So far, so good.
AAIS made a big first step this year toward positioning its former annual conference to be the property/casualty industry’s premier event devoted to product-related issues of strategic importance.
The newly renamed “Main Event,” inaugurated this year in Charleston, S.C., continued the pattern of increased attendance seen in recent years.
As the length of the following conference report demonstrates, AAIS managed to maintain the amount of content provided to attendees, while offering increased opportunity for networking with peers.
Also, while attracting a substantial number of new attendees, AAIS succeeded in meeting the expectations of previous attendees, as evidenced by these comments on conference evaluation forms:
“The meeting was very well done,
as usual, and very worthwhile.”
- “The speakers did an excellent job.”
- “The topics and the presenters [and] panelists were particularly good.”
- “It was very well organized. . . . Thank you, AAIS, for a job well done.”
- “It was very well done. You all did a great job.”
- “You [provide] an excellent service and your staff is great.”
- “Another great time! Quality event!”
- “The format was again very effective. . . Keep up the good work.”
If you and your staff want to be in the know about emerging issues that will affect your products and profitability, mark your calendar for the 2008 AAIS Main Event, April 20-22 in Ponte Vedra, Fla.
Health care can be central to both the domestic and foreign policies of the United States, said Tommy Thompson, former governor of Wisconsin and U.S. cabinet secretary, in an address to the AAIS Main Event. Thompson, who has formally announced his candidacy for the Republican nomination for president, was the event’s keynote speaker.
In his remarks, Thompson noted that the U.S. currently spends nearly 16% of its gross domestic product on health care, a figure that leads the world and is twice the percentage spent by Japan, the second leading nation in health care spending.
Yet, he added, if someone were designing a national system for heath care, “Nobody in this room would set up a health care system like we have today.”
|
As is customary, the official annual meeting of AAIS was held in conjunction with the AAIS Main Event, as it was during past AAIS annual conferences.
Below are excerpts from the reports delivered by AAIS Chairman James Sullivan, president and CEO of Co-Operative Insurance Companies, Middlebury, Vt., and President Paul Baiocchi.
Chairman James Sullivan
. . . I’m excited about the way this event has been repositioned as a forum devoted to product-related issues of strategic importance to CEOs and heads of operational units at carriers of all sizes. . . In the years to come, our viability as companies will be determined in large part by our ability to identify and respond to the types of emerging exposures and public policy issues we have discussed at this conference.
I’m also pleased to report progress towards expanding the mission of AAIS. . . . Most notably, AAIS has undertaken to broaden the scope of its service from providing forms and manuals to incorporating new forms of information and new resources for risk evaluation services. . .
We are all keenly aware of the deliberations in Congress that could profoundly affect AAIS and our companies in the future. I’m referring, of course, to the potential repeal or modification of our industry’s limited antitrust exemption established under the McCarran-Ferguson Act. . . .
At this point, it is difficult to predict the outcome of the current debate. Whatever comes, it is clear to me that AAIS is capable of adapting to a changed environment and capitalizing on new opportunities to serve companies and the industry as a whole.
President Paul Baiocchi
. . . I’m pleased to report that our financial condition is sound and that AAIS continues to grow. For the first nine months of this fiscal year, we had a net gain of 18 new member companies and six new associate members. . .
As Jim mentioned in his report, AAIS is evolving in its strategic orientation.
For many years AAIS has operated as an advisory organization primarily providing forms and rating information. Clearly we will continue to offer and refine those services.
However, we will also continue to seek alliances with other organizations in order to deliver a variety of new information to complement the services we provide. Our vision for the future is to become a key business partner and valued resource for our member companies by providing access to tools for evaluating and assessing risk exposures, in addition to providing the programs for writing coverage.
