Sutherland insights insurance news flash jan 31, 2014

INSURANCE NEWS FLASH January 31, 2014

Table of Contents Sales & Marketing ................................................................................................................. 3 Finance ................................................................................................................................. 8 Technology .......................................................................................................................... 12 Strategy .............................................................................................................................. 18

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Sales & Marketing Ford: Redesigned F-150 Should Lower Insurance Costs for Buyers January 27, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/01/27/ford-redesigned-f-150-should-lowerinsurance-costs NEW ORLEANS (Reuters) - Ford Motor Co told dealers on Sunday that the radical redesign of the upcoming F-150 pickup will be easier and cheaper to repair than the outgoing model, helping hold down insurance costs for buyers.

Ford touted the savings for customers as a selling point, and the company pledged to help dealers defray expenses of up to $50,000 that some will need to pay for tools and equipment to certify their repair shops for the new truck.

The new F-150's body is 95 percent made of a military grade aluminum alloy used in Humvees and weighs up to 700 pounds less than the current truck. It was redesigned in a "modular" fashion that allows dealers and repair shops to save hours on fixes.

Among the most important changes is the front structure that holds the fender, Ford global marketing chief Jim Farley said. This piece is no longer welded, and can be taken off the truck, shaving six to seven hours from average repair time on that part.

"You'll see the dramatic changes we made that will really help save a lot of labor costs in the repairability of the vehicle," Farley said after meeting with dealers at the annual National Automobile Dealers Association conference.

Ford launched the truck at the Detroit auto show this month and it will appear in showrooms late this year. Ford's display at the NADA conference features a deconstructed F-150 shaded in different colors to illustrate the modular redesign.

The so-called "B-pillar" that slices between the front and rear doors was painted green and affixed with a sign saying it can be replaced without disturbing the roof. The A-pillar or roof rail tube can be sectioned off for repairs.

The more extensive use of aluminum in the new F-150 requires dealers and repair shops to use different repair tools. But many already have experience with aluminum because it is used in the hood of the current F-150 and in other models on the road.

Just 20 percent of dealers have a collision shop to make fixes to major dents and dings in these work trucks. Independent shops handle the majority of such repairs.

It may cost a dealer between $30,000 and $50,000 to be certified to do repairs on the new F-150, but that range applies to dealers who are "starting from scratch," executives said. Independent shops will also have to be certified by Ford.

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The No. 2 U.S. automaker told dealers it would defray up to 20 percent, or $10,000, of the cost of certification.

It is unclear what the cost of insuring the new truck will be, but executives said costs will be "competitive" with rivals. The new truck's modular design help lower overall costs and hold down insurance costs, according to one dealer at the meeting.

"They think [insurance costs] will be same or possibly even less because Ford has done this in a modular way," said Todd Citron, a Ford dealer in Lafayette, Louisiana. "In other words, they can fix the vehicle in components."

AIG 'Back on Offense,' Chairman Tells Bloomberg January 24, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/01/24/aig-back-on-offense-chairman-tellsbloomberg American International Group Chairman Steve Miller says in an interview with Bloomberg Television that the company's reputation has improved since repaying the government and that AIG now has "tremendous momentum."

Bloomberg reports that, in an interview with Stephanie Ruhle and Erik Schatzker at the World Economic Forum in Davos, Switzerland, Miller said, “We were the most disrespected brand name on the planet and now we have come back. We’ve built a company with tremendous momentum and we’re going back on offense.”

Interviewed alongside Goldman Sachs Group President Gary Cohn, the story quotes Miller as saying, “If you go back four years, Goldman Sachs probably wouldn’t even have been sitting with me. We were in deep trouble then.”

GAO: Allowing NFIP Rate Increases a 'Critical First Step' Toward a Private Market January 24, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/01/24/gao-allowing-nfip-rate-increases-a-criticalfirst Allowing scheduled National Flood Insurance Program rate increases to move forward would be “a critical first step” toward attracting private insurers to the flood-insurance market, says the Government Accountability Office.

In a January report, the GAO says stakeholders it interviewed indicated “full-risk NFIP rates would encourage private-sector involvement because they would be much closer to the rates private insurers would need to charge.”

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Conversely, delaying or repealing the rate increases “may reinforce private insurers’ skepticism that they would ever be permitted to charge adequate rates and make their participation unlikely in the foreseeable future,” according to the report.

The GAO report, mandated by the 2012 Biggert-Waters Act that renewed the NFIP for five years, explores strategies for increasing private-sector involvement in flood insurance.

The GAO notes that the NFIP has accrued $24 billion in debt, “highlighting structural weaknesses in the program and increasing concerns about its burden on taxpayers.” It adds that a delay or repeal of the rate increases may address affordability concerns for some policyholders “but would likely continue to increase NFIP’s long-term burden on taxpayers.”

While the report recommends eliminating subsidized rates and charging full-risk rates to all policyholders, it does support appropriating funds for premium assistance to certain eligible policyholders to address affordability issues.

The GAO also mentions concerns it received from stakeholders about charging full-risk rates. For example, one stakeholder, says the GAO, indicated that rate increases could lower a home’s market value because the cost of owning the home would rise. Additionally, whole communities with a high risk of flooding “could become economically unviable if premium-rate increases made flood insurance unaffordable for too many residents,” the report says.

Furthermore, homeowners who are not required to purchase the coverage may reject it if it becomes too expensive.

Still, the report lists charging full-risk rates among its suggestions to Congress, which the GAO says tracks recommendations it made in 2011.

In December, Insurance Information Institute President Robert Hartwig made a similar case that stakeholders made to the GAO, telling PC360 that the NFIP would “remain the dominant writer so long as its rates remain heavily subsidized by the federal taxpayer.”

