Sutherland insights insurance news flash 01102013

INSURANCE NEWS FLASH 1st October 2013

Table of Contents Sales & Marketing ................................................................................................................. 3 Finance ............................................................................................................................... 11 Technology .......................................................................................................................... 16 Strategy .............................................................................................................................. 23

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Sales & Marketing Hiscox expands Prima Insure deal into Germany 30 September, 2013 | Insurance Insights http://www.insuranceinsight.com/insurance-insight/news/2297566/hiscox-expands-primainsure-deal-into-germany Bermuda-based insurer Hiscox has agreed to grow the use of distribution tool Prima Insure into Germany after seeing success in France.

The insurer has a long-term objective of creating a single European internet distribution platform, and unveiled a new online direct service in Germany in late July.

Prima Insure is used either as a system for distribution and contract management, replacing legacy systems, or as independent modules to complement existing software.

"Thanks to the Prima Insure platform and an excellent collaboration between our teams we have been able to launch our business insurance products within three months, within our budget," said Daniela Zierold, head of direct sales at Hiscox Germany.

Prima Solutions chief executive Hugues Delannoy, added: "With this new deployment we illustrate once more the relevance and innovative nature of our product, but more importantly its ability to be deployed in several countries, and meet the growing need for our customers to streamline their distribution across multiple geographies"

Homeowners Satisfaction Rates Show Insurers Better Advertising Value of Products 30 September, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/09/30/homeowners-satisfaction-rates-showinsurers-better Homeowners insurers in recent years have done a better job portraying coverage as a value sale, evidenced by increases in consumer satisfaction with policy offerings, according to an insurance expert with J.D. Power & Associates.

Jeremy Bowler, senior director of the global insurance practice at J.D. Power, says customer satisfaction in the company’s most recent survey was at787 on a one-thousand-point scale, up by two points compared to last year’s survey. Bowler notes that satisfaction had been trending upward leading up to and into 2009, before dropping from 773 to 750 in 2010 due to the recession. The industry has seen steady improvement since then, Bowler notes.

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In this year’s survey, Bowler says satisfaction with pricing declined, while satisfaction with claims and policy services was a push. The satisfaction gains, he said, were in billing and payment, and policy offerings.

Bowler notes that insurance ads tend to focus mostly on price, but he pointed to a resurgence of the idea of insurance as a “value sale,” which has contributed to the higher satisfaction in offerings.

Bowler mentioned ads focusing vanishing deductibles and Allstate ads featuring Mayhem—a fictional character that highlights what risks insurance protects against—as examples.

In effect, satisfaction is not due to any significant changes in the policies themselves, Bowler says, but rather how insurers have highlighted coverages.

Agents, Think Rental Insurance!

J.D. Power also used this year’s survey to highlight an opportunity for agents to build long-term relationships with customers by concentrating more on renter’s insurance. Bowler notes that agents tend to focus more on auto or homeowners policies, as those coverages offer more “bang for the buck” as far higher premiums and, therefore, higher commissions.

But J.D. Power notes that agents “are missing a golden opportunity to build long-term relationships with renter customers as their insurance needs grow due to life or circumstance changes—such as having a family or purchasing a home or additional car.”

Additionally, there are plenty of opportunities to inform clients about his coverage, as J.D. Power states that 46 percent of renters are uninsured. Bowler points out that renter’s insurance is not compulsory as homeowners and auto are in most states, and that contributes to the much lower take-up rate.

But Bowler notes that more rental companies are moving toward requiring renter’s insurance on properties and own, and he adds that, since the housing crisis, many people accustomed to having insurance on their possessions have switched from being homeowners to renting.

Satisfaction Leaders As for this year’s satisfaction survey, Amica Mutual topped all insurers with a satisfaction score of 842. State Farm (813) finished second, and Auto-Owners Insurance (812), Erie Insurance (811) and Automobile Club of Southern California (808) rounded out the top five. Encompass, American Family, Progressive, COUNTRY, Allstate and Geico all finished above the 787 industry average.

The Hartford finished right at 787.

Travelers had the lowest satisfaction rate among the listed insurers at 756. NCNU Insurance Exchange, Nationwide, MetLife, Safeco, Automobile Club Group, Chubb, The Hanover and Liberty Mutual all finished below the industry average.

USAA scored 894, but was excluded from the rankings since it is only open to military personnel and their families.

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What Buyers Need to Know About Securing D&O Coverage 30 September, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/09/30/what-buyers-need-to-know-about-securingdo-coverag It takes an informed buyer to secure the right directors and officers (D&O) liability coverage at the right price.

From understanding which producers specialize in procuring D&O, to selecting an insurer, to simply getting a feel for how to shop for the coverage in general, consumers must do their homework even in a marketplace that remains relatively competitive and buyer-friendly.

This PC360 story is excerpted from: Following is a buyer’s guide explaining how to properly prepare to enter the marketplace and secure the right policy to cover a corporation’s directors and officers.

10 practical tips to keep in mind when obtaining D&O coverage 1. Cheaper is not always better. Premium doesn’t tell the entire story, as one must also consider breadth of coverage, insurer reputation and financial stability.

2. Less is sometimes more. In this era when so-called blended policies are in vogue, one needs to think twice about products such as combined D&O/employment-practices liability (EPL) insurance, which may reduce available limits to the outside directors for securities-fraud exposures for the sake of covering the corporation for its employment practices liability. Two separate and independent policies may be the better choice.

3. Just as all insurers are not alike, all brokers are not alike. Query a broker as to what he or she will do for you in the future, as well as about resources and expertise available within his or her organization. Be sure he or she eanrs the commission, which is part of your premium dollar.

4. Read, read, read and read some more. Directors, officers and risk managers never can have enough knowledge in this area, and articles and conferences appear regularly on key issues such as securities liability, employment practices, corporate governance and current topical issues such as subprime lending and privacy issues as they impact directors and officers.