Our alliances with Risk Meter and e2Value are important examples of this new orientation. These two fine companies provide the kind of automated, real-time applications that are essential to companies that want to compete effectively while maintaining underwriting discipline. . . . |
Thompson told the audience he is seeking to make health care a central issue in the 2008 presidential campaign, and laid out four health care principles he would pursue if he becomes
president:
- To devote a greater share of money and resources, both public and
private, to wellness;
- To promote better management of diseases when people become ill;
- To increase the number of people with health insurance coverage; and
- To promote more and better use of information technology in medicine.
If health care reform is not forthcoming, Thompson said, “the healthcare system we have today has got until 2013 before it is going to collapse.” That is when the Medicare system is projected to go into deficit.
Thompson said health care can also be an important foreign policy tool of the U.S.
Citing experiences in Afghanistan and Indonesia, where U.S. aid to distressed populations helped turn around negative attitudes toward the U.S., Thompson called on the U.S. to implement “medical diplomacy,” a program of sending young doctors around the world on hospital ships to help care for sick people.
Thompson departed from his discussion of health care to lay out his program for managing the conflict in Iraq, which consists of three basic elements:
- He would ask the elected government of Iraq to vote on whether it wanted American troops to remain in the country. If such a vote were “yes,” Thompson reasoned that American military operations in Iraq would be recognized as legitimate. If the vote were “no,” Thompson said, “then we should get out.”
- Each of Iraq’s 18 territories would be encouraged to elect provincial legislatures which would, presumably, be dominated by the principal ethnic and sectarian groups in each province (Sunnis, Shiites, and Kurds). Those elections, said Thompson, could help “get rid of the internecine civil war.”
- Iraqi oil revenue would be divided roughly into thirds, one third going to the federal government, one third to the provincial governments, and one third to individual households. By giving households a direct share of
oil revenues, Thompson said, the Iraqi people would have capital for business formation and investment, and a
stake in preserving the nation’s oil commerce.
There has been a “sea change” in insurers’ exposure to personal injury, according to one speaker at the AAIS Main Event.
Charles Kingdollar, a vice president in the emerging issues unit of General Reinsurance, told attendees at the conference that there are literally hundreds of millions of “blogs” operating on the Internet, if one includes all the postings that appear on social networking sites such as “MySpace,” as well as those on “gripe sites,” set up to post complaints about specific businesses.
Litigation over libel and slander claims arising from Internet postings is just beginning to establish the legal parameters of exposure, said Kingdollar, but there have already been some multi-million dollar verdicts, including one for more than $28 million and another for more than $11 million.
“When you see large awards like this, they definitely get the plaintiff bar’s attention,” Kingdollar said. Even smaller awards that are more typical generally amount to more than the full limit under homeowners and personal umbrella policies, he said.
“Personal injury coverage has been typically added to a homeowners policy for little or no added premium or underwriting, and rightly so,” Kingdollar said. “There was little loss history, because [previously] an insured would have had to publish something [to be sued for libel].
“How many of your insureds ever published anything? Today, however, there’s been a sea change in personal injury exposure due to electronic communication.”
While individuals have far greater capability than ever to disseminate injurious comments, courts are also making it easier to file and win defamation suits.
In particular, some state and federal courts have begun to recognize the concept of “defamation by implication,” under which a person can be found guilty of libeling or slandering another if he or she presents facts in a way that leads to a defamatory conclusion, even if the facts are technically correct.
In response to the growing exposure, insurers are starting to refine their definitions of what constitutes a personal injury offense and are implementing policy language to limit the amount that is paid to one claimant.
Most insurers have some exposure to food-related liability claims, and few of them would be surprised to learn that plaintiffs’ attorneys are inventing new ways to expand the notion of products liability as it applies to food.
David Herman, senior counsel and senior director of claims for the Food Products Association, reported on the latest trends in food-related claims at the AAIS Main Event in Charleston, S.C.
At one time, product liability for food was limited largely to basic defects in the product itself or in its design, manufacturing, or processing.
“Now,” said Herman, “theories [of product liability] revolve around communications between the buyer and seller.”
According to Herman, a food producer or distributor is as likely to be sued for improper or deficient instructions for the preparation of a product, or for insufficient warnings of its potential dangers (such as the presence of allergens), as it is for the quality of the food itself.
