Sutherland insights insurance news flash dec 16, 2013

INSURANCE NEWS FLASH December 16, 2013

Table of Contents Sales & Marketing ................................................................................................................. 3 Finance ............................................................................................................................... 12 Technology .......................................................................................................................... 18 Strategy .............................................................................................................................. 26

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Sales & Marketing CFA, Industry Renew Credit Scoring Debate After Latest Report December 12, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/12/12/cfa-industry-renew-credit-scoring-debateafter-lat New research from the Consumer Federation of America shows that the nation’s two largest auto insurers, State Farm and Allstate, charge lower- and moderate-income drivers with poor credit scores much higher premiums than drivers with excellent scores, even as surveys that show a majority of Americans are against the use of credit scores for the pricing of insurance policies.

The CFA released its latest report, “The Use of Credit Scores by Auto Insurers: Adverse Impacts on Low- and Moderate-Income Drivers” yesterday at a live teleconference.

However, insurance experts say this announcement is nothing more than old news, minus a wellresearched decision that credit scoring is a proven significant factor in determining which drivers may file a claim.

According to the CFA, a case study based on a driver who is a single woman with a clean driving record and no accidents, who is living in a moderate-income Zip Code in 10 major cities, and who purchases the minimum liability required by her state, faces an average 100% difference in premium costs depending on her credit score: that’s about $563 vs. $1,277. The differences are greater for State Farm policies than Allstate; State Farm prices also tend to be lower than Allstate, the report states.

“That’s a significant price difference for this driver as a result of her credit score,” says CFA Executive Director Stephen Brobeck. “Good, safe drivers in moderate-income areas are often charged more than other drivers from higher-income areas. The higher one’s income, the higher one’s credit score.

But the ability to pay insurance premiums is not a factor here.”

Additionally, most Americans—more than two-thirds of those surveyed—feel that someone who’s had difficulty paying debts should not automatically be charged higher auto insurance premiums, according to a 2012 survey by ORC International, in which 47% of respondents said it is “very unfair” and 20% said it is “unfair” for insurers to use credit scores in deciding an auto-insurance rate for a driver.

“We agree with a large majority of Americans that auto insurance should not be allowed to discriminate against low-income drivers,” Brobeck says. He adds that earlier CFA research has shown that most low-income households need a car, and pay more than $1,000 in annual premiums for necessary auto insurance, which causes higher auto insurance prices for drivers with less education and lower-status jobs.

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In all states but New Hampshire, drivers are required to purchase liability insurance.

“There was nothing new in this press conference,” says Insurance Information Institute President Robert Hartwig. What was left out, however, is that credit scores are “highly correlated with expected loss” in both auto and homeowner’s insurance, he says.

“And that correlation exists and has been determined in a way that is absolutely blind to income, race, and ethnicity, and that’s because credit scores contain absolutely no information about income or other socio-economic or demographic factors,” Hartwig says. “They are entirely blind; it is absolutely the case.”

Such CFA reports tend to focus on urban areas, where the cost of insurance is higher than rural or suburban areas due to a higher frequency of accidents, a higher cost of accidents, and a higher frequency of litigation following an accident, Hartwig adds.

“Insurers have been using credit scoring for nearly two decades. Its use has been determined and accepted in 47 states,” Hartwig says. He contends the actual debate about credit scoring and its link to a greater number of accidents was settled decades ago, with many studies done in the late 1990s and early 2000s. “Why bring it up?”

The CFA looks at its findings as an opportunity to draw attention to credit scoring, and would like the 47 states that do use credit scoring to “follow the lead” of Hawaii, California and Massachusetts, which prohibit the use of auto-insurance rates based on credit, says CFA Director of Insurance J. Robert Hunter, who co-chaired the December 11 teleconference with Brobeck.

The use of credit scoring is unfair to the low-income working drivers “who struggle to survive financially partly because their auto insurance premiums are so high,” as auto insurance premiums can cost as much as 10% of a low-income client’s disposable income, he adds.

