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March 18, 2024

Enrollment Spikes in California’s Home Insurer of Last Resort, Raising Concerns Over Its Sustainability

With home insurers scaling back coverage in the state, enrollment is surging in California’s backstop insurance plan — as is the plan's risk of sustaining losses that it can't cover. Victoria Roach, president of the FAIR Plan Assn., told lawmakers this week that property owners even in areas with low wildfire risk were finding it difficult to keep their homes insured as companies increased rates, limit coverage or left areas susceptible to natural disasters amid climate change. That has prompted thousands of Californians to purchase coverage through the state insurer as a last resort. Funded by the insurers doing business in California, the Fair Access to Insurance Requirement plan provides a limited policy as a fallback for property owners unable to find conventional coverage they can afford. Roach said the Fair Plan set a new record last month when it added 15,000 new policyholders. The FAIR plan has about 375,000 policyholders, and the insurer’s total risk exposure was $311 billion as of December 2023; it was $50 billion in 2018. “We’re one of the largest writers in the state right now in terms of new business coming in,” Roach said. “As those numbers climb, our financial stability comes more into question.” Roach said homeowners and businesses are typically insured by any of the state’s 118 standard insurers or 132 surplus line insurers, which specialize in high-risk insurance. “Unfortunately, as you know with the current state of the market, I think this is often reversed because there’s not a lot of options out there for people,” Roach told lawmakers during Wednesday’s Assembly Insurance Committee. “Instead, the FAIR plan is quickly moving to be the first resort for a lot of people.” She said consumers who would never have sought insurance through the FAIR plan in years past were now among the new policyholders, many of whom were not living in wildfire areas. The insurer’s expansion is the latest wrinkle in California’s ongoing insurance crisis, and it mirrors a similar trend across the country of major companies dropping customers in areas prone to wildfires, flooding and hurricanes. Florida’s state insurance of last resort, known as the Citizens Property Insurance Corp., has become the largest property insurer there, adding about 11,000 new policies in the last two weeks, according to local reports. In Louisiana, state officials have been trying to address an insurance crisis following a series of hurricanes in 2020 and 2021 that caused insurance companies to stop renewing policies or leave the state. Since 2022, at least eight insurers, led by State Farm and Allstate, have announced plans to stop offering home insurance to new customers or withdraw from the state entirely. Some blamed a spike in the cost of reinsurance — insurance policies that insurance companies buy to cover their big losses — and financial strains caused by inflation that have made materials and labor for home repair and rebuilding costly. The potential loss of insurers prompted Gov. Gavin Newsom to issue an executive order commanding the insurance commissioner to take action to address issues with the insurance market and expand coverage options for consumers. Insurance Commissioner Ricardo Lara's response to the crisis is a set of new rules still being implemented that would allow insurers to raise rates to cover reinsurance costs and projected losses from catastrophic fires, but also require them to provide coverage for more homes in the canyons and hills. The proposals, which aim to move people off the FAIR plan and slow the increase in premiums, have won support from insurance industry trade groups and some consumer groups, but criticism from other consumer advocates. Under the existing system, insurers need to apply to the Department of Insurance to raise their average rates across the state and prove that the price hike is justified. The process allows consumer advocates to intervene to contest the insurer's claims. This system was created when California voters approved Proposition 103 in 1988, but the insurance department went a couple of steps further than the ballot measure. Its rules barred insurance companies from including the cost of reinsurance in their rates and allowed the use only of historical loss data, rather than forward-looking simulations, to support a hike in premiums. Insurance industry representatives have been trying to lift both of those restrictions for years, but their calls have intensified as insurers have pulled back coverage in California. On Thursday, Lara proposed a regulation that would allow insurers to use catastrophe modeling that takes into account the projected impacts of climate change and other shifting factors when asking to raise rates. “We can no longer look solely to the past as a guide to the future,” Lara said in a statement. “My strategy will help modernize our marketplace, restoring options for consumers while safeguarding the independent, transparent review of rate filings by Department of Insurance experts, which is a bedrock principle of California law.” The proposed regulation comes a week after the Los Angeles County Board of Supervisors approved a motion demanding that Lara investigate the compliance measures that insurance companies require from homeowners to keep their coverage. “It’s no secret that insurance providers have become more conservative due to increased wildfire threats statewide,” said Supervisor Kathryn Barger, who introduced the motion, in a statement. “As a result, homeowners are increasingly being put in a very tough position: pay higher premiums and comply with varied, costly, and inconsistent mitigation requirements or lose your insurance.” She added: “I’ve heard from many of my constituents district wide who are facing steep cost increases or being dropped altogether by their insurance carriers and left to fend for themselves. That’s simply unacceptable.” In response to proposed expansion of catastrophe models, Consumer Watchdog, a consumer advocacy group that often intervenes in proposed rate hikes, said Lara’s proposed regulation limits transparency. “Black box catastrophe models are notoriously contradictory and unreliable, which is why public review and transparency are key before insurance companies are allowed to use them to raise rates,” the group wrote in a statement. “Commissioner Lara’s proposed rule appears drafted to limit the information available to the public about the impact of models on rates in violation of Proposition 103.” The group contends that the rule fails to spell out how the Department of Insurance would assess a model’s bias or accuracy and instead creates “a pre-review process that appears primarily focused on determining what information companies must disclose and what they may conceal from public view.” “California needs a public catastrophe model to ensure climate data is transparent and to prevent insurance price-gouging and bias.”
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March 18, 2024