As an example of the trend, Herman cited a $600,000 verdict against Heinz for a woman who injured her finger on a pull-top can.
The duty to warn food consumers may grow as an increasing number of substances are identified as hazardous.
Herman noted that researchers have discovered trace amounts of the cancer-causing chemical Acrylamide in starchy products that are cooked at high temperatures, such as french fries.
That discovery has led to products liability lawsuits against producers of french fries and potato chips who have not posted acrylamide warnings, where a successful ballot proposition has mandated that all products have warnings if they have carcinogenic substances.
In other communications-related litigation, Herman noted that Kraft Foods was hit with a class action lawsuit for promoting a product as guacamole when avocado accounted for less than 2% of the product. Kraft was also sued for advertising its Capri Sun beverages as “all natural” when, in fact, they contain artificial ingredients.
Food producers have generally prevailed against plaintiffs who have tried to make them responsible for obesity in individuals. Yet, one negative impact of those suits is that sellers of food products may be found liable for damage or injury that is tied to marketing to individuals--particularly children--who are more likely to injure themselves by using a product.
According to Herman, plaintiffs have recently begun to allege that alcohol manufacturers target youth through deceptive and negligent advertising, and parents have sued seeking to recover money their underage children spent on alcohol promoted in that fashion.
Awards granted for food-related claims can be very high, Herman noted.
Among the more recent cases he cited, in 2003 a California court awarded $16.7 million to the parents of a girl who choked to death on a gel candy, and in 2001 Subway Corp. settled a case for $10 million in favor of the family of a child who contracted hepatitis A from one of the chain’s products.
“Juries are ruling on these cases, and giving away some substantial money,” Herman said.
There may not be a lot of people outside of Florida with much sympathy for the residents of the Sunshine State, but Florida has experienced some genuinely bad luck in recent years.
Seven hurricanes struck Florida in a 13-month period of 2004-05, causing $37 billion in insured losses, according to Sam Miller, executive vice president of the Florida Insurance Council, in an address to the AAIS Main Event in Charleston, S.C.
Historically, it is rare to have three hurricanes make landfall in one state in one year, Miller said, and the last time four hurricanes made landfall in one state in a 12-month period was 1885, in Texas.
With 80% of its building property on or near its coastlines, there’s little wonder that property insurance has become a consuming issue for the state government.
“Polls show that insurance rates are the number one issue in voters’ minds, even more than education,” Miller said. “That’s never happened before.”
Unfortunately, said Miller, the state government’s reaction to the problem is not likely to help matters.
Recent legislative measures requiring companies to provide premium discounts for mitigation measures and make available policies without windstorm coverage amount to “micro-managing the property/casualty business in Florida,” Miller said.
Although Florida was spared a hurricane hit in 2006, “we cannot be so lucky as to have another year without a hurricane landfall,” he added.
When that happens, the state-sponsored reinsurance program, to be funded in the wake of a catastrophe by the sale of bonds that will be paid off by assessments on policyholders, could incur liabilities of unforeseeable dimensions.
“Somewhere down the road we’re going to have a category 5 financial catastrophe,” he said. “A huge bill is going to come due some day.”
Fortunately, said Miller, neighboring states seem to be copying the most constructive aspects of Florida’s response to hurricane losses, and avoiding the worst types of market controls and distortions.
According to Miller, Louisiana, Alabama, and Mississippi have all adopted or are considering statewide building codes, and several states are creating catastrophe funds to have money on hand in the event of a devastating natural disaster.
Some of Florida’s newspapers have come out against the state’s heavy-handed intervention in the insurance market.
Miller quoted from an editorial, saying, “There’s not much government can do other than have unintended consequences. Legislators must be realistic leaders, not pandering populists.”
Nanotechnology involves working at the smallest level imaginable to humans, but it is poised to institute very big changes in the way materials are manufactured and processed--and in the risks they will pose to society.