5. Be sure to review impartial and objective information. Promotional material from insurers and brokers has obvious biases. Consider a subscription to various paid and independent services to gain more impartial and valuable advice. In addition, many law firms issue free and periodic newsletters on important case law and industry developments pertaining to D&O. To be sure that you are gaining a balanced perspective, sign up for newsletters from both firms that practice on behalf of policyholders and those that practice on behalf of insurers. Because of conflicts, firms generally practice predominantly on one side or the other.

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6. Talk to the D&O insurer before claims arise. It is helpful to have an interchange of ideas in areas such as the choice of outside counsel for a major claim, the insurer’s litigation management guidelines, and other claim-related issues prior to a claim arising, when decisions need to be made quickly and often in the context of coverage issues raised by the claim.

7. Always communicate openly and honestly. Legal considerations aside, many disputes over coverage, litigation management and the application process are alleviated by constructive dialogue. Rule number one: if you are unclear about something, ask. Rule number two: if the insurer requests information from you, respond (after appropriate consultation with legal and insurance professionals), even if to advise that you believe it is inappropriate to provide the information.

This PC360 story is excerpted from: 8. Never lose sight of who the real adversary is—it’s the claimant or plaintiff. Insurers and policyholders should be aligned as part of a defense team subduing their coverage differences to the goal of successfully contesting the claim against them.

9. Never underestimate the importance of solid, long-term relationships. While there are many credible alternatives in the marketplace in terms of products and insurers and in many respects this is unfortunately becoming more of a transactional than relationship business, a solid longstanding relationship is important in the event of a significant claim. Most insurers are more likely to go the extra mile for a long and valued customer.

10. Exercise prudent loss control and risk management in areas such as corporate governance and employment practices. In today’s litigious environment, directors and officers must be practical enough to realize that they never will completely eliminate the incidence of claims and litigation.

The severity of these claims can be greatly reduced, however. The likelihood of a successful defense can be increased through prudent management.

The Roles of Agents, Brokers and Other Producers Because D&O is a sophisticated and somewhat complex insurance product, only certain insurance brokers have an expertise and comfort level in providing advice to clients and placing the business.

Typically, this is an area where D&O coverage and marketing specialists should be sought out in the broker and agent community. Many large, national brokerage firms specialize in D&O coverage, but regional brokers also may specialize in this market area. Some smaller brokers operate largely as wholesalers, providing expertise to brokers and agents who lack familiarity with the product and need access to the major D&O markets in the U.S., London, and Bermuda.

In some cases, insurers may also deal through program administrators or Managing General Agents (MGAs). These entities are more than just producers of business to insurers, as they may also have a grant of underwriting and claims-handling authority.

Selecting an Insurer The following are factors that should be considered when selecting a D&O insurer:

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This PC360 story is excerpted from: •

Evaluate the policy form, including the declarations, all endorsements, and the application.

•

Evaluate the financial strength and integrity of the insurer. There are many fairly objective reference and source materials available for use by the insurance brokerage and risk management professional for this purpose.

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Evaluate the insurer’s claims-handling abilities in the D&O area. Prospective insureds can gain information in this area through brokers and the legal community. Be aware, however, that D&O is a very specialized coverage and an insurer’s stellar reputation in other claims areas does not necessarily imply like abilities and service in the D&O arena.

•

Evaluate the premium level in relation to the limits of liability offered and applicable deductions or retentions. While this is an obvious step in the evaluation of any insurance product, price should not be a key factor in the purchasing decision in the D&O area when one considers the potential exposures to the management of a corporation.

•

Evaluate the experience of important underwriting and claims professionals at a prospective insurer and the effectiveness of the integration of claims and underwriting. Question whether the service received on the claims end will be what was promised on the marketing and underwriting end.

Coastal, Riverbank Homeowners Brace for U.S. Flood Insurance Hike 24 September, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/09/24/coastal-riverbank-homeowners-brace-for-usflood-in More than a million homeowners living in older houses along the coastlines and riverbanks of the United States are being jolted by federal flood insurance rate hikes under a law passed in the wake of devastating storms.

Carol Giovannoni, 51, of St. Pete Beach, a barrier island community off Florida's west coast, is one of the people dreading Oct. 1, when the law takes effect. Giovannoni said the annual flood insurance premium on her standard 1950s concrete-block, ranch-style home on the waterfront will jump from $1,700 to $15,000 over the next few years. She said her home has never flooded in 59 years.

Were Giovannoni to sell her home, or let her policy lapse, the new rate would apply immediately, she said, but exactly how rates will be calculated under the Biggert-Waters Flood Insurance Reform Act of July 2012 is unclear to many.

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Congress passed the law, as it turned out just months before Superstorm Sandy struck the northeastern coast in late October, in an effort to balance a $24 billion deficit in the National Flood Insurance Program, which had growing losses from Hurricane Katrina in New Orleans in 2005 and earlier disasters.

"Once these rates go into effect, the value of our house is probably cut in half. We will have a tough time selling," said Giovannoni, who is a realtor, noting that flood insurance is required by mortgage lenders.

The rate hike is designed to make property owners pay for the true risk of living in high flood hazard areas, including coastal areas of Florida, New Jersey, New York, Texas and Louisiana, and inland states prone to river flooding.

Members of Congress from high-risk flood states want to delay the higher rates coming into effect so they can gather more information on the impact on property owners, but with next Tuesday's deadline, time is running out.

The act requires the Federal Emergency Management Agency (FEMA) to phase out insurance subsidies enjoyed for decades by owners of homes that were built in high-risk flood zones before the creation of the original federal flood insurance rate maps and building standards, which in most communities occurred in the 1970s and 1980s.

Florida is home to more than a quarter of the 1.1 million subsidized properties in the United States, and low-lying coastal Pinellas County west of Tampa - which includes St. Pete Beach - is ground zero.

More than one third of the county's 142,000 properties with flood insurance have subsidized rates, according to the Florida Association of Insurance Agents.

