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VOLUME 125, NUMBER 8 / April 28, 2014
A CINN Group, Inc. Publication
Serving: New York, New Jersey, Connecticut, Pennsylvania and Washington D.C.
IBANY Officers and Directors Elected for 2014-2015 Term STORY PAGE 14
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Spread the word
Don’t be shy, tell your good stories and spread the word about the great work of the insurance industry. Financial Backbone of Communities Insurance provides New Yorkers with financial security and enables people to live life to the fullest. People would not be able to own a home, drive a car or start a business without insurance. In 2012 alone property and casualty companies paid $32.4 billion in claims. Giving Back Insurance companies and agents are dedicated to serving their communities. The industry donates financially to a myriad of worthy causes with just one example of these efforts being the Insurance Industry Charitable Foundation raising $1.4 million at the 2013 Benefit Dinner. Even more importantly, individuals dedicate their time to help those in need—whether it’s Meals on Wheels, flood recovery efforts, building a playground or encouraging greater safety— the industry is always looking to make a difference. Economic Driver The industry is a major contributor to New York’s economy contributing $41.6 billion to the gross state product (GSP) in 2011, accounting for 3.6 percent of the GSP. In 2012, the industry provided 190,027 jobs in New York, paid premium taxes totaling $1.3 billion, and held more than $19.3 billion in municipal bonds.
KNOW BETTER NEW YORK CONNECTIONS www.nyia.org
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April 28, 2014 | volume 125 number 8
[COVER STORY ]
[ AD FEATURES]
MSO: International Travel Tips
LICONY: Disability: A Real Risk at All Ages; Are Families Covered? The Answer is Not so Clear
LOOKING UP: First Net Underwriting Gains Since 2007 Mark P/C Insurers’ 2013 Results
Foreword: A question often asked… Steve Acunto, Publisher
Insight: Motivational Misdirection Peter H. Bickford
On the Level: April Was Volunteer Month: What are you doing for your industry? N. Stephen Ruchman, CPA
Guest Editorial: Social Media – The 5 Reasons Your Business Can Not Survive Without It Chris Paradiso
In the Associations: IBANY Spring Reception Draws 400+ Attendees
RRG Update: RRG’s Report Financially Stable Results at Year-End 2013 Douglas A. Powell
Face to Face: Myths BUS-ted! Michael Loguercio
Looking Back: April 1989
Courtside: Court Denies Default Motion in DJ Action Even Though Defendants Defaulted Lawrence Rogak
12 Like us on Facebook… The Insurance Advocate Magazine
www.insurance-advocate.com INSURANCE ADVOCATE / April 28, 2014 3
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[ FORE WORD ]
A question often asked…
VOLUME 125, NUMBER 8 APRIL 28, 2014
he IBANY held its annual fete at an amazing location at 2 Desbrosses Street Rooftop in New York’s SoHo. There were about 400 in attendance. Anthony Greene and his band of brokers did a great job. Many industry veterans were among the happy younger generation of professionals – the latter far outnumbering the former. Lee Orabona and Don Privett were among them; sadly, some friends have left the business, others are gone, but the surprising vitality of this group’s “New Gen” was visible that Spring night in SoHo.… When people ask you the same question over and over again, you need to continue to improve your answers. With me, I cannot get too deeply into any lifestyle conversation with industry professionals – especially out-of-towners – before the question comes up: what is the best Italian restaurant in the City? I have even gotten e-mails from communicators and meeting attendees about to come into the City asking the eternal question. Now I am not an authority, but since I did spend half of my youth in Italy and since I do eat out seemingly incessantly these days, I will keep a handy list of recommendations in no special order and relay them here over the next several columns. To start, Pizzarte: this is the best pizzeria and pasta house dollar for dollar in town and has a sophistication level far above the ordinary pizzeria. Bruno Cleglio and his partners have even added a good and well-priced wine list. Try the fettuccine with chestnuts and the burrata and prosciutto; medium priced; sit upstairs for sure. It’s on west 55th just east of 6th. SD@26, Tony and Marissa May’s masterpiece (it succeeds their legendary San Domenico) is on 26th facing Madison Square. Totally recommend it especially for business dinners, given the private sections and private dining areas. What is great about it is the openness of the design, yet the sense of privacy. The kitchen is wide open and the service flies out from it very carefully. The pasta is homemade, for real, and the pasta and main course combinations are well worth a trip to 26th between Madison and 5th. The maître d’, Stefano, understands what a business dinner is and the chef understands quality. Do not miss the risotto carnaroli – it will surprise you – favorably. This is a multi-star spot.… The Casualty Actuarial Society (CAS) has formed a Task Force on Cyber Risk. This initiative reflects the rapid growth of cyber risk and the pressing need to find effective means of analyzing it. According to CAS, “The CAS Task Force on Cyber Risk will engage in research activities and provide educational opportunities in the analysis of cyber risk, with a particular focus on contingent events arising from cyber risk and the financial implications of these events. Recently reported data breaches at large corporations, educational institutions, and government agencies are some of the many examples of cyber-related events that illustrate the rapid growth of cyber risk. Ways of managing cyber risk exposure range from employing more effective information security measures to wider use of cyber insurance.” As we reported in our March 17th issue, cyber risk is one of the key components of operational risk to which every company is exposed. Today, the analysis of cyber risk is essential in setting insurance premium levels, evaluating liabilities for insured cyber losses, and enterprise risk management of insurance companies underwriting cyber risk insurance. The CAS initiative has a strong potential to benefit enterprises and other entities exposed to cyber risk, policyholders purchasing cyber risk insurance, insurance and reinsurance industries, and society as a whole. “We believe that in addressing the challenge of cyber risk analysis, it is essential to follow a multidisciplinary approach that brings together experts in actuarial science, cyber security and information continued on page 8
4 April 28, 2014 / INSURANCE ADVOCATE
EDITOR & PUBLISHER Steve Acunto 914-966-3180, x110 email@example.com CONTRIBUTORS Peter H. Bickford Jamie Deapo Sari Gabay-Raﬁ Michael Loguercio Lawrence N. Rogak N. Stephen Ruchman Jerome Trupin, CPCU Barry Zalma PRODUCTION & DESIGN ADVERTISING COORDINATOR Creative Director Gina Marie Balog 914-966-3180, x113 firstname.lastname@example.org SUBSCRIPTIONS P.O. Box 9001, Mt. Vernon, NY 10552 914-966-3180, x126 email@example.com PUBLISHED BY CINN Group, Inc. P.O. Box 9001, Mt. Vernon, NY 10552 (914) 966-3180 | Fax: (914) 966-3264 www.cinn.com | firstname.lastname@example.org President and CEO Steve Acunto
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[ INSIGHT ]
By Peter H. Bickford
nyone who loves a good mystery knows that determining motivation is a key element to understanding actions. But as in all good mysteries, motivation can be cleverly concealed or woven into the fabric of a tale. We are probably
sophisticated states, thus undermining the whole fabric of state regulation of insurance. To his apparent chagrin, however, the NAIC continued on its plodding course toward principles-based reserving, or PBR. This led to a scathing rebuke by
If state regulation of insurance becomes more principle-based over formula-based, enforcementcentric state regulators such as New York will find it more difficult to apply absolute rules against the crooked, scheming insurance industry. Peter H. Bickford
all guilty at one time or another of the practice of misdirection in order to achieve a goal, whether it is as simple as bluffing at cards, pulling off a hidden ball trick in baseball or touting our own product’s benefits over an competitor’s equally effective product. It is also likely too much to ask that our regulators be above the fray and act with total impartiality and fairness. Unfortunately, regulators are human as well, and can be as effective at misdirection as the best of us. Two recent disparate developments illustrate the point: New York’s opposition to the development of principles-based reserving and its recent settlement with Met Life over the issue of doing business in New York without a license. Since shortly after becoming superintendent of New York’s new department of financial services (DFS) Ben Lawsky has been critical of the NAIC’s effort to move toward a principle-based reserving protocol to replace the existing formula-based approach. His position, ably presented in a detailed letter to his fellow commissioners in November 2012, strongly suggested that the effort would weaken the financial condition of insurers by allowing them to reduce reserves through their own modeling, and would overwhelm the capability of insurance regulators to monitor these models, particularly in the smaller, less
Superintendent Lawsky in a letter to the commissioners last September that scolded his fellow commissioners for not “quelling the gamesmanship and abuses” by the industry in its reserving practices, and that PBR would represent a “potent cocktail that could put policyholders and taxpayers at significant risk.” He also referred to the restraints in PBR as “so loose as to be illusory” and finally accused his brethren of learning “the wrong lessons—or no lessons at all – from the recent financial crisis.” It seems to really bug chief Lawsky that the NAIC has continued in its usual plodding manner to consider PBR even in view of his well-reasoned, irrefutable criticisms. Is it possible that this reaction – or over-reaction to many – is a sign of some other motive for his position? Is the volume of this attack yet another in a long line of markers demonstrating that the current concept of insurance regulation in New York is primarily, if not exclusively, enforcement-centric? Think about it! If state regulation of insurance becomes more principle-based over formula-based, enforcement-centric state regulators such as New York will find it more difficult to apply absolute rules against the crooked, scheming insurance industry. Is this the underlying motive behind the attacks on the NAIC’s efforts to find a truer method
of matching risk and reserves and a better way of adapting to new products and changing marketplaces? Strict disciplinarians need clear, unambiguous rules to control their domain. The last things they want or can tolerate are wishy-washy, bendable rules making it harder to control the miscreants under their jurisdiction. The second example is a developing dispute about what constitutes the conduct of business without a license. In March the Department of Financial Services announced a $50 million fine against Met Life and a couple of non-New York life insurance affiliates that had been acquired from AIG for illegally soliciting insurance business in New York without a license. Although the violations cited were ongoing from before the acquisition from AIG, and although AIG is prominently referenced in the consent agreement, AIG was not a party to the agreement. Met Life and its affiliates, on the other hand, not only acknowledged the violations and accepted the substantial fine, they also agreed to cooperate with the DFS in its ongoing investigation and enforcement actions against AIG. The settlement with them appeared to be akin to a plea deal with one perpetrator that agrees to cooperate with the authorities in pursuing another perp. But then something interesting happened. AIG sued the DFS to stop it from going after AIG under the terms of the consent agreement with Met Life, arguing that the consent agreement exceeds the regulator’s authority and deprives AIG of its due process rights. At first blush this might seem as a simple ploy to avoid the long-arm of the law, but a full reading of the complaint raises some very interesting factual issues regarding the activities the DFS claims constitute the unlicensed business of insurance in New York. The most interesting allegation raised by AIG is that the alleged illegal activity does not involve New York insureds and therefore should be of no concern to the New York regulators whose purpose is to protect New York residents. AIG admits in its complaint that it conducted marketcontinued on page 8