He said the Biggert-Waters Act, would, over time, eliminate these subsidies, bringing NFIP rates closer to an actuarially sound basis. In that case, he said, “It is likely that some insurers would be willing to increase capacity and others would enter the market for the first time, bringing totally new capacity to the market,” adding that a prolonged delay or rollback would have an adverse impact on private insurers’ participation.

The GAO report contemplates other strategies that could encourage private participation in the flood-insurance market, such as: •

Mandatory-coverage requirements to ensure a broad pool of risks and avoid adverse selection.

•

Limiting the government’s role to a last-resort insurer or reinsurer.

•

Giving insurers access to NFIP policy and claims data to allow them to better assess risk.

These strategies come with concerns as well, according to the report. Affordability would need to be addressed if coverage was made mandatory; limiting the government’s role to a last-resort insurer would leave the government with the highest-risk policies requiring high premiums that could

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reduce consumer participation; limiting the role to a reinsurer might mean passing the costs for the reinsurance on to consumers; and allowing private-insurer access to NFIP policy and claims information would have to overcome privacy concerns.

The Biggert-Waters Act was overwhelmingly passed in 2012, but regulators, governors and legislators—including Maxine Waters, D-Calif., a named sponsor of the bill—have since raised concerns about the magnitude of rate increases for homeowners in some states. Efforts to delay the increases have included legal action and a series of bills introduced in the House and Senate.

Wedding Insurance a Steadily Growing Coverage January 22, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/01/22/wedding-insurance-a-steadily-growingcoverage The cost of the average American wedding is reaching about $26,000, leading to growing interest in wedding insurance to protect against extreme weather, illness and even a sudden change of heart, according to an Associated Press report.

The insurance is offered by a small number of companies, AP says. In the story, Travelers says issues with vendors account for about 25% of the claims, with most of those related to issues with photographers or videographers.

Travelers adds in the story that providing wedding insurance is a way to connect with a couple who might later think of the company for home insurance and other life milestones.

KBW: Slowdown in Rate Increases Not Surprising, but Concerning January 17, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/01/17/kbw-slowdown-in-rate-increases-notsurprising-but The slowdown in the insurance industry’s pricing momentum is not surprising to financial-analyst firm Keefe, Bruyette & Woods, but it is concerning, as a return to normalized levels of both catastrophes and loss-cost inflation could cause problems for the industry when combined with rate deceleration/decreases, the firm says.

KBW expects strong fourth-quarter underwriting results for the property and casualty industry in light of below-average catastrophe losses. But that positive news for the industry “will be accompanied, and in some cases overshadowed” by “disappointing pricing rhetoric,” KBW says. The firm notes that it is not surprised about the statements on pricing given insurers' "superficially acceptable" 2013 results.

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According to an ISO and Property Casualty Insurers Association of America review, the U.S. P&C sector saw its net income after taxes rise to $43 billion in the first nine months of 2013, compared to $27.8 billion for the same period in 2012. The results were driven in part by $10.5 billion in net gains on underwriting for the period, a reversal from $6.2 billion in net losses on underwriting in ninemonths 2012.

The results led Insurance Information Institute President Robert Hartwig to comment that the P&C industry appears to be on a “firm trajectory” for what will “assuredly be its best year in the postcrisis era.”

But KBW says it is discouraged by indications that rate increases are either moderating, or in some cases reversing entirely, because the firm attributes “much or most of the industry’s acceptable 2013 returns to lower-than-expected claim-cost inflation and below-average catastrophe and weather losses.” Any change in this loss environment, KBW says, could lead to “further disappointment” for the industry.

In light of KBW’s concerns, the firm says it is downgrading Chubb and RLI to “Underperform” from “Market Perform,” despite its opinion that the two insurers are “excellent companies.”

KBW says, “Our underwriter downgrades are basically a valuation call on what we view as two excellent companies whose valuations nevertheless imply more downside than upside in a deteriorating environment.”

Ratings agencies have generally shared the concerns about moderating rate increases in 2014.

Standard & Poor’s recently said it expects rate increases to lose steam throughout the year, and also noted challenges and uncertainties for the year, such as possibly heightened regulatory hurdles and the potential for greater inflation that could inflate claims costs.

S&P said the "stable credit quality in the P&C sector hinges on insurers’ efforts and commitment to improve underlying underwriting profitability against the headwinds of weather-related volatility, a sluggish economy, reinvestment risk resulting from low investment yields and potentially inadequate reserve levels.”

Fitch Ratings and Moody’s Investors Service, while giving the P&C industry a “stable” outlook, also both recently noted that pricing momentum is expected to ease in 2014.

A.M. Best recently said it is maintaining a negative outlook on the commercial-lines insurance sector, an outlook it has held since 2011, due in large part to concerns over the sector’s reserve position.

A.M. Best gave a “stable” outlook to the personal-lines and reinsurance sectors.

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Finance Arthur J. Gallagher Sees Q4 Rise in Net Earnings, Revenues January 29, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/01/29/arthur-j-gallagher-sees-q4-rise-in-netearnings-re Arthur J. Gallagher saw fourth-quarter net earnings jump to $60 million, compared to $33.5 million in 2012’s fourth quarter, as revenues increased to $890.2 million for the quarter, compared to $673.2 million for the same period in 2012.

The brokerage segment saw a 22% increase in revenues to $592.7 million. Net earnings in the segment were $50.5 million, up from $31.5 million in 2012’s fourth quarter.

In AJG’s risk-management segment, revenues were $151.5 million in 2013’s fourth quarter, compared to $144.8 million for the same period in 2012. Net earnings were down slightly to $8.7 million compared to $8.9 million in 2012’s fourth quarter.

For the year, AJG’s net earnings were $268.6 million compared to $195 million in 2012. Revenues were $3.2 billion in 2013 compared to $2.5 billion the year before.

In a Seeking Alpha transcript of AJG’s conference call, J. Patrick Gallagher, executive chairman, CEO and president, said, “Simply said, I could not be any prouder of our team and our results for the fourth quarter and full year 2013.”

