INSURANCE NEWS FLASH 16th October, 2013
Table of Contents Sales & Marketing ................................................................................................................. 3 Finance ................................................................................................................................. 9 Technology .......................................................................................................................... 14 Strategy .............................................................................................................................. 23
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Sales & Marketing Federal Regulators Look to Require Banks to Accept Private Flood Insurance 14 October, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/10/14/federal-regulators-look-to-require-banks-toaccept Federal bank regulators are proposing a rule aimed at encouraging flood insurance customers to buy private flood insurance. The rule is mandated by the Biggert-Waters Act of 2012. Free market advocates, especially some members of the House Financial Services Committee, point to the provision as one of the most important reforms imposed by the controversial law. The proposed rule would require regulated lending institutions to accept private flood insurance as satisfying the B-W mandate that homebuyers in some areas purchase flood insurance. The proposal would clarify that regulated lending institutions have the authority to charge a borrower for the cost of force-placed flood insurance coverage beginning on the date on which the borrower’s coverage lapsed or became insufficient and would stipulate the circumstances under which a lender must terminate force-placed flood insurance coverage and refund payments to a borrower. The proposed rule also asks interested parties to comment on whether federal banking agencies should adopt additional regulations dealing with the acceptance of flood insurance policies issued by private insurers. The proposed rule would also require regulated lending institutions to escrow payments and fees for flood insurance for any new or outstanding loans secured by residential improved real estate or a mobile home, not including business, agricultural and commercial loans, unless the institutions qualify for the statutory exception. The proposal includes new and revised sample notice forms and clauses concerning the availability of private flood insurance coverage and the escrow requirement. The proposed rule is being issued by the Board of Governors of the Federal Reserve System, the Farm Credit Administration, the Federal Deposit Insurance Corporation, the National Credit Union Administration and the Office of the Comptroller of the Currency.
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Online giants touted as distribution competitors 14 October, 2013 | Insurance Insights http://www.insuranceinsight.com/insurance-insight/news/2300410/online-giants-touted-asdistribution-competitors Almost two thirds of European insurers consider competition in the distribution market in the next three years will come from non-insurance players such as Amazon and Google, a survey has found. Jean-Francois Gasc, Accenture Distribution and Marketing Services managing director for insurance in Europe, Africa and Latin America, said: “To maximise value from digital, insurers will need to move from a product-centric culture to a customer-oriented mentality. The threat posed by emerging competitors such as internet giants is real because user-experience improvement is part of these companies’ DNA, and this is a strategic weapon in gaining market share in the insurance distribution business.” Sixty per cent of European insurers did not have a digital strategy in place or the strategy was limited to only a few areas. Results from the survey, conducted by Accenture and involving 78 insurers, showed the total annual volume of property and casualty, and life insurance policies sold through digital channels in Europe could reach €25bn (£21bn) in 2016, more than double the 2012 value of €12bn. According to the study, policies sold through digital channels are expected to account for 18 percent of European insurers’ total annual new business premium volume in 2016, compared to 11 percent in 2013. The study also found three quarters (78 percent) of European insurers were planning to increase investments in the digital transformation of their sales and distribution functions, and expect to spend €27 million, on average, in this space over the next three years. Piercarlo Gera, global managing director of Accenture Distribution and Marketing Services, said: “The shift to digital is inevitable for insurers and our study reveals the industry is investing heavily to transform itself.” “Insurers must invest in capabilities with a clear strategy to improve the overall customer experience with every interaction,” Gera said.
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Homeowners May Look to Sue Over Flood Rate Hikes; Fla. Mulls Private Solution 10 October, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/10/10/homeowners-may-look-to-sue-over-floodrate-hikes-f TALLAHASSEE -- With thousands of homeowners locked in their homes because of spiraling flood insurance rates, Florida regulators are working on a program to lure private companies to write flood insurance in the state as an alternative to the federal program. The Florida Office of Insurance Regulation is talking to insurance companies interested in coming to Florida and writing expedited flood insurance policies, Rebecca Matthews, the department’s deputy chief of staff told the Senate Banking and Insurance Committee on Tuesday. “This is an issue that may need to be taken care of a little sooner than session,’’ she said, explaining that regulators do not plan to wait until legislators return to Tallahassee for the spring lawmaking session in March. “A handful of companies have shown interest.” Sen. David Simmons, R-Altamonte Springs, chairman of the committee, said lawmakers must respond to the unintended consequences of the Biggert-Waters Flood Insurance Reform Act of 2012, which could harm the state’s economy. “If there’s money to be made in this and the flexibility is given to private enterprise, then we can get that started,’’ he said. “The question, of course, is are we going to be able to do it fast enough.” The act attempted to phase in a series of rate increases in the National Flood Insurance Program as a way to close the program’s $24 billion deficit. The biggest hit will be to an estimated 268,000 Floridians whose homes were built before 1974 and are in high risk flood zones. They will lose their subsidized rates when they sell their homes. For some homes, the increase could mean their rates will rise from $500 to $16,000, the committee was told. Thousands of other homeowners, including many who purchased homes in the last year, also face soaring premiums because of new flood maps that take effect as a result of the act. John Sebree, senior vice president of the Florida Realtors Association, told the committee that the rate shock from the flood insurance rate hikes will scare buyers away from purchasing older homes and Florida’s gradually recovering real estate market “could come to a screeching halt.’’ He urged legislators to consider a Florida insurance alternative, rather than wait on the Congress which has been unable to agree to delay the rate increases. Simmons said that if the private market can’t respond fast enough then the Legislature should consider creating a insurance pool of last resort that could offer rates lower than those provided under the federal program.
