The Report, Volume 9, Number 3
For general information about The Report, please
return to the main welcome page.
Y2k before Courts and Congress
Class-action lawsuits line up on dockets
Insurers and reinsurers are already facing about five dozen Y2K class-action and other lawsuits, providing an indication of what life could be like for the insurance industry after New Year’s Day 2000. According to Best News, the litigation might promote a renewed interest in alternative dispute resolution (ADR) techniques.
An early case to be resolved by ADR involves Andersen Consulting LLP and J. Baker, Inc., an apparel and footwear retailer. The dispute involved who should pay for Y2K remediation costs associated with a noncompliant system that Anderson had helped Baker select, design and customize between 1989 and 1991. While the parties sparred publicly in court, they have agreed privately to pursue nonbinding mediation and have accepted a mediator’s ruling that Anderson met its contractual obligation. In return, Anderson has dropped its declaratory judgment action.
As concern grows for the impact of litigation on customer relationships and public image, many Fortune 500 companies, trade associations and law firms believe that the Y2K liability could offer new impetus for negotiation, nonbinding mediation and arbitration.
Features of Y2K bills (S.461 and H.R. 775):
- Require pre-litigation procedures, written notice of alleged damages and a 90-day period to pursue ADR before action could be filed in court;
- Specific pleading requirements to detail factual basis for calculating damages;
- Duty to mitigate so that no recovery of damages is allowed to the extent the plaintiff reasonably could have avoided injury based on information that he should have been aware of.
Legally speaking: Asbestos insurer told to pay $18 million
The Illinois Court of Appeal ruled this spring that a first-party property insurance policy should cover the cost of asbestos removal for the Township High School District Board of Education. International Insurance Company was told to pay $18 million in remediation costs, overturning a trial court ruling in favor of the insurer.
That decision follows an Illinois Supreme Court ruling in 1991 that asbestos fiber contamination constitutes physical injury to tangible property including buildings and their contents.
The insurer is considering whether to appeal to the Illinois Supreme Court. Insurance attorney James Swinehart noted that insurers in other states have successfully defended claims for asbestos removal under first-party policies.
International Insurance sold the board of education two all-risk policies covering five high schools from 1981 until 1986. In 1983, friable asbestos was discovered in three schools and removal of the asbestos cost $18 million.
The insurer had denied the claim for damages saying that the presence of asbestos in the school buildings did not constitute property damage covered by the policies – a decision that was upheld by the trial court.
Planning crucial to avoid prolonged losses
One of the lessons to come out of the World Trade Center bombing six years ago is that speedy recovery depends on good planning before a disaster strikes. According to Barry Glick, a spokesman at a recent conference on risk underwriters, those companies housed in the Trade Center that had a detailed crisis management plan recovered and resumed business much more quickly than other companies shut down by the bombing.
A crisis plan must be in place before a disaster occurs, and its elements must be incorporated into the company culture, according to Glick. Top management must embrace the plan.
The key elements of a crisis plan include a system for notifying internal and external groups affected by a disaster, an established pattern for emergency response and evacuation, a plan to deal with the public and news media, a plan for recovering data, and a plan to continue business in another location.
Glick advised property insurers to question policyholders on issues such as business resumption plans, crisis management teams, disaster response rehearsals and the turnover of personnel who are involved in crisis management.
Florida insurance market rebounds
For the first time in five years, the number of property owners relying on a Florida association for homeowners’ insurance has dropped below 200,000. That’s a definite sign that the private market is getting stronger according to the Residential Property & Joint Underwriting Association.
The underwriting association was established to be Florida’s insurer of last resort for homeowners who can’t get insurance for their property. After Hurricane Andrew swept through the state in 1993 causing $16 billion in insured losses, many insurance companies stopped writing homeowner’s coverage in the state.
By 1996, the association had a membership of 937,000 -policies and $98 billion in exposure. The association now has an exposure of about $31 billion for 199,500 policies.
Minority insurers make headway in Florida
Florida State Insurance Commissioner Bill Nelson announced that legislation enacted two years ago to encourage minorities to become owners of property and casualty insurance companies has encouraged creation of the first such firm. The New American Insurance Company opened for business this spring after receiving approval from the Department of Insurance in January.
The company is writing business in counties where property owners were formerly insured by the JUA, Florida’s insurer of last resort.
Under Florida law, minority-owned insurers are able to immediately use some of the bonus money they get for taking JUA policies instead of having to keep all of it in escrow for three years, as is required of non-minority take-out companies.
Insurers will survive tornado damage
According to a study released by Standard & Poor’s, the aggregate insured losses from deadly tornadoes in the Midwest in early May will have little or no effect on the ratings of insurers. Even though damage in Oklahoma, Kansas and Missouri will likely total $1 billion, only a few companies face a solvency-threatening level of claims. Among larger companies, the rating firm believes that the claims will have an impact on earnings but the losses will not be sufficient to impact the insurers’ overall rating from Standard & Poors.