He said 2013 was a “banner year” for mergers and acquisitions. “We completed 31 transactions, two of which were really sizable,” Gallagher said. “Bollinger in the Northeast and Giles in the U.K., added significantly to our revenue base in both locations. Including the other 29 completed acquisitions, we approached $400 million of acquired revenue and $130 million of annualized EBITDAC.”

Catastrophe Bond Issuance Neared Pre-Crisis Highs in 2013: Report January 29, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/01/29/catastrophe-bond-issuance-neared-pre-crisishighs LONDON (Reuters) - Sales of catastrophe bonds, used by insurers as a way of selling on their exposure to natural disasters, are close to levels last seen before the financial crisis, new data shows.

A flood of capital from pension and hedge funds, drawn by 5-7 percent yields for many so-called "cat bonds" when more traditional assets pay rock bottom rates, has driven down prices and hurt profitability for reinsurers.

Figures from insurance broker Willis published on Wednesday show total issuance during 2013 reached $7.1 billion, close to the $7.2 billion record reached during 2007.

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The competition from such alternative sources of capital - once the preserve of specialist money managers -is blamed for pushing reinsurance prices down by more than a fifth in the lucrative market for hurricane coverage in the United States.

AssuredPartners Acquires Commercial Insurance Services January 24, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/01/24/assuredpartners-acquires-commercialinsurance-serv AssuredPartners Inc. completed its acquisition of Commercial Insurance Services through its newly formed operation, AssuredPartners of West Virginia. This acquisition marks the first platform deal for AssuredPartners in West Virginia.

Commercial Insurance Services specializes in commercial insurance, employee benefits services, workers’ compensation insurance, risk management, claims management and personal insurance.

Reported revenues for the firm are approximately $9.5 million.

“We’ve been a strategic partner for our clients for more than 80 years. Aligning our practice with a national agency allows us to better serve our clients through access to an increased number of insurance products and services offerings,” said Frank Baer, CEO of Commercial Insurance Services.

“We’re excited to take this next step for our agency, and to continue to help our clients plan for the future and protect what matters most.”

Under the terms of the deal, 45 Commercial Insurance Services employees will join AssuredPartners of West Virginia, and the agency will continue to operate out of existing locations in Charleston and Morgantown, W. Va. under the local leadership of Frank Baer and Raye King White.

This acquisition if the second of 2014 for AssuredPartners Inc., and the company will become the seventh AssuredPartners platform entity, joining Neace Lukens of Louisville, Ky.; SKCG of White Plains, N.Y.; Jamison of West Orange, N.J.; Dawson Cos. Of Cleveland, Ohio, SRA of Kansas City, Kan. and AHM of St. Louis, Mo. “Commercial Insurance Services embodies the attributes we evaluate when identifying firms for potential acquisitions,” said Tom Riley, president and COO of AssuredPartners Inc. “Their impressive business acumen, reputation and market footprint all fit with the AssuredPartners desired partner attributes, and this deal will help us grow the AssuredPartners presence in West Virginia” “We welcome Commercial Insurance Services employees to the AssuredPartners family, and look forward to providing innovative insurance programs to their clients.”

Travelers Q4 Net Income Soars as Cat Losses Drop January 19, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/01/21/travelers-q4-net-income-soars-as-cat-lossesdrop

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Lower catastrophe losses helped send The Travelers Companies, Inc.’s 2013 fourth-quarter net income soaring 225% to $988 million, compared to 2012 fourth-quarter net income of $304 million.

Catastrophe losses, net of reinsurance, were $53 million in the quarter, compared to $1.05 billion in 2012’s fourth quarter. The sharp drop drove a reversal in underwriting results for Travelers—a gain of $689 million in 2013’s fourth quarter compared to an underwriting loss of $338 million for the same period the year before. The combined ratio dropped in the quarter to 87.7 compared to 105.4 in 2012's fourth quarter.

Travelers’ fourth-quarter results also benefitted from a $37 million gain in favorable prior-year reserve development—$259 million in 2013’s fourth quarter compared to $222 million the year before. For the year, though, favorable reserve development was down to $840 million compared to $940 million in 2012.

Fourth-quarter net-written premiums increased 5% to $5.6 billion. Travelers says the increase is due to a 29% increase in net-written premiums (to over $1 billion) in its financial, professional and international insurance segment, which occurred as business from The Dominion of Canada General Insurance Company—acquired on Nov. 1, 2013—was included in the segment.

Travelers also saw a 3% gain in its business-insurance segment net-written premiums to $2.9 billion.

Net-written premiums in the company’s personal-insurance segment, though, were down 4% in the quarter to $1.7 billion.

For the full-year 2013, Travelers reports net income of $3.7 billion, up 49% from 2012. Travelers says it achieved a $2.2 billion underwriting gain for the year compared to a gain of $507 million in 2012.

Catastrophes for the year—consisting primarily of wind and hail storms in the Midwest and Storm Xaver in the UK—cost $591 million compared to $1.9 billion in 2012.

In a conference call, Jay Fishman, Travelers chairman and CEO, said, “I don’t think we could be more pleased than we are with these results,” which he added were achieved in the face of challenges such as historically low interest rates and volatile weather.

He says the favorable results should “not be viewed in isolation,” but rather as part of a strategy that began in 2010 to increase the profitability of the insurer’s products by improving price, terms and conditions while not disrupting relationships with insureds and agents.

Fitch Keeping an Eye on Riskier European Insurer Investments January 20, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/01/20/fitch-keeping-an-eye-on-riskier-europeaninsurer-i European insurers’ investments are becoming riskier, and that could mean negative ratings implications for the carriers, Fitch Ratings says.

