It looks like Congress may actually do something about terrorism insurance. The government insurance program, set to expire at the end of this year, provides reinsurance for property and casualty lines (property, workers comp, auto) when claims are incurred as a result of foreign terrorists. After a high deductible, the government kicks in to pay most of the remainder.
The coverage, known as TRIA for Terrorism Risk Insurance Act, came into being shortly after 9/11 on a temporary basis. The reasoning behind TRIA is simple – no single insurer, nor the industry as a whole, has the financial resources to pay claims for a catastrophic terror event – think nuclear bomb in New York City, or exploding natural gas tanker in Boston.
This is a big deal. Insurance companies specifically exclude terror coverage whenever they can; property insurance is one that is particularly vulnerable to concerns about attacks. A group of 28 governors has joined together to pressure their Congressional delegations as well as the Bush administration for extension of TRIA.
For over a year, insurers had hard to get coverage extended, to no avail. The Bush administration wanted the industry to pay very high deductibles, so high that many industry experts viewed the “insurance” as little more than picking up the pieces after the industry was bankrupt. Now, news has come out that a compromise is under serious discussion in the House Financial Services Committee.
According to Insurance Journal;
“The extension proposal creates so-called “silos” for major coverage areas of workers compensation, property, casualty and NBCR (coverage for nuclear, biological, chemical and radiological attacks), with each silo being assigned its own deductible. The measure excludes commercial auto, which is now covered under TRIA, while proposing to add group life. Insurers would be required to offer NBCR coverage.
Federal intervention would be triggered only if losses exceed $50 million in 2006 and $100 million in 2007.
In the new plan, the distinction between foreign and purely domestic acts of terrorism would be removed so that domestic terrorism would be covered.
The co-share paid by insurers, which is now at 10% for all triggered events, would increase for smaller events and decrease for so-called mega events, with a 20% co-share for the first $10 billion down to 5% for events more than $40 billion.
Insurers would pay back any federal monies through policyholder premium surcharges that would be capped at 3%.”
Sounds workable, but there is one major problem; the term of the new TRIA is two years, so we could very well find ourselves back at this in a year, worried about the potential implications of a soon-to-expire law.
The good news is Congress may actually get something done; the bad news is they seem to have forgotten the old saw “if you don’t have time to do something right the first time, what makes you think you’ll have time to fix it”

More on Pat Ryan, CEO of Aon Corp., and his comments at the IRMI conference earlier this week.
Ryan spent a fair amount of time commenting on the Spitzer investigations and impact thereof. He noted that the sheer time and resources required to respond to the Attorney General’s inquiries, along with the potential for ongoing negative press, played a large part in Aon’s decision to settle the case.
Ryan also noted that Aon has embraced the concept and reality of transparency, wherein all clients would know exactly what Aon was being paid and by whom for what work. Aon has abandoned the contingent commission revenue model, which has led the company to increase fees to some customers.
His comments on transparency and Aon’s commitment to same were direct, comprehensive, and revealing. Ryan clearly understands that the landscape has changed, that the old ways of doing business are no longer acceptable, and that Aon must operate within the new reality created by Spitzer and other outside forces.
Ryan noted that while the risk managers who are his firm’s main contacts were not concerned about the contingent commissions, their bosses were. Evidently Ryan heard directly from the CEOs and CFOs that they did not like the practice.
He predicted that there will be more, not less, regulation in the future, noting that “we are in the fourth inning”. Here’s hoping we aren’t tied at the end of nine…
What does this mean for you?
While I am frustrated at Ryan’s failure to mention health care costs and medical trend, his comments indicate a keen awareness of the importance of transparency and direct dealing. That is to his and his company’s credit.

