NU's Top-10 Stories Of

property-casualty.com P&C E&S UPDATE ;<:

Side-A Market Competition Heating Up JcYZglg^iZg Pages 28 THE LEADER IN PROPERTY & CASUALTY NEWS

TOP STORIES OF THE WEEK Insurers Remain Wary NU’s Top-10 Stories Of Of Systemic Risk Fund House passage of ﬁnancial services reform legislation is drawing a mixed response from the property and casualty insurance industry, mainly due to concerns about a systemic risk bailout fund. Page 6 House Bill Includes E&S, Reinsurance Reforms Reinsurance and E&S purchases would be governed by the requirements of the buyer’s home state under a provision added to the House ﬁnancial services regulatory reform legislation. Page 7 State Farm Strikes Deal To Remain In Florida Florida’s acrimonious battle with State Farm over its threat to leave the state’s homeowners market ended with the company winning a 14.8 percent rate hike and permission to drop 125,000 insureds. Page 8 Carriers ‘Going Green’ With New Coverages Insurers are increasingly offering products and promoting behavior that address the growing risk of climate Sinking economy keeps P&C market soft, change, as well as to meet the demands of policyholders who are “going green.” while lawmakers seek regulatory reforms. Page 10 See page 13

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1048_EN-US_GC10_NatUnd_200x276.indd 1 11.11.2009 10:26:26 Uhr National Underwriter p&C

DECEMBER 21/28, 2009 Contents Vol. 113, No. 48 news 6 P&C Industry Finds 10 Global Warming Talk Some Positive Points In House Heats Up At NAIC F Cheerleaders Needed p. 42 Financial Regulatory Reform Bill 10 Insurers ‘Going Green’ 7 House Bill Includes With New Products, Coverage Features E&S, Reinsurance Reform Measure 37 Regulators Poised 8 State Farm Strikes Deal To Probe Credit Scoring To Stay In Florida, But Will 41 Former Claims Editor Cut 125,000 Policies, Raise Rates Phil Schreiner Passes Away 8 Social Media Usage Found Lagging With Agents & Brokers cover story P&C Year-End Review 13 NU's Top 10 Stories Of 2009

14 Invisible Hard Market Nowhere To Be Seen E Sam’s Prediction 16 P&C Firms Might Dodge Regulatory Bullet Scorecard p. 5 18 Health Bill Threatens P&C Agency Income 19 AIG Reinventing Itself On The Fly 20 Greenberg Returns To Center Stage 22 Chinese Drywall Won't Be Next Asbestos 23 Madoff Might Be Scourge Of Insurers 24 Calm Winds Leave NFIP Reform Adrift OPINION 26 Contingency Fee Firestorm Reignites a view from the press box 5 20-20 Hindsight On 2009 27 Swine Flu Bug Leaves Firms Exposed By Sam Friedman G E ditor’s Picks p. 13 Agency Management 35 ‘Tis The Season To Get A Jump On 2010 E&S/Specialty By Dan King final say F Side- A Market Report Market 42 Industry Can Do More 28 SIde-A Market p. 28 To Boost Its Reputation Competition Heating Up By Mark E. Ruquet 30 The ABCs Of D&O Insurance Clauses LISTINGS NU takes a holiday break next week, but 36 Advertiser Index we’ll be back on Jan. 4, 2010 with a look at the challenges our readers will face in 37 c areer Center the year ahead. Meanwhile, follow breaking 38 Marketplace news online at www.property-casualty.com.

National Underwriter P&C (ISSN 1042-6841) is published weekly (except the last week of January, the second and last week in July, the last week of August and the last week of December) by The National Underwriter Co., 5081 Olympic Blvd., Erlanger, KY 41018-3184. Periodicals postage paid at Covington, KY and additional mailing offices. POSTMASTER: Send address changes to National Underwriter P&C, PO Box 2157, Skokie, IL 60076. Allow four weeks for completion of change. Subscription Rates: $208.00 US, $248.00 Canada, $328.00 International. To order: call 800-458-1734, fax 847-763-9587, write National Underwriter P&C, PO Box 2157, Skokie, IL 60076 or visit property-casualty.com. Outside US, call 859-692-2100 or fax 859-692-2246. Copyright© 2009 by The National Underwriter Company, DBA Summit Business Media. All rights reserved. No part of this magazine may be reproduced in any form without consent. property-casualty.com December 21/28, 2009 | National Underwriter Property & Casualty | 3 In the first hour, did we know how things would turn out? No, but we had high hopes. We brought together the best people with a careful plan, pledged ourselves to the highest standards of customer service, and paid attention to market timing. Now, ten years on, Max is a financially-strong, global enterprise with 350 talented professionals, working from seventeen offices in seven countries – all dedicated to providing diversified specialty insurance and reinsurance products, solving risk challenges one at a time. And we keep learning every hour!

SPECIALTY INSURANCE & REINSURANCEÊÊÊÊÊ , 1 ÊUÊ, ÊUÊ1 / Ê-// -ÊUÊ"9 ½- A.M. Best: A - (Excellent) / S&P: A- (Strong) / Fitch: A (Strong) / Moody’s: A3 www.maxcapgroup.com p&C December 21/28, 2009 A View from the Press Box National Vol. 113, No. 48 Underwriter 20-20 Hindsight On 2009 To e-mail any staff member, use [email protected], unless otherwise specified. (Example – to write John Smith, his e-mail is ay back on Jan. 5, I peered spite President Obama’s rhetoric during [email protected].) into my crystal ball for the likely the campaign to push such a plan—a EDITORIAL HEADQUARTERS 33-41 Newark St., Hoboken, NJ 07030 W Top 10 Property and Casualty In- pledge that helped him win Florida, and (201) 526-1230, Fax (201) 526-1260 surance Stories of 2009. Before you check the White House. Web Site: property-casualty.com on what turned out to be my actual picks 7 Uncle Sam Spurns Insurance Oversight! Not P&C group Editor-in-Chief Sam Friedman on page 13, let’s see how many of my pre- only was I right about Congress not creat- Managing Editor Susanne Sclafane Assistant Managing Editor/NU MAGAZINE Caroline McDonald dictions came true: ing an optional federal charter, it looks ASSISTANT MANAGING Editor/Online NEWS Daniel Hays 1 AIG’s Fire Sale Comes Up Short! I was right like most insurers will be spared any sig- ASSociate EditorS Agent/Broker Mark E. Ruquet, Phil Gusman when I predicted that “AIG will con- nificant federal regulatory burdens under senior Copy Editor Kimberly Tallon Copy Editor Michael Stanley tinue to struggle against the restraints financial services reform. Washington Bureau imposed by meddling members of Con- 8 Insurers Get Urge To Merge! I expected a 1301 Connecticut Ave. N.W., Suite 300, gress as it sells more subsidiaries at bar- surge in mergers and acquisitions, given Washington, D.C. 20036 Fax (202) 728-0510 gain prices to pay off its federal bailout AIG’s fire sales and trouble at other firms. Washington BUREAU CHIEF Arthur D. Postal (202) 728-0506 loan.” However, my fear that AIG would But outside of a few major deals, M&A CORRESPONDENTS IN: require additional federal funds is thus activity has been quiet. • London • Hamilton, Bermuda • Tallahassee, Fla. P&C group Publisher Christopher W. Luke (908) 859-0893 far unfounded. 2 As The Market Turns! I was right on target ADVERTISING SALES You can comment on this MI, IN, OH Christopher W. Luke (908) 859-0893 in figuring that commercial insurance VA, DC, east coast/bermuda Laurel A. Metz (770) 360-9676 price cuts would level off, but would column on Sam's Dec. 17 blog Midwest/West Coast Betsy Norberg (913) 400-2601 INTERNATIONAL Carolyn Hicks +44(0)20 8340 3273 “not rebound as sharply as the industry entry at www.NUSamSoapbox. mARKETPLACE/CLASSIFIED ADVERTISING Jonathan Stone hopes.” I properly suggested “there is com. You may also follow Sam (800) 933-9449 ext. 206 Advertising Business director Sheila Hyland (859) 692-2152 still too much competition in a contract- on Twitter at http://twitter. Advertising Coordinator Ashley Seeds (859) 692-2102 ing economy,” noting that “troubled com/NUSam. director of manufacturing Steve Johnston (859) 692-2116 carriers are pricing aggressively to over- P&C Group Technology director Joe Haddock come reputational risks and maintain PRODUCTION & DESIGN Director of Production Georgia A. Barry market share.” 9 NAIC Drops Ratings Initiative! I correctly Design Director Donald R. Heyl 3 Obama To The Rescue! I was overly op- figured that the National Association assistant art Director Amanda B. Booher Supervisor of Production Kimberly T. Plunkett timistic that President Barack Obama’s of Insurance Commissioners would not Senior Production Technician Mark C. Joseph stimulus package would “spur rapid ex- dare to create its own rating agency. Technicians Amy B. Carroll, Kelly Foscardo, James L. Fugett, posure growth in the summer and fall, There are simply too many financial and Donnie Roundtree to the benefit of a multitude of insurers.” practical obstacles. Marketing P&C group marketing director Andrea Shin However, it’s encouraging that job losses J Spitzer’s Back In Business! While Eliot marketing manager Heather Burns are at least bottoming out. Spitzer, New York’s disgraced former SENIOR EMARKETING MANAGER Amanda Malek 4 Is There A Doctor In The House…Or The Sen- governor and attorney general, has SUBSCRIPTIONS P.O. Box 2157, Skokie, IL 60076 ate? I was also premature in predicting taken a more prominent public role Customer Service Tel. (800) 458-1734 that Congress would pass a health care this year, appearing as an expert media Fax: (847) 763-9587 • E-mail: [email protected] reform bill by year’s end, but we’re a commentator on financial regulatory REPRINTS For high-quality article reprints, including e-prints, contact: lot closer to game-changing legislation reform, I went too far in predicting he Keith Williams, PARS International Corp. than we’ve been in decades. With no would be appointed to some federal 253 West 35th Street, 7th Floor, New York, NY 10001 (212) 221-9595 ext. 319 public option likely, insurers and their post—warning that he might end up E-mail: [email protected] agents could enjoy a flood of new cus- as Insurance Czar under a new federal Published by tomers once mandates kick in. oversight regime. The National Underwriter Co., 5081 Olympic Boulevard, Erlanger, KY 41018-3184 5 Noah Gets Coverage, But Only For Floods! So there you have it. I was correct (859) 692-2100 Fax: (859) 692-2246 I was wrong to assume that Congress with four of my 10 predictions, dead A Unit Of would reauthorize the National Flood wrong on four others, and half-right on Insurance Program for three years by the other two. March 6, but at least federal cover- But that won’t stop me from taking President/CEO CIO Andrew L. Goodenough Chris Moschovitis age hasn’t been expanded for wind another stab at fortune-telling. Check out cOO/CFO Senior Vice President/ claims…yet! my column and blog of Jan. 4 to see my Thomas M. Flynn Managing director, media division Thomas A. Fowler 6 Who Let The Cats Out? I was absolutely predictions for the Top-10 P&C Insurance correct in predicting that Congress would Stories of 2010! not establish a National Catastrophe Fund Sam Friedman to back up state insurance facilities, de- Editor In Chief

property-casualty.com December 21/28, 2009 | National Underwriter Property & Casualty | 5 The News ■ washington update P&C Industry Finds Some Positive Points In House Financial Regulatory Reform Bill Biggest objection remains assessments to bail out systemically risky companies By arthur d. postal quotebox “A death by a thousand cuts is still a Wa s h i n g t o n What Is The Industry Saying death,” said Leonard Brevik, vice president ouse passage of financial ser- About H.R. 4173? and chief executive officer of the Nation- vices reform legislation is drawing a al Association of Professional Insurance H mixed response from the property A death by a thousand Agents. “For proponents of state regulation and casualty insurance industry. cuts is still a death. For of insurance, passage of H.R. 4173 is not a The legislation—H.R. 4173, “The proponents of state regula- cause for celebration.” Wall Street Reform and Consumer Pro- tion of insurance, passage Specifically, Mr. Brevik said, “while tection Act of 2009”—was passed by the of H.R. 4173 is not a cause positive changes to H.R. 4173 were imple- House on Dec. 11 by a vote of 223-202. for celebration. It is certainly mented throughout the committee process All Republicans and 27 Democrats op- not something that should which made the bill slightly less onerous, be cheered by independent PIA nevertheless believes that creating a posed the bill. Leonard Brevik insurance agents.” The measure heads to the Senate, where PIA CEO federal insurance office is a bad idea, not the Banking Committee is working on a good one.” legislation that may contain different pro- There’s no metric by He added that “it is certainly not some- visions. Committee members have broken which a p&c insurer would thing that should be cheered by indepen- up into teams to develop a bipartisan bill. be considered ‘systemically dent insurance agents.” Whether the Senate will unveil its version significant’…Forcing them Charles Chamness, president and CEO before Congress leaves for the holiday re- to pay assessments for a of the National Association of Mutual In- cess this week is unclear. federal resolution authority surance Companies, said the bill respected The bill included an amendment that would effectively be asking the state-based regulatory framework for allocates supervision of reinsurance and insurance consumers to foot Charles Chamness property and casualty insurance while cre- NAMIC President surplus lines purchases to the buyer’s home the bill for the failures of other ating an office to serve as a national infor- financial institutions.” state. (See related story on page 7.) mation center. One bone of contention in the House bill “NAMIC is encouraged by the efforts is creation of a Federal Insurance Office. Because p&c carriers made to narrowly tailor the purpose and are not systemically risky, Charles Symington, senior vice presi- authority of the Federal Insurance Office they should not be forced dent of government affairs for the Inde- into a duplicative federal during the legislative process,” Mr. Cham- pendent Insurance Agents and Brokers of regulatory system designed ness said. America, voiced support for the provision. for companies that caused Leigh Ann Pusey, president and CEO He said the final language narrows the economic crisis. We urge of the American Insurance Association— the scope of the federal office from Congress not to fix what is which has long supported an optional what originally was sought by the David Sampson not broken.” federal charter for insurers—said in a Obama administration and the staff of PCI President statement that her group is “encour- the House Financial Services Commit- aged that the legislation establishes a tee “and provides it with no regulatory [AIA is] encour- federal office of insurance and believes authority whatsoever.” aged that the legislation that this provision offers a substantial Instead, the office would serve as an establishes a federal office of contribution toward broadening and informational resource for Congress and insurance, and believes that deepening our nation’s understanding this provision offers a sub- federal policymakers on insurance issues, of the critical role of insurance in our stantial contribution toward financial system.” in addition to assisting the coordination of broadening and deepening international trade agreements. our nation’s understanding of In another positive development, However, another agent group was less the critical role of insurance in Leigh Ann Pusey while H.R. 4173 would create a separate sanguine about the measure’s passage. our financial system.” AIA President Consumer Financial Protection Agency

