June 30, 2011

Negatives Outweigh Positives in 1Q P&C Results; 2Q Not Looking Good

Filed under: auto insurance, commercial insurance — cleavelandinsurance @ 1:01 pm

Negatives Outweigh Positives in 1Q P&C Results; 2Q Not Looking Good

June 22, 2011 | Subscribe Now By Chad Hemenway, PropertyCasualty360.com

NU Online News Service, June 22, 12:04 p.m. EST

Though property and casualty industry surplus is at records levels as of the end of the first quarter, insurers took a $4.5 billion underwriting loss, and recent developments point to worsening results in the second quarter.

Underwriting losses outpaced a 3.5 percent increase to $108.6 billion in net written premiums, compared to the same period a year ago, according to a report of industry financial results distributed by ISO, the Insurance Information Institute, and the Property Casualty Insurers Association of America.

This is the first increase in first-quarter net premiums written since 2007 and the largest since 2004, says Michael R. Murray, assistant vice president of financial analysis for ISO.

P&C 1st Quarter FinancialsHowever, the industry’s combined ratio climbed to 103.3 in the first quarter from 101.1 during the same quarter in 2010. First-quarter net income dropped to $7.8 billion from $8.9 billion.

“The deterioration in underwriting profitability as measured by the combined ratio is a particular cause for concern, because today’s low investment yields, together with the long-term decline in investment leverage that helped insulate insurers from the ravages of the financial crisis and the Great Recession, mean insurers need better underwriting results just be as profitable as they once were,” says David Sampson, president and CEO of PCI, in a statement.

The underwriting news could be worse when second quarter results are announced. ISO’s Property Claims Services unit says second-quarter catastrophes caused $14.7 billion in insured losses as of June 20 and losses from several other events need to be added to the amount, Murray adds. Additionally, the stock markets are down, which could mean capital losses on investments, he says.

“Yet these near-term negatives could have positive implications farther down the road to the extent that they erase some of insurers’ excess capacity and thereby hasten a turn in the insurance cycle,” Murray theorizes.

Industry surplus rose 1.4 percent to a record $7.8 billion at March 31. Sampson says insurers will have no trouble paying claims even if the hurricane season is as bad as predicted.

Add loss reserves and unearned premiums to surplus, and insurers had $1.3 trillion to pay claims, Sampson adds.

June 29, 2011

Disastrous Spring Costing Mo. Billions of Dollars

Filed under: auto insurance, commercial insurance — cleavelandinsurance @ 1:05 pm

Disastrous Spring Costing Mo. Billions Of Dollars

June 6, 2011 | Subscribe Now By David A. Lieb, Associated Press

JEFFERSON CITY, Mo. (AP) — First a tornado tore through the St. Louis airport. Then rising waters swamped small towns and flooded miles of fertile farmland along the Mississippi River. Then the nation’s deadliest tornado in six decades ripped apart the city of Joplin.

Thirty days of destruction in Missouri. Billions of dollars of damage. And it may not be done, as communities along the Missouri River from St. Joseph to St. Louis brace for a new round of flooding.

The economic aftershocks of Missouri’s spring of disasters may be felt for years, even by many who weren’t personally affected by the storms.

Insurance premiums are likely to increase for home and vehicle owners. Restaurants and retail shops are likely to see lower sales in southeast Missouri. Utility rates are likely to rise in the southwestern part of the state. And Missouri’s budget — already out of balance — now is tens of millions of dollars deeper in the hole, which could lead to more cuts to government services and schools.

“It’s not just the loss of lives, but this is a horrible economic blow to the state of Missouri,” said state House Speaker Steven Tilley, a Republican whose home district is near the Mississippi River.

Missouri may be an extreme example. But it’s far from alone in a spring of brutal weather.

Tornadoes have wreaked havoc from Alabama to Massachusetts, while floods have inundated states from Montana to Louisiana. The recent Joplin tornado and a series of twisters that ravaged the South in late April caused a combined insurance loss of up to $8 billion, according to preliminary estimates from Eqecat, a firm that analyzes the effect of catastrophes for insurers and government agencies.