“It makes worse other factors that drive up costs for low-income Americans,” Hunter says. “It is unfair and actuarially unsound.”

Hartwig, though, says, “If you were to ban the use of this credit information in underwriting criteria you would wind up, in effect, subsidizing individuals who cause a great cost on the system through a greater number of accidents.”

Robert Detlefsen, vice president, Public Policy for the National Association of Mutual Insurance Companies, agreed with Hartwig that the CFA’s release lacked the full story, neglecting to mention the effectiveness of using credit scores in assessing the likelihood that a driver will file a claim. “The Federal Trade Commission, whose report is cited in CFA’s own report, states that ‘credit-based insurance scores are effective predictors of risk under automobile policies. They are predictive of the number of claims consumers file and the total cost of those claims,’” Detlefsen said in a released statement.

“If CFA understood the concept of adverse selection, it would know that if an insurer deliberately charged higher prices for low-risk consumers than for high-risk consumers, it would quickly become insolvent,” Detlefsen stated.

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FINRA Amendments to Discovery Guide: Need-to-Know Info for Claims December 10, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/12/10/finra-amendments-to-discovery-guide-needto-know-i In November 2013, the Financial Industry Regulatory Authority (FINRA) issued Regulatory Notice 1340 which highlights the recent approval by the Securities and Exchange Commission (SEC) of amendments to the Discovery Guide used in customer arbitration proceedings. These amendments, which became effective for all customer cases filed on or after December 2, 2013, significantly alter the existing discovery standards for securities claims. Professionals handling these claims will benefit by understanding three key components of the amendment's impact.

First, the amended guide provides guidance on resolving electronic discovery (e-discovery) disputes.

Second, the amendments clarify the circumstances under which a party may request an affirmation when an opposing party does not produce documents. Third, the amendments explain how “product cases” are different from other customer cases and describe the type of documents that parties typically request in product cases.

For background, FINRA sponsors an arbitration forum whereby most disputes brought by retail public customers in the securities industry are adjudicated. The FINRA arbitration system does not expressly impose upon its arbitration panels the Rules of Civil Procedure from the federal courts or the relevant state courts. Rather, the arbitrators are typically given discretion to decide discovery related issues with limited guidance from FINRA. The one notable exception in this regard has been the various versions of the Discovery Guide which set forth, among other things, standardized lists of documents considered presumptively discoverable. These amendments to the Discovery Guide are the first significant changes to the guide since May 16, 2011.

Form of Production With respect to e-discovery, the amended Discovery Guide now includes a section titled “form of production,” whereby parties are encouraged to discuss the forms in which they intend to produce documents and, whenever possible, agree to the form of production. However, parties must produce electronic files in a “reasonably usable format.”

As noted by the amendment, “the term reasonably usable format refers, generally, to the format in which a party ordinarily maintains a document, or to a converted format that does not make it more difficult or burdensome for the requesting party to use in connection with the arbitration.”

Arbitrators are also given guidance as to resolving contested motions relating to the form of production, and are instructed to consider the totality of the circumstances including whether the chosen form of production is different from the form in which a document is ordinarily maintained.

For documents that must be obtained from a third party, arbitrators consider whether the chosen form of production is different from the form in which the third party provided it. In regard to documents converted from their original format, arbitrators consider a party's reasons for choosing

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a particular form of production, how the documents may be affected by the conversion to a new format, and whether the requesting party's ability to use the documents is diminished by a change in the documents' appearance, searchability, metadata, or maneuverability.

Expanded Affirmation The amended Discovery Guide also provides additional guidance as to affirmations in the event a party does not produce documents specified in the document production list. Originally, the guide specified that when a party responds that there are no responsive documents, upon the request of the party seeking the documents, an affirmation must be executed stating that a good faith search for the requested documents was conducted—including a description of the extent of the search— and state (based upon the search) that there are no requested documents in the party's possession, custody or control. This language has now been slightly expanded to require affirmations in situations involving a partial production. If a party does not produce a document specified in a list item, the requesting party may ask for an affirmation in writing indicating that the party conducted a good faith search for the requested document. The party is also required in the affirmation to state the sources searched.