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Nearly two million Florida homeowners carry flood insurance through the national program, making up 37 percent of the entire federal pool. In the last 20 years, Floridians paid $16 billion in premiums and saw less than $4 billion returned in claims. Those numbers seem to indicate that although Florida suffers from its reputation from windstorms, its flood risk is not as steep and could potentially be profitable for private companies. But insurance experts told the committee that insurers would need extraordinary regulatory flexibility if they were to enter the Florida flood insurance market because the federal program is not able to give them the data they need to determine how much to charge and assess their risk. “The private sector has not written flood insurance because, when you start a company you have to have a ‘me too’ filing of something that already exists,’’ said Locke Burt a former state senator from Ormond Beach and an owner of Security First Insurance. In Florida, there is no company that already exists. Rep. Bryan Nelson, R-Apopka, said he is skeptical the private market can move quickly enough to fill the breech. “I don’t think anything is off the table,’’ he said, after learning of the OIR and Senate plans. “The big problem we have is we don’t have enough information to base a decision on and, until we have expected loss ratios, I don’t think the private sector is going to be ready to jump in.” Nelson said he believes there may be enough capital in the market now to draw new business to Florida but it would have to come from companies that already do not face exposure from Florida’s hurricane risk. Burt and former state representative Don Brown, a lobbyist for Security First, recommended the Legislature create a task force to find a solution. In the meantime, Simmons said the threat of Florida homeowners taking their money out of the National Flood Insurance Program might provoke Congress to take action. “We can provide leverage to get a solution,’’ he said. Read more here: http://www.miamiherald.com/2013/10/08/3678290/state-looking-intoalternatives.html#storylink=cpy
CoreLogic: $189B in Property at High Risk of Wildfire 10 October, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/10/10/corelogic-189b-in-property-at-high-risk-ofwildfir More than 1.2 million residential properties in 13 states across the western U.S. are at high or very high risk for wildfire damage, putting the total at-risk property value at an estimated $189 billion, according to a report by CoreLogic.
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Residential property information and analytics provider CoreLogic released its 2013 CoreLogic Wildfire Hazard Risk Report, which outlines statistics of residential property risk at different geographic levels. The report explores findings including states and other geographic locations where homes are at “very high risk," with Los Angeles being the city with the most residential properties at risk. It also highlights the importance and influence of the Wildland Urban Interface in the analysis of wildfire risk. The growing population of this area has led to exposure of higher wildfire-risk zones. “Just because your home is located within a city boundary does not necessarily mean you are safe from wildfire destruction if there is wildland vegetation nearby,” said CoreLogic’s senior hazard scientist Dr. Thomas Jeffery. The report was designed to provide the insurance industry, as well as financial services companies, homeowners and other parties impacted by wildfires with a more comprehensive understanding of wildfire risk. “Recent trends have proven that risk of wildfire damage is a real and immediate threat to many homeowners in the western U.S.,” Jeffery said. “Awareness of that risk, as it relates to homes and businesses is crucially important to minimizing or preventing massive property damage.”
UK GI business volumes up Q3 says PWC 10 October, 2013 | Insurance Insights http://www.insuranceinsight.com/insurance-insight/news/2299042/gi-business-volumes-up-q3says-pwc General insurers saw business volumes and profitability rise in the past three months and expect strong growth in business volumes during the next quarter, according to the latest CBI/PWC Financial Services Survey. Insurance brokers saw business volumes and profitability exceed expectations and expect robust growth in volumes and profitability next quarter. Business volumes in the life insurance sector rose rapidly in the past three months although the level of business was still judged to be below normal. Headcount increased, driven by regulation and strategic change, but profits fell, the survey found. Life insurers expect a return to growth in profits next quarter, supported by predictions of growing premium and investment income. Commenting on the findings, Jonathan Howe, PWC's UK insurance leader, pictured, said: "The general insurance sector saw a modest improvement this quarter - profitability rose at its fastest pace since March 2008 and business volumes showed a second successive quarter of growth. The sector saw more positive results in the higher fee and premium income, alongside a fall in costs.
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"General insurers are faced with mixed outlook for next quarter - robust growth in business volumes and an improvement in demand is expected, but there remains caution over predictions of a future rise in compliance and claim costs." He added: "The increasing requirements of the new regulator pushes the conduct agenda back to the top of board's priority list. The sector should use this as a reminder of the need to focus on changing customer needs and the opportunity that this brings."
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Finance Axa places €350m of cat bonds for European windstorm risk 16 October, 2013 | Insurance Insights http://www.insuranceinsight.com/insurance-insight/news/2300874/axa-places-eur350m-of-catbonds-for-european-windstorm-risk Axa Global has placed €350m (£295) of catastrophe bonds to institutional investors through Calypso Capital II providing the insurer with protection against European windstorm risk. The multiyear protections cover Belgium, Denmark, France (excluding overseas territories), Germany, Ireland, Luxembourg, the Netherlands, Norway, Sweden, Switzerland and the UK. Philippe Derieux, deputy chief executive of AXA Global and group reinsurance officer, said “This issuance confirms AXA’s strategy to diversify the group’s cover against natural catastrophes, by both traditional reinsurance and alternative risk transfer such as catastrophe bonds. With the development of the cat bonds market, it is now possible to issue more flexible instruments addressing more efficiently the protection needs of the group.” There are two classes of notes: the class A notes, for an amount of €185 million maturing in January 2017, and the class B notes, for an amount of €165 million maturing in January 2018, each class providing protection on different risk levels. The bonds use a Perils index trigger structure based on insured industry losses reported by Perils after the occurrence of a European windstorm event. A new variable reset mechanism has been included allowing Axa, for each new risk period, to adjust the protection levels within predefined ranges with the spread being revised accordingly as predetermined at issuance.
