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VOLUME 126, NUMBER 16 / October 12, 2015

Serving: New York, New Jersey, Connecticut, Pennsylvania and Washington D.C.

A CINN Group, Inc. Publication

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Contents

October 12 , 2015 | volume 126 number 16

[ COVER STORY ]

[ AD FEATURES]

16

23

DISRUPTION Insurers Face Radical Innovators…and Need to be Among Them

MSO: Dog Bites Liability

[FEATURES] 4

Foreword: Mutual Admiration Steve Acunto, Publisher

6

Insight: Quo Vadis, NARAB? Peter H. Bickford

10

Exposures and Coverages: Crime Insurance News: Bitcoin and Fraudulent Impersonation Coverage Jerome Trupin, CPCU

20

The Social Notebook: Are You Mobile Friendly?

Chris Paradiso

24

On the Level: Why You? Jamie Deapo

26

Guest Opinion: Be Careful About Replacing ObamaCare Marilyn M. Singleton

28

On My Radar: The Most Difficult Problem Facing Insurers Barry Zalma

30

Looking Back: October 1990

32

ViewPoint: Time Marches on but Does It Get Anyone Anywhere?

Martin Carus

16

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20

INSURANCE ADVOCATE / October 12, 2015 3

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[ FORE WORD ]

Steve Acunto

Mutual Admiration

T

he Financial Services Round Table notes that arbitration provides an efficient way for customers to resolve disputes with financial companies. A proposed new rule by the Consumer Financial Protection Bureau (CFPB) could push consumers’ arbitration of dispute resolution options back decades. Arbitration awards customers relief more quickly than lawsuits, which must make their way through a cloyed court system. In class action lawsuits, customers generally receive nominal damages, while trial lawyers garner large sums of money.

Encouraging impartial arbitration advances the possibility for timely and efficient consumer relief. The FSR is working the CFPB and other policymakers to ensure the best dispute resolution options remain available and to identify ways arbitration processes can be improved as needed. …… Speaking of consumers, Prudential Financial, Inc., “Mutuals typically go (NYSE:PRU) has inked an agreement beyond what is normally between its Individual Life Insurance, Annuities and Prudential Advisors busiexpected of an insurer for nesses and the dfree® Financial Freedom the benefit of their Movement to help individuals in the Greater customer/members; New York area through financial education to help protect their families’ financial putting them at the centre future. The independent community-based of the business; from financial education program was developed product development,

by Dr. DeForest B. Soaries, Jr., senior pastor of the First Baptist Church of Lincoln underwriting and Gardens in Somerset, N.J., and creator and investments, to sales, founder of dfree®. …… The International service and claims.…”

Cooperative and Mutual Insurance Federation (ICMIF) has noted that US - Shaun Tarbuck, CEO, ICMIF mutual insurers have continued to outperform the total US market since 2007. The full research was announced to more than 270 delegates from 35 countries at ICMIF’s Biennial Conference in October (6-9) in Minneapolis, Minnesota. USA 2014 key findings state: • The US mutual sector registered a total growth of 29% between 2007 and 2014, compared to a 3.4% growth in the total US insurance industry • Growth of the mutual market exceeded the total US market in six of the previous seven years, with year-on-year mutual market share growth since 2010 • Mutual insurers collectively wrote USD 475 billion in direct premium income • 37.1% share of the total US market • USD 2.6 trillion in admitted assets • Approximately 450,000 people employed • More than 330 million member / policyholders served • Almost 1,800 mutual insurance companies active in the USA • The US is the largest mutual market in the world in terms of mutual insurers’ premium income (contributing around 36% of the global total). It is also the 11th largest market in the world compared to mutuals’ share of the national market (source: Global Mutual Market Share 2013) Shaun Tarbuck, CEO of ICMIF summarizes: “Mutuals typically go beyond what is normally expected of an insurer for the benefit of their customer/members; putting them at the centre of the business; from product development, underwriting and investments, to sales, service and claims. They also demonstrate a far wider level of responsibility by supporting local communities, combating climate change and alleviating poverty. It is these aspects of mutual and cooperative businesses that make them ‘more than’ just insurers.”[IA] 4 October 12, 2015 / INSURANCE ADVOCATE

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VOLUME 126, NUMBER 16 OCTOB ER 12, 2015

EDITOR & PUBLISHER Steve Acunto 914-966-3180, x110 sa@cinn.com CONTRIBUTORS Peter H. Bickford Jamie Deapo Kelly Donahue-Piro Michael Loguercio Christopher Paradiso Lawrence N. Rogak N. Stephen Ruchman Jerome Trupin, CPCU Barry Zalma PRODUCTION & DESIGN ADVERTISING COORDINATOR Creative Director Gina Marie Balog 914-966-3180, x113 g@cinn.com

R

PROOF READER Maria Vano mariavano9@gmail.com SUBSCRIPTIONS P.O. Box 9001, Mt. Vernon, NY 10552 914-966-3180, x117 circulation@cinn.com PUBLISHED BY CINN Group P.O. Box 9001, Mt. Vernon, NY 10552 (914) 966-3180 | Fax: (914) 966-3264 www.cinn.com | info@cinn.com President and CEO Steve Acunto

CINN G R O U P, I N C .

INSURANCE ADVOCATE® (ISSN 0020-4587) is published bi-monthly, 20 times a year, and once a month in July, August, September and December by CINN ESR, Inc., 131 Alta Avenue, Yonkers, NY 10705. Periodical postage paid at Yonkers, NY and additional mailing offices.

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INSURANCE ADVOCATE® is a registered trademark of CINN ESR, Inc. and is copyrighted 2015. All rights reserved. No part of this magazine may be reproduced in any form without consent. Trademark registered U.S. Patent and Trademark Office.

For high-quality article reprints (minimum of 100), including e-prints, contact Gina Balog at g@cinn.com or call 914-966-3180, x113

Robert

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[ INSIGHT ]

By Peter H. Bickford

Quo Vadis, NARAB?

I

nsurance producers can be forgiven for their skepticism toward regulatory efforts to create a uniform national licensing process. Over the past couple of decades, as producers found it competitively necessary to expand their reach beyond their home state, they were introduced to the wonderful world of state individuality – each jurisdiction with its own set of unique licensing requirements, appli-

the major states either did not adopt the Model Act or added their own quirks, preventing universal reciprocity and uniformity.

With the failure of the Model Act to provide the anticipated result, the call for the feds to establish a national registry began anew. After three failed attempts the legislation known as NARAB II was passed by Congress and signed into law in

The National Association of Registered Agents and Brokers is now about to become a reality and not just a carrot dangled before the NAIC. But will this two-decade-old effort to create a uniform national registry provide the promised benefits of one-stop universal licensing for producers?

Peter H. Bickford

cation forms, fees and penalties. This hodgepodge system resulted in growing frustration by producers, not only with the administrative complexity, but also with the gotcha factor – the fines and penalties imposed for running afoul of these often onerous and inconsistent details.

The NAIC attempted to address producer complaints as early as 1996 by establishing the National Insurance Producer Registry (NIPR). However, too few states participated for the registry to provide any significant relief. Congress stepped in through a provision of the 1999 GrammLeach-Bliley Act, threatening the establishment of a national producer registry to be known as the National Association of Registered Agents and Brokers (NARAB) if targets for uniformity and reciprocity among the states were not achieved by November 2002. The threat of federal intervention provided sufficient incentive for the NAIC to adopt the Producer Licensing Model Act, which was adopted by enough states to avoid the creation of NARAB. However, even with advances in electronic filings and the ability of regulators to share information, too many of 6 October 12, 2015 / INSURANCE ADVOCATE

January of this year. The National Association of Registered Agents and Brokers is now about to become a reality and not just a carrot dangled before the NAIC. But will this two-decade-old effort to create a uniform national registry provide the promised benefits of one-stop universal licensing for producers?

When up and running NARAB will allow any of the two million individual and 500,000 business entities licensed as insurance producers nationwide to become members of NARAB with authority to act in all 50 states. To become a member, a producer must be a licensee in good standing in the producer’s home state.

Membership will be voluntary and producers will remain free to continue to be licensed only in states of their choosing by meeting the individual requirements of those states.

But why would a producer elect to continue to be subject to the inconsistencies of individual state licensing requirements? The most obvious reason would be cost. NARAB will be a non-governmental entity that will be funded primarily by application and membership fees (and

fines?). No one knows what NARAB’s fee schedule will look like but it is quite likely that it will not be cost effective for a small or regional producer needing to be licensed in only a few states. While it is hoped that NARAB will have broad industry appeal, it may turn out that the cost of membership in NARAB will only benefit producers that are active on a full or nearly full national level.

Then there is the “devil I know” factor.

Will NARAB’s application process and criteria be more onerous than those of individual states? If NARAB rejects membership, will that rejection affect the producer’s status in its home state or in its ability to seek individual state licenses?

And how will a national registry affect a producer’s relationship with local and regional insurance departments, particularly in dealing with difficult customer issues that are bound to occur in any active business? The Tri-State area is a good example where small firms might choose to remain licensed only in NY, CT and NJ and avoid the national registry altogether for cost and policy reasons.

Even for national producers the benefits might not prove to be all that clear.

The statute specifically provides that the states retain regulatory authority over “market conduct, insurance producer conduct, or unfair trade practices,” and there are a number of provisions regarding disciplinary actions, data sharing and other areas that could continue to result in inconsistent and duplicative treatment at the state level.