Treasury Is Asked Why U.S. Firm Insures Ships Carrying Iran Oil

A Republican congressman is asking the Treasury Department to explain its handling of a US insurance company that covered dozens of tanker ships suspected of carrying sanctioned Iranian oil. Representative Zach Nunn of Iowa, a member of the House Financial Services Committee, sent a letter Thursday inquiring about New York City-based American Club. “An American company reaping a profit from its involvement in insuring tankers that are transporting illicit Iranian oil to finance terrorism demands answers from this Administration,” he wrote. Nunn cited a February report by Bloomberg News showing that American Club covered 21 vessels suspected of carrying illicit Iranian oil, more than any of its 11 larger peers. The insurer had recently dropped 19 other vessels after inquiries from Nunn and Bloomberg, the report stated. The Bloomberg story was based on research by the nonprofit group United Against Nuclear Iran, which maintains a list of ships suspected of carrying the country’s crude. US sanctions prohibit Western businesses from knowingly participating in sanctioned activities. But the Treasury Department, which oversees sanctions, asks insurers like American Club to go further and monitor whether ships they cover are secretly trading in sanctioned products. Nunn asked Treasury to explain what it’s doing to investigate “American Club and its involvement in the sale of illicit Iranian oil,” as well as what the department is doing more broadly to police American businesses for sanctions compliance. American Club has said that its compliance program is top-notch and that it would never knowingly insure a ship that violates sanctions. “Our due diligence policies and procedures are known to the relevant authorities, including OFAC, and as far as we know, are accepted by those institutions,” said Daniel Tadros, the company’s chief operating officer, referring to Treasury’s Office of Foreign Assets Control. “We will continue to do the best job possible when it comes to due diligence investigations and to take action when necessary.” A Treasury spokesperson didn’t respond to a message seeking comment.    
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March 18, 2024

Marsh McLennan Agency Expects Stable Commercial Property Reinsurance Market in 2024

Marsh McLennan Agency (MMA), part of the global insurance and reinsurance broker, has released its 2024 Commercial Property Insurance Trends report, highlighting a more balanced reinsurance market this year compared to the harsh conditions of 2023. According to MMA, “In 2023, the industry witnessed the toughest property reinsurance market in decades.” This was due to significant changes in policy structures leading to higher retentions for companies. Insurers, faced with soaring costs, were forced to consider cutting limits while absorbing higher retentions and facing rising premiums. Additionally, active secondary perils and shifts in reinsurance structures left insurance carriers covering more losses on their balance sheets rather than passing them to reinsurers. However, MMA states that “the volatility experienced in the 2023 reinsurance market seems to have stabilized.” “The reported total median risk-adjusted price increases were in the single digits following treaty renewals from the first of this year. As more optimism enters the reinsurance market, we can expect a gradual return of appetite and capacity,” MMA adds. The report further highlights another positive development, which is the expansion of coverage options for treaty renewals in 2024, including previously excluded or restricted perils such as terrorism, riots, and civil commotion. MMA estimates that as the market continues to improve and insurers become more interested in reinsurance again, price increases are expected to slow down. Although MMA can’t predict the frequency or severity of losses in 2024, it feels that it would take a significant event causing over $75 billion in losses for any serious concerns to arise.
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March 18, 2024

Apple to Pay $490M to Settle Allegations Over Misleading Investors

Apple has agreed to pay $490 million to settle a class-action lawsuit alleging CEO Tim Cook misled investors about a steep downturn in iPhone’s sales in China that culminated in a jarring revision to the company’s revenue forecast. The preliminary settlement filed Friday in Oakland, California, federal court stems from a shareholder lawsuit focused on the way Apple relayed information about how iPhone models released in September 2018 were performing in China, one of the company’s biggest markets. Cook signaled that the new iPhones were off to a good start during an investor conference call in early November 2018, according to the complaint. That reassurance dissolved into a huge letdown on Jan. 2, 2019 when the Cook issued a warning that Apple’s revenue for the just-completed quarter would fall $9 billion below management’s forecast for the period. What’s more, virtually all of the sales drop was traced to weak demand in China. It marked the first time Apple had cut its revenue guidance since the iPhone’s release in 2007 and triggered its stock price to plunge 10% in the next day of frenetic trading, wiping out more than $70 billion in shareholder wealth. Apple vehemently denied Cook deceived investors about the iPhone’s sales in China between early November and early January. The Cupertino, California, company maintained that stance in the settlement documents, but said it decided to make the payment after more than four years of legal wrangling to avoid an “overly burdensome, expensive, and distracting” hassle. The settlement was reached through a mediator after U.S. District Judge Yvonne Gonzalez Rogers rejected Apple’s request to dismiss the case and set a Sept. 9 trial date. Gonzalez Rogers is now being asked to approve the settlement in a hearing scheduled for April 30. Thousands of shareholders who bought Apple stock in late 2018 could be eligible for a piece of the settlement, which will be distributed from of a pool that will be less than $490 million after lawyers involved in the case are paid. The attorneys plan to seek up to one-fourth, or about $122 million, of the settlement. The $490 million payment represents less than 1% of the $97 billion profit that Apple pocketed during its last fiscal year ended in September. Apple shareholders who have held on to their shares have become wealthier too. Apple’s stock price has more than quadrupled from where it stood after Cook’s China warning, creating an additional $2 trillion in shareholder wealth.    
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March 18, 2024