6 | National Underwriter Property & Casualty | December 21/28, 2009 property-casualty.com TOP STORIES OF THE WEEK for financial products, the bill spe- ■ finish line cifically excludes property and casualty insurance from the jurisdiction of the new agency. House Bill Includes E&S, That’s wise, according to Mr. Cham- ness, who said that “as insurers, NAM- Reinsurance Reform Measure IC members are deeply concerned with the concept of separating consumer By arthur d. postal garding tax remittance and regulation of protection from soundness and sol- Wa s h i n g t o n multistate surplus lines transactions for vency regulation.” einsurance and excess and many years and are pleased to see it as In the view of Mr. Chamness, cre- surplus lines purchases would be part of the bill.” ation of a federal Consumer Financial R governed by the tax policies, licens- Looking ahead, Mr. Kath noted that Protection Agency carries “a potential- ing and other requirements of the buyer’s the reinsurance and surplus lines provi- ly serious risk of regulatory conflict home state under a provision added to the sions were included in the draft financial and confusion, particularly as it relates House version of financial services regula- services regulatory reform bill recently to the business of insurance. We are tory reform legislation passed by the House circulated by Sen. Chris Dodd, D-Conn., pleased that the members of the Finan- on Dec. 11. chair of the Senate Banking Committee. cial Services Committee recognized the The amendment contained in the House “With the House and Senate taking up problems this would cause and exempt- bill reflects the same language passed by the language as part of reform legis- ed the [property and casualty] industry the House as lation, we are from this new agency.” the stand-alone The surplus lines hopeful that However, NAMIC, AIA and the Property Nonadmitted industry should be governed the issue will Casualty Insurers Association of America and Reinsur- by one set of consistent rules be resolved,” voiced concern about a provision to make ance Reform Act he said. on a transaction, and this large insurers pay into a fund to cover any of 2009, known Frank Nut- failure by an institution large enough to as the NRRA. amendment will do that.” ter, president of cause a systemic risk. That bill’s Richard Bouhan, Executive Director the Reinsurance H.R. 4173 would establish a Financial provisions are NAPSLO Association of Services Oversight Council with the power now part of the America, said to designate financial companies it deems broader H.R. 4173—the Wall Street Reform the inclusion of the NRRA legislation in as posing a systemic risk to the overall and Consumer Protection Act of 2009. (See the broader House financial services reform economy for heightened regulation. related story on page 6.) bill is “an important step toward a more ef- To address the costs of insolvencies at The reinsurance and surplus lines provi- ficient regulatory regime for global reinsur- these designated companies, the bill would sions were added at the request of the in- ers, and vital to modernizing our current create a fund to aid the unwinding of dustry because financial services regulatory insurance regulatory system.” troubled firms that would be assessed on a reform is a priority in Congress. Adding the reinsurance and surplus pre-event basis. “By establishing that the home state lines provisions to the financial reform “As NAMIC has said throughout the of the policyholder governs a transac- measure increases the odds that the NRRA past year, there’s no metric by which tion, the surplus lines industry would will ultimately be enacted, according to a property-casualty insurer would be no longer face trying to comply with Joel Wood, senior vice president of govern- considered ‘systemically significant,’” ac- confusing and conflicting laws and ment affairs for the Council of Insurance cording to Mr. Chamness, noting that regulations of multiple states on a Agents and Brokers. “property-casualty insurers are required multistate transaction,” said Richard In addition, according to Mr. Wood, by state regulators to maintain high Bouhan, executive director of the Na- “the inclusion of the NRRA in the House reserves, low leverage ratios and to par- tional Association of Professional Sur- bill will make the issue a ‘conference- ticipate in resolution mechanisms to plus Lines Offices. able’ issue, even in the event the Senate mitigate against insolvencies. “The surplus lines industry should be fails to include surplus lines reform and “Forcing them to pay assessments for governed by one set of consistent rules on modernization provisions in its version a federal resolution authority would ef- a transaction, and this amendment will do of the bill.” fectively be asking insurance consumers to that,” he added. “Again, this does not in any way foot the bill for the failures of other finan- NAPSLO President Marshall Kath add- diminish our determination to build cial institutions,” he said. ed that his association and sector of the strong bipartisan support for surplus  continued on page 39 industry “have been seeking reform re-  continued on page 37 property-casualty.com December 21/28, 2009 | National Underwriter Property & Casualty | 7 The News TOP STORIES OF THE WEEK

■ homeowners update State Farm Strikes Deal To Stay In Florida, But Will Cut 125,000 Policies, Raise Rates By daniel hays The Consent Order that was reached, the Florida’s financial ability to be there when lorida’s year-long, acrimonious department explained, results in State Farm our customers need us most.” battle with State Farm over its threat to The company said policies designated F leave the state’s homeowners insurance By the terms of the for non-renewal would receive at least six market ended last week with the company Consent Order, State Farm months advance notice, adding that “State winning a 14.8 percent rate increase and per- Florida will remain a significant Farm agents will be able to provide affected mission to drop 125,000 policyholders. player in the Florida residential residential customers with other insurance Insurance Commissioner Kevin McCarty property insurance marketplace.” options. New rates will go into effect as announced that he had ended the year-long Florida Insurance Commissioner policies are renewed.” dispute and resolved pending legal action Kevin McCarty “We apologize for any inconvenience or with a Consent Order allowing the non-re- anxiety this process might cause our cus- newal of 125,000 of the company’s 810,416 …[I]t is essential for tomers, but this is a necessary step for us as Florida policies. the state to continue working we attempt to stabilize State Farm Florida’s “By the terms of the Consent Order, State to develop constructive and financial condition and serve our remain- Farm Florida will remain a significant player sustainable insurance reforms ing customers,” the company said. in the Florida residential property insurance that better serve the long-term The carrier added that “these are not marketplace,” he said in a statement released interests of all Floridians.” easy times for the Florida property insur- after a press conference. State Farm Statement ance market. The [Office of Insurance Reg- The insurer had issued a withdrawal plan ulation] has noted publicly that 102 of the on Jan. 27—a month after a judge had up- pulling the withdrawal plan it filed on Jan. 210 private property insurers operating in held Mr. McCarty’s denial of a 67.1 percent 27, 2009, as well as the cancellation of a hear- the state are losing money, and three have rate increase. In February, the commissioner ing set for Jan. 25, 2010, before the Division gone out of business in the last year.” said the insurer could withdraw, but only by of Administrative Hearings. State Farm said that “to that end, it is complying with stringent conditions he set. State Farm Florida issued a statement essential for the state to continue working He forbid them from dumping custom- saying the Consent Order “will allow us to develop constructive and sustainable in- ers on the state-run insurer of last resort to continue to serve most of our current surance reforms that better serve the long- and said they should allow their agents to policyholders and help improve State Farm term interests of all Floridians.” NU place policies with other private insurers. The company had argued that it was go- ■ survey says ing broke in Florida, but Mr. McCarty back then called the State Farm contention that Social Media Usage Found it faced insolvency and an inability to pay claims “both disingenuous and misleading.” Lagging With Agents & Brokers He noted last week that the agreement he had reached with the insurer is “the product By Laura M. Toops ers through other Web methods. of a long and arduous negotiation process.” lthough less than a quarter AA&B is an affiliated publication of “The final result is beneficial to the people of independent agents and brokers re- National Underwriter, as part of Summit of the state of Florida, and beneficial to the A sponding to a recent survey are using Business Media. Florida insurance marketplace,” he added. social networking in their marketing plans, The online survey, which was con- “The Consent Order satisfies the office’s re- almost 20 percent are considering it, accord- ducted in October and November, in- quirements issued in our Order dated Feb. 13, ing to an exclusive reader survey of American cluded more than 600 participants of 2009, and allows State Farm Florida to remain Agent & Broker readers. all sizes and locations. The questions a viable insurer in the Florida market.” Published in AA&B’s December issue on focused on what types of Internet mar- His statement noted that even after the Internet marketing, the unscientific survey keting methods users were currently em- non-renewals, State Farm Florida will re- suggests that although agents may still be ploying, from basic Web sites to Twitter main the largest private insurer of property holding back from full involvement in social and Facebook. insurance risk in Florida. media, interest is strong in reaching custom-  continued on page 36

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■ climate risk summit Global Warming Talk Heats Up At NAIC Carriers seek more cooperation in mitigating disaster losses while ‘going green’

By Phil Gusman long history of reducing risks and can Sa n Fr a n c i s c o do so again with climate change if car- nsurers are increasingly offer- riers are allowed to price according to ing products and promoting behav- the risks they assume. I ior that address the growing risk of “No amount of insurance will climate change, according to presenta- make a poor project/site/product/options delivered at a Climate Risk Summit eration good,” Ms. Patton said in her here sponsored by the National Associa- presentation. “Policymakers should tion of Insurance Commissioners. engage insurance industry expertise During the forum—run by the NAIC’s and capital to most efficiently and Climate Change and Global Warming effectively adapt to, and mitigate the Task Force—insurers outlined an array risks of climate change.” of products and initiatives in which they However, she said insurers must are involved, and offered projections be allowed to use their core skills to on how the industry can constructively “send risk-based price signals.” participate in a warming global envi- E While world leaders were meeting in Copenhagen Government indemnity funds or ronment going forward. to hammer out a deal to contain global warming, insurers pools that spread or mask risks, she Stephen Bushnell, product director were discussing their contribution to mitigating climate change warned, “may inadvertently increase at Fireman’s Fund Insurance Com- at the NAIC meeting in San Francisco. moral hazard and overall risk.” pany, which is an Allianz affiliate, out- National Laboratory, pointed out that Panelists also discussed pay-as- lined products his company has designed structures built outside of flood zones and you-drive (PAYD) insurance products— to address energy emission-driven climate designed to withstand wind damage are which price auto insurance policies change—including coverage for certified not always the most energy-efficient. according to miles driven—as a way to “green” (more environmentally friendly) Mr. Bushnell recommended building decrease driving and cut auto emissions. buildings and a green homeowners product codes that promote both sustainable and Justin Horner, transportation policy in 2008, as well as a variety of other green resilient buildings. analyst for the Natural Resources De- products ranging from coverage for manu- Lindene Patton, climate product officer fense Council, said 14 percent of total facturers to automobiles. at Zurich Insurance, said the industry has a  continued on page 40 Looking forward, he said insurers and ■ policymakers can work together to build climate change and rebuild property intelligently—updating building codes to reflect exposure to natural Insurers ‘Going Green’ With disaster risks associated with climate change. Additionally, he said they can combine to New Products, Coverage Features promote energy-efficient buildings as a priority in climate and energy policy. By Daniel Hays Twenty-two companies now offer 39 Areas for possible cooperation were high- he United Nations Climate products and services specifically designed lighted by two experts in separate fields cit- Change conference in Copenhagen for new green buildings and green up- ing different flaws with building codes. T is a reminder of the range of new in- grades for existing buildings, either fol- Mr. Bushnell noted that energy-efficient surance products and services available to lowing a loss or in the course of normal buildings—such as those that are certified people interested in “going green,” accord- renovations, the I.I.I. noted. under the Leadership in Energy and Envi- ing to the Insurance Information Institute. “Insurers have become good corporate ronmental Design (LEED) rating system— More than 600 innovative, eco-friendly citizens by creating important new green do nothing for improving coastal, wind products and services are now offered by insurance products and services to reflect and fire loss resistance. 244 insurers, reinsurers, brokers and insur- changes in society,” said I.I.I. Vice Presi- Meanwhile, in an earlier presentation, ance organizations in 29 states—with 37 dent Loretta Worters. Evan Mills, an analyst in the U.S. De- percent of those activities coming from Meanwhile, Swiss Re—as part of the partment of Energy’s Lawrence Berkeley U.S. companies, according to the I.I.I.  continued on page 40

10 | National Underwriter Property & Casualty | December 21/28, 2009 property-casualty.com

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special report: P&C year-end review NU’s Top-10 Insurance Stories Of

By Sam Friedman editor’s picks arrival in the Senate, not only s I scanned all the 2009 health insurers, but p&c agents gener- editions of National Underwriter, And The Top Stories Are... ating a huge chunk of their revenue A picking candidates for my annu- NU Editor Sam Friedman lists his choices and profits from group health sales can al choices as the year’s top insurance for the 10 most interesting property and sleep easier. stories, one thought kept crossing my casualty insurance stories of 2009. Claims related to the biggest Ponzi mind—it could’ve been worse. 1 Invisible Hard Market Nowhere To Be Seen Page 14 scheme in history started to pour in, but No one will look back fondly on 2009. 2 P&C Insurers Might Dodge Regulatory Reform Bullet 16 while the insurance industry is indeed The economy was in a shambles. Insur- paying for some of the losses caused by 3 Health Reform Threatens P&C Agency Income 18 able exposures disappeared at an alarming the notorious Bernie Madoff, the ultimate 4 AIG Reinventing Itself On The Fly 19 rate. The investment markets—especially liability is unlikely to be off the charts. in the first half—were volatile at best. 5 Greenberg Returns To Center Stage 20 Like I said, 2009 was awful, but it Insurers saw their net written premi- 6 Chinese Drywall Won’t Be Next Asbestos 22 could have been a lot worse! ums flat-line and their net income plum- 7 Madoff Might Be Scourge Of Insurers 23 The following pages reflect my person- met. Washington raced to restructure 8 Calm Winds Leave NFIP Reform Adrift 24 al choices for the Top-10 P&C Insurance the entire financial services regulatory Stories of 2009. If you feel I’ve left a big 9 Contingency Fee Firestorm Reignites 26 system, including insurance. story out, by all means let me know it by 10 Swine Flu Bug Leaves Firms Exposed 27 But all things considered, this recap e-mailing me at [email protected], could have been far more grim, for insur- age crisis—over claims for damage from or filing a comment on my Dec. 21 blog ers as well as their agents and brokers. Chinese drywall. But as our recap notes, entry, at www.NUSamSoapBox.com. For one, the property and casualty mar- drywall is far from the dreaded “next as- In my column this week on page 5, I ket, while still soft on the commercial lines bestos,” with short-term losses potentially review my predictions a year ago for what side, at least began to stabilize, with the large, but long-term exposure very limited. I thought would be 2009’s top stories. Flip average rate cut much lower these days Thus far, another potential mega-threat— back a few pages and see how I did. (You can than at the start of the year. the feared H1N1 flu pandemic—has had a also respond on my Dec. 17 blog entry.) For another, we were spared any major limited impact on insurers, except for a few What will be the top-10 stories of 2010? natural or man-made disasters, compared specialty carriers that offered new covers. Check out NU’s Jan. 4, 2010, edition for my to the multi-event years we’ve seen far too Meanwhile, in Washington, at the start crystal ball outlook, and give me your feed- often in this decade. The lack of catastrophe of the year lawmakers seemed determined back on my blog entry that same day. losses might leave the industry with some to sweep the insurance industry into their I very much appreciate your readership excess capacity—especially for property in- orbit with some heavy-duty federal regula- and feedback—especially on my blog, where surance--but I do not hear any underwriters tions. But today, it appears the impact on we have had some lively discussions. complaining about a lack of hurricanes, most insurers will be limited. All of us here at National Underwriter earthquakes or terrorist attacks. Health care reform dominated the debate wish you and yours a very happy, healthy The industry did face one major cover- in D.C., but with a public option dead-on- and profitable new year! NU propertyandcasualtyinsurancenews.com December 21/28, 2009 | National Underwriter Property & Casualty | 13 Top 10 stories of 2009

■ prices fall Invisible Hard Mkt. Nowhere To Be Seen Shrinking exposure base, calm hurricane season combine to keep premiums plummeting

