Soft Market Persists

A near two year trend of diminishing rate reductions for U.S. property/casualty insurance placements has been reversed, according to latest rate surveys from online insurance exchange MarketScout and the Council of Insurance Agents and Brokers (CIAB). MarketScout reported the average property/casualty rate decrease was 5 percent in October, reversing a 21 month trend of moderating rate declines that went from a decrease of 15 percent in January 2008 to a decline of 4 percent in October 2009. MarketScout said the October rate reversal does not bode well for those looking forward to the end of the soft market. Meanwhile, the CIAB’s latest quarterly Commercial P/C Market Index Survey indicates rates on average declined 6 percent during the third quarter of 2009, compared with 5 percent in the second quarter. “A significant upward turn in pricing remains elusive for the foreseeable future,† said Council President Ken Crerar. On average, large accounts (>$100K Comm. and fees) declined 7.4 percent compared with the second quarter decline of 6.7 percent. Midsize accounts ($25K-$100K) dropped on average 6.5 percent, compared to the second quarter decline of 5.7 percent. The rate of decline for small accounts (<$25K) was 3.6 percent versus 2.5 percent in the second quarter, CIAB said. Check out I.I.I. information on the industry’s financial results and market conditions.

Healthcare Reform but No Tort Reform

When President Obama pledged to address medical malpractice liability concerns as part of healthcare reform, and directed the Department of Health and Human Services to move forward with incentives for states aimed at curbing lawsuits, insurer and doctor groups welcomed the step but cautioned the devil would be in the details of the plan. The details of House speaker Nancy Pelosi’s 1,990-page healthcare bill that passed Saturday on a 220-215 vote underscores the need for that cautionary note. A provision in the bill does establish an incentive program for states to adopt and implement alternatives to medical liability litigation, BUT a state is not eligible for incentive payments if it puts a law on the books that limits attorney fees or imposes caps on damages. A November 6 OpEd in the Washington Times calls the provision a poison pill:

“Fee limits or damage caps are the two most popular lawsuit reforms in states across the country, and they are demonstrably effective at cutting malpractice-insurance rates and attracting more doctors to the states that embrace them. To pretend to encourage tort reform while punishing states that actually implement reforms is akin to encouraging a diet while assessing fines for losing weight. It’s dishonest and it ought to be a deal killer.†

What do you think? Check out I.I.I. information on medical malpractice.

Ida: Late Season Hurricane Threat

Beware the Ida of November — Hurricane Ida, that is. Though it is forecast to weaken further before making U.S. landfall, Hurricane Ida is currently a Category One hurricane and moving across the Gulf of Mexico near 16 mph. A hurricane warning remains in effect for the northern Gulf coast from Pascagoula, Mississippi eastward to Indian Pass, Florida and according to the National Hurricane Center, Ida is expected to make landfall along the northern Gulf coast overnight. Under the current track, that looks likely to be somewhere near Alabama before it takes a turn to the northeast toward Georgia and Florida. The timing of Ida – some 22 or so days before the official end of the 2009 Atlantic hurricane season is pause for thought. NOAA data show that the Atlantic basin has a very peaked season from August through October, with 78 percent of tropical storm days, 87 percent of minor hurricane days (Category 1 and 2) and 96 percent of major hurricane days (Category 3, 4, and 5) occurring then. Maximum activity is in early to mid-September. November hurricanes may be rare, but U.S. landfalling ones are rarer. Hurricane Kate in 1985 was the last November hurricane to make U.S. landfall. Kate weakened to a Category 1 storm before hitting the Florida Panhandle where it was responsible for five deaths. Whether it remains at hurricane strength or not, Ida is a timely reminder that the season doesn’t officially end until November 30. Check out I.I.I. hurricane facts and stats.

Galleon

Hope was that the whiff of financial scandal was dying down after fallout from the subprime and credit crisis, Madoff and Stanford Ponzi schemes. Then along came Galleon. Last month billionaire Raj Rajaratnam, founder of the now-defunct hedge fund Galleon Management LP, was arrested by the FBI accused in an insider trading case that allegedly generated more than $25 million in illicit gains. Six others involved in the scheme were also charged including senior executives at major companies including IBM, Intel and McKinsey & Co. Yesterday the Galleon probe widened with the charging of 14 other individuals, including hedge fund traders and managers, lawyers and a former Galleon employee, for their part in the insider trading group. Reports suggest that further arrests can be expected in the coming weeks. The collapse of the Madoff and Stanford schemes fueled litigation on a number of fronts and it is likely that Galleon will do the same. Exactly what the impact will be on professional liability insurance lines such as directors and officers (D&O) and errors and omissions (E&O) remains to be seen. Typically, these types of claims take some time to emerge. In the mean time, Galleon is sure to be a hot topic among those attending the PLUS International Conference in Chicago next week. I.I.I. president Dr. Robert Hartwig will be speaking at the PLUS conference next Wednesday ahead of the opening keynote address by former President Bill Clinton. Be sure to check back on the I.I.I. Web site for a copy of Dr. Hartwig’s presentation. For more on Galleon, check out the D&O Diary.