No major insurance losses expected from typhoons Nari and Phailin 15 October, 2013 | Insurance Insights http://www.insuranceinsight.com/insurance-insight/news/2300533/no-major-insurance-lossesexpected-from-typhoons-nari-and-phailin The two most recent typhoons in Asia are unlikely to cause major insurance losses according to industry experts. Typhoon Nari killed 13 people in the Philippines and could still cause damage in Vietnam and China. Loss adjuster Crawford said the typhoon had caused torrential rain and severe flooding in many parts of central Luzon and several other provinces, however it said "we are not aware of any major insured losses to commercial or industrial complexes in the most seriously affected areas." Crawford is continuing to monitor the situation.
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Although there is still significant flooding following typhoon Phailin in Odisha, the insurance industry is not expected to be hit hard. There is a huge amount of under-insurance in the areas hit. There was also not a huge impact on industrial areas or risks. However, claims are still coming in as the damage is being assessed. Around 25 people lost their lives as a result of Phailin after a huge evacuation operation took place.
KBW Q3 Forecasts: Berkshire Specialty Growth at AIG Expense; Auto Competition 14 October, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/10/14/kbw-q3-forecasts-berkshire-specialty-growthat-aig Financial analysts from Keefe, Bruyette & Woods have some interesting predictions for the upcoming third-quarter earnings season. Among them, the investment banking firm says auto competition will increase and Berkshire Hathaway Specialty Insurance will report initial premium growth—likely at the expense of American International Group Inc. (AIG). KBW says BHSI will continue to develop into a permanent and relevant competitive force in the E&S space. “Initially, we think AIG will face the brunt of this competition, since BHSI recruited much of its senior management team from AIG, and because Berkshire’s unrivalled balance sheet makes it an obvious alternative for large-ticket accounts where AIG was formerly uniquely dominant,” states KBW in its quarterly update. Also Read: AIG Loses Four Top P&C Execs in Mass Defection to Berkshire Hathaway | Berkshire Hathaway Specialty Insurance is Official Additionally, KBW analysts see “at least slowing—and possibly reversing—personal auto rate increases” based on recent comments from auto insurance providers. Due to this new dynamic in the marketplace, KBW predicts an advantage for Allstate because competitors Geico and Progressive rely more on rate increases to draw interest to their low-cost policies. Continuing, and to “get the obvious out of the way,” KBW looks for very strong underwriting results during the third quarter because the global weather picture—particularly the U.S. hurricane season—has been relatively benign.
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But within a section of the report titled “No Country for Old Accident Year Reserve Charges,” KBW ponders rating actions for any additional companies with disclosures of reserve strengthening— following Tower Group and Meadowbrook. Each was downgraded by A.M. Best Co. KBW says it agrees with the action against Tower but didn’t think Meadowbrook deserved a downgrade because it did a better job of defining where the reserves worsened. “The key takeaway seems to be that the rating agencies have very little patience for adverse development,” KBW adds. “That’s probably bad news for any individual company that discovers a reserve issue over the next few quarters.”
UK IFAs say increased insurance sector M&A likely 14 October, 2013 | Insurance Insights http://www.insuranceinsight.com/insurance-insight/news/2300415/uk-ifas-say-increasedinsurance-sector-m-a-likely Results from a survey of more than 170 UK independent financial advisors show 87% of respondents consider more mergers and acquisitions in the insurance sector to 2018 are likely. Eight per cent of the 176 respondents expected there would be less M&A activity over the next five years. Last month PWC released a report forecasting an increase in insurance M&A globally with industry commentators citing low interest rates and investment yields as the reason for the increased strategic importance of M&A activity. More than half (51%) of survey respondents, which was conducted by State Street in July, said there was likely to be more product innovation in the next five years with 70% predicting the innovation would be in post-retirement products. Martha Whitman, senior vice president and head of State Street’s insurance team in Europe Middle East and Africa, said: “The insurance sector is very reliant on intermediaries. As consumers increasingly need more help with their finances, the role of IFAs in the distribution of insurance products will remain pivotal.” “Our findings provide a very interesting insight for insurers and their business partners. For example, 27% of IFAs said that over the next five years, they expect to place more emphasis on an insurer’s profitability before recommending their products to clients,” Whitman said. In relation to the regulatory environment, 41% of IFAs expected regimes to converge to a global standard over the next five years, compared with 29% which claimed national standards would continue to exist.
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Eight out of 10 IFAs interviewed believed the cost of increased insurance industry regulation would be passed on to policyholders
R&Q acquires Cypriot firm from Validus 11 October, 2013 | Insurance Insights http://www.insuranceinsight.com/insurance-insight/news/2300199/r-q-acquire-cypriot-frimfrom-validus Randall & Quilter Investment Holdings has acquired the entire issued share capital of Cyprus domiciled Flagstone Alliance Insurance and Reinsurance from Validus Group. FAIR, which commenced underwriting in 2000, went into run-off in 2010 and comprises primarily international reinsurance business with net reserves of around $16.4m equivalent as at 30 June, 2013. The consideration payable by R&Q in cash from existing resources is c. $24.1m, a discount to the estimated adjusted net asset value of c. $28.1m. The business will be managed by R&Q Insurance Services, and all of the assets of FAIR will be held in UK based bank and custodian accounts other than very nominal balances held to pay local expenses. Ken Randall, chief executive officer of Randall & Quilter, pictured, said: "We are delighted to have acquired FAIR from the Validus Group after an extensive due diligence process. FAIR is our largest run-off acquisition since 2006. This purchase demonstrates our commitment to seeking out legacy portfolios which meet our return and pay-back criteria. "We have reported that our pipeline is active and that in addition to further captive related acquisition opportunities, we are seeing some larger sized legacy opportunities. FAIR is proof of this and we are pleased that our recent ÂŁ25m fund raise has enabled us to conclude this deal. Through customary restructuring, we expect to make this acquisition both capital and operationally efficient for the Group over the near term."