6 April 28, 2014 / INSURANCE ADVOCATE
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[ INSIGHT ] have created an absurd catch-22 situation: the company is required to be licensed in New York even if it is not insuring New York residents, but cannot obtain a license in New York for the same reason. After reading the complaint, I went back and re-read the consent agreement. Sure enough, as alleged in AIG’s complaint, there is no reference to any solicitation or underwriting of coverage for New York residents. Additionally, the consent agreement includes no requirement that the Met
continued from page 6
ing and other services for its non-New York affiliate using expertise housed in New York, but that there is nothing improper or illegal about such activities because the affiliate was not covering New York residents. AIG argues that New York exceeded its authority by attempting to regulate a non-New York company that is not insuring New York risks, but also that its actions
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Life affiliate acquired from AIG obtain a New York license or divest itself of any improperly solicited business. Why not? The DFS has refused to respond to the AIG complaint (the old “we do not comment on pending litigation” mantra) although clarification would be helpful to understand the basis for its enforcement action. It would be very helpful to know, for instance, why New York regulators object to a non-licensee using personnel and expertise located here in New York so long as it was not interfering with the rules for insuring New York residents. What is the benefit to the State by chasing these jobs out of state? Is this another example of the short term, enforcement-centric mind set of the current New York regulators being blind to and interfering with the economic interests of the industry and the State? The AIG lawsuit may or may not help answer these questions, but without it the questions may never have even been asked and the motives never questioned.[IA]
[ FORE WORD ] continued from page 4
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technology, big data analytics, legal and other fields,” said Alex Krutov, chairperson of the Task Force on Cyber Risk. “We encourage other professionals and organizations to join us in the important effort of advancing research and education in the area of rapidly evolving cyber risk.” Many aspects of cyber risk remain poorly understood. With few exceptions, the expertise needed to analyze cyber-related events such as data breaches or business interruption, their probabilities, and their ultimate financial impact is limited, both at the companies directly exposed to the risk and in the insurance industry. Often, unscientific qualitative methods are used for this task. While there is a growing body of research on some of the specific IT aspects of the risk, it is particularly difficult to tie that research to financial outcomes and insurance coverage. The Task Force on Cyber Risk intends to contribute to this ongoing research, but its primary research goal is to utilize a multidisciplinary approach in order to gain a more comprehensive and accurate view of cyber risk. The need for such improved understanding of cyber risk cannot be overstated.[IA]
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International Travel Tips WARM WEATHER BRINGS thoughts of vacations, perhaps to a foreign country. Proper planning can avoid heartache. Understanding the potential pitfalls of international travel and offering assistance to clients is another valueadded service of the professional insurance agent. Review all insurance policies to see what restrictions there may be for foreign countries. Normally, coverage for personal property under a homeowners policy is worldwide. However, there may be exceptions. Liability coverage may or not be provided depending on the policy. Business personal property is likely to be restricted. Driving a vehicle outside the United States requires special insurance. Some auto policies provide limited coverage in Mexico and Canada, but this may be for only the minimum required limits. Be aware of travel advisories, posted by the U.S. Department of State, and take contact information for the U.S. embassy for every country on the itinerary. Email alerts are also available. (http://www. state.gov/travel/) Emergency preparedness is especially key while traveling abroad. How will health insurance respond? What if someone needs to be transported back to the United States? Medical evacuation costs can easily exceed $10,000, and insurance may not cover the cost of a companion flying back with the ill, injured or deceased individual. Consider purchasing primary travel health insurance, including emergency repatriation. Travel insurance may be a good idea. In addition to health insurance, coverage is available for cancelled flights and lost luggage. Worldwide, about 1 percent of luggage was mishandled last year, costing an estimated $2.6 billion, according to the International Air Transport Association (IATA). (www.businessweek.com). Many people are lost without their cell phones, laptops and tablets, however, staying connected while traveling can be very expensive. Most carriers offer a variety of plans for international use, but
Be aware of travel advisories, posted by the U.S. Department of State, and take contact information for the U.S. embassy for every country on the itinerary.
the network may not be available in all countries. Planning ahead can save a lot of money. Credit card companies are sensitive to unusual activity. Be sure to alert them to your travel plans. This also goes for your bank if you plan to use their debit card. Check to see if there are banks in the countries you are traveling to that are affiliated with your bank and will not charge transaction fees. Transaction fees can be steep in foreign countries. Be sure you have contact phone num-
bers that you can use overseas if you need to contact your credit cards, bank and health insurer. An Interpol database shows that more than 40 million travel documents, mostly passports, have been reported stolen or missing since 2002. Make two copies of all documents, including credit cards and health insurance cards, taken on the trip. Leave one at home in a safe place and take one copy with you. Travel plans should never be posted on social media sites. This is an open invitation for thieves to visit the home while the residents are away. In addition, pictures posted while on vacation also advertise that you are not at home. A dream vacation can easily turn into a nightmare. Helping clients avoid problems while traveling is another sign of the true insurance professional.
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[ ON TH E LEVEL ]
By N. Stephen Ruchman, CPA
April Was Volunteer Month: What are you doing for your industry?
have been asked more than a few times where I get my ideas for writing this column. In fact, when I was first approached to contribute to the Insurance Advocate in 2005, a colleague of mine advised against it. He said interesting issues
owned an agency. While I was at Glenmont, I heard about progress on important legislation; upcoming testimony and research PIA will provide the Department of Financial Services; I worked with other agents developing con-
industry when they were part of PIA’s Young Insurance Professionals; others have obtained markets and customers by networking with each other; there are a few of us who find huge reward in knowing we have made a difference by working directly with lawmakers and regulators to affect policy—Saying Attend a networking event, go to a quality CE course; you don’t having time to participate in your association is like see if you can participate in your region’s PIA Advisory saying you can’t find time to Councils; participate in the District Office Visits and invest in your livelihood. That meet with your legislators: See how you like the activities business model will not yield long-term success. and outcomes—If you find your niche, grow by taking Reading my local paper, The on more; mentor a young professional; talk to a fellow Herald, in Rockville Center, I’ve agent and see if he or she is a member and learned that April is Volunteer Month. Everyone is encouraged encourage them to join too. N. Stephen Ruchman to thank a volunteer and become one this month. And so, I present this question to you: What are you in our industry are finite and he predicted tinuing education that offers real value to contributing? Have you made sure you are that eventually, I’d be stuck, searching for their agencies; and we identified benefits an active member of a group that is going topics that anybody would care to read and services that professional agents need to help you become better in your busiabout. After nine years, you might think and can truly use to make their businesses ness? Are you volunteering? Have you my muse has retired. But, nothing could run more efficiently and become more donated to your industry, or its Political be further from the truth. profitable. Action Committee? That’s not to say it will never happen; It’s exciting to see some new faces who The Herald has listed a number of but to date, I have had no problem coming will be joining the PIANY board of direc- places and organizations where local comup with ideas. Often, topics come from fel- tors and committees, including George munity members we could lend a hand. I low agents or readers of this column. Other Hernandez of Franklin Brokerage in can provide similar listing advice for our times, I’ve had an experience or I know of Hempstead and Jeff Liebowitz; of the business community. You can start small: another agent who is going through some- Atlantic Agency of North Babylon; two fel- Attend a networking event, go to a quality thing to which others can relate. Of course, low Long Islanders who have stepped up. CE course; see if you can participate in being active with my association is an end- And of course, its always great to see long- your region’s PIA Advisory Councils; parless source of issues and ideas. One of the time volunteers, who have become good ticipate in the District Office Visits and best parts of volunteering with PIA is that friends and colleagues of mine. meet with your legislators: See how you the association is at the forefront of change Back home, I have sometimes had con- like the activities and outcomes—If you and evolution that’s always occurring in versations with fellow agents who have find your niche, grow by taking on more; our industry: From carrier actions to pol- thanked me for my time at PIA. “I’m so mentor a young professional; talk to a felicy change, I know I have up-to-date infor- glad you are up there working on our low agent and see if he or she is a member mation because I hear it from experts and behalf,” they say… “Because I don’t have and encourage them to join too. industry leaders. time to do it.” PIA, like any association is not a oneIn fact, I am writing this column after My response to these people is that person organization. For starters, there are spending two days in Glenmont, just out- they have no idea what they are talking 75 people employed the PIA building visside of Albany at PIA headquarters. This about. I’ve always said my time at PIA has ible from the Thruway as you enter Albany, is a good time for me to write because I paid off tenfold, and as I looked around at all working together to make sure profesam particularly enthusiastic after working meetings this week, I could see many pro- sional independent agents are successful. with the dozens of volunteers and more fessionals who have also benefitted in so I don’t know one person who volunteers than 75 paid association staff on issues that many ways: some have made career are important to me and my family, having changes from contacts they made in the continued on page 31 10 April 28, 2014 / INSURANCE ADVOCATE
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[ GUEST EDITORIAL ]
By Chris Paradiso
Social Media – The 5 Reasons Your Business Can Not Survive Without It
ocial media is no longer just a possible fad. It is now an actually form of communication. If you are an agency owner and have yet to begin using social media to support your sales strategy, you may need to recheck your approach. Social media is one remarkable marketing tool. Let’s talk about five reasons why all businesses will not survive without social media built into their marketing strategy.
