Steven Wevodau - Property & Casualty Insurance

Curb on CGL coverage creeping into market

POSTED BY STEVEN WEVODAU

By DAVE LENCKUS
Dec. 01, 2008

Restrictive commercial general liability insurance policies that are moving into the admitted market worry some experts that more policyholders with tough risks—particularly construction contractors—could unexpectedly find themselves with limited CGL coverage.

Experts also are concerned about the coverage the policies provide, because some critical coverage terms are linked to an insurance industry database that is modified periodically and is not directly accessible by risk managers.

Unlike traditional CGL policies, which provide broad coverage for claims arising from a policyholder’s operations—except for excluded risks—the restrictive policies contain an endorsement with a “classification limitation” of operations that underwriters will cover.

Those endorsements are contained in the declaration pages of policies, which otherwise follow the traditional CGL policy language developed by the Insurance Services Office Inc. of Jersey City, N.J. However, ISO did not develop the classification endorsement, a spokeswoman said.

Under the policies, if a policyholder adds operations without notifying its underwriter, or if the policyholder’s current operations do not fit squarely within the classification limitations, then related losses would not be covered, experts said.

Policyholders also could not expect insurers to provide a defense against those claims, noted Joe Underwood, a senior consultant with Albert Risk Management Consultants in Needham, Mass.

Such policies are common in the surplus lines market but have now begun to creep into admitted coverage, potentially leaving some buyers with less coverage than they thought they had, experts say.

Nonadmitted insurers have been writing the restrictive CGL coverage for construction risks for a few years, said Bruce MacDonald, also a senior consultant with Albert Risk Management.

And John DiBiasi, president, excess and surplus lines for XL America Inc. in Exton, Pa., said XL America writes the restrictive coverage for many other tough risks, including real estate ventures.

But policyholder attorney Kevin Connolly, a partner with Anderson Kill & Olick P.C. in New York, said he first saw policies from more than one insurer with the endorsements in the past few months and that the policies have not “carried the stamp of a nonadmitted carrier.”

An XL America standard lines market subsidiary, Greenwich Insurance Co. in Stamford, Conn., writes CGL policies with the restrictive coverage, according to documents that Business Insurance obtained. Greenwich is admitted in all 50 states.

An XL America spokeswoman did not know how long Greenwich had been writing the coverage.

But several brokers at major brokerages said they had seen the restrictive coverage only in the surplus lines market.

Major change

The classification endorsement “turns the CGL policy upside down,” Mr. Connolly asserted.

A CGL policy “should be covering everything you do, unless there’s fraud in the policy application,” said John Lubatti, an Atlanta-based senior vp in the casualty practice at Willis HRH, a unit of Willis Group Holdings Ltd.

XL America’s Mr. DiBiasi disagreed. The classification limitations include all of the typical operations in which a policyholder would be involved, he said. But the limitations protect an insurer from being drawn into covering operations it never wanted to insure, he said.

Mr. Connolly said the endorsement is so unusual that policyholders were unaware of it until after he had conducted routine policy reviews at the outset of construction projects.

“That’s 100% true,” Mr. MacDonald said. “That’s the principal part of the concern of this type of endorsement.” He said he has encountered the endorsement when construction project owners have retained him to review contractors’ coverage that would name the owners as additional insureds. Contractors often did not realize their coverage was restricted, he said.

Buyers of surplus lines coverage typically have their “antennae up” for unusual endorsements, but risk managers do not expect such coverage limitations from admitted market insurers, Willis HRH’s Mr. Lubatti said.

XL America’s Mr. DiBiasi asserted that buyers should either carefully read all of their policies or hold their brokers accountable for explaining their coverage.

Experts say another problem with the restrictive policies is that they do not give policyholders the flexibility to adjust their insurance to cover all operations.

With traditional CGL policies, an insurer typically conducts a premium audit and then requires a policyholder that adds operations during its policy period to pay additional premium to cover those operations, risk experts say.

Under the more restrictive policies, however, a policyholder with operations not covered by its policy is not given that opportunity, Mr. DiBiasi and other experts explained.

Mr. DiBiasi said the premium audit process should not force insurers to cover any risk.

But understanding what operations are and are not covered is somewhat challenging for policyholders, experts said. The policies do not clearly spell out which operations are covered in the “classification limitation,” they said.

Instead, the policies refer policyholders to an ISO database for additional information, but that database is not open to policyholders. Policyholders could ask their brokers for that information, because brokers have access to the database, experts noted.