One of the more insidious effects of the current fractured system is the practice of multiple state fines for one violation. Failing to report a fine in one state for even a simple clerical error often results in cascading fines from multiple states. If you review the Disciplinary Bulletins issued by the NY Department of Financial Services, for instance, you will see that the most common basis for fines imposed on producers is for failing to timely disclose a fine or disciplinary action by another state, and many of the underlying offenses are for minor continued on page 8

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[ INSIGHT ] continued from page 6

offenses. With states now having access to the electronic records from other states, this “gotcha factor” has become a dependable revenue source for regulators, much to the continuing chagrin of producers.

If producers were hoping that the establishment of NARAB would eliminate these cascading fines, that hope might not materialize. Yes, the law proscribes that states cannot take any action to “impede the activities of [or] take any action

against” any producer because that producer is a member of NARAB. However, you do not have to look any further than the decades-old interference by states with risk retention groups formed under the federal 1986 Liability Risk Retention Act to understand the potential for state shenanigans.

NARAB II provides plenty of room for state regulatory mischief, and it would not be much of a stretch to believe that several of the larger states – particularly those such as New York that have never fully adopted

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NARAB II provides plenty of room for state regulatory mischief, and it would not be much of a stretch to believe that several of the larger states – particularly those such as New York that have never fully adopted producer licensing reciprocity – would try and use this retained authority to condition access to their markets. producer licensing reciprocity – would try and use this retained authority to condition access to their markets.

Finally, there is the issue of when this will all happen. The law does not go into effect until the later of two years after it became law or until NARAB is incorporated. So the earliest that NARAB can function as a national registry is January 2017 – twenty-one years after NAIC’s first attempt at a nationwide registry through NIPR. More than likely, however, it will be well after that date before NARAB is functional. Consider that the law specifically requires that its first board “shall be made no later than 90 days after the date of enactment.” That date has come and gone twice over.[IA] Peter Bickford has over four decades of experience in the insurance and reinsurance business, with particular focus on regulatory, solvency, agency, alternative market and dispute resolution issues. In addition to his experience as a practicing attorney, he has been an executive officer of both a life insurance company and of a property/casualty insurance and reinsurance facility. A complete biography for Mr. Bickford may be accessed at www.pbnylaw.com.

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[ EXPOSURES AND COVERAGES ] Crime Insurance News: Bitcoin and Fraudulent Impersonation Coverages Bitcoin Comes to Insurance Bitcoin seems to be, as Winston Churchill said about Russia, a riddle wrapped in a mystery inside an enigma.

Even the name Satoshi Nakamoto, the one claimed to have developed Bitcoin, seems to be an alias for some other person or persons. Nevertheless, in many ways using Bitcoin is not that different from what you may already be doing if you pay bills online and have payments electronically deposited. If that’s how you handle your finances, you may never have any physical contact with a bank. Bitcoin works similarly except that there isn’t any bank at all.

In fact, there’s no third party involved, not even the government. When you buy Bitcoins, the transaction is recorded on a digital ledger. When you use them to make a payment, they’re transferred from your account to the other party’s account.1 The anonymity of Bitcoin transactions may be the key attraction for anti-government types and criminals, but Bitcoin’s appeal is much broader.2 In addition to anonymity, supporters of Bitcoin cite as its advantages: instant transfers, lower use fees, international flexibility, and greater privacy.

Bitcoin and other types of virtual currency, also referred to as digital currency or crypto currency, are gaining users.

Worldwide, the number of retailers accepting Bitcoin is estimated at more than 100,000. In the US that includes Microsoft, Dell, Wikipedia, Twitch, Greenpeace, Expedia and PayPal. 3 A car dealer in Southern California says a customer bought a Tesla Model S with a (virtual)

stack of Bitcoins.4 (A follow-up article pointed out that the dealer actually had the customer convert the Bitcoin into US dollars just as if he wanted to pay in a foreign currency.)

A recent article described Bitcoin this way: “A Bitcoin is nothing more than a unique string of numbers. It has no independent value, and is not tied to any realworld currency. Its strength and value come from the fact that people believe in it and use it. Anyone can download a Bitcoin wallet their computer and buy Bitcoins with traditional currency from a currency exchange... Transactions are secure, fast, and free, with no central authority controlling value or supply, and no middlemen taking a slice.” (Sue Halpern, “In the Depths of the Net,” New York Review of Books, October 8, 2015, page 55.)

Cryptography is used to secure transactions, but hacking is always a possibility.

Federal Reserve Chairwoman Janet Yellen says the Fed has no authority to regulate it, which means, among other things, no Federal Deposit Insurance protection.

Since it works in many ways like paper money, checks, and bearer securities, there are obviously loss exposures to be insured.

Insurers argue that standard money and security coverage would not apply to digital currency, but some courts have ruled that Bitcoin is money or a security. In one case, an online investment trust that invested in Bitcoin promised an incredible seven percent per week return.5 The SEC accused it of being a Ponzi scheme. The trust replied

By Jerome Trupin, CPCU

Jerome Trupin

Jerome “Jerry” Trupin, CPCU, is a partner in Trupin Insurance Services located in Briarcliff Manor, NY. He provides property/casualty insurance consulting advice to commercial, nonprofit and governmental entities. He is, in effect, an outsourced risk manager.

Jerry has been an expert witness in numerous cases involving insurance policy coverage disputes and has taught many CPCU and IIA courses.

Jerry has spoken across the country on insurance topics and is the coauthor of over ten insurance texts used in CPCU and IIA programs including Commercial Property Risk Management and Insurance and Commercial Liability Management and Insurance. He regularly contributes articles to CPCU Society publications, the Insurance Advocate, and others. He can be reached at jtrupin@aol.com. Thanks to Jerry Trupin for this article and to the CPCU Society for letting us reprint it.

continued on page 12

1 Bitcoin fluctuates in value in dollars just as foreign currency and gold do. Bitcoin hit a high in US dollars of $1145 in November 2013. This year it has traded in the low to mid $200 range. At this writing, it’s $244. The high for gold in the past 10 years was $1889 in 2011. The low was $457 in 2005. The current price of gold is in the $1100 range.

2 The NY Department of Financial Services has announced proposed regulations for virtual currency companies operating in New York, which includes rules on consumer protection, the prevention of money laundering and cyber security. It’s the first proposal by a state to create guidelines specifically for virtual currency.

3 Anthony Cuthbertson “Bitcoin now accepted by 100,000 merchants worldwide” International Business Times February 4, 2015 http://www.ibtimes.co.uk/bitcoin-now-accepted-by-100000-merchants-worldwide-1486613 4 ‘We just sold our very first vehicle with Bitcoin as payment!” Lamborghini Newport Beach December 14, 2013 lamborghininewportbeach.blogspot.com/2013/12/we-just-sold-our-very-first-vehicle.html#comment-form

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[ EXPOSURES AND COVERAGES ] continued from page 10

that since Bitcoin is not actual money, the SEC did not have jurisdiction. United States Magistrate Judge Amos Mazzant of the Eastern District of Texas ruled that the SEC could proceed with its lawsuit against Shavers because “Bitcoin is a currency or form of money.”6 On the other hand, the IRS has defined Bitcoin as property, not a currency. If your client is looking for insurance for virtual currency, relying on debatable court precedents is not a good idea.

Your client needs real insurance.

In 2014, Great American became the first US insurer to offer crime insurance for virtual currency. In its 2015 crime coverage revision, ISO has jumped in.

ISO is closing the door to claims that a standard money and security policy covers virtual currency by adding an exclusion to its crime forms: This insurance does not cover…

Virtual Currency Loss involving virtual currency of any kind, by whatever name known, whether actual or fictitious including, but not limited to, digital currency, crypto currency or any other type of electronic currency.

For those who want coverage, ISO has created a new optional endorsement: Include Virtual Currency as Money (CR 25 45 11 15). The endorsement contains a schedule listing the name of the currency, the name of the exchange, and the limit of coverage applying to virtual currency.

Coverage is provided by adding the following exception to the exclusion shown above: However, if a Virtual Currency Limit of Insurance is shown in the Schedule, we will pay up to that amount for loss of virtual currency shown in the Schedule.

The definition of money is amended to include the virtual currency shown in the schedule. Because virtual currency does not have a face value, the valuation clause for virtual currency is changed from

face value to the value at the close of business on the day the loss was discovered, as published by the exchange shown in the schedule. The insurer has the option of replacing the currency or paying its value in US dollars at the time of the loss.

ISO’s filing has a date of 11/1/15 in most states (including New York, New Jersey, and Connecticut) but will not be available from a company that uses ISO forms until the state has approved the filing and the company has adopted it.

PRACTICE POINTER: What should you do about this coverage? Chances are that few, if any, of your insureds are accepting virtual currency. However, some might be. If you send regular correspondence to your clients and prospects, include a note about the availability of Bitcoin and other virtual currency coverage. Even for those who don’t have the exposure, it will demonstrate that you’re keeping up with new developments in the industry. If you don’t regularly correspond with your clients, why don’t you?

Fraudulent Impersonation Fraudulent impersonation coverage is a hot topic with crime underwriters. Many of the leading specialty crime insurers that use their own forms already have coverage available. (Some call it “social engineering coverage,” but the intent is the same.) ISO endorsements are filed to be effective 11/1/15. Fraudulent Impersonation coverage endorsement would provide coverage for the loss of money, securities, or other property due to an employee having, in good faith, complied with a transfer or delivery instruction that an impostor fraudulently transmitted.

A leading crime insurer illustrates the coverage this way: “A company’s accounts payable manager received an email that appeared to be from a familiar overseas supplier. The email requested the company’s bank account be changed for its next payment. Because the supplier

was overseas the new bank account details couldn’t easily be verified.

After the manager tried unsuccessfully to reach the bank, the supplier’s emails became more urgent to pay the invoice, worth about $250,000.

