Transcript Other Emerging Issues

ISO Emerging Trends in Coverage
Issues
STRIMA
September 19, 2005
Agenda
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Class Action Fairness
TRIA
Food Litigation
Electromagnetic Fields
Business Ethics
Climate Changes
Cyber-slander
Identity Theft
Privacy
Other Issues
Studying Emerging Issues
• Where we go to get information: trial bar,
scientific studies, futurists, newspapers,
claims units, management team, panels,
your input
• What we do with it: identify trends and
possible issues and then consider
insurance implications
• Then we make these ideas actionable in
your state
Class Action Fairness
The Class Action Fairness Act of 2005
• Expands federal diversity jurisdiction for
certain multi-state class actions where the
class members are seeking more than
$5,000,000 in the aggregate
• Should lessen the incentive for filing
nationwide class actions in state courts
thought to be favorable to plaintiffs
Fear of Disease
• Beyond the plaintiffs who have actually developed
symptoms of disease, there is a whole body of
claims being made out of fear of a disease
• Some states, such as NY, consider mental anguish
to be covered by the GL policy because of the
policy wording
• These “fear claims” need not be limited to
diseases, but include medical devices, as well,
such as breast implants and heart valves
• Insurance issues
Holding Plaintiffs' Lawyers Accountable
for Legal System Abuse
• Criminal investigation of Milberg Weiss
– Seymour Lazar of Palm Springs charged
with accepting millions of dollars in
exchange for serving as the lead
plaintiff in dozens of fraud lawsuits
– Considering criminal charges against
William Lerach, an attorney who is no
longer with the firm
Holding Accountable (Cont’d)
• U.S. District Court Judge Janis Jack issued
a decision in June that criticized nearly all
of the 10,000 silicosis claims that had
come to her court
• Most of the cases were sent back to state
courts
Fed Up With Legal System
• Without objection from the defense, Madison
County, Ill., Circuit Court Judge Nicholas G.
Bryon granted a plaintiffs’ motion for mistrial
after a couple of hours of questioning revealed
that many of the potential jurors
– would not follow court instructions during
deliberations and
– are prejudiced by news coverage and political
pressures
Terrorism Risk Insurance Act
TRIA
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TRIA expires at the end of this year
ISO Conditional Endorsements in place
Bills have been introduced in both the Senate and the House
The industry has been intensely lobbying for legislation renewing
the act, expanding the reinsurance coverage guaranteed by the
government and making the program permanent
• Congressional opposition to the program based on the principal that
the government should not play a continuing role in a private
market, particularly one that is growing
• The Consumer Federation of America also opposes an extension of
the program, arguing that the profitable insurance industry does not
need to be subsidized
• The proponents contend that insurers cannot fully accept the risks
and that the program should be extended for at least two years
while the issue is given continued consideration
Treasury Department’s Review
Treasury was required to assess:
• The effectiveness of TRIA
• The likely capacity of the P&C insurance
industry to offer insurance for terrorism
after termination of TRIA
• The availability and affordability of such
insurance for various policyholders
Effectiveness
2002
2003
2004
Insurers writing coverage
73%
91%
91%
Policyholder take-up
27%
39.5%
54%
Insurers not charging
75%
46%
40%
Policyholders getting free
70%
42%
37%
Average cost of coverage
1.2%
1.6%
1.8%
Share of premium for insurers writing
3.7%
2.4%
3.1%
Cost among policyholders paying for terrorism
coverage
4.0%
2.8%
2.7%
 High-risk cities
6.1%
5.1%
2.6%
Transitional Period
• Industry surplus has returned to pre-September
11th levels
• Insurers are more able to bear unexpected losses
than they were prior to the enactment of TRIA
• Insurers might have begun charging for terrorism
risk insurance whether or not TRIA was enacted
• Insurers purchasing terrorism reinsurance: 70%
in 2003, 65% in 2004, 75% in 2005
• Smaller and medium-sized insurers made greater