Inside the New Agency Commission System of Buying and Selling a Home

The National Association of Realtors’ landmark settlement is upending the home buyers’ agent commission system. Companies already experimenting with different structures offer insight into what this new world of home sales might look like.

Some buyers pay their agents directly through a flat fee or an hourly rate, instead of relying on the seller to set a rate. Some sellers offer a lower commission to a buyer’s agent than the currently typical 2% to 3%.

Customers like the flexibility of these new models, which can significantly lower the fees paid to a buyer’s agent. The savings can run to several thousand dollars on a home listed at $400,000.

But these nontraditional approaches often mean buyers have to do more work themselves. And sellers who offer lower commissions could find it tougher to sell if buyers’ agents discourage buyers from bidding on their homes.

Regardless, these models look poised to become widespread this summer when the new rules go into effect and buyers and sellers become aware of the changes, according to analysts.

In a $418 million agreement announced Friday, NAR settled legal claims that the industry conspired to keep agent commissions high. In doing so, the organization agreed to make it easier for home buyers to negotiate fees with their own agents.

Starting in July, most home sellers won’t need to make an upfront offer for how much they will pay a home buyer’s agent. That means if home sellers won’t cover the cost of the buyer’s agent, buyers could have to pay their agents out of pocket.

Home shoppers paying directly for each task an agent performs could save buyers $30 billion a year compared with under the current system, because buyers would negotiate for lower prices and tour fewer homes, according to a working paper released by economists at the Federal Reserve Bank of Richmond.

Thanks to online listing sites, it is easier today for buyers to find homes and cheaper for sellers to advertise their listings, said Mike Maher, chief executive officer of Newfound, which owns discount brokerages.

“There’s a lot of excess fat in the costs to sell a home,” he said. “If you remove some of those costs, it should make homes more affordable and attainable.”

The hope for buyers is that new payment models help lower their commission costs, which could ultimately reduce home prices.

Flat fees for service

One way that might work is a flat-fee model. Under this approach, buyers would agree to pay their agents directly, but they could choose to ask the seller to cover this cost.

Fred Glick, founder of the Los Angeles brokerage Arrivva, represents buyers for a flat fee of $9,750. If sellers offer a higher compensation to the buyer’s agent, Glick rebates the difference to the buyer. For sellers, Glick charges a flat fee of $15,750.

In exchange for those savings, buyers take on some duties often performed by an agent. Glick’s buyers typically find homes for sale on their own. “Every once in a while we get someone who needs the hand-holding, and we tell them, unfortunately, we can’t help them,” he said.

William and Ashley Brode worked with Arrivva to help sell their Los Angeles home and buy a different one earlier this year. Brode said he appreciated Arrivva’s advice on negotiating and that they didn’t need help searching for a home.

“In this area, houses are very expensive, so a flat fee versus a percentage can make a massive difference,” Brode said.

The digital real-estate brokerage Beycome in South Miami, Fla., typically offers buyers a rebate of two-thirds of the buyer’s agent commission.

Buyers can schedule showings, submit offers and close a deal online. For most of the process, buyers essentially become their own agents and receive an information packet to answer questions. Beycome pays local real-estate agents to open the door for home showings.

Since buyers do a lot of their own home-buying research online these days, commissions should be lower, said Beycome’s co-founder Nico Jodin.

Sellers paying less

DeLeon Realty in Palo Alto, Calif., began advertising in January that sellers could list their homes for a total commission of 3.5% or less, which would include 3% for the listing agent. That compares with the 5% to 6% typical commission nationwide, which is split between the seller’s agent and the buyer’s agent.

Many of its sellers were able to save money by offering lower commissions to buyers’ agents than what was typical in Silicon Valley, said Chief Executive Michael Repka. Of 20 sellers who used the firm in January and February, nine chose to offer the buyer’s agent $10,000. Another chose $20,000. The other 10 offered compensation ranging from 0.5% to 2.5% of the sale price. Despite the discounted commission rates, Repka said, demand for the listings was strong. One Palo Alto home that listed at just under $2 million and offered a $10,000 buyer’s commission got 17 offers, he said. The home sold for $2.7 million. That means if the seller paid a more typical 2.5% commission to the buyer’s agent, the fee would have come to about $67,500.