Eager to keep the supplier happy, the manager made the change and wired the money to the new bank account.

The next day, the real supplier called the manager in a panic to say it had been hacked and someone was posing as the supplier to customers. The supplier offered an apology … and then mentioned the matter of the unpaid bill.”7 Bob Olausen, Crime Commercial Lines Manager at ISO wrote this about fraudulent impersonation exposures: The Federal Trade Commission reported on one…popular impersonation scam, sometimes called “masquerading.” As part of the scam, the hacker poses as a senior executive and asks an employee to complete a confidential business investment or a payment to a vendor. The unwitting employee complies, wires the money to a bogus account managed by the hacker, and it’s gone.

According to an alert issued last year by the U.S. Internet Crime Complaint Center (IC3), the average dollar loss per victim was approximately $55,000, with some exceeding $800,000. In certain cases, the losses can be even greater….[A] federal grand jury charged a Florida man with stealing nearly $2.3 million from a global technology company by posing as its chief financial officer.8 continued on page 14

5 The innumeracy of the duped investors is astounding. An investment that yielded seven percent per week would double in 10 weeks and increase 33.7 times in a year—-$1,000 would become $33,700. They didn’t remember the adage: If it’s too good to be true it probably is.

6 Securities and Exchange Commission v. Trendon T. Shavers and Bitcoin Savings and Trust, Civil Action No. 4:13-CV-416 7 “Social Engineering Fraud Endorsement” Chubb ForeFront Portfolio 3.0SM Crime Insurance http://www.chubb.com/businesses/csi/chubb19110.pdf 8 Robert Olausen Innovations in Crime: Impersonating Executives Verisk Analytics https://www.verisk.com/blog/cyber/innovations-in-crime-impersonatingexecutives-and-stealing-virtual-currency/

12 October 12, 2015 / INSURANCE ADVOCATE

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[ EXPOSURES AND COVERAGES ] continued from page 12

The telephone is just one way to trigger a fraudulent impersonation loss that’s not covered by standard crime or cyber insurance. Another is email phishing. It’s estimated that sending phishing emails to just 10 employees of a firm will get vital information from at least one of them 90% of time. Cyber-security experts say that there are over 260 million phishing emails sent every day.9 The standard ISO crime form contains an exclusion that would exclude coverage for most of these schemes: f. Transfer or Surrender of Property (1) Loss of or damage to property after it has been transferred or surrendered to a person or place outside the premises or banking premises: (a) On the basis of unauthorized instructions; Coverage is available using the optional endorsement to the ISO Commercial Crime Coverage Form (Fraudulent Impersonation CR 04 17 11 15). It can close some of the gaps. Here are the ISO endorsement’s insuring agreements: Fraudulent Impersonation 1. Employees…We will pay for loss resulting directly from your having, in good faith, transferred money, securities or other property in reliance upon a transfer instruction purportedly issued by: a. An employee, or any of your partners, members, managers, officers, directors or trustees, or you (if you are a sole proprietorship) if coverage is written under the Commercial Crime Coverage Form or Com-

mercial Crime Policy…

2. Customers and Vendors…We will pay for loss resulting directly from your having, in good faith, transferred money, securities or other property in reliance upon a transfer instruction purportedly issued by your customer or vendor, but which transfer instruction proves to have been fraudulently issued by an imposter without the knowledge or consent of the customer or vendor.

(I’ve omitted the wording for government crime coverage forms. It’s similar to the commercial forms.)

At first glance that looks pretty good, but, as one of my favorite insurance mavens is fond of saying: RTFP—-Read the fine print. The endorsement defines customer and vendor as follows: Customer is someone to whom you sell goods or provide services under a written contract. A vendor is someone from whom you purchase goods or receive services under a written contract. I’ve emphasized “under a written contract,” because business is often conducted over the phone without ever reducing it to writing.

Goodbye coverage. Email has reduced the reliance on verbal contracts, but often the email trail is not complete enough to establish a true contract.

Insurers using their own forms are often more liberal in their definitions. One insurer’s form is silent about a written contract requirement for a customer and defines a vendor as someone who has provided goods or services under a legitimate pre-existing arrangement or written agreement. The key word is “or”; the pre-existing arrangement standard would not

require a written contract.

Loss control is a key factor in reducing the exposure to fraudulent impersonation.

Most applications ask for details about how the applicant verifies customer information before initiating financial transactions, as well as what types of vendor and supply controls and voice and electronic initiated transfer controls are used. I suggest recommending that clients review the items in a fraudulent impersonation application to improve their security even if they don’t purchase the coverage.

Some forms require verification of all transfer transactions as a condition of coverage. The ISO form has options to specify levels of verification. The insured may be required to verify all transfer instructions, verify just those in excess of a stated amount or not be required to verify at all.

There’s no definition of what’s meant by “verify.” One company requires callback verification; some insurers’ forms have no verification requirements at all in the policy, although they generally ask about them in the application.

PRACTICE POINTER: This coverage is not expensive. A firm with over 300 employees and annual sales over $100 million was quoted a premium of $418 for a $250,000 limit. (One of the shortcomings of the current market for this coverage is the low maximum limit that most insurers are willing to provide.) Next, check the coverage terms with several insurers. Be sure that coverage matches the insured’s operations. Tell your clients about the availability of this coverage. Just about every firm is a potential victim. [IA]

9 “10 Tips on How to Identify a Phishing or Spoofing Email” UNC Kenan-Flagler Business School https://extranet.kenan-flagler.unc.edu/sd/Pages/10-Tips-onHow-to-Identify-a-Phishing-or-Spoofing-Email.aspx

®

YOU WANT TRUSTED CHOICE

YOU NEED IIABNY. 14 October 12, 2015 / INSURANCE ADVOCATE

The association who give you access to the brand of the independent insurance agent.

www.iiabny.org/join T

10-12-15_INA 10-12-15 10/19/15 1:18 PM Page 15

In nssu urranc nce Advocate

ÂŽ

Contactt Information

Investment Banking for the Insurance Sector Agency and Brokerage Valuation Mergers & Acquisition Advisory Capital Raising Business Process Consulting Shareholder Advisory

CINNMEDIAInc. 914.966.3180 Ext. 110 aquilan@cinn.com STEVE ACUNTO _______ TAG Financial Institutions Group, LLC Empire State Building 350 Fifth Ave, Suite 5310 New York, New York 10118 212.993.7430 www.tagfingroup.com Steven H. Nigro Managing Partner snigro@tagfingroup.com Kieran D. Pinney Principal kpinney@tagfingroup.com

TAG Financial Institutions Group, LLC An affiliate of The Alberleen Group and in association with Cuttone & Company, Inc. | Broker/Dealer Partner | Member NYSE/FINRA/SIPC | www.cuttone.com

10-12-15_INA 10-12-15 10/19/15 1:18 PM Page 16

[ COVER ]

KPMG: INSURANCE SECTOR STRUGGLING TO INNOVATE “The heat of disruption” challenges status quo and redundancy A new KPMG report hits home.

It is the rare insurance executive who would argue that innovation will drive a company’s competitive advantage and growth, yet most labor to spark innovation within their organizations. A new KPMG International report states that 48% say they are already being disrupted by new, more nimble, competitors.

Based on a survey of 280 insurance executives from around the world and a series of one-on-one interviews with insurance leaders and new entrants from the world of FinTech, the report, entitled “A new world of opportunity: The insurance innovation imperative,” finds that the need to innovate is already creating heavy pressures for the insurance sector. Most survey respondents see innovation as a significant opportunity, with 83 percent saying that their organization’s future success is closely tied to its ability to innovate.

“Insurance customers, shareholders and employees demand innovation,” noted Mary Trussell, KPMG International’s Insurance Innovation and High Growth Markets Global Lead, and author of the report. “Indeed, they expect it, not only from technology providers and device manufacturers, but also from their insurance providers. Insurance organizations can no longer do ‘more of the same’ and expect to grow.”

It’s not just up-starts that are creating innovation challenges for the insurance sector. Four-in-ten respondents to the KPMG International survey say that increased competition from their existing competitors would create significant challenges over the next two years.

However, the report also finds that while insurers clearly recognize the innovation imperative, most are struggling to catalyze innovation within their own organizations.

More than three-quarters (79 percent) say that they are already running just to keep up with their day-to-day requirements. Slightly fewer (74 percent) say they lack the internal core skills needed to drive innovation.

16 October 12, 2015 / INSURANCE ADVOCATE

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[ COVER ] “Insurers and intermediaries are increasingly finding that there is no ‘silver bullet’ to create a more innovative organization; no ‘off the shelf ’ package that drives new ideas,” noted Gary Reader, Head of Global Insurance, KPMG International.

“Instead, organizations will need to navigate their own path through this new world of opportunity, developing new business and operating models and new partnerships in order to out-compete and out-innovate their peers and bold new entrants.” The KPMG International report – which contains

percent other. Of the organizations surveyed, 32 percent indicated their global revenues exceed $5B USD; 33 percent said they have between $500M and $4.9B in global revenue, and 36 said their global revenue is less than $500M. The full report can be downloaded at www.kpmg.com/ insuranceinnovates.

The International Insurance Society (IIS) deserves credit for supporting the effort. IIS brings together key decision makers from the industry to combine their knowledge of regulatory issues, finance, and governance, utilizing world class research as a force to drive global industry growth and innovation. The IIS’s signature annual event, the Global Insurance Forum, is considered to be among the premier industry conferences attended by 500+ insurance leaders from around the globe.