Attendees at the AAIS Main Event heard an overview on nanotechnology and its implications for risk management and insurance from Dr. Robert Blaunstein, a physicist who worked for several insurers before starting his own firm, Nanotechnology and Insurance, based in Santa Monica, Calif.
According to Blaunstein, nanotechnology entails the engineering and fabrication of structures with one dimension between one and 100 nanometers, a nanometer being one billionth of a meter.
To illustrate just how tiny nanoparticles are, Blaunstein told the group that a human hair is 60,000-80,000 nanometers wide, and a white blood cell is about 10,000 nanometers long.
Using atomic force microscopes, scientists and engineers are able to see nanoparticles, however, and manipulate them to create new substances that are being used to diagnose and treat illnesses, accelerate the speed at which information is processed and communicated, generate energy, and enhance properties of tangible products.
For example, Blaunstein said, cylindrical constructions called “carbon nanotubes” have been designed to create a metal that is less dense than aluminum, yet stronger than steel and capable of conducting electricity more efficiently than copper.
According to Blaunstein, there are about 700 consumer products currently available that incorporate substances engineered at the “nano” level, and the number is increasing exponentially.
“The money being spent on research is being increased substantially,” he said. By 2015, Blaunstein estimates, there will be at least $1 trillion spent worldwide on goods and services derived from nanotechnology.
While Blaunstein is generally well-disposed toward the benefits of nanotechnology, he acknowledged that it entails a range of risks that are not known at this time.
In particular, the “ultrafine” particles created by nanotechnology can enter the human body and, thus, interfere with biological processes. They can even
penetrate the blood barrier that shields the human brain, Blaunstein said.
This is an important consideration, he said, when one considers that sunscreen and cosmetics are among the products that use substances engineered, in part, at the nano level.
Equally important, he said, are questions concerning the impact of nanomaterials on ecosystems.
In all, nanotechnology could result in new risks for human health and safety, the environment, and products liability.
“There’s a lot we don’t know about,” he said. “As insurers, we’ve learned from asbestos and other materials that we had better be ahead of the game.”
Like it or not, insurers are already dealing with the federal government, according to members of a CEO panel
at the AAIS Main Event.
Key congressmen on both sides of the aisle seem to be taking a punitive approach to the insurance industry, said Charles Chamness, president of the National Association of Mutual Insurance Companies (NAMIC) in
an opening report surveying federal deliberations on insurance issues.
The anger is driven primarily by claims handling and underwriting actions by major national carriers in the wake of Hurricane Katrina, Chamness said, but small regional carriers may end up being the one most affected by the fallout.
Insurers are already subject to federal regulation under provisions of the Gramm-Leach-Bliley Act, the Sarbanes-Oxley Act, and regulations of the U.S. Treasury’s Office of Foreign Assets Control, said panelist Judy Jackson,
president and CEO of NLC Insurance Companies, Norwich, Conn.
The regulatory burden on companies is compounded by persistent variations in regulatory policy from state to state, and by “regulation through litigation,” particularly by ambitious state attorneys general.
“A lot of powers are vying for the authority to tell us what to do and how to do it,” Jackson said. “The ones who are going to be hurt are the small companies.”
Yet, the insurance industry does not resist federal involvement across the board, because a long-term federal role is sought in terrorism coverage.
“Without [the federal terrorism reinsurance backstop], we would have a serious disruption in city markets,” said Richard Zick, president and CEO of Utica First Ins. Co., Utica, New York, which insures accounts in New York City. “Before 9/11 we never thought about terrorism exposure. It never crossed our minds.
“Who would have worried six years ago that, ‘I’m four blocks from the Empire State Building’ or ‘I run a deli in Madison Square Garden’?”
Panelists likewise agreed on the importance of the federal role in flood insurance, but that the National Flood Insurance Program needed reform.
“The flood program is under water,” said Chamness. “The NFIP needs to implement actuarially sound rates, and it needs to stop the subsidy of high risk areas by low risk areas.”
