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T H U R S D A Y , J U L Y 2 8 , 2 0 0 5
Strike Back Against Identity Theft | Ace Restates Earnings, Spitzer Faces Critics
Beam Me Up: Understanding Customers’ Personality Traits
Stiglitz Testifies Terrorism Risk Extends Beyond Urban Areas
Home Sweet Motor Home… | Big "I" National News
P & C T R E N D S
Strike Back Against Identity Theft
Consumers’ concerns lead to increased interest in ID theft insurance
Arriving home after a long day at the office, you pick up your mail only to receive a letter from a store you frequent explaining that their supposedly secure computer system was hacked, and 5 million customers’ credit card numbers were stolen. You’re among the lucky customers whose credit card number is now in the possession of a thief who can easily sell it online to other thieves or use it to go on spending sprees on your good name. Odds are you can kiss that perfect credit score goodbye.
It’s a scenario everyone dreads, yet it’s played out daily as identity theft becomes a bigger and more frustrating problem. Faced with scary probability statistics, Americans are embracing the idea of insurance that covers identity theft.
The numbers are startling. According to a recent survey sponsored by Chubb Group of Insurance Companies, one in five Americans have fallen victim to identity theft or fraud.
Additionally, of the survey’s 1,850 respondents, 27% said that their or a relative’s credit card was used without authorization, up from 19% in 2000.
Think that’s frightening? It gets even worse: A Nationwide Mutual Insurance Co. survey released this week found that 28% of ID theft victims had not been able to restore their identities, despite devoting an average of 81 hours to trying to resolve their case. The survey also found that thieves charge an average of $3,968 with a stolen identity.
“The survey shows that recovering from identity theft can be difficult, costly and stressful, but what is most alarming is that despite the time, money and personal duress victims go through, resolution is not always achieved,” says Kirk Herath, Nationwide’s associate general counsel.
Despite customers’ growing alarm, some agencies report an only moderate increase in customer inquiries into ID theft insurance.
“In years past, no one asked, so I would say there is an increase, but not a great increase,” says Jeff Cox, president of Lloyd Bezdford Cox, Inc. in Greenwich, Conn.
Given all the media surrounding high-profile companies losing customers’ personal data, Cox anticipates identity theft becoming an even larger problem.
“It’s a hard one because identity theft is something that’s out there,” Cox says. “We as an agency haven’t seen it that much, but we know that it’s out there and it’s unfortunately is going to become more and more important as the years go ahead.”
Some carriers, such as Chubb, are including ID theft coverage in homeowners policies. Other carriers are exploring separate identity theft policies.
With identity theft on the rise—and the time and monetary investment that goes into restoring a stolen identity—consumers increasingly are willing to purchase identity theft insurance coverage.
A survey by Boston University graduate student researchers found that 72% of respondents would pay for a policy that would help restore credit history, bank accounts and credit accounts. What is a reasonable price tag for the coverage? According to the BU survey, consumers were willing to pay an average of $88 annually.
For more information on marketing identity theft coverage to your clients, see “Armed Against Identity Theft” in the July issue of Independent Agent magazine.
Jennifer Sikorski (jennifer.sikorski@iiaba.net) is IA’s associate editor.
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P R O D U C E R C O M P E N S A T I O N I S S U E U P D A T E
Ace Restates Earnings, Spitzer Faces Critics
Ace Limited joined the growing list of insurers that have admitted accounting errors in the wake of investigations into the industry’s practices. Last Thursday, the Bermuda-based company announced it would restate five years’ worth of results to correct errors in connection with eight transactions involving non-traditional or finite risk products. Also making news this week: New York Attorney General Eliot Spitzer was on the receiving end of criticism from political opponents and industry groups.
Ace is restating financial results back to 2000 based on the results of an “independent investigation and internal re-evaluation of the accounting for certain transactions,” according a company press release. The New York Times reports that “The restatement reduces net income in 2002 and 2001 by $61 million and increases it from 2002 through the first quarter of 2005 by $106 million. The original reports inflated the company’s net worth in several years by as much as $95 million at the high point in 2001.