The fact that technology and innovation have created a new world of opportunity for individuals, businesses and society is obvious. Only slightly less obvious - Gary Reader, KPMG International is that the future will be shaped by those who are innovating today. For the insurance sector, this is not just a fact, it’s an insights, articles and quotes from top executives, board mem- imperative. bers and CEOs at both traditional insurance organizations The reality is that customers, investors and employees and new entrants – identifies a number of key focus areas for demand innovation. those insurers seeking to enhance the results from investment Indeed they expect it, not only from technology providers in innovation. From cultural transformation through to re- and device manufacturers, but also from insurance organithinking business models, the report leverages the KPMG zations. Insurance providers can no longer do ‘more of the network’s experience to provide practical advice and valuable same’ and expect to grow. viewpoints to help the insurance sector innovate.

This innovation imperative is not a simple equation. There With two-thirds of survey respondents saying they already is no ‘silver bullet’ to create a more innovative organization; no look to other industries for inspiration and innovation models, ‘off the shelf ’ package that drives new ideas. Instead, insurers the KPMG International report also includes leading insights and intermediaries will need to navigate their own path through from other fast-moving industries and sectors such as auto- this new world of opportunity, developing new business and motive, retail, healthcare, and technology, as well as functional operating models and new partnerships in order to out-comviewpoints on areas such as customer focus, people and pete and out-innovate their peers and bold new entrants. change, and models to encourage innovation.

Striking a path for innovation needn’t mean starting from “Striking your own path for innovation does not mean scratch. Instead, it is about leveraging wins and experiences, starting from scratch,” added Mary Trussell. “Instead, it is about leveraging experiences and successes including the ideas of others to create new propositions and approaches to delight customers and create value. It’s about learning from both traditional competitors and new disruptors. And it’s about shamelessly borrowing - Martin Mueller, Swiss Re best practices and new ideas from outside the insurance sector and its traditional allies.” including the ideas of others, to create new propositions and KPMG International conducted an online poll in April approaches to delight customers and create value. It is about 2015 with 280 insurance industry executives across 20 coun- learning from both traditional competitors and new disruptors. tries. Sector profiles include: 25 percent Life and Health, 23 And it is about shamelessly borrowing best practices and new percent Property and Casualty, 29 percent Composite and 23 ideas from outside the insurance sector and its traditional allies.

“... driverless cars, machine learning, home sensors and ‘robo-agents’ empowered with artificial intelligence offer a world of opportunity for insurers.”

“Innovation is about making larger changes – new products, new ways to interact with customers, new channels and agile responses to new technologies and advances – that’s real innovation.”

INSURANCE ADVOCATE / October 12, 2015 17

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[ COVER ] “New technologies are reducing losses and costs while saving lives and increasing customer satisfaction, increasing risks and driving new business models and consolidation within the industry. New advances such as driverless cars, machine learning, home sensors and ‘robo-agents’ empowered with artificial intelligence offer a world of opportunity for insurers,” added Gary Reader. However, our data suggests that North American organizations lag behind their European and Australian peers when it comes to digital. Just 38 percent of North American respondents say they see opportunity in digital, versus 61 percent of Australian respondents and 55 percent of those from Europe. As well as an enabler of growth, most see technology as an enabler of better service and greater efficiency. Sixty percent of all respondents said that improving the use of technology was a top-three opportunity for their organization. Perhaps not surprisingly, mid-sized firms (those with between US$500 million and US$5 billion in revenues) were most likely to see opportunity in the improved use of technology, suggesting that many are only now starting to get their technology house in order.

What is your organization’s primary growth strategy in the next 2 years?

KPMG insights: • The objective of innovation should be to drive growth by delighting customers, either through improved efficiency, more customer-centric products and services or through new channels and approaches.

• Advances that improve operational efficiency are ‘table stakes.’ To create true competitive advantage through innovation, insurers and intermediaries need to rethink – from sales channels and marketing to business models and partnerships.

• Today’s digitally-enabled customers (both B2C and B2B) demand continuous innovation and improved access and service.

Those unable (or unwilling) to meet shifting customer demands will quickly be surpassed by more nimble and innovative competitors.

• Digital channels are challenging existing value propositions, resulting in new battles to retain existing customers and attract new ones.

Actions:

However, our research and experience suggests that some respondents may be overly focused on incremental, operational innovation rather than more strategic, market shaping innovation. Just six percent of respondents said their growth strategy over the next two years focused on offering wholly new products and services to existing or new customer segments.

Instead, 31 percent said their primary focus was on enhancing existing products and services.

“I don’t see incremental changes to products as ‘innovation’ per se,” argued Martin Mueller, Head of Group Strategy and Development at Swiss Re, one of the largest global reinsurers.

“To me, innovation is about making larger changes – new products, new ways to interact with customers, new channels and agile responses to new technologies and advances – that’s real innovation.” A number of insurers and intermediaries have, however, recognized that they need to evolve more radically to defend against new competitors and continue to grow their business. Slightly more than a quarter (26 percent) of respondents globally said their primary growth strategy focused on developing new products and services, albeit related to existing service offerings. [IA] 18 October 12, 2015 / INSURANCE ADVOCATE

• Think carefully about what you hope to achieve from innovation.

Then plan how to combine resources, data, technology and capabilities to achieve those objectives.

• Go beyond operational improvements to focus on growth. Often the two go hand-in-hand, enhancing online applications for example, can improve efficiency.

• Consider how best to combine longer-term and higher-risk projects with shorter-term initiatives that deliver quicker wins.

• Think about how you can make insurance simple for your customers (however sophisticated) and make your organization easy to do business with.

• Stay ahead of trends in the markets and with customers you serve. This can enable better use of new technologies which, in turn, can help enable the development of new products and services.

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10-12-15_INA 10-12-15 10/19/15 1:18 PM Page 20

[ THE SOCI AL NOTEBOOK ]

By Chris Paradiso

Are you Mobile-Friendly?

U

nless you’ve been living under a rock for the last few years, you’ve probably caught wind of the Mobile vs. Desktop marketing saga, relating to customers actually buying products online from a desktop, versus buying and searching for products from their smartphone.

When four out of five consumers shop on their smartphones and 40% or more of

to do in the first place.

This leads us to an unpopular answer, which is that it depends entirely on your agency’s mobile strategy, wants, and needs as a whole. So the very first question is this: do you have an understanding of what you and your agency want to get out of a mobile marketing strategy?

With apps taking a whopping 80% or more chunk of our overall mobile usage (including social media networks and games alone, which account for around 50%), it can be argued that a web search will deliver richer results and information than an app store search could.

Chris Paradiso

these customers/prospects will abandon a website if it is not mobile-friendly, it shows that this battle is in its final round. Google also weighed in earlier this year with the announcement that mobile-friendly sites would achieve a better ranking in search results (SEO) than websites that aren’t mobile ready. The question is, then, is your agency website mobile-friendly (responsive)?

I’m not saying that websites that are exclusively built for desktops have completely bit the dust, but the odds are firmly in the pocket-sized opponent’s corner and by a wide margin. Mobile may have its eyes set firmly on the prize, but this leads us to think about our next battle.

The Battle of the Native App vs.

Responsive Website The first question is do you understand the difference between the two? If not, then you can read up on it here. The second question is which one should you choose?

The ideal answer to this last question is both, because each strategy can be extremely beneficial in different ways if they are implemented correctly. Of course, this is not always a viable option for everyone, whether it be for financial reasons, or in terms of workload, in which case trying to cut corners could hinder what you set out 20 October 12, 2015 / INSURANCE ADVOCATE

Your Agency’s Reach If attracting new customers is the main aim of your primary marketing goal, a mobile-friendly website may be the more attractive option for you and your agency.

SEO opportunities and links will take potential customers/prospects directly to your agency’s site with relative ease, whereas the marketing you employ for an agency app may not be directly connected.

The app will be mostly centered on directing customers to an app store where they could then choose to download your agency’s app, instead of directing them toward a website.

A mobile responsive website is accessible by all mobile users including those on smartphones, iPads, and other tablets without the need to download anything. This is particularly important for agencies looking to grow. On the flip side, by having an agency app, you can and will be able to give your customers and clients a 24/7 service, which will also help your agency grow and save you money long term.

If your mobile site is nothing more than a link with instructions to download an app, this could be a major turn off to prospects who have not heard of your agency before.

Think about it, installing an app is a commitment, and users need a good amount of

knowledge and/or a very good reason to give up that storage space on their mobile device.

With apps taking a whopping 80% or more chunk of our overall mobile usage (including social media networks and games alone, which account for around 50%), it can be argued that a web search will deliver richer results and information than an app store search could. But, this is still an opinionated debate, and you will find that people argue both sides of this battle.

Building Loyalty to your Agency If developing and maintaining a loyal base of existing customers is your number one priority, the native app is a great choice for you to embrace. Our agency uses an app specialized for the insurance industry called Go Insurance Agent, which has helped us with customer loyalty and overall customer experience. The consumer has to make the choice to adopt your agency app, and is therefore already engaged with your message and or your agency’s brand. This makes them much more open to your marketing communication and gives you more up-selling opportunities.

Some benefits of the app are that it allows you to put your own agency’s brand and spin on the interface. Also, perhaps you have a particularly attractive or convenient feature that is only accessible through your app. It could also be argued that some app strategies succeed more for the larger, more well-known brands, because consumers will know what to expect. That being said, I personally feel that an agency app is not just for well-known brands, but also for the agency owner who is serious about giving a great customer experience. Yes, your agency not only needs an app, but you also need to implement a strategy to get as many of your clients as possible to download and use it!

However, if you and your agency decide to get an agency app after reading this article, please remember that your decision is only half the battle. The next thing your agency has to do is make sure it doesn’t lay dormant amongst all of the other forgotten continued on page 22

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[ THE SOCIA L NOTEBOOK ] continued from page 20

digital toys. An app that doesn’t get used won’t do you or your agency any good.

