Managed Care Matters

There are several missing points in the ongoing debates about HSAs.

1. Much of the adoption of HSAs has been due to employers eliminating their other plans in favor of CDHP-HSA plans. So, the argument that individuals are jumping on the bandwagon is a little disingenuous.

2. Employers are dumping their regular plans (well, a few are, most are not) because they can't afford to buy health insurance for their workers any more. And a big part of the reason they can't is because of cost-shifting from the uninsured to the insured. The uninsured get care, they just don't pay for it. see http://www.joepaduda.com/archives/000395.html for more on this.

3. The larger employers who are offering HSAs are seeing very low adoption rates. IBM has been offering them for over two years, and less than 3% of eligibles have signed up.

The real issue is how much drag on the US economy is a result of our present funding mechanism for health care. Clearly health care costs play a role in the industrial competitiveness of US companies; the HSA-CDHP debate merely clouds the overall issue - if we don't get our act together we will get our economic butt kicked.

Posted by at 10:51 AM | Permalink

Friend and colleague Peter Rousmaniere has started a new blog dealing with immigrant worker issues. Peter is a well-known author on all things workers comp, occupational health and safety, and an insightful critic at large.

One of Peter's more troubling findings is the tendency of alien workers to not report occupational injuries or illnesses. With the large number of immigrants working in the US today, and the well-publicized decline in the occupational injury rate, I'm wondering if there is a relationship between the two.

Are migrant workers replacing citizens, then getting injured and not reporting it, thereby artificially reducing the reported injury rate?

Anyone?

Posted by at 9:56 AM | Permalink

The extension of the Terrorism Risk Insurance Act was met with lukewarm enthusiasm by the insurance industry, for good reason. However, it was likely the best that could be obtained given the strong political desire on the part of Congress and the Administration to mitigate the Feds' risk.

There have been significant changes to TRIA, which will be in place through the end of 2007. Here are a couple of the key provisions and the impact of same.

1. In 2007 the insurance industry's "deductible" will increase to 20% of direct earned premium from 17.5%. The result - more risk at the insurer level.
2. The share of the risk that the government will take will also decrease from 90% to 85%.

Modeling done by Risk Management Solutions indicates that the World Trade Center attacks, which produced a loss of $32.5 billion, would result in minimal funding through TRIA if they occurred under the 2007 provisions.

The "good news" is RMS predicts there is less than 10% likelihood that any one attack would produce a loss of this size.

What does this mean for you?

There are two components to claims costs - frequency and severity. While all of us fervently hope that no attacks occur, the realists among us are more…realistic. Therefore, while the "new" TRIA does reduce the impact of severity, it does nothing to address frequency.

Several attacks that do not meet the "deductible" would destroy the insurance industry.

Posted by at 7:11 AM | Permalink

I'm on holiday tomorrow thru the end of the year and will be taking a break from blogging till 2006.

Thanks to all who have made this a great year for Managed Care Matters. We're up to 6000 unique visitors per month and growing 15% each month. We've generated a lot of comments, a good bit of controversy, and some enlightened discussion.

Managed Care Matters appears to be one of the few, if not the only, occupant of the blogosphere dedicated to managed care. That's strange, if not downright wierd. The managed care industry is one of the largest in the US, is growing rapidly internationally, and has tremendous implications for the economic and health status future of the country.

So why aren't there more blogs on managed care? Lots of possible reasons, but there is clearly a need for more dialogue, discussion, and intelligent perspective.

I would encourage anyone with a bit of time (it doesn't take much), a knack for writing, and valuable insights to start a blog on managed care. Once you are up and running, let me know and we'll look at linking to you.

If you are looking for help, advice, and assistance, talk to Julie Ferguson (julie@julieferguson.com) She is the brains behind the tech stuff here; besides being a great writer she is expert in the blog business.

Enjoy the holidays and see you in 2006.