Guidance on Product Cases Finally, FINRA amended the Discovery Guide's introduction to add guidance on product cases. As explained by regulatory Notice 13-40, product cases are unique customer cases that differ from others in several ways. In particular, a product case is one in which one or more of the asserted claims centers around allegations regarding the wide spread mis-marketing or defective development of a specific security or specific group of securities. This item is particularly relevant given the recent wave of FINRA arbitrations involving real estate based private placements such as tenant in common (TIC) interests and real estate investment trusts (REIT). In these types of arbitrations, claimants typically allege a systemic failure to conduct adequate due diligence on the product itself, failure to provide full and balanced disclosure of both risk and rewards, failure to implement appropriate internal controls, and failure to train registered persons regarding the features, risks and suitability of these products.

The amended Discovery Guide explains that the two existing document production lists may not provide all of the documents that parties typically request in a product case relating to a firm's creation of a product, due diligence reviews of a product, training on or marketing of a product, or post-approval review of a product. The guide also now emphasizes that parties are not limited to the documents enumerated in the lists; however, when parties do not agree on whether a case is a product case, the arbitrator may ask the parties to explain their rationale for that assertion. It is important to also note that FINRA does provide additional guidance to arbitrators in determining whether a specific matter is a product case, as they are differentiated from other customer cases in the following ways: 1. The volume of documents tends to be much greater.

2. Multiple investor claimants may seek the same documents.

3. The documents are not client specific.

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4. The product at issue is more likely to be the subject of a regulatory investigation.

5. The cases are more likely to involve a class action with documents subject to a mandatory hold.

6. The same documents may have been produced to multiple parties in other cases involving the same security or to regulators.

7. Documents are more likely to relate to due diligence analysis performed by persons who did not handle the claimant's account.

In challenging whether the arbitration constitutes a product case, parties should be prepared to address whether any of these seven items apply to the arbitration before the panel. To be clear, the amended guidelines only apply to customer arbitration proceedings and do not apply to intraindustry cases.

Providing useful guidance as to the parameters of permissible discovery in public customer arbitrations has been an ongoing task for FINRA for more than a decade. The scope of permissible discovery has been a topic of renewed discussion culminating in these most recent amendments.

Professionals handling securities claims must be cognizant of these changes and diligent in managing these claims to avoid potential pitfalls that may arise at the discovery stage.

Not Dead Yet: Most Personal Lines Growth Leaders Use Independent Agency Channel December 04, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/12/04/not-dead-yet-most-personal-lines-growthleaders-us The independent-agency model still works.

Although direct-channel growth in personal auto has come at the expense of the independentagency channel, 12 of 18 personal-lines insurers that have outperformed their peers in both growth and profitability over the past decade use the independent-agency distribution channel either in whole or in part, according to a recent Conning report.

“The flexibility of the independent-agency channel is well suited to the rapid growth of these companies,” Conning says in its report, “Growth and Profit Leaders in Personal Lines Insurance.”

The Conning statements come after a Nomura report and a McKinsey & Co. study argued that the value added by independent agents is diminishing. The McKinsey report determined that “agents have neither the scale nor the operational efficiency to profitably sell a commodity.”

And the Conning report does state that the strongest growth for personal lines has, in fact, been seen in the direct channel. But Conning notes that the most common channel for companies in its “growth and profit leader group” was the independent-agency channel, adding that the channel allows small- and mid-sized insurers “to accommodate growth without requiring the large fixed-cost base of a direct-response organization.”

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Challenging another common assumption, Conning says size is not the determining factor for profitability and growth in personal lines. “The most striking result of analyzing the companies composing our list of growth and profit leaders is the skew in the distribution of firms by size,” Conning notes. The report shows that 14 of its 18 growth and profit leaders had total personal-lines premium volume of less than $500 million.