Progressive Q3 Income Falls 16% on Investments 10 October, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/10/10/progressive-q3-income-falls-16-oninvestments Progressive Corp. says third-quarter net income fell 16 percent on another quarter of declining investment income. The Mayfield Village, Ohio-based auto insurer reports third quarter net income of $232.4 million— down from $277 million a year ago during the same period.
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Net realized gains on securities plummeted 84 percent to $27.9 million during the 2013 third quarter as investment income during the period fell to $107.9 million. Progressive reported gains on securities of $171.9 million and investment income of $109 million in the third quarter a year ago. Third-quarter premiums written increased 5 percent to $4.45 billion. Premiums earned went up 6 percent to $4.3 billion from $4.05 billion in the prior-year quarter. Progressive says third-quarter catastrophe losses totaled $35 million compared to $52 million during the same time in 2012. Thus far this year catastrophe losses are $165 million, down from $176 million a year ago. In September net income dropped 19 percent to $61.8 million compared to last year. Policies acquired by the company’s direct channel increased 4 percent to about 4.2 million compared to the same month a year ago. Policies in September from agencies were flat at about 4.8 million.
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Technology Valen Analytics Expands InsureRight Platform 15 October, 2013 | Insurance Networking News http://www.insurancenetworking.com/news/valen-analytics-manage-insureright-33187-1.html Valen Analytics, a provider of data, analytics and predictive modeling for insurers, has released a second component, Manage, within its InsureRight Platform for homeowners carriers. Manage is designed to enable insurers looking to leverage indicators of risk, understand portfolio performance overall, and within segments, inform strategic decisions and achieve underwriting profitability. The other InsureRight Platform component, according to Valen, is Predict; Manage is a portfolio management tool, and Predict is a risk selection tool. The Manage component merges Valen’s proprietary Condition Hazard Score and Insurance-to-Value (ITV) Score, available through the Predict feature of the product, with consortium data to deliver portfolio insights. Carriers of all sizes have access to a wide breadth of features to access and analyze their own data, says Valen, including portfolio management; profitability trends and maps; inspections trends and maps; risk trends’ and data validation.
2 Commercial Lines Insurers Go For Core Suites 15 October, 2013 | Insurance and Technology http://www.insurancetech.com/policy-administration/2-commercial-lines-insurers-go-forcore/240162647 Two commercial lines insurers, Catlin Group and FCCI Insurance Group have chosen suites with solutions that offer automation and data consolidation for policy, billing and claims, according to releases. The developments illustrate trends toward both increased core systems replacement activity and the preference of insurers for end-to-end suites. Catlin Group, in Hamilton, Bermuda and Foster City, Calif., has selected Guidewire for rating, underwriting and policy administration, claims management and billing, with plans to support 20 offices in the U.S. Guidewire has helped improve data analytics with real-time reporting capabilities and automation for has also helped improve operational efficiency. “From the automation opportunities to the rich source data for decision making, InsuranceSuite included a toolset that we felt could help us continue to profitability grow our business,” says Steve Naish, technology solutions at Catlin Group in a statement.
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Sarasota, Fla. based FCCI has selected a policy administration platform called Policy Decisions and a solution that consolidates data from policy claims, billing, and reinsurance systems for enterprise reporting, analytics and integration, called Insurance Enterprise View. CIO Paul Ayoub says that “Insurity’s strong configuration components offer us the self-sufficiency we desire. That, plus the ability to eventually consolidate our multiple systems to a single Insurity platform, made the case for it.” FCCI will be able to reduce multiple systems, remain compliant and introduce new products to new states more easily, according to its release.
Insurance Policies Sold Digitally Will Double, Says Accenture 14 October, 2013 | Insurance and Technology http://www.insurancetech.com/management-strategies/insurance-policies-sold-digitally-willd/240162599 Property and casualty (P&C) and life insurance polices volume sold online could reach about 3.4 billion in 2016, up from 1.6 billion in 2012, in Europe, according to a study by Accenture, based in London. About 78% of European insurers are planning to increase investments for digital sales and distribution functions, with an expected 3.6 million to spend on average over the next three years. Currently, 60% of European insurers confess to not having a digital strategy in place or only having a limited strategy for sales or customer interaction processes. Areas that do not have a digital strategy include product creation, underwriting to claims settlement and policy administration. The biggest challenge cited by 85% of respondents was managing change across physical channels. The next significant barriers are the constraints of IT legacy systems and inability of the organization to act quickly, says 81% of respondents. “The transformation is critical to attract consumers who are becoming increasingly unwilling to buy a product or service that does not provide the same levels of convenience, simplicity and speed to which they have become accustomed from many other services they use everyday,” says Piercarlo Gera, global managing director of Accenture Distribution and Marketing Services. About nine out of ten respondents expect competition to intensify in the insurance distribution market over the next three years. About 64% feel that the competition will come from noninsurance players like Google or Amazon. “The threat posed by emerging competitors such as Internet giants is real because user-experience improvement is part of these companies’ DNA, and this is a strategic weapon in gaining market share in the insurance distribution business,“ states Jean-Francois Gasc, managing director of Accenture Distribution and Marketing Services for insurance across Europe, Africa and Latin America.
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Gasc adds, “to maximize value from digital, insurers will need to move from product-centric culture to customer-oriented mentality.� [Read: Distribution Disruption Defies Insurers, Agents to learn more.] Over the next three years, 67% of insurers mentioned developing mobile devices for new customer interaction channels for sales, customer services or marketing, while 59% are considering social media. About 53% of respondents plan to invest in big data management capabilities, 40% in unstructured data management like voice and video and 36% on mobile technology. The survey has included 78 European C-level executives involved in digital distribution strategies, as well as heads of sales and CMOs at P&C and life insurance companies. Companies from France, Italy, Spain Germany, U.K., Belgium, Austria, Netherlands, Sweden, Switzerland, Finland, Norway and Denmark participated.