Even before the recent flooding in the West and upper Midwest, the U.S. Army Corps of Engineers said about 6.8 million acres had been flooded this year — an area equivalent to the entire state of Massachusetts.

One recent day, highway engineer Richard Wallace drove his four-wheel drive truck down the gravel of Mississippi County Road 310 in southeast Missouri to survey the damage from receding floodwaters. He was forced to stop.

“I’m looking at a section right now that looks like part of the Grand Canyon,” said an amazed Wallace, staring at a gaping crevice in the road. “It’s just unreal.”

In Mississippi County, where the corps blew open the Birds Point levee to relieve flooding pressure on nearby Cairo, Ill., local officials estimated the water may have caused $75 million in damage to roads, bridges and public infrastructure. Flooding also wiped out about half of the county’s farm acreage — a particularly severe blow for an area that ranks among Missouri’s leading wheat and soybean producers and whose economy depends on agriculture. Missouri Farm Bureau President Blake Hurst says 570,000 acres of cropland have been flooded, costing Missouri farmers anywhere from $150 million to $400 million.

Less money for farmers also means less money for retailers, restaurant owners and just about everyone else in the region. The flooding is projected to reduce sales revenues by $93 million in Mississippi County alone — a decline of about 14 percent, said Bruce Domazlicky, director of the Center for Economic and Business Research at Southeast Missouri State University.

“You’ll think twice before you buy something for yourself, you’ll think twice before you buy a wedding present, you’ll think twice before you buy a steak,” said Claudia Arington, director of the Charleston Chamber of Commerce.

In Joplin, a powerful tornado that killed at least 138 people also damaged about 18,000 vehicles, more than 8,000 homes and 500 commercial properties. Among the buildings damaged was a hospital that employed 1,700 people.

Ten days after the Joplin tornado, the state said major insurance companies already had received 17,000 claims, a figure that’s likely to rise. Eqecat estimates there are up to $3 billion of insured losses in Joplin. Historically, insurance premiums often have risen in areas hit by catastrophic events as insurers update their risk models used to set rates.

Until the Joplin tornado, Missouri’s single largest insurance catastrophe in the past decade was an April 2001 hail storm in the St. Louis area that caused about $700 million in damage, said Brent Butler, government affairs director for the Missouri Insurance Coalition. In the following two years, the average homeowners’ insurance premium in Missouri shot up 29 percent, according to figures provided by the state insurance department.

The Joplin tornado “could have an effect on everybody’s insurance rates eventually — but it will be eventually, and I wouldn’t call it dramatic,” Butler said.

If tornadoes result in premium increases for hard-hit states such as Missouri and Alabama, “the good thing is, because everybody is going to pay more, maybe it’s not much more,” said Erwann Michel-Kerjan, managing director of the Risk Management and Decision Processes Center at the University of Pennsylvania.

Electricity rates also are likely to rise as a result of the tornado. The Empire Electric District Co, which serves about 150,000 people in southwest Missouri, figures the tornado caused $20 million to $30 million in damage to its infrastructure and wiped out 10 percent to 15 percent of customer demand for electricity.

Missouri Gov. Jay Nixon already has committed $50 million to help pay for the emergency response to the Joplin tornado and southeast Missouri floods, along with recovery efforts. But that will nearly double the state’s projected budget gap for the fiscal year that starts July 1. And Nixon has said the state’s disaster expenses will have to be offset by cuts to other areas. Those cuts will come on top of more than $1 billion in spending reductions already made by Nixon in the past two-and-a-half years.

There is a potential bright spot. The disasters could spur a revival for some dormant job sectors, such as construction, once people begin rebuilding.

“You’re going to have actually a pretty good pickup in the local economy because of that,” Domazlicky said. “That’s not to downplay what happened, but it is going to provide a stimulus to that economy in terms of getting people to work.”

