Murray v. Mariner Decision

In 2003, the Florida Legislature enacted comprehensive workers' compensation reforms, which resulted in significant rate reductions over the ensuing years. An integral part of the reform package was the elimination of hourly fees for claimants' attorneys and the establishment of fee guidelines based on a percentage of benefits obtained for cases arising after Oct. 1, 2003. In its recent landmark decision in Murray v. Mariner Health/ACE USA, the Florida Supreme Court found the fee changes were not justified, quashed the rulings made in three previous 1st District Court of Appeal decisions, and increased the award of claimant attorney's fees. The Florida business community should endeavor to resolve this ambiguity during the 2009 legislative session, as it will adversely increase Florida workers' compensation rates.

Embrace Technology

There is a delicate balance between allocating time and resources to personally meet with customers face-to-face and utilizing technology to stimulate sustained, profitable business growth. Barack Obama recognized the power of technology early in his 22-month presidential run. His campaign raised a staggering $200 million-plus, primarily in small donations from everyday voters, with an impressive technology-based grassroots campaign. This is clear evidence that to compete in today's market, organizations must focus on business drivers that can be enhanced by technology, such as:

Continued Profitable Growth – growth by acquiring competitors' customers and/or mergers and acquisitions

Speed to Market – better data and policy management and analytics to help identify product opportunities

New Technologies for Product Development – product development workstations, collaboration and workflow, electronic filing and dashboards

Ease of Doing Business – increased agency connectivity, increased online customer support and expedited billing to better serve customers

Expense Control – claims management tools to automate more processes and improve outcomes, plus a greater focus on reinsurance placements

Aggressive Litigation Management

The American Tort Reform Foundation annually ranks America's most inequitable, plaintiff-oriented venues in civil lawsuits. In 2007, South Florida; Rio Grande Valley and Gulf Coast, Texas; Cook County, Illinois; West Virginia; Clark County, Nevada; and Atlantic County, New Jersey, topped the list.

Insurers should pay close attention to customers and claims venued in these and other volatile locales. Insurers may need to adjust indemnity and expense reserve projections in these venues — or better yet, aggressively work with counsel to resolve volatile claim issues early.

Clients should periodically review defense counsel rates to ensure they are in line with industry standards. A comprehensive review of the law firm's technology, billing practices, and vendor agreements also should be conducted.

Business Process Outsourcing

Business Process Outsourcing (BPO) isn't just about saving money. A growing number of insurers are looking at BPO as a way to become more agile and to introduce new technology to improve processing and customer service.

Today's top process focus areas are policy and claims administration and customer service. Growth, speed, ease of doing business, and expense control are necessary to maintain competitive position.

On the agency side, priorities should be focused on reviewing agent business, processes, and Web site technology effectiveness. Management should consider agency loyalty, minimizing or eliminating silo channels by integrating lines of business, and staying current on outsourcing trends to help business grow. On the carrier side, top challenges include resource optimization and scalability, data quality, compliance, and service. Insurers should consider outsourcing to better predict and manage costs and to remain focused on core competencies at this crucial time.

Key Insurance Issues in Washington

Democrats now control the White House, are projected to gain 18 seats in the House, which would give them a 252-to-173 majority, and enjoy a 56-to-44 majority in the Senate. Our industry will be lobbying and watching closely as critical issues are addressed, including optional federal insurance for the Troubled Asset Relief Program, credit scoring in policy underwriting, insurance and financial services regulation, and whether wind coverage will be afforded under the National Flood Insurance Program — a proposal strongly opposed by the insurance industry.

Alternative Risk Financing

As the market grapples with ways to attain stable growth and profitability, alternative risk financing techniques are an increasingly popular consideration. Thirty percent of the U.S. insurance market consists of alternative risk financing, with 90 percent of this consisting of Self-Insured Retention (SIR).

Captives, while offering accelerated tax benefits, are costly to form and to manage, and senior management support is critical to success. Also, a letter of commitment from participating members at program inception is necessary to avoid future disputes. Risk pooling with adequate SIR is recommended, particularly to settle claims quickly. Interested parties should seek expert advice about the merits of alternative risk financing before considering any of these risk management options.

The Market Will Harden

The soft pricing market is on the upswing. Although P&C rates have decreased virtually every month since March 2005, when the current soft market began, rate decreases have moderated over the last several months. The financial markets have deteriorated and a number of major insurers face unprecedented challenges, underwriting results are down, and investment income has declined as well. In October, MarketScout predicted that the soft market cycle will turn: the market is expected to harden in 2009, first in commercial property, then in commercial lines, then in personal lines.

Increased Regulation Projected

The Obama administration will undoubtedly seek ways to avoid a reoccurrence of what we are experiencing today. We can expect increased pressure for federal insurance regulation when practical. Also, state insurance departments will endeavor to tighten controls with limited available resources to ensure compliance with unfair claim practices regulations. If you purchase another insurer, don't be surprised by a financial ratings agency downgrade until you can successfully prove the decision was the correct one.

The Industry Will Bounce Back

History has shown the insurance industry is financially solvent, resilient, well capitalized, and able to absorb even the most extreme financial crisis. The accompanying chart shows 10 of the top publicly traded companies in our industry. The differences in the November 2007 and November 2008 last-trade prices of some shock the conscience. However, with a close re-evaluation of business practices, including disciplined underwriting, sustained profitable growth, customer support, reducing cost and minimizing portfolio risk, financial stability is attainable.

A year from now, it will be interesting to compare each company's numbers to their current results. If history is a judge, these prices will have rebounded.

Yes, the challenges are many. But with keen focus and attention to these issues, we will emerge from this meltdown stronger than before.