I have just returned from IRMI’s excellent Construction Risk Conference in Las Vegas. Interesting location for a bunch of risk averse people…
One of the keynoters was Pat Ryan, founder and chair of Aon Corp, the big broker. He gave a talk covering a wide range of topics, including Spitzer, contingent commissions, and transparency. What was notable to me was what he did not discuss, or even mention – health care costs.
I find this intriguing for a couple of reasons. First, what is more important today than health care costs? Health care costs are contributing to his clients’ risks in employee benefits, workers comp, auto, general liability etc. And, medical expenses in the property and casualty lines are increasing at a rate substantially faster than in group health (10-12% v. 8.2%). What could be more important, more significant, than health expense inflation?
Second, Aon is making a big push to become the expert in data mining, analytics, and assessment to better predict and manage “risk”; broadly defined. In this context, risk could include flood, wind, politics, etc. Since our focus here is on health care, we’ll stick to that. Unfortunately, Aon’s attempts to date to assess and evaluate medical expense in the workers comp world, at least the public reporting of same, reflect a dangerously superficial understanding of medical expense, providers, practice pattern variation, etc. (note – sources indicate Aon’s understanding is not any better when presented in private meetings..).
If this initiative is so important to Aon, why would it not be part of a speech to 1500 eager listeners, and why would it not incorporate even a mention of what Aon is doing to help customers deal with this to-date-unmanageable problem – health care cost inflation.
If Aon is all about managing risk, it better learn something about medical expenses soon. And the company sure can do a better job in presenting itself as an expert in same.
What does this mean for you?
Watch out for consultants that don’t understand what is really driving your claims costs.

Katrina is now officially the most expensive insured event in US history. The latest figures put insured claims to date at $34.4 billion, significantly higher than the costs associated with other hurricanes or the 9/11 attacks. Adding Rita’s projected expense brings the total for the season to date to about $70 billion.
And this is just the insured losses on claims filed to date. Estimates of future claims from Katrina push the total amount to between $40 and $55 billion.
This was shaping up to be a nicely profitable year for the industry; those profits have disappeared under the waters of these disasters. Pessimists will note that the hurricane season still has some months to run; insurance executives are keeping fingers crossed in hopes that another storm does not make landfall this year.
What does this mean for you?
Costs for all lines of insurance will increase for all renewals in coming months, with the sharpest increases in property and homeowners, especially in hurricane-prone areas and coastal regions.
Reinsurers will get mighty picky about the underwriting underlying their primary insurers; expect to see more limitations and exclusions.

The mergers among health plans continued yesterday, with New York’s GHI and HIP announcing their intention to join forces to create the state’s largest single health plan. With four million members and $7 billion in revenues, the not-for-profits would dominate the New York metropolitan area, with especially strong market share in the municipal, blue- and pink-collar demographics.
HIP, the smaller of the two plans with 1.4 million members, also owns Vytra Health and Connecticare. The Connecticare acquisition was one of the more intriguing deals in recent years, as it combined two different models with distinct membership demographics, while adding broader geographic coverage to HIP. The company recently announced plans to acquire a high-deductible health insurance provider, PerfectHealth Insurance Co.
GHI covers 2.6 million members in the NYC, upstate, and northern New Jersey area, covering over 2/3 of City employees. GHI has extensive experience in administering governmental programs including state contract work on mental health, coordination of benefits, and Medicare + Choice.
We have been following this trend for quite a while, and with the two largest not for profit health plans in the nation’s most concentrated market merging, it is even more clear that consolidation will continue and likely accelerate. The merger sets up an interesting battle between the merged entity, the Oxford-United combination, and Wellpoint – Wellchoice for share in this key market.
What does this mean for you?
If you run a health plan or TPA in the NYC area, batten down the hatches; there will be a lot of collateral damage to smaller insurance and health coverage providers as these three giants go at each other.