NEW MAPS, HIGHER RISKS The act comes on top of a nationwide re-mapping of flood zones which in some coastal areas has moved some properties into newly widened hazard zones, exposing them to rate increases.

More than 80 percent of the 5.6 million properties nationwide covered by the $1.12 trillion program already comply with existing standards and would not see any change in their policies, at least for the time being, FEMA director Craig Fugate told a hearing of the U.S. Senate Banking, Housing and Urban Affairs Committee on Sept. 18.

Fugate said the rates of those homeowners in compliance could go up too if new maps reveal higher flood risks.

Hit hardest by the rate hike are people who bought a home with subsidized insurance after the law's passage on July 6, 2012. Those new buyers must pay full-risk rates starting Oct. 1, according to a timeline on FEMA's website.

Owners of subsidized policies on businesses and properties that have suffered severe or repetitive loss will face 25 percent rate increases annually on policy renewals after Oct. 1, until rates reflect true flood risk.

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Owners of secondary and vacation homes already experienced the first 25 per cent rate hikes in subsidized policies that renewed after Jan. 1, 2013.

All other subsidized policyholders in high-risk flood zones can expect rates to rise about 16 to 17 per cent next year. After that future rate hikes are unknown, but Biggert-Waters raised the annual cap from 10 per cent to 20 per cent.

Critics of subsidized federal flood insurance say the benefits disproportionately favor high-risk and wealthy properties.

"Taxpayers deserve to have those who choose to live in harm's way pick up their share of the tab," Steve Ellis, vice president of Taxpayers for Common Sense, told the Senate committee last week.

He said the biggest impact of the act would be on second homes and businesses.

Robert Hartwig, president of the Insurance Information Institute, compared the impact of BiggertWaters to the adoption of stronger building codes in Florida after Hurricane Andrew hit in 1992.

"That increased the cost of building homes in Florida but it made them safer and more resilient to storms," he said.

But Fugate told the Senate committee that the act needed amending. He said businesses and affluent homeowners could afford the new risk, but added the law unfairly hit middle class homeowners who had not been flooded repeatedly.

One Pinellas County couple who bought a home near the bay last month discovered that flood insurance on the modest $205,000 farmhouse will shoot up from $1,900 to almost $8,000.

"It was a shock, we were in the middle of closing when we found out," said Cristy Assidy, a 39-yearold nurse. She said the 1925 farmhouse, which sits 5 feet above sea level, had never been flooded as far as she knows.

She and her husband, mailman Fred Assidy, went ahead with the purchase. "We took a gamble.

Everyone is working class around here, so we're hoping for a reprieve."

Melinda Pletcher, a realtor and city commissioner in St. Pete Beach, said she felt blindsided when a beach home she helped sell after the passage of the Biggert-Waters Act was hit with a $23,000 flood insurance premium.

"I really feel honestly horrible about this," said Pletcher. (Additional reporting by David Adams; Editing by Grant McCool)

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A.M. Best Eyes Auto Insurance Distribution Methods in Ratings 17 September, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/09/17/am-best-eyes-auto-insurance-distributionmethods-i Insurance company ratings agency A.M. Best Co. says it is increasingly looking at auto insurers' distribution management practices when rating.

“Companies that can demonstrate defensible and sustainable competitive advantages—such as control over distribution, multiple distribution channels, low-cost structure, and the effective utilization of technology—are likely to be viewed favorable from a rating perspective,” A.M. Best states in a special report on the U.S. auto insurance market.

Clearly, the use of technology plays a large role in an insurer’s grasp of and flexibility to adapt to the market.

Insurers are using technology to distribute auto products directly and through multiple channels, as well as to strengthen singular distribution channels, according to A.M. Best.

The ratings agency notes consumers are increasingly at least using the Internet to shop and gather information about the auto-insurance purchase. Moreover, policies purchased online have risen steadily since 2004.

“The direct channel’s rise has been driven by aggressive marketing, competitive pricing, user-friendly online tools and innovative technologies, all of which can be funded with money once earmarked for agent commissions,” says A.M. Best.

In terms of market share, the top 10 private passenger auto writers haven’t changed in a decade but the share by the top two—State Farm (19.3 percent) and Allstate (10.7 percent)—has declined.

However, the order of the top 10 carriers has changed since 2002. Berkshire Hathaway’s Geico moved from 6 to 3. Progressive’s rank of 4 remained unchanged but its market share improved to 8.4 percent in 2012 from 5.8 percent in 2002.

The market share of the top 10 carriers increased to 69.8 percent from 58.8 percent in 2002.

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Finance Lloyd’s first half profit drops on 2012 result 26 September, 2013 | Insurance Insights http://www.insuranceinsight.com/insurance-insight/news/2297062/lloyd-s-first-half-profitdrops-on-2012-result Lloyd’s has posted a £1.38bn profit for the first half of 2013 down on its 2012 result of £1.53bn.

The market's gross written premium increased 4.9% from last year to £15.5bn. The combined ratio also improved from 88.7% in 2012 to 86.9% in 2013.

Despite a benign first half of the year for natural catastrophes with no major claims for the Lloyd's market, total net claims were £4.85bn. Continued challenging economic conditions significantly impacted investment returns which fell to £247m from £619m in 2012.

John Nelson, Lloyd's chairman, said: "This is a good result for the Lloyd's market, although the volatility of the insurance business means that we must remain cautious about how the full year result will turn out."

Nelson continued: "In spite of the difficult economic conditions, it is pleasing to see the Lloyd's market grew by almost five per cent in the first half of the year. It shows that disciplined underwriting can co-exist with growth which is vital as we seek to capitalise on the opportunities presented by the Asian and Latin American economies in particular".

Richard Ward, Lloyd's chief executive, said: "This is a solid result for the market in a difficult economic environment and demonstrates the market's disciplined approach to underwriting.

"The Lloyd's market is in robust financial health, supported by its strongest ever financial ratings.