Posted by at 8:59 AM | Permalink

There is an excellent interview with Revolution Health's Steve Case in Fortune that sheds light on Case's ideas, plans, goals, and thinking about health care. His motivations are classically entrepreneurial - personal experience with a sibling wrestling with cancer, a desire to get back into a meaningful work after several years of volunteer work and "shuttling five kids to soccer practice in his Lincoln Navigator", and the perception that the health care system is broken and he can fix it, and make money doing so.

Loyal readers know I have been less than impressed with Case's strategy, team, and acquisitions to date. While I admire the audacity, I question the judgment. Take the business plan. According to Fortune;

"John Pleasants, whom Case installed as chief executive of the health group in September, says selling subscriptions to consumers and ad space to companies will be two big revenue streams. But Revolution also hopes to make money by doing everything from reselling health insurance policies offered by other companies to charging consumers for online doctor visits."

Hmmm. WebMD, MedScape, Aetna, Anthem, and about a hundred other companies are already providing lots of medical and health-related content, mostly for free. And selling ad space too.

There are lots of companies selling insurance policies (we in the industry don't call it "reselling", it is actually acting as a "broker") from your neighborhood agent to Allstate to AARP to UnitedHealthGroup to Blues Plans. Tough competitors too.

On-line doctor visits could theoretically be a revenue stream, if the doctor is a member of a network contracted with the payer, and if there is some mechanism to bill, pay, transfer funds, and adjudicate the "claim" quickly efficiently and accurately. Certainly this can be done, but a very large, Kong-size hurdle will be to convince physicians that they should participate in such a scheme with a tiny player like Revolution. This is theoretically possible, but when Anthem, Pacificare, and other large payers struggle to get docs to use their electronic systems, it makes it difficult to see how Revolution will succeed.

Again, I admire his vision, but the naivete can be breathtaking. For example, Case is quoted as saying "The healthcare system will be fundamentally different. It has to be. It's not working."

Steve, it has not been working for decades, and just because it is so obviously broken does not mean it will get fixed any time soon. See Africa's economies, the Middle East, the World Health Organizations' efforts on AIDS, polio, and river blindness, drug addiction - all very big problems that are very difficult to solve that have blunted the lances of all who have attempted to date.

Thousands of very smart people with lots of cash have tried to change the health care system (see Bill Clinton), and some are actually starting to have some verifiable success (see Kaiser for their work on electronic medical records, Aetna for educating insureds on procedure costs and premium expenses specific to their conditions). The difference is these change agents enter the fray with a deep and broad understanding of health care, providers, cost drivers and outcomes. They know health care financing and the root causes of health care inflation and patient satisfaction. They have large footprints and strong brands. And resources that make Case's $250 million look like chump change (Kaiser has already invested several billion dollars in its electronic medical record initiative alone…).

I'll close with another quote from Fortune talking about Case's core concept, consumer-directed health care.

"Princeton health economist Uwe Reinhardt likens the "consumer-driven guys" to architects touting a huge, new skyscraper before they've had engineers figure out whether it's feasible to build. "They haven't even finished the blueprint," he says.

Case doesn't disagree. "We've only been at this for a few months and still have a lot to learn," he says. But he isn't discouraged by the industry's limited success. "People say, 'Well, some of these consumer-driven ideas, they've been tried and they haven't been successful.' But that doesn't mean they're not good ideas." As Case sees it, consumer-driven health care is about much more than how high you set the deductible in an insurance plan. "For us, it's about how you move the patient back to the centre of the system," he says.

It's a great line. But what does it mean? Case won't get into details, including financials. But Revolution Health's plan reveals that Case is pursuing the same strategy as his old company: He's going to launch a web portal next year, just as AOL did this year."

What does this mean for you?

With apologies, here's the old joke -" how do you make a million in health care? Start a consumer-directed/web portal plan with $250 million".

Posted by at 7:53 AM | Permalink

There continues to be an ongoing discussion in this country regarding who or what entity should be responsible for providing health insurance. The ends of the spectrum are the strong conservatives/libertarians who are in favor of total individual responsibility for paying health care costs; at the other end are the strong liberals who favor single payer, universal coverage funded and mandated by the government.