By Sam Friedman coverage market. he warned, “until that occurs, the soft mar- ack in January, Brian Dup- Price cuts have mod- ket will continue.” erreault, president and CEO of erated—the average At the time, Mr. Kerr predicted that “the B Marsh & McLennan Com- commercial premium turn will come by year-end because all but panies, said the property and fell 5 percent in the terrible trio are making appropriate casualty industry was entering October, com- underwriting decisions.” its “first ‘invisible’ hard market,” pared to 9 percent Yet here we are in December, with no in which prices would begin to in December 2008, turn in sight (and still with no clue just rise—but because of shrinking insur- according to Mar- which carriers Mr. Kerr was talking about). able exposures, little positive impact ketScout’s Market Ba- Last month, NU’s Mark Ruquet reported would be seen in top- and bottom rometer survey. But that “the soft market direction seems to line results. rates are still falling for be defying business logic,” citing a report Nearly a year later, insurers and their most. Unless an account from Advisen, titled “Planning for 2010: agents and brokers are still looking has catastrophe-exposed The Recession Will Keep Commercial In- intently for the first visible properties or surance Premiums Under Pressure.” signs of any market “Like the zombies in the classic horror hardening, as pre- film ‘Night of the Living Dead,’ the soft in- mium rates kept surance market should be dead and buried, falling for most but it continues to lurch on, terrorizing buyers and lines underwriters and brokers,” wrote Advisen of business. Executive Vice President Dave Bradford. A big part No wonder the p&c industry’s first- of the problem E Thanks to a rapidly shrinking economy and the calmest hurricane half income was down nearly 60 percent, is we’re stuck in season in a dozen years, an “invisible hard market” failed to materialize this despite an improvement in underwrit- year, with no turnaround in sight. the worst eco- ing losses. Net written premium volume nomic tailspin since the Great Depression. claims related to the Madoff Ponzi scheme fell by 4 percent—down about $9.4 bil- Companies are going bankrupt, closing or the subprime mortgage meltdown, buyers lion. The outlook for 2010 doesn’t look facilities, scaling back production and lay- are sitting pretty. much better for insurers. ing off millions. That means less demand MarketScout CEO Richard Kerr back in “If a hard market is coming, it’s up the for standard insurance products such as June chastised an anonymous “terrible trio” road a bit,” said Ken A. Crerar, president of property, liability and workers’ compensa- of carriers for being “irresponsible under- the Council of Insurance Agents and Bro- tion coverage. writers.” He said “every sensible economic kers, in CIAB’s second-quarter report. Still, Mr. Duperreault expected insurance indicator tells us rates should be increasing, “Suppressed demand and appetite for supply to drop faster than shrinking buyer yet there are still three large, admitted, business continued to drive competitive pric- demand, given the “staggering investment publicly traded insurers clamoring for pre- ing in the market during the third quarter,” losses” absorbed by many leading carriers. mium, seemingly at any rate Add to that the fact that reinsurance rates and continuing to prolong the were rising, and the stage was set for a turn- soft market.” Like the zombies in the classic around in primary company pricing. “Even the E&S market is horror film ‘Night of the Living Dead,’ the However, as it turned out, most carri- refusing to chase rates down, soft insurance market should be dead ers were able to keep writing business at sitting on the sideline as the and buried, but it continues to lurch on, reasonable prices, and shrinking demand terrible trio slash each other to terrorizing underwriters and brokers.” forced many to cut rates to retain the good bits,” Mr. Kerr added. Dave Bradford, Executive V.P. business they still had on their books. “Once these irresponsible Advisen Add to that a thankfully mild hurricane underwriters are reined in, we season—the calmest in 12 years, with only should be on the way to rate increases,” he he added this fall. “It was still very much three Atlantic basin storms, according to the said. “Our guess is prudent insurers are wait- a buyer’s market as carriers chased market Insurance Information Institute—and you ing to pick up the fallout when the terrible share. A significant upward turn in pricing re- end up with a stubbornly soft commercial trio have their day of reckoning.” However, mains elusive for the foreseeable future.” NU

14 | National Underwriter Property & Casualty | December 21/28, 2009 propertyandcasualtyinsurancenews.com Quotes at the Speed of Sound.

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24882_Burns_SpeedNationalUn.indd 1 11/18/09 2:49:22 PM Top 10 stories of 2009

■ new rules P&C Firms Might Dodge Regulatory Bullet Financial services reform may not dramatically alter insurance oversight landscape

By arthur d. postal concern with the potential impact of the Wa s h i n g t o n dissolution fund on the industry. lthough the need for a federal bailout of the troubled “To the extent property and casualty in- American International Group created demands for strong fed- surers are considered in these reforms, the nature of our business and regulatory stan- A eral regulation of insurance, to this point the industry appears dards, our existing resolution and guaranty to have preserved state oversight for property and casualty carriers. [fund] processes, and the general risk our industry poses to the broader financial sys- Although only the House has completed veil its legislation and how comparable it tem has to be recognized,” said Ms. Pusey. work on financial services reform, there would be to the House version. “AIA opposes legislation that subjects appears to be little political support for a Two provisions key to insurance are in our industry to pre-funding obligations for federal takeover of insurance regulation. the House bill--H.R. 4173, the Wall Street systemically important financial companies For example, the industry was able to Reform and Consumer Protection Act. One and assesses insurance companies to pay for carve itself out of regulation by a new Con- provision stirring deep concerns among the risks presented by the failure of non-in- sumer Financial Protection Agency. both life and prop- surance institutions,” the skinny Meanwhile, provisions of legislation erty and casualty in- she added. PCI voiced creating a system for resolving large, sys- surers would require similar objections. temically-risky financial services companies large financial insti- One change in the ensures a strong voice for state regulators tutions to pre-fund a bill would allow the in the process. systemic risk resolu- director of the Fed- The House bill, passed on Dec. 11, creates tion fund. eral Insurance Office a National Insurance Office, but through The fund--created to have an advisory industry lobbying, its powers have been wa- through assessments Will Insurance role on the Financial tered down. And, in general, state solvency against financial in- Services Oversight and consumer protection laws remain intact. stitutions with as- Regulation Change? Council that would Charles Symington, senior vice president sets of more than While the financial meltdown in general, deal with large finan- and AIG’s near collapse in particular of government affairs for the Independent $50 billion--would cial institutions that prompted Congress to set its regulatory Insurance Agents and Brokers of America, be used to pay for reform spotlight on insurance, in the end, might create a sys- said the final language in the provisions the failure of sys- any changes might be minimal for practi- temic risk. creating a federal insurance office within the temically significant cal purposes: State insurance Treasury Department narrows its scope from financial firms. E A new Federal Insurance Office may be and banking regula- what was originally sought by the Obama “A new pre-fund- established, but its regulatory powers will tors would play a administration and House Financial Services ed systemic fund likely be very minimal. similar role on the Committee staff, “and provides it with no would threaten the E Insurers are unlikely to come under council, and the in- regulatory authority whatsoever.” economic recovery the purview of a new Consumer Financial surance regulator of a Protection Agency. Leigh Ann Pusey, president and CEO of by diverting capital domiciliary state of a the American Insurance Association, said from job creation E All but the biggest carriers are likely to troubled systemically be spared any assessments for a fund to her group—a longtime supporter of an op- when previous ef- risky insurance com- resolve systemically risky companies that tional federal charter--is “encouraged the forts to augment get into trouble. pany would have to legislation establishes a Federal Office of capital are beginning be consulted before Insurance and believes that this provision to have an impact,” argued a letter to both federal regulators stepped in to deal with it- offers a substantial contribution toward the House and Senate signed by, among -including calling for the company to raise broadening and deepening our nation’s others, AIA and the Property Casualty In- capital, or to declare it insolvent. understanding of the critical role of insur- surers Association of America. A manager’s amendment to the bill in- ance in our financial system.” “Further, there is no evidence that the cludes a provision requiring the Oversight Unlike most parts of the House bill, the in- existence of such a fund would deter the Council to use state law when resolving surance provisions have bipartisan support. creation of new asset bubbles or other mar- failing state-regulated insurers. At press time, it was unclear when ket distortions,” the letter added. The Senate is likely to debate its mea- the Senate Banking Committee would un- All P&C insurance companies voiced sure in the first quarter, so stay tuned! NU

16 | National Underwriter Property & Casualty | December 21/28, 2009 propertyandcasualtyinsurancenews.com

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■ house call Health Bill Threatens P&C Agency Income Producers fight against public option; carriers protest removal of antitrust exemption

By arthur d. postal At press time, however, the compromise Wa s h i n g t o n did not appear to have the 60 votes needed espite deep divisions within to clear a Senate filibuster, and would be their own ranks and united opposi- dropped to secure passage of the broader D tion from Republicans, Democrats reform legislation. appeared to be moving closer and closer John Greene, vice president of congres- at year’s-end to landmark legislation re- sional affairs for the National Association forming the nation’s health care system, of Health Underwriters, said the compro- with vast implications for insurance sell- mise plan was misrepresented and would ers and consumers. be hard to administer. The outcome is potentially huge for He described the insurance coverage property and casualty agents, as a grow- for federal employees--administered by the ing number depend on the sale of group federal Office of Personnel Management— health coverage—for which the market as an “employer plan with a single entry- is never soft—for an increasing share of and exit point designed for a specific pool both their top-line revenue and bottom- of individuals, and not solely for the pur- line profits. pose of gaining insurance coverage.” Throughout the often acrimonious de- He said it was “frustrating” to see re- bate, agents had two goals in mind. The ports ignoring this important distinction. first was retaining the employer-based, pri- “The federal government provides signifi- vate health insurance system, and second, cant assistance with the premium and the E P&C insurance agents have a huge preserving their ability to sell all types of stake in the health care reform debate begun by rate increases that have occurred despite plans offered under the new regime. President Obama, because many depend on the their size,” he explained. With the Senate debate continuing sale of group health coverage for a growing percent- Mr. Greene said that allowing people as this story went to press, industry age of their top-line revenue and bottom-line profits. to buy into the federal program would be lobbyists worked feverishly to defeat too close,” he said. “It is no longer about “an administrative nightmare.” Separating any amendment to repeal the anti- policy. It is about winning.” employees of the federal government from trust exemption accorded to health and He said he believes the Senate, with everyone else “will add significant adminis- medical malpractice insurers. Such a the urging of the Obama Administra- trative burdens, and for a purpose not associ- provision is included in the bill passed tion, will “cut the necessary deals to ated with employment in the government.” in early November by the House. neutralize the opposition and secure the While the compromise was still in play, The House bill also includes a provision necessary votes.” Joel Kopperud, a director of government re- inviting the Federal Trade Commission He added that “although there are still lations for the Council of Insurance Agents to conduct studies of potential antitrust several fights to be had and time is short and Brokers, indicated that it might be activities of all insurers, including property for the Senate to pass the legislation before acceptable to his membership, who sell a and casualty carriers. P&C industry lob- year-end, we remain optimistic that the great deal of group health coverage. byists are concerned about the collateral Senate will meet this goal.” “Of course we need to see the details damage such a provision might have on That would set the stage for a final bill of how this national plan would be ad- their business, as well as the potential cost to be negotiated with the House in the first ministered through state exchanges,” he of litigation that could be prompted. quarter of 2010, he believes. said “But on the surface, we think that Although prospects for passage have The most controversial dispute was over this may be something that competes appeared bleak at times, given the divi- a public plan, included in the House bill. fairly and are very encouraged.” sion among Democrats and the nearly Senate Democrats put forth a last-ditch He added that this latest plan “sounds unanimous opposition of Republicans, compromise, negotiated by 10 moderate like it threads the needle.” Ira Loss, an analyst at Washington Anal- and liberal Democrats, which would allow One way or the other, however, it ap- ysis, believes passage of some bill is people without health insurance who are pears agents can rest easy that private probably inevitable. over 55 to join Medicare, with younger health insurance will survive the reform “Democrats have not given up on pas- uninsureds able to secure coverage through debate in some significant form—at least sage of health care reform. They are just the federal employee insurance plan. for the time being. NU

18 | National Underwriter Property & Casualty | December 21/28, 2009 propertyandcasualtyinsurancenews.com Top 10 stories of 2009

■ lightning rod AIG Reinventing Itself On The Fly Carrier rebrands p&c units, changes CEOs, battles with Uncle Sam over compensation By Sam Friedman New York Attorney General Andrew he most prolific headline-gen- May he would step aside as AIG chair Cuomo helped negotiate a return of some erator by far this year was American and CEO. While he only took $1 per year of the bonus money, which seemed to put T International Group, which struggled for his posts, there was controversy after out the firestorm for the moment. to regain its credibility and repay its debt it was revealed that his expenses totaled On more positive notes, AIG posted a to taxpayers after a massive federal bail- about $460,000. $455 million profit in the third quarter— out while changing CEOs, fending off In August, AIG recruited another retir- its second straight period in the black. challenges to its executive compensation, ee—Robert Benmosche, the former head But management said it expects “contin- rebranding its property and casualty sub- of MetLife—as its new CEO. (The com- ued volatility” for earnings. Last month, sidiaries, and bury- AIG lowered its new ceo ing the hatchet with Changing Of The Guard At AIG debt to Uncle Sam its former boss. by $25 billion after Back in early Who's Out? Who's In? completing deals January, AIG’s roller- J Edward Liddy, J Robert Benmosche, for two life insur- former head of former chair, presi- coaster year began Allstate, came out dent and CEO at ance entities. with criticism from of retirement in MetLife, who agreed AIG also re- Maurice Greenberg— September 2008 to replace Edward branded its p&c to lead AIG after its Liddy as CEO of AIG its former chair, federal bailout. in late summer. carriers under the president and CEO— J Mr. Liddy announced in May he would J Breaking a longtime tradition, AIG named name Chartis— about the sale of step aside as AIG chair and CEO. a separate non-executive chair—former the Greek word for Hartford Steam Boiler J Mr. Liddy only took $1 per year in salary American Express CEO Harvey Golub. map, meant to un- to Munich Re. for his AIG posts, but there was controver- J Mr. Benmosche clashed with federal offi- derscore the com- sy about expenses of at least $460,000. cials over limits on executive compensa- pany’s global reach. Mr. Greenberg— He also took heat for retention bonuses tion. There were reports he threatened to now CEO of C.V. paid to employees at the Financial quit, but reiterated his commitment to AIG There was talk Starr & Company, Products unit. in a letter to employees. about a possible and still a major public offering and stockholder in AIG—noted pointedly that pany appointed a separate non-executive the appointment of a separate board to under his reign, HSB had been purchased chair—former American Express CEO Har- further distance the p&c carriers from its for $1.2 billion in 2000, yet was sold for vey Golub.) parent’s tarnished reputation following what he termed a “distressed” price of But the assignment has not been a the federal bailout, but such a move has $724 million. cakewalk for Mr. Benmosche, who has yet to be initiated. (As part of its efforts to pay off its clashed with federal officials over com- However, a threat to the new brand federal loans, AIG also agreed to sell auto pensation for his top executives. There came late last month in the form of a insurer 21st Century Insurance Group to were even published reports that he was report from Todd Bault, an analyst with a Zurich subsidiary—Farmers Group—for threatening to resign—which prompted Sanford C. Bernstein, which reportedly $1.9 billion.) him to send a letter to employees reas- suggested that reserves may be deficient by Meanwhile, Mr. Greenberg and AIG suring them about his commitment to $11 billion—particularly affecting workers’ locked horns in court over the summer, the company. compensation, general liability and profes- battling for control of billions in com- Indeed, compensation for AIG em- sional liability. The company had no company stock held by Starr International ployees was a recurring controversy this ment about the report. Company—with the jury verdict going in year, starting with public uproar in the The news overshadowed an announce- favor of Mr. Greenberg’s SICO. (For more first quarter over revelations that big re- ment issued late afternoon on Thanksgiv- on Mr. Greenberg’s own eventful year, see tention bonuses had been paid. Much of ing eve that AIG and Maurice Greenberg page 20.) the brouhaha centered on $165 million had agreed to a procedure to settle all their There was also turmoil in the execu- given to employees of AIG’s Financial remaining disputes. tive suite, with Ed Liddy—the former All- Products unit, which traded the credit All that is certain is that for better or state head who came out of retirement default swaps on securities bundling worse, AIG and its subsidiaries are likely to in September 2008 to lead the company subprime mortgages that nearly brought remain prominent as headline-generators after its federal bailout—announcing in down the company. in 2010. Stay tuned! NU propertyandcasualtyinsurancenews.com December 21/28, 2009 | National Underwriter Property & Casualty | 19 Top 10 stories of 2009