“If we had buyers’ agents being paid by buyers, I think buyers would be well-served, because they would put more thought into which agent they want to work with,” Repka said.

Some buyers want service

Yet failed previous efforts to disrupt the traditional structure suggest that many buyers expect a high level of service. Seattle-based Redfin used to charge buyers $250 a tour and rebate two-thirds of the buyer’s agent commission, assuming that buyers would opt to tour homes themselves to save money.

But buyers wanted more advice from their agents, and listing agents were skeptical that buyers were serious if their agents didn’t join them on tours, said Chief Executive Glenn Kelman. Redfin changed its model in 2008 to offer unlimited free tours and a 50% rebate.

“I’ve now become convinced, through bitter experience, that people need someone to talk to before they make an offer,” Kelman said. Still, he added, commission costs should be lower.

“People will pay for service,” he said. “They just shouldn’t overpay for it.”

   
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March 18, 2024

Allianz Launches In-House Financial Lines Claims Team

Allianz said it launched a new dedicated in-house financial lines claims team covering mid-corporate and small and midsize enterprises businesses. It has been created to ensure brokers and customers are seamlessly supported with Allianz directors & officers and professional indemnity propositions, the company said. This is in addition to Allianz’s financial lines claims for large-corporate and specialty segments. Based in Allianz’s Milton Keynes branch, the new financial lines claims team will work hand in hand with underwriting teams to ensure there is an in-depth understanding of all angles of the customer’s business, enabling them to progress claims swiftly, the company said. For more complex matters that require legal support Allianz’s specialist solicitors, Clyde & Co, who have global knowledge and experience, are on hand to guide mid-corp and SME brokers and customers through each step of their claim where needed, according to a company statement. Legal support is enhanced by a complimentary collateral warranty review for professional indemnity customers within the construction, design or build sectors, the company said. The dedicated financial lines team focus solely on Allianz’s D&O and PI propositions, increasing Allianz’s presence in the market by working closely with branch distribution teams and local brokers to enable trading, according to a company statement. In February, Allianz’s chief executive officer said natural catastrophe losses hit the 2023 property/casualty profit for Allianz SE in 2023 but the group reported higher income in all of its segments, while watching rising economic, technology and geopolitical threats.  
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March 15, 2024

Realtors Reach Settlement that Will Change How Americans Buy and Sell Homes

The National Association of Realtors has reached a nationwide settlement of claims that the industry conspired to keep agent commissions high, it said Friday, a deal set to usher in the biggest changes to how Americans buy and sell homes in decades.

The $418 million agreement will make it easier for home buyers to negotiate fees with their own agents and could lead more buyers to forgo using agents altogether, which has the potential to drive down commission rates and force hundreds of thousands of agents out of the industry.

NAR agreed to abandon longstanding industry rules that have required most home-sale listings to include an upfront offer telling buyers’ agents how much they will get paid. Under a system in place for a generation, sellers have typically set buyers’ agents fees. Consumer advocates say the arrangement has prevented buyers from negotiating to save money and kept commissions in the U.S. higher than in most of the world.

NAR has said the current model helps buyers benefit from an agent’s advice even if they can’t afford to pay an agent out of pocket.

If the settlement is approved by a federal court, listings of homes for sale in most parts of the country would no longer include upfront offers to buyers’ agents starting in mid-July, and buyers would be able to negotiate compensation upfront with their agents.

Buyers are likely to be more price conscious when selecting an agent and might opt to save money by not using an agent at all, or by paying their agent a smaller fee in exchange for limited services. For example, a buyer could pay an agent to put together an offer and review an inspection report, but not to accompany the buyer on home tours.

The agreement is the answer to months of uncertainty and mounting legal threats to the residential real-estate industry. NAR, one of the nation’s most powerful trade groups, has been facing crippling antitrust liability since a Kansas City, Mo., jury delivered a $1.8 billion verdict against the organization and two national brokerages in October. The jury found that industry rules for how buyers’ agents are paid were keeping commission rates artificially high.

The settlement will resolve wide-ranging legal exposure for the industry, which has been facing a series of antitrust lawsuits similar to the Kansas City case. Separate litigation in Chicago, which appeared headed for trial later this year, could have threatened a damages award of more than $40 billion. State and local Realtor associations, some brokerage firms and Realtor-owned multiple-listing services are covered by the agreement.