4 Steps Toward Becoming a Digital Insurer 11 October, 2013 | Insurance and Technology http://www.insurancetech.com/management-strategies/4-steps-toward-becoming-a-digitalinsure/240162562 To their sorrow, insurers have learned that customers have become increasingly fickle. Accenture research -- conducted last year among thousands of customers around the world -- shows that more and more life insurance customers are planning to switch to a new provider. Insurance customers are the most loyal among 10 industries studied, but still more than two-thirds of respondents (67%) said they were ready to re-evaluate providers. Just under a third are satisfied with their provider, while still fewer (24%) are loyal or would recommend the provider (22%). We see this trend as being driven mainly by the continuing economic pressures on household budgets. Customers are motivated to seek out savings opportunities on discretionary expenses like insurance, but they also have better access to knowledge and are more skilled at using it. The Internet has made price comparison easy, and customers, having compared prices online, are also keen to use the Internet to purchase insurance, either on company websites or through aggregators. They swap experiences with fellow consumers through social media and are increasingly comfortable using multiple channels to ship and make transactions. John DelSanto, AccentureIn this environment, insurers need to rethink and restructure the experience they deliver to their customers, with emphasis upon: •
Multiple channels. Customers now use a growing range of digital channels interchangeably to deal with service providers in all industries. In line with these expectations, insurers have to develop the capability to provide an integrated, consistent experience across existing and future channels.
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Personalized interaction. Customers do not just expect their digital experience to be integrated across channels, they want all interaction and offers to be customized and/or personalized in line with their specific circumstances.
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Increased competition and comparison. Proliferating digital channels have made large amounts of comparative data available to customers. Consequently, insurers' offers do not just have to be personalized and consistent across channels, but also competitive in price. At the same time, customers continue to demand increased efficiency and speed.
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Proliferating digital technology. The range of digital technologies is wide and constantly growing. Servicing customers across of all them means constantly mastering these new and fastdeveloping technologies — in itself a challenge for insurers. Analytical engines, digital touchpoints and internet-connected sensors offer usage and contextual data for new products and relationships
Insurers seeking to offer a truly differentiated customer experience must, we believe, turn themselves into "Digital Insurers". This means transforming both their infrastructures and their operations. Our experience suggests that successful metamorphosis to Digital Insurer status rests upon acquiring and developing four key capabilities: 1. Insurers must achieve cross-channel excellence. To do this, it will be necessary to create a single 360-degree view of customer interactions, and operate seamlessly across multiple channels. For example, marketing will have to integrate campaigns across channels, leveraging customer information to identify the best channel to reach each individual customer. Distribution must expand its horizon to include multiple devices and mobility offerings. 2. Insurers must become customer-centric, with the ability to personalize interactions. Using analytics to draw insights out of the huge stores of data at their disposal, insurers will be able to personalize offers and products. This data is extracted from internal systems and external sources, such as social media. For example, products and services can be tailored to specific channels and even segments, leveraging data gathered on social media to increase customer intimacy. Claim submission and status monitoring should be digitally enabled. 3. Insurers must strive for operational simplicity. By digitizing customer-facing processes as well as certain support functions, insurers can reduce complexity, lowering costs and increasing their ability to respond to change--including introducing variable pricing. For example, mastering this capability will enable insurers to provide advice and quotations to consumers via their channel of choice, as well as to offer self-service and straight-through processing. Operational simplicity can also transform many support functions, among them collaboration across the value chain, legal compliance and interaction with actuaries. 4. Insurers must ensure superior execution combined with agility. Digitization will help insurers to improve execution while new technologies like cloud computing confer the agility needed to respond to constantly changing market conditions and consumer requirements without increasing back-office complexity. Insurers should be able to provide one-stop paperless underwriting.
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While this four-step approach provides a basic framework, each insurer must make adaptations to reflect the firm's strategy, footprint and operational structure. A phased approach can help minimize disruption while maximizing the insurer's digital capabilities. As customers move online and recalibrate their expectations of their insurers, we believe that becoming a digital insurer is necessary, first for survival, and then to maintain consistent, profitable growth. The insurers that successfully navigate this transformation will have numerous opportunities to differentiate themselves from less nimble competitors.
Insurers Bring Need For Speed To Agent Channel 09 October, 2013 | Insurance and Technology http://www.insurancetech.com/distribution/insurers-bring-need-for-speed-to-agentc/240161833?pgno=2 Insurers have a problem: The product they're selling is complicated and requires discipline in the underwriting process so that risk is adequately priced for both parties to the transaction. Insurance agents traditionally have handled admirably the vetting process associated with customer acquisition, but as consumers have grown more accustomed to buying online using sites such as Amazon and iTunes, and have access to ubiquitous, well-stocked big-box stores such as Target and Wal-Mart, they have developed an expectation for buying any product — even insurance — in a quick, efficient manner. "We have complex products, complex organizations, our buyers have sophisticated needs, what we sell is not necessarily exciting and entertaining, and we really need some high levels of expertise," Mark Breading, a partner at consulting firm Strategy Meets Action, said at the company's recent Innovate for Advantage event in Boston, kicking off a panel on customer experience. "We need to think about the distribution channel as well as the policyholders." For life insurance carriers, the fallout from this shift has been especially difficult. No one is required by law or contract to buy life insurance as they are to buy auto or home insurance, and the process to be underwritten becomes increasingly consumer-unfriendly compared with each streamlined buying process in another industry. "Life insurance is usually sold in a way that someone has to go through some medical underwriting at a home office, then depending on your age and the amount at risk, you might need to go through a physical exam," says Mike Plazony, senior VP for Erie Insurance, a multiline carrier that sells both P&C and life insurance. And that process only gets started after agents who sell the required P&C policies that bring customers in the door remember to ask about life insurance, he adds. Erie wanted to dip into its expansive P&C book for potential new life insurance clients. But there were two customer experiences to manage in the process: policyholders who are wary of the invasive process, and agents who are used to writing a more transactional product in auto and home insurance. The solution was a new product, Erie LifeSense, which provides an entry-level term life policy of up to $90,000 that can be quoted and bound in a short time.