■ comeback kid Greenberg Returns To Center Stage Icon settles with AIG and SEC, while speaking out against Washington, regulators By Sam Friedman “pennies on the dollar for their investment former company had joined C.V. Starr. f the insurance industry had in AIG.” He also argued that had the govern- Mr. Greenberg made more headlines the equivalent of baseball’s “Come- ment walled off AIG’s Financial Product unit with a speech at the St. John’s University I back Player Of The Year” award, the and simply offered guarantees to counterpar- School of Risk Management in October, in winner in 2009 would no doubt be Mau- ties, everyone would have been better off. which he placed most of the blame on regu- rice Greenberg. He vigorously defended his running of lators for failing to detect the warning signs While Mr. Greenberg may have left his AIG and suggested that risk management and head off the kinds of corporate behavior post as CEO at American International had become lax after his departure in the prompting the financial meltdown. Group following an accounting scandal in trading of credit default swaps. “We ought to appoint a blue ribbon 2005, he remains the property and casualty Mr. Greenberg enjoyed a sweet victory panel of some wise people to look at what industry’s embodiment of the old recap E.F. Hutton ads—when he talks, Comeback Player Of The Year! everyone listens. Maurice Greenberg, former CEO of AIG and now head of C.V. Starr, made more headlines than any one indi- After taking an uncharacteristi- vidual in the p&c business by a wide margin in 2009. Among the highlights and lowlights, Mr. Greenberg: cally low profile for a few years E Blasts AIG for selling Hartford Steam Boiler E Denies reports his firm is “raiding while running C.V. Starr & Com- at a “distressed” price. people” from AIG. pany, dealing with government E Criticizes Washington for mishandling E Blames regulators for the financial probes of his AIG activities and AIG’s rescue and urges more patience in the meltdown in a controversial speech. legal battles with his former com- sales of properties to repay taxpayer loans. E Buries the hatchet with AIG by drop- pany, Mr. Greenberg stepped back E Wins a jury verdict over AIG in a trial ping all legal battles, while allowing an into the spotlight big time. about Starr International Company’s holdings arbitrator to decide how much he should Prominent coverage of Mr. of AIG stock, enduring seven “grueling” days be reimbursed for legal fees and other Greenberg’s actions and mus- on the witness stand. expenses. ings began in January, when he E Settles SEC allegations of accounting E Begins work on his memoirs, publicly challenged AIG’s sale of fraud for $15 million, then clarifies his according to a note in an SEC filing on the Hartford Steam Boiler to Munich characterization of the deal that the SEC AIG settlement. found objectionable. Re. He pointed out that while he bought HSB when still in charge at AIG for over his former firm after what he called happened, whether regulators did their jobs $1.2 billion in 2000, his successors—under a “grueling” seven days on the witness and whether we really need more regula- pressure to repay federal bailout loans as stand in a court battle over whether tions or just better regulators,” he said. quickly as possible in a terrible economy— Starr International Company—which he Finally, Mr. Greenberg and AIG an- sold the carrier for what he characterized as heads—had been obligated to hold some nounced the terms of their peace treaty in a “distressed” price of $724 million. $4.3 billion worth of AIG stock shares in late November. Under the deal, an arbitrator The most recent headlines came in the trust for retiring employees. will determine claims by Mr. Greenberg for late afternoon of Thanksgiving eve, with an He also ended his long-running dispute legal fees and expenses, with a cap of $150 announcement that AIG and Mr. Greenberg with the Securities and Exchange Commis- million—which perhaps showed that the had set in motion a resolution process to sion, paying $15 million to settle concerns only winner in their battle were the lawyers. settle any remaining differences between about fraudulent accounting while he was There were also some personal points them and effectively bury the hatchet. at AIG. However, he then clashed with the resolved, including access to AIG documents In between, Mr. Greenberg commanded SEC over the settlement’s meaning and the for use in research in writing Mr. Greenberg’s the headlines throughout the year. seriousness of the charges, prompting a memoirs—which you can bet will have a dif- Back in April, Mr. Greenberg—still a clarifying statement from Mr. Greenberg in ferent title than the one written in 2006 by a major stockholder in AIG—appeared on which he acknowledged the “significance” former employee, “Fallen Giant.” Capitol Hill to tell a House committee that of the situation. The settlement sparked speculation about the federal government’s bailout plan to res- Last month, Mr. Greenberg’s representa- a possible return of Mr. Greenberg to AIG in cue his former company was doomed to fail tives put out a statement denying an Oct. some formal capacity—even if only as an if predicated on dumping assets at fire sale 27 New York Times article that reported advisor. If he pulls that off in 2010, he might prices during the economic downturn. his firm was “raiding people” from AIG, be the only person to ever win two straight Taxpayers, he warned, would only get noting that “only 13” employees from his “Comeback Player Of The Year” awards. NU

20 | National Underwriter Property & Casualty | December 21/28, 2009 propertyandcasualtyinsurancenews.com What’s Next? Are You Prepared?

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■ worst-case scenario Chinese Drywall Won’t Be Next Asbestos Still, claims are likely to mount against insurers of homeowners and contractors

By Phil Gusman met the insurer’s underwriting standards. Center in Berkeley, Calif., cited the Fire mid the rebuilding efforts Upon further inspection, he noted, it Casualty & Surety (FC&S) bulletins—a pub- after the 2004-2005 hurricane sea- was determined the damage had not pro- lication affiliated with NU—to question A sons, and in the midst of a housing gressed to a significant degree to cause con- whether those exclusions apply. boom, domestic drywall was in short sup- cern, and the nonrenewal was rescinded. On the pollution exclusion in hom- ply. Imports from China filled the gap, and Will insurers for homeowners and con- eowners policies, for example, Mr. Miller that decision has apparently created more tractors have to cover claims arising from said FC&S—a resource for insurers for inter- problems than it solved. Chinese drywall? Industry associations are pretation of both commercial and personal Homeowners—particularly in Florida, lines coverages—noted that many courts complaint dept. Louisiana and Virginia—have been com- have found the exclusion only applies plaining about health problems, foul odors, to “traditional environmental damage,” damage to furniture and electrical woes in which would not include the release of homes built from 2004 to 2007. The culprit gasses inside a residence. seems to be Chinese drywall. He said insurers have tried to use latent Over 550 million pounds of Chinese defect and inherent vice exclusions as well, drywall imported between 2004 and 2007 but FC&S states those exclusions apply to was installed in up to 100,000 U.S. homes, “a loss due to any quality in the property according to a fact sheet from the National that causes the property to damage or de- Association of Insurance Commissioners. stroy itself that results from something in The Consumer Product Safety Com- the property itself.” mission has recorded over 2,091 reports The drywall, he noted, is not de- of defective drywall in 32 states, the NAIC stroying itself but rather causing ensu- noted, with the most common complaint ing damage to its surroundings, which being the smell of rotten eggs. should be covered. Federal agencies have conducted stud- On construction defect exclusions, ies and appealed for patience as the sci- What’s The Beef With Mr. Miller again cited language from ence behind the problem is worked out. Chinese Drywall? the June 2009 FC&S, which states: “Any Results released in October showed homes ensuing loss as a result of the faulty dry- Among the complaints cited by homeowners, with with Chinese drywall had elevated levels Chinese drywall cited as the possible cause: wall would be covered—for example, if of sulfur and formaldehyde, but not high the drywall caused corrosion damage to enough to explain home degradation and E Corrosion of pipes, coils and wiring wires or pipes.” health woes. In November, a study found E Damage to furniture, fixtures and jewelry For commercial insurers, liability is un- hydrogen sulfide gas in affected homes. E R espiratory problems and sinus infec- certain as well. Lennar Corp., a home For the insurance industry, the Chinese tions, asthma attacks and fatigue building company based in Miami, stated drywall liability debate is in its early stages, E Headaches , persistent cough and in a 10-Q filing it will seek reimbursement and it is not yet known how many claims bloody noses for Chinese drywall-related losses from, will come of it. E The smell of rotten eggs among other parties, its insurers. A situation in Florida involving the The good news for insurers is that the state’s insurer of last resort, Citizens saying that will be determined on an indi- Chinese drywall exposure will not likely Property Insurance Corp., caused a stir vidual policy-by-policy basis. become the dreaded “next asbestos.” amid reports the carrier threatened to Some, such as Mike Barry, a representa- David Golden, director of commercial nonrenew a home because it contained tive for the Insurance Information Institute, lines for the Property Casualty Insurers Chinese drywall. told NU Chinese drywall claims fall under Association of America, said Chinese John Kuczwanski, public information pollution or builder’s defect exclusions. drywall is a “limited universe” in that manager for Citizens, said the nonrenewal Mr. Kuczwanski said Citizens has inspected only a limited number of homes were was not because the house had Chinese 24 claims related to Chinese drywall, and built with the material over the course drywall specifically, but rather the resulting none have resulted in payment. of three years. degradation was thought to have damaged But in testimony to the NAIC, Charles How liability shakes out will likely be a the house to the point where it no longer Miller, a principal of the Insurance Law matter for the courts to decide. NU

22 | National Underwriter Property & Casualty | December 21/28, 2009 propertyandcasualtyinsurancenews.com Top 10 stories of 2009

■ brace yourselves! Madoff Might Be Scourge Of Insurers Jury still out on whether claims involving Ponzi-schemer will hit catastrophic levels

By dANIEL hAYS ery from the funds difficult, according to f there was a listing of individually initiated financial disas- John C. Coffee Jr., a professor at Columbia University’s law school. ters, the depredations of Ponzi-schemer Bernard Madoff might Cases may also be brought against bank rank at the top, but opinions may differ on how much of an insur- custodians entrusted with checking to I make sure the assets Mr. Madoff claimed ance catastrophe he has created. were there, Ms. Savett advised. Mr. Madoff—who was arrested in De- that part of the fallout from the Madoff Meanwhile, for the many victims stung cember 2008 and finally sent to prison scheme would be heightened underwriting by Mr. Madoff, who dealt with him through for 150 years this June—is credited with for the professional liability coverage class. brokerage accounts and feeder funds, there ripping off clients of his Bernard L. Madoff And Sherrie Savett, an attorney with is a $500,000 recovery limit from the Se- Investment Securities LLC to the tune of Berger & Montague, P.C. in Philadelphia, curities Investor Protection Corp., which between $10 billion and $20 billion. said the Madoff plaintiffs’ lawyers would could also prompt suits to collect addition- Generally, the official insurance industry chase after solvent hedge funds with Madoff al recovery funds from insured players. definition requirement for a For some well-to-do victims catastrophe is a covered loss who had the right homeowners of $25 million or more, and policies, there have been recov- Loretta Worters, an Insurance eries. Mark Herr, a representa- Information Institute repre- tive for the Private Client Group sentative, said that “we don’t of Chartis, said the American have anything like that at this International Group unit had point” when it comes to Mad- paid off “hundreds of eligible off-related losses. policyholders who suffered Ma- Still, given the ongoing doff-related losses.” legal search by plaintiff at- One claim that the firm did torneys for deep pockets not pay involved a couple who, with insurance coverage, the by the insurer’s reckoning, had “no catastrophe” label could received more money from Mr. be premature. Madoff through withdrawals Grabbing a handle on how from their account than they much insured damage Mr. Ma- had deposited. doff may have created at this Recently, the latest insurance E Claims from victims of Bernard Madoff’s Ponzi scam are expected point without a crystal ball is sector to be identified as a target to multiply, hitting carriers of directors and officers, errors and omissions, almost as difficult as the court- fiduciary liability, and even homeowners policies. for claims is the group that pro- appointed trustee’s search for vides fiduciary liability coverage all of Mr. Madoff and his wife’s assets— assets, pursuing the legal theory that those for employee benefit pension plans. homes in France, Palm Beach, Fla., East funds did not do sufficient due diligence. In November, attorneys speaking at an in- Hampton, N.Y., foreign bank accounts, furs, Accountants that audited the hedge surance conference predicted that with fewer jewels, watches, art, etc. funds were pointed out by Ms. Savett as hurdles to face in bringing lawsuits against In March, Aon Benfield’s Actuarial and another potential target for litigation. employee benefit plan fiduciaries than against Enterprise Risk Management practice de- “How could they have done a proper directors and officers, more victims of Ponzi veloped a $1.8 billion estimate of direct audit of the assets of a hedge fund if assets schemes will file pension liability suits. insurance losses that could be paid out on weren’t really there? We now know that Madoff plaintiff legal actions based on behalf of asset management firms, banks Madoff didn’t even trade for the last 13 Employee Retirement Income Security Act and other firms being sued in connection years, so there was a real lack of due dili- (ERISA) law open up “another pocket” for to Madoff-related claims. gence on the part of the hedge funds and the recovery of investment losses, accord- Back then, Aon’s Stephen Mildenhall, their auditors,” she said. ing to Kenneth Rubinstein, a partner with who heads the firm’s actuarial and enterprise However, there has been at least one Nelson, Kinder, Mosseau & Saturley in risk management practice, said he believed federal court ruling that could make recov- Manchester, N.H. NU propertyandcasualtyinsurancenews.com December 21/28, 2009 | National Underwriter Property & Casualty | 23 Top 10 stories of 2009

■ debate in limbo Calm Winds Leave NFIP Reform Adrift Congress keeps extending debt-ridden flood program without adding wind coverage

By arthur d. postal nine named storms in the Atlantic basin cover flood insurance as part of a comprehen- Wa s h i n g t o n this year, with just three becoming hurri- sive solution, they will object:” he quietest storm season in canes—the lowest totals in each category The reason, he said, is that states set more than a decade prompted Con- since 1997, according to the Insurance rates which aren’t adequate in coastal areas T gress to keep postponing permanent Information Institute. for wind coverage alone now. “Insurers are resolution of one of the country’s big- “Clearly, Congress missed an oppor- rightly highly skeptical that they would ever gest insurance challenges—how best to tunity to deal with the issue last year— be allowed to charge a rate to cover expected reform the debt-ridden National Flood especially the forgiveness of the debt—and flood losses,” he explained. Insurance Program. eventually they are going to have to deal Mr. Hartwig also commented on an As this story went to press, Congress— with it,” according to Eli amendment that preoccupied with debates over health care Lehrer, a fellow at the Rep. Kathy Cas- and financial services regulation—was plan- Heartland Institute. tor, D-Fla., sought ning to attach a provision extending the “The economic prob- to add to legisla- NFIP once again for six-to-nine months lems, the budget deficit tion reforming while it deals with more urgent matters. and the fact that the wa- the financial This latest effort would mark at least the ters were cool this year services industry fourth time Congress has extended the cur- have allowed Congress that would have rent NFIP since it originally expired on Sept. to delay action,” he said. declared state 30, 2008, because the House and Senate “Obviously, without a windstorm pro- could not reconcile differences over a con- major hurricane, it is grams systemi- troversial proposal to include wind coverage not going to become a cally risky. in the federal program. major issue.” The amend- “We expect an extension to be attached However, he warned, ment, according to one of the final appropriations bills,” “the problem is that if to industry of- said Blain Rethmeier, a representative for Congress waits until ficials, was de- the American Insurance Association. “The there is a major disaster, signed to shift the time frame on the extension is still unit adds to the probability E Some fear that if Congress waits cost of bailing known, but it’s imperative that the pro- that it will act to reform until there is a major disaster to act on NFIP’s out Florida’s trou- future, in its haste it will reform the program gram not be allowed to expire.” it in the wrong way— in “the wrong way”—for example, by adding bled windstorm A routine extension would leave up in for example, by adding wind coverage to the federal flood policy. program to either the air the matter of whether to forgive wind to the program.” large financial in- NFIP’s $20 billion debt, mostly built up He said expanding the NFIP to cover stitutions or the federal government. thanks to Hurricane Katrina and other wind would “undermine the private mar- “The problems of the windstorm pro- ket and ultimately raise the price for grams are of their own making,” said Mr. Insurers are rightly all homeowners insurance products Hartwig. “It is dubious to claim that they highly skeptical that they for consumers.” are systemically important in that they are Insurance Information Institute too big to fail. That means if a hurricane would ever be allowed President Robert P. Hartwig also sees hit Florida or other states with windstorm to charge a rate to cover NFIP reform as a long-term proposi- programs, the losses could lead to a global expected flood losses.” tion. “It is unlikely that it will return financial catastrophe. That is absurd—just Robert P. Hartwig, President to the front burner unless there is a preposterous. It will cause problems, but they Insurance Information Institute significant hurricane accompanied by are of the state’s own making.” storm surge,” he said. He added that “Florida has intention- major storms. Meanwhile, debate about As for a broader disaster reform bill, “most ally made a number of decisions that has whether to develop a more comprehensive people believe reauthorization of the NFIP put it on a collision course for a financial policy to deal with national catastrophes should be separated from a national catastro- catastrophe. If Florida can no longer sub- remains on the backburner. phe plan, because most insurers don’t want sidize homeowners coverage for million- Congress felt less urgency to settle the to be obligated to provide flood coverage,” aires, that is not something that is going to NFIP’s future because there were only said Mr. Hartwig. “If insurers are asked to bring down the global economy.” NU

24 | National Underwriter Property & Casualty | December 21/28, 2009 propertyandcasualtyinsurancenews.com Where Budget Decisions Lead Isn’t Always This Clear.