Number 3: The ability to build an audience—social media allows you to develop a marketing audience like no other platform. You do not usually have the option to have people actively attending your advertising but through social media, it works out well. With social media you have a static location where people can come to see your advertisement on their time, and in today’s world people want to work and
There is nothing more powerful than a client who socially approves of you and your agency— Social media gives you the ability to see if the people who have liked your page did so for their personal gain or if they are actually approving of your insurance agency. Chris Paradiso
Number 1: Social media is extremely contagious—More than likely, the biggest problem of your business is getting your marketing out to as many people as possible for the smallest amount of investment. Social media allows you to target a relatively small sector of people while reaching a large marketing audience. Here’s a quick example: if you can get one person to like your agency Facebook page, that one person will turn into a force multiplier projecting your page to several others pages, which in turn will look at your profile because it’s showing up on their page. Number 2: The power of word-ofmouth marketing—you can turn people into advertising agents very easily. A person may either see your Facebook page and skip over it without thinking anything or that person may follow that link back to your Facebook page. Now imagine you get a couple hundred people to look at your page–suddenly your chances of more people visiting your agency Facebook page will grow as each person likes your page. This process will continue to repeat and the best about it is that it’s all FREE. 12 April 28, 2014 / INSURANCE ADVOCATE
review things on their time not yours. This allows you to direct traffic to these spots within the Internet world rather than elsewhere on the web. Number 4: The extreme power of engagement with your customer—with social media you can offer giveaways or incentives to get people to like your page or follow you on twitter. Gathering your audience is the first step but the key factor is the engagement after they have joined your audience. Make sure you’re attracting an audience that you can sell to. For example, if you’re on Facebook giving a free iPad away to those who like your page, are the people that you’re attracting even people that you can sell insurance to? Review your audience and come to understand who they are before you move on. Number 5: There is nothing more powerful than a client who socially approves of you and your agency—Social media gives you the ability to see if the people who have liked your page did so for their personal gain or if they are actually approving of your insurance agency. Social proof is one of those quiet ways that your agency
can turn in ROI on it social media marketing very quickly. One quick way to discourage people within the social media world is to ignore them. Ignoring them will help your agency lose business, so if there’s one key factor in all social media marketing, it is to always respond and never turn a blind eye to a comment. You’re probably looking at these five key factors and wondering why I left search engine optimization out. Search engine optimization is by far the most powerful tool for all of our agencies, but I’ll save that discussion for my next article. [IA] Christopher Paradiso, CPIA, is President of Paradiso Financial & Insurance Service. He has been acknowledged by several insurance publications as a leader in the industry for his use of digital marketing and social media to help brand his agency and promote other small businesses within his community. Chris has also been recognized for his charity work with The Connecticut Children’s Medical Center. In 2011, Chris introduced “Paradiso Presents LLC,” a social media program aimed at teaching small agencies how not only survive, but compete in today’s complex online marketing world. Chris resides in Stafford Springs, CT with his wife and two children, Mia and Gianni.
Serving New York, New Jersey, Pennsylvania and Connecticut Since 1889 www.insurance-advocate.com
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[ IN THE ASSOCIATIONS ]
IBANY Spring Reception Draws 400+ Attendees he Insurance Brokers and Agents of New York, Inc., (IBANY) held its Annual Spring Reception at the Tribeca Rooftop in New York City on April 17, 2014. The event followed the Board of Directors meeting at which the 2014-2015 Board were elected. The elected members include: Directors: Anthony Greene, Herbert L. Jamison & Co. LLC; Renee McFadden, Distinguished Programs, Scott Darragh, Hartan
Brokerage; Justin Foa, Foa & Son Corp.; Leslie Nyland, SterlingRisk; Filomena Maclean, HUB International Northeast; John Ruth, Hagedorn & Company; Douglas Feniman, GallagherBollinger; and Past President Dick Impastato, Foa & Son Corp. Officers: Immediate Past President Christine Chipurnoi, Wells Fargo Insurances Services USA; President Rubin Alspector, Marsh & McClennan; and Executive Vice President Jim Mannino, Alliant Insurance Services, Inc.[IA]
CHRISTINE CHIPURNOI OF WELLS FARGO INSURANCE SERVICES USA PASSING THE GAVEL TO RUBIN ALSPECTOR OF MARSH AND M C CLENNAN AGENCY
CHRISTINE CHIPURNOI (L) JOINS FELLOW ATTENDEES AT THE IBANY SPRING RECEPTION AT TRIBECA ROOFTOP ON THURSDAY
L-R: ANTHONY GREENE, HERBERT L. JAMISON & CO. LLC (RE-ELECTED), RENEE MCFADDEN OF DISTINGUISHED PROGRAMS (NEW), SCOTT DARRAGH OF HARTAN BROKERAGE (RE-ELECTED), JUSTIN FOA OF FOA & SON CORP., LESLIE NYLAND OF STERLINGRISK, IMMEDIATE PAST PRESIDENT CHRISTINE CHIPURNOI OF WELLS FARGO INSURANCES SERVICES USA, PAST PRESIDENT DICK IMPASTATO OF FOA & SON CORP.; DOUGLAS FENIMAN OF GALLAGHER-BOLLINGER; AND AILEEN MARCHESE OF IRONSHORE, CHAIR OF THE IBANY PROGRAMMING COMMITTEE. 14 April 28, 2014 / INSURANCE ADVOCATE
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rivate U.S. property/casualty insurers’ net income after taxes grew to $63.8 billion in 2013 from $35.1 billion in 2012, with insurers’ overall profitability as measured by their rate of return on average policyholders’ surplus climbing to 10.3 percent from 6.1 percent. At 10.3 percent, insurers’ overall rate of return had risen to its highest level since the 12.4 percent for 2007. Insurers’ pretax operating income — the sum of net gains or losses on underwriting, net investment income, and miscellaneous other income — rose to $64.3 billion in 2013 from $35.0 billion in 2012. Improvement in underwriting results drove the increases in insurers’ pretax operating income, net income after taxes, and overall rate of return, with insurers’ $15.5 billion in net gains on underwriting in 2013 constituting a $30.9 billion swing from their $15.4 billion in net losses on underwriting in 2012. The combined ratio — a key measure of losses and other underwriting expenses per dollar of premium — improved to 96.1 percent for 2013 from 102.9 percent for 2012, according to ISO, a Verisk Analytics company (Nasdaq:VRSK), and the Property Casualty Insurers Association of America (PCI). The swing to net gains on underwriting is attributable to premium growth and a drop in net losses and loss adjustment expenses (LLAE). Net written premiums climbed 4.6 percent in 2013 to $477.7 billion, and net earned premiums grew 4.2 percent to $467.9 billion. Conversely, net LLAE fell 5.5 percent in 2013 to $315.0 billion. Those positive developments were partially offset by increases in underwriting expenses and dividends to policyholders, which both rose last year. Insurers’ overall results for 2013 also benefited from a $4.6 billion increase in net investment gains — the sum of net investment income and realized capital gains (or losses) on investments — which rose to
“The $66.3 billion increase in policyholders’ surplus to a record-high $653.3 billion at year-end 2013 is a testament to the strength and safety of insurers’ commitment to policyholders. Insurers are strong, well capitalized, and well prepared to pay future claims,” said Robert Gordon, PCI’s senior vice president for policy development and research.
$58.8 billion in 2013 from $54.2 billion in 2012. Partially offsetting the improvement in underwriting and investment results, insurers’ miscellaneous other income fell $0.9 billion to $1.5 billion in 2013 from $2.4 billion in 2012, and their federal and foreign income taxes rose $5.8 billion to $12.0 billion from $6.1 billion. Policyholders’ surplus — insurers’ net worth measured according to Statutory Accounting Principles — grew $66.3 billion to a record $653.3 billion at year-end 2013 from $587.1 billion at year-end 2012, largely as a result of insurers’ $63.8 billion in net income after taxes. The figures are consolidated estimates for all private property/casualty insurers based on reports accounting for at least 96 percent of all business written by private U.S. property/casualty insurers. “The $66.3 billion increase in policyholders’ surplus to a record-high $653.3 billion at year-end 2013 is a testament to the strength and safety of insurers’ commitment to policyholders. Insurers are strong, well capitalized, and well prepared to pay future claims,” said Robert Gordon, PCI’s senior vice president for policy development and research. “ The U.S. marketplace emerged relatively unscathed from the hurricane season last year. But advanced risk models show that losses from cata-
strophic events will continue to increase, and insurers will need to keep on building their financial resources to protect policyholders and bolster economic resiliency before the next major event like Hurricane Katrina or the September 11 terrorist attack occurs. Insurers are taking the steps necessary to secure their financial commitments to consumers. We are also working with homeowners, businesses, and federal, state, and local officials to improve disaster readiness and mitigation to minimize future human tragedy and economic losses. Catastrophe planning and preparation continue to be critical watchwords for 2014.” “The swing to net gains on underwriting in 2013 is certainly welcome news for insurers, whose net investment income — primarily interest on bonds and dividends from stocks — peaked at $55.1 billion in 2007 but totaled just $47.4 billion last year as a consequence of the historically low investment yields brought about by the financial crisis, the Great Recession, and the economy’s slow recovery from those events,” said Michael R. Murray, ISO’s assistant vice president for financial analysis. “Insurers earned net gains on underwriting in just 12 of the 55 years continued on page 18
INSURANCE ADVOCATE / April 28, 2014 17
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from the start of ISO’s data in 1959 to 2013, with insurers posting cumulative net losses on underwriting amounting to $485.9 billion during that period. But with much of the improvement in underwriting results last year attributable to special developments including relatively benign weather, a sharp drop in catastrophe losses, and increases in reserve releases, one has to wonder just how sustainable the net gains on underwriting will prove to be. Other items clouding the outlook for underwriting results include insurers’ record high policyholders’ surplus to the extent that it sheds light on insurers’ capacity to bear risk and the potential supply of insurance in competitive markets governed by the law of supply and demand.” The property/casualty industry’s 10.3 percent rate of return for 2013 was the net result of double-digit rates of return for mortgage and financial guaranty (M&FG) insurers and high single-digit rates of return for other insurers. ISO estimates that M&FG insurers’ rate of return on average surplus improved to 30.2 percent for 2013 from 0.4 percent for 2012. Excluding M&FG insurers, the industry’s rate of return rose to 9.8 percent in 2013 from 6.3 percent in 2012.
Underwriting Results Underwriting gains (or losses) equal earned premiums minus LLAE, other underwriting expenses, and dividends to policyholders. Net gains on underwriting swung to positive $15.5 billion in 2013 from negative $15.4 billion in 2012 as premiums rose and LLAE declined. Net written premiums rose $21.0 billion, or 4.6 percent, to $477.7 billion for 2013 from $456.7 billion for 2012. Rising 4.6 percent, written premiums grew at their fastest pace since 2004, when written premiums rose 4.9 percent. Net earned premiums rose 18 April 28, 2014 / INSURANCE ADVOCATE
Underwriting results for 2013 benefited from $16.0 billion in favorable development of LLAE reserves based on new information and updated estimates for the ultimate cost of old claims from prior accident years.
