P-C Composite Rate Down 12% In April: MarketScout

The composite rate for all lines of U.S. property-casualty business is down 12 percent for April, MarketScout the electronic insurance exchange reported.

The 12 percent overall decline for April is the same as the reported decline for March, and two percentage points less than the 14 percent drop reported for February.

Richard Kerr, founder and chief executive officer of the Dallas-based concern said in a statement that admitted insurers “continue to carve market share from the surplus lines insurers by assuming risks which had been traditionally placed in the non-admitted market. Vanilla accounts are coveted by everyone so they also go to the admitted market, but at extremely competitive rates."

By coverage class, general liability insurance was reported as leading the declines at minus 15 percent. Small accounts declined by 14 percent versus 12 percent the month before, while jumbo accounts actually increased in price moving from a overall decline of 13 percent to a decline of 11 percent.

Service contractors, MarketScout said, are very competitively priced at minus 15 percent.

MarketScout’s Barometer is created using data assimilated via its online insurance exchange and is supported by in person surveys of retail agents, company personnel, wholesale brokers, and managing general agents.

The declines in rates for April 2008 broken down by coverage class:
• Commercial property, 14 percent
• Business interruption, 11 percent
• Inland marine, 10 percent
• General liability, 15 percent
• Umbrella/excess, 12 percent
• Commercial auto, 9 percent
• Workers’ compensation 8 percent
• Professional liability, 7 percent
• Directors and officers liability, 6 percent
• Employment practices liability, 12 percent
• Fiduciary, 7 percent
• Crime, 8 percent
• Surety, 7 percent

By account size, the declines were:
• Small accounts up to $25,000, 14 percent
• Medium accounts, $25,001 to $250,000, 12 percent
• Large accounts, $250,000 to $1 million, down 12 percent
• Jumbo accounts over $1 million, 11 percent.

By industry class, rate declines were:
• Manufacturing, 12 percent
• Contracting, 12 percent
• Service, 15 percent
• Habitational, 12 percent
• Public entity, 13 percent
• Transportation, 11 percent
• Energy, 11 percent

MarketScout’s barometer findings are supported by surveys conducted by The National Alliance for Insurance Education and Research during CIC and CRM institutes held across the United States in April 2008.

MarketScout underwrites and distributes hundreds of product lines to a 60,000-member agency network across the United States.

Fla. Legislature Passes Insurance Bill

Legislation designed to improve the homeowners market in Florida and opposed by the insurance industry is heading to the desk of Gov. Charlie Crist after winning approval in the state legislature.

Among changes made by the House in passing the bill is removal of language that would have eliminated the limited anti-trust exemption for insurers in the state.

The House amended the bill, known as Senate Bill 2860, and passed it late Wednesday night. The Senate followed suit late Thursday afternoon.

Besides removing the anti-trust language, the legislation would mandate that commercial insurers looking to non-renew more than 10,000 policies in a given year would have to notify the state Office of Insurance Regulation at least 90 days prior to doing so, but would not be required to stagger the non-renewals as was mandated in the original Senate version.

Another major change in the bill involves the setting of harsher fees for violation of state insurance code or laws. The version passed by both the House and the Senate doubles the current fines for both willful and non-willful violations, where the original Senate version created much higher penalties.

State insurance commissioner Kevin McCarty praised the state lawmakers for keeping provisions that enhance his office’s authority.

“I am pleased that some significant consumer safeguards have been maintained in the House version,” of the bill, he said, mentioning specifically the provisions requiring insurers to obtain state approval prior to implementing a rate increase.

For policyholders, the legislation will extend a rate freeze for the state-run Citizens Property Insurance Corp. for a year, and insurers would also be required to pay undisputed claims within 90 days under the bill.

The legislation also includes a provision to shore up the state’s Insurance Capital Build-Up Incentive Program, which was designed to lure new capital to the homeowners market by offering low-interest loans to companies willing to add a matching amount to their surplus. The bill appropriates $250 million for the program, to be taken from Citizens, but requires companies seeking the loans to use a percentage of their capital to take policies out of the state-run insurer’s book.

While many of the provisions of the original Senate bill were softened in the House, insurance industry groups continue to express concern over the final bill.

“While the bill passed by the House is somewhat less punitive toward the insurance industry than the original legislation, it will not lead to a better insurance marketplace for consumers,” said Liz Reynolds, Southeast state affairs manager for the National Association of Mutual Insurance Companies. “In all likelihood, the result will be fewer choices of insurers.”