One of the most exciting features of our agency app is the ability to send push notifications to everyone who has downloaded it, which is arguably much more direct and powerful than something like an e-mail marketing campaign that is delivered to prospects who filled out a form on your website. The user does not have to go into their email app and open the message – it is shot directly to their home screen in a short burst which has a 99.9% visibility rate.

That is very powerful to your agency’s marketing and brand.

Having the right agency app will also provide a lot of data on how customers are using it, which is one of the things that I love about ours. I have a dashboard to track what my clients are doing with my app, and this type of data paves the way for creating personalized offers, and makes communication from your agency to your customers an easy and personable experience.

This is not to say that your agency website can’t collect data or personalize the consumer experience, but a downloaded app has less barriers to the user and requires less action for the agent. Having an app also allows your agency to be directly connected to each of your customers. I’ve recently read a report that over 50% of app users will optin for push notifications, so be sure your personalized push notifications are targeting the right half!

Your Customers’ User Experience Again, the native app is built for champions. I’m a huge supporter of both sides of the spectrum, but from the native app user’s point of view, it really is convenient due to the fact that rather than being built to adapt to the mobile operating system, it is created specifically for it. This provides numerous advantages for the consumer/customer’s user experience. The native app does not have to rely on third party apps to be accessed. This eliminates the worry of having slow-loading pages brought on by outof-date browsers that are struggling to process a wealth of information.

The big deal with the user experience ring, however, is the fact that the native app can integrate mobile assets and links to oth22 October 12, 2015 / INSURANCE ADVOCATE

er native apps, which is something a mobilefriendly website simply cannot do. Each individual user can allow the app to access things such as their camera, insurance cards, picture of claims, their location, and social media apps, which paves the way for your team to be really creative with the special features you develop and implement.

While the ability to utilize mobile assets is attractive, it’s important to keep in mind how useful this would be to your agency, because your social media marketing can benefit hugely from these capabilities and we can give our customers a great experience in the process.

Maintenance Development and maintenance are key considerations when you enter any sort of technical project for your agency, and that very much so applies to choosing between a native app and a mobile optimized website. I’m not asking you to choose one or the other, I’m asking you to accept both with open arms, because your agency can’t afford to have one without the other.

Upgrading your website to a mobile responsive design is likely to cost significantly less in most cases, or even nothing at all. Buying an agency app will cost you more, but it won’t be a lot of money and if you go to the carrier you write the most amount of business with, they probably will pay for it for you.

Maintenance will also be essential, and could prove costly if you develop an app for your own agency. There are already great ones made for us agents, and there is no real reason for us to do develop our own. I have gone down both roads and have settled in with one amazing app for my agency. I have no worries about maintenance other than a small set fee. If the platforms and devices that it runs on undergo significant updates, you will likely have to update your app too in order for it to keep working correctly on the relevant devices, but if you buy it from a respectable app company you will not have to worry about any of this.

Maintenance of responsive websites, though still requiring a technical team, would be much simpler and cheaper.

Purchases Though there are a wealth of other considerations, recent research suggests that consumers favor mobile websites over

native apps when making purchases.

Regardless, let’s think of an app for your agency as a communication tool, because it’s where a client can communicate with you with one touch of a button.

This may be surprising for some, however when we consider that smartphone users dedicate only five percent of their overall usage to shopping (think beyond shopping), it starts to make a little more sense. Device memory space is precious, and if an app is not being used regularly, then it may get deleted.

The only definitive answer here is that you need to have a mobile medium, or you risk losing out. A responsive website is the best place to start, and particularly valuable in the insurance industry, where consumers are notorious for shopping around and less able to justify the permanence of an app.

It’s true that a mobile app can help to bring back existing customers and is more exciting on a superficial level, but it also requires considerably more resources and creativity. Optimizing your website for mobile is more cost-effective, and an app is a risky investment if you are just getting started in the mobile arena. So don’t go out and try to develop your own agency app; look for companies like Go Insurance Agent and then make the purchase.

The native app may be the new kid on the block but the responsive website is by no means out for the count – ensure your agency’s website is optimized first and foremost, then get out there and find the right app that fits your agency. [IA] Christopher Paradiso, CPIA, is President of Paradiso Financial & Insurance Service. He has been acknowledged by several insurance publications as a leader in the industry for his use of digital marketing and social media to help brand his agency and promote other small businesses within his community.

Chris has also been recognized for his charity work with The Connecticut Children’s Medical Center.

In 2011, Chris introduced “Paradiso Presents LLC,” a social media program aimed at teaching small agencies to not only survive, but compete in today’s complex online marketing world.

Chris resides in Stafford Springs, CT with his wife and two children, Mia and Gianni.

10-12-15_INA 10-12-15 10/19/15 1:18 PM Page 23

ADVERTORIAL

Dog Bite Liability DOG BITES OR DOG-RELATED costs were responsible for more than one-third of all homeowners liability dollars paid out in claims, or over $530,000,000. (www.iii.org) According to the American Pet Products Association, there are over 56 million households with over 83 million dogs in the United States. Helping clients understand the risks and responsibilities of pet ownership is another value-added service of the professional insurance agent.

Homeowners insurance historically has covered liability for dog bites. In recent years, the increasing number of incidents has prompted many insurers to attempt to exclude certain breeds of dogs, or dogs that are known to be dangerous. In some cases, homeowners have been unable to purchase coverage, or had their policies cancelled due to the presence of a certain breed of dog.

While some dog owners may feel that these measures are unfair, the statistics do bear that out.

The Centers for Disease Control advises that one in five bites per year, or approximately 885,000, are serious enough to require medical attention. In 2012, more than 27,000 people had reconstructive plastic surgery as a result of dog bites. The average cost in 2014 was over $32,000 per claim. There were 37 dog-related deaths in 2012.While New York had only the third highest number of claims at 965, it registered the highest average cost per claim in the country: a startling $56,628. California led the United States with 1,867 claims and Ohio was second with 1,009. The actual number of claims has decreased over the years, but the cost per claim has increased over 67% since 2003. (www.iii.org) Breed banning is not just an insurance issue. Over 700 cities have passed laws banning certain dog breeds since the 1980s, when fighting dogs (usually pit bulls) became more popular as pets.

Forty countries have dangerous dog breed laws.

Historically, according to dogsbite.org, pit bulls have been involved in the vast majority of attacks.

…in more than twothirds of dog bite cases, the attack was the first known aggressive behavior of the dog.

In the 10-year period from 2005 to 2014, pit bulls killed 203 Americans and accounted for 62% of the total recorded deaths (326). Combined, pit bulls and rottweilers accounted for 74% of these deaths. A 2010 study showed that during the period from 2006-2008, 18% of fatal dog attacks occurred off the owner’s property. In 2013, for example, over onethird of the victims of fatal dog attacks were living or staying with the dog’s owner at the time of the attack. (www.dogsbite.org ) The person who owns or harbors a dangerous dog is responsible for medical bills. In addition, they may be subject to a fine, or punitive damages, especially if the dog has attacked before.

The victim’s lost income and pain and suffering are also compensable.

With respects to dog bite liability, New York is a “mixed state.” (http://dogbitelaw.com/ ) A limited degree of strict liability is coupled with the one bite rule.

Strict liability holds the owner or “har-

borer” of the animal liable for medical and/or veterinary costs, if the animal was previously determined to be dangerous. For other damages, New York requires that the victim prove the dog had dangerous tendencies and that the owner knew it. New Jersey is another state that is considering stricter leash and fence laws in an effort to further control large breeds and prevent attacks.

Pet owners sometimes will state that their dog has never hurt anyone. Unfortunately, in more than two-thirds of dog bite cases, the attack was the first known aggressive behavior of the dog.

Family or friends’ pets are responsible for the majority of dog bites.

If a dog owner is uninsured for the dog bite liability, society as a whole ends up paying for the medical bills and other expenses of the victims. Man’s best friend should not be a liability. Helping clients understand the potential risks, and how to reduce their exposure, is another sign of the true insurance professional.

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INSURANCE ADVOCATE / October 12, 2015 23

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[ ON TH E LEVEL ]

By Jamie Deapo

Why You?

W

hy would someone choose you to handle their insurance protection? What makes you better than all the other providers out there?

Do you really know what your customers think about you and your agency? Do you have any idea what consumers are looking for in an insurance provider?

Why choose you, has come up a lot lately in conversations with independent agents.

Surprisingly, they wonder what differentiates them from other independent agents out there.

Either they’ve choJamie Deapo sen not to worry about all the other ways to buy coverage or they’re just looking to corner the market on consumers looking for an independent agent. In any case, if you and your staff can’t easily articulate what makes you different, with rea-

sons that resonate with consumers, then you will struggle with attracting new clients.

To be successful everyone at your agency needs to become customer driven!

That means your customer’s needs and satisfaction are the primary objective of everyone in your office. To achieve this you must learn as much about your customers as you can and use that information to create the experience they are looking to have.

There are several areas an agency must look at in order to provide an awesome customer experience. The first is the quality of the insurance product you offer. Are your carriers providing excellent service especially when it comes to handling claims? Do you have the right carrier relations and do they offer the protection your customers want and need? All the positive experience you provide can be washed away by a carrier that doesn’t provide excellent customer service. Know your carriers, communicate with them when they have shortcomings and if they can’t or won’t correct them, maybe it’s time to replace them.

