INSURANCE NEWS FLASH January 02, 2014
Table of Contents Sales & Marketing ................................................................................................................. 3 Finance ................................................................................................................................. 9 Technology .......................................................................................................................... 14 Strategy .............................................................................................................................. 21
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Sales & Marketing Marsh: Commercial Property Rates Softening Through Q3 December 19, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/12/19/marsh-commercial-property-rates-softeningthrough The impact of Superstorm Sandy on Northeast commercial-property rates has waned, and the U.S. property market has continued to soften through the first nine months of 2013, according to a recent Marsh briefing. “The surplus of capital among insurers and reinsurers continued to fuel overall softening in the property insurance market through the third quarter of 2013,” Marsh says in “Benchmarking Trends: Capital Surplus Affecting Property Insurance Pricing.” The broker notes that average rates for large companies showed a slight increase in the third quarter, but overall have declined in 2013. Marsh says the market in the Northeast had been “heavily influenced” by Sandy in the first half of the year, but the broker states that the effects have faded as the year has progressed. “Most insureds that experienced significant losses from Sandy have now renewed, typically at significantly harder terms and with restricted capacity and pricing,” says Marsh. “Also of note,” says Marsh, “early in the third quarter, one large buyer in the Northeast found it difficult to procure sufficient cat capacity in the retail property-insurance market. It turned instead to the sale of a catastrophe bond into the financial markets.” Marsh says this transaction by a single retail insurance buyer, rather than an insurer or reinsurer, “is a significant step in the evolution of financial products as an alternative to standard retail insurance,” though the broker stresses that one bond does not necessarily signal a trend. Elsewhere in the U.S., the market generally has been softening, with insurers largely shrugging off this year’s catastrophes around the globe. Marsh says the most significant 2013 rate change was seen in the second quarter for companies with total insured value (TIV) of $5 billion or more. The broker says 25% of those clients saw decreases of 13.6% or greater, compared to an average rate change in that quarter of down 3.8%. Larger companies in general have secured greater rate decreases throughout the year, says Marsh, though most insureds experienced decreases due to competition. While insurers have been competing on price, though, they have not broadened terms and conditions or lowered deductibles considerably, says Marsh.
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Increased Real-Time Capabilities Should Be Highest Priority – Survey December 19, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/12/19/increased-real-time-capabilities-should-behighest Increasing the number of carriers to offer real-time capabilities should be the industry’s highest priority according to a survey of insurance agency and brokerage professionals. 47 percent of respondents to the Real Time/Download Campaign’s 2013 Agency Technology survey asserted that this should be considered a “Top 3” priority from a field of 13 possible enhancements, and similarly, 48% regarded real time capabilities as having a priority rating of a “5” on a 1 to 5 scale. Industry professionals assert that bringing in more companies will allow brokers to operate more effectively and efficiently, and Real Time/Download Campaign co-chair and vice president and corporate secretary at Jones & Wenner Insurance Agency Joyce Sigler, encourages immediate implementation. "We encourage agents not to wait. They can eliminate duplicate key strokes and save significant time today by implementing Real Time with those carriers that offer it. Agent adoption will encourage more carriers to make the investment in this time-saving technology," says Sigler. Expansive commercial lines real-time comparative rating functionality ranked second in the campaign study, with four in ten agents and brokers describing it as a “Top 3” priority. Similarly, survey participants said that consistency in the real-time workflows offered across carriers and easier password management were also “Top 3” priorities. "Agents and brokers have seen the many benefits of personal lines real-time comparative rating and they're eager to see similar benefits in the commercial arena," said Campaign Co-Chair Stuart Durland, vice president and co-owner of Seely & Durland Insurance. "Many carriers now offer commercial lines real-time rating through agency management systems. Agents can avoid considerable duplicate data entry today by using these tools and suggesting to their non-Real Time company partners that they implement this technology as soon as possible." Durland believes that increased implementation of Real Time/Download will allow for sharing best practices information among carriers and foster continued growth of the interface tools. To drive better, more consistent carrier and vendor real-time implementations, the Real Time/Download Campaign developed a research guide. “Agency Real-Time ‘Best Practice’ Workflows and Implementation Strategies: Guidance for Carriers and Vendors” includes various enhancements ranked by industry professionals that have potential for development and success in the industry. The Campaign’s research includes insight from more than 2,200 professionals who work in the United States and Canada. "The survey offered tremendous insight into what users and non-users believe should be improved," Sigler says. "We need to work together as an industry to help address these issues and to help drive even broader availability and adoption."
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UK Competition Watchdog Says Motor Insurance Too Expensive December 17, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/12/17/uk-competition-watchdog-says-motorinsurance-too-e LONDON (Reuters) - Car insurance in Britain is too expensive because of complexity in the claims process and a lack of incentives to keep costs down, according to the country's competition watchdog. Britain's Competition Commission said on Tuesday a complex chain for the settlement of non-fault claims - which involve drivers making claims for damage caused by others - resulted in higher premiums for all drivers. It criticized the system for providing replacement vehicles and repairs for drivers whose cars were damaged in an accident, sending the bill to the at-fault driver and their insurer who have no control over the process despite having to pay for it. The watchdog said this helped to push up premium costs by up to 200 million pounds per year which are ultimately shouldered by consumers across the entire $17.9 billion (11 billion pound) motor insurance market. "There is insufficient incentive for insurers to keep costs down even though they are themselves on the receiving end of the problem," the commission said. Suggested reforms by the Commission include capping replacement car costs, compulsory audits of repair quality and greater transparency on pricing. The Association of British Insurers (ABI) welcomed the report, saying the current system benefited the providers of replacement cars to the detriment of insurers and their customers. "We have long argued that there are a number of non-insurers in the system adding unnecessary costs onto insurance claims. And for too long, these excessive costs have meant consumers paying more in premiums than necessary," the ABI said. In Britain's car insurance market, dominated by firms like Aviva, Direct Line and Admiral, tough competition has already driven down prices. According to the AA Insurance Premium Index, prices have fallen more than 12 percent since the start of the year. Steve Treloar, a director in Aviva's retail arm said any reforms recommended by the Competition Commission are likely to lead to further price falls. "Given the market is so intensely competitive those changes would very quickly get passed on to consumers," he said.