$19.0 billion, or 4.2 percent, to $467.9 billion from $448.9 billion. Earned premiums last increased this rapidly in 2006, when they rose 4.3 percent. Net LLAE (after reinsurance recoveries) dropped $18.2 billion, or 5.5 percent, to $315.0 billion in 2013 from $333.2 billion in 2012. The growth in premiums and the decline in LLAE were partially offset by increases in other underwriting expenses and dividends to policyholders. Other underwriting expenses increased $5.9 billion, or 4.6 percent, to $134.8 billion in 2013 from $128.9 billion in 2012 as dividends to policyholders grew $0.4 billion to $2.5 billion from $2.1 billion. The decrease in overall LLAE was driven by a decline in catastrophe losses, with ISO estimating that private insurers’ net LLAE from catastrophes fell $19.0 billion to $14.1 billion in 2013 from $33.1 billion in 2012. Other net LLAE rose $0.8 billion, or 0.3 percent, to $301.0 billion in 2013 from $300.1 billion in 2012. U.S. insurers’ $14.1 billion in net LLAE from catastrophes in 2013 is primarily attributable to catastrophes that struck the United States. Though estimating U.S. insurers’ LLAE from catastrophes elsewhere around the globe is difficult, the avail-
able information suggests that U.S. insurers’ net LLAE from catastrophes overseas were immaterial in both 2013 and 2012. Based on the information available as of April 18, 2014, ISO’s Property Claim Services® (PCS®) unit estimates that direct insured property losses from catastrophes striking the United States dropped $22.1 billion to $12.9 billion in 2013 from $35.0 billion in 2012. At $12.9 billion, direct catastrophe losses were $11.0 billion below the $23.9 billion average for direct catastrophe losses during the past ten years. Direct losses are before reinsurance recoveries and exclude loss adjustment expenses. These figures are for all insurers, including residual market insurers, foreign insurers, and reinsurers, but exclude ocean marine losses and losses covered by the National Flood Insurance Program. Reflecting the growth in premiums and the decline in LLAE, the combined ratio improved by 6.8 percentage points to 96.1 percent in 2013 from 102.9 percent in 2012. “The drop in net LLAE accounts for more than half of the improvement in underwriting results in 2013,” said Gordon. “Specifically, insurers’ combined ratio improved by 6.8 percentage points last year, with the drop in net LLAE accounting for 3.9 percentage points of that improvement. The remaining 2.9 percentage points of improvement are due to premium growth.” Underwriting results for 2013 benefited from $16.0 billion in favorable development of LLAE reserves based on new information and updated estimates for the ultimate cost of old claims from prior accident years. The $16.0 billion of favorable reserve development in 2013 follows $10.2 billion of favorable development in 2012. The $16.0 billion of favorable reserve development for the industry overall in 2013 reflects $3.5 billion of favorable reserve development for continued on page 20
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M&FG insurers and $12.4 billion of favorable reserve development for other insurers. M&FG insurers’ $3.5 billion of favorable reserve development in 2013 contrasts with their $2.0 billion of unfavorable reserve development in 2012. The amount of favorable reserve development for the industry excluding M&FG insurers rose $0.3 billion to $12.4 billion in 2013 from $12.1 billion the year before. Excluding development of LLAE reserves, total industry net LLAE fell $12.4 billion, or 3.6 percent, to $331.0 billion in 2013 from $343.4 billion in 2012, and the combined ratio improved by 5.7 percentage points to 99.5 percent from 105.2 percent. The $15.5 billion in net gains on underwriting in 2013 amounted to 3.3 percent of the $467.9 billion in net premiums earned during the period, whereas the $15.4 billion in net losses on underwriting in 2012 amounted to 3.4 percent of the $448.9 billion in net premiums earned during that period. “Largely as a result of favorable reserve development, mortgage and financial guaranty insurers posted superior underwriting results,” said Murray. “Mortgage and financial guaranty insurers’ combined ratio dropped 101.8 percentage points to 43.7 percent for 2013 from 145.6 percent for 2012, and their combined ratio for 2013 was 53.0 percentage points better than the 96.7 percent combined ratio for the industry excluding mortgage and financial guaranty insurers.” M&FG insurers’ net written premiums rose 6.1 percent to $5.1 billion for 2013 from $4.8 billion for 2012, but their net earned premiums fell 2.1 percent to $5.7 billion from $5.8 billion. The adverse effects of the decline in earned premiums and a $0.1 billion increase in underwriting expenses to $1.1 billion from $0.9 billion were more than offset by a decline in M&FG insurers’ LLAE, which fell 82.0 percent to $1.3 20 April 28, 2014 / INSURANCE ADVOCATE
“Based on annual data, insurers’ investment yield last fell this low in 1967, when it was 3.3 percent. From 1960 to 2013, insurers’ investment yield averaged 5.1 percent but ranged from as low as 2.8 percent in 1961 to as high as 8.2 percent in 1984 and 1985.”
billion in 2013 from $7.4 billion in 2012. Excluding M&FG insurers, industry net written premiums rose 4.6 percent in 2013 to $472.6 billion, net earned premiums increased 4.3 percent to $462.2 billion, LLAE fell 3.7 percent to $313.7 billion, other underwriting expenses increased 4.5 percent to $133.8 billion, and dividends to policyholders increased 19.3 percent to $2.5 billion. As a result, the combined ratio for the industry excluding M&FG insurers improved to 96.7 percent for 2013 from 102.3 percent for 2012. “Growth in overall net written premiums accelerated to 4.6 percent in 2013 from 4.3 percent in 2012. Premiums last grew this rapidly in 2004, when they rose 4.9 percent,” said Murray. “But growth varied significantly by sector. Excluding mortgage and financial guaranty insurers, net written premium growth for insurers writing predominantly commercial lines slowed to 4.0 percent in 2013 from 5.5 percent in 2012 as premium growth for insurers writing more balanced books of business slipped to 4.1 percent from 4.6 percent. Conversely, net written premium growth for insurers writing mostly
personal lines accelerated to 5.3 percent in 2013 from 3.5 percent in 2012.” “Underwriting profitability improved for all major sectors of the industry, reflecting the effects of premium growth and the drop in LLAE,” said Gordon. “Excluding mortgage and financial guaranty insurers, commercial lines insurers’ combined ratio dropped 8.0 percentage points in 2013 to 94.3 percent as balanced insurers’ combined ratio improved by 6.1 percentage points to 98.7 percent and personal lines insurers’ combined ratio fell 3.5 percentage points to 97.6 percent.”
Investment Results Insurers’ net investment income — primarily dividends from stocks and interest on bonds — fell 1.4 percent to $47.4 billion in 2013 from $48.0 billion in 2012. But insurers’ realized capital gains on investments rose $5.3 billion to $11.4 billion in 2013 from $6.2 billion a year earlier. Combining net investment income and realized capital gains, overall net investment gains grew $4.6 billion, or 8.5 percent, to $58.8 billion for 2013 from $54.2 billion for 2012. “The decline in insurers’ investment income reflects declines in market yields, with the yield on insurers’ investments falling to 3.4 percent in 2013 from 3.6 percent in 2012. Insurers’ average holdings of cash and invested assets — the assets on which insurers earn investment income — actually rose 5.5 percent in 2013 compared with their average holdings a year earlier,” said Murray. “Based on annual data, insurers’ investment yield last fell this low in 1967, when it was 3.3 percent. From 1960 to 2013, insurers’ investment yield averaged 5.1 percent but ranged from as low as 2.8 percent in 1961 to as high as 8.2 percent in 1984 and 1985.” Combining the $11.4 billion in realized capital gains in 2013 with $36.1 billion in unrealized capital gains continued on page 22
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Disability: A Real Risk at All Ages; Are Families Covered? The Answer is Not so Clear By Thomas E. Workman, President & CEO, Life Insurance Council of New York, Inc.
o one wants to think about being disabled for any length of time, or what impact it will have on his or her family financially, but the probability is real at all ages. In fact, according to the U.S. Social Security Administration1, just over one in four of today’s 20 year-olds will become disabled before they retire. If you think these disabilities are covered by workers’ compensation, think again. The majority of disabilities, nearly 90 percent according to LIMRA2, are not work related and therefore not covered by workers’ compensation. Most disabilities are borne out of illness rather than accidents. Just more than 10 percent of New Yorkers are considered disabled3, so if workers’ compensation doesn’t pay, what does? Many may think about disability income insurance. Fifty-one percent of consumers polled by Life Happens and LIMRA4 acknowledged that they need this critical protection. However, do they have it? In New York State, which requires 24 weeks of disability coverage, 75 percent of private firm employees have short-term disability. While this requirement is very helpful, and New York officials should be applauded, the amount of coverage may not come close to a family’s weekly income. Will it be enough for a family to pay for groceries? Or, given the winter we just experienced, will the amount cover the heating bill? Now consider what is to happen to a family when a member has a long-term
The answer should be more disability income insurance coverage; not additional government funding. disability. According to LIMRA5, 34 percent of New Yorkers have long-term disability coverage and only four percent have an individual policy. Those statistics demonstrate a significant gap in coverage. Is a family to turn to the government? Social Security Disability Insurance Trust Fund pays $1,200 on average6 per month. However, the average weekly salary across the state is higher than or close to the Social Security monthly payment – from $1,674 per week for New York County to $744 per week for King County.7 How are families to solve for this income cut? The answer should be more disability income insurance coverage; not additional government funding. There are many suitable, disability income insurance options for New Yorkers to supplement their income. Such policies help protect a family’s savings, pay their bills, and even help them live without assistance. May is disability insurance awareness month, but throughout the year, the industry will help people understand their individual needs and do what it can to increase the amount of protection. New York State has demonstrated the forethought to require 24 weeks of disability insurance coverage. We at LICONY would welcome public policy that supports the life insurance
industry’s efforts to have as many New Yorkers covered as possible.[IA] Thomas E. Workman is the President and Chief Executive Officer of the Life Insurance Council of New York, Inc. LICONY is the principal voice of the life insurance industry in New York. LICONY works to create and maintain a legislative, regulatory, and judicial environment that encourages its members to conduct and grow their life insurance businesses here in New York State. For stories about New Yorkers who have benefitted greatly from purchasing the products of life insurers, go to www.licony.org, and click on “Published Articles” in the NEWSROOM box on the homepage. 1 U.S. Social Security Administration, Fact Sheet February 7, 2013 2 Facts from LIMRA, 2013 3 Cornell University, 2012 Disability Status Report, New York 4 Life Happens and LIMRA’s Life Insurance Barometer Study, 2013 5 Estimates based on LIMRA data and Bureau of Labor Statistics 6 U.S. Social Security Administration, www.ssa.gov/OACT/STATS/dibGraphs.html#3 7 U.S. Department of Labor, Second Quarter 2013, www.bls.gov/ro2/qcew9350.htm
O: (212) 986-6181 F: (212) 986-6549 551 Fifth Ave., 29th Floor, New York, NY 10176 website: www.licony.org INSURANCE ADVOCATE / April 28, 2014 21
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during the same period, insurers posted a record $47.6 billion in overall capital gains for 2013 — up $22.9 billion from the $24.6 billion in overall capital gains for 2012. From the start of ISO’s data in 1959 to 2012, insurers’ total capital gains ranged from as high as $39.8 billion in 1997 to as low as negative $72.7 billion in 2008 during the financial crisis. “Insurers’ overall capital gains for 2013 reflect positive developments in financial markets. The New York Stock Exchange Composite rose 23.2 percent in 2013 as the Dow Jones Industrial Average increased 26.5 percent, the S&P 500 rose 29.6 percent, and the NASDAQ Composite climbed 38.3 percent,” said Gordon. “Insurers’ investment results also benefited from a decrease in realized losses on impaired investments, which fell $1.4 billion to $1.7 billion in 2013 from $3.1 billion in 2012.”
