The latest insurance broker to plead guilty (without actually pleading guilty) is HRH, aka Hilb Rogal &Hobbs, who agreed to pay $30 million into a compensation fund plus a $250,000 fine to settle charges related to rebating, account steering, and broker compensation activities at it’s Connecticut subsidiary.
According to Insurance Journal;
“The state complaint against HRH centered on its dealings with a hospital management company. The state claimed that HRH shared commissions with Women’s Health USA Connecticut and steered clients to preferred brokers to win bigger commissions. State law forbids rebating by brokers to clients. Women’s Health Connecticut has denied it received rebates or shared commissions. The settlement indicates that HRH’s Hartford office disguised the deals

New information indicates the impact of Katrina on the insurance industry will likely be greater than originally forecast. Post-storm flooding throughout the area, and related damage to commercial businesses and private property appears likely to drive insured claims for Katrina over $17 billion to perhaps $25 billion.
In addition, the Federally run flood insurance program will take a big hit. The program, which is already underfunded (it had to borrow $300 million last year from the Treasury to cover claims from Ivan et al), provides flood insurance totaling $600 billion to 4.5 million properties, primarily in coastal areas. Expect flood rates to increase significantly and soon.
The higher claims costs and the growing recognition in the insurance community of the potential for another devastating natural or man-caused disaster will drive up insurance costs for all lines of property and casualty coverage. While some uninformed pundits contend that the only cost increases will be borne by those in areas directly affected by the storm, they fail to realize that reinsurance rates industry-wide will increase, and insurers seeking to recoup losses will have to increase prices in other, non-related lines.
What does this mean for you?
The result – the softening in the property and casualty market will likely taper off, prices will stabilize somewhat, and all of us will end up paying for Katrina.
But that’s why they call it insurance.

NY Attorney General Eliot Spitzer’s ongoing investigation has produced another guilty plea, this time from an underwriter at Liberty International, a subsidiary of Liberty Mutual. The charge stems from bid-rigging; the underwriter, Kevin Bott, would submit unattractive bids at the direction of broker Marsh McLennan so Marsh would be able to show their client that another insurer’s proposal was more attractive.
By steering their customers to specific insurers, Marsh gained additional commissions.
Bott pled guilty to a misdemeanor charge, agreed to testify, and is subject to a maximum of one year in jail.
This is the investigation that won’t go away – the death by a thousand cuts, the Chinese water torture. And it shouldn’t go away, as these are clearly unethical and immoral activities that are also illegal. What is most troubling is the lack of attention from some in the industry who appear to be waiting for this to end so they can go on about their business.
Those folks are sorely mistaken. The world has changed, and business as usual will not be tolerated in the future.

NY Attorney General Eliot Spitzer’s ongoing investigation into the insurance industry has produced guilty pleas from 14 insurance execs so far. And more prosecutions and pleas are likely in the near future. Leading the list of the guilty are Marsh with six, followed by AIG with four and Zurich with three.
Most recently, four executives pled guilty to fraud and restraint of trade charges.
Insurance Journal notes that: “according to complaints filed by Spitzer this week, all four executives (three from Marsh and one from Zurich) were part of a scheme to control the excess casualty insurance market. More guilty pleas could be forthcoming, a spokesman for Spitzer said, but he declined to comment further, citing the ongoing investigation.”
What does this mean for you?
Probably more paperwork, as compliance staffs seek to prevent any future collusion or appearance of same from tainting their business transactions.

US property and casualty insurers have had their most profitable year in almost three decades, turning an underwriting net profit of $5 billion. The bad news is one of the key drivers, strong pricing, has already started to deteriorate.
The great result followed several years of declines that ended with a disastrous 2001, and marked the third consecutive year of improving profits. The improvement, driven by higher prices, a favorable regulatory environment, and more restrictive underwriting, has produced a net profit after taxes of $39 billion. While that sounds like a great pile of cash, the 9.4% return on net worth doesn’t look quite as attractive when compared to other industries or historical results. One of the key reasons – the low rates of return on investment income.
By comparison, the industry had a 17.3% rate of return in 1987 with a combined ratio of 104.6, whereas the 2004 rate was 98.1. For those of us old enough to remember, interest rates and stock market returns were significantly higher in those days, allowing insurers to lose money on an underwriting basis and more than make up for it with investment income. It looks like those wonderful days of double digit returns aren’t coming back any time soon.
So, despite strong underwriting , a mostly favorable regulatory environment, and few very large catastrophic events, the industry can’t even come close to delivering the kinds of returns enjoyed by other sectors. Couple that with the recent evidence of softening prices and continued inability to even focus on, much less begin to control health care expenses, and one cannot be sanguine about the industry’s future results.
The net – if prices continue to soften, those insurers without discipline and a focus on medical expense management (for the lines impacted by medical costs) are in for a rough ride.
What does this mean for you?
Success if you stick to the fundamentals and finally do something about medical.