Still, experts raised concerns about insurers linking policyholder coverage to a database in which definitions of covered operations could be modified between a policy’s inception date and the time a claim is filed. A modification could leave a policyholder with no coverage for operations that originally were covered, they said.

“We have to trust the insurance company to do the right thing when a claim comes in,” said Mr. Connolly, the policyholder attorney.

XL America’s Mr. DiBiasi said, “The policy stands as it was issued and will be handled for claims on the basis as it was issued even years after the fact.”

He added that “ISO changes apply only to policies going forward and only if a specific company adopts the change.”

Tags: CGL, Steven Wevodau, Steven Wevodau Insurance

Kudos to Melbourne - Steven Wevodau

Earlier this month, I listed a $1,000 cost for copies of e-mails at Melbourne City Hall among the “abuses” allowed by state public record law. FLORIDA TODAY dropped a request when told the estimate back in 2007.

I repeated that information from a column a year ago. But the city had improved accessibility to official e-mail and is now among the best local governments in terms of cost and responsiveness. I should have noted that laudable progress.

Contact Reed at 242-3631 or mreed@floridatoday.com.

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Upstart company - Steven Wevodau

Gold is a successful business owner in his first insurance venture. People’s Trust launched this year and has 17,000 policies.

“Our company was born out of the frustration that my neighbors and I had with insurance in Florida,” Gold said from the company’s Boca Raton headquarters. He pointed to overcharging by insurers for “other structures” and personal property.

Gold dismissed criticism of new insurers that only one rating company, Demotech Inc., reviews their stability (People’s Trust has an “A” rating). Agencies such as A.M. Best won’t consider new companies, he said, accurately.

Does People’s Trust have the financing to withstand a 100-year catastrophe, as state regulators require? Gold noted that all Florida insurers lay off their risk by purchasing backup reinsurance on the world markets. “We are as reinsured and backed up as any other company, and by the same people in Bermuda, Zurich, London,” he said.

The biggest potential pitfall with People’s Trust — as the agents’ association says — lies in the online quotes available at Peoplestrustinsurance.com. First, the site asks for your home’s replacement value — a number most people don’t really know. (Suggestion: check the value on your current policy.) Also, the drop-down windows that allow choices of coverage default to no contents coverage and a 10 percent deductible unless you specify.

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Stay smart if buying insurance via Web - Steven Wevodau

One of Florida’s newest home insurers charges among the lowest prices by selling directly over the phone and Web and by not pushing unnecessary coverage.

But People’s Trust Homeowner’s Insurance also requires that customers know the value of their property and don’t miss details on the company’s Web site. And the Florida Association of Insurance Agents has attacked People’s Trust in a widely circulated letter that calls the company’s price quotes “misleading.” It also has pushed for a state review, now under way, of People’s Trust’s sales practices.

It’s obvious why agents dislike the company — they’re the middle men who lose money if homeowners can buy policies directly from insurers. However, they issue valid warnings (more in a moment).

“We’re very similar to the Geico model,” People’s Trust CEO Michael Gold told me. “We’re selling a lot of policies, and they’re getting lots of lots of cancellations.”

People’s Trust charges the lowest premium of 26 companies in Brevard County to insure a typical masonry home built before 2001 with a replacement value of $150,000, a 2 percent hurricane deductible and no discounts for wind mitigation. It charges $1,337 per year, compared to No. 14 (median cost) First Floridian at $1,811 and No. 26 (most expensive) State Farm Florida at $3,398.

But subtract wind-mitigation discounts, and People’s Trust rises to the fourth-cheapest at $743 per year. The lowest is Florida Farm Bureau at $498 and highest is Southern Fidelity at $1,614.

POSTED BY STEVEN WEVODAU

Tags: Steve Wevodau, Steven Wevodau

Another bailout with nothing in return

POSTED BY STEVEN WEVODAU

By David Lazarus

Special to The Morning Call

November 30, 2008

Man, I’m getting tired of this.

Once again we’re bailing out another too-big-to-fail company — now it’s Citigroup — and again we’re acting like we’ve got these guys by their you-know-whats because we’re imposing some limits on how much cash top execs get to pocket.

On top of that, the Treasury Department and Federal Reserve said Tuesday that they’ll be pumping $200 billion into the consumer credit market by guaranteeing securities backed by credit card debt and other loans, apparently with no strings attached. The idea is that this will encourage banks to make more money available to consumers.