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British lawmakers are also looking at ways to root out fraudulent claims for whiplash injuries which are also seen as keeping premiums too high. False and exaggerated motor insurance claims could represent more than 60 percent of all claims for whiplash, a committee of legislators said in a report released in July. Meanwhile, the ABI criticized another Competition Commission finding that too many repairs to vehicles following accidents are sub-standard, saying it was based on a non-representative sample. "The commission's findings are largely based on an inspection report which contains fundamental flaws and is based on an analysis representing 0.001 percent of the 1 to 2 million vehicles insurers repair each year," the ABI said. "This is a tiny sample size on which to make sweeping recommendations about the future of the market." The commission also highlighted concerns that a lack of competition between price comparison websites may be helping to keep insurance premiums higher. The Competition Commission is due to publish its final report by Sept. 27, 2014.
Study Quantifies Impact of Filing a Claim on Auto Insurance Rates December 17, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/12/17/study-quantifies-impact-of-filing-a-claim-onauto Drivers who file an auto insurance claim will see their rates climb by an average of 38% nationwide, while those who file two claims within a 12-month period can expect to pay nearly twice as much as claim-free drivers, according to a new report by InsuranceQuotes.com. The highest rate increase for a one-time claim is in Massachusetts, where drivers could expect to pay 67% more for car insurance. The December 2013 study by Quadrant Information Systems looked at the average economic impact of filing various claims, and was commissioned by InsuranceQuotes after customer inquiries, says InsuranceQuotes Senior Analyst Laura Adams. “We get a lot of questions from consumers about, ‘Should I make a claim? I’ve had this happen, or I’ve had that happen,’” Adams says. “There are so many variables that go into it; we wanted to dig into it and see what’s going on around the nation.” The study used a hypothetical 45 year-old married female driver who is employed, has an excellent credit score, no lapse in coverage and has filed no prior auto-insurance claims. It assessed how much annual premiums can increase after filing one of three different types of claims: bodily injury, property damage and comprehensive.
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It also looked at the impact of the claim's dollar amount ($500, $750, $1,000 and $2,000 or more) and compared the average premium increases for all 50 states and Washington, D.C. The report “confirmed everyone’s worse suspicions,” she says. The biggest lesson for consumers? “Not to file a small claim.” Findings show that rates vary considerably from carrier to carrier and from state to state; the study by Quadrant Information Systems looks only at the averages in each state, after surveying the five or six carriers with the largest population of policyholders in that state. “Over 85% on average is the increase for a second claim within a 12-month period,” Adams says. “Obviously these rates may not last forever, but as long as the claim is on your report you can have it affect your rates for three to five years.” While it does make sense in some cases to file a claim, Adams notes: “The key for the consumer is, where is the cutoff? It’s pay out of pocket vs. see your rate skyrocket.” The study showed increases vary by state, and after a single claim, range from a 20% hike in Maryland to a 67% hike in Massachusetts. Bodily injury and property damage (including collision) claims were the most expensive (at a 42% and a 41% increase, respectively), while comprehensive claims (for non-collision events such as theft) are the cheapest, with a mere 2% hike. The company’s web page www.insurancequotes.com includes a calculator for consumers to assess whether a claim is worth pursuing, based on such data as where the driver lives, deductibles, premium, and estimated claim amount. It also gives consumers some financial guidance for their situation and state, Adams says. For example, a New Jersey driver with an annual insurance premium of $1,000 and a deductible of $500 may want to think twice about filing a property damage claim for estimated damages under $1,200. According to the calculator, such a driver making a first-time claim of $500 or more can expect rates to increase by an average of 24.74% for about three years. The calculation includes advice: “You should consider making a claim if the amount is $1,242.19 or more.” In states showing high increases, the premium is pretty low to begin with, Adams says. That excludes New Jersey, where premiums start out rather high—the state’s premium rates are “well above the national average”—and go up even higher once a claim is made. Adams suggests consumers talk over any potential claims with their insurance representative before actually filing any claim. “And don’t tell them about damages; they can enter it on a report,” she says. “Make it clear you’re not making a claim, you’re just asking ‘What if?’” InsuranceQuotes issued a similar report for homeowners insurance in October, which determined that residents of Minnesota, Connecticut and Maryland experience the highest premium increases on their homeowner’s policies after paying one claim, and on average, those filing a single claim in Minnesota can expect their annual premium to increase by 21%.