“Only four of the successful companies appear among the rankings of the top 25 writers in either auto or homeowners,” Conning adds.

Of course, Conning notes that, mathematically, it is more difficult for the largest companies to grow at the rapid pace of a successful small insurer, which in part explains the outsized presence of smaller insurers. “For State Farm to grow at the same pace as the slowest-growing firm from our list would require the addition of $1.3 billion in new premium in a single year—the total premium volume of the 19th-largest personal-auto insurer,” Conning explains.

But the firm contends that its list indicates that companies need not be big in order to excel. With the wave of consolidation in personal auto, Conning notes, “there is a tendency to conclude that increasing size and scope are becoming requirements for success.”

While that is not the case, Conning finds that carriers do find success by specializing in a particular product or customer, calling such a focus the “most common feature” among its 18 growth and profit leaders. “The idea behind the niche approach is that insurers finding a better way to meet the needs of a particular segment, in a segment that has growth potential, stand to improve their odds for success.”

Conning also says a specialty or niche focus can lead to more customer loyalty, which helps improve retention, and, through a better understanding of customers, insurers can take a more targeted approach to customer acquisition, leading to a higher conversion rate.

Additionally, says Conning, “[T]he specialist can exercise an advantage in pricing—with a better picture of expected claim activity—leading to a loss-ratio advantage.”

When Agents Are Naughty, Claims Disputes Can Arise December 03, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/12/03/when-agents-are-naughty-claims-disputescan-arise Doors front man Jim Morrison was quoted as saying, “Some of the worst mistakes in my life have been haircuts.” Sure—we have all been there, but that kind of mistake usually does not cause problems in an insurance contract. However, blunders made by insurance agents and brokers can lead to way more difficulties than a bad hair day.

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Agents may find themselves in trouble because of lack of action, such as failure to renew policies, failure to use proper insurers, or failure to warn insureds of exclusionary clauses in policies. All of these failures can lead to an errors and omissions claim against a producer, as well as claims disputes against p&c insurers.

Negligent Misrepresentation One case in point: An insurance agent failing to procure blanket coverage for an insured led to a claim for negligent misrepresentation in Office Furniture Rental Alliance, LLC v. Liberty Mutual Fire Ins. Co., Civil No. 3:11cv1889 (JBA), 2013 WL 5934049 (D. Conn. Nov. 1, 2013).

The insured had purchased coverage from Liberty Mutual from 1998 to 2001 through agent James Lavangie, who had advised the insured to buy blanket coverage as opposed to per-location. Based on that recommendation, the insured purchased blanket coverage. During the 2001 to 2002 policy period, the insured switched to a different carrier. The following year, Lavangie provided a quote to the insured to try to win his business back. The insured asked for comparable coverage to what he had purchased between 1998 and 2001.

Lavangie emailed the insured a quote, but it was on a per-location limit rather than a blanket limit.

Robert Orenstein, a member of the Office Furniture Rental Alliance, received the quote. He stated that he did not remember if he read the entire quote, but his normal procedure would have been to review the portion of the quote setting out the premium. He said the agent never informed him that the policy did not contain a blanket limit, and coverage was purchased and renewed from 2003 to 2009.

In 2009, a fire caused extensive damage to the insured’s warehouse. Liberty Mutual paid only the location limit on the policy, which was considerably less than the cash value of the loss—an amount that would have been fully covered by a blanket limit.

The insured brought action against Liberty Mutual for claims of breach of contract, negligent misrepresentation, and reformation. While the court stated that a reasonable jury could not find grounds that the parties contracted for blanket limit coverage without evidence of a prior oral agreement for the breach of contract claim, the fact that the written contract did not conform to the oral request for blanket insurance was admissible for the negligent misrepresentation and reformation claims.

