Summer 2012 News - Analysis

Supreme Court Upholds Constitutionality of Affordable Care Act-What Comes Next?
On June 28th, a divided United States Supreme Court issued its opinion in the case of National Federation of Independent Business et al v. Sebelius, Secretary of Health and Human Services. After an unprecedented six hours of oral argument over the course of three days earlier this year and consideration of more than 130 amicus briefs, the Court , in a 5/4 majority ruling, determined that the individual mandate for the purchase of health insurance represents a constitutional exercise of Congressional taxing authority and not a penalty as labeled by those who created it and explained it to America. An estimated four million Americans will pay the tax, generating over $4 billion in new Federal revenue by 2017. Republicans have promised to repeal the statutes if elected to the White House and Congress in sufficient numbers in November of 2012. Many states, controlled by Republican legislatures and Governors (including Michigan) have declined to implement the health care exchange markets in which  individual and small group products will be sold beginning  Januar , 2014. The Federal government is preparing to run a national exchange, allowing residents of those states without their own new markets, to  shop for and purchase compliant insurance policies.  It is widely believed that  consumer based  provisions in the ACA have resonated with the  public and it will be politically challenging  to seek a repeal of all statutes and terms contained within the ACA. Absent repeal, other successful legal challenges, or a defunding of the its budget, HHS continues to implement  the scheduled roll out of market and product reforms.

Insurance Industry Hiring Rates Increasing Slowly
The Jacobson Group (an insurance employment and recruitment firm) and the Ward Group (a benchmarking and best practices research firm for the insurance sector) issued their mid-year Insurance Labor Market Study  in August.  They are reporting an increase in business volume driving hiring needs, with jobs in technology, underwriting  and claims likely to show the greatest gains.  Industry growth for the next 12 months is expected to be moderate but sustainable, and is projected to reflect a 1% increase in hiring during that period.  

Why Don't Parents Use Recommended Child Safety Seats When Driving?
In the September issue of the American Journal of Preventive Medicine, we learn that car crashes are the leading cause of death for children older than three and that more than 140,000 children are treated in emergency departments for auto related injuries every year.  Researchers based at the C.S. Mott Children's Hospital at U of M observed that despite child safety seat laws in 48 states, as children age, child safety seat usage declines and more children travel in vehicles unrestrained.  Minority children are disproportionately injured and non-compliant with the guidelines issued by the American Academy of Pediatrics. The researchers recommend more culturally sensitive community-based parent education campaigns to encourage the use of rear facing seats until age two and riding in the back seat until age 13 with height and weight appropriate seating and five point restraints.

Is Pension Terminal Funding an option for all larger employers?
This past summer, General Motors transferred $26 billion of its salaried employee retirement liabilities to Prudential Financial by paying an upfront premium equal to 110% of its total liability. Prudential then invested this sum in the highest return instruments available and issued an annuity that covers all of the GM pension plan participants. This is known as pension terminal funding . Essentially, Prudential is now responsible for all of the GM pension payments and GM is out of the business of managing employee pension liabilities. This particular insurance market is highly sensitive to fluctuating interest rates-pension plan sponsors have been riding out the downturn in the economy and its impact on interest rates, hoping for a rate improvement to boost the value of their corporate assets so that they could transfer some of that increased worth to fill the underfunding gaps in their pension plans. For companies like GM with sizable cash reserves, it was able to top off its underfunded salaried plan and pay for the annuity simultaneously. Given that Reuters estimates that 94% of large company pension plans are underfunded,  few employers have the financial flexibility to annuitize their plan obligations. It's all a matter of what you choose to do with your cash today--insurers price these deals sufficiently high to generate an appropriate rate of return, pension liabilities are at an all time high due to the lower interest rates, thus these pension terminal funding deals are relatively expensive. So, despite a lot of buzz within the pension-risk transfer/annuity market generated by the GM/Prudential deal, corporate CFOs are finding many alternative applications for the cash they've been accumulating over the past several years.

Trends in Legal Malpractice Claims
Have you ever wondered which practice areas generate the highest number of professional malpractice claims? A study published in June of 2012 by insurance broker Ames & Gogh, identified real estate practice as first among claims filed in 2012, followed by corporate and securities work, which as a category of reported activity includes mergers and acquisitions. The majority of the insurers reporting data for the study identified conflicts of interest as the most frequently alleged professional  error, with a failure to calendar or follow up running second among practice mistakes. The study also revealed that in 2012 the claims were larger, reflecting the size of the transactions and higher defense costs linked to the complexities of legal malpractice litigation. This study polled six insurers that cover more than 75% of America's large and mid-sized firm malpractice exposure.

Michigan Auto No-Fault Reform
Despite reports released this summer that showed that Michigan has one of the highest, if not the highest, annual car insurance premiums in the country, (ranging from 1-11th highest depending on the lobbying organization) no-fault reform is stalled in the Michigan legislature. All do agree however on the fact that Michigan provides the highest level of statutory benefits within the country. Our statute mandates lifetime, unlimited medical benefits. New York and New Jersey offer the next most generous PIP medical benefit at $50,000 up to $250,000 in New Jersey for specified critical injuries. The Michigan Insurance Institute has lobbied hard this year for HB 4936 that would allow consumers to choose a level of PIP coverage and limit the liability of the Michigan Catastrophic Claim Association, a fund that is required to cover all claims exceeding $500,000, without limit and as long as needed. The insurance industry coalition is also seeking a fee schedule for medical services. All requested changes are vigorously opposed by health care providers, consumer advocates and labor unions.

Michigan Supreme Court clarifies PIP benefits under Auto No-Fault Statute
In a 4-3 decision, the Supreme Court issued an important decision regarding the rates at which caregiver's may be paid under the statute. In the first case, Allstate was billed $40/hour by a psychiatrist for in-home, attendant services provided by the patient's wife. The wife was paid $10/hour by the medical provider. The court clarified that injured accident victims are required to prove and amount and nature of services provided (the statute defines attendant care as in-home nursing services as opposed to replacement services which are expenses incurred for hiring someone to cook and perform household chores on behalf of the injured person), as well as the caregiver's expectation of payment. Here, she expected and was paid $10/hour, yet Allstate was billed $1.2M for the wife's "attendant care." The Court upheld the $40 charge rate as reasonable but required better evidence of the services performed to determine which kind of in-home care was provided. Douglas v. Allstate, ___Mich__(2012).

Property Claim Trends
In 2011, what item of personal property was the most claimed loss under property policies issued in the United States? Jewelry accounted for the highest value claims and the most claims volume in 2011. As reported by Enservio in its annual Contents Claims Index which aggregates and analyzes claims data from over 300 property insurers, rings, watches and necklaces are the top loss claim items. Electronics are the second highest category of claims, with televisions, laptops and desktop computers consistently leading all categories of electronics losses. It is also noteworthy that the theft of jewelry, tools and electronics account disproportionately within the overall category of claims losses related to theft.

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