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See the top-5 and bottom-5 states for increases on the next page. The following five states showed the greatest average premium increase as a result of filing any type of claim of $2,000 or more: 1. Massachusetts — 67% increase 2. California — 62% increase 3. New Jersey — 59% increase 4. North Carolina — 47% increase 5. Minnesota — 45% increase Meanwhile, the following five states, on average, showed the smallest percentage premium increase as a result of filing any type of claim of $2,000 or more: 1. Maryland — 20% increase 2. Alabama — 22% increase 3. Michigan — 23% increase 4. Wyoming — 23% increase 5. Oklahoma — 25% increase
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Finance Cat Bond Use Soars in 2013; Expected to Be Strong in 2014 December 27, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/12/27/cat-bond-use-soars-in-2013-expected-to-bestrong-i The catastrophe bond market is thriving, and sponsors are finding continued strong demand for a diversifying set of risks, according to Fitch Ratings. A major factor in this ability to shape the bonds is that investors are finding capital appreciation on their investments, a Fitch report says. “Bond demand is underscored by new issues that have been consistently oversubscribed, with many experiencing 10% to 20% growth above their initial offering size,” the report says. On the flip side, that could mean trouble for investors—and the market—down the road. The report says most of the focus of the catastrophe bond market remains on model-driven property risks, in particular U.S. peak zone risk. “Investors remain significantly exposed to U.S. hurricane exposure, with approximately 72% of the outstanding catastrophe bond market currently exposed to U.S. wind damage, compared with only 45% in 2003,” the report notes. The report says there has been approximately $7.1 billion of global cat bond issuance in 2013, just short of the all-time record set in 2007 of $7.6 billion. In 2013, the market also experienced a 22% increase in issuance over the prior year. The report adds that in 2013, $2.8 billion of new catastrophe bond issuance included triggers for events occurring in markets outside the U.S., representing 40.1% of all issuance during the year, which was a slight increase over the past few years. Thirty different sponsors of cat bonds came to market during the year, including 11 that were firsttime sponsors. The array of sponsors in 2013 extended beyond the traditional (re-)insurers that have been the mainstays of the marketplace and included non-traditional sponsors such as First Mutual Transportation Assurance Co. (MetroCat Re), New Jersey Manufacturers Insurance Group (Sullivan Re) and state-/government-sponsored entities such as Citizens Property Insurance (Everglades Re) and the Turkish Catastrophe Insurance Pool (Bosphorus 1 Re). Long-time sponsors, American International Group, Nationwide Mutual and USAA, each went to market as sponsors twice in 2013, the report said.
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Fitch says it expects investor demand to remain strong in 2014. The report projects demand will be particularly high for geographically diversifying perils. “Current market conditions remain likely to drive further issuance of catastrophe bonds in the near term if insurers and reinsurers believe they can produce a cost-effective alternative to supplement their reinsurance program,” the report said.
Lockton: 2014 Likely a Buyer's Market for the Right Risks December 26, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/12/26/lockton-2014-likely-a-buyers-market-for-theright Low catastrophe losses, premium growth and increased competition strengthened the property and casualty industry’s bottom line in 2013, but those same factors will create downward pressure on pricing in the coming year and create a continued, if uneven, buyer’s market, says broker Lockton. The P&C industry earned an underwriting profit of $2.3 billion in 2013, reversing underwriting losses of nearly $10 billion in 2012, and net written premiums rose to 4.5% in the first half of 2013, a 0.8% increase from the previous year. The combined ratio grew to 97.9% in the second quarter of 2013 from 94.8% in the first quarter, but marked an improvement from 103.2% in 2012. Property rates in 2013 flattened some due to increased capacity, reduced reinsurance costs, low Florida catastrophe reinsurance costs, and light losses, says Lockton. Middle-market property accounts saw rate decreases from 3% to 10%, which may steepen in 2014 if reinsurance renewals remain favorable. Large-market property accounts have been even more competitive. Although the overall casualty market should expect flat to high-single-digit increases, says Lockton, casualty lines in 2013 were more strongly defined by company risk profiles, for example in workers’ compensation, which saw rates increasing in several states. “The broad casualty market has leveled, but it’s not a classic soft market where all buyers can expect across the-board price cuts,” says Mark Zwickel, Lockton executive vice president and CID manager in Los Angeles, in the company’s 2013 P&C market update. “Good risks can earn a rate of decrease while risks with higher than expected losses will get a rate increase relative to their experience.” Several companies also changed their internal ratings systems to balance their portfolio spread, says Lockton. For example, to offset overexposure in workers’ compensation, a carrier may make its rates “friendlier” in auto and liability. Markets are also underwriting industry groups more closely than in the past. Risks with significant severity exposures, including energy and mining, are positioned to receive highsingle-digit price increases, caused by few available primary or lead umbrella markets and no new capacity, Lockton says.
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“Clients are managing through this by distinguishing themselves as ‘best in class’ in their market submission and by looking closely at retentions and attachment points,” says Vince Gaffigan, Lockton executive vice president and director of risk consulting in St. Louis.
Fitch: E&S Market Will Feel Impact of Berkshire's Expansion in Coming Quarters December 26, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/12/26/fitch-es-market-will-feel-impact-ofberkshires-exp While Berkshire’s aggressive expansion in the excess and surplus lines space earlier this year through the hiring of top American International Group employees hasn't significantly altered the market yet, Fitch Ratings says it expects pricing implications related to this expansion “to materialize in coming quarters.” In a recent report on the E&S market, Fitch says the recent strong profit growth over the last several years will moderate going forward, a victim of growing capacity, which limits rate hikes and promotes persistent competition in various excess and surplus lines markets. The report said the formation of Berkshire Hathaway Specialty Insurance in the second quarter of 2013 “adds tremendous capacity to an already overcapitalized market, which will likely limit rate hikes and lead to more intense competition in 2014.” However, the Fitch analysts, led by Dafina M. Dunmore, said that premium growth in the surpluslines market is expected to continue into 2014, led by exposure growth in accordance with modest economic expansion and continued rate firming, albeit at a slower pace. The analysts also said the costs of Sandy undermined underwriting profitability in 2012, but it is expected to return for all in 2013 “and should persist in 2014 barring unusually severe catastrophic events.” The report says the operating environment remains competitive with sustained low interest rates and diminishing favorable reserve development, increasing the importance for strong underwriting performance. Fitch analysts said they have found that that surplus lines underwriters' direct combined ratio outperformed the overall property and casualty industry by an average of 11 percentage points from 2008-2012. This was based on an analysis of statutory premium and aggregate underwriting performance of U.S. surplus lines insurers. The report says the E&S market’s reversal in 2011 of a four-year consecutive slide in direct written premiums (DWP) has continued through the first nine months of 2013.