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■ show me the money! Contingency Fee Firestorm Reignites Illinois allows Gallagher to accept fees again, while N.Y. seeks disclosure rules

By mark e. ruquet “We’ll be transparent while we’re ripping market where some are banned from tak- he debate over whether the you off, but in a very transparent way. ing the commissions and others are not major brokerages should be allowed [Consumers] will never find out.” isn’t good for anyone. T to earn contingency fees for deliver- He concluded that acceptance of con- The contingents, he said, are “not un- ing a certain volume or quality of business tingencies “has to be banned—it sets up like a lot of conflicts in financial services to carriers raged anew this year that we often either manage or after Illinois eased restrictions disclose,” stressing that the con- over the practice. flicts around such compensation As of Oct. 1, with the bless- arrangements are “not irreconcil- ing of Illinois Attorney Gen- able.” He added that he saw no eral Lisa Madigan, Arthur J. great clamoring among buyers to Gallagher was once again al- end contingency deals. lowed to accept contingent A draft regulation published commissions after an almost this month by the New York In- four-year ban imposed by Ms. surance Department, requiring Madigan and New York’s attor- agents to explain to clients their ney general at the time, Eliot relationship with carriers, drew Spitzer, following a kickback fire. Indeed, the Independent E Consumer advocate J. Robert Hunter says contingencies must scheme uncovered at Marsh & be banned. “It sets up an automatic conflict. There is a perverse incentive. Insurance Agents and Brokers of McLennan Companies. You can’t tell me every agent is perfect and clean.” New York threatened to sue. In September, when the The concern, according to Itasca, Ill.-based broker’s Chair, President an automatic conflict. There is a perverse IIABNY, is that the proposed regulation is and CEO Patrick J. Gallagher Jr. made the incentive. You can’t tell me every agent is too much of a burden on producers. IIABNY announcement about the ban being lifted, perfect and clean.” President and CEO Richard A. Poppa said he executives from Marsh (the brokerage sub- When AJG’s ban was lifted, RIMS noted believes the rule is unnecessary but held out sidiary of MMC) and Chicago-based Aon that the announcement would probably hope that concerns could be worked out. applauded the decision, and rumors began lead to Marsh, Aon and Willis striking Responding to IIABNY’s threat, the de- to swirl they were in talks with New York’s similar agreements once New York put partment’s Special Counsel, Matthew Gaul, Attorney General’s Office to lift the ban on compensation disclosure rules in place. said regulators were surprised that the least contingents for them as well. However, Willis Chair and CEO Joseph controversial element of the rule would AJG’s pardon, said Mr. Gallagher, came Plumeri—an early critic of the practice, prompt the threat of a lawsuit. He added that about after the realization that nationally, even before the industry’s bid-rigging scan- while for years the organization has branded regulators were not going to ban contin- dal—remains firm in his opposition. its members as the “Trusted Choice” for gents, putting the broker at a financial “We’ve already disadvantage. He also stressed the firm’s decided at Willis that We’ve already decided at Willis that strict adherence to transparency so clients we’re not going back to understand how they are compensated and the old ways,” he said in we’re not going back to the old ways. the influence that could have. a speech last month in We’re looking to the future, and we will Groups representing corporate buyers Chicago. “We’re look- continue to put in place the measures (the Risk and Insurance Management So- ing to the future, and that will enhance trust and transparency— ciety), public entities (the Public Risk Man- we will continue to put not undermine them.” agement Association) as well as individual in place the measures Willis Chair and CEO Joseph Plumeri consumers (J. Robert Hunter, director of that will enhance trust insurance for the Consumer Federation of and transparency—not undermine them.” consumers, it sounds like agents don’t want America) stressed the need for transpar- New York’s former insurance superin- to tell clients that “in most transactions they ency to avoid conflicts of interest. tendent, Eric Dinallo—who initiated the represent the insurance company.” But Mr. Hunter said transparency is no formulation of new producer compensa- Thus, the war of words continues, and panacea. “Transparency is a good cover-up tion disclosure rules—said after leaving perhaps will spill over into a court battle for getting rid of real protection,” he said. office earlier this year that a segmented before long. NU

26 | National Underwriter Property & Casualty | December 21/28, 2009 propertyandcasualtyinsurancenews.com Top 10 stories of 2009

■ risk management Swine Flu Bug Leaves Firms Exposed Many organizations still apathetic about contingency plans for potential pandemic

By caroline mcdonald businesses often don’t have a risk manager cross-industry networking peer groups of hether the H1N1 virus has employed to formulate, let alone imple- executives—the majority (66 percent) are run its course is unknown, but the ment a complex disaster plan. responding at a global, enterprise level, W fact is while many organizations Bob Boyd, chief executive officer of the rather than locally. Thirty-one percent are have taken precautions, others are still Agility Recovery Solutions consulting firm, responding at a national level—only in unprepared for a pandemic event in what pointed out during the conference call that affected countries where their company is turned out to be the top risk management smaller businesses—which haven’t been doing business. story of the year. mandated by any regulator to put a disaster “While there are some differences in In a recent status report on the pandem- corporate responses to the danger of an in- h1n1 ic, Dr. Keiji Fukuda, special adviser to the fluenza pandemic, most companies are in director-general on pandemic influenza for agreement that they should be prepared for the World Health Organization, reported Fear Factor the worst and ready for a major threat to from London that “it is fair to say we still While a large percentage of employers— their global operations,” said Carolyn Cav- haven’t fully gone through the pandemic particularly the larger ones—are putting risk icchio, senior research associate of global and that it is possible there could be unex- management contingency plans in place to corporate citizenship at The Conference deal with the impact of a mass outbreak of pected events which occur as we continue the H1N1 virus, many firms are just winging Board, in a statement. to go through it.” it. There are a number of Web sites offering But even those organizations with con- On a positive note, he added, “it is quite loss control information, including: tingency plans in place may need to do possible to have a pandemic on the milder E www.ready.gov more to educate employees. side, and if we are experiencing that, and if E www.flu.gov A “Tell It Now” survey released by Com- the number of serious cases is kept down, Psych, a provider of employee assistance this is again something for which we and other programs, found that while over should all be thankful.” 70 percent of workers polled said they have One roadblock to implementing a loss made changes, nearly a third (29 percent) control plan by companies of all sizes is said the flu had not made them more care- “pandemic fatigue,” or apathy, caused by ful about protecting their health and that the perception that the H1N1 virus may be their habits have not changed. a “non-event,” Dr. William Lang, former The poll asked workers if the H1N1 flu associate chief medical officer at the U.S. had made them more careful about pro- Department of Homeland Security, warned tecting their health this year—and, if so, in a conference call with NU. what was their primary focus. While the likelihood is that we may Of those responding, 47 percent said be facing a “bad flu season” rather than they were more careful and more likely to a full-blown pandemic, some businesses wash their hands and avoid touching people could be hit with high absenteeism rates, or workplace surfaces; 16 percent said they he observed. were more inclined to get a flu shot; and 8 He explained that the impact of a pan- plan in place—may perceive that imple- percent said they were more likely to stay demic to businesses is different than other menting an all-hazards contingency pro- home and/or /keep family members home if disasters because it affects people rather gram is too time-consuming and costly. there are flu symptoms, the survey found. than facilities, meaning that companies Fifty-five percent of top executives at Dr. Richard A. Chaifetz, ComPsych need to protect their employees. global organizations said they have a plan chair and CEO, said in a statement that Dr. Lang said that in preparing for the in place to manage pandemic risk and have while the survey results are a good indica- H1N1 virus, larger organizations have the activated it in response to the outbreak tion that employees are responding to pub- advantage of being able to begin with their of the H1N1 “swine flu” virus variation, lic health advice, “employers should take existing disaster plan and apply it to H1N1 according to The Conference Board, a not- note of the nearly 30 percent who are not risks. Small- and medium-size businesses, for-profit think tank. inclined to change health behavior even in however, may not have an all-hazards plan A survey taken earlier this year by the the face of a pandemic.” in place as a starting point. New York-based organization found that Risk management starts at home. Have Another aspect, he added, is that smaller of 121 members of 44 councils—small, you gotten your flu shots yet? NU propertyandcasualtyinsurancenews.com December 21/28, 2009 | National Underwriter Property & Casualty | 27 e&s/specialty market report

■ D&O Update Side-A Market Competition Heating Up Demand on the rise, but independent director liability policies still a tough sell

assets less than $6 million had the cover, with the percentage rising to 16 percent for those in the $50-to-$100 million range, and 57 percent for those between $5-to-$10 billion. Pulling together the overall results for public and private company survey participants of all sizes, the report in- dicates that 11 percent said they had purchased Side A at some point on the 2008 survey, compared to just 9 percent in 2007. A change in the distribution of survey participants may explain some of the differences between the results in the two years. The report notes that there were 11 percent fewer participants in 2008, and that the largest decline in par- ticipation came for a group with assets between $6 million and $10 million (a 59.4 percent reduction). Still, the trend in the Side-A survey E While Side A, B and C covers for directors and officers remain popular, buyers are shy- figures makes sense to Mr. Turk. “There’s ing away from separate coverage for independent directors, seen as the “next step” in D&O sales. a greater awareness of the benefits of a Side-A policy,” he said, adding that many By Susanne Sclafane insurance purchase decisions are spurred hen Michael Turk, senior consultant for Towers Perrin, when people see the coverage at work on actual claims. pulled together figures for his firm’s annual directors and “There’s a D&O claim, and whether officers liability insurance survey back in 2007, something it’s because of insolvency or some other W reason, the company does not reimburse just didn’t seem right. the directors and officers, and people “I didn’t even believe the numbers,” Towers Perrin 2008 report published late see these individuals can get protected he said, referring to survey findings re- last month—based on a survey conducted by a Side-A policy. A lot of companies vealing that 14 percent fewer insurance in third-quarter 2008—Side-A purchases will look at that and ask, ‘Do we have buyers had purchased a Side-A-only jumped 33 percent for repeat public com- this insurance?’” D&O policy. pany survey participants. This is what makes D&O “such a dy- The conclusion didn’t fit together “I think it is still going to grow more,” namic coverage. It’s constantly changing with the growing level of interest Mr. Mr. Turk said, citing a table in the report based on claim experience,” he said, refer- Turk saw in the market for Side-A cover- indicating that 43 percent of public com- ring not just to buyer appetites, but also age—which responds to non-indemni- panies said they have had Side-A coverage how insurers react to enhanced coverage. fiable D&O losses, where a corporation at some point. “It’s still less than half,” he Like the 2007 survey, the latest Tow- can’t indemnify directors because of said—noting, however, that purchases are ers Perrin report has one set of results Mr. statutory prohibitions in a state, be- greater for larger companies. Turk finds puzzling—figures revealing low cause the corporation is financially im- Among all organizations with assets buyer appetites for coverage similar to Side paired, or some other reason. over $10 billion, 73 percent bought Side- A that is known as Independent Directors A year later, the Side-A purchase fig- A-only coverage, according to the report. Liability coverage. ures came roaring back. According to the In contrast, only 1 percent of those with He explained that IDL is “the next step”

28 | National Underwriter Property & Casualty | December 21/28, 2009 property-casualty.com in D&O coverage, which not only focuses on the comments delivered by two brokers people—are included in Side A. Side A on individuals by removing Side B corpo- during a recent webcast. just covers a few more,” he said. “They rate reimbursement and Side C entity cov- On the webcast, hosted by New York- want more information for a product erage, but also removes internal directors based Advisen late last month, Phil Nor- they may overprice.” and officer from coverage. ton, vice chair for the Midwest Region He also noted that the Side-A form It’s basically Side A just for the outside at A.J. Gallagher in Chicago, said one is more attractive to the typical buyer directors, Mr. Turk said. reason IDL policies are not popular “is he deals with—the chief financial officer, “Last year, we had a lot of people that because the Side-A policy is so much treasurer or risk manager—who may opt were looking at that,” he noted. In fact, easier to place.” to buy Side A, reasoning that “this could 2007 survey results revealed that 23 per- “IDL insurers seem to ask for so cover me, too.” cent of the participants were evaluating much more information, even though In contrast to IDL, Mr. Norton said IDL coverage. fewer people—and some of the same  continued on page 32 According to the just-published 2008 survey, however, “less than 1 percent of public companies reported buying it [and] there was a big reduction in the number of companies that were even considering it,” according to Mr. Turk. In total, only 3.2 percent said they considered IDL—1.7 percent of public companies and 4.3 percent of private firms. The much higher comparable figures from the 2007 survey were 21

the skinny What’s The Deal With IDL Coverage? Explaining the concept behind an independent director liability policy, Kevin LaCroix, a partner with Oakbridge Insurance Services, said the basic idea is that “you dramatically reduce the number of insured per- sons under the [D&O] policy and provide protection just for them, usually on an excess basis—excess of indemnification )\TIVMIRGI1EXXIVW and underlying insurance.” Those involved in the security industry understand they are responsible for the Phil Norton, a vice chair for A.J. Gallagher safety of the buildings and people they protect. CoverX knows what is at stake, in Chicago, explained the newest layered too—we have been a leading insurance provider in the security industry for over program trend by example: “Think of it this way: You write a D&O policy designed to 35 years, thanks to our outstanding coverages and a great rapport with our agents cover about 200 people plus the entity; and brokers. Our policies are specialized to ﬁt any organization, whether it is new then you write a Side-A policy designed or established, a one-person operation or national ﬁrm. to cover just 25 key people; and then you write one of these IDLs, and it covers six Eligible operations include: outside directors.” s Security guard s Alarm s Safety percent of public companies and 30 For more information regarding our Security coverage, contact: percent of private firms. John C. Bures at (248) 213-0433 or [email protected] “There could be a number of rea- ADDITIONAL BUSINESS SEGMENTS: sons,” Mr. Turk said, speculating that Specialty Casualty Ted Camp (248) 213-0446 the economic downturn was a big one. Professional Lines Kieran Murray (617) 426-6262 x589 “As the economy started to deteriorate, Hospitality and Indoor Recreational Brad Lyons (248) 213-0442 people may just be saying, ‘We’ve got to Contract Underwriting/Programs Tom Greene (248) 213-0403 be very careful about how much we’re spending on all this kind of coverage,’” he said. A subsidiary of: Visit our new web site at The low take-up rates are probably not www.CoverXSecurity.com that surprising to insurance brokers, based property-casualty.com December 21/28, 2009 | National Underwriter Property & Casualty | 29 e&s/specialty market report

