T H U R S D A Y ,   J A N U A R Y   2 6 ,   2 0 0 6

Grrr! Top Consumer Complaints of 2005 |  Big "I" Supports Terrorism Insurance Study |  Remember Where You Came From |  Computer Security Crimes on the Rise. Is Your Agency at Risk? |  Travelers’ Asbestos Decision Voided |  Supreme Court Refuses to Hear BlackBerry Appeal | Big "I" National News

P & C   T R E N D S
Grrr! Top Consumer Complaints of 2005

Grumbling customers are nothing new. But sometimes grumblings morph into formal complaints against carriers. Although 2005 saw a 22.5% decrease in the number of formal complaints from 2004, the type of complaints remained consistent, according to the National Association of Insurance Commissioners.

Delays, denials and unsatisfactory settlement offers topped the list of 2005’s formal complaints housed in the NAIC’s complaint database system (CDS). Other frequently cited complaints include policy cancellations and premiums/insurance rating issues.

"I think that agents may want to look at this data by company to help them decide what companies they want to place a particular customer with," says Robert Hartwig, senior vice president and chief economist of the Insurance Information Institute. "A company that may have a lot of auto complaints may have relatively few homeowners’ complaints, or vice versa. So you have to be careful not to paint with a single stroke."

Here’s the breakdown of 2005’s top five complaints, according to the NAIC:

1. Delays: 43,840 complaints (21.96%);
2. Denial of claim: 37,346 complaints (18.71%);
3. Unsatisfactory settlement/offer: 28,414 (14.23%);
4. Cancellation: 12,865 (6.44%); and
5. Premium and rating: 12,259 (6.14%).

Here’s the breakdown on coverages that generated the most complaints in 2005, according to the NAIC:

1. Auto: 80,867 complaints (40.51%);
2. Accident and health: 67,992 (34.06%);
3. Homeowners: 23,446 (11.74%);
4. Life and annuity: 17,208 (8.62%); and
5. Commercial multi-peril: 3,580 (1.79%).

Hartwig recommends looking at the data for a particular company to evaluate the trends over a period of time rather than just one year. "You might want to look at the number of complaints a company has over the past three or four years to see if it’s increasing or not," Hartwig says. "That’s going to tell you more than the number of complaints in a specific year. And if you do see that, then you might want to ask some of your customers who have that company what their experiences are. That can help the agent provide a higher quality of service because what they’re doing is screening out companies whose service quality is deteriorating."

The CDS has accumulated 2.2 million total complaints to its archive since its inception in 1990. Of those, 199,693 occurred in 2005.

States voluntarily submit "closed" complaints (i.e., complaints that have been investigated and resolved) to the NAIC to post in the CDS, which is searchable by company. To access the CDS, click here.

Jennifer Sikorski (jennifer.sikorski@iiaba.net) is IA’s associate editor.

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O N   T H E   H I L L
Big “I” Supports Terrorism Insurance Study
House bill would create commission to review long-term needs.

The Big "I" is throwing its support behind a study of the need for long-term federal terrorism insurance. The association backs a bipartisan bill introduced in the House of Representatives toward that end.

"The long-term problem of terrorism risk, the exposure faced by insurers, and the needs of commercial policyholders requires a careful and comprehensive study," says Big "I" CEO Robert A. Rusbuldt. "We applaud this serious effort to study this issue and to formulate viable solutions that will enhance our economic security, benefit commercial policy holders, ensure independent agents and brokers have a viable product for their commercial customers, and provide protection for American taxpayers by engaging in needed risk management."

Sponsored by Rep. Vito Fossella (R-N.Y.), H.R. 4619, the Commission on the Terrorism Risk Insurance Act, would create a commission to study and report to Congress, by Dec. 31, 2006, whether a long-term federal terrorism backstop is needed when the current backstop expires. The extension to the Terrorism Risk Insurance Act (TRIA), enacted in December, is set to expire Dec. 31, 2007. The bill takes the commission language from the 2005 House-passed version of TRIA extension that was ushered through the U.S. House of Representatives by Chairmen Mike Oxley (R-Ohio) and Richard Baker (R-La.) at the end of last year. 