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"We understand that our customers are busy, that the life insurance process can take quite a bit of time, and people don't want a large amount of coverage that requires them to go through full underwriting," says Rebecca Nurse, director of strategic initiatives for Erie Family Life. "It's going to be about 15 minutes for the person who's in relatively good health. Everything is click to sign, so there's no paperwork printed or passed back and forth, nor any blood or medical exams required. We also use auto-bank withdrawal for the premiums. It's very transactional, which the agents find really attractive." Erie leveraged several existing technology partnerships to power the new product. Reinsurance partner RGA lent its underwriting engine to Erie, while iPipeline, which Erie was already using for agent processing, added its e-signature capabilities. An underwriting decision can be made after calling up only a motor vehicle report and prescription record. Build A Connection In addition to giving Erie some cash flow, LifeSense also helped demonstrate to customers the value of the life insurance product, as well as the agent channel. Plazony says that customers of LifeSense are likely to respond to upsell messaging and remain customers of Erie and its agents. "It's really designed to get the conversation started," he explains. "Life insurance is more of an emotional connection with the customer than P&C, which you buy because you have to. It helps to deepen the relationship and helps keep them as a customer." Learn From Direct Writers In some P&C lines, finding solutions that help agents establish their value as a partner to the insured, while at the same time meeting their needs for speedy service, is a concern as well. PURE Insurance, which writes coverage for high-net-worth individuals with special insurance needs, faced a dilemma where its target customer was every bit as speed-conscious as the average midmarket P&C consumer. The company remained committed to its agent-based distribution and underwriting, and instead took other lessons from direct writers to change its customer experience. "We have taken a lot of lessons from the direct writers. They've made quoting, which is considered by most people a hard process, very easy," says CIO Stu Tainsky. "But we're also inspired by companies that work with intermediaries. Our sales force is our agents, and we have to make sure it's as easy as possible for them to work within our systems and provide excellent service to their clients." PURE recently completed a project in which it added capabilities to its agent quoting portal to help streamline the application process. New technology included prefill capability, to mitigate keying in vital details, and leveraging additional third-party data sources to reduce the amount of informationgathering. The result: a reduction in auto-quote time from 15 minutes to about three. (Editor's note: PURE's initiative won, and Erie's was nominated for, this year's Novarica Research Council Impact Awards.)
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"The PURE membership consists of really successful and unusually busy people. We're committed to doing what we can to help them save time and eliminate hassle whenever possible," says PURE CMO Mark Galante. "That means asking for less information whenever we can, to the extent we don't compromise the underwriting. We also want to allow our agents to spend more time developing a greater understanding of customer needs and provide solutions to help them manage risk, and less time keying information into a system." Offering choice to customers after the policy is purchased is key to PURE's strategy around customer experience, Galante continues. The company is committed to a certain kind of customer, and so it has to be cognizant of the behaviors endemic to that group instead of worrying about casting a wider net. "We know a fair bit about our customers and there are certainly some similarities to the massmarket consumer. They are using tech more and more, and going online to evaluate all sorts of buying decisions, including financial instruments like insurance. With regards to insurance, we see much more shopping [research] online than buying online at this point" among that target, he says. At the same time, "we also know that the market we serve places great value on alignment of interests and transparency, as validated by the shift wealthy families are making to fee-based wealth management firms whose success is tied to the growth of their clients' assets," Galante says. That means that when it comes to insurance agents and carriers, clients are looking for relationships that help them "clearly understand what options are available to them and doing everything possible to build customer trust and enthusiasm." And PURE has robust online capabilities for bill payment and policy servicing, as well as carrier-side member advocates who reach out to customers in advance of major CAT events, for example. "We're going to be communicating stuff that's transactional in nature -- things like keeping them up to date on their billing," Galante says. "We also seek to go beyond that, give them information that is intended to help them reduce risk. In advance of [Superstorm] Sandy, for example, we put together a series of communications ranging from a blast email containing storm-tracking tools and practical last-minute loss- prevention advice to personal outgoing phone calls to members that were in the path of the storm." This kind of multichannel, multitouch approach is gaining popularity among insurers, says Peter Hughes, director of global industry programs at Teradata. "Insurers are looking for multichannel more than they ever have before," he says. "They realize that any one customer may want to access the company for one thing or the agent for the other or the call cen
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Overcoming the Challenges of Scaling Up a Modern PAS for a Very Large Policyholder Database 08 October, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/10/08/overcoming-the-challenges-of-scaling-up-amodern-p?t=core-processing&page=2 CIOs at the largest carriers know that their existing policy systems can no longer provide the flexibility, workflow efficiency and self-service capabilities that both internal staff and external customers need today. But existing mainframe systems have one big thing going for them: because of their static, batchdriven architecture, they scale up easily. Huge is no problem. No CIO at a Tier One insurer is going to dump the current system without being sure that a new, modern policy-administration system will handle the load and not frustrate users. Choosing a system that worked great at a smaller insurer is no guarantee; it might slow to a crawl with huge database and many users. And getting proof positive isn’t easy. Scalability up to a modern PAS to handle 10 million to 40 million policies is a big challenge. Everything that makes contemporary systems so useful— configurability, advanced functionality, flexibility and workflow—can exact a price in performance. All processes are executed in memory in real time, placing a big strain on a system unless it’s configured property. Life and health and property and casualty insurers both have special challenges. Life and health insurers can have individual policyholders as well as group policies. P&C companies have many different lines of business and highly complex personal and business policies packaging many coverages together. Self-service functions especially challenge modern systems. These transactions are different in nature than those of internal users. A broker or insured making a policy change or an inquiry does it in real time. The service layer in the system can be subjected to intensive volumes of transactions. Fortunately, modern systems have advanced and some can now be scaled up to become the policy workhorse for a Tier One carrier. But it takes work. Here’s how to get a responsive modern system—one that hums along speedily as it uses data seamlessly from tens of millions of records, responding swiftly to hundreds of simultaneous users. Choose Balanced Software with a Strong Backbone At one end of the spectrum is the mainframe system, which is hard-coded, inflexible and scalable. At the other end are some modern systems that are ultimately configurable. They may not even have a comprehensive base-data model; the system is the framework.