   
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March 15, 2024

State Farm Announces New Leadership

State Farm President Jon Farney has been selected as the company’s next Chief Executive Officer by the State Farm Mutual Board of Directors. Farney will formally begin his role on June 1. The announcement was shared this morning by Chairman and retiring CEO Michael Tipsord. “Jon and I have worked together for many years. I’ve seen how much he cares about State Farm, how much he cares about the people at State Farm, how he solves problems, and how focused he is on taking care of our customers,” said Tipsord at a meeting of State Farm leaders earlier today. He noted Farney’s key role in the company strategy in the last several years. Farney joined State Farm in 1993 and has served in a variety of executive leadership roles including assistant vice president – securities products, assistant vice president – planning & analysis, vice president – financial operations and operations vice president – underwriting. He was named senior vice president, treasurer and chief financial officer in January 2016. He succeeded Michael Tipsord as president of State Farm Mutual Automobile Insurance Company on January 1, 2024. A native of Illinois, Farney earned his bachelor’s degree from Illinois State University and his MBA from the University of Michigan. “It’s a privilege to follow Michael as CEO of this great company and lead an incredible team of more than 19,000 independent contractor agents and 65,000 employees who are committed every day to serving our customers,” said Farney. “We’ll push ourselves to continually improve so we’re positioned to help even more people manage the risks of everyday life, recover from the unexpected and realize their dreams.” Tipsord focused on positioning the 102-year-old company to help more people in more ways for the long-term following his CEO appointment in 2015. Since then, State Farm has grown from more than 83 million policies to serving more than 94 million policies and accounts. The financial strength of the organization – necessary to help ensure the company keeps its promise to its customers – has expanded from $82.7 billion to more than $134 billion. State Farm remains the nation’s leading Auto and Home insurer. Both Tipsord and Farney expressed to company leaders today the important role of the State Farm mission to help people. Farney emphasized the company’s long-held focus on the customer will carry forward, with an eye toward further enhancing digital capabilities and leveraging the unique talents of agents and employees throughout the country. “With great minds, good hearts and wonderful people, there is truly no place like State Farm,” Tipsord told employees and agents earlier today. “I know the best days for this amazing organization are yet to come.” Tipsord began his State Farm career in 1988. He was named vice chairman and chief financial officer in 2004, chief operating officer in 2011 and elected CEO and president in 2015. He was elected Chairman of the Board of State Farm Mutual Automobile Insurance Company in June 2016. Tipsord will continue to serve as Chairman. A graduate of Illinois Wesleyan University, Tipsord is a Certified Public Accountant and earned his juris doctor from the University of Illinois, where he is a member of the dean’s advisory board for the College of Law.      
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March 15, 2024

Commissioner Lara Announces Next Phase of Sustainable Insurance Strategy to Safeguard Californians’ Access to Insurance

Insurance Commissioner Ricardo Lara released his catastrophe modeling regulation that will help restore options for all Californians, the latest phase of his Sustainable Insurance Strategy to safeguard the integrity of the state’s insurance market. The Department of Insurance will hold a public workshop on April 23 to take input before starting the process of submitting the regulation for approval by the Office of Administrative Law. Today’s announcement keeps California on track for a December 2024 goal of enacting the state’s largest insurance reform in over 30 years. It follows Commissioner Lara’s release last month of a new regulation to improve oversight and handling of insurance rate filings. Catastrophic insurance losses are defined as those that are larger and affect multiple policyholders as a result of a severe event, such as a wildfire affecting dozens of homes compared to a common house fire. For more than 30 years, California regulations have allowed insurance companies to apply a catastrophe factor to insurance rates based on historical wildfire losses. These outdated rules have contributed to rate spikes and balloon premiums following major wildfire disasters without fully accounting for the growing risk caused by climate change or risk mitigation measures taken by communities or regionally, as a result of local, state, and federal investments. Currently, the Department of Insurance allows the use of catastrophe models for earthquake losses and fire following earthquake. The proposed regulation expands the allowable use of catastrophe models to include wildfire, terrorism, and flood lines for homeowners and commercial insurance lines. Commissioner Lara’s strategy addresses a major limitation of Proposition 103, passed by voters in 1988. Under that law, insurance companies are free to propose rates at any level needed to cover future losses but, unlike public utilities, are not required to cover all residents. With the combination of climate-intensified disasters, rising costs of repair and rebuilding, and global economic forces, major companies have increased rates while pulling back from higher-risk properties where the FAIR Plan is now the only option. “My Sustainable Insurance Strategy is intended to address decades-long neglected issues. Under outdated rules, the growth of climate-driven mega fires has supercharged insurance costs for many Californians while making insurance harder to find,” said Commissioner Lara about the second in a series of a proposed regulatory changes where he is seeking public comment and review. “We can no longer look solely to the past as a guide to the future. My strategy will help modernize our marketplace, restoring options for consumers while safeguarding the independent, transparent review of rate filings by Department of Insurance experts, which is a bedrock principle of California law.” Commissioner Lara’s proposed regulation will have major benefits for Californians in the form of:
  • More reliable rates: Insurance consumers will have more stable costs than under current regulations, which have resulted in sudden and steep increases for those at higher risk of wildfire.
  • Greater availability of insurance: Insurance companies will increase their writing because they can better anticipate future losses, rather than making abrupt decisions to non-renew higher-risk policyholders, pause writing, or rapidly increase rates.
  • Stronger oversight: The Department of Insurance will have strong public oversight of modeling, which is already being widely used by insurance companies outside of rate-making and across the nation. The Department will have access to models and build expertise, so California can continue to lead on consumer protection.
  • Safer communities: Catastrophe models can capture efforts taken by federal, state, and local governments, property owners, communities and utility companies to mitigate the exposure of communities to catastrophic events – encouraging and rewarding those efforts.
The regulation corrects a major shortfall of using historical data, which fails to account for wildfire mitigation. The regulation specifies that any model must incorporate the best available scientific information on risk mitigation at the property, community, and landscape scales, including risk mitigation initiated by local and regional utility companies. This forward-looking change will also enhance a recent regulation that Commissioner Lara spearheaded and now enforces, requiring wildfire safety discounts for homeowners and businesses and aligning with record investments in wildfire mitigation by Governor Newsom and the California Legislature. The regulation complies with California’s strong consumer protection laws, which requires that anytime an insurance company seeks to change its rates, it must provide a complete rate application with all information that the Insurance Commissioner requires for review. The proposed regulation creates a new process for review of models by a panel of experts overseen by the Department of Insurance -- before insurance companies can use them in a rate filing and meet the stringent transparency requirements under Proposition 103. The panel would evaluate the appropriateness and soundness of each model and a Department of Insurance official would determine what information about the model must be included in rate applications. Any member of the public can participate in this review. The Department of Insurance will hold a public workshop to take input on the proposed regulation on April 23, 2024, at 2PM/PT.    
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March 15, 2024