In reality we have a "hybrid" system, or perhaps more accurately a mish-mash of individual coverage, employer-based insurance, governmental programs and tax-payer and employer-subsidized care for the uninsured (although this takes the form of a hidden tax).

The reality is we have universal coverage funded by individuals, employers, tax-payers, and providers. Everyone has access to care, although some do not have access to the same level of care or the same providers.

For working age Americans, most insurance coverage is provided through their employers. Although there has been a trend towards fewer employers offering coverage (60% in 2005, down from 69% in 2000), in general larger employers and those with average annual employee earnings above $21,000 tend to offer health insurance.

And the latest information is that this is not likely to change anytime soon. While national health insurance provided by the government would certainly help manufacturing companies such as GM and Ford, there does not appear to by any traction for other funding mechanisms.

An article in the New York Times on employer-based health insurance focused on this issue, and is well worth reading. One passage reads:

"What is also clear, though, is that there are no clear alternatives. Corporate executives and many others are leery of a government solution, but no one has come up with a private-sector option that has gained significant support. Because individuals who buy private insurance on their own pay much higher prices than the group rates employers get, many people could probably not afford health insurance if their employers were not buying it for them."

The present political climate makes it unlikely that any nationalized system will emerge in the near term. Until and unless large employers, and the middle class, feels pain, there will be no change. That said, my sense is we are approaching that point. With the percentage of employers offering health insurance declining by nine points in five years, more and more soccer moms will soon be directly impacted by this trend. This is a powerful and vocal demographic that will make its presence felt.

What does this mean for you?

Change is coming; the next Congressional election will indicate how soon and provide some hints as to the direction of the health care debate.

Posted by at 9:17 AM | Permalink

It looks like Congress may actually do something about terrorism insurance. The government insurance program, set to expire at the end of this year, provides reinsurance for property and casualty lines (property, workers comp, auto) when claims are incurred as a result of foreign terrorists. After a high deductible, the government kicks in to pay most of the remainder.

The coverage, known as TRIA for Terrorism Risk Insurance Act, came into being shortly after 9/11 on a temporary basis. The reasoning behind TRIA is simple - no single insurer, nor the industry as a whole, has the financial resources to pay claims for a catastrophic terror event - think nuclear bomb in New York City, or exploding natural gas tanker in Boston.

This is a big deal. Insurance companies specifically exclude terror coverage whenever they can; property insurance is one that is particularly vulnerable to concerns about attacks. A group of 28 governors has joined together to pressure their Congressional delegations as well as the Bush administration for extension of TRIA.

For over a year, insurers had hard to get coverage extended, to no avail. The Bush administration wanted the industry to pay very high deductibles, so high that many industry experts viewed the "insurance" as little more than picking up the pieces after the industry was bankrupt. Now, news has come out that a compromise is under serious discussion in the House Financial Services Committee.

According to Insurance Journal;

"The extension proposal creates so-called "silos" for major coverage areas of workers compensation, property, casualty and NBCR (coverage for nuclear, biological, chemical and radiological attacks), with each silo being assigned its own deductible. The measure excludes commercial auto, which is now covered under TRIA, while proposing to add group life. Insurers would be required to offer NBCR coverage.

Federal intervention would be triggered only if losses exceed $50 million in 2006 and $100 million in 2007.

In the new plan, the distinction between foreign and purely domestic acts of terrorism would be removed so that domestic terrorism would be covered.
The co-share paid by insurers, which is now at 10% for all triggered events, would increase for smaller events and decrease for so-called mega events, with a 20% co-share for the first $10 billion down to 5% for events more than $40 billion.
Insurers would pay back any federal monies through policyholder premium surcharges that would be capped at 3%."

Sounds workable, but there is one major problem; the term of the new TRIA is two years, so we could very well find ourselves back at this in a year, worried about the potential implications of a soon-to-expire law.

The good news is Congress may actually get something done; the bad news is they seem to have forgotten the old saw "if you don't have time to do something right the first time, what makes you think you'll have time to fix it"…

What does this mean for you?

TRIA's extension would be good news for everyone in the industry, and buyers as well.