The company said that its investigation revealed that seven finite risk contracts did not adhere to the requirements for risk transfer and should have been treated as deposits. The company also noted that investigation did not uncover any evidence of “inappropriate conduct by current senior management or by members of the board of directors.
“We have found accounting problems on a number of transactions and we regret that. We are fixing those problems,” CEO Evan Greenberg said. “We have also put in place strict procedures to assure that this does not happen again.”
In legal news, the Securities and Exchange Commission gave a “Wells Notice” to RenaissanceRe Holdings Ltd. Chairman and CEO James N. Stanard. A Wells Notice indicates that the SEC plans to recommend civil action be taken against the recipient for violating federal securities laws. The SEC also sent a Wells Notice to Michael W. Cash, the company’s former senior vice president of specialty reinsurance. Cash resigned from the company after previously refusing to accept an SEC subpoena.
Elsewhere, Ohio appears to be the next state to launch a major investigation into the industry. The Associated Press reports that “the Ohio Department of Insurance is investigating allegations that brokers across the state are engaging in bid-rigging and undisclosed commission arrangements with insurance companies.”
“We’ve gathered a lot of information, and we’ve found enough things to keep digging,” Director Ann Womer Benjamin told the AP. She also noted that the department may take action against some companies or brokers by early fall.
As Ohio’s investigation heats up, Illinois’ may be slowing down---but it’s far from over. The Chicago Tribune reports that that state Insurance Division has parted ways with the outside lawyer hired to help investigate the state’s brokers. Insurance Director Michael McRaith told the Tribune that department’s focus has shifted to smaller brokers, no longer necessitating outside resources.
Who are the smaller brokers in the department’s path? “Among the brokers drawing attention are three Chicago-based companies, Mesirow Financial, Hub International Ltd. and Acordia, Inc., a unit of Wells Fargo,” sources told the newspaper.
Lastly, Spitzer---usually the individual making others squirm---has come under a bit of heat in recent days. There have been two reports of Spitzer’s campaign for governor of New York accepting donations from individuals linked to companies subject to his insurance investigations. The Associated Press reports that New York Republican Chairman Stephen Minarik is calling for Spitzer to return a $25,000 donation from Richard Ferrucci, a former senior vice president of Aon Corp. Ferrucci made the donation 16 months after he left the company and three days before Aon settled with Spizer’s office. An Aon spokesperson told the AP that the donation is not related to the company.
Another donation came into question this week from lawyers at Simpson, Thatcher & Bartlett, a well-known law firm representing AIG’s board of directors. The lawyers donated a total of $21,250 to Spitzer’s campaign fund, the New York Daily News reports.
“The so-called Mr. Clean has turned into Mr. Green,” Minarik said. “It seems now that his investigations are about nothing more than self-promotion and raising campaign dollars.”Spitzer’s spokesperson said that the donations form attorneys representing targets of general’s investigations do not impact the aggressiveness of the investigations and indicated that he would continue to accept donations from those who support him.
Also not a Spitzer fan is Robert Detlefsen, National Association of Mutual Insurance Companies public policy director. According to National Underwriter, he labeled Spitzer’s investigation tactics as “heavy-handed” and “self-aggrandizing.” He also questioned Spizter’s motivation for “grabbing headlines and preening before television cameras.”
Jennifer Sikorski (jennifer.sikorski@iiaba.net) is IA's association editor.
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V I E W : L & H T R E N D S
Beam Me Up: Understanding Customers’ Personality Traits
While covering the recent death of actor James Doohan---Scotty of “Star Trek” fame---many news programs and publications featured images and catch phrases from the popular show. I hadn’t thought about “Star Trek” in years, but the recent attention made me reminisce about the show. Despite all of the science fiction marvels---from phasers to the transporter to the USS Enterprise---the series’ secret of success lay in the personalities of the show's four main characters: Kirk, Spock, Bones and, of course, Scotty.