Enough already. All along, I’ve reluctantly accepted the need to prop up many of these hopelessly mismanaged companies because of the importance of protecting the overall economy. You have to put out the fire at the local crack house if that’ll keep the rest of the neighborhood from being immolated.

But we’re letting these jokers get off too easy. These bailouts are an opportunity for some long-overdue house cleaning, and we can do a whole lot better than just making CEOs pay for their own darn country-club memberships.

”If they’re coming to us for money, we’d be crazy not to get something out of it,” said Dean Baker, co-director of the Center for Economic and Policy Research, a liberal-leaning Washington think tank. ”We should be saying, ‘You take our money, this is how it’s going to be.”’

Most of the talk around the heavy-duty bailouts — mortgage giants Fannie Mae and Freddie Mac, insurance behemoth American International Group — has focused on how much of an ownership stake Uncle Sam would take and what kind of return taxpayers could expect.

The Citigroup bailout unveiled this week is no different. It involves a $20 billion infusion of taxpayer money, following an earlier $25 billion allotment, plus guaranteeing about $306 billion in loans. In return, Citi has agreed to halt dividend payments for three years and to take a closer look at how much it pays the folk in its executive suite.

Many people will say Citi deserves to go under for making such a hash of things. That’s true. Unfortunately, if a company of Citi’s size and scope went down the drain, it probably would take much of the financial-services industry with it.

Yet this is the same Citibank that recently jacked up the credit card interest rates of millions of customers because of the ”difficult market environment” — even though the company vowed last year to abandon the practice of raising rates at any time for any reason.

It’s time we started getting more bang for our billions. In the case of banks and other financial-service providers, that means at the very least no more service contracts written in impenetrable legalese. No more changing of terms without cause. No more allowing cardholders to make only minimum payments without informing them of the potentially dire consequences of never-ending debt.

It means that if banks can’t embrace simple concepts like transparency and simplicity on their own, we require them to adopt more consumer-friendly practices as a condition for survival.

The same goes for U.S. automakers, which are welcome to their share of bailout cash. But in return, they can bid sayonara to the big-fat-SUV business and enter a brave new world of turning out the most fuel-efficient cars on the planet.

It’s our money, after all. We have every right to spend it as we see fit.

Tags: Citigroup, Steve Wevodau Insurance, Steven Wevodau

Commerzbank speeds up cut-price Dresdner takeover - Steven Wevodau

FRANKFURT (AFP) — Germany’s second-biggest bank, Commerzbank, said on Friday it will take over number three Dresdner Bank sooner than expected and for nearly half the original price, calming investors who feared the deal might fall through.

As it buys a remaining 40 percent stake in Dresdner from insurance giant Allianz, Commerzbank will finalize the takeover in January instead of the second half of 2009, and cut the deal’s price nearly by half, a Commerzbank statement said.

“”Commerzbank will achieve 100 percent of Dresdner Bank a lot earlier than originally assumed,”" it said.

Commerzbank already owns 60 percent of Dresdner and will pay 1.4 billion euros (1.8 billion dollars) for the remainder.

The bank said the total price for Dresdner would come to 5.124 billion euros, about 48 percent less than the original price tag of 9.792 billion.

“”We are accelerating the transaction and thus speeding up the integration process,”" Commerzbank chairman Martin Blessing was quoted as saying.

IHS Global Insight senior economist Timo Klein told AFP the market had been expecting a move, but added: “”I would not have guessed that it would be such a dramatic difference in price.”"

An Allianz statement quoted chief executive Michael Diekmann as saying: “”Given the current situation in the financial markets, an accelerated takeover of Dresdner Bank by Commerzbank is advantageous for all parties involved. Klein said nailing down a deal gave Commerzbank “”planning certainty which in these times of so much uncertainty is a value in its own right,”" and added: “”This of course applies also to Dresdner Bank and Allianz.”"

Konrad Becker at the private bank Merk Finck told AFP: “”Now it is clear, in four weeks Dresdner will be swallowed up.”"

Allianz will own a stake of 18.4 percent in Commerzbank, but will also be forced to devalue assets by an additional 600 million euros in the fourth quarter of 2008 as a result of the deal, a spokesman told AFP.

POSTED BY STEVEN WEVODAU

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NAMIC Tells NAIC: Consumer Reps Must Disclose Backing

BY ARTHUR D. POSTAL
NU Online News Service, Nov. 26, 11:20 a.m. EST

The National Association of Mutual Insurance Companies has called on the National Association of Insurance Commissioner to increase disclosure requirements for consumer representatives whom it funds to attend meetings.