Posted by at 8:22 PM | Permalink

More on Pat Ryan, CEO of Aon Corp., and his comments at the IRMI conference earlier this week.

Ryan spent a fair amount of time commenting on the Spitzer investigations and impact thereof. He noted that the sheer time and resources required to respond to the Attorney General's inquiries, along with the potential for ongoing negative press, played a large part in Aon's decision to settle the case.

Ryan also noted that Aon has embraced the concept and reality of transparency, wherein all clients would know exactly what Aon was being paid and by whom for what work. Aon has abandoned the contingent commission revenue model, which has led the company to increase fees to some customers.

His comments on transparency and Aon's commitment to same were direct, comprehensive, and revealing. Ryan clearly understands that the landscape has changed, that the old ways of doing business are no longer acceptable, and that Aon must operate within the new reality created by Spitzer and other outside forces.

Ryan noted that while the risk managers who are his firm's main contacts were not concerned about the contingent commissions, their bosses were. Evidently Ryan heard directly from the CEOs and CFOs that they did not like the practice.

He predicted that there will be more, not less, regulation in the future, noting that "we are in the fourth inning". Here's hoping we aren't tied at the end of nine...

What does this mean for you?

While I am frustrated at Ryan's failure to mention health care costs and medical trend, his comments indicate a keen awareness of the importance of transparency and direct dealing. That is to his and his company's credit.

Posted by at 11:39 AM | Permalink

I have just returned from IRMI's excellent Construction Risk Conference in Las Vegas. Interesting location for a bunch of risk averse people...

One of the keynoters was Pat Ryan, founder and chair of Aon Corp, the big broker. He gave a talk covering a wide range of topics, including Spitzer, contingent commissions, and transparency. What was notable to me was what he did not discuss, or even mention - health care costs.

I find this intriguing for a couple of reasons. First, what is more important today than health care costs? Health care costs are contributing to his clients' risks in employee benefits, workers comp, auto, general liability etc. And, medical expenses in the property and casualty lines are increasing at a rate substantially faster than in group health (10-12% v. 8.2%). What could be more important, more significant, than health expense inflation?

Second, Aon is making a big push to become the expert in data mining, analytics, and assessment to better predict and manage "risk"; broadly defined. In this context, risk could include flood, wind, politics, etc. Since our focus here is on health care, we'll stick to that. Unfortunately, Aon's attempts to date to assess and evaluate medical expense in the workers comp world, at least the public reporting of same, reflect a dangerously superficial understanding of medical expense, providers, practice pattern variation, etc. (note - sources indicate Aon's understanding is not any better when presented in private meetings..).

If this initiative is so important to Aon, why would it not be part of a speech to 1500 eager listeners, and why would it not incorporate even a mention of what Aon is doing to help customers deal with this to-date-unmanageable problem - health care cost inflation.

If Aon is all about managing risk, it better learn something about medical expenses soon. And the company sure can do a better job in presenting itself as an expert in same.

What does this mean for you?

Watch out for consultants that don't understand what is really driving your claims costs.

Posted by at 10:17 PM | Permalink

Katrina is now officially the most expensive insured event in US history. The latest figures put insured claims to date at $34.4 billion, significantly higher than the costs associated with other hurricanes or the 9/11 attacks. Adding Rita's projected expense brings the total for the season to date to about $70 billion.

And this is just the insured losses on claims filed to date. Estimates of future claims from Katrina push the total amount to between $40 and $55 billion.

This was shaping up to be a nicely profitable year for the industry; those profits have disappeared under the waters of these disasters. Pessimists will note that the hurricane season still has some months to run; insurance executives are keeping fingers crossed in hopes that another storm does not make landfall this year.

What does this mean for you?

Costs for all lines of insurance will increase for all renewals in coming months, with the sharpest increases in property and homeowners, especially in hurricane-prone areas and coastal regions.

Reinsurers will get mighty picky about the underwriting underlying their primary insurers; expect to see more limitations and exclusions.