David Sampson, president of the Property Casualty Insurers Association of America, echoed that sentiment, arguing that even under the legislation, the state would be facing significant liability in the aftermath of a major hurricane.

“Whatever post-storm costs that the state cannot collect in bond revenue, the taxpayers will be on the hook for through assessments on their property and auto insurance bills,” he said. “We increase the chances that the next hurricane will devastate the state’s economy for generations if we ignore risk, drive private insurers out of the state, and place more of the potential costs from a major storm on the backs (and wallets) of Florida consumers.”

HSA Enrollment Up 35% In Last Year

Health Savings Account enrollment grew 35% to 6.1 million between January 2007 and the present, according to a survey commissioned by America’s Health Insurance Plans.

At the same time, the chairmen of two House committees charged that the data from a Government Accountability Office study shows that HSAs are nothing more than tax shelters that benefit the wealthy.

The GAO report also noted that, despite their growth, HSAs only represented about 2% of individuals with private health coverage in 2006, the last year for which information was available.

Among tax filers between the ages of 19 and 64, the average adjusted gross income for filers reporting HSA activity was about $139,000 compared with about $57,000 for all other filers. Similar income differences existed across all age groups.

The GAO report said that the total value of all HSA contributions reported to IRS in 2005 was about twice that of withdrawals—$754 million compared with $366 million.

Among all filers reporting HSA activity in 2005, average contributions were about $2,100, compared to average withdrawals of about $1,000, the report said.

Despite the growth in HSA participation, nationally representative survey estimates from 2005, 2006 and 2007 found that more than 40% of HSA-eligible health plan enrollees did not open an HSA, the GAO report said.

Industry officials said they were quite satisfied with the report.

“Employers and individuals across the country and across the age spectrum are choosing HSA plans, which are now an important part of the portfolio of coverage options offered by health plans,” said Karen Ignagni, president and CEO of AHIP.

Janet Trautwein, executive vice president and CEO of the National Association of the National Association of Health Underwriters, said the new enrollment and coverage statistics “illustrate that HSAs continue to be a dynamic, consumer-friendly and increasingly popular health insurance option.”

But Rep. Henry Waxman, D-Cal., chairman of the House Oversight and Government Reform Committee, and Rep. Pete Stark, D-Cal., chairman of the Health Subcommittee of the Ways and Means Committee, said the GAO report shows that “instead of being used by low and middle-income Americans most likely to be without health insurance, HSAs are increasingly a popular tax shelter option for wealthy taxpayers.”

The report confirms that “HSAs are not the way to meet the health care needs of most Americans,” Stark said. “Instead, they are an effective tax shelter for people whose average incomes are nearly triple that of average tax filers.”

Big Losses Don’t Always Prompt RM Action, Study Finds

More than half of U.S. businesses sustained a harmful high impact loss event they thought was unlikely to occur last year, still nearly half took no risk management steps to prevent a reoccurrence, according to a survey.

The study, “Excellence in Risk Management Study,” conducted by the Risk and Insurance Management Society and Marsh, listed major natural disasters, subprime market issues, and product recalls as examples of high impact/low impact events that have hit companies.

According to results released at the RIMS conference here, 57 percent of firms surveyed were impacted by such an event, which might also include a terrorist threat, significant loss of brand or significant internal fraud, in the last 12 months.

Of the firms that were affected, about 53 percent modified their policies and practices. “So quite a few did, but quite a few didn’t,” said Pamela G. Rogers, senior vice president, risk consulting practice with Marsh

Strategic firms that use enterprise risk management approaches, were found more likely to report a high impact/low probability event and were more likely to modify practices as a result, the survey found.

Ms. Rogers said, “While many of the firms took action after being impacted, we saw some firms, more on the traditional side, that really did not take action, even after being impacted by one of these risks.”

Traditional firms are those that use only the basic risk management tools of risk identification, loss control, claims analysis and insurance.

Highlighting the difference between the reactions of “traditional” and “strategic” firms, the study reported that if there was a significant loss in brand image, for example, only 44 percent of the traditional firms that had a significant loss actually modified their practices. Of strategic firms that had a significant loss in brand image, 100 percent modified their practices and were more proactive.

The investigation of high impact/low frequency events is a new area of investigation in the fifth annual study released by Marsh in collaboration with RIMS. Another new area of the report this year looks at supply chain risk management.