■ policy evolution The ABCs of D&O Insurance Clauses Problems continue to exist from coverage innovations of the mid-1990s By Peter R. Taffae exist in many states.) here has been a proliferation of Side-A-only insurance Insuring Agreement B, or Side B, reim- burses a corporation for its loss when the forms to cover directors and officers in recent years, but few corporation indemnifies its directors and know the history of the underlying coverage of the full D&O officers for claims against them. T Side B does not provide coverage for policy—a policy now more than seven decades old. the corporation for its own liability. The first ever D&O policy came out As a result of these events, the “origi- This insuring agreement protects the of Lloyd’s of London in the late 1930s. nal” D&O policy now had the oppor- company’s balance sheet, and in this Even after the depression, the directors tunity not only to protect the legal respect is no different from a property and officers did not see a great need for entity’s balance sheet but also the per- policy, which also similarly provides this insurance and the coverage did not sonal liability of individuals. balance sheet protection. sell well. Companies were not permitted The “newly improved” D&O liability By the mid-eighties, all insurers except INAPro had changed to the current easy as a-b-c one policy with multi-insuring clauses What Are D&O’s Building Blocks? format. (INA was the Insurance Com- pany of North America, which later The D&O coverage parts are: merged with Connecticut General to Side A, which protects a corporation’s directors and officers E form CIGNA) when the company can not indemnify the individuals. In the late 1980s, insurance compa- E Side B, which is designed to reimburse the organization nies—in the interest of becoming more when it indemnifies the individuals, thereby protecting the company’s balance sheet. efficient— started to issue one D&O policy with the two insuring clauses. E Side C, also known as entity coverage. introduced to eliminate disputes of coverage allocation when Chubb took advantage of merging the both directors and officers and the insured organi- two policies together to allocate certain zation itself are named as co-defendants in securi- policy exclusions to the particular insur- ties lawsuits. ing clause, thus in many ways enhanc- ing the coverage. At the time, this was to indemnify their directors or officers policy (circa 1960s) was actually two poli- very innovative and later became the at the time. cies usually stapled together, each word standard we have today. In the 1940s and 50s, corporations for word the same except each had its began to see the advantages to corporate own insuring clauses. THE POLICY EVOLVES indemnification, thus prompting state leg- Insuring Clause 1, or Side A as it The development of the Side-A cov- islatures to pass laws that permitted corpo- later became known, provided personal erage of the D&O policy has a number rations’ by-laws to be amended by adding financial protection to the corporation’s of milestones and enforces how the indemnification provisions. The courts up- directors and officers when the company D&O policy has matured over the years, held these changes. could not indemnify The 1960s brought an onslaught of the individuals. This Although D&O policies across the mergers and acquisitions. This period was usually in the industry might share similar ‘skeletons,’ each has been referred to as “conglomerate case of bankruptcy insurer’s D&O policy has a different heart, soul merger mania period,” and the merg- or the filing of a de- ers resulted in litigation against the rivative suit. and skin. With the right guidance, this aspect of corporation and its directors and of- (Editor’s Note: De- D&O coverage can provide substantial coverage ficers. This litigation, in turn, resulted rivative suits are suits positives to the directors and officers.” in court interpretation of the securities brought by share- Peter R. Taffae laws—interpretations giving rise to the holders on behalf of real possibility that boards of directors the company, naming directors and offi- reminding us of how the policy has had and officers of corporations could have cers as defendants. Statutory prohibitions to adapt to both the litigation environ- personal liability exposure. against indemnification of derivative suits ment and human nature over the last

30 | National Underwriter Property & Casualty | December 21/28, 2009 property-casualty.com 70-plus years. refuse to indemnify. Today, this clause is legal entity is NOT an insured under an An excellent example that demonstrates built into the policy. A&B D&O policy. the evolution of ever-ameliorating D&O For clarification, Side A then and policy is the addition of the “presumptive now only protects the individuals. Side SIDE C INTRODUCED indemnification” clause. B is designed to reimburse the organi- For decades, the D&O policy had In the mid 1980s, a New York Stock zation when it indemnifies the indi- only two insuring clauses and with Exchange-listed pharmaceutical compa- viduals, thus protecting the company’s rare exceptions the claims process was ny based in Philadelphia had accepted a balance sheet. fraught with arguments because the in- Side-B/corporate reimbursement reten- Both Side A and B provide personal/insured organization (company) was often tion of $5 million. The hard market of dividual protection. The term “corporate named as a co-defendant along with 1985 mandated that Fortune 500 firms reimbursement” used to describe Side B the directors and officers when lawsuits would have corporate reimbursement is confusing and can be misleading. The  continued on page 33 retentions ranging anywhere from $2.5 million to $5 million. Shortly after the pharmaceutical company’s renewal, the directors and officers became defendants in a class- action securities lawsuit. Because the policy was silent on when the individual side of the policy, Side A, would respond, and when the corporate reimbursement, Side B, would respond, the pharmaceutical’s legal department “creatively” reasoned that if the company just decided not to indemnify the directors and officers, the claim would shift from Side B—with a $5 million retention—to Side A. At the time, most underwriters applied a $1,000 per individual and a $5,000 aggregate retention to the individuals protected under Side A. The policy wording on when a loss would be paid under Side A versus Side &YMPHMRKXLI6MKLX7SPYXMSRW B was so vague that by just declining to indemnify, the directors and officers CoverX operates as a premium source for Specialty Casualty coverages through our shifted what normally would be a Side-B six regional offices nationwide. We have built a solid reputation with our agents and claim to Side A. brokers by consistently developing competitive, cost-effective solutions that save As the policy did not define the term money for our clients while allowing them to remain in the forefront of their field. “non-indemnification,” the underwriter Our programs are available through wholesale brokers only. at the time handled the claim under Side Specialty Casualty eligible operations: A, thus supplanting the $5 million reten- s Construction, roofing, electrical, plumbing/HVAC tion with a $5,000 one, even though $5 s Manufacturers, distributors, importers million is what was originally anticipat- s Transportation s Oil and gas contractors and suppliers ed for this type of claims situation when the policy was written. For more information regarding our Specialty Casualty coverage, contact: Almost immediately, the underwrit- Ted Camp at (248) 213-0446 or [email protected] ing community responded by endorsing all D&O policies with a “presumptive in- ADDITIONAL BUSINESS SEGMENTS: Security John Bures (248) 213-0433 demnification” endorsement that stated Professional Lines Kieran Murray (617) 426-6262 x589 that Side A would only apply when the Hospitality and Indoor Recreational Brad Lyons (248) 213-0442 insured organization could not legally Contract Underwriting/Programs Tom Greene (248) 213-0403 indemnify directors and officers (as in the case of derivative litigation) or financially indemnify (as in a bankruptcy A subsidiary of: Visit our new web site at situation) indemnify, thus eliminating www.CoverXSpecialty.com the insured organization’s ability to just property-casualty.com December 21/28, 2009 | National Underwriter Property & Casualty | 31 side-a market topped off with “a little tower that’s an form contract could be called upon.” continued from page 29 IDL-type policy.” With bankruptcy filings now multiply- Mr. LaCroix suggested that the top layer ing and potentially prompting insurer there’s been “an amazing trend” toward need not be a true IDL policy, but instead claims payouts under more Side-A poli- increased Side-A purchases since 2006. could be an excess Side-A policy written for cies, price competition could start to dis- In that year, he said roughly 50 percent non-officer directors as a group. appear, experts confirm, but they expect of his clients bought Side-A-only policies Explaining the distinction, he ex- competition to stick around for a little or added limits to the Side-A limits they plained, “when you compare the protec- while longer. already had. “Then the next year, 50 per- tion available under an IDL policy to “Logic would tell you that as loss pay- cent again.” what’s available under a state-of-the-art ments occur, underwriters will react,” Mr. Kevin LaCroix, a partner with Oak- excess Side-A DIC, the IDLs just haven’t DiLullo said. “They haven’t always reacted bridge Insurance Services in Beachwood, kept pace—in part because there was no to frequency of the claims, but their pric- Ohio, said “the value proposition for Side competitive pressure to do it.” ing dispositions have reacted when they’re A has gotten a big boost recently with the actually making the payments. We’re not settlement in the Broadcom case,” referring MOST COMPETITIVE SEGMENT? really in that period yet.” to a $100 million derivative lawsuit, which Chris DiLullo, a senior vice president Mr. Bradford agreed. “In theory, the is a non-indemnifiable claim. in Lockton’s Washington, D.C., office, spike in bankruptcies and associated se- While the company is not insolvent, believes competition for broad-form curities claims would put Side-A policies excess Side-A insurers contributed $40 Side-A coverage is more intense than at risk, [but] I haven’t actually talked to million, he said. “It’s the first example any other sector of the D&O industry any underwriters who are wringing their outside the insolvency context where ex- right now. hands at this point in time over the Side- cess Side-A carriers had to contribute sub- On a coverage basis, Mr. DiLullo said A exposure….It’s something that people stantially toward settlement—[making] examples of expansions include the talk about a lot, but I haven’t seen the real the need for this type of protection… removal of insured versus insured (or angst in the marketplace that there’s a cri- much more apparent.” company versus insured exclusions) and sis going on with Side A.” Mr. LaCroix noted that the question of the addition of reinstatement-of-limits Interestingly, some figures in the Tow- whether a broker’s discussion of IDL turns provisions (sometimes limited to just ers Perrin report—which are notably into a sale depends on who is on the other the independent directors). “I’ve even based on survey responses that are a year end of the conversation. “When you’re seen one contract that didn’t have a old—seem to suggest Side-A rates are ris- having it with the CFO or treasurer, it’s a bodily injury/prop- ing, while A-B-C D&O survey different dialogue than if you’re having erty damage exclu- rates fall. it with the board and the outside board sion,” he said. For More Information: According to members,” he said. David Bradford, The latest edition of Towers Perrin’s annual the report, the av- He reported that while teaching at the executive vice presi- survey of directors and officers liability erage rate per $1 Stanford Law School Directors College dent of Advisen, said insurance purchasing trends is available million limit for earlier this year, he addressed “a roomful his firm has seen on the Towers Perrin Web site at http:// A-B-C coverage www.towersperrin.com/tp/getwebcachedoc of outside board members, all of whom” some Side-A policies ?webc=USA/2009/200908/DO_Survey_ was $16,624 in wanted to talk about D&O insurance that clearly cover Report_2008_FINAL.pdf. 2008, down from designed specifically for them, although ERISA liability. In addition to presenting results related to $21,422 in 2007, they didn’t necessarily refer to the IDL “Generally speak- Side-A coverage, the report analyzes trends while the average product name. ing there’s a lot of related to policy limits, retentions, coverage rate per $1 million The trend now, he said, is toward competition on a price enhancements and prices. limit for Side-A-on- creating insurance that “continues to basis for broad-form ly was $15,638 in get more refined—so on top of the A-B- A-side coverage,” Mr. DiLullo observed. “I 2008, up from $11,015 in 2007. C D&O policy, and on top of excess Side would think there would be a lot of sup- Mr. Turk said he is not entirely com- A, there’s yet another layer that takes port for that statement in the industry.” fortable drawing the conclusion sug- out the risk of the Dennis Kozlowski He declined, however, to quantify the level gested by these numbers—that A-B-C effect—of an inside black-hat person of price declines. rates fell 22 percent while Side-A rates [or wrongdoer] soaking up all the insur- Brokers and consultants over the jumped 42 percent. He said that since ance, and leaving outside directors with years have told National Underwriter the average rate figures in the report nothing left to defend themselves.” (Mr. that one significant obstacle to Side-A are not just for repeat participants, Kozlowski, the former chief executive of coverage purchases has been the high “there could be some explanation for Tyco International, was convicted in a price tag. [the changes] based on a change in the corporate scandal in 2005.) Giving one reason for high Side-A pre- makeup of the firms participating.” “This is the newest trend,” Mr. Nor- miums, Mr. DiLullo said carriers “are un- The figures for just 2008, however, ton agreed. “We are seeing these triple- derwriting the financial solvency” of the put the Side-A average rate per million layer programs.” He likened the new insured. Insolvency “is obviously one of ($16,624) very close to the average A-B-C structure to a layered dessert parfait the key moments in time that the broad- rate per million ($15,638). NU

32 | National Underwriter Property & Casualty | December 21/28, 2009 property-casualty.com increased fivefold. MONOLINE SIDE-A POLICIES: insurance clauses THE NEW GENERATION continued from page 31 Second, most insureds continue to purchase the same limit of liability. Although theoretically available prior were filed. This is frequent in securities Many broker experts believe that by to 1986, it was not until the creation class action litigation. adding Side C, the individuals’ pro- of Corporate Officers Directors Assurance Because the intent of the D&O insur- tection actually substantially decreased (CODA) that monoline Side-A policies be- ance has always been that of an “individ- because now the limit of liability will came commercially available. ual protection” policy (unlike the general be greatly diluted since it is shared with The attraction to Side A has evolved liability policy), the insurance company the legal entity. over the last 20-plus years. Initially and the insureds were at odds when trying This is an excellent reason to secure it was created to address the lack of to determine a fair allocation of defenses standalone Side-A coverage, and it has affordable and available coverage for costs and any settlement. Frequently, this contributed to the increased interest in this Fortune 500 companies during the hard led to litigation between the company and standalone coverage in recent years.  continued on page 34 D&O underwriters. It was not until the now famous Nord- strom vs. Chubb decision in 1995 that insurers were forced to address this historical allocation dilemma. The U.S. 9th Circuit Court of Ap- peals in Nordstrom determined that a means of differentiating the liability between directors, officers and the legal entity did not exist in securities litigation, and that Chubb was on the hook for paying the entire settlement of a securities case that named both the directors and officers and the company as defendants. The initial underwriting community response was to establish a predetermined allocation between the individuals and legal entity at the inception of the policy. The percentages ranged from 70 percent to 100 percent, and the policies were supposed to be priced accordingly. There was initially a cost involved, and 4VSXIGXMRKXLI4VSJIWWMSREP the coverage was endorsed to the policy via Your client assumes responsibility when approached with a claim. Our extensive a Predetermined Allocation endorsement. Professional Lines coverages provide agents with plans that offer the best As a result of competition, this lasted protection against the most challenging exposures for their clients. CoverX less than a year, and 100 percent became the norm with no increase in premium. has been an established leader in underwriting services for over 35 years, As the insurance industry revised and in- providing agents and brokers with quick and efficient responses. While offering troduced newer versions of their D&O EPL, MPL and directors and officers liability for private and not-for-profit policies, the Predetermined Allocation en- companies, our policy forms also include unique enhancements. dorsement soon became SEC Entity coverage, also known as Side C. For more information regarding Professional Lines coverage, contact: By adding Side C, the insurance in- Kieran Murray at (617) 426-6262 x589 or [email protected] dustry solved one problem while creating others, which to this day have not ADDITIONAL BUSINESS SEGMENTS: been resolved. Specialty Casualty Ted Camp (248) 213-0446 The first problem is that the substantial Security John Bures (248) 213-0433 increase in exposure (due to adding the Hospitality and Indoor Recreational Brad Lyons (248) 213-0442 entity as an insured) did not affect the Contract Underwriting/Programs Tom Greene (248) 213-0403 pricing. Now, for the first time, insurance companies were insuring the legal entity (although only in securities litigation) and A subsidiary of: Visit our new web site at the directors/officers. Some estimate that www.CoverXProfessional.com by adding Side C, the risk to underwriters property-casualty.com December 21/28, 2009 | National Underwriter Property & Casualty | 33 insurance clauses Executive Risk, which was acquired by ployee) directors became very evident continued from page 33 Chubb in 1999) introduced a by-prod- during the litigation of companies like uct of the standalone Side A policy, Enron, WorldCom, HealthSouth earlier market of 1985. Lately, renewed inter- called IDL, or the Independent Direc- in this decade. During the litigation of est has been fueled by several factors, tor Liability policy. The IDL policy these and other companies, we were including the high defense costs as- introduced in the late 1990s got off to reminded of the specific and unique sociated with securities litigation, the a slow start; however, in the last five duties, responsibilities and exposures large number of corporate bankruptcies years it has taken Side A to the next of inside officers/directors and outside/ and insider versus outsider allegations level by furthering expanding the fi- independent directors. Sometimes we of fraud. nancial protection for the independent refer to the separation by referring to Executive Risk Management Asso- director constituency. the guilty as “black hats” and innocent ciates (the underwriting manager for The needs of independent (non- em- as “white hats.” Keep in mind the D&O policy limit of liability is a depreciating asset and does not discriminate in its burn rate. Thus first to spend is first to be defended. Layering a program with A-B-C, followed with Side A, topped with IDL is considered today’s state-of-the-art architecture. (See related article, page 28, for more on this layering approach.) With that said, please take note that there is no standard or generic A-B-C, Side A and IDL policy language. Each underwriter has its own propriety products with unique terms, conditions and exclusions. Today’s D&O policies have come a long way since the 1960s, and the insuring clauses are only one example how the industry has responded to the ever-changing environment over the years. For many people who have not worked with the D&O policy to a great extent, it is uniquely different from other insurance policies which are based on ISO forms (crafted by the Insurance Services Office.) In the absence of ISO forms, although D&O policies across the industry might share similar “skeletons,” each insurance company’s D&O policy has a different heart, soul and skin. With the right expertise, this aspect of D&O coverage can provide substantial opportunities to be creative and enhance the coverage for the directors and officers. Alternatively, without the right guidance, if the D&O purchasing process is treated with a generic commodity approach, it can lead to great problems. NU