Posted by at 11:55 AM | Permalink

The mergers among health plans continued yesterday, with New York's GHI and HIP announcing their intention to join forces to create the state's largest single health plan. With four million members and $7 billion in revenues, the not-for-profits would dominate the New York metropolitan area, with especially strong market share in the municipal, blue- and pink-collar demographics.

HIP, the smaller of the two plans with 1.4 million members, also owns Vytra Health and Connecticare. The Connecticare acquisition was one of the more intriguing deals in recent years, as it combined two different models with distinct membership demographics, while adding broader geographic coverage to HIP. The company recently announced plans to acquire a high-deductible health insurance provider, PerfectHealth Insurance Co.

GHI covers 2.6 million members in the NYC, upstate, and northern New Jersey area, covering over 2/3 of City employees. GHI has extensive experience in administering governmental programs including state contract work on mental health, coordination of benefits, and Medicare + Choice.

We have been following this trend for quite a while, and with the two largest not for profit health plans in the nation's most concentrated market merging, it is even more clear that consolidation will continue and likely accelerate. The merger sets up an interesting battle between the merged entity, the Oxford-United combination, and Wellpoint - Wellchoice for share in this key market.

What does this mean for you?

If you run a health plan or TPA in the NYC area, batten down the hatches; there will be a lot of collateral damage to smaller insurance and health coverage providers as these three giants go at each other.

Posted by at 8:13 AM | Permalink

Eliot Spitzer, New York Attorney General and terror of the insurance industry, has just subpeona'd insurer St Paul Travelers for documents and information related to workers compensation. No further details were immediately available either from the AG or St Paul Travelers.

The company is one of the largest WC insurers and administrators in the nation, ranked #4 or 5, depending on criteria used.

Posted by at 3:59 PM | Permalink

The investigations into broker/insurer malfeasance continued to make their presence felt last week, as Conn. Attorney General Richard Blumenthal announced the expansion of the state's charges against Marsh. Blumenthal, never one to avoid the limelight, said

"We have uncovered powerful evidence of a systematic scheme to raise insurance prices," Blumenthal said. "We also have strong evidence of bid rigging, victimizing specific Connecticut consumers and companies. In essence, Marsh established a toll both between insurers and consumers, and the toll exacted was heavy. Creating the illusion of free and open competition, insurers agreed to provide Marsh with rigged or fictitious quotes in exchange for the prospect of submitting winning bids on future placements. Marsh threatened retaliation against non-players."

According to Insurance Journal;

"One insurer wrote about a Marsh "broking plan": "This is another protection job... Our rating has risk at $890,000 and I advised (Marsh) that we could get to $850,000 if needed. (A Marsh broker) gave me song & dance that game plan is for AIG at $850,000 and not to commit our ability in writing!"

The amended complaint identifies several major Connecticut businesses that were harmed by Marsh's bid-rigging and price-fixing plan, including Hubbell Inc., Kaman Corp., Hexcel Corp., and Bridgeport Hospital.

Marsh has about 2,800 policyholder clients in Connecticut - 300 of them large businesses or government entities. Its corporate clients in the state also include Bic Corporation, United Technologies Corporation, Carvel Corporation, Ethan Allen Furniture, Timex Corporation, Xerox Corporation and General Electric Company.

The company's state and municipal clients include the Connecticut Department of Administrative Services (DAS), and the cities and towns of Hartford, New Haven, Stamford, Manchester, West Hartford, and West Haven. Marsh was also the insurance broker for several large, publicly supported state construction projects, including Adriaen's Landing. Marsh's nonprofit clients include Yale University, Mystic Seaport and the Save the Children Federation.

The announcement of the expanded charges against Marsh came the same day Blumenthal announced that insurer ACE Financial Solutions Inc. had agreed to pay $40,000 to the state to settle allegations for a scheme in which ACE paid Marsh a secret $50,000 commission to steer an $80 million state contract to the company."

The scandal that will not go away lives on.

What does this mean for you?

Yet more evidence that crime doesn't pay, and practices that were once accepted with a wink and a nod can get you in serious trouble.