When I step down as Lloyd's CEO at the end of the year, I am pleased that I will be leaving the market in an excellent position to pursue its vision to be the global centre for specialist insurance and reinsurance."

Composition of Reserve Releases Shifts; Personal Lines Now Driving Activity 25 September, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/09/25/composition-of-reserve-releases-shiftspersonal-li U.S. property and casualty reserve releases have held steady over the past five years, but the composition of reserve development has shifted since 2008, with personal-lines releases increasing

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while commercial-lines releases have retreated, according to Moody’s.

In a Special Comment, “U.S. P&C Insurers’ Reserve Releases to Continue, but Remain Modest,” Moody’s notes that commercial-lines reserve releases, excluding AIG, totaled $6 billion in 2008, more than any other sector. In 2012, commercial lines accounted for just over $1 billion, the lowest among the five sectors measured.

Personal lines, by contrast, accounted for just under $1.5 billion in 2008—second-lowest among the five sectors—but grew to just under $4.5 billion by 2012—the most among the five sectors.

Through the first half of 2013, Moody’s says reserve releases represented approximately 34 percent of pre-tax operating income, with activity driven mainly by several large personal-lines carriers. The figure is up slightly from about 30 percent for the same period in 2012. The ratings agency says about 2/3 of the 2013 releases came from the 2012 accident year. Over the past five years, Moody’s says reserve releases have accounted for about 40 percent of pre-tax operating earnings.

Moody’s also notes that adjusted earnings for 2009-2012 were lower than reported, while adjusted earnings for 2003-2008 were higher than reported. Looking at the adjusted earnings, Moody’s says it appears as if the market cycle peaked in 2006, when adjusted pre-tax operating income hit just under $100 billion. Since then, adjusted pre-tax operating income steadily declined, dropping to around $5 billion in 11 before rising again to just over $20 billion in 2012.

Going forward, Moody’s says it believes U.S. P&C insurers will continue to release reserves in the medium term, “particularly for personal insurers. However, the level of releases for commercial insurers is expected to remain modest as redundancies for older accident years diminish, and there are minimal redundancies and some deficiencies for the most recent accident years.”

Asia-Pacific insurance sector sees post-2011 recovery 24 September, 2013 | Insurance Insights http://www.insuranceinsight.com/insurance-insight/news/2296387/asia-pacific-insuranceindustry-sees-post-2011-recovery An 'Evolving Criteria' report by Aon Benfield shows the Asia-Pacific insurance community has recovered from a series of devastating natural disasters in 2011.

The Thai floods were a notable hit on the industry in 2011.

The report notes the incidence of large scale catastrophes has since decreased, allowing insurers' balance sheets to rebuild.

It says: "Strong economic growth is also contributing to an increasingly stable environment for insurers in Asia Pacific, albeit with growth rates in some regions that are below expectations. This stability is further supported by high premium growth expectations in regions with low insurance penetration rates, market liberalisation, and an inflow of investments resulting from risk

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diversification from existing mature insurance markets to the developing markets."

It is not all good news for the industry. The report notes: "Offsetting these strengths are factors including a persistent low interest rate environment, tightened regulatory solvency requirements which continue to put pressure on firms' capitalisation levels - and the possibility of an economic slowdown in China, which could affect many markets in the region."

Rade Musulin, chief operating officer of Aon Benfield Analytics Asia-Pacific, said: "These offsetting factors are evident in Standard and Poor's five-year view of ratings actions across Asia Pacific, and create a level of uncertainty for the Asia-Pacific insurance markets which makes operating conditions somewhat more difficult. However, whereas 2012 was dominated by ratings downgrades as a result of the 2011 catastrophic losses, 2013 has seen a rebound in upgrades, reflecting the restrengthening of companies' balance sheets."

ProAssurance to Buy Workers Comp Insurer Eastern for $205M 24 September, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/09/24/proassurance-to-buy-workers-comp-insurereastern-f Workers compensation insurer Eastern Insurance Holdings is being purchased by ProAssurance Corp. for about $205 million, the companies said.

Lancaster, Pa.-based Eastern is set to merge into specialty insurer ProAssurance as a newly-formed subsidiary, pending all necessary approvals. Eastern shareholders must approve the merger.

ProAssurance shareholder approval is not needed.

The deal, which was unanimously approved by Eastern's board, is expected to close by the start of 2014.

"Eastern is a best-in-class workers' compensation specialist with a proven track record of delivering attractive growth and underwriting profit throughout the insurance cycle," said ProAssurance CEO W. Stancil Starnes, in a statement. "Eastern has a strong, long-term position in healthcare workers' compensation that will allow us to broaden the high quality products we are able to offer our existing customers. Equally important is the product line diversification the transaction will provide for the combined organization."

Birmingham, Ala.-based ProAssurance will maintain Eastern's corporate office in Lancaster and its existing regional and satellite offices under the direction of Michael Boguski, current president and CEO, and his management team.

Boguski said, "ProAssurance is the ideal long-term partner for us. They share our vision for profitably growing our workers' compensation business through targeted geographic expansion and valueadded relationships with agency partners."

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JLT Group acquires Towers Watson's reinsurance brokerage 23 September, 2013 | Insurance Insights http://www.insuranceinsight.com/insurance-insight/news/2296235/jlt-group-acquires-towerswatsons-reinsurance-brokerage Jardine Lloyd Thompson Group is acquiring the reinsurance brokerage business of Towers Watson for a cash consideration of $250m (ÂŁ156m).

Upon completion, Towers Watson's reinsurance brokerage business will be merged with JLT's reinsurance business, JLT Re with combined revenues of $266m and 700 people in 35 locations in 17 countries.

The combined business will be branded for a transitional period as JLT Towers Re. Towers Watson's reinsurance brokerage business generated revenues of $166m and profit before tax of $26m in the year ended June 2013, making it the fourth largest reinsurance broker in the world.

This acquisition significantly accelerates JLT's existing strategy to build out its international reinsurance brokerage operations, a statement from JLT said.