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DWP increased by 9 percent to $32 billion at year-end 2012, says the report.
9 Mo. Results Show Industry Set for Best Post-Crisis Year December 23, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/12/23/9-mo-results-show-industry-set-for-best-postcrisi Driven by lower catastrophe losses and higher premiums, profitability in the private U.S. property and casualty insurers' market rose sharply in the third quarter. The results led Robert Hartwig, president of the Insurance Information Institute, to say that they put the industry on a “firm trajectory” for what will “assuredly be its best year in the post-crisis era.” According to data released by ISO and the Property Casualty Insurers Association of America (PCI), net income after taxes rose to $43 billion in nine-months 2013, from $27.8 billion in the same period of 2012. ISO and PCI say P&C insurers’ overall profitability as measured by their annualized rate of return on average policyholders’ surplus increased to 9.5 percent from 6.5 percent. Hartwig adds that there now is “no question” that 2013 fourth-quarter performance for the property and casualty insurance industry “will be far superior” to 2012. He explained that will happen because last year’s fourth quarter includes the impacts of Hurricane Sandy, which resulted in $18.8 billion in insured catastrophe losses. “No event in the fourth quarter of 2013 comes remotely close,” Hartwig saus. In addition, he says P&C insurers will benefit from a strong performance in financial markets during the final quarter of the year. ISO and PCI say nine-month results for 2013 benefited from a $2.1 billion increase in net investment gains—the sum of net investment income and realized capital gains (or losses) on investments—to $40.4 billion compared to $38.3 billion in nine-months 2012. Michael R. Murray, ISO’s assistant vice president for financial analysis, says his analysis indicates that a number of factors were involved in the improved results. Besides “relatively benign weather,” special developments that helped improve the results included developments in the mortgage and financial guaranty insurance segments. Murray and Hartwig say improvements in these sectors added to increases in overall reserves in the industry. Hartwig says these sectors had been “hit hard during the financial crisis but have now largely recovered.” The improvement in underwriting and investment results was partially offset by a drop in miscellaneous other income and higher taxes, Murray says.
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Insurers’ pretax operating income—the sum of net gains or losses on underwriting, net investment income, and miscellaneous other income—grew to $45.7 billion in nine-months 2013 from $31.4 billion in nine-months 2012. The increases in insurers’ pretax operating income, net income after taxes, and overall rate of return were driven by a $16.7 billion swing to $10.5 billion in net gains on underwriting in nine-months 2013 from $6.2 billion in net losses on underwriting in nine-months 2012. The combined ratio improved to 95.8 for nine-months 2013 from 100.7 for nine-months 2012, Murray says. Hartwig says persistently low interest rates “remain a challenge for the industry,” but he notes overall industry capacity rose to a record $624.4 billion as of September 30, 2013—up $45.1 billion, or 7.8 percent, from $579.3 billion as of year-end 2012.
Allstate: Q4 Results to Be Hit By Up to $125M in Pension Charges December 20, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/12/20/allstate-q4-results-to-be-hit-by-up-to-125min-pen Allstate says it expects to post a 2013 fourth-quarter settlement charge of between $100 million and $125 million as a result of a remeasurement of its pension obligations. “In conjunction with announced changes to employee pension-benefit plans, the company's thirdquarter reports included a settlement charge of $49 million, after-tax, and indicated that the fourth quarter might include an additional settlement charge of a comparable or greater amount,” the company says in a statement. Allstate notes the charges are connected to lump-sum payments to retiring employees, and says, “The value of lump sums paid to employees electing retirement in 2013 is elevated due to historically low interest rates. Voluntary retirement activity during the fourth quarter was almost five times the typical level.” Starting in 2014, Allstate says all employees will earn future pension benefits under a new cash balance formula, which it says provides more equitable future benefits to employees.