"Main Street America is greatly interested in learning what such a commission would discover and recommend during the course of its work," says Big "I" President William G. Stiglitz, an executive with the Hyland, Block & Hyland Agency in Louisville, Ky. "Terrorism risk is not confined to major markets. The effects of a catastrophic terrorist attack would reverberate throughout the industry and the nation’s entire business community, so we applaud this legislation and support it wholeheartedly."

The bipartisan legislation is cosponsored by Republicans Sherwood Boehlert, Peter King, John McHugh, Tom Reynolds and John Sweeney of New York, and Christopher Shays of Connecticut, as well as Democrats Carolyn Maloney and Edolphus Towns, both of New York. It would create a commission including independent insurance agents and brokers and representatives from all sectors of the insurance industry, as well as the secretary of the treasury and a state insurance regulator.

"It is commendable that representatives from both sides of the aisle are joining, in a bipartisan manner, to find solutions on such an important matter," says Charles E. Symington Jr., Big "I" senior vice president for government affairs and federal relations. "We applaud these legislators for their work in bringing this issue to the table. Our association, and our grassroots network of 300,000 agents, brokers and their employees, will do all we can to support their efforts."

Cliston Brown (cliston.brown@iiaba.net) is Big "I" director of public affairs.

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L & H   T R E N D S
Remember Where You Came From

The No. 1 role of insurance is to protect an individual or business from catastrophic risk, to the degree that you can find an insurance company willing to insure the risk. All clients have different appetites for risk. Independent agents who deal with commercial and personal lines coverages must discuss the cost of different coverage levels and the corresponding premium reduction for assuming more risk.

Agents who sell life-health insurance and other financial-services products encounter a wide continuum of risk among their customers. Older clients typically are more conservative with their investments than younger people because they have less time to make up substantial investment losses. But age is only one factor in understanding the risk profile of an investor.

A late 1980s study performed by Marilyn Macruder-Barnewell finds risk generalizations that are based on a person's occupation. It's probably no surprise that her research indicates that salaried individuals (corporate executives, CPAs, lawyers) are more conservative as an investor group than small business owners and entrepreneurs who started their own businesses. According to the study, self-employed people would rather maintain control of their investments than be passive investors.

Agents who deal with self-made business people probably think the study’s conclusion makes sense. In fact, if I were to take a poll of independent insurance agents, I would most likely find that the control factor is a large reason behind their career choice. Some independent insurance agents previously worked in other industries with set sales territories and controlled commissions and product lines. If they had exclusive territories and became very successful, someone in the home office could decide to reduce the territory size. Or, they might have been very skilled salespeople, but their district managers insisted they stop by the office or be home at a certain time to check in by phone. Many agents might have felt that an income ceiling was holding back their opportunity to maximize earnings.

Whatever reasons attracted you to the independent agency field, it's important to remember the advantages of being independent; the ability to determine which company to deal with, which products to sell and what hours to work were probably strong motivating influences. The challenge to agency principals is to remember what motivates others to choose this career and, in particular, their agencies, and to make sure that the agencies’ culture provides appropriate oversight and support without chilling the entrepreneurial drive.

Necessary regulatory oversight is part of the insurance environment that every agent has to swim in. Installing proper sales and administrative procedures can help avoid an E&O claims. However, is the agency falling in the trap of having routine meetings that don’t improve productivity? Is the agency adding layers of decision making that isn't necessary? Is technology an ends or a means in the agency?

In the ideal world, the role of the agency principal should be one of a coach: Helping a group of people working together to achieve a common goal. All agents, like players on a field, have strengths and weaknesses that need to be identified and positioned so that the individuals’ abilities are maximized. Once everyone understands their roles, they can use their creativity and drive to accomplish the team’s goal. A successful agency will balance the need for reasonable control with the agents’ desire to succeed.

Dave Evans (dave.evans@iiaba.net) is a certified financial planner and IA l-h contributing editor. 

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T E C H   U P D A T E
Computer Security Crimes on the Rise.
Is Your Agency at Risk?