As part of the transaction, JLT Re and Towers Watson have entered into an alliance agreement that will ensure clients have continued access to Towers Watson's risk consulting and software services.

This agreement will also provide JLT Towers Re with continued use of Towers Watson's proprietary actuarial models and software, alongside analytical and modelling capabilities that will be acquired with the business.

Upon formal completion of the transaction, Ross Howard, currently head of Towers Watson's reinsurance brokerage business, will become executive chairman of the merged operation. Alastair Speare-Cole, currently chief executive of JLT Re, will become chief executive of the enlarged business. Alan Griffin will step down as chairman of JLT Re, but will retain a board and advisory role.

The acquisition is subject to regulatory approvals and is expected to complete before the year end.

The two businesses will be fully integrated over the course of 2014 and 2015.

Total transaction and integration costs are expected to be approximately $7m and $20m respectively. The acquisition will be made on a debt and cash free basis and financed from JLT's cash resources and debt and is expected to be earnings accretive in the first full year following completion. The gross assets being acquired amount to approximately $106m.

Commenting on the transaction, Speare-Cole said: "We have long admired Towers Watson as one of the best reinsurance brokers in the world. Towers Watson is known in the industry as a fierce advocate for its clients with deep specialist and analytical expertise."

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Howard said: "JLT offers our clients and our people a great opportunity to work with a company that shares our values and focus on clients. Together we will have the platform, market presence and support of a strong organisation to attract and retain the very best people in the market and improve our client offering."

Tricia Guinn, head of Towers Watson's risk and financial services business segment, said: "We are delighted to agree to a deal with JLT that offers our clients and our people a clear and exciting future. We look forward to collaborating with JLT Towers Re through our new alliance agreement.

We are excited by the opportunity to expand our core risk consulting and software business around the world, working in partnership with their local operations."

Dominic Burke, pictured, group chief executive of JLT said: "I am delighted to be able to welcome the Towers Watson team and their clients to JLT. Towers Watson offers us a very strong reinsurance platform in the key North American market, as well as bringing further strength in the London Market and a leading analytical capability.

"We see a significant strategic opportunity through the merger of the two businesses to create a formidable new force and restore client choice to the reinsurance market. We are committed to investing in the business to enhance our client proposition and drive growth, as we have successfully done across the rest of the JLT Group in recent years."

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Technology China's telematics boom could take up to five years 26 September, 2013 | Insurance Insights http://www.insuranceinsight.com/insurance-insight/news/2297076/chinas-telematics-boomcould-take-up-to-five-years The emergence of telematics in China will take three to five years, as the China Insurance Regulatory Commission begins to liberalize insurance terms and rates, according to technology research firm Celent.

China's telematics services currently include logistics and dispatch management, vehicle security and traffic surveillance. Insurance telematics do not yet exist in China and cannot until some preconditions are met, including compliance with regulatory requirements, the need for insurers to develop market segments and the development of telematics technology, according to the "Telematics Opportunities In China's Insurance Market," report from Celent.

While there are telematics service providers in China, Celent said they have not found "valueobvious selling points and a suitable profit model." Personal telematics usage is limited in China, but they could potentially promote interest in insurance telematics. This would help create a mutually reinforcing cycle, Celent said, which could promote wider adoption. "If the right business model and balance of interests could be found, telematics service providers and insurers can achieve mutual development," Celent said.

China's motor insurance regulators are not yet as mature as those in the United States, and the report details the development of concepts and data points that would seem commonplace in the United States.

The Insurance Association of China in 2012 initiated the "Model Clauses of Commercial Motor Vehicle Insurance," a piece of regulation that integrated liability, vehicle damage and third-party liability, plus 38 supplementary insurances and other special clauses. It also included clauses to regulate methods for insurance limits and more than 10 new insurance liability items previously determined unreasonable, such as the invalidation of driver's license or inspection failures.

Celent said insurers were concerned about degrading profit margins, and insureds were equally concerned about rising premiums. "Regulatory agencies have worked out a plan to take about three years to carry out the ‘three-step' schedule, with the final aim of having insurers meet the conditions for the development of commercial motor insurance premium rates based on their own data," Celent said.

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Auto insurance premium rates have undergone several cycles of liberalization and standardization.

In 2003 China's insurers were free to determine rates. That led to intense price competition, Celent said, as well as steep losses as regulators reportedly also have not enforced restrictions on capital and solvency.

For commercial auto insurers, statutory automobile liability insurance was launched in 2006, as were vehicle damage insurance and third party liability insurance. China's commercial auto insurers where then required to use standard terms and premium rates, and maximum possible discounts were stipulated, Celent said. "The factors determining premium rates included the category of policyholder, vehicle usage, number of seats, acquisition cost of the new vehicle, vehicle age, and third party liability limits," Celent said.

Floating premiums based on claims records was introduced in 2010 for commercial motor insurance in Beijing, as was a reform plan in the city of Shenzhen that aligned premium rates with claim records and illegal driving. "The floating premium rate reform launched by Beijing and Shenzhen improved the profitability of insurers and also reduced the insurance premium expenditure of low risk car owners. For some regions, premiums were even linked to the bank credit records of drivers (for example, drink driving information)," Celent said in the report.

Market pricing mechanisms were proposed in 2012, with the "Circular on Strengthening the Administration of the Clauses and Premium Rates for Commercial Motor Vehicle Insurance."

"Apart from stipulating the collection, tabulation, and analysis of the industry wide commercial motor insurance business data by the Insurance Association of China, and the calculation of the referential net loss ratio for the commercial motor insurance business sector for reference and use by the insurers, companies that meet the conditions may also develop commercial motor insurance premium rates based on their own company data," Celent said in the report.

According to Celent, while there are telematics service providers in China, they have not found "value-obvious selling points and a suitable profit model." Personal telematics usage is limited in China, but they could potentially promote interest in insurance telematics, which would help create a mutually reinforcing cycle, which could promote wider adoption, Celent said.