In addition to the loss of life, the tornadoes destroyed 2,000 homes and seriously damaged 8,000 others. The number of claims are expected to reach between 125,000 and 150,000, with 75 percent of the insured losses coming from claims for damage to automobiles and moderate losses to homes and business establishments.
State Farm is the largest insurer in Oklahoma with premiums totaling $260 million in 1998. Other major insurers include Farmers Insurance ($234 million), Allstate ($109 million), and Oklahoma Farm Bureau
Fascinating Facts
Breaking even on the web
By the year 2000, high-profile web sites will cost an estimated $6.3 million per year to maintain according to a report by Forrester Research. However, as web traffic increases, the report estimates that cost-per-page-view will drop more than 50% to an average of 1.7 cents in 2000.
Women entrepreneurs lead
The National Foundation for Women Business Owners reports that the 7.7 million women-owned businesses in the U.S. employ 35 percent more people than Fortune 500 companies. Businesses owned by women tend to grow quickly. While the majority are clustered in the retail and service industries, businesses headed by women are also appearing in the male-dominated areas of agriculture, manufacturing and construction.
Cell phone scams mushroom
P.T. Barnum, who once said there’s a sucker born every minute and two to take him, would not be surprised at some findings of British psychologist Robin Dunbar. In a study on cell phones, Dunbar found that appearances can be deceiving. His research uncovered instances of people supposedly carrying on a business conversation when the phone would ring, men speaking into cell phones in areas where it is impossible to get a signal, and men pretending to wheel and deal on fake cellular phones.
Starting from scratch
The majority of companies on the Inc.500 list had less than $50,000 in capital when they started up according to Inc. magazine. Well-known companies that started with pennies include Nike ($1,000), UPS ($100), Domino’s Pizza ($900), and Marriott Hotels ($3,000).
Mind over matter
If you have trouble remembering important details such as names, times or facts about a person, you can improve your memory with some simple tricks.
Distract yourself: If you have a telephone appointment or have to meet someone, move your watch to the other arm so you’ll be reminded every time you check your watch.
Imagine an audience: Pretend that the person you are being introduced to is someone you will have to introduce in front of a large gathering and you can’t afford to forget that name.
Avoiding problems in responding to complaints
A complaint letter is an opportunity to establish yourself as a resource for the letter-writer so long as the person receives satisfactory treatment. There are some pitfalls to avoid, however. According to the Customer Service & Retention Newsletter, you should never respond to a complaint letter by:
- Delaying a response: Make sure the company responds immediately by phone. Even if you can’t provide an answer right away, let the customer know you are working on it.
- Delegating the response: If the letter is written to you and you have someone else respond, you are not demonstrating your commitment to the client.
- Avoiding the issue: Deal with the specific problem the client has raised rather than sending a one-style-fits-all form letter.
- Going cheap: Offering a special deal that is worth little is not the way to treat a valued client. Some experts estimate that the lifetime value of a good customer can exceed 200 times the value of a single transaction.
Short Takes
Make appointments before leaving
End every day by making at least one appointment for tomorrow to give yourself a jump start the following morning. If you wait till the next morning to start making calls, you’ll waste some of the most valuable time of the day just getting organized.
Telling hands
If you’re talking to a client and notice that his or her hands are tightly clinched, ease up. The person listening to you feels pressured. If the fingers touch to form a "steeple," that’s a sign of self confidence. If the person has hands clasped behind the back, that’s a sign of superiority or authority.
Avoid saying "problem"
One of the words you should never use when dealing with a client is problem. Turn the attention away from the negative to the positive. Instead of saying, "What’s the problem?" ask "How may I help you?" By focusing on action, you’ll also identify yourself as a resource for that person.
Hold off while on hold
It’s tempting to start talking with a coworker when someone puts you on hold. However, such conversations can be risky. Not only will you lose your train of thought; you’ll also risk having the person hear something inappropriate. Furthermore, if the person on the other end of the line catches you in mid-sentence, you’ve destroyed the sense of intimacy that a call should create.
Strategies for selling to women
Studies show that relationships are extremely important in dealing with female clients. Simply put, women are more likely than men to buy from people they are comfortable with. Aggressive selling techniques and cutthroat competition can be quick turnoffs.
In working with female decision-makers, salespeople are wise to invest time in discovering what a client needs and explaining how a product or service can help. While women analyze hard data the same way men do, their patterns of decision-making are more often based on right-brained or feeling-oriented criteria. Therefore, they are more likely to act on whether or not a final decision "feels" right.
For salespeople wanting to develop female clients, networking is crucial. Since women are more likely to buy from people they know, getting involved in groups where women decision-makers congregate can build a foundation for a future sales contact.
