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Volume 7    Issue 3            May/June  2005

InsuranceTalk
     policy briefs

Auto claims adjusters for insur-ance giant Government Employees Insurance Company (GEICO) have won overtime compensation in a lawsuit filed by an employee against the company in U.S. District Court (Washington, D.C.).

GEICO argued that claims adjusters are exempt from the overtime pay ruling under the Fair Labor Standards Act because they are administrative personnel. One section of the Fair Labor Standards Act states that “any employee employed in a bona fide executive, administrative or professional capacity,” is exempt from overtime pay.

Applying the test for administrative exemption, an administrative employee must earn less than $23,660; the employee’s primary duty must consist of work that is directly related to management policies or general business operations and that duty must include the exercise of discretion and independent judgment. GEICO argued that Jerome Robinson-Smith, the adjuster who brought the suit, was an administrative employee who earned $41,000 per year, making him exempt from overtime pay.

The court disagreed, finding that although the Department of Labor’s final rule noted that the salary was the “best single test” of exemption status, it also said that the test is merely an enforcement method of “providing a ready method of screening out the obviously nonexempt employees.” The court also found that because the auto claims adjusters do not interview witnesses and physicians, do not make recommendations regarding coverage of claims, do not determine liability and do not make recommendations regarding litigation, they do not perform the majority of the duties included in the description of “insurance claims adjuster” found in the August 2004 Regulations as defined in a previous court case. Thus, they cannot be automatically considered exempt.

The judge awarded a partial summary judgment to Robinson-Smith and denied GEICO’s motion for summary judgment.

Property-Casualty Cost of Business Unchanged
The cost of doing business in the realm of property-casualty insurance has neither increased nor decreased over the last two decades Conning Research & Consulting Inc. reported recently in a study titled Expense Revolution: Is the Property-Casualty Industry Overdue? 

Property-casualty insurers have not been able to achieve the efficiency gains or cost deflation other industries, particularly banking, have seen over the last two decades; also, the industry saw an increase of 35 percent in the constant dollar expense per registered motor vehicle between 1982-2002, the report indicated.

The study is available for purchase on the company website, www.conningresearch.com or by calling 888/707-1177.

Insurance Industry Under More Scrutiny
The insurance industry has been under attack for fraud and anti-competitive business practices in a number of states, most notably in New York. Also, California and Connecticut were expected to launch lawsuits against hundreds of brokers and automobile insurers. At issue are alleged price-fixing and bid-rigging in which some insurers and brokers engage and the practice of “contingency commissions” through which insurance companies give brokers additional incentives to provide business to them. Critics contend that such practices keep brokers from treating all insurance companies fairly.

In effect, independent brokers are being scrutinized for steering business to certain insurance firms for profit.

In the first of what is expected to be many such pleadings, a pair of senior underwriters from Zurich American Insurance Co. pleaded guilty to criminal charges late last year as part of New York Attorney General Eliot Spitzer’s probe. 

At the same time, the industry is putting a spotlight on what it believes to be shoddy practices by the auto glass repair and replacement industry. Insurance companies have been notifying customers and press about unnecessary windshield repairs being done by unscrupulous companies and individuals, especially in the West. Insurers also once again have been pointing out the disparity between what some insured pay for windshield replacement through insurance and alleged “cash pricing” provided to individuals not using insurance.


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