What is the relevance to independence agents? Imagine for a moment, making a sales presentation to each of the four characters. First Officer Spock is analytic, extremely rational and factual. Medical Officer Bones is emotional, caring and concerned. Chief Engineer Scotty is innovative, crisis-orientated and an implementer. Captain Kirk contained each of the other's qualities and had to make crucial decisions weighing analytical and emotional considerations to accomplish the mission.
The real driving force behind the series was the interaction of the various characters---the inevitable clashes between Spock and Bones, Scotty pleading for more time to repair the ship's equipment and ultimately Kirk, who had to take into account the advice of his crew and make the tough decision whether to beam up and leave the planet.
Let's assume that you are making a presentation to a company on why it should change health insurance carriers. Interpose the crew as corporate officers: Spock as CFO, Bones as a human resources manager, Scotty as head of IT and Kirk as CEO. Clearly Spock will to look at various product illustrations such as mortality costs, expense loads and future benefits. Bones will want to know if the provider network was convenient for employees, the quality of the doctors and their practice patterns. Scotty will want to deal with enrollments, online resources and the payroll considerations of implementation. And lastly, Kirk would want it done on time, successfully and with minimal disruptions to the staff.
As an agent holding one-on-one meetings with decision makers, you want to size up the personality traits of each person and tailor your approach. With Spock, get right to the point and let him study the numbers. With Bones, get to know him and his objectives and make sure you are comfortable with each other. For Scotty, utilize a PowerPoint presentation to illustrate the implementation steps and delivery timeframes. And with Kirk, straightforwardly summarize the entire project from start to finish and commit all the resources that are necessary to complete the job. Understand the personalities of the people you’re dealing with to get the mission accomplished.
Dave Evans (dave.evans@iiaba.net) is a certified financial planner and IA l-h contributing editor.
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O N T H E H I L L
Stiglitz Testifies Terrorism Risk Extends Beyond Urban Areas
Big “I” President-Elect Bill Stiglitz told the House Financial Services Committee on Wednesday that the risk of terrorist attacks is a problem for business throughout America, not just in major urban areas.
He urged that Congress ensure a terrorism insurance program is in place after the expiration of the Terrorism Risk Insurance Act (TRIA) on Dec. 31. Stiglitz was the first private-sector witness to testify at the hearing.
“I would like to stress that the interest in, and the need for, a terrorism insurance backstop is NOT confined solely to big urban areas,” Stiglitz testified. “IIABA represents 300,000 agents and brokers and their employees selling coverage to consumers across the country on the front lines. Our collective experience establishes that terrorism insurance coverage is not just a big city or big state problem. It is a business customer problem throughout the country; this is a truly national issue.”
Stiglitz expressed the agreement of the Big “I” with a June 30 Treasury Department report that TRIA’s public-private partnership had worked as intended. But he noted the potential for harmful gaps in coverage faced by policyholders, beginning at year’s end, if there is no backstop in place when TRIA expires—a potential reinforced by recent terrorist activity.
“As access to insurance coverage diminishes, we continue to hear from the federal government—reinforced by the recent events in London and Egypt—that there remains a risk of further catastrophic terrorist attacks,” Stiglitz said. “Where insurers have not secured terrorism exclusions either due to state law … or because regulators will not approve them in some states, the insurers themselves will remain significantly exposed to terrorism losses and potential insolvency. As a result, entire sectors of the U.S. economy could be impacted by future terrorist attacks in the absence of a terrorism insurance program.”
His testimony also noted Federal Reserve Chairman Alan Greenspan’s recent comments. Last week, Greenspan testified that there was “no way” for the private sector to handle the huge potential losses, and that he did not see how the issue of government-backed reinsurance for catastrophic terrorism attacks could be avoided.
“In testimony before this committee, Chairman Greenspan acknowledged terrorism and geopolitical risk have become enduring features of the global landscape,” Stiglitz said.