In a comment letter, NAMIC recommended that the proposed disclosure requirements be expanded to include any form of financial assistance received from any entity with an interest in insurance regulation. 

The current funding proposal, which was tentatively approved by an NAIC panel, comprised of insurance regulators and NAIC-designated consumer representatives in October, would require participants in the NAIC funded consumer representative program only to disclose “compensation” received from entities directly regulated by state insurance regulators.

The policy must still be approved by the NAIC’s Executive Committee.

The letter was sent to Wisconsin Insurance Commissioner Sean Dilweg, chairman of the NAIC’s Consumer Participation Board of Trustees.

In the letter, Robert Detlefsen, NAMIC vice president of public policy, said “There are many entities not regulated by insurance departments that nevertheless have a considerable financial interest in insurance regulation.”

He cited such entities as trial attorneys, realtors, homebuilders, automakers, banks and lending facilities, rating agencies, and risk modeling firms.

“NAMIC believes that the potential for a conflict of interest would be every bit as great if an NAIC consumer representative accepted funding from one of these entities as it would be if he or she received funds from a state-regulated insurance entity or insurance trade association,” the letter continued.

Mr. Detlefsen said that NAMIC also believes that  funded consumer representatives should be required to disclose any form of financial assistance received from “any entity that is known to have, or could reasonably be expected to have, a material interest in insurance regulation,” including third-party nonprofit groups. 

The NAMIC letter also urged that disclosures be made public “to enhance the transparency of the Consumer Participation Program.” 

POSTED BY STEVEN WEVODAU

Tags: Steve Wevodau, Steve Wevodau NAIC, Steven Wevodau, Steven Wevodau NAIC

Insurance Groups Urge Fix For Fla. Catastrophe Fund - Steven Wevodau

BY MATT BRADY
NU Online News Service, Nov. 25, 10:06 a.m. EST

Florida may have dodged a bullet avoiding a major storm in the 2008 hurricane season, but insurance industry groups have warned lawmakers about the need to address the state’s underfunded Hurricane Catastrophe Fund.

“We are extremely thankful to have weathered the 2008 season with no major hurricanes,” said Bob Lotane, a spokesman for the National Association of Insurance and Financial Advisors in Florida. “However, we hope that this does not mask the very deep-seeded problems in our hurricane insurance matrix.” 

Florida was not hit by any major hurricanes, but Florida Insurance Council executive vice president of the Sam Miller noted that there were more storms overall in the area.

“Just because Florida was spared does not mean that hurricane activity is down,” he said. “The fact is we remain in the middle of a 20-year cycle for increased hurricane activity,”

Lynn Knauf, director of personal lines for the Property Casualty Insurers Association of America, offered an even longer estimate for the cycle at as many as 50 years. Florida was one of several coastal states that the PCI noted faces significant problems, and the group called on lawmakers to respond accordingly.

“To help protect homeowners, state governments should stabilize the financial condition of these coastal insurance markets as property exposure continues to grow,” said PCI Southeast Regional manager William Stander.

The hurricane season is officially over Nov. 30, but Mr. Miller noted that next year’s hurricane season is not far away and the Catastrophe Fund faces a shortfall of $10 billion to $15 billion. In addition, the turmoil in the economic markets would make raising additional funding through bond issues more difficult.

The most likely solution, Mr. Miller said, would be to reduce the Fund’s total obligations from its current limit of $28 billion to the $16.5 billion ceiling that was in place prior to a 2007 law expanding the fund.

That law, he noted, only expanded the fund for the 2007, 2008 and 2009 seasons. “It’s going away anyway,” he said, which in addition to the acknowledged shortfall should make it easier for lawmakers to accept eliminating it early. “It isn’t real anyway,” Mr. Miller said.

By rolling back the Cat Fund, the state would effectively push insurers to purchase more reinsurance from the private market, Mr. Miller noted, and the Council called on state lawmakers to allow insurers to include these increased costs as they calculate rates.

This is especially the case for the state run insurer, Citizens Property Insurance Corp., said Mr. Miller. Lawmakers froze Citizens rates in 2007, and there is already concern that Citizens must raise its rates to avoid assessments on taxpayers in the aftermath of a major storm.

“We urge policymakers and regulators to address the serious underfunding of our catastrophe fund in addition to inadequate rates being applied in the state-run insurance company and also with the private insurers taking policies from it,” said Mr. Lotane. “The solvency of not only these entities is at risk but, in fact, the solvency of the state as well should our good luck regarding catastrophic storms turn around.”