Is your agency safe? The latest FBI Computer Crime Survey might make you think twice about your agency’s computer security system. According to the survey, nearly nine out of 10 organizations experienced computer security incidents in a year’s time.

Security software and hardware failed to prevent these incidents. Most respondents used anti-virus, anti-spyware, firewall and ant-spam software, but the software did little to protect them.

Many respondents used system safeguards, including password complexity requirements, periodic password changes and virtual private networks. However, furthered security measures don’t necessarily translate into fewer attacks. The survey found a direct positive correlation between security measures employed by a company and the number of denial-of-service attacks on that company. But companies that are active targets of attacks are more likely to employ aggressive computer security measures, and would be better able to track computer security incidents aimed at the organization. Additionally, the more valuable the information a company has, the more likely criminals will target it. The stockpiles of personal, financial and even medical information insurance agencies have access to could be considered very valuable by some cyber criminals.

Virus attacks continue to be the source of the greatest financial lost. More than 64% of respondents incurred a loss, with viruses and worms accounting for $12 million of the $32 million in total losses reported. Alarmingly, organizations are suffering repeated security incidents. Over half the respondents had experienced up to four incidents, and 20% of those organizations had experienced 20 or more attacks.

Employee screening is critical to an agency’s security. Forty-four percent of respondents said they had experienced intrusions from within their organizations. The insider threat demonstrates the need for background checks on all staff—at all levels. And, while twice as many incidents came from outside the organization than from within, 25% of those experiencing computer attacks believed they had been hit from both inside and outside of their organizations.

Report any breach of your systems’ security to law enforcement. According to the report, organizations currently are not reporting these computer intrusions because they believe there is little law enforcement can do or that the infractions were not illegal. However, according to the report, "Computer-related crime is the third-highest priority in the FBI, above public corruption, civil rights, organized crime, white collar crime, major theft and violent crime."

Of the 9% who actually reported incidents to law enforcement, 91% were satisfied with the response, and 81% would report incidents again.

Agents should continue to update and monitor their agencies’ computer security. The Big "I" provides several resources to help. Click here to download the Agent’s Council for Technology’s guides to agency security and privacy. Click here to visit the Virtual University’s technology section to learn about the latest in protecting your agency.

The 2005 FBI Computer Crime Survey was taken by 2,066 organizations in Iowa, Nebraska, New York, and Texas late last spring, representing a sample of organizations nationwide.

Emily Crane (emily.crane@iiaba.net) is Big "I" media relations manager.

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L E G A L   A D V O C A C Y
Travelers’ Asbestos Decision Voided

Last week the United States Court of Appeals for the Third Circuit voided an arbitration decision regarding limits on asbestos claims involving Travelers (as the successor to Aetna Casualty) and ACandS, Inc., an asbestos insulation installer that filed for bankruptcy. The case is interesting for two reasons: it addressed an important issue to the insurance industry, and one of the judges on the panel was Samuel J. Alito, who likely will be the newest addition to the U.S. Supreme Court.

The court based its decision solely on procedural grounds related to how disputes are resolved when one party has filed for bankruptcy, not on the underlying issues concerning the insurance coverage of the policies in question.

The coverage dispute involved four identical policies issued between 1976 and 1979 and focused on whether claims should be classified as operations claims (for which coverage remained) or a products claim (for which coverage had been exhausted) and if the claims should be treated as a single occurrence. Under the policies, operations claims had a $1 million per occurrence limit and no aggregate cap.

In 1988, to avoid the cost and challenge of classifying large numbers of claims as products claims or operational claims, Travelers and ACandS signed a Letter Agreement allocating 45% of the claims to operations and 55% to products.

In 2000, Travelers notified ACandS that it would treat all operations claims as arising out of the same one occurrence, limiting the insurer’s liability for those claims to a $1 million cap. ACandS went to court seeking a declaration that each operations claim arose out of a separate occurrence. ACandS also pursued a claim through mediation that instead of 45% of the claims being operations claims, the percent should approach 100%. The parties’ effort to resolve that dispute through mediation was unsuccessful, so they proceeded to arbitration. Before the arbitration panel rendered its decision on the merits of the dispute, ACandS filed for bankruptcy. The arbitration panel subsequently determined that none of the claims were operations claims because ACandS stopped manufacturing and installing asbestos before issuance of the policies in question.