"If the right business model and balance of interests could be found, telematics service providers and insurers can achieve mutual development," the firm said.

Torus Forms eCommerce Division to Strengthen Online Broker Portals 26 September, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/09/26/torus-forms-ecommerce-division-tostrengthen-onlin Specialty insurer Torus says it has formed a new division to centralize the delivery and development of its online ESCAPE broker portals.

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The Torus eCommerce unit, led by Linc Trimble, will streamline the quote-to-bind-to-issue process for U.S. wholesalers serving America’s small business marketplace through ESCAPE and enhance the company’s underwriting support and service while strengthening product and feature development for users.

Torus says an increasing number of brokers are transacting business through the ESCAPE portals, which currently include ESCAPE Excess Casualty, ESCAPE Healthcare and ESCAPE Miscellaneous Professional Liability.

Trimble is supported by the original leader of ESCAPE for excess Liability, Kevin Mooney, as well as Brian Blessing, director of eCommerce business development; Kardiner Cadet, IT/Architecture; Dan Dijak, new product development; and Nina Lim, underwriting services team leader, among others.

“Torus’ suite of ESCAPE products provide the specialty coverage wholesale brokers require for their SME customers and the fast and easy-to-use automation brokers need to more efficiently and profitably handle their business,” said Trimble, in a statement. “The ESCAPE system is revolutionizing the way small business insurance is transacted and the creation of a dedicated eCommerce team will allow us to further enhance and grow our online offerings for the select wholesalers we work with.”

Who's Using What: The Latest Insurance Software Implementations 24 September, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/09/24/whos-using-what-the-latest-insurancesoftware-impl Five property and casualty insurers—Ace, AIG, Fireman’s Fund, Hiscox UK and PURE—will provide discounts to policyholders who manage their tangible wealth in a Trōv.

Trōv creates applications that help people collect the information about their belongings, storing the data in a personal Trōv, defined as a private, cloud-hosted online digital locker where the information is organized, valued, securely accessible and selectively sharable.

Trōv says its technology and processes “provide transparency into the value of insured items, enabling insurers to reduce risk and better protect clients’ possessions through just-right insurance policies.”

“The bottom line for Ace and its clients is with more information about their valuables, clients can make better decisions about how to insure them,” says Bob Courtemanche, chairman, Ace Private Risk Services.

Jerry Hourihan, executive vice president and chief marketing officer, AIG Personal Lines, says, “Instead of storing this information on spreadsheets, hard drives, or in file cabinets - data about tangible assets will live in Trōv’s private online digital locker, where clients will be able to manage new purchases and monitor changes in value of their tangible assets.”

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“Trōv provides Fireman’s Fund’s Prestige Collections policyholders with a way to easily collect, manage, and track the changing values of their possessions,” says Michelle Impey, Fine Art director at Fireman's Fund Insurance Company.

Martin Hartley, executive vice president and chief operating officer with PURE, notes, “Members who use Trōv benefit from having a digital catalogue of their tangible wealth, which makes the claims process easier and more seamless in the event of a loss.”

Justin Gott, head of Art and Private Client at global specialist insurer Hiscox, explains, “The Trōv process enables our UK retail customers to keep an accurate and hassle-free inventory of their possessions, and that helps us to ensure their specific insurance needs are met and that any claims they make can be settled quickly.”

Global reinsurer TransRe has selected MetricStream’s federated information architecture for its risk and compliance management needs. MetricStream's federated information architecture enables multiple reporting facilities, and links to existing enterprise, bringing together all risk management and compliance activities into a common enterprise-wide framework.

Julian Spence, TransRe's chief risk officer, says, “As a multi-billion dollar business operating from 24 offices around the world, we need a risk and compliance platform that combines flexibility, ease of use with an intuitive, automated reporting capability. MetricStream's federated information architecture is well suited to our needs.”

Greece's oldest insurer, Generali Hellas, is implementing SAS Visual Analytics to improve customer service. With SAS Visual Analytics, everyday users can use analytics to explore data via point-andclick. While intended for any size data environment, SAS says its in-memory foundation makes it especially useful for big data visualization.

“SAS Visual Analytics analyzes massive volumes of data in minimal time, which we previously could not do,” says Dionissis Moschonas, Generali's assistant IT manager. “It provides our executives direct access to significant data volume so they can effortlessly analyze big data without IT assistance.”

Spain and Italy most interested in telematics 23 September, 2013 | Insurance Insights http://www.insuranceinsight.com/insurance-insight/news/2295918/spain-and-italy-mostinterested-in-telematics A majority of drivers in the six largest motor insurance markets in Europe have indicated they are willing to embrace telematics-based products, according to research by Towers Watson.

The participating European countries were France, Germany, Italy, the Netherlands, Spain and the UK.

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Interest was highest in Italy and Spain, where around 70% of drivers in each country said they were definitely or probably interested in taking out a telematics policy.

Across all six participating European countries, 55% of drivers indicated some interest in telematics insurance. The comparable figure for the US, where telematics is becoming a mass market product, was 50%.

If the offer of a telematics policy came with a guarantee that the premium would not increase, 64% of European drivers surveyed said they would be interested, with consumers in the Netherlands responding most positively to this incentive.

Less than 10% of drivers in France and Germany who expressed an interest in telematics were under 24.

Significant numbers of drivers over-35 responded positively to the potential to receive extra services at additional cost, with theft tracking, automated emergency calls and breakdown notification among the most popular.

Overall, consumers in Germany, Italy, Spain and the UK indicated a willingness to pay €32-34 (£2728) per year for these value-added services, while drivers in France and The Netherlands were prepared to pay €22 on average.

Many older drivers also said they would be willing participants in “try before you buy” programmes, although interest in using a smartphone app to access telematics services tended to drop off based on age.

Across all age groups, a self-installed device was the preferred technology option in all countries, with more than 80% acceptance across the six European countries surveyed.