Stiglitz also noted the comments of Treasury Secretary John Snow and House Financial Services Committee Chairman Mike Oxley (R-Ohio), who acknowledged the need for a federal role in terrorism insurance.
“The Big ‘I’ and our 300,000 members are especially encouraged that members of this committee and Secretary Snow reaffirmed support for a continued federal role in assisting the private market in handling this risk of truly catastrophic proportions,” he said.
The Big “I” has consistently supported the continuation of the current terrorism insurance backstop or a modified one, and it has repeatedly urged Congress to take action as soon as possible since businesses and insurers are starting to make decisions that impact operations beyond the expiration of TRIA.
Cliston Brown (cliston.brown@iiaba.net) is Big "I" director of public affairs/media relations.
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F O R M S & S U B S T A N C E
Home Sweet Motor Home…
Does a motor home qualify as a home?
An insured has an HO-3 policy with $50,000 Coverage C on his personal property. He also owns a motor home that he and his wife use throughout the year to take extended trips to visit grandchildren. The insured has about $10,000 of personal property in the motor home that remains there permanently. Is the personal property in the motor home subject to the 10% HO limitation? Seems like a simple question, doesn't it? Well, even the Virtual University faculty members couldn't reach a consensus.
The ISO Homeowners policy generally provides worldwide coverage for personal property an insured owns or uses. However, there is a 10% limitation on property usually at another residence. Here's an excerpt from the ISO HO forms:
"Our limit of Liability for personal property usually located at an 'insured's' residence, other than the 'residence premises,' is 10% of the limit of liability for Coverage C, or $1,000, whichever is greater."
Note that the limitation only applies under two conditions: (1) The property must be usually located away from the residence premises (e.g., it doesn't apply to property you take with you to your furnished cottage at the lake); and (2) The property must be kept at another residence (e.g., if you store some property in a mini-storage warehouse, the limitation doesn't apply since it is not a residence).
So, is a motor home another "residence?"
Webster's defines "residence" as: "...the place, especially the house, in which one lives or resides. A structure serving as a dwelling or home. The act of living or staying at a specified place while performing official duties, carrying on studies or research, awaiting a divorce, etc." Based on this dictionary definition, is a motor home "permanent" enough to qualify as a "residence? " Or, is it more like a temporary abode, such as a hotel room, where the 10% limitation does not apply?
Black's Law says: "Place where one actually lives or has his home; a person's dwelling place or place of habitation; an abode; house where one's home is; a dwelling house. Personal presence at some place of abode with no present intention of definite and early removal and with purpose to remain for undetermined period, not infrequently, but not necessarily combined with design to stay permanently. Residence implies something more than mere physical presence and something less than domicile. The terms 'resident' and 'residence' have no precise legal meaning; sometimes they mean domicile plus physical presence; sometimes they mean domicile; and sometimes they mean something less than domicile. Residence means living in a particular locality, but domicile means living in that locality with intent to make it a fixed and permanent home. Residence simply requires bodily presence as an inhabitant in a given place, while domicile requires bodily presence in that place and also an intention to make it one's domicile."
Based on this, you could lean more toward a motor home being a residence and the limitation applying, although you can just as easily lean the other way, back and forth, until you get nauseous. When you get right down to it, it might depend on how often and for how long the motor home is used as a "residence." If you take a two-week trip, why should coverage be more restrictive than it is at a hotel?
For what it's worth, the ISO PAP policy has an exclusion under Medical Payments for occupying any vehicle located for use as a residence or premises. In this form, that would seem to imply that, in ISO's eyes, a vehicle can indeed, be a "residence." Of course, courts don't always agree with ISO.
The Georgia Court of Appeals, in Allstate Ins. Co. v. Walker, 111 Ga. App. 120, 140 S.E.2d 910 (1965), said that a "house trailer" was effectively a residence. As such, one might apply the same logic to a motor home. This could be why most RV policies have a personal property coverage built in with the ability to increase it.
For more information, including several alternative opinions, click here.
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