 Peter R. Taffae is managing director of Executive Perils, a Los Angeles-based national wholesaler solely dedicated to D&O, E&O, EPL, digital, intellectual property, media, legal malpractice, insurance agents E&O, crime and fiduciary liability insurance. He can be reached at [email protected].

34 | National Underwriter Property & Casualty | December 21/28, 2009 property-casualty.com agency management ■ tip sheet ‘Tis The Season To Get A Jump On 2010 Company rep offers top-five ways for agents to pave the way for higher sales

By Dan King five significant areas? Let’s take a look at count round percentages. uring my 35 years in the in- how to capitalize on growth strategies dur- surance industry I have repeatedly ing this slower period. REFERRAL NUMBERS D heard independent agents say that As I travel the country working with this is typically a slow period in their busi- ACCOUNT ROUNDING independent agents, they unanimously ness. Several agencies have gone so far as This would be a great time to get into acknowledge that their number-one source to say that they could probably close their your agency management system and run of new business is referrals. doors for the last four-to-six weeks of the the listings of auto-only and home-only However, less than 20 percent of these year without it having an appreciable im- clients. Most agency management systems agencies have a written, documented strat- pact on their operations. are capable of displaying this information. egy for attracting referrals. If that’s the case, this “slow time” is the However, I have encountered a number A substantial number of principals and perfect time for agency owners owners believe they’re not getting and managers to take a page out Agencies that make a concerted as many referrals as they’d like of Santa’s playbook and start effort to increase account-rounding and simply because their staff isn’t ask- making a few lists of their own. cross-sell percentages as well as the ing for them. Agencies that take advan- This is a great time to put pencil number of referrals and EFT clients almost tage of this downtime will find to paper and establish a proactive themselves well poised for a pro- always naturally benefit from a better strategy for increasing referrals. ductive start to the New Year. retention rate.” Keep in mind, account round- With increased competition Dan King ing and cross-selling are positive in the marketplace and the nu- customer interactions, so when merous changes taking place in our indus- of agencies that cannot easily access this agency staff asks for referrals at these times, try, many agencies are trying to reinvent data. If running an in-house listing isn’t an clients are often forthcoming. Think of how they conduct business. option in your agency, carrier representa- it this way--what better time to ask for Yet in spite of shifting sands, one thing tives can supply these reports. referrals than after educating a client and remains the same--the large majority of Once an agency has the monoline lists, addressing their needs? independent agents are still focused on they can develop a letter to send to clients growing their revenue and client base. they are looking to round out. These let- INCREASE EFT CLIENTS In my experience, these are the top-five ters should be ready to go right after the As agencies increase their percentage areas that require attention and improve- New Year. of electronic funds transfer clients, they ment in order for an agency to grow: If this sounds like a strategy worth begin to experience a dual benefit. First, J Account rounding pursuing, make sure to set up a way to it enhances retention by decreasing the J Cross-selling measure results. You cannot manage what number of non-pay situations. Second, it J Referrals you don’t measure. also decreases the number of billing ques- J Electronic Funds Transfer/lump-sum pay- tions. This provides the staff additional ment clients CROSS-SELLING time to sell. J Retention Another good use of time is to run a A number of agencies have shared that What is interesting about the first four report of all commercial or financial ser- their personal insurance staff isn’t comfort- areas of improvement is the considerable vices clients who don’t have any personal able offering and selling EFT. If that’s the impact they have on the fifth--retention. insurance within the agency. The agency case, now might also be a good time to Specifically, agencies that make a con- would again develop a letter to be followed explain EFT process and procedures and to certed effort to increase account rounding up by a call from the personal insurance develop a script to assist staff in this effort. and cross-sell percentages as well as the staff person. During my agency visits, I have ob- number of referrals and EFT clients almost The probability of retaining more cus- served staff ending a sale by offering to always naturally benefit from a better re- tomers increases as the agency writes more have installments taken directly from the tention rate. lines of coverage with each client. customer’s checking or savings account. If the latter part of the year provides a This can be a great opportunity for When offered in that manner, some clients little additional time, why not take advan- many agencies since cross-sell percent- may decline. tage and be proactive in addressing these ages are usually much lower than ac-  continued on page 36 property-casualty.com December 21/28, 2009 | National Underwriter Property & Casualty | 35 Agents & brokers cent reported having a formal policy on methods used to reach current and prospec- continued from page 8 what employees can do on the Web during tive customers included: working hours. E E-mail marketing (49.3 percent) In general, the responses suggest that Surprisingly, even the use of a basic Web E Search engine optimization (24.9 percent) although most agents and brokers are site is not ubiquitous. Although 81 percent E Lead-based Web sites (13 percent) actively using more traditional Internet of respondents reported having an agency E Interactive Web sites, such as reader fo- methods, they have been slower to get Web site, 19 percent did not. rums (10.4 percent) involved in more cutting- Of those respondents E Electronic customer relationship man- edge practices. for more information with Web sites, the major- agement (8.4 percent) When asked whether ity (32.3 percent) had su- Other methods mentioned in an To learn more about the their agency or brokerage pervised a redesign over the open-ended question included insurer- survey results, go to had a social media presence, past six-to-nine months, sponsored Web sites, online and print www.agentandbroker.com. 58.1 percent said no, 22.3 24.6 percent did so more advertising, telemarketing, seminars, di- percent said yes, and 19.6 than two years ago, and rect mail, cross-policy sales lists, and percent said they were considering it. 21.9 percent did so over the past year. instant quotes and purchase options on Of those respondents who had a social In an open-ended question, several re- Web site. NU media presence, 26.6 percent used Linke- spondents commented that they didn’t pur- dIn while 24.9 percent were on Facebook, sue any form of Internet marketing because  Laura M. Toops is Editor In Chief of American Agent & Broker, part of Summit Business 11.4 percent on Twitter, and 3.8 percent Web sales were “undesirable.” Media’s P&C Magazine Group, which includes on MySpace. Along with Web sites and social network- National Underwriter. She may be reached at Of the social networking users, 47 per- ing, other popular Internet-based marketing [email protected].

jump on 2010 J Policy Type continued from page 35 J Other Policies at Risk Advertiser Index J Payment Type This index is provided as an additional service Many agencies experience success when J Deductible to our readers. The Publisher does not assume any they try a different approach. Instead, J Lost to who liability for errors or omissions. suggest to customers that the carrier can J Reason for loss Page Advertiser Number simply bill their bank. It’s a subtle change Many agencies track their lost business but it sounds much more pleasant than and identify those clients they would like Admiral Insurance...... 17 www.admiralins.com telling a customer that money will be taken to re-solicit. This might also be an ideal American Institute of CPCU...... 25 directly from their account. time to develop a “win back” letter. www.aicpcu.org There are two significant benefits to American Modern...... 12 RETENTION going after lost clients. First, there is no www.amig.com/writeit By addressing the aforementioned areas, additional expense incurred by the agency Applied Underwriters...... BC an agency is well on its way to retaining to identify potential new clients. Second, www.auw.com more of its business. I have seen many agents say that when you www.auw.com/ca write a client for the second countless examples of improved Agencies should Burns & Wilcox...... 15 retention when agencies proac- time, they tend to stay with the burnsandwilcox.com tively address account-rounding, systematically agency. Catlin...... 9 cross-selling, referral solicitation track which A solid agency growth plan CatlinUS.com and EFT numbers. customers are should always include these five Chartis...... 11 leaving and why. www.chartisinsurance.com However, the retention effort areas of improvement but so of- Cover X...... 29 does not end there. It is very ten the impediment to improv- www.CoverxXSecurity.com important for an agency to track lost busi- ing in these areas is simply the lack of time Cover X...... 31 ness to understand which customers are to develop and implement a strategy. www.CoverXSpecialty.com leaving and why. It is critical to pinpoint if If that rings true, why not seize that Cover X...... 33 it’s customer satisfaction, claims concerns small window of opportunity at the end of www.CoverXProfessional.com or a competitive position that’s causing this year to gear up for a productive 2010? Insight Insurance...... 34 clients to leave. You might find it’s what you do now www.insightinsurance.com The end of the year would be a good that influences your agency’s growth in the Max...... 4 time to set up a simple “lost business log” New Year. NU www.maxcapgroup.com that CSRs and account managers can start P&C Daily News...... 21 using on day one of the New Year.  Dan King is a Director of Agency Development property-casualty.com for Travelers Personal Insurance, working with inde- A lost business log might include the Tax Fact Series...... IBC pendent agents countrywide on business planning www.NUCOStore.com/TaxFacts2010 following: and strategy and other agency development areas Zurich...... IFC J Named Insured to help agents achieve their growth objectives. You www.zurich.com J Date Lost may reach him at [email protected]

36 | National Underwriter Property & Casualty | December 21/28, 2009 property-casualty.com house bill ■ naic update continued from page 7 Regulators Poised To Probe Credit Scoring lines reform in the Senate—but we’re P&C Committee plans to explore impact of pricing tool for informational purposes grateful for this ‘insurance policy’ that moves us to our long-sought goal,” he by phil gusman ance scores, asked: “What would be our said. Sa n Fr a n c i s c o endgame [in further examining the credit The NRRA bill would subject surplus egulators are poised to begin issue]? What are we trying to get at?” lines transactions to a single set of regula- exploring how to gather data on Mr. McRaith responded that the purpose tions—those of an insured’s home state or R insurer use of credit information of gathering such information and produc- principal place of business—regardless of to determine premiums, and might even ing a report will be to discern the rhetoric the location of the risk. expand their study to examine other rating from the facts in order to provide accurate “Such a step would consolidate regula- factors in underwriting. information to those who need it. tory oversight and streamline surplus lines That’s the word that came down from Credit scoring has been attacked by op- regulation, eliminating current overlap- the chair of the National Association of ponents as failing to account for major, un- ping and—for tax filings—sometimes con- Insurance Commissioners Property and usual expenses such as large medical bills, flicting rules that vary from state to state,” Casualty Committee at the group’s meet- as well as unfairly impacting low-income Mr. Wood explained. ing here this month. and minority consumers. Steve Bartlett, president and CEO The committee would like to collect infor- Insurers respond that credit scoring of the Financial Services Roundtable— mation and develop a report on the contro- is a proven underwriting technique that whose members include multinational versial credit scoring issue by the third quarter rewards those who are good risks, and that insurers—said enactment of this pro- of 2010, according to Illinois Insurance Direc- there is a correlation between credit and vision into law will improve U.S. in- tor and Committee Chair Michael McRaith. insurance risk. surance regulation “in a narrow, but During a committee meeting at the NAIC Mr. McRaith said if there is going to be meaningful way.” Winter National Meeting here, Mr. McRaith “significant change” in the states on credit- At the same time, Mr. Bartlett said he said he plans to schedule a public conference based insurance scores, it will likely be would “urge Congress to build on this call in January, during which regulators will through laws passed by state legislatures. progress toward uniformity by moving to discuss how to approach developing a set of “My view is the service we should provide pass comprehensive insurance reform for questions designed to procure information is information,” he said, adding that regula- all lines of insurance.” from individual insurers on how they use tors cannot attempt to resolve the social or He added that “we believe finan- consumer credit information. policy questions surrounding the credit is- cial services regulatory reform remains Connecticut Insurance Commissioner sue, “but we can inform those who have that incomplete without the creation of a Thomas Sullivan, recalling a question he responsibility with some objective, factual functional regulator that would give asked in March when the P&C Committee data about the impact on consumers.” insurers and reinsurers the ability to be and Market Regulation and Consumer Af- One area the committee wants to un- chartered and exclusively regulated at fairs Committee first sought permission to derstand better is the range of impact of the federal level.” NU hold a joint hearing on credit-based insur-  continued on page 41

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38 | National Underwriter Property & Casualty | December 21/28, 2009 property-casualty.com Reform Bill continued from page 7