Posted by at 6:20 AM | Permalink | Comments (1)

For those who thought New York Attorney General Eliot Spitzer's investigation into the insurance industry was fading away, the news that eight former Marsh executives have been indicted on various charges served notice that if anything, Spitzer et al are just now hitting their stride.

According to Insurance Journal;

"The former executives are accused of colluding with executives at leading insurance companies to arrange noncompetitive bids and conveying these bids to Marsh clients under false pretenses…The indictment charges that from November 1998 to September 2004, the defendants colluded with executives at American International Group, Zurich American Insurance Company, ACE USA, Liberty International Insurance Company and other companies to rig the market for excess casualty insurance.

According to the indictment, defendants and other Marsh employees told their excess casualty clients that they obtained bids for their business from insurance companies in an open and competitive bidding process. In fact, the indictment maintains, defendants had rigged the process in the following ways: First, before any bids were submitted, the defendants determined which insurance company would win the business. Second, they set a "target" for the winner to submit as its bid. Third, they obtained losing bids, which they called "B quotes," from other participating insurance companies.

By misleading customers into believing that the customers' interests came first, the conspirators fraudulently obtained millions of dollars in commissions and fees for Marsh and millions of dollars in premiums for the insurance companies, according to Spitzer's charges. The victim companies ranged from high technology firms to a fruit cannery to a cosmetics manufacturer."

Notably, Marsh itself, who has already settled w Spitzer et al, was not indicted in this latest round.

Aon and Willis, two other top brokers, have also agreed to pay restitution totaling over $300 million. Among the insurers accused of improper/illegal activity, ACE, AIG, Zurich and Liberty have not yet reached resolution with Spitzer.

Given their status, it is highly likely these carriers will find themselves in the news in the near future. And, given Spitzer's proven ability to obtain testimony from one party against other subjects, the new indictments may enable the AG to gather more precise information on the activities, transgressions, and participants in same in the insurance industry.

What does this mean for you?

A lesson in bad crisis management - the longer this continues, the more damage is done. Get it all out, get it out fast, and don't dissemble.

Posted by at 8:22 AM | Permalink | Comments (1)

Katrina's impact on the insurance industry will be greater than first anticipated. With insured losses now estimated to be in the $30 billion to $60 billion range, this hurricane is the most expensive event in insurance history.

Losses are from wind, flood, and fire, and will certainly include property, business interruption, fire, flood, environmental liability and impairment, crime, life, and health. The latest estimates from Risk Management Solutions are for losses of $15 - $25 billion for the New Orleans flood alone, with the rest of the costs for other losses due to other causes.

The impact of Katrina will be felt in all lines of insurance around the globe. Because a substantial portion of the losses will be borne by reinsurers, excess premium rates will increase to help cover costs while availability will decrease. In turn, primary insurers will have to raise rates to cover their losses and the increased reinsurance premiums.

Fortunately, Katrina came at a time when overall property and casualty insurance rates have been decreasing. According to MarketScout, property insurance rates dropped 7% over the last year, while workers' comp rates decreased 7%, inland marine 5%, and umbrella/excess 11%. Overall, P&C rates were down 6% over the prior year.

Predictions in the industry are for rates to stay level if not increase slightly. The good news for insurance buyers is the industry is quite healthy with solid profits and substantial increases in reserves over the last two years.

While the insurance industry is much maligned, events like Katrina clearly demonstrate the industry's value to society. By spreading risk across a very wide customer base, the industry will be able to cover losses while continuing to provide coverage for those who desire insurance.

What does this mean for you?

As devastating as Katrina has been and will continue to be, the insurance industry has weathered this most devastating of storms, and will come through in fine shape. That is good news.

Posted by at 11:20 AM | Permalink

Insurance Journal has posted a quick summary of the potential impact of Katrina on insurance. Here are excerpts.

Note that some of the insurers below are reinsurers, who provide insurance to primary insurers who want to protect themselves from excessive claims resulting from disasters like Katrina.