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Fitch notes that the increase in risk is small so far, but outlines its concerns: “While there has not been a huge shift by insurers from bonds into riskier asset classes, credit-risk exposure within bond portfolios has materially increased,” the ratings agency says. “There has also been a tendency for insurers to invest for longer durations. Although the increase in risk within bond portfolios has not reached a level that would result in downgrades, Fitch views this development as potentially credit negative.”

Fitch says bond prices look high across the entire risk and duration spectrum. “If interest rates rise, credit spreads would likely also rise. Thus, the value of higher-risk bonds would suffer more than low-risk bonds, and that of longer-duration bonds would suffer more than shorter-duration bonds.

Overall, the value of insurers' bond portfolios is now more vulnerable to interest-rate rises.”

Fitch says it believes generating sufficient investment yield in the current low interest rate environment is the biggest challenge currently facing the European insurance sector.

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Technology How Business Intelligence Can Help Insurers Overcome Compliance Challenges January 29, 2014 | Property Casualty 360 http://www.insurancetech.com/regulation/how-business-intelligence-can-help-insur/240165761 Insurance professionals, ranging from C-level executives to accounting managers and directors of start-ups, are facing a long list of daunting challenges, whether their business is healthcare, P&C or life insurance. Four key challenges seem to be common across all insurers: 1. Unpredictable returns on investment portfolios due the combination of a low interest rate environment and high volatility are driving the need for transparency into holdings, allocations, performance and attribution.

2. A greater focus on managing and capitalizing on risk across portfolios, product lines and geographies is driving the need for enterprise views of risk.

3. Insurers are looking for ways to gain ROI from compliance efforts in an age of increasing regulatory demands.

4. Maximizing efficiencies, data and transparency are more crucial to reducing costs and improving investment decision making and profitability.

[Insurers are prioritizing the ability to move quickly and nimbly in response to market opportunities and challenges: Realizing the Promise of Agility] The most important issue that I see facing insurance companies today is preparing for and adapting to changing regulatory and compliance demands. Insurers need to develop a strategy that will offer ROI from all their regulatory and compliance efforts, whether that means better communication with ratings agencies or adapting processes and procedures in preparation for changes in regulatory rules. There are many regulatory organizations -- the NAIC, SEC and FASB, among others, as well as the large national and multinational regulatory initiatives such as ORSA (Own Risk and Solvency Assessment), LEI (Legal Entity Indentifier) and IFRS (International Financial Reporting Standards).

Managing any one of these regulations is a challenge, and staying on top of them all while preparing your organization for the inevitable changes demands a full-time staff.

This is where business intelligence tools can help. Some insurance companies have billion-dollar portfolios with multiple investment managers, broadly divergent mandates, multiple asset classes and thousands of individual securities. Simple accounting tools or investment performance tools are not equipped to provide the level of visibility, transparency and insight that insurance investment managers need for today's portfolios. New solutions are needed to provide visibility into investment and financial data, transparency across a complex enterprise, and insight to help leaders make better business decisions.

With multiple portfolios, investment managers need visibility -- the ability to see their investment portfolios either in aggregate or on an individual basis. An investment manager has to monitor each portfolio in his or her purview to three levels of compliance: NAIC guidelines, state regulations, and

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the company's investment policy. In turn, each of these guidelines has specific requirements on asset classes, concentration and diversification, resulting in a patchwork of overlapping and potentially conflicting regulations.

An investment manager also needs transparency to see deep within their investment portfolios to determine where the issues lie, and where there are opportunities. While it's important to see portfolios from an aggregate level, it's perhaps even more critical to determine what, specifically, may be causing distress. Investment managers should be able to drill down into individual portfolios, to the security level, to see where they are in or out of compliance, or where they have an opportunity to increase exposure to take advantage of market conditions.

With visibility and transparency comes insight -- the ability to develop a powerful, profound understanding of investment positioning and adherence to compliance rules. These insights can help investment managers easily follow internal and external compliance guidelines while taking advantage of opportunities as they emerge.

Business intelligence tools can provide insurance investment managers with visibility and transparency for their investment portfolios by gathering the data, extracting the relevant information, and transforming it into easily digestible and understandable reports, dashboards and scorecards. Some insurers are already using these tools to develop insights about portfolio changes such as positioning, weights and allocations, all to stay inside their rules and regulations. What used to take days or weeks can now take only a few minutes. With these powerful insights, investment managers can quickly take advantage of the changing investment climate.

Google Glass to Be Covered by Vision Care Insurer VSP January 28, 2014 | Property Casualty 360 http://www.nytimes.com/2014/01/28/technology/google-glass-to-be-covered-by-vision-careinsurer-vsp.html?_r=0 SAN FRANCISCO — Google and VSP, the nation’s biggest optical health insurance provider, have struck a deal to offer subsidized frames and prescription lenses for Google Glass, the Internetconnected eyewear.

The announcement could take wearable devices, which tech analysts say are the next wave of computing, out of the realm of science fiction and into the mainstream by making them more affordable and giving them a medical stamp of approval. And it opens the door to a new level of cooperation between the health care and consumer electronics industries, which could lead to a world in which people wear or even ingest computers.

“The key business model of the year for wearables is becoming embedded into the health care system,” said J. P. Gownder, an analyst studying wearable devices at Forrester, which predicts that computers that people can ingest, tattoo on their skin or embed in a tooth are three to five years from being a medical reality.

“Selling wearable consumer electronics one-on-one to individual consumers is kind of a tough business,” Mr. Gownder said. “By embedding them into the health care system, you can reach a mass market.”

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The agreement with VSP, which insures one-fifth of Americans, is also a coup for Google, which plans to begin selling Glass to the public this year. Resistance to Glass has grown from privacy fears that the devices could be used to secretly record conversations or take photos. Some establishments have banned Glass wearers, and just this month, a man in Ohio was removed from a movie theater and interrogated after wearing Glass to a movie. With traditional-style frames and prescription lenses, which Glass did not have before, the computer and screen for the device are less evident and the device looks more typical — and is available even to people who wear glasses.