PCI President and CEO David Sampson voiced similar complaints about this aspect electronic Licensing property & casualty inspections of the House bill. “We reiterate that home, auto and Exec A/B RM business insurers did not cause the financial crisis and are not systemically ELECTRONIC risky,” Mr. Sampson said. “They are not LICENSING highly leveraged or interconnected with Appointments & other financial firms as a source of Non-resident Licensing credit or liquidity.” www.cumberlandlicensing.com He added that because p&c carriers are 401.333.4805 not “systemically risky, they should not be forced into a duplicative federal regulatory Mexico International Coverage system designed for companies that caused the economic crisis. We urge Congress not Exec A/B RM to fix what is not broken.” AIA’s Ms. Pusey also cited “concern” about the proposed dissolution fund. “To the extent property and casualty insurers USA VEHICLES IN MEXICO are considered in these reforms, the nature Solutions for carriers and agents to enter of our business and regulatory standards, this emerging Hispanic market wholesale broker our existing resolution and guaranty pro- 1-888-467-4639 cesses, and the general risk our industry www.mexicaninsuranceonline.com poses to the broader financial system has to be recognized,” she said. liabiltiy insurance Teamwork works. It makes you more successful and “AIA opposes legislation that subjects us too. No wholesale broker delivers the depth of our industry to prefunding obligations experience, marketplace access, negotiation clout for systemically important financial and coverage expertise Swett & Crawford can. Through our national practice groups, Casualty, companies and assesses insurance com- Property, Professional Services, Underwriting, panies to pay for the risks presented Transportation & Energy, you get access to our vast by the failure of non-insurance institu- intellectual capital-risk management and placement know-how of 850 insurance professionals. Each of tions,” she added. our ofﬁces is linked through a unique knowledge “Given the importance of these reforms, exchange where 95-years of experience, a global AIA stands ready to work with Congress to view of market capacity, and the best thinking of a nationwide network of brokers and underwriters is improve the bill as the legislative process shared for your beneﬁt. To put what we know best to moves forward,” said Ms. Pusey. work for you, contact the experts at Swett & Crawford. At the same time, PCI’s Mr. Sampson Visit our website at www.swett.com said his group was “pleased” with comments on the House floor by Rep. Barney Frank, D-Mass., chair of the House Finan- Water and Sewage systems cial Services Committee, that made “criti- Become a follower cal clarifications to the bill and publicly WATER & SEWER SYSTEMS underscored the chairman’s commitment 3000+ utilities insured in all Keep up on to additional improvements [to the legis- states, lowest rates! lation] for the property-casualty industry Complete insurance package: Editor-In-Chief and its policyholders.” Named pollution The statements were made during coverage including: Sam Friedman’s debate the day before the bill’s passage • Potable Water latest tweets through a dialogue between Rep. Frank • Wrongful Acts and Rep. Carolyn McCarthy, D-N.Y. (POL or D&O) • Failure to Supply http://twitter.com/NUSam In his comments, Mr. Sampson said, • EPLI Rep. Frank made a commitment to include www.grundyutilities.com 877-338-4004 additional language in the conference report on the bill when it is reconciled with QUOTES IN 48 HOURS the eventual Senate measure. NU property-casualty.com December 21/28, 2009 | National Underwriter Property & Casualty | 39 'going green' change advisor, Andreas Spiegel. Rockefeller Foundation and GEF—the rein- continued from page 10 “For example, current scientific esti- surer has developed an adaptation frame- mates suggest that the sea level will rise work designed to give local decision-makers official Swiss delegation to the COP 15 between one-half and one-and-a-half me- the tools to start costing and planning for conference in Copenhagen—said it is ad- ters before 2100,” he warned. “Peak surge climate adaptation. vocating immediate implementation of cli- height could increase by 50 percent, mean- The Insurance Information Institute mate adaptation measures to reduce losses ing that a sea-level surge previously seen noted that one insurer has introduced the caused by climate risks. The Zurich-based only once in 1,000 years could now appear world’s first-ever insurance for humanitar- reinsurance company is on hand with the on average every 30 years.” ian emergencies, which was purchased by Swiss delegation representing the Swiss Since 1970, Mr. Spiegel noted, “36 of the the World Food Programme. That coverage Insurance Association. 40 worst insurance losses have been weather- tracks rainfall amounts and patterns and Swiss Re said it is pushing for a swift related. This does not even take account of pays claims well in advance of when post- transition from COP 15 discussions to developing countries, where over 90 percent event relief would be distributed. practical implementation of adaptation of such events are not insured.” “By mobilizing aid faster than would measures in the near term, with the objec- He said that “while the insurance in- be possible by traditional approaches, this tive of reducing climate-related losses and dustry is an important contributor to the product reduces human suffering and the building economic resilience in the coun- absorption of volatile risk, it cannot tackle overall costs of responding to humanitar- tries and regions most at risk. the challenges of climate change alone. To ian crises,” noted Ms. Worters. Swiss Re noted that a recent Economics address this, public-private partnerships Among other insurer green product of- of Climate Adaptation study concluded will be indispensable.” ferings mentioned by the Institute: that annual losses due to climate risks could Swiss Re’s head of sustainability and K Pay-As-You-Drive insurance programs amount to up to 19 percent of a develop- emerging risks, David Bresch, said that to rewarding policyholders who drive fewer ing country’s gross domestic production by absorb highly volatile losses, the company miles with discounts. 2030. However, it also found that action offers alternative forms of risk transfer in K Premium discounts up to 10 percent for on climate adaptation can significantly addition to traditional insurance, as well as those who drive hybrid vehicles. reduce economic losses from climate risks “concrete guidance, based on our expertise K Green homeowners and commercial by between 40- and 65 percent, thereby and experience as a global reinsurer, for property policies with discounts for homes boosting local economic resilience. how societies can respond to the climate meeting stringent efficiency and sustain- “Our societies urgently need to become adaptation challenges.” ability standards. more resilient by adapting to severe weath- Swiss Re noted that in collaboration K Homeowners coverage that replaces/re- er events,” said Swiss Re’s senior climate with partners—including McKinsey, the builds homes after a loss with more eco- global warming talk Berry, noting it has GPS and that he can Climate-related effects are manifesting continued from page 10 be tracked through the device, questioning themselves now, he said, and will only why such capabilities in telemetry devices increase. He said it is the extremes in emissions come from light-duty vehi- was different. temperatures that are becoming danger- cles. Reducing that number, he said, re- Mr. Cole said the California insurance ous, even if the average temperature is not quires less driving, lower emission cars department wanted the regulation autho- necessarily changing a lot. and cleaner fuels. rizing the sale of PAYD products to be pop- Aside from temperature-related impacts, PAYD insurance products, he add- ular with everyone. If tracking a driver’s rising CO2 is acidifying the ocean, which is ed, address the “less driving” part of location makes consumers uncomfortable, eating away the shells of animals and im- the equation, noting that drivers who he said, the department was willing to ban pacting coral reefs, he said. choose such products have been shown it for now to gain wide acceptance. Mr. Mills also addressed the so-called to reduce their driving by an average of California Insurance Commissioner “Climategate scandal,” in which scien- 5 percent. Steve Poizner, Mr. Cole said, wanted the tists’ e-mails denigrating global warm- It was pointed out that there is some con- products authorized and used as much as ing opponents and advocating blocking troversy concerning how and what factors possible for its environmental benefits. their efforts were revealed. He said the insurers may monitor when using telemetry Mr. Mills of the U.S. Department of “illegal breach” that exposed the e-mails devices with PAYD products. Devices installed Energy offered statistics showing the ef- represents a “desperate resurgence” of in cars can track how, where and when a fects of climate change between the 1997 contrarian views. He also said the “de- driver drives in addition to the miles logged. meetings in Kyoto and the current summit bate” around the scandal seems to be In California, consumer advocates effec- in Copenhagen. about “fear and ideology.” tively lobbied to ban the use of GPS capa- In 1997, he said, scientists offered vari- As for the substance in the e-mails, Mr. bilities that can monitor where a driver is ous projections regarding emissions. “We Mills said it shows scientists are human, driving, said Adam Cole, general counsel at have outpaced even the high-end projec- get frustrated and say bad things about the California Insurance Department. tions,” according to Mr. Mills. “The world each other. A representative from the Reinsurance is now pumping 90 million tons of carbon However, Bob Detlefsen, vice president Association of America held up his Black- dioxide into the air per day.” of public policy for the National Asso-

40 | National Underwriter Property & Casualty | December 21/28, 2009 property-casualty.com friendly materials—including some that pay credit scoring where it ends, and whether the committee homeowners extra if they replace old kilo- continued from page 37 will start examining other areas beyond watt-hungry appliances with energy-saving credit. “This could be endless,” he said. devices and recycled debris rather than send insurance scores on consumers. In fact, Mr. Richardson pointed out that destroyed materials straight to a landfill. South Carolina Insurance Director Scott regulators may want to get a handle on K For homeowners generating their own Richardson said his department did a data what factors insurers use to determine rates geothermal, solar or wind power, and that call in his state asking how insurers used beyond credit. sell any surplus energy back to the local credit information, noting he was “stunned” He said the technical aspects of under- power grid, policies cover both income lost at the impact credit had on rates. writing have gotten to a point “where we when there is a power outage caused by a For homeowners insurance, Mr. Rich- need to talk about what is fair.” covered peril and the extra expense to the ardson said credit accounted for savings Next September, Director McRaith indi- homeowner of temporarily buying electricity in a range of 7.6 percent to 51 percent per cated he would like to take a look at marital from another source. Policies generally cover policy for consumers that benefited from status as a rating factor. the cost of getting back on line, such as utility their insurance score, and a surcharge of 1 For now, however, Mr. McRaith said the charges for inspection and reconnection. percent to 86 percent for consumers who goal is to “identify questions that we want K Policies allowing building owners to replace were adversely affected. answers to, and not with the intent of at- standard systems and materials after a loss For auto insurance, Mr. Richardson not- tacking or antagonizing an industry or any with green ones—such as energy-efficient ed, consumers benefited up to 36 percent one company.” electrical equipment and interior lighting, per policy, and were adversely impacted by A second component, he said, would water-conserving plumbing, and nontoxic a range of 12 percent to 99 percent. be to explore regulating advisory compa- and low-odor paints and carpeting. He stressed that he did not know how nies that develop credit-based insurance K With a total loss, a policy will often cover many people were in the extreme ranges, scores. the cost of rebuilding as a green-certified but indicated that is information regulators To do that, Mr. McRaith said the NAIC building. This coverage may also pay for en- should seek to collect. would have to develop a model law for gineering inspections of heating, ventilation, Commissioner Sullivan, while offering states that don’t have the authority to air-conditioning systems, building recertifica- support for the collection of data, wondered regulate these companies. NU tion fees, replacement of vegetative- or plant- covered roofs and debris recycling. ■ obituary Some cover the income lost and costs incurred when alternative-energy generating equipment is damaged. NU Former Claims Editor ciation of Mutual Insurance Companies, commented to Mr. Mills that he was dis- Phil Schreiner Passes Away appointed by the “frivolous attempt” to By Eric Gilkey the insurance implications of 9/11 and explain away the e-mails. he insurance and journalism Hurricane Katrina. He called it “remarkable evasion” to dis- worlds lost one of their best last week Besides his accomplishments at the maga- miss the content of the e-mails, and cited when Philip “Phil” T in memorial a Wall Street Journal article that contended Schreiner, former editor of the e-mails showed the lengths to which Claims magazine, passed For those wishing to make a some will go to blacklist dissent, and that away on Dec. 10 after a donation in Phil Schreiner’s memory, the computer models used to understand short battle with lung can- please send any contributions in his name climate change are poorly designed. cer at the age of 66. to the American Lung Association, Mr. Mills said if he was trying to evade Mr. Schreiner took the issue, he would not have brought it up over as editor in chief of One Trans Am Plaza, Suite 460, in the first place. Claims in late 2000, and Oakbrook Terrace, Ill. 60181. Mr. Cole said the California Insurance retired from the magazine Department will provide a guidance docu- in May 2008. It was under his leadership zine, Mr. Schreiner was a friend to many at ment online to assist insurers as they com- that the magazine went through several this company, and beloved by those in and plete the Climate Risk Disclosure Survey successful redesigns and launched its out of the industry for his larger-than-life developed by the NAIC. Web site. personality, his knowledge and his poise. Although the NAIC said it will not Throughout his 40-year career, he was the He will be missed immensely by all here at provide any further guidance, Mr. Cole winner of almost two dozen Jesse H. Neal Summit Business Media, as well as by his fam- said the California department will Awards from American Business Media— ily, most notably by his wife Therese and his make available a four-page guidance journalistic awards often referred to as the three children—Henry, Greg and Tracee. NU document to help spell out what the “Pulitzer” of the business-to-business press.  Eric Gilkey is Editor in Chief of Claims, part survey questions mean. Some questions, He covered groundbreaking claim is- of Summit Business Media’s P&C Magazine he said, are not self-explanatory. NU sues ranging from mold and asbestos, to Group, which includes National Underwriter. property-casualty.com December 21/28, 2009 | National Underwriter Property & Casualty | 41 FINAL SAY ■ nu view

J The International Rescue Committee. Industry Can Do More J Starlight Children’s Foundation NY*NJ*CT. J The World Cares Center. The money they raise, he said, benefits To Boost Its Reputation children in need, alleviates humanitarian crises and helps communities to prepare By mark e. ruquet for disasters. How many people know the arlier this month the prop- industry does such things? erty and casualty insurance indus- At the end of the evening, former NBC E try held its annual “love fest” in News anchor Tom Brokaw gave an inspiring New York City, honoring its greatest and hopeful speech about the challenges the cheerleader, Willis Group Chair and CEO United States has faced in the past, and how Joseph J. Plumeri. he believes younger Americans will rise to the I was on the scene, and left wondering occasion to become the greatest generation whether the industry would ever be able to of their time. He also joked about worrying project the positive image it has of itself to whether his insurance was in place during the public at large. a recent auto accident, expressing relief that The event was the third annual Insur- both his life and auto coverage were paid up. ance Industry Charitable Foundation gala By the end of the evening, many of fundraising dinner, and Mr. Plumeri was the contributors must have been feeling this year’s honoree. E Willis CEO Joe Plumeri is a tireless pretty good about their industry despite True to form, he struck a folksy, “How cheerleader for the industry, but we need soft market competition and a fragile eco- ya’ doin’?” as he began his address to thank more like him to alter the negative percep- nomic recovery. tion of insurance. IICF for the honor (which last year went Yet Mr. Plumeri voiced a common com- to Pierre Ozendo, chair and CEO of Swiss He pointed to the considerable amount plaint during his speech—that there is noth- Re America Corp., and in 2007 to Brian of money the industry makes available to ing in media promoting a positive image of Duperreault, president and CEO of Marsh policyholders when disaster strikes, up- the industry, and that for all insurance does, & McLennan Companies). holding a promise to pay claims in an ef- the business deserves better. From the ap- Joe honored his family, joking about fort to make their lives whole again. plause, one would say that many agreed. them, promoting his son’s restaurant Insurance is the mother’s milk of The question is: What will this industry and reading a letter from his Mom. (“He capitalism, he intoned, and when catas- do to change its negative perception among loves insurance. And he’s a nice boy.”) He trophes strike, insurers are there to aid the consumer press and the general public? also gave the industry a strong pat on the in the recovery. The industry gave itself a well-deserved back for a job well done. The economy won’t function without pat on the back for its charitable work and In close to a decade as head of Willis, Mr. the backing of insurance, he pointed out, noble aims at this dinner. But will it take Plumeri has been both an ardent critic and noting that even the chairs which the eve- anything away from these inspiring ob- promoter of the insurance industry, and has ning’s attendees were sitting on would not servations other than it being a victim of probably annoyed a few people in an indus- be there without coverage. misunderstanding and underappreciation? try of generally low-key personalities. From the manufacturer to the delivery It would have been nice to see the He stands out, as he did on this occa- truck, to the hotel holding the event, the speakers challenge the industry to stand sion, as being both vocal and passionate night’s gala would not proceed without up and defend its reputation before the in his opinions about the direction and insurance, he noted. public—to charge confidently forward and purpose of the insurance industry. By the end of his brief but poignant assert the righteousness of its purpose. Indeed, his best applause line of the night address, Mr. Plumeri had everyone there I fear that instead, the industry will just was: “We do not get the fair recognition that feeling pretty good about the industry keep circling the wagons when negative we deserve in this business for what we do.” they work for. news emerges, as it has in the past. Later, the chair of the IICF—Michael Perhaps to encourage such behavior—or P. Fujii, president and CEO of worldwide at least recognize those who do defend the Associate Editor insurance operations at Endurance Spe- industry—there should be an award dinner Mark E. Ruquet cialty Holdings Ltd.—spoke about the four to honor the insurance organizations that can be reached at charitable organizations the organization do the best job presenting a positive image [email protected]. will give grants to: to the public, while also raising funds for J The Boys Hope Girls Hope New York. some good cause. Think about it. NU

42 | National Underwriter Property & Casualty | December 21/28, 2009 property-casualty.com FINAL SAY

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