Pretax Operating Income Pretax operating income — the sum of net gains or losses on underwriting, net investment income, and miscellaneous other income — jumped $29.3 billion to $64.3 billion for 2013 from $35.0 billion for 2012. The $29.3 billion increase in operating income reflects the $30.9 billion swing to $15.5 billion in net gains on underwriting from $15.4 billion in net losses, with that development partially offset by the $0.7 billion decline in net investment income and the $0.9 billion drop in miscellaneous other income. M&FG insurers’ operating income improved to positive $4.2 billion in 2013 from negative $0.4 billion in 2012. Excluding M&FG insurers, the insurance industry’s operating income climbed $24.6 billion to $60.1 billion for 2013 from $35.4 billion for 2012.
Net Income after Taxes Combining operating income, realized capital gains (losses), and federal and foreign income taxes, the insurance 22 April 28, 2014 / INSURANCE ADVOCATE
Policyholders’ surplus climbed $66.3 billion to a record-high $653.3 billion as of December 31, 2013, from $587.1 billion at year-end 2012.
industry ’s net income after taxes increased $28.7 billion to $63.8 billion for 2013 from $35.1 billion for 2012. The increase in net income was the net result of the $29.3 billion increase in operating income, the $5.3 billion increase in realized capital gains, and the $5.8 billion increase in federal and foreign income taxes. M&FG insurers’ net income after taxes rose to $4.2 billion for 2013 from $0.1 billion for 2012. Excluding M&FG insurers, the insurance industry’s net income after taxes grew $24.5 billion to $59.5 billion for the 12 months ending December 31, 2013, from $35.0 billion for the 12 months ending December 31, 2012.
Policyholders’ Surplus Policyholders’ surplus climbed $66.3 billion to a record-high $653.3 billion as of December 31, 2013, from $587.1 billion at year-end 2012. Additions to surplus in 2013 included insurers’ $63.8 billion in net income after taxes, $36.1 billion in unrealized capital gains on investments (not included in net income), and $3.9 billion in new funds paid in. Those additions were partially offset by $28.3 billion in dividends to shareholders and $9.2 billion in miscellaneous charges against surplus. Unrealized capital gains on investments rose $17.7 billion to $36.1 billion in 2013 from $18.5 billion in
2012. New funds paid in fell to $3.9 billion in 2013 from $4.6 billion in 2012. Dividends to shareholders grew $4.6 billion, or 19.2 percent, to $28.3 billion in 2013 from $23.8 billion in 2012. Miscellaneous charges against surplus climbed to $9.2 billion in 2013 from $1.1 billion in 2012. M&FG insurers’ surplus rose to $15.7 billion as of December 31, 2013, from $12.5 billion at year-end 2012. Excluding M&FG insurers, industry surplus rose $63.1 billion to $637.7 billion as of December 31 last year from $574.6 billion as of December 31, 2012. “As of yearend 2013, the premium-to-surplus ratio was 0.73 — falling from 0.78 at year-end 2012 to a new record low based on data extending back to 1959. The new record-low 0.73 is only about half the 1.45 average premium-to-surplus ratio for the 55 years from 1959 to 2013. Similarly, the ratio of loss and loss adjustment expense reserves to surplus as of year-end 2013 was 0.88 — down from 0.98 a year earlier and far below the 1.39 average LLAE-reserves-to-surplus ratio for the past 55 years,” said Murray. “To the extent that these leverage ratios shed light on the amount of risk supported by each dollar of surplus, insurers are extremely well capitalized at this point and have ample capacity to meet increasing demand for coverage as the economy grows.”
Fourth-Quarter Results The property/casualty insurance industry’s consolidated net income after taxes rose to $20.8 billion in fourthquarter 2013, up $13.5 billion from $7.3 billion in fourth-quarter 2012. Property/casualty insurers’ annualized rate of return on average surplus climbed to 13.0 percent in fourth-quarter 2013 from 5.0 percent a year earlier. M&FG insurers’ annualized rate of return rose to 21.3 percent in fourthquarter 2013 from 20.1 percent in fourth-quarter 2012 as their net income
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[ COVER ] after taxes increased to $0.8 billion from $0.6 billion. Excluding M&FG insurers, the insurance industry’s annualized rate of return rose to 12.8 percent in fourthquarter 2013 from 4.6 percent in fourthquarter 2012 as net income after taxes grew to $20.0 billion from $6.6 billion. The $20.8 billion in net income after taxes for the entire insurance industry in fourth-quarter 2013 was a result of $18.6 billion in pretax operating income, $5.4 billion in realized capital gains on investments, and $3.2 billion in federal and foreign income taxes. The industry’s $18.6 billion in pretax operating income for fourth-quarter 2013 was up $15.0 billion from $3.6 billion for fourth-quarter 2012. The industry’s fourth-quarter 2013 pretax operating income was the net result of $5.0 billion in net gains on underwriting, $13.0 billion in net investment income, and $0.6 billion in miscellaneous other income. Excluding M&FG insurers, pretax operating income for fourth-quarter 2013 amounted to $17.9 billion — a $14.8 billion increase from $3.1 billion in pretax operating income for the industry excluding M&FG insurers in fourthquarter 2012. The $5.0 billion in net gains on underwriting for the entire industry in fourth-quarter 2013 constitutes a $14.2 billion swing from the $9.2 billion in net losses on underwriting in fourth-quarter 2012. ISO estimates that the net LLAE from catastrophes included in private U.S. insurers’ financial results dropped to $1.3 billion in fourth-quarter 2013 from $15.7 billion a year earlier. Those amounts exclude LLAE that emerged after insurers closed their books for each period but do include late-emerging LLAE from events in prior periods. Excluding loss adjustment expenses, direct insured losses from catastrophes striking the United States in fourth-quarter 2013 totaled $1.0 billion — down $17.7 billion from the $18.8 billion in direct insured losses caused by catastrophes that struck the United States in fourth-quarter 2012, according to ISO’s PCS® unit. Fourthquarter 2013 net gains on underwriting
amounted to 4.2 percent of the $119.6 billion in premiums earned during the period, whereas fourth-quarter 2012 net losses on underwriting amounted to 8.1 percent of the $114.1 billion in premiums earned during that period. The industry’s combined ratio improved to 97.1 percent in fourth-quarter 2013 from 109.6 percent in fourth-quarter 2012. At 97.1 percent, the combined ratio for fourth-quarter 2013 was the
lowest fourth-quarter combined ratio since the 95.0 percent combined ratio for fourth-quarter 2006. Since the start of ISO’s quarterly data in 1986, the fourth-quarter combined ratio has averaged 106.9 percent but has ranged from as high as 123.3 percent in 1992 to as low as 95.0 percent in 2006. The $5.0 billion in net gains on underwriting in fourth-quarter 2013 was after deducting continued on page 24
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[ COVER ] continued from page 23
$1.3 billion in premiums returned to policyholders as dividends, with dividends to policyholders up $0.3 billion from $1.0 billion in fourthquarter 2012. Net written premiums rose $6.2 billion, or 5.8 percent , to $114.2 billion in fourth-quarter 2013 from $108.0 billion in fourth-quarter 2012, with fourth-quarter net written premiums growing at their fastest rate since 2003, when written premiums grew 8.5 percent. Net earned premiums grew $5.5 billion, or 4.8 percent, to $119.6 billion in fourthquarter 2013 from $114.1 billion in fourth-quarter 2012, with fourth-quarter earned premiums rising at their fastest pace since 2004, when earned premiums rose 6.9 percent. LLAE fell 12.0 percent to $79.5 billion in the last quarter of 2013 from $90.3 billion in the last quarter of 2012 as a result of the decline in LLAE from catastrophes. Noncatastrophe LLAE rose 4.9 percent to $78.2 billion in fourthquarter 2013 from $74.6 billion a year earlier. Excluding M&FG insurers, net written premiums rose 5.8 percent in fourth-quarter 2013, net earned premi-
Combining net investment income and realized capital gains, net investment gains grew $2.5 billion, or 15.9 percent, to $18.4 billion in fourth-quarter 2013 from $15.9 billion a year earlier.
ums rose 5.0 percent, LLAE fell 12.2 percent, and the combined ratio improved to 97.4 percent from 110.0 percent in fourth-quarter 2012. “In fourth-quarter 2013, the industry achieved its fifteenth successive quarter of growth in written premiums, following 12 quarters of declines, and earned premiums have now risen for 14 successive quarters,” said Gordon. “The growth in earned premiums and the drop in loss and loss
4441 Sepulveda Blvd., Culver City, CA 90230-4847 www.zalma.com | email@example.com 310-390-4455 | fax: 310-391-5614 http://zalma.com/blog Zalma Insurance Consultants provides expert advice to counsel for insurers and counsel for policyholders. Advice from Zalma Insurance Consultants is indispensable to the resolution of insurance disputes. Consultation from Zalma Insurance Consultants can save you, your counsel or client hundreds of hours of investigative and legal work. 24 April 28, 2014 / INSURANCE ADVOCATE
adjustment expenses were the biggest contributors to improvement in insurers’ overall results in fourth-quarter 2013.” The $13.0 billion in net investment income in fourth-quarter 2013 was up 2.9 percent compared with the $12.7 billion in net investment income in fourth-quarter 2012. Miscellaneous other income grew to $0.6 billion in fourth-quarter 2013 from $0.2 billion in fourthquarter 2012. Realized capital gains on investments rose to $5.4 billion in fourth-quarter 2013 from $3.2 billion in fourth-quarter 2012. Combining net investment income and realized capital gains, net investment gains grew $2.5 billion, or 15.9 percent, to $18.4 billion in fourth-quarter 2013 from $15.9 billion a year earlier. Insurers posted $16.0 billion in unrealized capital gains on investments in fourth-quarter 2013 — up $14.3 billion from insurers’ $1.7 billion in unrealized capital gains in fourth-quarter 2012. Combining realized and unrealized amounts, the insurance industry posted $21.4 billion in overall capital gains in fourth-quarter 2013 — up $16.4 billion from the $5.0 billion in overall capital gains on investments in fourthquarter 2012. The $21.4 billion in overall capital gains for fourth-quarter 2013 is after $0.4 billion in realized losses on impaired investments, with the amount of realized losses on impaired investments falling from $0.5 billion in fourthquarter 2012.