Some early Glass owners hacked Glass to add prescription lenses, sunglasses and other accessories.

“What I’ve noticed in public is I get less interaction with people” when wearing Glass with frames, said Steve Lee, product management director for Google Glass. “It’s something society’s more accustomed to.”

Wearable devices have posed a challenge to technology companies because they involve understanding fashion and health, not just software and screens.

That is why Fitbit partnered with Tory Burch and Intel partnered with Opening Ceremony to make smart bracelets, and one reason Apple hired Angela Ahrendts, former chief executive of Burberry, to oversee retail. Some health insurers and big companies have offered wearable devices like the Fitbit or Jawbone UP as part of corporate wellness programs, and discounts to employees who improved their health with the gadgets.

But Susan Pisano, a spokeswoman for America’s Health Insurance Plans, an industry trade group, said she was not aware of other insurance companies offering coverage for wearable devices.

“We know our 64 million members are seeing and hearing about Google Glass and how it will affect their lives and vision, so we are really focusing on the eye health management perspective,” said Jim McGrann, president of VSP Vision Care, VSP’s insurance division.

“We see this whole concept of smart eyewear continuing to evolve as an opportunity to provide instant information,” he added.

The hurdle to persuade people to wear a computer on their bodies is lower if the computer is attached to something they are already accustomed to wearing, like glasses or a watch.

Google’s design team, led by Isabelle Olsson, designed frames for Glass in four styles, made of lightweight titanium, partly because Glass’s processor and battery add weight. Google also plans to offer two new styles of clip-on sunglasses for $150 each (Glass is sold with another style of clip-on shade). The color, frame and shade choices will offer 40 style variations for Glass, Mr. Lee said.

The Glass computing device, which costs $1,500 for people invited to buy the current version, will retail for several hundred dollars less than that later this year when Google introduces the consumer version. The titanium frames are $225. VSP will reimburse members based on their prescription plan, with an average reimbursement of $120, plus the cost of buying prescription lenses, but it will not subsidize the computer portion of Glass.

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VSP and Google created a training program for optometrists to learn how to mount the Glass device on frames and fit Glass on people’s faces. It is important that the nose pads are adjusted so the screen is not in people’s direct field of vision, said Dr. Matthew Alpert, an optometrist in Los Angeles who is on the board of VSP Global, the insurer’s parent company. A VSP lab in Sacramento will cut the lenses for Glass frames.

Nathan O’Kane, a traffic engineer in Salem, Va., did not wait for Google to introduce new styles. He bought an old pair of sunglasses on eBay and used a saw, a sander and a drill to attach them to his Glass.

“I definitely think that the sunglasses make Glass look less obvious or more discreet,” he said. “You definitely see people whispering and pointing, but I let the really skeptical people try it on, and after they use it for two or three minutes, they think it’s really cool and useful.”

Analytics, Mobile are Top Tech Priorities for Insurers in 2014: Report January 28, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/01/28/analytics-mobile-are-top-tech-priorities-forinsur Analytics and mobile are the top priority technologies for insurers this year, according to a recent report from Strategy Meets Action (SMA). Expect heavy investments in business intelligence and analytics, as commercial lines carriers leverage predictive models and big data to improve underwriting and claims. Half of all personal lines insurers have major mobile projects planned, with 21% expecting to launch new apps in 2014, SMA says.

SMA's report, "2014 Insurance Ecosystem: Insurer Technology Spending, Drivers and Projects" indicates that there is growing optimism in the insurance industry and insurers are aggressively positioning themselves toward growth and transformation.

“Our research highlights an unmistakable trend in the insurance industry--IT initiatives are having a broader impact on companies than ever before. Five years ago, only 13% of insurers told us that their companies were in transformation mode. Now 32% say they are transforming, largely enabled by major IT initiatives,” said Deb Smallwood, SMA founder and one of the report's authors.

The findings, based on a survey of 100 insurance executives, show that nearly two-thirds (63%) of insurers plan to increase IT budgets by 3% compared to last year, with 69% of respondents expecting to increase their budgets through 2017.

Business growth in current lines and markets is the No. 1 driver of IT investments, SMA reports.

Other factors driving significant IT spending are business optimization, customer service, competitive pressures and cost containment. Compared to 2013, customer service ranks higher in importance and cost containment is a lower priority, which "reflects the growing optimism and willingness to invest for competitive advantage," the report states.

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IT investments will grow in the front, middle and back offices. Spending will increase the most in new business/underwriting (66% of insurers) and product development (59%). "Product development is seeing increasing automation as insurers try to get products to market faster, become more innovative with new products, and better manage products through their full lifecycle," SMA says.

Core replacement and modernization projects are top strategic initiatives for 2014. P&C commercial lines insurers are focused on their core systems, with 36% of insurers are implenting new policy systems this year and another 36% plan to enhance existing systems. Personal lines insurers are focused on improving the agent/broker portals and customer experiences.

Novarica: More Than 25% of U.S. Insurers to Increase IT Outsourcing Budgets in 2014 January 24, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/01/24/novarica-more-than-25-of-us-insurers-toincrease-i Few insurers have the abilities to meet demand and attract support staff for specialized needs, and as such are turning to external partners for infrastructure and commodity tasks, according a recent Novarica report.

The report, "Insurance IT Outsourcing Update," is based on a survey of 95 insurer CIO members of the Novarica Insurance Technology Research Council.

Twenty-seven percent of the CIOs are planning to increase outsourcing this year in the areas of application development and maintenance (ADM), 34% on specialized skills--including analytics and mobile develpment--and 36% on infrastructure.

"There are few pure cost reduction initiatives taken today," says Matthew Josefowicz, managing director at Novarica and author of the report. "More of the demand centers on creating new capabilities rather than just reducing the cost of current capabilities."