 

June 28, 2011

Workers’ Compensation Reform

Filed under: commercial insurance — cleavelandinsurance @ 11:45 am

HB 1698 -Bradley (Raoul) Workers’ Compensation Reform
Summary of Key Components
1. Imposes a 30% reduction in the Medical Fee Schedule to address health care costs that are the second highest in the United States. Among states with fee schedules, Illinois will continue to have the second highest fee schedule in the country. Effective January 1, 2012, there will be four regions for non-hospital fee schedule and fourteen regions for hospitals. Reduces services reimbursed at 76% of charges to 53.2% of charges and fees. Reimburses implants at 25% above manufacturer’s invoice less rebates, plus shipping.
2. Requires physicians to use American Medical Association standards to determine impairment for the first time in Illinois history. Arbitrators will use AMA impairment ratings when determining disability. However, there is significant flexibility in the language that will allow the Commission to weigh other factors into its decisions including occupation, age and future earning capacity.
3. Allows an employer to utilize a preferred provider organization (PPO) approved by the Department of Insurance to provide workers compensation medical services and requires an employee to use providers that are part of the network. However, an injured employee may choose in writing at any time to decline the preferred provider program. Also, an employee will be allowed a third choice of doctor outside of the network.
4. Strengthens the 2005 Utilization Review provisions. “An admissible utilization review shall be considered by the Commission, along with all other evidence and in the same manner as all other evidence, and must be addressed along with all other evidence in the determination of the reasonableness and necessity of the medical bills or treatment.” The medical professional responsible for review in the final state of utilization review or appeal must be available for interview or deposition; or must be available for deposition by telephone, video conference, or other remote electronic means.
5. Eliminates lifetime wage differential payments. Employees will now receive wage differential payments during their work career to the age of 67 or five years, whichever is later.
6. Reduces carpal tunnel syndrome payments from an average 40 weeks award to a maximum of 28 weeks.
7. Allows for the appointment of new Workers’ Compensation arbitrators, who must be approved by the Senate and all new appointees must be lawyers. There are a number of provisions pertaining to the Workers’ Compensation Commission including new ethical standards, training requirements, operations and personnel appointments. Also, there are a number of fraud provisions including the establishment of criminal penalties based on severity of crime starting with misdemeanor to Class 1 felony.
8. Changes the rebuttable presumption for workers injured while under the influence of illegal drugs or alcohol. No compensation shall be payable if the employee’s intoxication is the sole proximate cause of the employee’s accidental injury or at the time the employee incurred the accidental injury, the employee was so intoxicated, the intoxication constituted a departure from the employment.
9. The NCCI is required to recalculate the worker’s compensation advisory premium rates and assigned risk pool premium rates so that those premiums incorporate the provisions of this legislation and to publish such rates on or before September 1, 2011.
10. The Department of Insurance is required to submit an annual report to the Governor and key legislators on the state of the Illinois workers’ compensation market. To generate this report, significant additional data may be required from NCCI and from workers’ compensation insurers.
11. Requires the Department of Insurance to adopt rules for the submission of electronic medical bills. Note there is no requirement for electronic payment of claims.
12. For employee leasing companies, the language provides that client-specific information must be reported by the insurer to the Commission. Also provides that a “certificate of coverage” be issued by the insurer for each client, outlining its rights and obligations under the master policy and clearly establishing both the identity and status of the client and the inception and termination date of coverage.
13. The Department of Labor shall adopt a selection process to designate two labor organizations to participate in the collective bargaining pilot program. To have a valid ADR agreement, the workers compensation insurer must agree to any contractual agreements.