About ISO Since 1971, ISO has been a leading source of information about property/casualty insurance risk. For a broad spectrum of commercial and personal lines of insurance, the company provides statistical, actuarial, underwriting, and claims information; policy language; information about specific locations; fraud identification tools; and technical services. ISO serves insurers, reinsurers, agents and brokers, insurance
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[ COVER ] regulators, risk managers, and other participants in the property/casualty insurance marketplace. ISO is a member of the Verisk Insurance Solutions group at Verisk Analytics (Nasdaq:VRSK). For more information, visit www.iso.com and www.verisk.com. About PCI PCI is composed of more than 1,000 member companies, representing the broadest
cross section of insurers of any national trade association. PCI members write over $195 billion in annual premium, 39 percent of the nation’s property casualty insurance. Member companies write 46 percent of the U.S. automobile insurance market, 32 percent of the homeowners market, 37 percent of the commercial property and liability mar-
ket, and 41 percent of the private workers compensation market. For more information, visit www.pciaa.net.[IA]
OPERATING RESULTS FOR 2013 AND 2012 ($ Millions) TWELVE MONTHS
Net Written Premiums Percent Change (%) Net Earned Premiums Percent Change (%) Incurred Losses & Loss Adjustment Expenses Percent Change (%) Statutory Underwriting Gains (Losses) Policyholders’ Dividends Net Underwriting Gains (Losses) Pretax Operating Income Net Investment Income Earned Net Realized Capital Gains (Losses) Net Investment Gains Net Income (Loss) After Taxes Percent Change (%) Surplus (Consolidated) Loss & Loss Adjustment Expense Reserves Combined Ratio, Post-Dividends (%)
477,676 4.6 467,890 4.2 315,035 (5.5) 18,045 2,536 15,509 64,321 47,352 11,433 58,786 63,784 81.9 653,348 573,727 96.1
456,720 4.3 448,930 3.3 333,236 (3.3) (13,241) 2,125 (15,366) 35,032 48,007 6,179 54,186 35,074 80.3 587,061 576,815 102.9
Net Written Premiums Percent Change (%) Net Earned Premiums Percent Change (%) Incurred Losses & Loss Adjustment Expenses Percent Change (%) Statutory Underwriting Gains (Losses) Policyholders’ Dividends Net Underwriting Gains (Losses) Pretax Operating Income Net Investment Income Earned Net Realized Capital Gains (Losses) Net Investment Gains Net Income (Loss) After Taxes Percent Change (%) Surplus (Consolidated) Loss & Loss Adjustment Expense Reserves Combined Ratio, Post-Dividends (%)
114,241 5.8 119,621 4.8 79,471 (12.0) 6,285 1,263 5,022 18,607 13,014 5,394 18,408 20,755 186.2 653,348 573,727 97.1
108,022 4.7 114,092 3.4 90,270 12.2 (8,189) 1,001 (9,190) 3,633 12,654 3,232 15,885 7,251 (34.5) 587,061 576,815 109.6
INSURANCE ADVOCATE / April 28, 2014 25
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[ RRG UPDATE ]
By Douglas A . Powell, Senior Financial Analyst, Demotech, Inc.
RRGs Report Financially Stable Results at Year-End 2013
review of the reported financial results of risk retention groups (RRGs) reveals insurers with a great deal of financial stability. Based on year-end 2013 reported financial information, RRGs continue to collectively provide specialized coverage to their insureds. RRGs remain committed to maintaining adequate capital to handle losses. It is important to note that ownership of RRGs is restricted to the policyholders of the RRG. This unique ownership structure required of RRGs may
total liabilities. This also indicates an improvement for RRGs collectively as liquidity was reported at 65.5 percent at year-end 2012. This ratio has improved steadily each of the last five years. Loss and loss adjustment expense (LAE) reserves represent the total reserves for unpaid losses and unpaid LAE. This includes reserves for any incurred but not reported losses as well as supplemental reserves established by the company. The cash and invested assets to loss and LAE reserves ratio measures liquidity in terms of the carried reserves. The cash and invested assets to loss and LAE reserves ratio for year-end 2013 was 249 percent and indicates an Comparing the last five years of results, improvement over 2012, as this ratio was 239.3 cash and invested assets, total admitted percent. These results indicate that RRGs remain assets and policyholders’ surplus have conservative in terms of liquidity. In evaluating individual RRGs, Demotech, Inc. continued to increase at a faster rate prefers companies to report leverage of less than than total liabilities 300 percent. Leverage for all RRGs combined, as measured by total liabilities to policyholders’ surplus, for year-end 2013 was 123.2 percent. This is similar to leverage of 123.7 percent reported at Douglas A. Powell year-end 2012. The loss and LAE reserves to policyholders’ surplus ratio for year-end 2013 was 76.7 percent and indicates an be a driving force in their strengthened capital position. Since RRGs are restricted to liability coverage, they tend to improvement over 2012, as this ratio was 78.9 percent. The higher insure medical providers, product manufacturers, law enforcement the ratio of loss reserves to surplus, the more an insurer’s stability officials and contractors, as well as other professional industries. is dependent on having and maintaining reserve adequacy. RRGs reported direct premium written in eleven lines of business Regarding RRGs collectively, the ratios pertaining to the balin 2013, but nearly 46 percent of this premium was contained in ance sheet appear to be appropriate. the medical professional liability lines.
Premium Written Analysis Balance Sheet Analysis Comparing the last five years of results, cash and invested assets, total admitted assets and policyholders’ surplus have continued to increase at a faster rate than total liabilities (figure 1). The level of policyholders’ surplus becomes increasingly important in times of difficult economic conditions, to allow an insurer to remain solvent when facing uncertain economic conditions. Since 2009, cash and invested assets increased 29.7 percent and total admitted assets increased 22.8 percent. More importantly, over a five year period from 2009 through 2013, RRGs collectively increased policyholders’ surplus 38.4 percent. This increase represents the addition of more than $1 billion to policyholders’ surplus. During this same time period, liabilities increased only 12.5 percent, slightly more than $493.5 million. These reported results indicate that RRGs are adequately capitalized in aggregate and able to remain solvent if faced with adverse economic conditions or increased losses. Liquidity, as measured by liabilities to cash and invested assets, for year-end 2013 was approximately 64.6 percent. A value less than 100 percent is considered favorable as it indicates that there was more than a dollar of net liquid assets for each a dollar of 26 April 28, 2014 / INSURANCE ADVOCATE
RRGs collectively reported $2.6 of billion direct premium written (DPW) at year-end 2013, an increase of 1.7 percent over 2012. RRGs reported $1.3 billion of net premium written (NPW) at year-end 2013, an increase of 6.4 percent over 2012. These increases are favorable and appear reasonable.
continued on page 28
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[ GUEST EDITORIAL ] continued from page 26
The DPW to policyholders’ surplus ratio for RRGs collectively for year-end 2013 was 72.3 percent and indicates an improvement over 2012, as this ratio was 74.8 percent. The NPW to policyholders’ surplus ratio for RRGs for year-end 2013 was 36.8 percent and is relatively similar to 2012, as this ratio was 36.3 percent. An insurer’s DPW to surplus ratio is indicative of its policyholders’ surplus leverage on a direct basis, without consideration for the effect of reinsurance. An insurer’s NPW to surplus ratio is indicative of its policyholders’ surplus leverage on a net basis. An insurer relying heavily on reinsurance will have a large disparity in these two ratios. A DPW to surplus ratio in excess of 600 percent would subject an individual RRG to greater scrutiny during the financial review process. Likewise, a NPW to surplus ratio greater than 300 percent would subject an individual RRG to greater scrutiny. In certain cases, premium to surplus ratios in excess of those listed would be deemed appropriate if the RRG had demonstrated that a contributing factor to the higher ratio is relative improvement in rate adequacy. In regards to RRGs collectively, the ratios pertaining to premium written appear to be conservative.
The year-end results of RRGs indicate that these specialty insurers continue to exhibit financial stability.
Loss and Loss Adjustment Expense Reserve Analysis A key indicator of management’s commitment to financial stability, solvency and capital adequacy is their desire and ability to record adequate loss and loss adjustment expense reserves (loss reserves) on a consistent basis. Adequate loss reserves meet a higher standard than reasonable loss reserves. Demotech views adverse loss reserve development as an impediment to the acceptance of the reported value of current, and future, surplus and that any amount of adverse loss reserve development on a consistent basis is unacceptable. Consistent adverse loss development may be indicative of management’s inability or unwillingness to properly estimate ultimate incurred losses. RRGs collectively reported adequate loss reserves at year-end 2013 as exhibited by the one-year and two-year loss development results. The loss reserve development to policyholders’ surplus ratio measures reserve deficiency or redundancy in relation to policyholder surplus and the degree to which surplus was either overstated, exhibited by a percentage greater than zero, or understated, exhibited by a percentage less than zero. The one-year loss reserve development to prior year’s policyholders’ surplus for 2013 was -3.4 percent and is not as favorable as 2012, when this ratio was reported at -7.5 percent. The twoyear loss reserve development to second prior year-end policyholders’ surplus for 2013 was -11.3 percent is slight less favorable than 2012, when this ratio was reported at -13.1 percent. In regards to RRGs collectively, the ratios pertaining to loss reserve development are favorable. 28 April 28, 2014 / INSURANCE ADVOCATE
Income Statement Analysis
The profitability of RRG operations remains positive (figure 2). RRGs reported an aggregate underwriting gain for 2013 of $97.3 million, a decrease of 47.1 percent over the prior year, and a net investment gain of nearly $216.4 million, a decrease of less than one percent over the prior year. RRGs collectively reported net income of over $252.8 million, a decrease of 22 percent over the prior year. Looking further back, RRGs have collectively reported an annual underwriting gain since 2004 and positive net income at each year-end since 1996. The loss ratio for RRGs collectively, as measured by losses and loss adjustment expenses incurred to net premiums earned, for year-end 2013 was approximately 63.5 percent, an increase over 2012, as the loss ratio was 54.7 percent. This ratio is a measure of an insurer’s underlying profitability on its book of business. The expense ratio, as measured by other underwriting expenses incurred to net premiums written, for year-end 2013 was 27.8 percent and indicates an improvement over 2012, as the expense ratio was reported at 29.1 percent. This ratio measurers an insurer’s operational efficiency in underwriting its book of business. The combined ratio, loss ratio plus expense ratio, for year-end 2013 was 91.3 percent and indicates a diminishment over 2012, as the combined ratio was reported at 83.8 percent. This ratio measures an insurer’s overall underwriting profitability. A combined
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[ GUEST EDITORIAL ]
ratio of less than 100 percent indicates an underwriting profit. Regarding RRGs collectively, the ratios pertaining to income statement analysis appear to be appropriate. Moreover, these ratios have remained fairly stable for each of the last five years and well within a profitable range (figure 3).