Reuters reports that Eliot Spitzer, NY Attorney General, is close to a settlement with AIG in the civil lawsuit filed by his office. This would be good news for both AIG and the insurance industry, which has been waiting for the proverbial “other shoe” to drop since the suit was filed earlier this year.
The most visible impact of the issue has been the departure of long-time CEO Hank Greenberg as well as the decline in stock price, with AIG’s stock down 17% (compared to the S&P’s 2 point drop) since the Valentine’s Day announcement. An equally significant, but perhaps less visible result is the loss of management attention on key business issues affecting the company. These include –
—continued major problems with AIG’s new medical bill document management program, exemplified by long delays in payment, lost bills, frustrated health care providers, and regulatory actions
— uncertain strategic direction at recent acquisition American General. AG’s target market definition seems to wander like the needle on a compass in an iron mine. This lack of focus is NOT typical to AIG.
That said, AIG is a very strong company with competent management. If their leaders can once again begin to focus on their business, and correct a decades-long underinvestment in information technology, then it will continue to succeed.
What does this mean for you?
Get crises resolved as fast as possible, and do NOT lose your focus on the franchise. Trite, but true.

Hard market, soft market, transitional market – all are terms that insurance industry veterans have used to characterize the various stages of the “insurance industry underwriting cycle”. Simply put, a hard market is when insurers are backing out of the market, insurance is expensive and getting more so, difficult to find, and likely limited when it can be obtained. Soft markets typically are marked by new entrants into the business, dropping prices, generous underwriting provisions, and aggressive discounting.
We are now in a soft market, especially in California. The next question is how did we get here and how long will it last.
Well, we got here because insurers raised rates for three years in a row beginning in 2001, thereby driving margins, and profits, up substantially. This newly profitable industry caught the attention of outside capital, which wanted to jump in on the action. Remember, those with lots of money to invest can put it into bonds (at very low interest rates) equities (with their only slightly better returns with much more risk), real estate (prices are high and speculation of a bubble rampant), or under a very large mattress.
So, among other insurance lines, workers comp looked especially good. And lots of capital jumped in, causing prices to drop. They are still declining.
The second part of the question is much harder to answer – but there are some indicators that predict it will not last nearly as long as the soft market of the late nineties. Most significant is the continued rapid increase in medical expenses. In workers comp, most medical expenses are paid out more than 12 months after the date of injury, and fully 1/3 of dollars are paid more than 36 months post injury. It is incredibly hard to accurately predict what medical inflation will do to a claim’s medical costs. And, all indications are that medical expenses in WC are rising faster than in the overall economy.
You can find an excellent review of past markets, market drivers, and other useful info at the American Association of State Compensation Insurance Funds. While the report is somewhat dated, the logic is not.
What does this mean for you?
Enjoy the soft market if you are a buyer, hope it ends soon if you are a seller, and whoever you are, remember that medical expense will drive the next hard market.

It appears increasingly unlikely that the Terrorism Risk Insurance Act will be renewed in its present form. A report filed by Treasury Sec. John Snow claims the robust economy is justification for its’ position that the Act is no longer needed, any renewal will stifle innovation and economic growth, and any renewal should factor in significant changes.
Referring to the potential for renewal of the Act, the report makes several recommendations, noting:
“Any extension of the program should recognize several key principles, including the temporary nature of the program, the rapid expansion of private market development (particularly for insurers and reinsurers to grow capacity), and the need to significantly reduce taxpayer exposure.”
Snow is recommending several specific changes, including:
“an extension only if it includes a significant increase to $500 million of the event size that triggers coverage, increases the dollar deductibles and percentage co-payments, and eliminates from the program certain lines of insurance, such as Commercial Auto, General Liability, and other smaller lines, that are far less subject to aggregation risks and should be left to the private market.
While Snow is correct that the Act was intended to be temporary, that was more because it was the first of its kind, we had no experience in this area, and far better to sunset a law than to let an inappropriate, ineffective, or bad law stay on the books automatically.
That said, there are benefits to the insurance industry if the Act dies. These include:
— No more onerous TRIA paperwork. Insurers/brokers are required to offer TRIA coverage to all policyholders (for most property/casualty and some accident/health lines) and prove that by getting signatures on documents from insureds. Most insureds opt out of coverage, meaning brokers are required to obtain, file, and maintain records without compensation.
— Outside major municipal areas, the vast majority of policyholders are rejecting terrorism coverage anyway due to higher costs.
Among the problems with any decision to non-renew TRIA are the regulatory requirements of certain states, the lack of a market for terrorism coverage, and the expense of private insurance.
New York state requires terrorism coverage, and is generally seen as the most likely target of an attack. Rock and a hard place, indeed.
Property and workers compensation insurers are particularly vulnerable, due to their high exposure, potential long-tail claims due to environmental fallout from any terror act, and in the case of WC, unlimited financial liability. Make no mistake, another significant terror attack could have a huge financial impact, one that the present insurance markets would not be able to withstand. Scenarios indicate an exposure into the tens of billions under certain situations for property and WC insurers if a dirty bomb event occurs in a major metro area.
What does this mean for you?
Depends on where you work and what your “exposure” is. If you are in a major metro area or near a “high value” target, rates could climb drastically. If not, rates may still increase as insurers seek to mitigate risk by increasing their reserves ahead of a catastrophic event.
I’ll look into the potential impact on workers comp in a future posting.