Claims News Service, Dec. 21, 1:46 p.m. EST — The Property Casualty Insurers Association of America (PCI) has released its annual “Top Ten” list of insurance-related stories.

1) Katrina, Rita and Wilma: A Devastating Trio – Weather forecasters predicted that the 2005 hurricane season could be more active than normal, but no one thought it would produce 26 named storms and the most destructive storm on record – Hurricane Katrina. It is estimated that over 1.8 million claims will be filed, resulting in a payout of nearly $50 billion to policyholders. The storms have sparked a renewed debate over how we, as a nation, better prepare for, respond to, and recover from natural disasters. The response of insurers and the flow of claims payments to storm victims demonstrated the incredible value of insurance products to individuals, communities and the economic health of individual states and the nation as a whole.

2) Wind Versus Flood – Hurricane Katrina also triggered a brewing legal debate over this distinction between wind and flood claims and the validity of insurance contracts. The Mississippi Attorney General Jim Hood has filed a lawsuit that attempts to force insurers to cover losses caused by flooding – a specifically excluded peril in most insurance policies – under the homeowners insurance contract. If successful, the suit could undermine the viability of insurance contracts – and potentially all contracts – in the state, paralyze the insurance market, and jeopardize the rebuilding effort. Insurers have vowed to fight the lawsuit in the courts and point to numerous cases where the flood exclusion has been upheld. While Mr. Hood and other opportunistic attorneys are making a splash in the national media, most major newspapers along the Gulf Coast have criticized these lawsuits as frivolous and without merit.

3) Building Higher and Better – As Louisiana and Mississippi begin the long process of rebuilding, the necessity and value of stricter building codes became evident. Taking a lesson from Florida, whose tougher building codes have helped reduce the cost – in both dollars and lives lost – of hurricanes, Louisiana lawmakers passed tougher standards in a special legislative session in November. Mississippi and other states are likely to consider similar measures in 2006. PCI is encouraging Congress to provide incentive for hurricane-ravaged states to enact tougher building codes by providing them with funds to pay for inspectors to help ensure that the new building codes are enforced.

4) TRIA Extension – The one catastrophic risk which was resolved – if only temporarily – was terrorism insurance. In December, the U.S. House of Representatives passed legislation that would extend a modified version of the Terrorism Risk Insurance Act (TRIA) for another two years. The Senate had previously approved similar legislation. The differences were worked out and the bill is now headed to the president's desk. PCI will be back at work on a long-term, market-driven solution to the problem of insuring terrorism risks in 2006.

5) Class Action Reform and Changes to the U.S. Supreme Court – After years of consideration, in 2005 Congress approved landmark legislation to reform the class action legal system. The Class Action Fairness Act includes several important provisions to reform the broken class action system. Most significantly, the legislation will create federal jurisdiction over class action suits tried for over $5,000,000, as long as one of the plaintiffs is from a different state as the defendant. This will effectively stop so-called “forum shopping” in which lawyers move cases to more plaintiff-sympathetic jurisdictions. The legislation also establishes a Class Action Bill of Rights to ensure award fairness; requires a report to be conducted by the Federal Judicial Conference on class action settlements; and includes a “home state” and “local controversy” exception which would ensure trials meant for state courts stay in state courts. This legislative victory marks a culmination of seven years of advocacy efforts by the business and insurance community. It will be up to a re-shaped Supreme Court to interpret the new law – and a host of other issued that will affect insurers and insurance consumers.

6) Producer Compensation to Finite Reinsurance – The flurry of activity on the issue of producer compensation that began with the investigation by New York Attorney General Eliot Spitzer in October 2004 cooled considerably throughout 2005, with only a handful of states adopting modest legislative or regulatory disclosure requirements. Mr. Spitzer then turned his attention to finite reinsurance contracts and states began taking their own actions to regulate the disclosures of these transactions. The National Association of Insurance Commissioners (NAIC) stepped in and adopted additional accounting disclosures for certain finite reinsurance transactions and individual state regulators followed the NAIC's lead and taking the issue out of the headlines.

7) Massachusetts Auto Reform – Governor Romney called the Massachusetts auto insurance market a “soviet-style system.” In the past decade, the number of companies writing auto insurance policies in the state has decreased from 53 to 19. A few large companies are fighting to preserve their stranglehold on the auto insurance market, while PCI and others are joining forces to convince legislators that a more competitive system would better serve consumers – 86 percent of whom pay a subsidy to keep costs artificially low for urban drivers. The 2005 legislative session ended with a five hour hearing on a flex-rating bill, teeing up decisive action on the proposal at the end of the current 18 month session in 2006.

8) Recovery of California's Workers' Compensation Market – California's workers' compensation system has undergone a dramatic turnaround in the last two years as a result of major reforms enacted by the Legislature and governor in 2003 and 2004. Just two years ago costs were skyrocketing and a number of insurers were forced out of business. In 2005, many of the key reforms were implemented resulting in significant cost containment, corresponding rate reductions, and a larger number of insurers choosing to do business in the state. Workers' compensation, which was once on life support, is now returning to health.

9) Overturn of State Farm Aftermarket Parts Decision – Almost three years after hearing oral arguments in State Farm v. Avery, the Illinois Supreme Court overturned the $1.18 billion verdicts of the trial and appellate courts. This action sent a clear message, not only throughout Illinois but across the country that the standards of state law must be met in order to proceed with a class action lawsuit. This case signified a major victory for consumers, insurers and supporters of class action reform. Cases such as this one emphasize the fact that judicial matters are just as important to achieving our public policy objectives as legislative matters.

10) Insurance Scoring Passes the Test in 2005 – As 2005 began all eyes focused on the Texas Department of Insurance's (TDI) extensive study of how insurers use credit information. The study reaffirmed the strong connection between insurance scores and risk of loss and answered any question about the value, accuracy and fairness regarding insurers' use of credit information for underwriting and rating insurance policies. The report's main finding was that credit information significantly improves pricing accuracy when combined with other rating variables in predicting risk. This year, state legislatures considered a total of 66 proposals to ban or restrict the use of credit history. Thanks to education campaigns on credit by industry groups and the TDI study, lawmakers rejected efforts to prohibit the insurance industry from using credit information. After careful review and study, the states with very few exceptions have supported credit-based insurance scoring because most consumers benefit from this highly accurate predictor of risk.

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PCI Names Top Stories of 2005

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