Duncan Anderson, Towers Watson global property and casualty pricing leader, commented: “The study shows it’s wrong to believe that telematics insurance is just a young driver proposition. While it’s particularly likely to appeal to a younger age group on economic grounds, as the technology costs fall and awareness of the wider benefits increases, drivers of all ages are potential targets for telematics insurance providers with the right proposition.”

The research also found that in many markets “pay as you drive” products were likely to penalise people who drive more frequently.

Anderson said: “Products that focused on mileage, restricted times of vehicle usage or simple ‘event counters’ seem likely to have a short-term future. The indications are that the appeal of telematics to most consumers is largely associated with ‘pay how you drive’.”

The research explored factors that might deter consumers from taking out a telematics motor policy.

Aside from worries that the premium might increase, most concerns were associated with how personal data would be managed and used.

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These issues were most prevalent for Germans although the over-65s, who were among the most interested in telematics in Germany, were the least concerned about privacy issues, according to the research.

Other findings compiled into a research report – Telematics: what European consumers say – include support for products aimed at parents and attitudes towards changing driving behaviours in order to benefit from telematics premium rating.

After Years of Cuts, Insurance IT Budgets Set to Grow Through 2017: Ovum 17 September, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/09/17/after-years-of-cuts-insurance-it-budgets-setto-gr Insurers have generally cut IT budgets over the past five years, due mostly to the economic downturn, but a comparatively brighter outlook now should spur growth in IT investments over the next five years with a particular focus on expanding digital channels, a research and consultancy firm says.

In a report, “Insurance Sector IT Priorities & Spending Forecast to 2017,” Ovum says that “the steady improvement in written new business across most global markets means insurers are shifting from a primarily ‘maintain as-is’ stance toward a cautious re-investment in strategic IT projects.”

Ovum says it expects insurance IT budgets to grow at 6.5 percent CAGR (compound average growth rate), for a total IT spend of over $108 billion, by 2017. Much of that growth will be seen in the lifeinsurance sector, Ovum says, as the global life industry suffered more than the property and casualty industry during the financial crisis and therefore saw deeper cuts to IT budgets during that time.

Charles Juniper, senior analyst, Insurance Technology at Ovum, says in an email, “IT spend in the lifeinsurance market will grow at 7.6 percent CAGR to reach a value of $49 billion by 2017, with the P&C industry growing at 5.7 percent to reach a total market size of $60 billion by 2017.”

Priorities will center around digital channels and legacy modernization, the report indicates. IT spending in North America and Europe is expected to remain at least twice the size of spending in the faster-growing Asia-Pacific region through 2017, says Ovum, but spending priorities, or at least the order of importance of these priorities, vary somewhat depending on the region.

Deploying core administration systems and IT infrastructure will be the key priority in Asia-Pacific as P&C insurers look to keep pace with market growth and gain market share, notes the report.

Insurers in this region will also work on implementing digital channels, particularly mobile and socialmedia channels, to support direct policyholder interaction.

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For North American P&C insurers, digital-channel investment is top-of-mind, as it helps achieve the primary business objective of revenue growth. While the report notes that North American carriers are already “well advanced in terms of online-channel deployment and functionality,” IT budgets are expected to expand at 9 percent CAGR, reaching an annual spend of $2.3 billion by 2017, to further support these projects.

Ovum notes that digital-channel emphasis for North American insurers is shifting toward mobile and social-media projects. Juniper says key areas for mobility include functions such as filing claims via smartphone—“i.e. using time and location data, on-board cameras, etc. to submit an accident report”—and using smartphones as a vehicle to offer usage-based insurance (UBI).

North American insurers will also focus on core administration and claims-processing systems to improve operational efficiency, Ovum says.

Juniper says, “The complexity, cost and risks of managing multiple systems that have grown up over time to overcome the shortcomings of legacy systems have reached unsustainable levels.” But he acknowledges that pressures to address this reality are weighed against limited investment budgets.

“As a result,” he says, “most transformation projects will be incremental, such as consolidating the number of core legacy systems down to one (or at least a small number), followed by a migration to a modern platform, probably one functional module at a time (e.g. replace the underwriting engine first, then maybe the claims module etc.). Most transformation project for large insurers will have at least a three-year and more typically a five-year timeframe.

In Europe, Ovum says the “relatively muted state of the…non-life insurance market as economies in the region remain fragile means there is greater focus on cutting operational cost compared to other geographic markets.” As such, Ovum says IT projects will be focused primarily on improving operational efficiency and customer service through digital channels, and improving claims expenses through fraud detection.

Ovum notes that European insurers are, in general, less advanced in the area of digital channels than North American carriers, but the gap is expected to “rapidly diminish as deployment of online portals and mobile channels emerges as a key priority from 2013 onwards.”

For IT vendors, Ovum recommends focusing on insurance chief information officers’ current priorities: digital channels, legacy modernization and regulatory compliance. “While IT budgets are expanding and there is a growing demand for vendors that are able to support complex transformational projects, insurance CIOs remain cautious,” says the report. Vendors therefore need to engage clients around the “key insurance priorities,” and even then, vendors should expect the sales cycle and decision-making process to remain protracted.

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Strategy MetLife makes joint agreement in Vietnam 30 September, 2013 | Insurance Insights http://www.insuranceinsight.com/insurance-insight/news/2297434/metlife-makes-jointagreement-in-vietnam MetLife has reached an agreement with a Vietnamese bank to launch a life insurer in the country, expected to become operational in 2014.

MetLife has joined with the Bank for Investment and Development of Vietnam Insurance Corporation (which will take a 35% in the new insurer) and its subsidiary the Bank for Investment and Development of Vietnam Insurance Corporation (to take a 5% stake) to establish a life insurance joint venture in Vietnam.

The new insurer will have a charter capital of VN$1trn ($48m) and MetLife will own 60% of the company and BIDV and BIC will have the remaining 40%. The joint venture will initially focus on offering life and health insurance products. Alongside the establishment of the joint venture, there is also an exclusive bancassurance distribution agreement between the joint venture and BIDV.