NEW YORK JOCKEY INJURY COMPENSATION FUND, INC. Open for Proposals for Coverage for 2016

The New York Jockey Injury Compensation Fund, Inc. (“Fund”) is a not-for-profit corporation, which by law, is the employer of all thoroughbred jockeys and exercise people in the State of New York for workers compensation purposes. Each year the “Fund” obtains proposals for providing workers compensation insurance for the following year. The “Fund” is now seeking offers for providing this coverage for the 2016 policy year. The current premium is in excess of $6 Million Dollars.

The New York Jockey Injury Compensation Fund, Inc. will commence its twenty fifth year of actual operation on January 1, 2016. The “Fund” was created by the New York State Legislature in 1990. It went into operation on January 1, 1991 to provide workers compensation insurance coverage for all licensed jockeys, apprentice jockeys, and exercise people working at thoroughbred race tracks in the State of New York.

The workers compensation benefits are provided from one policy which affords coverage throughout the state. Details of the terms, conditions, and policy specifications regarding interest in presenting an alternative to the “Fund” may be obtained by contacting Brett Moore, c/o Lockton Insurance Brokers, LLC., 725 South Figueroa Street, 35th Floor, Los Angeles, California 90017; or email BMoore@Lockton.com; or phone 213-689-0503; or phone Gail Gray, Manager of the “Fund” at 585-367-2722.

24 October 12, 2015 / INSURANCE ADVOCATE

The next area is your agency’s organization and how you handle customer service. Are you set up to and do you provide service that puts the customer’s needs first?

If your policies and procedures are in any way developed to make your job easier ahead of what’s best for your client, that’s a problem.

The third area is your staff. Providing an awesome customer experience is a culture that should come from the top down and requires buy in from every person at your agency. Everyone needs to be positive, happy and willing to do whatever they can to make each customer’s experience a positive one. Allowing one or two staff members who don’t share this vision to operate outside of the culture can destroy the positive actions of the rest. This is an area that needs to be worked on regularly, with training, monitoring and follow-up. I could spend this whole article talking about the positive attributes your staff must exhibit in order to provide an awesome customer experience.

The fourth area is your customer. Do they appreciate the expertise and knowledge you apply to properly protecting them, their family and their business? Are they willing to be upfront with the information necessary to properly manage their risk? Do they understand and want to provide the best protection possible to meet their needs? Do they find your information and suggestions helpful and important?

Customers who see insurance protection as a commodity to be purchased at the lowest price will be willing to sacrifice an exceptional customer experience to save money. Unfortunately those same customers many times don’t realize the foolishness of their actions until they have experienced a claim where they didn’t have enough or the proper type of protection.

In addition, most low cost providers don’t or can’t advocate for their customers when there is a claim. Don’t chase customers that don’t appreciate what you do.

The last area is whether the experience the customer has meets and exceeds their expectations. To know this you need to know your customers and what they are expecting. Do you regularly survey cus-

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[ ON T HE LEVEL ] tomers on their experience with your agency? This is especially important when they have had a claim. You can also develop this in your initial conversations with a new customer. When they ask “Why should I choose you?” the answer you provide needs to satisfy their expectations.

When you are initially making them a customer, you and your staff should let them know what they can expect in the way of service, advice, recommendations and regular follow-up and review should they become a client. You need to determine how they wish to be communicated with (phone, email, text, etc.) and what services they want and expect as a customer.

In your initial conversations with a new client you need to get as much pertinent information as possible. Having good client information and updating it regularly is critical in providing them with an awesome customer experience. You can’t offer information and recommendations if you don’t know all the necessary information about a customer. How does the client like to be contacted and when is it most convenient? Can you communicate with them by email or text? Have you gathered all necessary information to properly service and advise the customer? This area should be reviewed and all staff should give input to the process. Remember, having good and pertinent information, entered into your agency management system, will make servicing the customer easier which means a positive experience for them.

When you provide your customers with an awesome experience you can expect to: • Get them to purchase insurance protection from you (increased production).

• Have them understand the value of your service and not see insurance protection as a commodity.

• Keep their insurance protection with you (excellent retention).

• Get them to purchase additional protection from you (cross-selling).

• Motivate them to encourage others to use you (referrals). [IA]

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[ GUEST OPINION ]

By Marilyn M. Singleton, M.D., J.D.

Be Careful About Replacing ObamaCare

S

ince the day the Affordable Care Act was enacted, we have been subjected to the “repeal and replace” mantra.

Replacement offerings are basically slimmed down versions of the ACA. A few brave souls have proposed a straightforward repeal. Of course, such bills were merely making political hay since Obama would never sign away his namesake law.

Several GOP presidential candidates have doubled down on the misguided “repeal Marilyn M. Singleton, MD and replace” promise, including the yet-to-be-elucidated “Donaldcare.” But the real question is whether the ACA should be replaced at all.

Any healthcare “system” – new or old – is subject to the long arm of the federal government. Central control does not have a good track record for creative solutions, security, fraud control, administrative efficiency, or the ability to change personal habits.

The federal government has yet to figure out a way to comply with HIPAA’s twenty-year-old mandate to remove Social Security numbers from health insurance cards. Consequently, the mere possession of a Medicare card poses the risk of identity theft in our most vulnerable population.

And speaking of identity security, a core tool of the healthcare system is the electronic health record. Health “providers” seeing Medicare or Medicaid patients must have “meaningful use” of electronic records in their offices or face monetary penalties.

However use of wireless networks for sensitive information requires sophisticated security measures most physician offices do not have. Moreover, even with the highest-level resources at its disposal, the federal government has failed to secure its own records.

The Health and Human Services (HHS) Office for Civil Rights reported 32 health data hacking incidents in 2015. Millions of people now have their medical information, Social Security numbers, and other personal identifying data compromised. Ac26 October 12, 2015 / INSURANCE ADVOCATE

cording to a House Energy and Commerce Committee investigation, the HHS Inspector General reported that over the last seven years, HHS had “pervasive and persistent deficiencies across HHS and its operating divisions’ information security programs.”

Fraud and administrative errors plague the Medicare program. According to the federal Office of Management and Budget, in its fiscal year 2014 “high-error” programs produced approximately $125 billion in “improper” payments, i.e., those that violated guidelines or rules in some way.

Medicare Fee-for-Service alone had $45 billion in improper payments or 12.7 percent of the total. Fraud, lack of documentation, and medical necessity authentication issues are the main culprits.

Even as the Department of Justice touts its improved record of Medicare fraud convictions, the ACA’s federal Health Insurance Marketplace represented an epic failure on the fraud front. To assess the enrollment controls of the Marketplace, the Government Accountability Office (GAO) performed 18 undercover tests. During these tests, the Marketplace approved subsidized ACA coverage for 11 of the 12 fictitious GAO telephone or online applicants for 2014.

The Veterans Administration clinics debacle is a prime example of federal administrative inefficiency. The Office of Inspector General concluded “enrollment program data were generally unreliable for monitoring, reporting on the status of health care enrollments, and making decisions regarding overall processing timeliness.” The report confirmed that as of September 30, 2014 the system had some 867,000 pending records, 307,000 of which were for individuals reported as deceased by the Social Security Administration.

Finally, government attempts to mandate healthy behavior don’t work. For example, a 2015 scientific study analyzed the “Los Angeles Fast-Food Ban,” a 2008 zoning regulation restricting opening/remodeling of standalone fast-food restaurants in South Los Angeles. Data showed that consumption of fast-food and obesity increased in all geographic areas from 2007 to 2012, and the increase was significantly greater in the regulated area.

Politicians need a “system” to expand central control. Central control breeds mediocrity. Government programs play to the lowest common denominator. One size fits all quickly becomes one size fits none.

Call me crazy, but I want the second opinion about my treatment to come from a physician, not a government bureaucrat evaluating me from his cubicle.

As Malcolm Gladwell of Tipping Point fame opined, rather than expanding insurance we should keep insurance in its proper role for “unexpected, big-ticket things.” And “the bottom end of healthcare should be a market-driven cash economy.”

Competition brings out the best in us.

For example, Theranos, a company started by a Stanford freshman provides 14 accurate basic kidney/liver function tests from one drop of blood for $7.27 at Walgreens. By contrast, my insurance co-pay for lab tests is $40.

Politicians can’t fix our medical care access problems. That’s up to us. As a start, consider enlisting direct pay physicians (here, here, and here) who give personal care at reasonable prices and replace the ACA with your own healthcare system.[IA] Marilyn M. Singleton, MD, JD is a board-certified anesthesiologist and Board member of the Association of American Physicians and Surgeons.

She graduated from Stanford and earned her MD at UCSF Medical School. Dr. Singleton completed two years of Surgery residency at University of California at San Francisco Medical Center, then her Anesthesia residency at Harvard’s Beth Israel Hospital. She was on the faculty at Johns Hopkins Hospital in Baltimore, Maryland before returning to California for private practice at Cedars-Sinai Medical Center in Los Angeles and Alta Bates Medical Center in Berkeley. While still working in the operating room, she attended UC Berkeley Law School. She interned at the National Health Law Project, and practiced insurance and health law. In addition to providing pain management, Dr. Singleton runs a wellness clinic in association with her county food bank and is in Oakland’s Medical Reserve Corps. Along with delivering medical and educational supplies, she started two make-shift medical clinics in two rural villages in El Salvador.

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[ ON M Y RADAR ]

By Barry Zalma

The Most Difficult Problem Facing Insurers

I

nsurance fraud continually takes more money each year than it did the last from the insurance buying public.

There is no certain number because most attempts at insurance fraud succeed.

Estimates of the extent of insurance fraud in the United States range from $87 billion to more than $300 billion every year.

Insurers and government backed pseudo-insurers can only estimate the extent they lose to fraudulent claims. Lack of sufficient investigation and prosecution of insurance criminals is endemic. Most insurance fraud criminals are not detected.