Ms. Rogers reported that just over half of the respondents—51 percent—said they did not have an end-to-end supply chain risk management process in place.

She clarified that while this number may seem high, because the question posed referred to an “end-to-end” process, even risk managers with 90 percent of their supply chain process in place would not be able to respond with a “yes” to the survey.

Next year, the survey will try to determine how far along they are with their process, she said.

Of more interest, however, was the percentage of risk managers—23 percent—who do not believe they have a supply chain risk, she said.

Those risk managers may believe that because they are not involved in a manufacturing process, they are not vulnerable. In fact, she said, nearly every business has a supply chain of some kind.

Of those surveyed, 26 said they have a risk management process in place for supply chain, leaving 51 percent with no risk management process.

Companies that have a risk management process for supply chain have an average of 5,241 employees, average revenues of $3.8 billion and 66 percent have international operations.

Companies with no risk management process for their supply chain process have an average of 4,338 employees, average revenues of $2.6 billion and 58 percent have international operations.

Those companies who believe a supply chain does not apply to the firm averaged 3,915 employees, had average revenues of $2.5 billion and 40 percent international operations, the survey found.

According to the study, supply chain includes all processes in “making, moving, storing and servicing physical goods from your suppliers’ suppliers through the end customer.”

It also comprises internal processes and external activities “performed on your behalf by suppliers, logistics partners, transportation carriers, distributors, co-packers, service and repair organizations” and workflow/process risk.

Even in “a service firm like Marsh, there is a supply chain,” said Ms. Rogers. “Sometimes we think of only manufacturing having that, so I think there’s an opportunity here. This is an area where we see we have a gap.”

ACE Net Income Off 46%; Beats Analyst’s Estimates

Hamilton , Bermuda-based insurer ACE Limited reported first-quarter net income fell 46 percent primarily on investment losses, but the company beat analyst’s earning estimates by 24 cents a share on net realized gains.

For the first quarter of this year, ACE reported net income was down $324 million to $377 million, or a $1 a share drop of net income to $1.10 a share.

However, income excluding net realized gains, which the company said reflects the true nature of the performance of its insurance business, rose 18 cents to $2.16 a share. Net premiums written were off 4 percent, or $116 million, to $3.15 billion.

The company’s positive performance in insurance was also reflected in its combined ratio that improved 2.5 points to 84.6 in the quarter compared to the same period last year.

David Small, an analyst for Bear Stearns, said in a note the loss ratio is better than expected, unlike other companies, and this is a testament to the company’s diversification by geography and line of business.

During an analyst’s conference call today, Evan Greenberg, chairman and chief executive officer of ACE, said the first-quarter results “were quite strong given the volatility of financial market conditions.”

Phillip V. Bancroft, ACE chief financial officer, said the $650 million net realized and unrealized loss after taxes was the result of “unprecedented financial market volatility in the credit and equity markets.”

The insurance marketplace rates continue falling, said Mr. Greenberg, with first-quarter results seeing more accelerated rate declines than in January. Declines in the United States averaged in the single percentage digits on retail business and low teens on the wholesale business, he said.

He said while the industry will see an impact to earnings from rate declines, increased risk exposure and market volatility, a greater concern is inflation.

“The continued and involving impact of the financial markets turmoil will be with us for some time, and will continue to be a drag on the global economy,” Mr. Greenberg said. “In my judgment, though, inflation is the more long-term and insidious risk that faces our industry. We have been in a benign inflationary period and I believe this is likely coming to an end.”

He said despite these threats, rates continue to drop because of capital investment. ACE will continue its strategy of holding onto renewals and writing less new business, Mr. Greenberg added. The company will seek growth where it sees adequate return and curtail or eliminate business in other areas.

“I hear many of our competitors make similar comments, but time will tell who is and who is not practicing what they preach,” Mr. Greenberg remarked.

ACE International business reflected growth, while domestic business in the United Kingdom and Australia were down, he said.

Internationally, property-casualty and accident and health grew, but international wholesale “shrank modestly,” he continued. Premium in North America was down primarily in workers’ compensation exposures and professional lines. Specialty and general p-c lines saw growth, particularly in middle market areas, he added.

The company also announced it plans to change its domicile from the Cayman Islands to Zurich, Switzerland, and said it has completed its acquisition of Combined Insurance Company from Aon and the Atlantic Companies’ personal lines business.