June 27, 2011

Workers Compensation – States Current Ranking (by Cost)

Filed under: commercial insurance — cleavelandinsurance @ 2:47 pm

OUTPATIENT

 

Procedure

  

Medicare

  

Private

Insurance

  

Median State

 Illinois

Workers’ Comp

Fee Schedule
 

Arthroscopy

  

$626.34

  

$1,006.00

  

$2,533.91

  

$7,713.44
 

Hernia

  

$496.24

  

$735.00

  

$2,652.67

  

$7,873.43
 

Laminotomy

(spinal pressure)

  

$959.32

  

$1,686.00

  

$4,283.15

  

$11,986.80
 

Nerve Procedure

  

$396.37

  

$701.00

  

$1550.88

  

$4,810.01

 

INPATIENT

 

Procedure

  

Medicare

  

Private

Insurance

  

Median State

 Illinois

Workers’ Comp

Fee Schedule
 

Knee Surgery

  

$8526.74

  

$10,658.42

  

$9,473.20

  

$30,184.67
 

Hernia

  

$7,083.71

  

$8,854.63

  

$7,878.22

  

$18,701.00
 

Hand/Wrist

  

$5924.29

  

$7,435.06

  

$6,755.20

  

$17,180.44
 

Shoulder/Elbow

  

$8179.04

  

$10,223.80

  

$9,099.38

  

$23,882.80

 

In addition to these scheduled fees for facility charges, employers and insurers are subject to fees for the professional services of anesthesiologists and physicians. Because physician reimbursement mechanisms vary widely among states, inter-state comparisons of physician reimbursement are best performed by looking at payment data.  The average payment to physicians per claim with more than 7 days of lost time was $7,099 in Illinois compared to $3,710 in the median state. (WCRI CompScope Medical Benchmarks for Illinois 11th Edition, May 2011)

CURRENT RANKING (BY COST) OF STATES WITH FEE SCHEDULE

  1. Alaska                                                   215 percent
  2. Illinois                                                  180 percent                        Even with a 30 percent reduction, Illinois
  3. Delaware                                            131 percent                        will still have the 2nd highest fee schedule
  4. Idaho                                                    121 percent                        in the United States at 150 percent over
  5. Nevada                                                                119 percent                        Medicare.
  6. Oregon                                                 101 percent
  7. Montana                                              98 percent
  8. Nebraska                                             91 percent
  9. Connecticut                                       89 percent
  10. Arizona                                                                84 percent
  11. North Dakota                                     83 percent
  12. Alabama                                              82 percent
  13. Wyoming                                            81 percent
  14. Mississippi                                         79 percent
  15. Tennessee                                          78 percent
  16. Georgia                                                                75 percent
  17. Minnesota                                          71 percent
  18. Louisiana                                             68 percent
  19. Maine                                                   68 percent
  20. Washington                                       67 percent
  21. New Mexico                                      66 percent
  22. South Dakota                                     64 percent
  23. Arkansas                                              62 percent
  24. Kansas                                                  59 percent
  25. Texas                                                    54 percent
  26. Vermont                                              54 percent
  27. Colorado                                             52 percent
  28. Ohio                                                      52 percent
  29. Oklahoma                                           52 percent
  30. Kentucky                                             50 percent
  31. South Carolina                                  46 percent
  32. Michigan                                             45 percent
  33. Pennsylvania                                     45 percent
  34. Utah                                                      43 percent
  35. West Virginia                                    35 percent
  36. North Carolina                                  34 percent
  37. Hawaii                                                  26 percent
  38. New York                                            24 percent
  39. Maryland                                             23 percent
  40. California                                            15 percent
  41. Florida                                                  9 percent
  42. Massachusetts                                  8 percent

2010 Workers Compensation Research Institute ©

June 7, 2011

Tornado Victims Often Uninsured

Filed under: auto insurance, commercial insurance — cleavelandinsurance @ 2:18 pm

Tornado Victims Often Uninsured
By: Property Casualty 360 May 26, 2011

Atlanta (AP)- many of the states hammered by what’s already the deadliest year for tornadoes in more than half a century have among the nation’s highest rates of homes without hazard insurance despite being among the most twister-prone, data analyzed by The Associated Press shows.

