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ALBANY, N.Y. -- The debate over undisclosed compensation being paid to brokers from insurers they place business with made its way to the New York Insurance Department late last month.
In a letter circulated to insurers and brokers in New York, Bonnie Steingart, deputy superintendent and general counsel, said that, pursuant to New York insurance laws, a broker is the legal representative of a policyholder.
She warned that "the undisclosed receipt of additional compensation is sufficient to create the perception that brokers are conflicted in their loyalties and that such conduct may constitute a violation of Section 2110 as a dishonest or untrustworthy practice."
A spokeswoman for the Insurance Department said the letter was distributed in an effort to be proactive on an issue the department describes as warranting scrutiny.
"There is litigation pending in Pennsylvania regarding this issue," the spokeswoman said. "We know this occurs in the industry. We wanted to act before something happens here." She had no further information about the pending litigation in Pennsylvania.
"It's as simple as a consumer's right to know. We want to make sure consumers are protected," she added.
The Insurance Department issued these guidelines:
* All compensation arrangements between an insurer and a broker should be put in writing and agreed to by both parties.
* All such compensation arrangements should be disclosed to a policyholder prior to the purchase so as to enable the policyholder to understand the costs of the coverage and the motivation of the broker in placing the business.
* All fees paid to brokers should be included as factors in the establishment of an insurer's premium rates.
* All fees paid to brokers, and reasons for such fee payments, should be included in a broker file maintained by the insurer.
* The insurer's internal auditing procedures should include verification that all fees paid to brokers are proper and within the parameters of the New York Insurance Law and Department regulations.
The debate over broker commissions heated up in London earlier this year (BI, April 27) and was the subject of a session held at this year's Risk & Insurance Management Society Inc.'s annual convention (BI, May 11).
Lloyd's, EMLICO strike deal
BOSTON -- Lloyd's of London underwriters have reached an agreement in principle to settle reinsurance disputes with Electric Mutual Liability Insurance Co. and its sole policyholder, General Electric Co.
A final agreement still is to be worked out, according to Nick J. DiGiovanni, a lawyer with Lord, Bissell & Brook in Chicago representing Lloyd's. He would not comment on the agreement's terms.
Lloyd's would be the last to settle among a group of reinsurers that sought to reverse the hugely insolvent EMLICO's controversial 1995 redomestication to Bermuda. Kemper Reinsurance Co. agreed to a settlement in June, shortly before it was acquired by General Electric's GE Capital Corp. unit (BI, Aug. 3; June 22). Allstate Insurance Co. and General Re Corp. units previously reached their own settlements.
Reinsurers had charged that EMLICO concealed its insolvency to win Massachusetts Insurance Department approval for the move to Bermuda, where it intended to take advantage of favorable Bermuda liquidation laws.
Despite the latest settlement agreement, lawyers for the Massachusetts Insurance Department say they will continue to press for a receivership order against EMLICO. A Massachusetts state judge heard arguments Sept. 10 on an Insurance Department receivership petition, which GE and EMLICO's Bermuda liquidators have opposed. If the petition is granted, Massachusetts regulators say they will go to court in Bermuda to seek the insurer's return to the United States.
The judge had not ruled on the petition by late last week.
NIOSH vocal on noise at work
WASHINGTON -- Acceptable workplace noise levels would be lowered if a proposal offered by the National Institute for Occupational Safety and Health is adopted.
NIOSH released the proposal to reduce acceptable average noise exposure levels over an eight-hour period to 85 decibels -- roughly the noise heard three feet away from an electric drill boring through a piece of wood -- from the current 90-decibel limit adopted in the 1970s. The new proposed limit reflects more recent research and analytical techniques, according to the agency.
Dr. Linda Rosenstock, NIOSH's director, said in a statement accompanying the recommendations that job-related hearing losses are too often dismissed as a "fact of life and natural effect of aging, but nothing could be further from the truth. In fact, hearing losses caused by overexposures to noise at work are preventable conditions that impose needless burdens on workers, their families, business and society."
In addition to lowering the acceptable noise level, NIOSH's specific recommendations include more frequent monitoring of noise exposures and eliminating adjustments for age when calculating workplace hearing loss. The proposal has been sent to the Occupational Safety and Health Administration for study.
Humana exiting five markets
LOUISVILLE, Ky. -- Humana Inc. is withdrawing from several unprofitable regions as a result of its canceled merger with United HealthCare Corp.
Humana will exit Sarasota and Treasure Coast, Fla., which are predominantly Medicare product markets; Springfield and Jefferson City, Mo., which are predominantly commercial product markets; and one of its largest Medicaid markets, which Humana declined to name.
"Since Medicaid contracts exist with local governments, we feel it is important to inform the local government in question first. . . .
Therefore we feel it would be inappropriate to identify the area at this time," a company spokesman explained.
The number of affected Humana members in the four Florida markets is about 120,000. The spokesman said he did not know how many employer groups will be affected and could not provide details on the number of risk HMO members.
Despite the withdrawal, Humana says it will honor its contractual commitments to customers, providers and members in all the affected markets. In fact, the company is taking a $52 million charge against 1998 third-quarter earnings. The charge includes costs related to asset writeoffs and contractual relationships with various physician practice management companies.