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But systems offering total configurability probably can’t be scaled up for the biggest insurers. They become too complex to stay responsive. There’s a big risk in having less code and less technology that’s been proven scalable. If building and configuring your system is like putting Legos together, you probably don’t have the right one for a big database. In contrast, a modern system that’s balanced between configurability and structure has a strong technology backbone built in C++ or Java or other technology. Around the backbone, the system can be configured to add data elements. It can be scaled up and stay responsive. Benchmark, Test and Remove Data Bottlenecks When a system is “chatty”—with many service calls to different tiers, it’s not going to perform well with a big database. The key is to minimize the numbers of transaction between the UI layer and the back end. How can you do that? Test, identify bottlenecks and tune the system. Test again. Repeat until the system is well tuned and optimally efficient. The first challenge is creating an enormous test policyholder database with 10 million to 40 million policies that acts as a true representation of the insurer’s specific book of business. If it’s a realistic test, there will be real data in both the configuration and client database. The test database needs to simulate different groups and different policies. It can’t be too vanilla and can’t have too many cloned policies. Getting the details right makes a big difference. Here’s one way to do it: First, create a baseline of 100 policies that reflects an accurate sampling of the insurer’s actual book of business; base product configurations on the insurers’ specifications; have an accurate mix of group policies and individual policies if the insurer has both types. Next, you’ll need tool to replicate this policy sample to create a policyholder database of the desired size. Partial data model replication techniques can replicate the data in stages. Creating the database and testing the PAS’ performance on dry runs and smoke tests is the only way to see behaviors that are degrading performance and correct them. The goal is to completely optimize the system so that it’s running the fewest transactions between different layers. Transactional data models are complex; systems often have 1,000 to 2,000 tables. These complex data models end up being very demanding on the database level. The database tier needs to be properly configured at a macro and micro level, taking into account that data elements can be added dynamically. A final step is to consider using state-of-the-art database servers with solid-state drives for example. While insurers need to spend their money wisely, hardware is normally only a small fraction of the total cost. A CIO can be sure that a modern PAS will meet the demands of even one of world’s biggest insurers if it’s realistically tested and tuned before implementation.
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Strategy JLT buys broker in Taiwan 16 October, 2013 | Insurance Insights http://www.insuranceinsight.com/insurance-insight/news/2300844/jlt-buys-broker-in-taiwan Jardine Lloyd Thompson has bought ForVision Risk Services in Taiwan, a broker providing insurance, reinsurance, and risk management services for companies with local and international operations. The business is being combined with JLT’s existing operations in Taiwan, based in Taipei. The acquisition adds broking business in the marine, hi-tech, and corporate sectors, where ForVision has a large client base. 50% is retail insurance, and the rest is a split between reinsurance and risk management. Sunny Chen, CEO of ForVision, has been appointed CEO of JLT Taiwan, whilst managing director of JLT Taiwan, Muhshi Harn, assumes the position of chairman. The total number of staff will move from 40 to 60. JLT has grown organically for the last 28 years in Taiwan before this acquisition and is the third largest broker in Taiwan. This will increase JLT's size by 50% on a revenue basis. Duncan Howorth (pictured), CEO of JLT Asia, said: "This merger is another step in JLT’s strategy to build out its specialty capabilities and grow its international reach and relevance. Combined with JLT Taiwan’s existing No 1 position in the aviation market, this merger positions JLT for broadbased growth in this market going forward. JLT and ForVision Risk Services Limited have a shared focus on culture and a client-first approach. We are excited about the opportunities ahead for us in this market.” Howorth told Insurance Insight: "We knew Sunny Chen and there was a good cultural fit between the two companies. We are looking to supplement our existing operations throught acquisitions or organic growth." JLT has already bought two businesses in Indonesia earlier this year and bought Insfield Insurance Brokers, a broker in Malaysia in January.
Generali unveils EMEA and Latin America units 15 October, 2013 | Insurance Insights http://www.insuranceinsight.com/insurance-insight/news/2300777/generali-unveils-emea-andlatin-america-units Generali is to simplify its global structure by creating two new business regions, Europe, Middle East and Africa, and Latin America.
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The insurer will now divide its operation into seven markets- Italy, France, Germany, Central and Eastern Europe, EMEA, Asia and Latin America. The EMEA region will be headed by Giovanni Liverani, while Latin America will operate under Jaime Anchustegui. The new setup aims to optimise the Group's international operations and will enable greater coordination between local businesses and the Head Office. Each of the seven markets will report directly to group CEO, Mario Greco. The EMEA region consists of 12 countries - Austria, Belgium, Dubai, Greece, Guernsey, Ireland, Netherlands, Portugal, Spain, Switzerland, Tunisia and Turkey from November 1. The Latin American market will see Generali operate in Argentina, Brazil, Colombia, Ecuador, Guatemala and Panama from January 2014.