The investigations into broker/insurer malfeasance continued to make their presence felt last week, as Conn. Attorney General Richard Blumenthal announced the expansion of the state’s charges against Marsh. Blumenthal, never one to avoid the limelight, said
“We have uncovered powerful evidence of a systematic scheme to raise insurance prices,” Blumenthal said. “We also have strong evidence of bid rigging, victimizing specific Connecticut consumers and companies. In essence, Marsh established a toll both between insurers and consumers, and the toll exacted was heavy. Creating the illusion of free and open competition, insurers agreed to provide Marsh with rigged or fictitious quotes in exchange for the prospect of submitting winning bids on future placements. Marsh threatened retaliation against non-players.”
According to Insurance Journal;
“One insurer wrote about a Marsh “broking plan“: “This is another protection job… Our rating has risk at $890,000 and I advised (Marsh) that we could get to $850,000 if needed. (A Marsh broker) gave me song & dance that game plan is for AIG at $850,000 and not to commit our ability in writing!”
The amended complaint identifies several major Connecticut businesses that were harmed by Marsh’s bid-rigging and price-fixing plan, including Hubbell Inc., Kaman Corp., Hexcel Corp., and Bridgeport Hospital.
Marsh has about 2,800 policyholder clients in Connecticut – 300 of them large businesses or government entities. Its corporate clients in the state also include Bic Corporation, United Technologies Corporation, Carvel Corporation, Ethan Allen Furniture, Timex Corporation, Xerox Corporation and General Electric Company.
The company’s state and municipal clients include the Connecticut Department of Administrative Services (DAS), and the cities and towns of Hartford, New Haven, Stamford, Manchester, West Hartford, and West Haven. Marsh was also the insurance broker for several large, publicly supported state construction projects, including Adriaen’s Landing. Marsh’s nonprofit clients include Yale University, Mystic Seaport and the Save the Children Federation.
The announcement of the expanded charges against Marsh came the same day Blumenthal announced that insurer ACE Financial Solutions Inc. had agreed to pay $40,000 to the state to settle allegations for a scheme in which ACE paid Marsh a secret $50,000 commission to steer an $80 million state contract to the company.”
The scandal that will not go away lives on.
What does this mean for you?
Yet more evidence that crime doesn’t pay, and practices that were once accepted with a wink and a nod can get you in serious trouble.

For those who thought New York Attorney General Eliot Spitzer’s investigation into the insurance industry was fading away, the news that eight former Marsh executives have been indicted on various charges served notice that if anything, Spitzer et al are just now hitting their stride.
According to Insurance Journal;
“The former executives are accused of colluding with executives at leading insurance companies to arrange noncompetitive bids and conveying these bids to Marsh clients under false pretenses

Insurance Journal has posted a quick summary of the potential impact of Katrina on insurance. Here are excerpts.
Note that some of the insurers below are reinsurers, who provide insurance to primary insurers who want to protect themselves from excessive claims resulting from disasters like Katrina.
Insurance Journal –
* Vesta Insurance Group Inc. (VTA.N:) said on Sept. 1 it expects the preliminary gross loss from the first landfall of Hurricane Katrina to be in the range of $500,000 to $1.2 million.
* Alfa Corp. (ALFA.O:) said on Sept. 1 preliminary estimates indicate storm losses will be less than $125 million, with no impact on its third quarter earnings. EUROPE
* World’s largest reinsurer, Munich Re (MUVGn.DE:), said on Aug. 30 it may have claims of up to 400 million euros ($488 million), before taxes and before the amount the company can pass on to other reinsurers. It expects the overall insured loss to be $15 billion to $20 billion.
* The Lloyd’s of London insurance market said on Aug. 30 it expects to receive “significant insurance claims,” largely from offshore oil and gas platforms in the Gulf of Mexico, property damage and claims from businesses forced to close. It has asked all the insurers to supply claims estimates by Sept. 12.
* Hannover Re (HNRGn.DE:), the world’s fourth largest reinsurer, said on Aug. 31 it was “extremely unlikely” to hit its 430 million to 470 million euros profit target for 2005 as a result of claims from Katrina. It expects Katrina to be the most costly U.S. storm, topping Hurricane Andrew’s bill of about $21 billion.
* Swiss Re (RUKN.VX:), the world’s second largest reinsurer, said on Aug. 31 it expects claims of about $500 million. It forecast total insured losses of around $20 billion.
* Paris-based reinsurer Scor (SCOR.PA:) said on Sept. 1 Katrina may cost it 25 million to 35 million euros.
* Converium (CHRN.S:), the Zurich-based reinsurance company, said on Sept. 1 it saw claims from the hurricane of between $10 million and $20 million. It put the total bill to the industry as a whole at around $25 billion.
($1=.8197 Euro)
Note that these statements were from yesterday and the days before – the latest news out of New Orleans, Mississippi, Alabama, and other areas indicates that losses from looting, flooding, fires, and other causes may significantly increase total claims. In addition, follow on problems such as hospitals losing electricity, generators failing, and emergency services problems may add to the loss of life and thereby increase claims.
Note – I’m trying to keep this objective and dispassionate. That is incredibly difficult. This is not merely a financial disaster, it is a human tragedy on so many levels. Do not misinterpret the tone of these posts as one that implies lack of concern or awareness of the human impact of Katrina. Thanks.