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Technology Allianz: Data-Driven Solutions Could Add Predictability to the Weather December 23, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/12/23/allianz-data-driven-solutions-could-addpredictabi Corporations must begin to use data-driven weather risk solutions to guard revenues against volatile climate, Allianz says. “Climate is what we expect. Weather is what we get,” says Dan Tomlison, managing director of Allianz Risk Transfer (ART), in a report about climate and the economy. “What we are striving to do here is make what we expect much closer to what we get.” Weather variations cost the U.S. economy as much as $534 billion a year, reports Allianz Risk Transfer (ART), and impacts nearly 70% of companies. Worldwide, insurers paid out $70 billion globally for damages from extreme weather events every year in the past three years alone. In the 1980’s, the cost was $15 billion per year. “In the past, public companies excused themselves for not meeting revenue goals due to weather events—for example, a sports retailer couldn’t sell as many skis because of a warm winter, or people wouldn’t come to the mall or flights were cancelled because of a storm,” Karsten Berlage, global head of weather risk management at Allianz Risk Transfer, tells PC360. “Now even construction companies usually pay a penalty for every day they are delayed on finishing a project due to low temperatures. Cold temperatures, snow, rain or wind can cause delays. If they are insured against these losses, the cost is carried on to insurers.” Although natural catastrophe losses were mild in 2013, the previous year swung the world between extremes. In the U.S., 2012 produced a drought in the Midwest, wildfires on both costs, and the hottest recorded July. Elsewhere, Russia suffered a severe drought that ruined more than 7.5% of its harvest, while flooding in the U.K. impacted the country’s entertainment and tourism sector with mass cancellations. Industries from agriculture to transportation are combining historical risk data—which today’s technology can model back to 50 years ago—along with revenue stream information to create targeted solutions for scenarios in which a changing climate can impact their supply chain and customer activity. “Insurance can cover a retailer for lost income due to climate by analyzing retail traffic, and how people behave in certain weather, to determine the trigger,” says Berlage. “It’s not a perfect correlation: five inches of snow in Buffalo, N.Y. is different than in Raleigh, N.C. where locals are most sensitive to snow and may not have four-wheel-drive vehicles.”
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Additionally, “Large businesses are generally less sensitive to weather than small, undiversified businesses. It helps that can move inventory between locations when they perceive that weather may affect sales on certain items, like snowblowers or bathing suits. On the other hand, a large national chain is nearly always affected by a single weather event somewhere in the U.S., unlike a small business.” Tailoring data to industry or client needs allows South American and African farmers to guard against a lack or excess of rain, energy companies to guard against unseasonable temperatures, and wind farm operators to seek protection against low or excessively strong wind. Besides responsive insurance solutions, businesses can also take steps to insulate against severe weather from within the organization. “Suppliers should look at their weather sensitivities, because if small parts produced in one part of the globe don’t make it to another part of the manufacturing process, the product may not be made on time,” says Berlage.
Class Action Suits Already Filed Against Target for Data Breach December 23, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/12/23/class-action-suits-already-filed-against-targetfo Target reported that hackers stole up to 40 million credit and debit card records, including Target REDcards, of customers who shopped in-store in the second-largest retail data breach on record. “We began investigating the incident as soon as we learned of it. We have determined that the information involved in this incident included customer name, credit or debit card number, and the card’s expiration date and CVV,” Target said on Thursday. The attacks occurred between Nov. 27 and Dec. 15, at the height of the 2013 holiday shopping season. According to Verizon, the majority of breaches (62%) take months to discover, so Target’s response was relatively quick in comparison. The retail giant said it alerted authorities and banks immediately after the breach was discovered by a third party, and have partnered with a forensics firm to investigate further. Nearly every state, the District of Columbia, and Puerto Rico legally require entities to notify individuals of security breaches involving personally identifiable information (PII). On its website, Target advised recent customers to monitor suspicious or unusual bank account activity, and pointed them to the Federal Trade Commission and various credit card monitoring systems portals. Customers still took angrily to social media to comment about the breach on their privacy.
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Massachusetts General Martha Coakley and New York Attorney General Eric Schneidermann have publicly stated they will be working with Target to address the breach, including the inevitable class actions to follow. Mike Snider at USA Today reports that three class-action lawsuits have already been filed. The largest U.S. retail breach occurred at TJS Cos. in 2007, and affected 90 million credit cards. There have so far been about 525 data breaches in 2013, according to AIG.
N.Y. Approves Esurance Telematics App to Prevent Teen Texting While Driving December 18, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/12/18/ny-approves-esurance-telematics-app-toprevent-tee The New York Department of Financial Services (DFS) approved an Esurance program that allows policyholders to install a free device in their cars that prevents teens from texting or calling while driving. Under the voluntary program, policyholders can use the device along with an Esurance app installed on their teen driver’s phone to block specific cell-phone activities when the car is moving, such as text, email, application usage and phone calls to any number except 911. Parents can also use the technology to monitor driving behavior, including speeding, hard braking, fast acceleration and other activities. Parents can log onto an Esurance web portal to customize the device and review their teens’ driving habits. “We are pleased that Governor Cuomo, Superintendent Lawsky, and the State of New York have approved our teen driver safety program," says Esurance president and CEO Gary Tolman. “Esurance DriveSafe can empower parents with smart, innovative technology to help their teens become safer, more responsible drivers.” Cell phone related crashes rose by nearly 143% in New York State from 2005 to 2011, compared to an 18% decrease in alcohol-related crashes. Drivers under the age of 20 have the largest proportion of distracted-driver related crashes, reports the National Highway Traffic Safety Administration. For drivers between 15 and 19 years old involved in fatal crashes, 21% were distracted by their cell phones. “I applaud Esurance for using innovative technology to discourage texting while driving, which could help prevent accidents and save lives,” says Benjamin M. Lawsky, superintendent of financial services. “We encourage other insurers to consider using this type of technology–known as ‘telematics’–to help reduce distracted driving and hold down premiums over the long term.”