Bayer Weighs ‘Texas Two-Step’ Bankruptcy Filing Over Roundup

Bayer AG is weighing whether to use a controversial legal maneuver known as the Texas Two-Step bankruptcy to try to resolve tens of thousands of US lawsuits claiming its Roundup weedkiller causes cancer, according to people familiar with its thinking. Faced with a recent string of costly jury verdicts over the herbicide, Bayer executives are consulting with law firms and advisers about how to prompt a bankruptcy judge to halt further trials scheduled for this year. The object is to wrangle a settlement of more than 50,000 cases, said the people, who asked not to be identified discussing a confidential matter. The bankruptcy maneuver gets its name from the use of a Texas state law that lets companies split their assets and liabilities into separate units, then place the unit loaded with liabilities into bankruptcy to drive a global settlement. Courts have rejected the tactic by 3M Co. over suits targeting faulty hearing protection devices for US soldiers and by Johnson & Johnson in litigation tied to its talc-based baby powder. Bayer shares were little changed in trading in Frankfurt on Thursday. The stock has lost about 70% of its value since Bayer’s 2018 acquisition of Monsanto, from which it inherited Roundup, for $63 billion. Bayer is looking for breathing room after it was hammered over the last four months with Roundup jury verdicts totaling about $4 billion. While the company has won more recent trials than it has lost, its latest courtroom defeat was its biggest yet, with a Pennsylvania jury awarding $2.25 billion to a man who blamed his cancer on long-term exposure to Roundup. Bayer maintains the product is safe. “Given the recent rulings on Texas Two-Step bankruptcies, I’m pretty sure Bayer knows this is a long-shot bid for a settlement,” said Bruce Markell, a former federal bankruptcy judge who now teaches law at Northwestern University. “But they may feel like they don’t have any other choice.” Stock Slide, Legal Overhang Bayer declined to comment on any plans for a bankruptcy filing over the Roundup litigation. But Chief Executive Officer Bill Anderson has said he is prepared to “explore every reasonable option to protect the company and protect our mission from the litigation industry.” Bayer said in a statement that while it has faced large jury verdicts over Roundup, it’s succeeded in getting much of that reduced by more than 90% in post-trial proceedings. All told, it’s won 13 of the last 19 cases where judgments were entered. Bayer officials acknowledged earlier this month that profits are falling partly because of the ongoing litigation. While the chances of success with the Texas Two Step are slim, Bayer should leave no stone unturned as it seeks to stop the flood of claims for damages on Roundup, Markus Manns, a portfolio manager at Frankfurt-based Union Investment, a top Bayer shareholder, said in an email. The German conglomerate is taking steps that may be in preparation for a unit’s bankruptcy filing. Last month it proposed to add veteran activist investor Jeff Ubben to its supervisory board. Ubben publicly called for Bayer to consider a Texas-Two Step filing to deal with the Roundup litigation more than a year ago. Bayer is also proposing to bring on former McKesson Corp. General Counsel Lori Schecter as a director. Before joining McKesson — a drug distributor that paid $6 billion to settle litigation over its alleged mishandling of opioid painkillers — in 2012, she was a partner at the Morrison & Foerster law firm, where she handled complex litigation and corporate investigations. Rejected Efforts Part of Bayer’s problem is that the company is facing tens of thousands of lawsuits in state courts across the country. When it tried to consolidate the litigation through a class settlement program in 2021, a federal judge rejected its efforts. Since then Bayer has sought to settle Roundup suits when it makes sense for the company and to go to trial when necessary. For a while, that strategy appeared to work — Bayer won nine cases in a row. But in the fall it lost several trials, with big jury verdicts. Those losses have damaged its leverage in negotiating settlements and spurred plaintiff lawyers to bring new claims against the company. The idea of a filing would be to collect the scattered Roundup cases before a bankruptcy judge in hopes of negotiating a settlement. The company has spent about $10 billion of the $16 billion it set aside to resolve more than 110,000 Roundup cases so far. The remainder is intended for resolutions of newly filed cases, existing suits that bowed out of previous settlement efforts and future claims. The Texas Two-Step has drawn criticism from some legal experts for allowing solvent companies to use bankruptcy court to force settlements on claimants. Over the last 13 months, a federal appeals court and a US bankruptcy judge in New Jersey have shot down J&J’s attempts to use a unit’s Two-Step bankruptcy case to persuade former baby powder users to sign on to a nearly $9 billion settlement of their claims. The courts have concluded J&J isn’t in enough financial distress from the cases to avail itself of bankruptcy protection. Still, J&J officials vow to take a third shot at using bankruptcy to generate settlements in the more than decade-long baby powder litigation. The Two-Step One way for Bayer to foster a settlement would be to move a unit to Texas so it can take advantage of the state’s laws. While Bayer is a foreign company, Monsanto was based in Missouri and the company retains major operations there. It’s unclear whether Bayer would use Monsanto or another entity name for any Texas Two-Step, the people familiar with the discussions said. While the legitimacy of a Two-Step aimed at the Roundup litigation was hashed out in court, a bankruptcy judge would likely halt all litigation against the company, said Melissa Jacoby, a University of North Carolina law professor and bankruptcy expert. “Given the track record of recent Texas Two-Step bankruptcies, the pursuit of this strategy looks like a strong sign that the company is more interested in delay than honoring the legal rights of cancer patients or a comprehensive settlement at a fair price,” she said. Ralph Brubaker, a University of Illinois professor who teaches bankruptcy law, said bankruptcy could give Bayer time to come up with a settlement proposal. “Even if Texas Two-Steps are ultimately repudiated” by the courts, “the strategy allows defendants to shut down all tort litigation indefinitely,” Brubaker said.    
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March 15, 2024