There was no enthusiasm, however, for a federal charter or federal insurance regulation.
“I’m not aware of any federal governance or federal oversight that does very well,” said L. Gerald Roach, president and CEO of The Mutual Assurance Society of Virginia, Richmond. Roach noted that his observation comes, in part, from his experience on the board of a federally regulated savings institution.
“The last thing a small company needs is a federal administrator of any kind,” said Zick of Utica First. “If this [idea] is so great, every national carrier would want [a federal charter], and that’s not necessarily the case.”
“If [federal regulation] ever becomes a reality, it would only mean more layers of regulation,” said Jackson.
“It’s all about power. Everyone’s vying for power.”
AAIS is already at work addressing some of the emerging exposures discussed at the AAIS Main Event, said Deborah Summerlin, vice president of insurance lines, in an “AAIS Update” presentation at the meeting.
Summerlin opened her presentation with an explanation of the rationale behind the “virus or bacteria” exclusion filed late in 2006 in response to concerns about the possibility of a flu pandemic.
Standard property forms were never intended to cover loss to contaminated property that was not physically damaged, Summerlin explained, but AAIS “thought it would be better to file a property exclusion rather than rely on courts to interpret existing language.
The issue does not end there, however, because, according to Summerlin, the use of virus and bacteria exclusions could have an impact on terrorism coverage for biological attacks, a matter that is being reviewed as Congress deliberates over the future of the federal terrorism reinsurance backstop.
Summerlin emphasized that the virus or bacteria exclusion only affected property coverage, and that attendees should not expect a similar exclusion for liability coverage in the foreseeable future.
“We believe regulators would not be in favor of sweeping virus or bacteria exclusions on liability coverage because they would be perceived as a reduction in coverage,” she said.
On the broader topic of terrorism, Summerlin said that AAIS is preparing for the fourth major round of countrywide product development work addressing terrorism losses.
The first round came in the few months between the Sept. 11th attacks and the impending January reinsurance renewals, the second came after the federal Terrorism Risk Insurance Act (TRIA) was passed in 2002, and the third came after TRIA was modified and extended in 2005.
As suggested above, Congress is deliberating over proposals to make TRIA permanent, or at least more long-term, which means there are likely to be provisions to modify aspects of the program found to be problematic.
“The question is not if there will be a round four, but when the work will begin,” Summerlin said.
One possible change that would require refiling of forms and rating information would be the elimination of the distinction between domestic and foreign terrorism, a distinction that accounts for the principal difference between “certified” acts of terrorism, which are covered under the federal program, and “non-certified” acts, which are not covered.
According to Summerlin, the 2005 London Underground bombings demonstrated that the distinction between foreign and domestic terrorism is difficult to establish, and that “the threat of domestic terrorism is just as destructive as foreign terrorism.”
As it awaits federal action, “AAIS has developed and filed new terrorism loss costs,” Summerlin reported. “In half the states the rates vary by territory and the territories are based on ZIP Codes.”
The problems in coastal insurance markets came up repeatedly over the course of the conference, and Summerlin reported on AAIS’s efforts to address those problems.
AAIS has introduced new rating information for coastal areas that combines modeled hurricane data provided by a major national catastrophe modeling firm with historical loss data for other perils (including non-hurricane wind and hail) for newly defined territories based, for the most part, on ZIP Codes.
Going forward, AAIS will be reviewing its water exclusions to look for ways to strengthen anti-concurrent causation provisions and protect carriers from unintended flood claims.
Summerlin continued her report with a brief overview of the new AAIS Homeowners revision and an announcement that AAIS is currently developing two new commercial farm liability coverage parts: one a commercial general liability form drafted for agribusiness operations, and the other a liability form specifically designed for contract feeding operations, a growing type of exposure.
Summerlin concluded her report with a review of refinements AAIS has made to its rating information over the past year, and AAIS plans to refine its protection class definitions and introduce experience rating in its Homeowners Program.
Conference Report 