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The Shortcut to Modernizing Systems Without a Complete Overhaul December 17, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/12/17/the-shortcut-to-modernizing-systemswithout-a-comp When it comes to technology, the insurance industry tends to lag behind. Yet insurance executives overwhelmingly believe adopting modern technology will lead to long-term fiscal growth. What’s causing the disconnect between intentions and action? For many insurers, making an actual transition away from legacy systems is too daunting. Insurance carriers are clinging to systems and processes that are decades old, silos of applications that create ongoing support and maintenance issues and rudimentary modernization still locked into old technology. While insurance companies understand that improving technology would be beneficial, change is often too difficult and daunting to take on while still maintaining full-business services. Many companies operate on highly customized core systems that contain massive amounts of data and have evolved to meet specific business and regulatory requirements. Completely revamping to a new, more efficient operating environment in these cases is nearly impossible. It is easy to understand why insurers are avoiding modernization and continue to stick with legacy systems that are working for now. But as insurers continue to fall further behind modern technology, the potential revenue they’re missing multiplies. The good news is that there is a relatively simple path insurance executives can take to modernize quickly and smoothly. Two improvements over the past several years have made the transition to modernized technology much easier for “early adopter” companies that have been willing to make the change. The first was service oriented architecture (SOA) or more commonly referred to as web services. SOA is a way to share data between systems and applications to create operational improvement. SOA systems can move data into and out of legacy systems to accomplish a required task more quickly and efficiently. The ability to connect legacy systems with new technology allows for a smoother transition into modernized structures without forcing insurers to completely overhaul everything at once. Business-intelligence systems have also helped insurance companies better transition to modernized structures. Business-intelligence systems are used to collect information and make it easier to access throughout the organization. For example, insurance companies have extensive management and statistical reporting requirements that require communication between several different systems. With business-intelligence systems, data within siloed systems—policy administration, accounting or claims—is much easier to access. With the ability to aggregate data across difference business departments or siloed systems, insurance companies can deliver improved management reporting and insight as well as simplified statistical reporting.
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It’s important for insurance companies to analyze current systems and truly understand what they can and cannot handle. Companies need to understand that data is what keeps their businesses running, and accessing, reusing and repurposing that data is the key to making a significant return on investment in their technology infrastructure. It is commonly assumed among insurance executives that legacy-system replacement is the only option to improving technological efficiency. But it has become clear that entirely revamping systems is simply not possible, and that solutions to help increase efficiency while still maintaining current system data may be the easiest way to improve. As a result, it is not crucial for insurance companies to partake in complete system overhauls to reap the benefits of modernized technology. Many companies have taken a middle-ground approach by investing in business-intelligence systems and SOA technologies that have allowed for the integration of legacy-system data with modernized technology to streamline workflow. For many insurance companies this is a suitable solution. For those that do plan to completely overhaul legacy systems in the long run, these types of services can act as excellent transitions, as the shift from a core legacy system can sometimes prove to be more daunting than expected. It is now more important than ever for executives to understand the most effective ways to streamline their current systems. How insurers are able to go about this depends entirely on what individual systems can handle. Regardless of which path is taken, investing in appropriate technology now will give your insurance business a significant competitive advantage in the long run and can act as a stepping stone towards a complete system overhaul down the road.
In Support of Cloud over ASP-Hosted Model December 17, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/12/17/in-support-of-cloud-over-asp-hosted-model To take full advantage of the value of implementing private cloud, it’s important to understand the key differences between a dedicated ASP (Application Service Provider)-hosted model and the private cloud approach. With a dedicated ASP-hosted model there is a built in level of support that is necessary to ensure the insurer has the right hardware and software installed and that it is running and maintained. There is a misnomer that moving to the private cloud means that the support and expertise from the technology partner will vanish. This is not the case. With private cloud, insurers use technology for maximum effectiveness by taking advantage of the inherent benefits of cloud computing, such as infrastructure on demand and high availability. The shared infrastructure provides a seemingly endless amount of resources and the speed with which applications can be deployed delivers an even faster return on investment. Private cloud enables insurers to focus on moving their business forward while issues of scale and growth are handled by flexible, secure technology.
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Private and hybrid cloud options lower total cost of ownership by allowing insurers to pay for only the resources they utilize while benefitting from a shared cost model with other cloud customers. They also allow for incredible speed-to-market since applications can be rapidly deployed via premade virtual templates in a matter of hours. Cloud technology scales to meet an insurer’s needs and provides more predictable costs, giving them the flexibility and business agility they need to stay competitive and offer the highest level of services to brokers/agents and customers. Additionally, there are no additional costs associated with private or hybrid cloud. In fact, it is more expensive to have a dedicated hosted ASP because insurers have to purchase distinct servers for each redundant system as well as dedicated hardware to run applications since it is not a shared infrastructure model. The virtual platform allows for a more efficient use of these hardware and software resources. There are no dedicated infrastructure needs in the private or hybrid cloud approach. You pay for what you use within an outsourced model known as Infrastructure as a Service (IaaS). A dedicated hosted ASP model takes weeks to get to deployment. There is hardware procurement, equipment installation, software configuration and finally deployment. A cloud deployment, on the other hand, only takes hours to deploy. The pre-made templates are full system configurations, including hardware configuration and software installations in virtual forms. These virtual templates help improve consistency and efficiency.
Telematics May Become a Reality Beyond Auto December 17, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/12/17/telematics-may-become-a-reality-beyondauto The joys of the open road. The wind in your hair. Just you and some music on the radio. But are you really alone in the vehicle? Increasingly, we’re accompanied on our travels by a little black box, or even our own smart phones masquerading as little black boxes, betraying our driving style and habits back to some unseen data warehouse. Meet your new co-driver: telematics. No longer just a techno nerd’s laboratory experiment, telematics—simply defined as the use of wireless devices to transmit data in real time back to an organization—is becoming big business in the automotive industry, and has the potential to transform the entire insurance business across almost every personal and commercial line. Telematics as a mainstay By 2017, it’s estimated that more than 60% of the world’s vehicles will be connected, actively monitoring the safety and security of vehicles and drivers. In fact, Progressive, which launched the first telematics product in 1998, has reported that it accounted for more than $1 billion in premium revenue for usage-based insurance policies (i.e. paying according to how many miles you drive or how well you drive).