Most of the CIOs include outsourcing in their infrastructures currently, as 85% outsource on ADM, 62% on specialized skills and 64% on infrastructure. But among those that don't outsource, few are planning to turn to external partners this year, Novarica states.

Light users are expanding usage, but heavy users are scaling back. Regarding ADM, 38% of light users will outsource more, but 42% of heavy users will reduce their spending.

Outsourcing consumes between 16% and 24% of the CIO's IT budgets, the report states.

The CIOs are less satisfied with offshore services, particularly in the area of specialized skills, which the CIOs rated at "below acceptable" levels. None of those surveyed rated their satisfaction levels as "very good" in any of the three categories.

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Can Insurers Maintain Underwriting Discipline?

January 17, 2014 | Property Casualty 360 http://www.insurancetech.com/can-insurers-maintain-underwriting-disci/240165445 What a difference two years makes: After the 2012 Property/Casualty Joint Industry Forum, "underwriting discipline" was the watchword. But this year, insurance CEOs were singing a slightly different tune.

"I look at 2013 and I think it was a terrific year. P&C rates were up all over the world, investment performance was high, and CATs were low," said Marsh & McLennan CEO Daniel Glaser. "But while everyone talks about disciplined underwriting, people aren't able to sustain it."

Glaser was referring to a remark made by Barclays insurance analyst Jay Gelb in an earlier session.

2013 was "a great underwriting year" for the industry, Gelb said. Yet entering this year, there are "signs of less underwriting discipline out there."

Looking for an opinion from outside the room, I asked Duane Heady, COO of Imperial Management Corporation, if he agreed with the assessment of his peers.

"The temptation is there [to loosen standards] because we had a great underwriting year in 2013," Heady says. "It's like, one good year and we forget the past five. All these small details add up to the difference between companies that are profitable and not profitable."

But savvy insurers can see signs that the quiet year of 2013 isn't the norm, said General Re CEO Franklin Montross.

"When you're looking at this benign trend perspective, it can be very difficult for the industry to assess [peril]," he noted. "But we still saw very significant events around the world. The Boulder flooding was a thousand-year event. Hailstorms in Germany were concentrated, but similar. And there was Typhoon Haiyan, which was only a couple hundred miles away from being an even worse event than it was."

What do you think? Can insurers stick to what works and keep the good momentum in the industry going? Or will the white-hot competition in the space lead to compromises in order to spur growth?

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Strategy Senate Passes NARAB Legislation as Part of Flood Bill That Faces Hurdles in House January 30, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/01/30/senate-passes-narab-legislation-as-part-offlood-b The Senate today passed legislation re-establishing the National Association of Registered Agents and Brokers (NARAB).

It was passed as part of S. 1926, the Homeowner Flood Insurance Affordability Act of 2014 and National Association of Registered Agents and Brokers Reform Act of 2014. The bill now goes to the House.

See: Senate Votes to Delay Flood-Rate Hikes for 4 Years Industry officials voiced strong support. Those commenting included the Council of Insurance Agents and Brokers (CIAB), the Independent Insurance Agents and Brokers of America (IIABA) and the American Association of Managing General Agents (AAMGA).

The overall bill passed the Senate, 67-32, but the real sign of support was in a vote rejecting an amendment by Sen. Tom Coburn, R-Okla., that would allow states to opt-out, a provision that concerns industry officials. The vote rejecting that amendment was 75-24.

At the same time, the overall bill faces significant opposition in the House due to the flood-insurance provisions and it is unclear when and if the legislation will be enacted.

The White House also seeks some changes in the legislation, as noted in a Statement of Administration Policy issued late Monday.

The legislation is modeled after the National Association of Securities Dealers (NASD) and will be a completely voluntary, self-regulating organization.

“The big concession we’ve made is on governance – that a majority of the governance has to come from state-insurance commissioners,” one lobbyist involved said.

In seeking support for his amendment, Coburn said, “An opt-out keeping the 10th Amendment (state’s rights) privileges of the state is required to make sure that we do not go outside the bounds of our legal obligations.”

But Sen. Mike Johanns, R-Neb., urged the Senate to reject the amendment. “We have worked so hard to get everybody on board,” he said. “It does empower states. It does allow them to do what they need to do.”

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After the vote, Ken A. Crerar, CIAB president and CEO, said, This is a tremendous bipartisan victory; I don't know how we could have more successfully demonstrated the broad support for this reform.”

He said the overwhelming vote rejecting the Coburn amendment “makes a strong statement.”

Crerar recognized that “there are remaining significant hurdles in the flood legislation revolving around uncertainty of House action.”

But he said “this is a great day, and we're feeling strongly that the decades of efforts on this issue are soon going to pay off.”

Charles Symington, IIABA senior vice president for external and government affairs, called it a “big win for independent insurance agents.”

He said the NARAB proposal has been a top priority of the IIABA for a number of years, adding, “On behalf of the quarter of a million professionals we represent across the country, we thank the bill sponsors and Senate leadership in both parties for their efforts to make this happen.”

Bernd G. Heinze, AAMGA executive director, said the group “has worked diligently with the NAIC, our industry colleagues, and encouraged members to mount a grass roots effort to provide their congressmen and senators with personal examples that NARAB will provide.”

He said that modernization of the market place “has been a foundation of our efforts in the state, national and international levels.

“Our focus has been on implementing processes and advocating regulatory and legislative efforts that will provide greater uniformity and efficiencies for agents, underwriters, program managers and brokers,” Heinz said. “NARAB advances those principles, while maintaining important consumer protections and the state-based regulatory system.”

As to the Coburn amendment, he said the amendment “would fundamentally change the dynamics by diluting NARAB’s integrity and intent.