use of terrorism reinsurance
Assessment
• TRIA was effective
• TRIA provided a transitional period during which
insurers had enhanced financial capacity to write
terrorism coverage
• TRIA provided an adjustment period for insurers and
policyholders
• TRIA's effectiveness does not imply continuation of
the program
• The sunset of TRIA should encourage the
development of the private reinsurance market and
other risk transfer mechanisms
Terrorism Insurance after Termination
of TRIA
• The removal of the subsidy will result in a short-lived
adjustment in coverage and pricing
• The financial health of insurers, especially surplus,
improved in the past three years
• Private market capacity. Take-up of terrorism risk
insurance, for example, continued to increase, while
the ratio of policies written by insurers including
terrorism coverage has been flat to rising, even as
the TRIA deductible rose over time
Terrorism Insurance after
Termination of TRIA (Cont’d)
• The expiration of TRIA will likely change industry
behavior
– increasing the use of private reinsurance
– building surplus by tapping into capital markets
– raising premiums or placing exclusions on some
policies
• 50% of insurers are not writing coverage for
terrorism risks after the expiration of TRIA
• 25% of policyholders with terrorism coverage
indicated that their coverage will exclude terrorism
after the expiration of TRIA
Food Litigation
The Medicaid Angle
• Tobacco ($246B for Medicaid)
• Drugs
– On June 30, 2005 Texas filed a
lawsuit seeking at least $168 million
in damages from Merck for the health
risks associated with its Vioxx
painkiller
• Alcohol – Currently deceptive
advertising is the main thrust
Obesity
• Original Claims:
– A factor in 300,000 deaths annually
– 90,000 cancer deaths directly caused by obesity
– Heath-care costs about $117 billion
• The Actual Facts?
– As yet unpublished research by the CDC
– While obesity is a leading cause of preventable death, it
probably ranks closer to alcohol consumption (about
85,000 deaths in 2000), rather than being near tobacco
use (about 435,000 deaths in 2000)
Obesity Costs
• Between 1987 and 2002, private spending on
obesity-linked medical problems mushroomed
from $3.6 billion, or 2 percent of all health
spending, to $36.5 billion or 11.6 percent of
spending, the study (Health Affairs)
• In 2002, obese individuals dominated the
category of adults treated for the top 10
medical conditions contributing to medical
spending, including arthritis, asthma, back
problems, diabetes and heart disease
State Laws Eating Away at
Obesity Lawsuits
• At last count, 20 states have enacted a
"common-sense consumption" law that
prevents lawsuits attempting to attribute
obesity to the restaurant industry
• An additional 11 states have similar
legislation pending
• These laws, however, leave the door open for
suits based upon the state's consumer
protection laws involving deception in the
marketplace
Senate Bill 908
• Commonsense Consumption Act of 2005 would bar
tort lawsuits against food manufacturers and sellers
that seek recovery based upon obesity or obesity
related "injuries" resulting from the lawful sale of
food, ingredients or beverages
• It would shield fast food restaurants and their
suppliers from potential liability based upon their
patron's eating habits
• The bill would not preclude lawsuits premised on
false advertising or injuries from food consumption
Electromagnetic Fields
EMFs
• Human cells emit their own very weak
magnetic field
• Strong or high frequency external
electromagnetic fields may affect cellular
magnetic fields
– Heat resulting from higher and higher network
frequencies
– Resonance of the structures in cells that could
literally shake them apart, which could then
replicate in damaged form
Causes for Concern
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High voltage transmission power lines
Electric blankets
Low-frequency 60hz household current
Higher frequency / lower power microwave
broadcasting uplink dish farms
• Cell phone towers and cell phones
Business Ethics
Business Ethics
• It's not just businesses we can't trust
anymore, but the newspapers and
broadcasters as well.
• If you're unscrupulous in your business, is
there any reason to think you wouldn't be
when filing insurance claims?