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Progressive is forecasting that over 25% of the entire U.S. automotive-insurance premium revenue will be generated via telematics by 2020, representing more than $30 billion. Whereas much of the development has been around usage-based systems, telematics devices are now far more detailed in the information they provide when it comes to the insured’s driving behaviour including the time of day, travel, location, speed and acceleration. In a way, this is risk that can be modelled to the infinite degree. Your insurer now knows everything about your driving habits. They’re not relying on an actuary’s interpretation of how a 35 year old with 15 years’ experience might handle a six year old Porsche Boxster 3.4 S. Even though the ability to discriminate by gender when pricing an automotive policy has been ruled illegal, why should insurers be bothered? Not when they now have access to information that is far more insightful than the statistical broad brush of yesteryear. Beyond automotive usage The ability to then use telematics and profitably tap into a market where 92 percent of drivers are reported to believe that their premiums should largely be based on the way they drive should be very attractive. Very exciting, but why stop at automotive when it comes to developing insurance policies that truly reflect the actual risk—not simply an actuary’s perception of risk? The life sector for one could benefit. How about an app that measures your vital signs such as blood pressure, heart rate and overall physical health in real time and feeds information continually back to your insurer? The Quantified Self Movement is already pioneering the use and development of self-tracking tools that help people make sense of their personal data. Are you fitter than the average 40 year old? Then telematics could be a way for you to secure lower premiums. Commercial lines such as property could also benefit. What about smart buildings that are able to relay information about their operation in real-time? If a window is left open overnight, perhaps that information could signal a security risk to the owner so it doesn’t happen again. But premiums could also be adjusted to reflect the changing risk profile. The insurance business really does have an opportunity to transform the way it does business from the pricing of risk right through to claims handling and day-to-day communication with its clients. Of course, there is a price to pay. It was Greta Garbo who pleaded ‘I want to be alone.’ To that I say ‘good luck’ in an electronically connected world where your every move can be monitored and assessed. But if it leads to a more relevant insurance product and a cheaper one for many, then I’m sure it’s a price that most will be willing to pay.
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Strategy SEC Pushes U.S. Insurers for Details on Captives: WSJ December 30, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/12/30/sec-pushes-us-insurers-for-details-oncaptives-wsj (Reuters) - The U.S. securities regulator has asked life insurers to disclose the potential cost of forcibly winding down in-house insurance units known as 'captives,' whose business model has come under regulatory radar, the Wall Street Journal reported. State insurance regulators, which approve these captive units, have previously raised concerns that some companies may be covering up their financial health by moving business to such related entities, the daily reported. Insurers that have been in touch with the Securities and Exchange Commission (SEC) on this matter include MetLife Inc , Genworth Financial Inc, Hartford Financial Services group Inc, Protective Life Corp and Reinsurance Group of America, the Journal reported, citing regulatory filings and people familiar with the matter. The newspaper quoted some insurers responding that discontinuation of captives could hurt their financial condition and force them to raise prices on certain products. Companies form a captive insurance unit if they are unable to find an outside firm to insure them against a particular business venture, or to get better coverage with lower premiums. Such captive insurers can be set up with minimal disclosures and lesser amount of assets to back up these policies than the insurers themselves. Some insurers use captives to help consolidate their hedging of the risk in minimum-income and other guarantees sold on variable annuities, the report said. None of the companies could be immediately reached for comment by Reuters outside of U.S. business hours.
CoreLogic Acquires Cat Modeler Eqecat December 27, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/12/27/corelogic-acquires-cat-modeler-eqecat Data analytics company CoreLogic has confirmed its acquisition of catastrophe modeler Eqecat. Terms of the transaction were not disclosed.
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"I can confirm that CoreLogic acquired Eqecat on Dec. 20, 2013," Alyson Austin, CoreLogic's senior public relations manager, told PC360. "Although I don’t have more information available today, CoreLogic management anticipates sharing more information about this acquisition as part of its fourth quarter and full year 2013 financial results to be released in early 2014.” Eqecat’s Risk Quantification & Engineering (RQE) risk modeling platform includes 180 natural hazard software models for 96 countries spanning six continents. The Insurance Insider was the first to report discussions between the two firms.
6 Forces That Will Shape the Insurance Industry in 2014 December 19, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/12/19/6-forces-that-will-shape-the-insuranceindustry-in Rapid technology changes, demanding customers, tight regulations, catastrophes, capital buildup, low interest rates, slow economic growth—not exactly the horsemen of the Apocalypse, but these factors will determine the fate of insurance in the New Year, says Ernst & Young. “These forces have not had as great an impact in 2013,” says EY in a report covering its U.S. P&C industry outlook. “Nevertheless, these issues remain volatile and their impact should not be underestimated in 2014.” Stronger internal operating fundamentals, including pricing and underwriting discipline, will protect the industry from being rocked by external pressures. Here are six tips for insurers to defend against the shifting tides of risk: Double down on broad-based, transformative technology with high ROI impact A recent EY survey showed that more than half of insurers intend to integrate digital strategies into their corporate structure, and more than three-quarters will do this within the next three years. In a low interest rate environment, insurers must invest in operating technology to drive down frictional costs and stay current. Interactive and flexible mobile design opens up direct claims channels and agent-powered distribution, says EY, and customers and agents are demanding it. Although companies are aware of the need to evolve digitally, though, 40% of insurers say they need senior management support to make the change. Adopt a range of enterprise data excellence Strong data monitoring is a must for insurers seeking to stay ahead of market forces and federal oversight, says EY, and those who follow the following tips will “outperform competitors in 2014 and beyond”:
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Establish enterprise-wide common standards and policies for capturing, storing and reporting data.