Why Are Data Breaches Still Rising Amid Increased Cybersecurity?

Organizations are spending more money than ever on cybersecurity—an estimated $188 billion globally in 2023, a figure expected to grow to almost $215 billion in 2024—yet hackers always seem to stay a step ahead.

The number of reported data breaches in the U.S. rose to a record 3,205 in 2023, up 78% from 2022 and 72% from the previous high-water mark in 2021, according to the nonprofit Identity Theft Resource Center. Trends are similar in other parts of the world.

What can explain these two seemingly contradictory statistics? If awareness of and spending on cybersecurity is growing, why do data thieves remain undeterred?

Based on our research, three things are helping to drive the current increases:

Evolving ransomware attacks: In traditional ransomware attacks, which I call Ransomware 1.0, hackers break into a company’s computer system, “lock up” data by scrambling it and demand a ransom payment in return for the decryption key. To resume business, companies typically have a choice: Pay the ransom or try to re-create the data that has been frozen. In these attacks, data isn’t stolen, so there is no data breach to report.

Ransomware attacks have evolved, however, in two key ways.

First, after a slight drop, these kinds of attacks are on the rise again due to the emergence of ransomware gangs that franchise their malware and make it available to budding cybercriminals. This trend is allowing more criminals, even those with minimal computer knowledge, to get into the ransomware game.

Second, these attacks are becoming more damaging in that many attackers are now stealing their victims’ data, in addition to just locking it up. I refer to this new approach as Ransomware 2.0. The hackers threaten to disclose the private information if they don’t receive a ransom payment. This results in large leaks of corporate and consumer data that didn’t occur before.

Cloud misconfiguration: More companies now store and maintain their corporate data in the cloud via services such as Amazon Web Services, Google Cloud and Microsoft Azure to avoid the expense of having to own and operate their own data centers. This is making the cloud an attractive target for hackers. In fact, 82% of breaches in 2023 involved data stored in the cloud, according to a recent report.

Cybercriminals are taking advantage of the fact that many organizations migrated rapidly to the cloud without fully understanding all of the configuration settings and establishing procedures to keep their data safe. As a result, errors and glitches in these settings are common, and many companies have no idea that their sensitive information is exposed to the public internet until it is too late. Such misconfigurations have become one of the most common security issues when deploying new cloud-based applications.