Analysis by Primary Lines of Business
…these ratios have remained fairly stable for each of the last five years and well within a profitable range.
The financial ratios calculated based on the year-end results of the various primary lines of business appear to be reasonable (figure 4). Also, the RRGs have continued to report changes in DPW within an acceptable threshold (figure 5). It is typical for insurers’ financial ratios to fluctuate year over year. Moreover, none of the reported results are indicative of a continuing negative trend.
by jurisdictions for year-end 2013 is available in figure 7 - see page 33.)
Conclusions Based on 2013 Results
Despite political and economic uncertainty, RRGs remain financially stable and continue to provide specialized coverage to their insureds. The financial ratios calculated based on year-end results of RRGs appear to be reasonable, keeping in mind that it is typical and expected that insurers’ financial ratios to fluctuate over time. The year-end results of RRGs indicate that these specialty insurers continue to exhibit financial stability. It is important to note again that while RRGs have reported net underwriting gains and net profits, they have also continued to maintain adequate loss reserves while increasing premium written year over year. RRGs continue to exhibit a great deal of financial stability. [IA]
Jurisdictional Analysis Much like insurers, it is typical for jurisdictions to compete for new business. Some of the factors that may impact an insurer’s decision to do business in a certain jurisdiction include minimum policyholders’ surplus requirements and the premium tax rate. RRGs have continued to report changes in DPW, on a jurisdictional basis, within a reasonable threshold (figure 6 - see page 32). (Note: a more extensive breakout of DPW by line of business
Mr. Powell has nearly ten years of progressively responsible experience involving financial analysis and business consulting. Email your questions or comments to Mr. Powell at firstname.lastname@example.org. For more information about Demotech, Inc. visit www.demotech.com.
INSURANCE ADVOCATE / April 28, 2014 29
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[ GUEST EDITORIAL ] continued from page 32
30 April 28, 2014 / INSURANCE ADVOCATE
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[ GUEST EDITORIAL ]
[ ON THE LEVEL ] continued from page 10
at PIA or any other trade association in our business who doesn’t say they get more out of their work than they put into it. But, the truth of the matter is: Without the volunteers, no organization can survive. As I write this article after being in Albany, it’s refreshing to know we have so many dedicated volunteers and like every organization, we could use creative, new thinkers to keep us going. To all the fellow agents who have said they are glad we are working on their behalf, I ask you: “What are you doing?” Regardless of what association you participate in, the important thing is that you participate. [IA]
N. Stephen Ruchman, CPIA, is a retired partner of B&B Coverage LLC. A past president of the Professional Insurance Agents of New York State Inc., he is an active supporter of PIANY, and has sat on, or chaired, nearly every committee including the Executive Committee and the Long Island Advisory Council and PIANY’s Political Action Committee. A graduate of Michigan State University, with a major in insurance, Ruchman is past president of the Peninsula Counseling Center and a member and past president of the Rockville Centre Chamber of Commerce board of directors. He is division chair for the Insurance Division of the United Jewish Appeal and has served on the business advisory board
of The First National Bank of Long Island. He can be reached via email at email@example.com.
Serving New York, New Jersey, Pennsylvania and Connecticut Since 1889 www.insurance-advocate.com INSURANCE ADVOCATE / April 28, 2014 31
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[ FACE TO FACE ]
By Michael Loguercio
s a school board member for 10 years, on countless occasions I have had many a parent tell me how (especially in inclement weather) they would prefer to not only drive their little darlings to school in the morning, but also pick them after school in the afternoon. Of course my initial response to them is always, “Why is that?” Their reply is always the same: “Because my kids are safer with me in my soccer van, than with a stranger driving them in a big old school bus.”
either!). According to the American School Bus Council, “School buses are designed to be safer than passenger vehicles in avoiding crashes and preventing injury.” Per the U.S. Department of Transportation, “School buses are the safest mode of transportation for getting children back and forth to school.” Again per the NHTSA, are some interesting facts regarding annual student fatalities during normal school travel hours: On average, 58% of students were killed when traveling by teen drivers. 23% were killed when traveling by adult drivers. 1% were killed when traveling by school bus. Opponents of school bus seat belt laws say Students are about 50 times more likely to arrive at school alive if they take the bus than if they the additional costs of installing safety belts drive themselves or ride with friends. An average are cost prohibitive. Equipping school buses of six children are killed in school bus crashes with seat belts can cost thousands of dollars as passengers each year…a figure much smaller than the 42,000 people killed annually in other per bus. But supporters argue that the traffic crashes. “School buses are the safest way expense becomes minuscule when spread over for children to get to and from school, period,” the life span of an average bus. says Russ Rader, spokesman for the Insurance Institute for Highway Safety. “They’re far safer Michael Loguercio than walking to school, or even riding in Mom or Dad’s car.” Sounds logical, right? After all, who loves and protects your Nationally, school buses keep an annual estimated 17.3 million most precious possessions more than you, their parent? Who cars off the roads that are surrounding schools each morning. would take the time to drive them, as safely and securely, as you? Simply put, for every school bus on the road, that is the equivalent Who would be most competent to save them as quickly as you, of 36 cars. If you consider another seventeen million cars on the in the unlikely event of a motor vehicle accident? Who would road, along with the fact that the majority of motor vehicle acciEMS, police, and fire rescue units respond to more quickly: a two dents occur within three miles of your home, how many more car crash at an intersection in a snow storm, or a school bus full MVA’s would we see, or unfortunately, be a party to? of young children that just collided with another object or vehicle, However, there is one more debate that needs to be addressed, or perhaps even another school bus? …starting to see my point? when it comes to school bus safety for kids: should they or shouldn’t To begin with, according to a recent report published by the they be required to wear seatbelts while riding on a school bus. National Highway Transportation Safety Authority, today’s Federal regulations passed in 2008 require all buses less than school buses are built with one and only one thing in mind: Safety. 10,000 pounds to have three-point lap/shoulder belts. However, They are tougher, cleaner and more diligently maintained than the larger and much more common school buses are not required ever before. School bus drivers are required to receive special to have seat belts installed on the vehicle. Federal legislators have security and medical training, and undergo regular drug and alco- left that decision up to the individual states to decide whether or hol testing to provide a safe ride for your child, and school bus not the larger buses should be required to as part of their standard traffic laws are strictly enforced. equipment. In addition, school bus drivers are required to be trained in Opponents of school bus seat belt laws say the additional costs student behavior management, participate in pre-employment of installing safety belts are cost prohibitive. Equipping school and random drug and alcohol testing, have frequent driving record buses with seat belts can cost thousands of dollars per bus. But checks, are trained in security procedures and emergency medical supporters argue that the expense becomes minuscule when procedures. spread over the life span of an average bus. Newer school busses are also much more technologically “If you buy a new school bus, it’s going to last 15 or so years,” advanced, with safer size and height, and new safety crash stan- says Alan Ross, president of the nonprofit National Coalition dards. Required equipment such as multi flashing red lights, now for School Bus Safety (NCSBS). “If you crunch the numbers, it using LED for better viewing in poor conditions and greater visi- comes out to pennies a day throughout the lifetime of that bus.” bility from afar, cross-view mirrors, reinforced sides, bright color, Although various states have some sort of legislation in place and stop sign arms, the school busses of today are much safer requiring seat belts on school buses, the states’ laws vary in levels and stronger than those utilized back when we attended school of enforcement; some simply require two-point seat belts to be (growing up in Brooklyn we walked, or took a New York City bus present on school buses, while others require that all passengers or subway, which wasn’t any safer than a school bus in the 70’s, use the more secure, three-point belts. Organizations such as the 32 April 28, 2014 / INSURANCE ADVOCATE
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[ FAC E TO FACE ] NCSBS, annually lobby to state legislatures across the country to pass legislation requiring seat belts on school buses, however many states introduce bills but never see them through to fruition. Even though The National PTA and The American Academy of Pediatrics are both in favor of equipping all large school buses with seat belts, The National Highway Traffic Safety Administration (NHTSA) and the National Association for Pupil Transportation (NAPT) are not convinced that seat belts would increase safety. Those in favor of seat belts on school buses say that teaching children to buckle up in any vehicle should be a consistent message. But NAPT President Donald Carnahan says, “Seat belts in cars and lap belts on school buses are completely different safety issues.” The National Coalition for Seatbelts on School Buses lists the following as reasons why all large school buses should have seatbelts. (Smaller school buses that weigh less than 10,000 pounds are already required to have them): • If a crash occurs, the use of seat belts will reduce the probability of death and the severity of injuries to children correctly seated in school buses. • Seat belt usage improves passenger behavior and reduces driver distractions. • Seat belts offer protection against injuries in rollover or side impact crashes. • Seat belt usage in school buses reinforces good safety habits. • The cost to install seat belts is nominal. Opponents of seat belts on large buses disagree, saying that they are not only unnecessary, but could also be hazardous. According to the NHSTA: • Seat belts are of no value in the majority of fatal accidents. • More children are killed around school buses — walking to and from the school bus stop — than inside school buses. • No data proves conclusively that seat belts reduce fatalities or injuries on school buses. • School buses are specifically designed with safety in mind. They are heavier and experience less crash force than smaller cars and trucks. School buses also have high padded seats specifically design to absorb impact. • There is no guarantee that once installed students will use seatbelts. Studies have shown that mixed and improper use of seat belts can increase the risk of injuries. • There is concern that seat belts could be used as weapons to strike or choke other passengers. • Money proposed for seat belt installation could be better spent on other safety measures. Both sides of the debate agree that school bus transportation is one of the safest forms of travel in the U.S. — far safer than riding in a car. The group is currently researching ways to make school buses even safer. As I mentioned earlier, your child is much safer riding the bus than being driven by you, and if these statistics aren’t enough to persuade you to not allow your kids to be driven to school either by you or any other parent or friend, when you add in factors such as the environmental and financial benefits, it’s hard to find a reason to send your kids to school any other way. As insurance professionals, we should encourage our clients to not drive their kids to school or allow anyone else to drive
Although body shops and jobbers that sell to them may not mind the additional fender benders (without injury, of course), those of us whose livelihood isn’t dependent upon auto insurance claims would much prefer safer and less crowded streets… especially those surrounding schools where children are present.