POSTED BY STEVEN WEVODAU

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Kingsway Financial Services Inc. announces Normal Course Issuer Bid - Steven Wevodau

TORONTO, Nov. 28 /CNW/ - Kingsway Financial Services Inc. (”Kingsway”) announced today that The Toronto Stock Exchange (the “Exchange”) has accepted a notice filed by Kingsway of its intention to make a Normal Course Issuer Bid (the “Bid”).

The notice provides that Kingsway may, during the 12 month period commencing December 2, 2008 and ending December 1, 2009, purchase on the Exchange up to 2,753,426 common shares, being approximately five percent (5%) of the total number of common shares outstanding. As at November 15, 2008, 55,068,528 common shares were issued and outstanding. The price which Kingsway will pay for any such shares will be the market price at the time of acquisition. The actual number of common shares which may be purchased pursuant to the Bid and the timing of any such purchases will be determined by management of Kingsway. The average daily trading volume of common shares for the most recently completed six calendar months is 262,936. The maximum number of common shares that may be purchased in one day pursuant to the Bid will be the greater of 1,000 and (i) 50% of ADTV until March 31, 2009 or (ii) 25% of ADTV after March 31, 2009. All common share purchases will be made on the open market through the facilities of the Exchange and will be purchased for cancellation.

Kingsway purchased 591,900 common shares during the twelve months preceding the date of the notice at a weighted average price of C$12.21. All of such shares were purchased for cancellation.

Kingsway believes that its common shares have been trading in a price range which does not adequately reflect the value of such shares in relation to the business of Kingsway and its future business prospects. As a result, depending upon future price movements and other factors, Kingsway believes that its outstanding common shares may represent an attractive investment to Kingsway. Furthermore, the purchases are expected to benefit all persons who continue to hold common shares by increasing their equity interest in Kingsway.

About the Company

Kingsway Financial Services Inc. is one of the largest non-standard automobile insurers and truck insurers in North America based on A.M. Best data that we have compiled. Kingsway’s primary business is the insuring of automobile risks for drivers who do not meet the criteria for coverage by standard automobile insurers and trucking insurance. The Company currently operates through eleven wholly-owned insurance subsidiaries in Canada and the U.S. Canadian subsidiaries include Kingsway General Insurance Company and Jevco Insurance Company. U.S. subsidiaries include Universal Casualty Company, American Service Insurance Company, Southern United Fire Insurance Company, Lincoln General Insurance Company, U.S. Security Insurance Company, American Country Insurance Company, Zephyr Insurance Company, Mendota Insurance Company and Mendakota Insurance Company. The Company also operates reinsurance subsidiaries in Barbados and Bermuda. The common shares of Kingsway Financial Services Inc. are listed on the Toronto Stock Exchange and the New York Stock Exchange, under the trading symbol “KFS”

POSTED BY STEVEN WEVODAU

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French state insures credit

Credit insurers under tough new rules to secure backing

French finance minister Christine Lagarde yesterday said the French state reinsurer Caisse Centrale de Reassurance will guarantee credit cover for some companies, while imposing tough rules to stop credit insuresr pulling future cover.

The state will guarantee up to 50% of the risk to a supplier offering credit to its customers if insurers aren’t willing to cover 100%, Lagarde said at a press conference on the reform of credit insurance mechanisms.

Companies would pay for the guarantees through higher premiums. “The intervention of the Caisse Centrale de Reassurance will be at slightly higher premiums (than the market price),” Lagarde told reporters.

The finance ministry says credit insurers cover around €320bn (£268bn) of inter-company loans in France. This is about a quarter of the total credit suppliers give their customers.

The FT reports that under the deal credit insurers must give more notice of withdrawing cover and provide the reasons. Contested decisions will go before a government mediator.

It quotes Laurence Parisot, head of the French employers’ body Medef, as saying that changing the way credit insurers treated companies was more important than state-backed insurance because withdrawals of cover could have a “tragic impact on businesses and trigger a chain reaction”.

The FT claimed the CCR will guarantee only €5bn in extra cover over the next six months, but that it believes this will replace a lot of cover withdrawn by the private sector.

The price will be 1.2% of the total credit covered plus fees, it is roughly 50% higher than that charged by the private sector, the FT said.

POSTED BY STEVEN WEVODAU

Tags: Steven Wevodau