• Trends:
– Crime down, but cheating up
– More underwriting and claims checks;
scoring; policing by advisors
SOX 404
• The NAIC is proposing adding elements
of the Sarbanes-Oxley Act of 2002 to its
audit rules used with privately held
insurers and mutual insurers
• The proposal is in the discussion stage
with the AICPAs
• The plan covers corporate governance,
auditor independence and a company's
internal controls
Climate Changes
Global Warming
• National Center for Atmospheric Research has a
model to analyze climate changes; runs will be
completed in 2005
• After WWII there is an obvious greenhouse effect
• Methane and carbon dioxide cause global effects
while sulfur is more regional
• One measure of proof of the greenhouse effect is
that the number of days of intense rainfall per
year has been increasing steadily
• Could have an affect hurricanes; probably more
extreme hurricanes than more
Global Warming Lawsuits
• Object is to recover damages from carbon
dioxide emissions
• Plaintiffs could attempt to file cases before the
United Nation's International Court of justice
or before the World Trade Organization
• Liability of power companies to keep up with a
changing environment
• D&O suits against directors who did not order
their companies to reduce emissions
Climate Changes Model?
• The world's weather will become more violent and a
major business risk
• Allianz and the World Wide Fund for Nature (WWF) cosponsored a report on the risks posed by climate change
and the investment opportunities that may be spawned
by a drive for lower carbon emissions
• Concern over the Greenhouse Effect has already helped
drive new markets for weather derivatives
• Insurers have been hit by a run of climate-related
disasters such as the four hurricanes that devastated
homes and businesses in Florida last year
Severe Weather
• The average number of powerful Atlantic
hurricanes each year since 1995 has been
twice as high as in the previous 25 years
• Atmospheric conditions generally favored the
U.S., keeping most of these storms away
from its coast, until last year
• The average number of storms making
landfall returned to the levels typical of the
30’s, 40’s and 50’s
Are Hurricanes Getting Stronger?
• MIT has concluded that the average force of
hurricanes has increased significantly since
the mid-1970’s
• The power of storms in the North Atlantic has
tripled while the power of storms in the
western North Pacific has more than doubled
• The study links the increasing power of the
storms to global warming and predicts that
future storms will continue to be more
destructive
Climate Pacts
• On July 26 the Bush Administration
released details on a six-nation climate
agreement intended as an alternative to
the Kyoto accord on global warming
• Asia-Pacific Partnership for Clean
Development and Climate
Cyber-slander
Exposures
• Gripe Sites
– Created to criticize a product, service or company
– Domain names add pejorative words to trademarked
company names
• Blogs
– Weblog or online journal
– Created to post personal thoughts and experiences
• Chat Rooms/Message Boards
– Typically dedicated to a particular topic
– May be sponsored by company or ISP
Taking Action
• Software tracking
• Suits have been filed for:
– Trademark infringement or dilution
– Disparagement
– Libel and defamation
– Publication of trade secrets
– Violation of the Right of Privacy (personal exploits,
students disparaging teachers)
Insurance Coverage
• Personal Injury can be endorsed onto
Homeowner’s policy
• Covered under personal umbrella (drop down
over deductible)
• Includes: libel, product disparagement and
written publication of material that violates a
person’s right of privacy
• Triggered “per offense” (not defined)
Identity Theft
Latest Surveys
• Privacy & American Business and Deloitte & Touche
– 44 million people, have been victims of identity theft, up from 35
million in 2003
– 78% agreed that consumers had "lost all control" over the collection
and use of their personal information
– 67% of respondents had not registered at a Web site because the
site's privacy policy was too complicated and/or unclear
• Chubb
– 27% of respondents said a credit card number for their family or a
friend had been used fraudulently, up from 19% in 2000
– 87% of respondents said companies that fail to safeguard consumer
data should be required to restore victims' credit ratings
– 66% say such companies should be fined; nearly as many want to
see them charged with a crime
Data Security & Security Breach
Notification – Draft Act
• Requires entities that hold sensitive information establish
and maintain appropriate security policies to prevent
unauthorized acquisition of that data
• Requires in the event of a material breach of security, those
whose information has been inappropriately revealed be
notified of the breach
• Special requirements are imposed on information brokers,
those that compile and sell consumer data to third parties
• Would preempt similar state laws to create a uniform
national standard
• Banks, credit unions, thrifts, and common carriers would be
exempt
General Liability Exposure
• The CGL pays for P&AI including "oral or written publication, in any
manner, of material that violates a person's right of privacy"
• From an insurance coverage perspective a claim for injury resulting
from the theft of identity likely could turn on whether there has been a
"publication"
• Businesses that handle Personal Identity information need to:
– develop a security policy
– appoint an information security officer
– develop a process for taking corrective and preventative action
• In the event of an unauthorized access of information, the business
may be required to send notices to potentially affected persons,
arrange for a free credit report and provide a one year subscription to
a credit monitoring service. Can these obligations be considered
"damages?"
