who renew their policies in 2009 with the company. The company further stated that it is in "the strongest financial condition of its 30 year history." So, not every story or report need be doom and gloom for business insurers. Frequently, the media focuses on the largest insurers' missteps and forgets local, state-based, well-managed insurers. This is because, for example, a story about an Oklahoma medical malpractice insurer paying dividends is not as exciting as stories about AIG executive perks in the midst of being bailed out by taxpayers. But the story is more important.

Pssst...want to be a part of the financial bailout?

Have I got a deal for you. I know this little savings and loan in the middle of Florida. For every dollar you put up buying it, you get back 100 to 300 times your investment back in cash.

Huh? Does that make sense to you? Well, it does in the post-bailout world. Insurers are state regulated for the most part. Banks and savings and loans are federally regulated. Insurers that own savings and loans or become holding companies for thrifts, S&Ls, and banks are regulated at the federal level. Why is that important? Because, once the insurer owns such an asset, the insurer can participate in the $250 billion available from the U.S. Treasury to shore up the financial markets.

The program is called the Capital Purchase Program. The U.S. Treasury is going to purchase $250 billion of senior preferred shares in the bank or thrift. For those of us who are a bit cynical, we have to wonder whether the insurers read the fine print about executive compensation:

"Companies participating in the program must adopt the Treasury Department's standards for executive compensation and corporate governance, for the period during which Treasury holds equity issued under this program. These standards generally apply to the chief executive officer, chief financial officer, plus the next three most highly compensated executive officers."

The Hartford is one of the insurers participating. Once, long ago (okay, last May), The Hartford traded for over $100 per share. Today, its stock floats around $10 per share. The Hartford will purchase "Federal Trust Bank for approximately $10 million." This purchase will make The Hartford eligible for $1 to $3.5 billion in Treasury money.

Federal Trust Bank is described as operating "11 full-service offices in Seminole, Orange, Volusia, Lake and Flagler Counties, Florida. The company's executive and administrative offices are located in Sanford, in Seminole County, Florida." Three other insurers reportedly met the Friday deadline for participation in the program as well buying savings and loans in Maryland, Minnesota and Indiana. Other insurers outright oppose insurer participation in the program. Chubb Vice Chairman John Degnan wrote Treasury Secretary Paulson on October 29, 2008, opposing property and casualty insurer participation in the program.