“Adding the opt-out provision proposed by Senator Coburn would only have preserved an unacceptable status quo and make it impossible to achieve true reciprocity and efficient compliance with state licensing requirements. NARAB was drafted to create a one-stop licensing compliance mechanism for the thousands of insurance agents and brokers who operate on a multi-state basis.”

Desjardins Group to Acquire State Farm Canada Businesses January 30, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/01/30/desjardins-group-to-acquire-state-farmscanadian-b Desjardins Group, a leading cooperative financial group in Canada, and State Farm, the largest P&C mutual insurance company in the U.S., have entered into a definitive agreement under which Desjardins Group will purchase State Farm Canada's businesses in p&c and life insurance, as well as its Canadian mutual fund, loan and living benefits companies.

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The transaction is expected to close in January 2015, subject to approval from regulators and compliance with customary closing conditions. Following the closing, Desjardins will operate the newly acquired State Farm Canada businesses under the State Farm brand for an agreed license period.

As part of the agreement, State Farm will make a C$450 million investment in non-voting preferred shares into Desjardins Group's post-closing property and casualty insurance business, which will include the newly acquired State Farm Canada property and casualty operations.

In addition, CrĂŠdit Mutuel, a major European cooperative financial group and long-term French partner of Desjardins Group, will invest C$200 million. Desjardins Group will allocate capital of approximately C$700 million to support the growth of its P&C business. As well, Desjardins Group's Life and Health Insurance subsidiary, Desjardins Financial Security, and certain other Desjardins units will allocate capital of C$250 million for the life insurance, mutual fund, loan and living benefits components of the agreement.

As a result of the transaction, Desjardins Group will become the second largest P&C insurance provider in Canada with annual gross written premiums of approximately $3.9 billion, up from approximately $2 billion. The transaction also strengthens Desjardins Group's position as the fourth largest life and health insurer in Canada.

Once the transaction is finalized, State Farm's 1,700 Canadian employees and network of more than 500 Canadian agents will continue to serve over 1.2 million customers in Ontario, Alberta and New Brunswick. Desjardins expects the transaction will lead to job creation in the coming years in Canada, including QuĂŠbec. Desjardins will continue to operate its other insurance brands separately across the country.

"This acquisition will allow Desjardins to develop a broader, multi-channel distribution network across the country, while continuing to meet the needs of State Farm's Canadian client base," says Monique F. Leroux, chair of the board, president and CEO at Desjardins Group. "At the same time, it will enhance our position in Canada by expanding our customer reach and achieving economies of scale."

"The agreement between State Farm and Desjardins, combined with the support of our long-term French partner, CrĂŠdit Mutuel, brings together three financial cooperative and mutual organizations to create an insurance leader in Canada," Leroux continued. "It also provides a foundation for exploring additional opportunities for even greater collaboration in Canada in the future."

Leroux added that the transaction is aligned with Desjardins' strategic objectives to expand insurance distribution across the country and develop business opportunities with mutual and cooperative organizations.

Edward B. Rust Jr., State Farm chairman and CEO, said the transaction will create a well-positioned, Canadian-focused provider of p&c, life and financial services products that will expand on the operations State Farm's Canadian employees and agents have built in Ontario, Alberta, and New Brunswick.

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"This combination creates a leading platform with new opportunities for growth and success for our employees, agents and customers," he said. "State Farm's financial investment in the newly combined P&C business and license to use the State Farm brand reflect our confidence in the strength of the combined business going forward."

Barclays was financial advisor and Skadden, Arps, Slate, Meagher & Flom LLP and Gowling Lafleur Henderson LLP acted as legal advisors to State Farm. Desjardins Securities and BNP Paribas acted as financial advisors and McCarthy Tetrault LLP and Mayer Brown LLP (in respect of certain US regulatory matters) acted as legal advisors to Desjardins Group.

U.S. House Passes Long-Overdue Farm Bill January 29, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/01/29/us-house-passes-long-overdue-farm-bill WASHINGTON, Jan 29 (Reuters) - The U.S. House of Representatives passed a nearly $1 trillion farm bill on Wednesday that cuts food stamps and ends a direct subsidy to farmers, while expanding government-backed crop insurance programs.

The measure passed easily by 251 votes to 166. The bill is more than a year overdue after congressional negotiators struggled to forge a compromise.

A vote in the Senate could come as early as next week and the bill is expected to pass. The leaders of the House and Senate agriculture committees have said they expect PresidentBarack Obama will sign the bill.

The wide-ranging legislation affects about 16 million jobs in the country's agricultural sector and can have an impact on the business landscape for major agricultural companies.

The agriculture committees say the bill will save about $23 billion over 10 years, compared with current funding - less than many conservative Republicans had hoped for. The Congressional Budget Office, using a different measurement, has estimated savings of about $16 billion over a decade.

About $8 billion in savings over 10 years comes from cuts to the Supplemental Nutrition Assistance Program, commonly known as food stamps. That was well below the $40 billion cut advocated by the House, which would have been the largest reduction in a generation, but it was still double the amount originally supported by Senate Democrats.

Liberal lawmakers decried the cut of about 1 percent to the safety net program, which goes to about 47 million low-income people to buy food and accounts for more than three-quarters of the farm bill's spending.

"This bill will make hunger worse in America," Democratic Representative Jim McGovern ofMassachusetts said on the House floor.

With congressional elections looming in November, Obama has highlighted social safety-net programs such as food stamps and unemployment insurance as a way to combat the widening income gap in the United States.

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Conservative pressure groups Heritage Action and Club for Growth said the bill was too expensive and urged a "no" vote. The groups said they would include the results in their scorecards of members' voting records for 2014.

The last farm bill, which passed in 2008, expired in September after being extended for one year while negotiators ironed out differences between measures approved in the House andSenate.