Privacy
Privacy
• The federal intelligence overall that became
law this year establishes standards for driver’s
licenses
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Documents required to obtain license
Verification procedures
Information included
Security against forgery
Machine readable
• Effective mid-2006, once details worked out
• States can opt out, but their licenses would
be useless for federal purposes
Event Data Recorders
• Originally developed to record airbag deployment, EDRs
now record auto speed, engine revolutions per minute,
and the status of seat belts and braking for five seconds
before and for one second after an accident
• Linked with an OnStar system, an EDR reports the site of
an accident and driver behavior over a period before an
accident
• More than 40 million vehicles now have EDRs
• Proposed regulation from NHTSA would standardize EDR
data and make it easier to access by 2008
• Would also require that manufacturers put in the owners
manual that the vehicle has an EDR
Concerns about Personal Privacy
• Five states have laws regulating the ownership and
use of EDR data
• Eleven states have such legislation pending
• Some states (CA, AR, ND) have laws that insurers
cannot put wording in the cooperation clause
requiring insureds to provide EDR info; legislation is
pending in New Hampshire, New York, and Texas
• Some of the car rental contracts make insurance
coverage invalid if the renter is breaking the law
• Insurance contracts don't have similar provisions.
Could this increase carriers’ exposure even when
renter takes out additional damage waivers?
Other Issues
Lead Paint
• In 1999, Rhode Island filed a suit to hold lead paind
manufacturers liable for removal and treatment of
children with health problems
– In 2002, the lawsuit ended in a mistrial; a new trial is scheduled
to begin in September
– DuPont has reached a settlement with Rhode Island; the
remaining 6 defendants argue that the property owners should
be held accountable for failure to maintain their properties
• The Supreme Court of Wisconsin recently held that the
lead pigment industry cannot avoid liability for want of
specific product identification
– Remanded a case to lower court for trial under a "risk
contribution" approach (similar to market share liability)
– The majority opinion relaxed the traditional rules of causation
and could be seen as imposing absolute liability on
manufacturers of raw materials that are later incorporated into a
finished product
Prosecution for Workers’
Injuries and Deaths
• Trend among state and federal prosecutors to look
into the possibility of filing criminal charges against
companies and managers when workers are injured
or killed on the job
• Traditionally, workers compensation programs and
civil tort cases have determined the liability for
workers' injuries and deaths, with the risk of high
insurance premiums and large awards providing
managers with incentives to keep their workplaces
safe
• With 5,575 workplace deaths and 1,315,900 nonfatal
injuries in 2003, the potential exposure to criminal
prosecution is significant
Chemicals and Health Concerns
• The results of an increasing number of studies are leading some
scientists to speculate that the prevalence of certain industrial
chemicals at extremely low levels results in a greater incidence
of some cancers and brain disorders in children
• Although minute traces of some chemicals have long been
considered insignificant, some scientists suggest that traces in
the environment are causing the increased incidence of such
illnesses as breast and prostate cancer as well as autism and
learning disabilities
• Pollution regulations are intended to limit the exposure to
chemicals to levels that studies have shown to be safe
• Some authorities now question whether some toxic chemicals
can have any safe exposure level
• After studying the effects of lead on children for decades, the
EPA has effectively decided that there is no acceptable level of
exposure
Insurance Issues
• Wrap-up programs may contain gaps in
coverage which are being picked up by
subcontractors
• Could run out of limits
• The general or the sub’s insurer is not
collecting a premium for these exposures
Car Sharing
• Drivers rent a vehicle just for the time they need it
• insurance costs are included in the hourly charge
• If inadequate, creates an excess exposure for
insurers of insureds who own cars
• Growing market for non-ownership liability
coverage
• Physical Damage deductible could be payable via
ownership of an owned auto or “platinum” credit
card
• Maintenance of vehicles could be an issue
ISO Emerging Trends in Coverage
Issues
STRIMA
September 19, 2005
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