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Utilize analytics with applications that monitor systems with minimal intervention and create reports for faster response to emerging claims issues.
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Optimize risk and capital analysis across a company’s value chain, including distribution, underwriting, business processes, claims and investment applications.
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Organize data ownership and controls under a chief data officer.
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Enhance data security to protect from cyber attacks within and without the country.
Innovate product development processes and delivery The risks of tomorrow are driven by customer expectations, disruptive technology and legal frameworks. The risks EY expects insurers to quickly design, develop and market new products targeted for the following exposures: •
Cyber insurance.
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Catastrophe insurance, especially surrounding floods and terrorism coverage.
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Workers’ compensation in the new healthcare market.
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Nanotechnology.
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Sensor technology in telematics, consumer and industrial products.
Exploit segment differences for targeted growth strategies Companies exploiting global, geographic, product and demographic opportunities in the following sectors will achieve the best growth and bottom-line performance in coming years, says EY: •
Specialty market pricing has firmed and transformed with new entrants and products. Success requires pricing discipline, experience and analytical capabilities.
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In workers’ compensation, lost-time loss frequency is trending down, medical costs are contained and premium growth is accelerating. However, trends vary significantly state-by-state.
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Regional differences mean uneven economic performance throughout the country. Population and employment drivers, industry-specific economic trend, and political environments also produce varying risks and opportunities.
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Alternative capital structures are reshaping the primary and reinsurance markets.
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Merger and acquisition activity offers the opportunity to immediately increase market share in existing business segments and scale new markets.
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Get in front of emerging investment challenges Investment income performance fell by 14% from 2008 to 2012, says EY, with record-low yields expected in 2013 and continuing into 2014. Even an upswing in yields that emerged in May 2013 will contend against maturing investments from the past turning up with low rates. Insurers are exploring new sources of capital from equities, commodities and hedge funds. On top of that, leadership changes at the Federal Reserve, tapering economic policy and a slowly recovering global economy is fueling uncertainty in investment markets. Insurer board of directors, executives and risk committees should practice financial stress tests, scenario planning and economic global modeling for whatever the increasingly interdependent world ushers into 2014. Prepare for escalating governance and accountability Insurers have always faced a complex regulatory environment, says EY, but insurers must be careful not to get tangled up in certain regulatory trends in 2014. These include solvency-focused regulations such as ORSA affecting internal risk management practices, keeping financial resources in line with Federal Insurance Office (FIO) rules, and cross-border supervision and regulation of multinational corporations.
NKSJ Holdings to Buy Lloyd's Insurer Canopius Group for $965M December 18, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/12/18/nksj-holdings-to-buy-lloyds-insurer-canopiusgroup TOKYO (Reuters) - Japan's NKSJ Holdings Inc said on Wednesday that it will purchase Canopius Group Limited, a privately held insurance and reinsurance group operating in the Lloyd's of London insurance market, for 99.2 billion yen ($965 million). NKSJ Holdings said in a statement that it will purchase Canopius through its subsidiary Sompo Japan Insurance. Japanese insurers have been aggressively buying overseas assets as they seek growth beyond their home markets, where an aging population poses challenges to expanding their revenue.
Eppinger: Regulators Who Don't Know Insurance Taking Up Too Much Time December 17, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/12/17/eppinger-regulators-who-dont-knowinsurance-taking NEW YORK—The regulatory scrutiny that followed the financial crisis is forcing insurance CEOs to spend an inordinate amount of time on compliance to solve problems that do not exist and satisfy regulators who “don’t understand the industry,” according to Hanover Insurance Group’s chief executive.
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During a CEO keynote panel at the Annual Insurance Executive Conference held here, Fred Eppinger, CEO of Hanover Insurance Group, said, “*The crisis+ put everything ‘on steroids,’ but the need to look at insurance companies like banks is a ginned-up one because only one insurance company had problems, and that was in non-insurance areas. "As CEO, I spend two to three times more today on regulatory issues than before.” One of the biggest differences between insurers and banks is insurers’ small scale of debt and leverage, which helped the industry weather the recession without putting companies out of business, he says. Eppinger did note that some insurers’ risk profiles are changing due to the current investment landscape. “Some companies in this low-yield environment have taken on more risk on their asset side to make up for it; that makes the risk profile much different than a typical insurance company,” he said. “We’ll see what we always do in a cycle, is that some people will go in that direction and there will be problems to bear.” But Eppinger says regulators “who don’t understand the industry” are getting more involved in its affairs—for example, new regulatory requirements for companies deemed to be systemically important. “What problems are we trying to solve?” asked Eppinger, stating that the industry is well-financed and has good levels of capital. Solvency II is another time-consuming issue, stated the speakers on the CEO panel, as European regulators try to “push” accounting changes onto U.S. companies. “I’d argue the U.S. has one of the best and most consistent accounting regimes,” said Eppinger. “I worry that we’ll change a system that works for the sake of consistency.” Navigating the present and future insurance regulatory environment will take the cooperation of the entire industry, said Anthony Kuczinski, president and CEO, Munich Reinsurance America, Inc, especially through the support of industry groups such as the American Insurance Association (AIA) and the Property Casualty Insurers Association of America (PCI).
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