them, and to take the bus. Obviously, more cars on the roads equal more accidents, more claims, and higher loss ratios. Although body shops and jobbers that sell to them may not mind the additional fender benders (without injury, of course), those of us whose livelihood isn’t dependent upon auto insurance claims would much prefer safer and less crowded streets…especially those surrounding schools where children are present. Furthermore, safety aside, school buses save approximately 2.3 billion gallons of fuel, which in today’s dollars saves us about $6 Billion and 44.6 billion pounds of CO2. Well, that’s my latest pontification so until next time, thanks for the chat and “Ciao for now!” [IA]
Michael Loguercio is the Regional Sales Manager for EZLynx; and has been active in the insurance industry since 1978 as a licensed insurance broker and an insurance technology professional. He is an active Past President of the Young Insurance Professionals of New York State, current ACT/AUGIE, Professional Insurance Agents of New York State, Independent Insurance Agents and Brokers of New York State, and Council of Insurance Brokers of Greater New York committee member. NY-YIP/PIA has honored Michael with a “Distinguished Service” award in 2001; “Insurance Professional of The Year” award in 2009; “Lifetime Achievement” award in 2012; and a “Special Service” award in 2013. In his community, Michael is the Immediate Past President and current member since 2004 of the Longwood Central School District Board of Education on Long Island, NY; is a Director on the board of REFIT NY (Reform Educational Financing Inequities) and is a member of The Middle Island, NY, Rotary Club and Central Brookhaven Lion’s Club. He also served two terms on his Church’s vestry, and in 2013 he was awarded the SCOPE “Community Service” award for his dedication to the public. Michael is a regular Contributor to the Insurance Advocate since 2008, and may be contacted at 631-345-9359 or firstname.lastname@example.org.You may also follow him on Twitter @MLoguercioJr; and on Facebook @ Michael Anthony Loguercio Jr. INSURANCE ADVOCATE / April 28, 2014 33
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[ LOOKING BACK… Insurance Advocate, 25 years ago]
34 April 28, 2014 / INSURANCE ADVOCATE
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[ LOOKING BACK… Insurance Advocate, 25 years ago]
FOR ADVERTISING OR SUBSCRIPTION INFORMATION Call 914-966-3180 | email@example.com Serving New York and New Jersey’s Agents and Brokers for 125 years. www.insurance-advocate.com Like us on Facebook… www.facebook.com/InsuranceAdvocate INSURANCE ADVOCATE / April 28, 2014 35
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[ COURTSI DE ]
By Lawrence Rogak
Court Denies Default Motion in DJ Action Even Though Defendants Defaulted Interboro Ins. Co. v Rosetta Dawkins et al.
laintiff INTERBORO INSURANCE COMPANY moves pursuant to CPLR 3215 for a default judgment against defendants MERIT ACUPUNCTURE, AVENUE C MEDICAL, P. C. PROFESSIONAL HEALTH IMAGING and TOTAL MOBILITY, P.C. (collectively, the “Provider Defendants ). Plaintiff purports to have discontinued the action as against its insured, defendant ROSETTA DA WKINS and defendant HARMONY CHIROPRACTIC, P.C. The Court has received no opposition to this motion. This is a declaratory judgment action in which plaintiff seeks a determination that it is not obligated to provide No Fault benefits to DAWKINS or to her assignees or
Every document submitted to the Court (including the Attorney Affirmation), which purports to bear, or is required to bear, the signature of plaintiff’s counsel, Jason Tenenbaum, Esq., is either unsigned or contains an illegible and unformed marking that is not only non-uniform, but is clearly and largely different on each document.
health care providers, particularly the Provider Defendants, in connection with a motor vehicle accident that allegedly occurred on December 8, 2010. Plaintiff admits that DA WKINS was insured on the date of the Accident, but claims that coverage was vitiated by the failure of DAWKINS to appear for an Examination Under Oath which is a prerequisite to coverage under the applicable policy of automobile insurance and insurance regulations. Plaintiff ’s counsel claims to have sent three letters by Certified Mail, Return Receipt Requested, and by regular mail, to DAWKINS at the address provided in her claim for No Fault benefits, requesting her appearance at an EUO on 2/10/11 , 2/25/11 and 3/11/11, respectively.
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[ COURTS I D E ] According to plaintiff ’s counsel, DAWKINS failed to appear on all of the scheduled dates. Counsel states that on March 21, 2011, plaintiff denied DAWKINS’ claim for No Fault benefits and all of the Provider Defendants’ bills. Counsel claims that all bills received thereafter were denied within 30 days of receipt. Plaintiff now moves for a default judgment based upon the failure of all of the Provider Defendants to answer or otherwise appear in this action. In support of its motion, plaintiff submits: (i) the Affirmation in Support by its attorney, dated August 4 2011 (the “Attorney Affirmation ); (ii) a copy of the Summons and so-called Verified Complaint (with no copy of the verification); (iii) Affidavits of Service, attesting to service of the Summons and Complaint upon A VENUE C, HARMONY, PHI and TOTAL MOBILITY by delivery to the New York Secretary of State pursuant to Business Corporation Law 306; (iv) Copies of letters dated January 26, 2011, February 14, 2011, and February 24, 2011, which were purportedly sent to DAWKINS for purpose of notifying her of the scheduled EUOs; (v) Affirmation of plaintiffs attorney, which is not dated (the “Undated Affirmation ); and (vi) Affidavit of plaintiffs Claim Representative sworn to on August 4, 2011 (the “Party Affidavit”). At the outset, the Court notes an irregularity in this application that raises the Court’s concern. Every document submitted to the Court (including the Attorney Affirmation), which purports to bear, or is required to bear, the signature of plaintiff ’s counsel, Jason Tenenbaum, Esq., is either unsigned or contains an illegible and unformed marking that is not only nonuniform, but is clearly and largely different on each document. In view of the recent, well-publicized “robo-signing” scandal, the Court finds that this renders the attorney’s signature questionable and the entire application suspect. Apart from the foregoing, the Court finds that the proof is inadequate. First plaintiff fails to provide proof of service of the Summons and Complaint upon MERIT. Accordingly, no default judgment may be granted against that defendant. The service upon the remaining Provider Defendants pursuant to Business
…plaintiff fails to show proof of service of the Notice of Motion upon DAWKINS or HARONY, or to demonstrate that such service was not required. There is no proof that either of these defendants were in default.
Corporation Law 306 is valid for purposes of jurisdiction, but plaintiff fails to show additional service pursuant to CPLR 3215(g)(4). This alone is sufficient to defeat the application for a default judgment. Second, plaintiff fails to show proof of service of the Notice of Motion upon DAWKINS or HARONY, or to demonstrate that such service was not required. There is no proof that either of these defendants were in default. The RJI indicates that issue was not joined with respect to DAWKINS, but it is silent with respect to HARONY. In either case, insofar as the RJI is unsigned, it is devoid of probative value. Further plaintiff fails to provide proof of service of the Summons and Complaint upon DAWKINS. Without such proof, her default cannot be established. Presumably, DAWKINS and HARMONY were not served with this motion because plaintiff purports to have discontinued the action as against these defendants. Plaintiff fails to show however, that the purported discontinuance has been effected in accordance with CPLR 3217. Absent proof of a proper and effective discontinuance, it is incumbent upon plaintiff to demonstrate service of this motion upon DAWKINS and HARMONY, or to show that such service was not required. Plaintiff has done neither. Plaintiff ’s proof of the merits is perfunctory. Although unopposed, this motion may be granted only upon plaintiff ’s demonstration of a prima facie right to declaratory relief. See Merchants Insurance Company of New Hampshire Inc. v. Long Island Pet Cemetery, 206 AD2d continued on page 38
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[ COURTSI D E ] continued from page 37
827; Mount Vernon Fire Ins. Co. v. NIBA Construction Inc., 195 AD2d 425; Joosten v. Gale, 129 AD2d 531. See also CPS Group, Inc. v. Gastro Enterprises, Corp., 54 AD3d 800. The standard of proof set fort in Joosten and progeny is not stringent. At minimum, however, some first-hand confirmation of the facts is required. Joosten v. Gale, 129 AD2d at 535. Plaintiff fails to meet this burden. The Attorney s Affirmation is replete with boilerplate. For example, the affirmation recites: “On 1/26/11 , The Law Office of Jason Tenenbaum, P.C. (on behalf of Plaintiff INTERBORO INSURANCE COMPANY) sent to Rosetta Dawkins (and his/her attorney if one was retained) at the address stated on the application for benefits a letter requesting that he/she attend an Examination Under Oath (‘EUO’) on 2/25/11, at a court reporting center. “ This type of language, coupled with the dubious signature at the very least raises questions regarding the personal knowledge of the purported affirmant. The Party Affidavit and Undated Affirmation speak only to the general practices of plaintiff and plaintiff ’s counsel with respect to the mailing of EUO notices. The application is devoid of first-hand testimony or substantiating documentation regarding the attempt to secure DAWKINS’ attendance at the EUO. There is no evidence that the mailing address on the EUO notice was the current and valid address of Dawkins. Plaintiff does not provide a copy of the application for benefits which allegedly contains this address, or any other documentary proof.
In the case at hand, all that should have been required for a default judgment was a Complaint which set forth a cognizable claim for relief, and proof of service of both the Complaint and the Motion. Beyond that, it should have been up to the defendants to challenge the merits.
Further plaintiff does not provide a copy of the Certified Mail Return Receipt or any other evidence showing the result of the mailing - i.e. , whether anyone signed for the letter or whether it was returned unclaimed. In the face of insufficient proof of notice, DAWKINS’ inaction does not support an inference that she knowingly or deliberately breached her obligation to appear for an EUO. Based upon the foregoing, and particularly in view of the specter of unreliability permeating this application, the Court finds that plaintiff is not entitled to the relief sought. Accordingly, it is ORDERED, that plaintiffs motion for a default judgment pursuant to CPLR 3215 is denied. Plaintiff shall serve a copy of this Order upon all defendants within ten (10) business days of entry, and shall fie proof of such service
with the Court, on or before any further application in this matter. This constitutes the Order of the Court. Comment: There were six defendants in this action, and none of them appeared or answered even though there was no question that they were served. This is a declaratory judgment action, not an action for money; it only asks the court to declare the respective rights and liabilities of the parties under an insurance contract. Yet the Court seems to have taken upon itself to question the plaintiff ’s evidence as though it were acting as an advocate for these defaulting defendants at an inquest. The question of whether or not the addresses to which the EUO letters were sent were the same addresses as on the application should not have been an issue for a default judgment. The CPS case, cited here by the Court, stated in part, “Here, neither the allegations of the complaint nor the plaintiff ’s affidavit set forth facts sufficient to satisfy the plaintiff ’s burden of establishing viable claims, inter alia, for declaratory relief...” In the case at hand, all that should have been required for a default judgment was a Complaint which set forth a cognizable claim for relief, and proof of service of both the Complaint and the Motion. Beyond that, it should have been up to the defendants to challenge the merits. The Court here imposed a much stricter standard for a default than the statute or appellate case law require. [IA] 2012 NY Slip Op 30242(U) Supreme Court, Nassau County Docket Number: 6908/11 Judge: F. Dana Winslow
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