That means the regions that most need the insurance are often the exact places that don’t have much of it. It also means many tornado victims may have a hard time getting compensated for their losses, putting more pressure on the federal government to help even though its assistance is limited by law.

With more than 450 deaths and billions of dollars in damage in the past month alone, regulators are calling for more education about the importance of homeowners insurance and further efforts to make it affordable and available to all. But whether to buy it is still considered a personal choice and there’s no push to mandate it federally.

The fallout is on stark display in Mississippi and Arkansas, two seven southern states battered last month by twisters. Mississippi ranks second in the nation for the percentage of homes without insurance covering wind damage yet fourth on the list of states that have had the most tornados touch down in the past five years. Arkansas ranks fourth for uninsured homes and 10th for being tornado prone, according to the AP’s analysis.

Missouri, site if Sunday’s tornado outbreak with at least 125 dead, falls somewhere in the middle on hazard insurance despite being fourth most tornado-prone state. Kansas and Oklahoma, the sites of deadly tornadoes Tuesday  , also fall in the middle and rank No.2 and No.6 on the list most tornado-prone states.

States with the highest rates of uninsured homeowners also tend to have a higher incidence of homes without mortgages, which means owners don’t have to answer to banks requiring coverage. The uninsured can turn to aid groups and the federal government for relief – but often not for full compensation.

Poverty and an abundance of older homes that can be difficult to insure contribute to high rates of no insurance. In tough economic times, the temptation to forgo insurance is real.

Tammy and Kevin Cudy of Joplin, MO., dropped their homeowner’s policy, and its $50-a-month premiums, last August after Kevin lost his construction job. They considered reinstating their policy within the past week but said they were unable to reach their insurance agent by telephone.

And then the deadliest single tornado in nearly six decades demolished their five-bedroom home Sunday.

“That’s why I’m kicking myself right now,” said Tammy Cudy, 47. “The fact that we were thinking about it, that we needed to work on our budget around it, it just makes you kind of heart-sick at this point.”

Many people don’t qualify for insurance if their homes are in high-risk areas, if they have trouble affording a policy to cover wind damage because of high costs associated with home value, aging construction and building coeds, Arkansas Insurance Commissioner Jay Bradford said.

“The loss rations on those houses are insured are generally pretty high,” Bradford said. “They don’t have central heat and air. They are older homes. Sometimes, the plumbing and wiring are not up to standard. The rates are higher, and the coverage is limited.”

June 2, 2011

New IRS Data Shows Recession’s Impact on ‘08 Insurer Profits

Filed under: commercial insurance, health insurance — cleavelandinsurance @ 2:22 pm

New IRS Data Shows Recession’s Impact on ’08 Insurer Profits
BY: Property Casualty 360 May 26, 2011

Nu Online News Service, May 26, 11:06 a.m. EDT

The economic plunge in 2008 more than halved the profits of the property and casualty insurance industry, according to data just released by the Internal Revenue Services.

The data shows that the profits of mutual P&C insurers dropped 60.8 percent in 2008, compared to 2007.  The profits of stock companies dropped 36.8 percent, according to the data, and for the entire industry, profits dropped 56.7 percent.

Profits of agents and brokers dropped 38.5 percent, the data reveals.

The data is consistent with the results of the life industry, whose profits dropped 54.7 percent from 2007 to 2008.

The data is contained in the 2008 statistics of corporate tax returns recently published by the agency. Results for the 2009 will not be available until next year, according to agency officials.

Profits plunged in 2008 for P&C insurers despite an increase in revenues, according to the IRS data.

The data shows that mutual P&C insurers had $229.6 billion in revenues in 2007 and $256.1 billion in revenues in 2008.

Stock P&C insurers had revenues of $688.3 billion in 2007, while 2008 revenues declined slightly to $670 billion.

The plunge in profits apparently related more to investment income and the value of investments than it did to actual operating results.

For agents the brokers, however, overall revenues declined. According to the data, 2007 revenues were 88.3 billion, while revenues for 2008 were $70 billion.