Insurance Journal -

* Vesta Insurance Group Inc. (VTA.N:) said on Sept. 1 it expects the preliminary gross loss from the first landfall of Hurricane Katrina to be in the range of $500,000 to $1.2 million.

* Alfa Corp. (ALFA.O:) said on Sept. 1 preliminary estimates indicate storm losses will be less than $125 million, with no impact on its third quarter earnings. EUROPE

* World's largest reinsurer, Munich Re (MUVGn.DE:), said on Aug. 30 it may have claims of up to 400 million euros ($488 million), before taxes and before the amount the company can pass on to other reinsurers. It expects the overall insured loss to be $15 billion to $20 billion.

* The Lloyd's of London insurance market said on Aug. 30 it expects to receive "significant insurance claims," largely from offshore oil and gas platforms in the Gulf of Mexico, property damage and claims from businesses forced to close. It has asked all the insurers to supply claims estimates by Sept. 12.

* Hannover Re (HNRGn.DE:), the world's fourth largest reinsurer, said on Aug. 31 it was "extremely unlikely" to hit its 430 million to 470 million euros profit target for 2005 as a result of claims from Katrina. It expects Katrina to be the most costly U.S. storm, topping Hurricane Andrew's bill of about $21 billion.

* Swiss Re (RUKN.VX:), the world's second largest reinsurer, said on Aug. 31 it expects claims of about $500 million. It forecast total insured losses of around $20 billion.

* Paris-based reinsurer Scor (SCOR.PA:) said on Sept. 1 Katrina may cost it 25 million to 35 million euros.

* Converium (CHRN.S:), the Zurich-based reinsurance company, said on Sept. 1 it saw claims from the hurricane of between $10 million and $20 million. It put the total bill to the industry as a whole at around $25 billion.

($1=.8197 Euro)

Note that these statements were from yesterday and the days before - the latest news out of New Orleans, Mississippi, Alabama, and other areas indicates that losses from looting, flooding, fires, and other causes may significantly increase total claims. In addition, follow on problems such as hospitals losing electricity, generators failing, and emergency services problems may add to the loss of life and thereby increase claims.

Note - I'm trying to keep this objective and dispassionate. That is incredibly difficult. This is not merely a financial disaster, it is a human tragedy on so many levels. Do not misinterpret the tone of these posts as one that implies lack of concern or awareness of the human impact of Katrina. Thanks.

Posted by at 2:54 PM | Permalink

The latest insurance broker to plead guilty (without actually pleading guilty) is HRH, aka Hilb Rogal &Hobbs, who agreed to pay $30 million into a compensation fund plus a $250,000 fine to settle charges related to rebating, account steering, and broker compensation activities at it's Connecticut subsidiary.

According to Insurance Journal;

"The state complaint against HRH centered on its dealings with a hospital management company. The state claimed that HRH shared commissions with Women's Health USA Connecticut and steered clients to preferred brokers to win bigger commissions. State law forbids rebating by brokers to clients. Women's Health Connecticut has denied it received rebates or shared commissions. The settlement indicates that HRH's Hartford office disguised the deals…The (Connecticut State Attorney General Blumenthal) AG had alleged that HRH unlawfully steered clients to favored insurance carriers to qualify for larger bonuses and contingent commissions; moved blocks of clients to favored insurers to qualify for larger bonuses and contingent commissions; implemented a "carrier consolidation" program expressly designed to steer clients to a select group of insurers in order to qualify for larger bonuses and override commissions; placed clients in "producer captive" insurance carriers of which HRH owned all or part without disclosing that ownership interest to its clients; entered into undisclosed fee arrangements whereby insurers paid undisclosed compensation to HRH for the placement of insurance; paid improper premium rebates to clients in return for that client retaining HRH as its broker; and provided preferred insurers with first looks on books of business that HRH wished to move to preferred carriers in order to increase HRH's bonus and contingent compensation."

Leaving aside Blumenthal's penchant for the limelight and well-documented ability to gain publicity, what is particularly notable about this case is it represents a very significant financial penalty hitting one mid-tier broker for activities related to one client in one very small state.