Gable chooses Sequel for European underwriting operation 30 September, 2013 | Insurance Insights http://www.insuranceinsight.com/insurance-insight/news/2297478/gable-chooses-sequel-foreuropean-underwriting-operation Liechtenstein-based Gable Insurance has bought Sequel’s Eclipse Underwriting software in a deal that includes training, consultancy and implementation.

Gable will also use Sequel's Eclipse Financials for its GAAP reporting requirements.

Gable's chief executive William Dewsall, pictured, said: "We took a careful look at what was available on the market and we put our requirements out to tender.

"The software Sequel proposed was immediately applicable to our international operations and they had the ability to install a system that would support our plans for growth. Sequel know what they're doing and they have the right kind of people and technology to help us achieve our ambitious goals."

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Michael Graham, sales and marketing director of Sequel, added: "It's significant that Sequel's first European customer should be a forward thinking firm such as Gable. It's a universal truth that great businesses need great systems to support them. Our software is universal too - as evidenced by this first contract win in Europe."

Gable's new system will go live in the coming months.

KPMG welcomes latest Solvency II guidelines 27 September, 2013 | Insurance Insights http://www.insuranceinsight.com/insurance-insight/news/2297404/kpmg-welcomes-latestsolvency-ii-guidelines KPMG has welcomed a relaxation in reporting guidelines following the European Insurance and Occupational Pensions Authority releasing its final guidelines relating to the preparation of Solvency II today.

The guidelines will apply from 1 January 2014.

Peter Ott, KPMG European head of Solvency II, said: “We are pleased that Eiopa has taken on board industry feedback and modified its proposals slightly. However, the parallel running of current and future regulatory systems will still cause resource constraints."

“Now it is clear that the first pillar 3 reporting will be required before the end of 2015, insurers will need to move forward with plans to accelerate their reporting processes,” Ott said.

Janine Hawes, insurance director at KPMG, added: “The removal of the December 2015 quarterly return from the dry-run will be welcomed by the industry. If the implementation date of Solvency II is confirmed as 1 January 2016 when Omnibus 2 is passed, most insurers will need to complete a quarterly dry-run at 30 September 2015 and an annual dry-run at 31 December 2015.”

“We welcome the extra two weeks granted in respect of the annual reporting during this preparatory phase. While a positive step, this will not entirely remove the resource challenges over the first few months of 2016, with a multiplicity of reporting requirements, including any ‘day one’ reporting requirements arising from Omnibus 2,” Hawes said.

“There is, however, likely to be disappointment that both the reporting of a detailed list of assets and the narrative reporting have been retained,” she said.

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Insurers could help tackle implications of global food security 26 September, 2013 | Insurance Insights http://www.insuranceinsight.com/insurance-insight/news/2297070/insurers-could-help-tackleimplications-of-global-food-security The insurance industry could play a major role in ensuring global food security, as concerns over the food supply intensify in coming decades, according to Aon Benfield.

Speaking at Aon Benfield's Bienniel Hazards Conference in Surfer's Paradise, Australia, Rade Musulin, chief operating officer of Aon Benfield Analytics Asia Pacific, said global food security was likely to become "a major social, economic and political issue in the coming decades".

According to Musulin, population increases, income growth and dietary change are key drivers of food security issues, coupled with changes in trade policies, price volatility and the devastating impact of natural disasters on supply.

He said: ‘It shares many links to the normal risks we think of in the realm of natural disasters.

However, more people are at risk globally from this issue than from the cyclones, earthquakes and tsunamis that we are more familiar with.'

Musulin noted that agricultural insurance is important in creating stability in farm incomes in times of adverse weather. That stability underpins improving efficiency in agricultural production by providing incentives to loan money and invest in mechanization or irrigation. Agricultural insurance is, like other lines, subject to natural disasters, where modeling tools help to grow the market.

The talk also noted the interdependence of food issues with those in other spheres of economic activity, with examples including the interplay of energy policy and agricultural policy in the production of ethanol and the use of antibiotics to treat diseases in farm animals, which may play a role in the emergence of resistant strains of disease.

Aon Benfield is exploring the role of the insurance industry in promoting food security by transferring the risk of catastrophic events and funding losses. For example, agriculture insurance already provides protection against production losses for specified perils, such as weather, pests and disease, and is flexible in terms of the types of commodities insured. These include.

Multi-peril crop insurance and index products, which offer protection when an index measuring various parameters falls below a normal percentage of rainfall or heat, are also options, he said.

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Zurich to merge Middle East and Africa regional office with Europe 25 September, 2013 | Insurance Insights http://www.insuranceinsight.com/insurance-insight/news/2296675/zurich-to-merge-middle-eastand-africa-regional-office-with-europe From 1 January 2014, Zurich's general insurance Middle East and Africa office based in Dubai will be merged with Zurich's Europe office in Dublin.

Zurich's 50 staff working in their Dubai Middle East and Africa regional headquarters have been notified of the move to Dublin and their roles are now under review, with the intention of redeploying as many as them as possible within the business.

The changes are not affecting Zurich's global life business in the region.

Patrick Manley, head of Zurich GI Europe, will become head of Zurich GI Europe, the Middle East and Africa on 1 January; he will continue to be based in Dublin. Meanwhile, Saad Mered, ceo of Zurich GI EMEA is to switch roles at the business, although his new role has yet to be specified.

A spokesman from Zurich also confirmed that up to 60 staff out of a total of 280 are being made redundant across the Zurich Middle East general insurance business which has offices in six countries, including one in Dubai. Staff in Africa are unlikely to be affected.

The idea, according to Zurich, is to create a more streamlined approach to decision making and pushing out products in the market. The spokesman said: "We want to be more agile and respond quicker to changes in the market by creating a more simplified structure."

The Zurich spokesman added that Zurich remains fully committed to the region and earlier this year signed a 10 year exclusive distribution deal with HSBC.

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