Exploitation of vendor systems: Almost every company, especially large companies, rely on a network of vendors to provide services ranging from maintaining the air conditioning to updating software packages. These vendors often have special access to the company’s computers, which I refer to as “side doors,” similar to a passkey given to the cleaning crew.

As large companies have become better prepared to repel cyberattacks, hackers have shifted their attention to vendors, often much smaller companies with limited cyber defense resources and expertise. Attackers exploit those weaknesses to first get into the vendor’s system, then use the vendor’s privileged access to get into the computer systems of every company that uses the vendor.

A vulnerability in a single vendor system can threaten thousands of organizations. Security experts say more than 2,600 organizations around the world were victims of the recent MoveIt attack, in which hackers exploited a vulnerability in a common file-transfer tool to gain access to personal data. Research by cybersecurity-ratings provider SecurityScorecard, meanwhile, found that 98% of organizations globally have a relationship with a vendor that has had a data breach in recent years.

In many cases, companies fall victim to these attacks because they aren’t aware of the risks that they are taking, such as not confirming the quality of a vendor’s security or monitoring whether their outgoing data traffic is being transferred to improper destinations. Organizations can, and must, do these things better to stop the continued rise in data breaches.

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March 15, 2024

Music Festivals Canceled This Year Reveal Rising Costs of Producing Large Events

For four decades, the Riverbend Festival delighted music fans in Tennessee with headlining acts like Lionel Ritchie and ZZ Top, but this year the show won’t go on. “Riverbend is reevaluating and restructuring in order to be successful in the future,” the organizers said on their website. After years of growth, some music festivals are in retreat. At least 10 shows in the US have been canceled this year, according to Bloomberg research. More budget-conscious consumers are a factor, but so are rising costs for staffing, stages and the performers. “Everything’s more expensive, including the artists,” Cameron Collins, founder of festival organizer Brew Ha Ha Productions, said in an interview. Tickets for April’s Coachella Valley Music and Arts Festival are still available for the second weekend after going on sale in January. Delaware’s Firefly Music Festival, which operated for 10 years featuring performers like Green Day and Dua Lipa, said on social media it is taking another year off and will return “when the timing is right.” AEG Worldwide, which owns both festivals, declined to comment. The troubles mirror what’s happening in other consumer businesses, from theme parks to casinos, and reflect tighter budgets after a surge in post-pandemic travel. The cost of going to a multiday music festival can top $1,000, including lodging and travel expenses, not to mention $15 beers. “Concerts are basically the equivalent of a flight somewhere now when you’re paying $200 to $300 for a show,” said Connecticut-based concert fan Patrick Suter. Festival promoters are taking steps to ease the burden. Music lovers can buy two-day tickets to the four days of the Bonnaroo festival in Tennessee, an option some are calling “half a roo.” Beach Life Festival, being held in May in Redondo Beach, California, lowered general admission prices this year, and is including ticketing fees in that number, part of an industry shift toward all-in pricing. Cruel World, another rock festival a week later in nearby Pasadena, waived ticketing fees in a February promotion and still has general admission tickets available. “They sort of start to cannibalize each other,” said Morgan Milardo, managing director of the Berklee Popular Music Institute in Boston. “It splits the market in half really.” Among the other casualties this year: chef Guy Fieri’s Flavortown Music Festival in Columbus, Ohio, which was canceled before its debut, and the Okeechobee Music & Arts Festival in Florida, which is taking a pause. So too is the Beale Street Music Festival in Memphis, which saw attendance fall to its lowest level in three decades last year. The organizer attributed the decline to “economic challenges” and concerns about safety. The tough environment means the organizers could consolidate as larger promoters look to expand into new markets. “Our key executives are out there having those conversations on a daily basis,” said Chamie McCurry, chief marketing officer at festival production company Danny Wimmer Presents. The company runs seven festivals, including Kentucky’s Bourbon & Beyond, where country singer Zach Bryan is headlining and a general admission ticket costs $330. After the Covid-19 pandemic, artists raised their fees to make up for lost income. Vendors are trying to recoup money they lost and pay off debt they incurred to stay afloat during the shutdown. “Costs went up a lot in late ’21, ’22 into ’23, and we’re all applauding now, yes, most of those costs have stopped going up, but they still went up a lot,” Joe Berchtold, the chief financial officer of Live Nation Entertainment Inc., said at an investor conference this month. The largest player in the concert business, Live Nation said ticket sales at its festivals in North America this year are pacing ahead of 2023. The Sea.Hear.Now Festival in Asbury Park, New Jersey, sold out minutes after tickets went on sale on March 7. Local hero Bruce Springsteen was a headliner. “It’s common for a few events to fluctuate or fall off for a variety of reasons, so there’s always a few of those anecdotes,” Live Nation said in a statement. “But on a macro level the live music business is more robust than ever.” Cities, meanwhile, are looking for a way to keep the festivals, which they see as a source of tourism revenue. After a feared cancellation earlier this year, Blues on the Green in Austin, Texas, will return thanks to a vote of support from the city council and a new sponsor.        
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