McCarty: Chinese Drywall Not a Covered Peril

An unexpected piece in the Chinese drywall puzzle has just been uncovered. Florida Insurance Commissioner Kevin McCarty has made clear that in his opinion insurers have no obligation to cover defective Chinese drywall because it is not a covered peril. The Sarasota Herald Tribune reports that at a meeting with state legislators earlier this week, McCarty told them the insurance industry is not responsible for the drywall problem and that ultimately the federal government would have to come up with a funding solution. The November 4 article by Lloyd Dunkelberger quotes McCarty saying: “This is not a covered claim. This is not a covered peril. We need to come up with a plan for a funding source to take care of this.† McCarty described the Chinese drywall issue as a “very, very significant problem,† and stated that the financial responsibility lies with the Chinese drywall manufacturers rather than insurance companies. McCarty said it would be “unfair† for state regulators to try to force insurers to pay for something that is not covered in insurance policies. The commissioner cited estimates that about 100,000 homes may have been impacted nationally and could result in $8 billion to $10 billion in repair costs. Some estimate about 35 percent of those defective buildings may be in Florida, he added. While it was unlikely that insurers would drop customers solely because of Chinese drywall, there was a possibility companies would drop coverage if residents moved out of their homes, McCarty said. Check out I.I.I. background information on Chinese Drywall.

Class Action Case Before U.S. Supreme Court

An important case before the U.S. Supreme Court will decide whether state legislatures can limit class actions in federal court. It will also decide whether what started as a $500 claim by an individual litigant will become a $5 million class verdict, according to a report by SCOTUSBLOG. Oral arguments in the case were heard Monday and a decision from the justices is expected in late winter. The case – Shady Grove Orthopedic Associates, P.A. v. Allstate Insurance Co. – stems from an auto accident in which a Maryland woman was hurt. The clinic where she was treated subsequently filed a class action suit in federal court against Allstate, claiming the insurer failed to pay statutory interest penalties on overdue payments of insurance claims owed under no-fault auto insurance policies. Allstate moved to dismiss the case citing a New York law that bars class actions for certain statutory-damages claims. Allstate won in the lower courts where the clinic’s class action suit was dismissed as outside the scope of federal court jurisdiction. The clinic then petitioned the U.S. Supreme Court and earlier this year it agreed to hear the case.   An article at Lawyers USA by Kimberly Atkins notes that a decision in this case could have significant impact on mass tort litigation. Check out I.I.I. facts and stats on litigiousness.

Flood Insurance Update

In case you missed the news, funding for the National Flood Insurance Program (NFIP) which was set to expire on October 31, 2009, has been extended once again by Congress until December 18, 2009. This is the latest in a series of temporary extensions for the program approved by the House and Senate as part of an appropriations bill for the Department of the Interior. An overhaul of the 41-year-old program is currently taking a back seat to healthcare reform and other major legislation on Capitol Hill. Ever since Hurricane Katrina in 2005, there has been debate over how to improve the NFIP. Significant property damage caused by storm surge from Hurricane Ike in 2008, has fuelled that debate. Flooding related to hurricanes Katrina, Rita and Wilma in 2005 led to loss payments of $17.6 billion under the program. At the end of 2008, the NFIP had some 5.7 million policies in force and losses paid by the program totaled $2.6 billion that year. The average premium for an annual flood insurance policy is around $542, yet a 2008 poll by the I.I.I. found that only 17 percent of Americans have a flood insurance policy. Flood  damage  is excluded under standard homeowners and renters insurance policies. Check out I.I.I. information on flood insurance.

Chinese Drywall Puzzle

A Chinese drywall symposium hosted by the University of Florida College of Engineering will be held in Tampa, Florida on Thursday and Friday (November 5 and 6) of this week. The event will bring together researchers from the primary state and federal agencies to present their findings on technical topics such as materials analysis, emissions testing, exposure assessment and toxicology, remediation and repair. Florida Senator Bill Nelson is scheduled to give the keynote speech on Friday. A preliminary report from the Consumer Product Safety Commission (CPSC) late last week found that while Chinese drywall emits higher levels of sulfur gases and strontium than drywall manufactured in the United States, there is no evidence that the emissions are linked to health problems and metal corrosion. Indoor air testing of 10 homes in Florida and Louisiana was conducted for the study and an analysis of 50 additional homes is underway with the results expected within weeks. To-date CPSC has received nearly 1,900 reports from 30 states from consumers and homeowners concerned about problem drywall in their homes. We’ve noted before that homeowners insurance policies do not cover this type of loss due to exclusions for damage resulting from “faulty, defective or inadequate† products such as defective construction materials. Check out  the I.I.I. Chinese Drywall fact sheet for more information.