EU insurers benefitting from economic stability increasing focus on risk 15 October, 2013 | Insurance Insights http://www.insuranceinsight.com/insurance-insight/news/2300739/eu-insurers-benefittingfrom-economic-stability-increasing-focus-on-risk European insurers are benefitting from a more stable economic environment, although they continue to adjust product offerings and adapt reinsurance purchasing in response to the low-yield environment as they increase their focus on risk management, according to a new report from AM Best. The report, titled “European Insurers Experience Improved Environment, but Challenges Remain”, notes that, in the past year, insurers have taken significant steps to improve their capital positions, including the de-risking of investment portfolios, re-engineering of products and refining of assetliability matching strategies. Although sentiment in the Eurozone has improved and calmness has ensued in 2013 compared with 2012, Eurozone countries will continue to face many challenges over the coming months, with many still struggling with high unemployment and stagnant economic growth, a statement from AM best said. Stefan Holzberger, managing director analytics, said: “European insurers are seeking a more centralised purchasing of reinsurance as they increasingly focus on enterprise risk management (ERM) and attempt to protect consolidated group balance sheets. ERM encourages complex insurance organisations to develop a risk appetite at the group level and manage it holistically through targeted reinsurance protection, rather than on a silo basis.”
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Yvette Essen, director industry research Europe and emerging markets, added: “Although the economic environment has improved for European insurers, AM Best expects a period of uncertainty to continue until European Union policymakers find a long-term solution to the Eurozone challenges. AM Best will, consequently, maintain specific asset risk stress testing of rated entities’ balance sheets for the remainder of 2013 and beyond.”
Bupa acquires Quality HealthCare in Hong Kong 15 October, 2013 | Insurance Insights http://www.insuranceinsight.com/insurance-insight/news/2300531/bupa-acquires-qualityhealthcare-in-hong-kong Health insurer Bupa has acquired Quality HealthCare Medical Services, the largest supplier of healthcare to businesses in Hong Kong, for $355m. Bup has acquired Quality HealthCare Medical Services the largest private clinic network in Hong Kong, for $355m (HK$2.7bn), from Fortis Healthcare, which supplies healthcare across Asia including India, Singapore, Vietnam, Dubai, Mauritius and Sri Lanka. The acquisition is expected to be completed by the end of this month, and according to Bupa, will make the insurer the leading healthcare funder and provider in terms of depth and breadth of service in Hong Kong. Quality HealthCare had 2.7m healthcare visits in the fiscal year 2012 to 2013. It has operated since 1868 and has hundreds of clinics across Hong Kong. Commenting on the acquisition, Stuart Fletcher, CEO of Bupa, said: "Quality HealthCare is a successful, well managed business that has a great future with Bupa. We both share a strong and common vision of providing high quality and affordable healthcare to people in Hong Kong. Together, we will be completely focused on delivering Bupa's purpose of longer, healthier, happier lives to millions more people in Hong Kong." Paul Li, CEO of Quality HealthCare, said: "Joining Bupa is an exciting step in Quality HealthCare's growth and evolution. By combining our experience of delivering care to millions of people in Hong Kong with Bupa's international expertise in healthcare, we will continue to grow our business and provide access to high quality healthcare to our family of customers in Hong Kong."
U.S. Farm Bill 'Windfall' Option Could Cost Billions Extra: Study 11 October, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/10/11/us-farm-bill-windfall-option-could-costbillions-e An insurance provision in the U.S. farm bills proposed by the House and Senate could have corn, soybean, and wheat farmers making more money in a bad year, such as during a drought, than in a good year, an environmental group said on Thursday
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In a 20-page report, the Environmental Working Group criticized the proposed Supplemental Coverage Option (SCO), which is in both the House and Senate versions of the Farm Bill, claiming it would have increased crop insurance payments during last year's drought by $6.8 billion on top of the record $17 billion that was paid out. A corn farmer in central Illinois during that drought would have had crop revenue of about $1,300 a acre, or $200 an acre more than he had expected at planting time, said agricultural economist Bruce Babcock of Iowa State University. SCO payments would be "windfall gains" on top of traditional payments and revenue from crop sales, making it unnecessary, said Babcock, a crop insurance expert who wrote the report for the "green" group. "The best year they ever had (financially) would have been their worst year in terms of drought," said Babcock. The Environmental Working Group works to gain more funding for conservation and small-farmer programs. There would be a "substantial" SCO payout this year due to lower market prices and yield damage in the western Corn Belt and U.S. Plains, he said, although the corn crop is forecast to be record-large and soybeans the fourth-largest ever. EWG said the SCO could cost more than the $5 billion-a-year direct-payment subsidy that it would replace. Farm-state lawmakers said they would end the direct payment as part of farm subsidy reform. FARM COUNTRY SUPPORTS CROP INSURANCE Farm groups gave priority to strengthening crop insurance in the pending farm bill. Farmers pay premiums every year but collect only in bad times, say defenders of the taxpayer-subsidized system. The House and Senate still must agree on a final compromise version of the Farm Bill. "Yet another one-sided and slanted 'report,'" said the trade group National Crop Insurance Services about the EWG report. It said the report used "the extreme and unrepresentative" 2012 drought along with unrealistic commodity prices to arrive at an inflated price tag, rather than look at likely performance over good and bad years. Crop insurance is the largest part of the farm safety net. Crop insurance spending was forecast to increase by up to 10 percent over the coming decade, to around $10 billion a year, in farm bills passed by the Senate and House of Representatives.
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The SCO would be a county-based revenue policy that would cover the gap between a farm's individual insurance coverage and 90 percent of projected crop revenue. The government would pay 65 percent of the premium and there would be no limit on payments. The Senate would require growers to practice conservation to qualify for crop insurance subsidies and have growers with more than $750,000 a year in adjusted gross income pay a larger share of the premium. Neither proposal is in the House bill. SCO would trigger payments more often than other so-called revenue programs proposed in the new farm bill, said analysts Keith Collins and Harun Bulut in the economics journal Choices. Iowa State's Babcock said a simple reform would improve SCO dramatically. Revenue guarantees should be based on prices expected at planting time rather than harvest, he said. Prices rise sharply when crops are bad, creating an offset for poor yields.
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