Barry Zalma Those that are detected do so because they became greedy, sloppy and unprofessional so that the attempted fraud becomes so obvious it cannot be ignored.

No one will ever be able to place an exact number on the amount lost to insurance fraud. Everyone who has looked at the issue knows – whether based on their heart, their gut or empirical fact determined from convictions for the crime of insurance fraud – that the number is enormous.

When insurers and governments put on a serious effort to reduce the amount of insurance fraud the number of claims presented to insurers and the pseudo-government-based or funded insurers drops logarithmically.

Insurance fraud is not limited to the US. In Britain fraud costs the British economy amounts estimated in billions of British pounds. Since the amount of fraud actually detected is a small portion of what was actually found, the estimates published are little more than an educated guess.

In the United States a similar study by Aite Group speaks of a new report that provides an overview of the North American P&C insurance fraud battlefield, including its history and evolution. Based on July 2012 to March 2013 Aite Group interviews with North American P&C industry stakeholders and industry fraud28 October 12, 2015 / INSURANCE ADVOCATE

prevention organizations, the report sizes the cost of fraud, details fraud types and their perpetrators, and describes anti-fraud solutions being developed and deployed.

Aite group concluded that insurance fraud impacts not only every insurance company but virtually every consumer and taxpayer worldwide. The extent of insurance fraud shows no sign of easing. Aite Group estimated that claims fraud in the U.S. P&C industry alone cost carriers US $64 billion in 2012 and will reach US $80 billion by 2015. P&C carriers are just now beginning to focus their fraud management strategies and investments on solutions that enable fraud detection as early in the claims process as possible, before claims payments are made and valuable investigative opportunities are lost. The educated guesses don’t even try to estimate health, life, disability and workers’ compensation fraud. Better guesses for the extent of insurance fraud in the United States, not counting Medicare and Medicade fraud, approaches $300 billion every year.

As the industry attempts to keep pace with fraudsters’ varied, ever-shifting tactics, it must deploy more innovative, effective anti-fraud technologies or risk dire losses. Vendors and organizations mentioned in the Aite Group report include the Coalition Against Insurance Fraud (CAIF), CSC, Detica NetReveal, Equifax, Experian, FICO, IBM, Innovation Group, Insurance Bureau of Canada (IBC), ISO/Verisk, KPMG, LexisNexis, Mattersight, Mitchell, the National Insurance Crime Bureau (NICB), SAP, SAS, and TransUnion. Insurers must also generate a close relationship with the state insurance department’s fraud division or fraud bureau, local police agencies, the FBI, the ATF, the Postal Investigation Service, the local fire department’s arson unit, local prosecutors, and the local U.S. Attorneys.

Wherever insurance is written insurance fraud exists. It is an equal opportunity fraud committed by people of every race, religion or national origin.

Insurers who do not exercise serious anti-fraud efforts often complain that the

local district attorneys and police agencies give a low priority to the crime of insurance fraud. No matter how seriously the insurers work to prove fraud the authorities often ignore them. In response, police and prosecutors complain that the insurers do nothing that police and prosecutors can use to prosecute the crime of insurance fraud while insurers complain that prosecutors ignore them when they present evidence of a fraud. There is truth in both complaints.

This report is written to make it clear to insurers, police and prosecutors that it is necessary to stop complaining and start working together to reduce the extent of insurance fraud. If they do not work together the crime will continue to metastasize until it will be impossible to write insurance at a profit or for a price anyone can afford.

The logarithmic growth of fraud against insurers and government based programs like Medicare and Medicaid, will eat away any chance insurers – and their shareholders – not to mention the tax burden of those who pay taxes to support Medicare and Medicaid will be insufferable.

Insurers are almost universally ignored by police agencies when the insurer victim reports the crime. When insurance criminals are caught in the act they are seldom arrested, even less often prosecuted and almost never punished seriously.

Police and prosecutors must deal with insurers who are not equipped to perform an adequate criminal investigation. Insurer employees seldom have police or prosecutorial experience. They are in business to provide to those who buy insurance the benefits promised by the policy. When faced with fraud employees of insurers are only qualified to conduct the investigation necessary to protect the insurer from civil litigation by a fraud perpetrator.

If prosecution of insurance fraud is to be successful it is necessary that insurers, prosecutors and police agencies work together as a team dedicated to defeat the crime of insurance fraud. To do so the insurers must train their staff to recognize the elements of both the crime of insurance fraud and the elements of the civil tort of

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[ ON M Y RADAR ] insurance fraud. If well trained, insurance personnel collecting information about a potential insurance fraud will know the type and quality of information that either a prosecutor or a civil defense lawyer will need to prove fraud was attempted.

Some estimates indicate that more money goes out fighting fraud than is saved. Others show that every dollar spent by insurers to defeat fraud save the insurer as much as seven dollars in fraudulent claims. Although insurance fraud is a crime in almost every jurisdiction in the United States, it is the only crime where the victim is required to perform the investigation from its funds and to pay special taxes to support investigation and prosecution by public agencies of crimes committed against it. The Departments of Insurance across the country continue to add taxes on insurers and the insurance buying public to pay for the state’s portion of the fight against insurance fraud.

Insurers are compelled by statute and Regulation to maintain Special Fraud Investigation Units, publish and fulfill a detailed anti-fraud program and train all of their anti-fraud personnel. Compliance by insurers is less than constant across the industry. Some have effective fraud units while others simply identify one employee as its anti-fraud director although his or her work is almost totally adjusting claims and not investigating fraud. The expense of staffing and pursuing the anti-fraud efforts required by statute and regulation reduces the profits earned by the insurer and is believed to be offset by the lack of payment to fraud perpetrators. Of course these efforts are also made difficult by the imposition of fair claims settlement practices regulations that require quick, complete, thorough investigations and fair treatment and prompt payment of insureds even when fraud is suspected. The two opposing sets of laws create a Catch-22 from which insurers find difficulty complying with both.

The Departments of Insurance audit insurers regularly to be sure that each insurer works hard to train its people to investigate and seek prosecution of the crime of insurance fraud. Failure to do so sufficiently allows the state Department of Insurance to fine the insurer for not doing the work traditionally the duty of the state to investigate and prosecute crime.

In addition, adding insult to the injury, courts and juries assess tort and punitive and exemplary damages against insurers who under the compulsion of the Departments of Insurance to defeat fraudulent claims and, as required, accuse their insureds of fraud. If the insurer fails to prove the fraud and the police agencies, including the Departments of Insurance, fail to prosecute following the direction of the Departments of Insurance in reporting the loss, can dangerous and expose the insurer to litigation.

Similar businesses in the financial sector, who are also regular victims of fraud and other crimes, are not taxed or compelled to investigate crimes committed against them. No state agency or person demands that a local or national bank pay for prosecuting embezzlers or armed robbers. No state agency or person demands that convenience store owners pay for prosecuting people who hold up 7-11 stores. No Regulator requires stockbrokers to investigate money laundering or fraudulent transactions.

The imposition upon the insurance industry – and the attendant cost passed to the insurance consumer – is unique.

Insurers are treated differently than all other businesses in the United States. George Orwell was right when, to paraphrase what he had a character in “Animal Farm” say, “all businesses are equal, some are more equal than others.”

Clearly, insurers are less equal with regard to crimes perpetrated against them than are other businesses. They are the only business required to pay for special investigators and prosecutors to investigate crimes against them. They are the only business required, by statute, to investigate crimes against them and produce the evidence to the prosecutors. Without the power and immunity available to police agencies insurers are damned and fined if they don’t comply and are damned with tort and punitive damages plus the cost of defending bad faith suits if they comply with the statutes and regulations.

ZALMA OPINION

fraud from the claims investigation to the end of litigation with full cases of important appellate decisions in the text so that readers can understand how courts deal with the issue and the evidence necessary to effectively deny a claim for fraud. [IA] Barry Zalma, Esq., CFE, has practiced law in California for more than 42 years as an insurance coverage and claims handling lawyer. He now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes.

He founded Zalma Insurance Consultants in 2001 and serves as its only consultant.

Look to National Underwriter Company for the new Zalma Insurance Claims Library, at www.nationalunderwriter. com/ZalmaLibrary. The new books are Insurance Law, Mold Claims Coverage Guide, Construction Defects Coverage Guide and Insurance Claims: A Comprehensive Guide.

The American Bar Association, Tort & Insurance Practice Section has published Mr. Zalma’s book “The Insurance Fraud Deskbook” available at http://shop.americanbar.org/eBus/Stor e/ProductDetails.aspx?productId=214 624, or 800-285-2221 which is presently available.

Legal Disclaimer: The author and publisher disclaim any liability, loss, or risk incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this blog. The information provided is not a substitute for the advice of a competent insurance, legal, or other professional. The Information provided at this site should not be relied on as legal advice. Legal advice cannot be given without full consideration of all relevant information relating to an individual situation.

This article is an excerpt from a book I am working on called “Insurance Fraud & Weapons to Defeat Fraud.” I hope to have the book, presently about 2000 pages, published soon. It will cover insurance INSURANCE ADVOCATE / October 12, 2015 29

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[ VIEWPOINT ]

By Martin Carus

Time Marches on but Does It Get Anyone Anywhere?

O

n November 16, 2014 the NAIC/Center for Insurance Policy Research issued a paper entitled, “U.S. Group Capital Methodology

part of the agenda package for the Working Group’s September 24, 2015 meeting.