Berkshire Hathaway Specialty to Buy Telematics Provider, Travel Insurance Operator January 28, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/01/28/berkshire-hathaway-specialty-to-buytelematics-pro Berkshire Hathaway Specialty Insurance (BHSI) announced Monday that it will purchase the assets of MyAssist Inc. and Insure America LLC from the Noel Group. Terms were not disclosed.

"MyAssist, Insure America and their leadership teams, with their records of innovative and outstanding service, fit extremely well with Berkshire Hathaway," said Peter Eastwood, President of Berkshire Hathaway Specialty Insurance. “Their unique capabilities complement our existing positions in insurance and customer service, and will help us extend our brand and create new business opportunities.”

MyAssist, a live-agent personal assistance and telematics provider for the automotive and travel industries, appears in Ford Motor Co. and Mercedez-Benz USA vehicles. It uses location-aware technology from Verizon Communications. Insure America administers travel insurance.

John Noel, founder, chairman and CEO of Noel Group, will continue to head the MyAssist and Insure America operations. The Noel Group will remain in Stevens Point, Wis., where it employs 185 people. “This opportunity allows us to grow our businesses and enhance the high-quality experience currently enjoyed by MyAssist and Insure America customers,” Noel said.

The Risk of Doing Nothing Haunts Insurance Industry January 28, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/01/27/the-risk-of-doing-nothing-haunts-insuranceindustr Tell someone in the insurance industry that it’s all about risk, and they’re likely to look at you like you’ve grown three heads and say condescendingly, à la the current Geico ad campaign, “Everybody knows that.” But the real risk in the industry, according to a leading futurist, may be the risk of doing nothing—of failing to adapt to the rapid, and global, pace of change in a business that increasingly and continually must prove itself responsive to consumer needs, wants, expectations, and trends.

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“It’s a very complacent industry in many ways, and it really isn’t listening,” said David Smith, chief executive officer of Global Futures and Foresight (GFF), a strategic futures think tank formed in 2006

by Smith and fellow futurist Rohit Talwar. In a 30-year business career, Smith has held executive positions at Unisys, the UK-based DRG Group, and other companies, and as head of GFF has worked with and advised both the UK and EU governments, as well as companies such as RSA Insurance Group, Siemens, Kraft, Bausch & Lomb, and many other organizations, including insurance companies and industry associations.

“I’ve been sloshing around insurance for around 20 years,” Smith said. “Most folks who rise through the ranks [in insurance] are operationally oriented—and that’s terrific—but the people at the top are also very risk aware, and even chief risk officers are on the board, so it’s a world where the language and discussion go to people who are risk aware.”

And, perhaps it goes without saying, risk averse. But the biggest risk for the industry, Smith believes, lies right in front of it: in the future that’s hurtling toward all of us like an oncoming train, in the form of climate change, the rise of Asian economies, and especially, the swift evolution of high-tech innovations that are constantly changing consumer behavior, with major implications for insurers.

“The potential for the consumer-facing insurance markets is being driven by a massive confidence and behavior change in consumers, all online,” Smith said. “Insurance is one of those products that can be completely satisfied over the Internet—there aren’t many product or service areas where you can actually do that.”

He added that insurers now need to “move from clunky, annual, impersonalized relationships linked to that renewal and/or a catastrophic event, to something that’s much more personal and improving of life.”

Smith maintains that the insurance industry model is based on an essentially antiquated idea, which sorely needs revision to adapt to today’s new realities.

The old model, he said, “is paying money that I don’t want to pay, and then I’m not sure the claim will be paid—even the language of ‘claim’ expresses doubt. The other way is something saving me from personal injury or loss of possessions—there’s all manner of services that can be offered to the customer.

“Insurance will move from compensation for loss to prevention of an event. The more interesting stuff is when it becomes preventative, reducing risk in the process. With the ‘Internet of things,’ you can have real-time information: you can get a ping saying don’t take this route down the street, this pizza parlor has had three robberies in the past two months, this one is safer, or you can have realtime cameras in the car”—Smith added that two Japanese insurers are already experimenting with such innovations.

In order to do this, and in order to face up to changes in lifestyles, consumer expectations, and the global economy, insurers will need to leverage IT in ways they’ve so far been slow to take up, according to Smith. For industry leaders, this will mean doing more with their own IT budgets, and encouraging, rather than stifling, the innovative and entrepreneurial impulses—and people—within their own companies.

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“In a lot of insurance companies IT is held together by chewing gum and a string,” Smith said. “It’s a very difficult world to change anything, and we’re not really that connected yet. It’s reasonably customer centered in some cases; some [companies] have got all their channels aligned, some haven’t. So technology is the enabler and it’s the barrier.”

Smith cited a Gartner report stating that in the insurance industry only 30 percent of IT spend remains after operational costs are accounted for—which means very little money left over for technological innovation relative to the overall investment.

“People are fantastic at deriving value out of the business and protecting it, but less able to embrace new things where they don’t have the experience *to know+ whether or not they will work out,” he explained. “Ultimately it’s about people, attitude to risk, and propensity to look out there, absorb social, technological, and political change, and articulate that to the organization in a way that senior folks feel comfortable investing in possible futures.

“People who get it—we call them entrepreneurs. Most companies want managers to become leaders, but you want entrepreneurs, managers, and leaders. You need a mix of all these folks—you can’t just keep firing the entrepreneurs when they get too disruptive.”

Finally, Smith maintained that in order to survive and grow, insurers must have a high-level vision, not only of what’s in front of them but of the big picture, and how it’s changing moment by moment.

“It’s incredibly dangerous in periods of high change to not have a vision,” he said. “If you don’t you’ll be a Kodak in no time—you get it, you understand the change that’s happening, but you do nothing about it because you don’t know how to deal with it,” allowing your business to be eclipsed by new technology-enabled business models.

“People are hungry for change, and doing nothing is no longer safe—it’s probably the riskiest thing you can do. If you’re not changing business models fundamentally, then you’re not changing. That’s insurance.”

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