The trial court in which ACandS sought to have each operations claim declared a separate occurrence then dismissed that lawsuit as moot and affirmed the arbitration award, leading to the appeal to the federal Third Circuit Court of Appeals.

The Third Circuit held that the bankruptcy filing by ACandS should have stopped the arbitration. This was based on a Bankruptcy Code provision for an automatic stay (or inability to proceed) with judicial or other similar actions against a debtor after filing bankruptcy that would have moved forward if no bankruptcy filing had been made. Only the Bankruptcy Court can grant relief from the automatic stay. The Third Circuit found that the arbitration should have been stopped due to the bankruptcy, holding that the arbitration award in favor of Travelers violated the automatic stay, therefore vacating it (so the arbitration award is no longer enforceable). That resulted in claims being governed by the Letter Agreement between Travelers and ACandS, allocating 45% to operations and 55% to products. The Third Circuit also determined that the lawsuit by ACandS seeking a ruling that each operations claim arose out of a separate occurrence was not moot and sent that issue case back to the trial court to decide.

It is important to note that the appellate court did not determine any of the coverage issues in dispute. It did not determine that 45% of the claims were operations claims; it only determined that ACandS and Travelers entered into a Letter Agreement stating that 45% were operations claims. It also did not determine if the operations claims arose out of a single occurrence. It merely determined that bankruptcy filing should have stopped the arbitration from proceeding, so the arbitration award was vacated, and that the trial court will need to determine if the claims arose out of single occurrences.

This Third Circuit Court of Appeals decision underscores the complexity and uncertainty involved in resolving such asbestos cases. Claims relating to alleged asbestos liability have been ongoing for decades and involve billions of dollars in claims.

Many in the industry feel that decisions like this one point to the need for federal legislative guidance and relief in the area of asbestos claims. Major asbestos legislation is scheduled for Senate consideration early this year. There is considerable debate regarding the merits of proposals to create a $140 billion trust fund to compensate those harmed through exposure to asbestos. While some insurers and large industrial groups support this approach, many in the insurance industry do not, preferring a criteria-based approach that would streamline the existing litigation process and promote consistency, certainty and finality as a result.

It is possible that Travelers will decide to petition the U.S. Supreme Court to overturn this decision or seek to have it vacated by either requesting that the panel that decided it reconsider its decision, or by requesting a review of the entire Third Circuit.

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L E G A L   A D V O C A C Y
Supreme Court Refuses to Hear BlackBerry Appeal

The Supreme Court on Monday refused to hear an appeal from Canada-based Research In Motion Ltd. (RIM), the maker of the BlackBerry, in the long-running battle with NTP Inc. (NTP) over patents for the e-mail device. The key issue in the case is how U.S. law applies to technology that is used in a foreign country, and it is alleged to infringe on the intellectual property rights of a United States patent-holder.

The Supreme Court was asked to decide whether RIM is liable for patent infringement when its primary relay station for e-mail transmission is in outside U.S. borders, in this case, Canada.

The high court's refusal to hear RIM’s appeal means that the Richmond, Va. trial court judge could impose an injunction against the company and block BlackBerry use among many of its owners in the United States.

What does this mean for my BlackBerry? Nothing, for now. Herbert Fenster, an attorney representing RIM, said the company is fighting the injunction, and that an injunction would not end BlackBerry use among at least 1 million of its 3 million users in the United States. Fenster said he believes federal law prohibits the judge from cutting off BlackBerry service to users who rely on the devices during emergencies. The judge set a Feb. 1 deadline for the parties’ filings on the injunction issue.

Additionally, RIM has been working to prepare a software workaround in case of a shutdown. The company still hasn't publicized details of this plan, but says it would deploy it if necessary to maintain the operation of BlackBerry services in the United States.

To read IN&V’s most recent BlackBerry article, click here. Many Big "I" members utilize BlackBerry handheld devices, and the Big "I" will continue to monitor these developments and will provide updates to this litigation as they become available.

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