Altogether, the company also announced it will take a charge against 1998 third-quarter earnings of $132 million ($84 million aftertax, or 50 cents per diluted share), as a result of the failed merger.
Louisville, Ky.-based Humana Inc. is one of the nation's largest publicly traded managed health care companies, with more than 6.2 million medical members located primarily in 16 states and Puerto Rico.
Accord reached in Y2K case
WARREN, Mich. -- In what may be the first of its kind, a lawsuit involving the Year 2000 computer problem has been settled.
The settlement calls for Tec America Corp. to pay $250,000 to end the litigation brought by Produce Palace International, a Warren, Mich., grocer, according to Brian Parker, Produce Palace's attorney.
Mr. Parker said his client bought a computerized cash register system manufactured by Tec America in 1995. Immediately, the system began crashing when processing payments by credit cards that expire after 1999. The system was sold by All American Cash Register, a vendor also named in the suit that has yet to settle the case. Produce Palace brought the suit after numerous attempts to fix the system failed.
The parties reached the settlement after a year of litigation with the case nearing trial, Mr. Parker said. "Everybody has had enough," he said. "It's time" to settle.
Produce Palace claimed in the suit that, contrary to the defendants' claims, the system was not state-of-the-art. "It's a basic tort and contract suit," uniquely applied to the Year 2000 problem, Mr. Parker said.
He predicts that more litigation relating to the Year 2000 issue will emerge as the date nears. "It's going to be a big industry," he said.
Tec America's attorney, Marta Manildi, of Miller, Canfield, Paddock & Stone in Ann Arbor, Mich., refused to comment.
Zabit bought by X-ceed
NEW YORK -- X-ceed Inc., a diverse New York-based company, is acquiring Zabit & Associates Inc., a communications and creative services consultant, in a transaction valued at about $29.5 million.
Founded in 1993, Sausalito, Calif.-based Zabit reported about $10.1 million in revenues in the year ending June 30, of which about 40% was benefit-related. Zabit, which will operate as an X-ceed division, is well known for its employee benefit communications consulting work.
The nation's health care costs are expected to rise at an annual clip of 6.5% between 1998 and 2001, according to the Health Care Financing Administration's Office of the Actuary. That compares to a 5% annual growth rate from 1993 to 1996, when fierce price competition among health maintenance organizations held down costs. . . .Shareholders of General Re Corp. on Friday approved the merger with Berkshire Hathaway at a special meeting, General Re said in a release. Berkshire shareholders earlier in the week approved the deal, expected to close in the fourth quarter. . . .Ohio Casualty Group subsidiary The Ohio Casualty Insurance Co. is acquiring the commercial lines division of Great American Insurance Co. for $300 million. Cincinnati-based Great American, an American Financial Group Inc. subsidiary, also will receive warrants to purchase 3 million shares of Ohio Casualty common stock and could receive up to $40 million more based on the retention and growth of the insurance business acquired by Hamilton, Ohio-based Ohio Casualty. The deal is subject to regulatory approval and is expected to close in the last quarter of the year. . . .The Corporation of Lloyd's insurance services unit, which provides information technology, accounting, policy processing and claims handling services to Lloyd's of London, plans to lay off 300 of its 1,000 employees as part of a major efficiency drive. The reorganization, which will create a new management structure for the unit, is expected to be completed by the end of next year and result in cost savings of L10 million ($16.8 million). . . .Florida will receive an additional $1.7 billion in its settlement with tobacco companies, bringing the state's total take to $13 billion. The additional payment is based on a "most-favored nation" clause in the settlement, which allows a recalculation based on settlement arrangements with other states. . . .A county district court judge last week dismissed lawsuits by 17 law firms challenging Blue Cross & Blue Shield of Minnesota's $469 million settlement of tobacco litigation. The law firms wanted the proceeds paid to Blue Cross subscribers, not to the health plan. . . .Former owners of a nuclear fuel processing plant owe $36.5 million to residents of a Pennsylvania town who claimed radiation caused an unusually high incidence of cancer. A federal jury last week found Atlantic Richfield Co. of Los Angeles and Babcock & Wilcox Co., a subsidiary of New Orleans-based McDermott International Inc., negligent in the case brought by residents of Apollo, Pa. Punitive damages are to be determined this week. Spokesmen for both companies would not comment on insurance. The plant was torn down several years ago. . . .The House Ways and Means Committee last week passed legislation that would increase to $17,000 from $15,500 the maximum amount of wages retirees age 65 through 69 can earn in 1999 without their Social Security benefits being reduced. The measure also would boost to 100% from 45% the tax deduction the self-employed can take for health insurance premiums. . . .The Metzler Group, a Chicago-based consulting company, has bought Peterson Worldwide L.L.C. for $157 million in stock. Peterson, a consultant that focuses on information analysis and runoff services, will retain its name, and Martha Wilke Murray will remain president and chief executive officer. . . .Nationwide Mutual Insurance Co. has received approvals from Iowa and Arizona regulators to acquire the property/casualty units of Des Moines, Iowa-based Allied Group Inc.