Following is an analysis of the Paper and the continuing efforts of the U.S. state in-

serve Board (the FRB), the latter as a result of provisions in the Dodd-Frank Act. The Paper describes the goal of a group capital standard as “…to enhance the regulatory toolbox of U.S. state insurance regulators by providing an indicator of the financial strength of the consolidated group and to be a valuable addition to the existing assessment of group risks and capital adequacy.” (italics added) The Paper indicates that meeting this goal would serve as a “complement” to the primary focus of financial regulation which it states is to be related to “the financial strength of the insurance legal entities… .” The Paper indicates achieving the goal “would help shape and provide outcomes consistent with, (sic.) group capital standards being developed internationally.”

Presumably the NAIC also believes those latter efforts would also include the efforts of the FRB.

The Paper indicates achieving the goal “would help shape and provide outcomes consistent with, (sic.) group capital standards being developed internationally.” Presumably the NAIC also believes those latter efforts would also include the efforts of the FRB. Martin Carus

Concepts Discussion Paper” (the Paper) through the ComFrame Development and Analysis (G) Working Group (hereinafter, “the Working Group”). This Paper was

surance regulators noting that similar efforts are well underway by the International Association of Insurance Supervisors (the IAIS) and the Federal Re-

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[ VIEWPOINT ] The Paper’s third paragraph uses the phrase “Group capital requirements” but it is noted that in discussions post-issuance of this Paper up to and including the discussions at the September 24, 2015 meeting, the NAIC and the Working Group have gone to great pains to indicate that what they are actually considering is a “calculation” rather than a standard or a “requirement.” That probably is because the state regulators have little, if any, actual jurisdiction over the financial condition of non-insurer holding companies that have insurer, and thus state regulated, U.S. subsidiaries. Therefore, it seems curious that the NAIC is considering acquiring a tool for which it has little, if any, defined use, especially considering the cost in terms of money, time and effort. As usual, there has been no cost/benefit analysis to justify the effort, either from the perspectives of policyholders, taxpayers or the regulators themselves.

An interesting inclusion in the Paper is the following sentence: “Some proponents of group capital requirements may argue that ‘excess capital’ residing at the legal entity can be freely moved to the holding company to allow for better capital mobilization.” The Paper continues with a non-sequitur stating “that U.S. state insurance regulators continue to maintain that legal entity supervision takes precedence over any group capital needs.” But, the logical and more prescient point would seem to be that if a legal entity in fact possesses “excess capital,” shouldn’t that capital be allowed to freely move to more productive pursuits? After all, it’s “excess” capital!

As background, the Paper notes that the Working Group was formed “…to provide technical and strategic input on the IAIS’ ComFrame, including any group capital developments.” But, the Working Group apparently was also charged with “exploring group capital concepts that would be appropriate for U.S. based internationally active insurance groups.” (emphasis added) The Paper notes that the Working Group is collaborating with other parties engaging in such activities and includes that amongst these are the Federal Insurance Office (FIO), the Federal Reserve Board and key stakeholders (presumably the industry and consumers), “as appropriate.” The question arises as to who determines the appropriate level of collaboration? Certainly, given the

nature of insurance regulators as representatives of the people who are charged with overseeing the insurance industry to protect policyholders and other obligees of insurance policies, one would think that the key collaborator constituency would be such policyholders and other obligees. However, when that combined constituency poses questions as to the quantifiable benefits of this effort, one which is costly and ultimately paid for by policyholders, the response to date has been that quantifiable benefits have not yet been identified and efforts to identify such benefits will not be forthcoming until the effort is completed and implemented. Of course, at that point it will be too late to consider a reversal of course because the costs will have already been totally incurred—and paid for. It is as if one buys a tool, finds out they don’t need it or in fact cannot use it but nevertheless refuses to seek a refund and throws it in the toolbox anyway—where it gathers dust.

Another curious aspect of the effort is that it is aimed at U.S. based insurer groups. While the NAIC is collaborating with other regulators and developers of group capital standards (or however, they are characterized) in the U.S. and other various jurisdictions, that does not mean that whatever results from the various efforts will all be the same. Also, it is not clear exactly what “U.S. based insurer groups” means. Does that mean that the ultimate insurer group’s holding company is a U.S. domiciled corporation? Would a group whose ultimate parent is incorporated outside of the U.S. but whose major source of insurance business derives from the U.S. (through that entity’s U.S. insurer subsidiaries) escape the ultimately developed capital requirement, forgive me, “calculation”? What then would happen if such an entity were subject to another group capital calculation, standard or requirement? If the tool is only used towards U.S.-based insurer groups defined as the ultimate holding company being domiciled (i.e., incorporated) in the U.S., how is a level playing field maintained in the open U.S. marketplace which allows a significant amount of U.S. business to be underwritten by insurers within groups where the ultimate holding company is non-U.S.-based? continued on page 34

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[ VIEWPOINT ] continued from page 33

The Paper lays out two basic approaches for developing the calculation tool (“RBC Plus” and “Cash Flow”) and sets forth three parameters, or elemental questions, to be answered by the NAIC. The first is consideration of “whether the output would provide a meaningful group perspective on capital adequacy that would complement the legal entity view.” The second relates to “the practical aspects of developing and implementing a consolidated approach using such a design.” The third is “the relative recognition and compatibility considerations of other U.S. financial regulators and the international supervisory community, as well as views of other interested parties.” More than a year after the Paper’s issuance, it doesn’t seem that there has been an adequate response to any of these parameters.

Relative to the U.S.-based insurer groups that contain operations that are apart from the insurance realm, some of those operations fall within industries that do not require any capital level maintenance. Ergo, it is hard to see how a group capital level could be meaningful. Plus in any case, rating agencies provide a view of such organizations’ capital levels that appears to satisfy the needs of capital markets participants. And it is the capital markets participants that are most important to subsidiary insurer regulators inasmuch as if needs arise for additional liquidity and capitalization, it is those participants that will have to answer the call and they are not obligated to do so.

This observer believes that without a cost-benefit analysis the practical aspects of developing and implementing a consolidated group capital approach (no matter how characterized) cannot even be considered because the main “practical aspect” is, for all intents and purposes, the cost!

And surely the cost must be weighed against the benefit, the latter currently not even estimated much less calculated with any degree of precision. Lastly, the idea of comparability is lost if not all U.S. insurers within a group are measured in the same way and such insurers within a non-U.S.based group are not definitively covered by the “calculation” and thus not subject to the same use of the tool.

As noted above, the Paper sets forth 34 October 12, 2015 / INSURANCE ADVOCATE

the two possible approaches, i.e., the “RBC Plus” route and the “Cash Flow” model and also denotes the pluses and minuses thereof. In actuality, the former represents a NAIC RBC-like approach but is not an aggregated RBC. First it would work off of group GAAP numbers as opposed to regular RBC calculated on a legal entity basis using the U.S. statutory accounting basis (i.e., SAP). It also contemplates that the same factors used in statutory legal entity RBC calculations would be re-evaluated for use as against GAAP amounts.

The key difference in valuing assets of insurers as between GAAP and SAP relates to bonds where many insurer-held portfolios are valued at market for GAAP purposes while valued at amortized cost for SAP purposes. However, analysis of capital adequacy on a group basis has to take into consideration the valuation of non-financial assets that surely inure to groups with non-financial operations. How to judge the risks attendant to those assets and integrate that risk analysis with that of the insurance operations is surely a difficult question probably beyond the capabilities of insurance/financial regulators?

Moreover, there is the question as to how to deal with depreciation of non-financial fixed assets and inventory valuation, key factors of the asset side of a balance sheet of a group with non-insurance and nonfinancial operations. On the liability side, liabilities attendant to non-financial operations are probably easier to assess inasmuch as they frequently represent fixed amounts rather than estimates which are attendant to insurance liabilities.

One overall problem with any type of analysis of a fixed capital amount is that it is calculated as of a fixed point in time and generally applied as a single fixed amount rather than a range of amounts. In order to make the calculation as of a fixed point in time (e.g., year-end) it means that the actual determination will not be known until a time post-determination date. That makes such a calculation less than useful since conditions may change, and perhaps materially so, during the interval between the group capital determination date and the actual calculation determination date.

If that’s the case (and it was significantly so as between December 31, 2008 and March 2009), then regulators may be led into taking corrective action where none

is warranted or vice versa.

It is noted that since the issuance of the Paper, the NAIC has been leaning towards the “RBC Plus” approach notwithstanding that an analysis of the pluses and minuses set forth in the Paper about each approach would seem to lean towards the Cash Flow approach, at least insofar as the insurance component of a group’s operations. Further, the Paper suggests that a “hybrid” approach (i.e., some amalgam of the RBC Plus and the Cash Flow models) might be feasible; however, to date, the NAIC has not seemed ready to pursue such a model which indeed might be overly complicated to construct.

It is also noteworthy that the other ongoing efforts regarding group capital assessment have not brought forth a clear and convincing argument for the need for the effort or that a quantification of derived benefits exceeds its costs. This likely would not make consumers of insurance products happy since they are paying the freight and it increasingly seems like they are paying for nothing more than a fulfillment of directions by the G-20 and the Financial Stability Board so they can finally say that after seven years they did something, anything, to relieve themselves of the blame for the so-called 2007-2008 “financial crisis.” Since the Christmas season approaches, I’ll quote Scrooge, “Bah Humbug!”[IA] Martin F. Carus is President of Martin Carus Consulting, LLC and has spent 50 years in the insurance industry as one of New York’s acknowledged top regulatory thinkers and protagonists.

From 1965 through 1999, he was a member of the New York Insurance Department (now the Department of Financial Services), rising to Chief Examiner. From 1999-2014, he was Senior State Relations Officer for the American International Group, Inc. where he acted as AIG’s Observer to the International Association of Insurance Supervisors.

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