Quoting Coppola Const. Co. v. Hoffman Enterprises Ltd. P’ship, 309 Conn. 342 (2013) the court said, “Traditionally, an action for negligent misrepresentation requires the plaintiff to establish 1) that the defendant made a misrepresentation of fact; 2) that the defendant knew or should have known was false; 3) that the plaintiff reasonably relied on the misrepresentation; and 4) suffered pecuniary harm as a result.”

Whether Lavangie and Orenstein discussed the terms of the quote remains disputed. The insurer argued that even if the insured could show that the agent committed negligent misrepresentation by omission, the insured nevertheless had a responsibility to read the quote, along with the policy to confirm the terms.

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An expert witness testified that “the language concerning the application of limits is often obscure and would not likely be detected by an untrained policyholder.” He also stated that even agents cannot always distinguish between polices with blanket limits and policies with per-location limits.

The court stated that a reasonable jury could conclude that because Lavangie knew the plaintiff wanted blanket limits but remained silent about the fact he was quoting per-location limits—even though he had previously advised against buying per-location limits and because he never drew the insured’s attention to the change—he realized the insured believed he was receiving blanket limits.

A jury could also conclude, according to the court, that the agent renewed the policy knowing the insured still believed he was getting blanket limits, and that, based on the expert’s testimony, the policy language was so complex that the insured relied on the agent to explain the terms.

Under Connecticut law, the duty to disclose correct information arises from a closer degree of reliance and trust than in an ordinary business relationship. Quoting De La Concha of Hartford, Inc. v.

Aetna Life Insurance Co., No. CV980580129, 2002 WL 31170495 (Conn. Super. Ct. Aug. 23, 2002), the court said, “Accordingly, a claim for negligent misrepresentation can only stand when there is a special relationship of trust and confidence which creates a duty for one party to impart correct information to another.”

This special relationship exists between insureds and agents. Insureds rely on agents to provide correct information about coverage and to properly procure it. Agents’ mistakes in failing to provide these services can cost insureds dearly when loss or damage occurs. As you can see, these mistakes result in expensive and time-consuming litigation.

More NFL Players Buying Disability Insurance December 03, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/12/03/more-nfl-players-buying-disability-insurance Years ago, athletes’ disability insurance was almost exclusively used by college football players with promising professional futures. Recent years, however, have seen an increase in the coverage’s popularity among NFL players, especially those in contract years, according to a story in NJ.com.

Green Bay Packers tight end Jermichael Finley, who suffered a possible career-ending spinal contusion earlier in the season, has said he is insured for $10 million, despite being in a good position financially if he were to never play football again, the story, written by Jordan Raanan, notes.

Similarly, New York Giants wide receiver Victor Cruz bought disability insurance last year when he was set to become a restricted free agent, NJ.com says.

Conversely, another Giants wide receiver, Hakeem Nicks, opted out of the coverage. “It got brought my way but, honestly, I never really thought about it,” Nicks tells NJ.com. “I heard the good about it; I heard the bad about it.”

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“The bad is you have to pay $40,000 to $50,000, and then if you don’t get hurt, you don’t get your money back,” Nicks tells NJ.com. “That’s not a win-win situation in my book. I’d rather keep my money and pray about it and ask the Lord to keep me healthy.”

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Finance Towers Watson: Commercial Lines Rates Up Again, but Increases May Moderate December 09, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/12/09/towers-watson-commercial-lines-rates-upagain-but Commercial insurance prices increased by 5% in aggregate in 2013’s third quarter, says Towers Watson, but the risk consultant forecasts the hardening trend will taper.

Data from the Towers Watson Commercial Lines Insurance Pricing Survey (CLIPS), obtained from 43 insurers representing about 20% of the U.S. property and casualty commercial-insurance market, shows the Q3 increase follows 11 consecutive quarterly price hikes.

However, aggregate pricing dropped by a point since the same period last year.

Prices increased by about 6% from the second quarter of 2011 to the second quarter of 2012. The rate of increase stayed flat at about +6.5% through this year’s second quarter, but then dropped by about a point by the third quarter of 2013.

“This hard market is somewhat different from hard markets we have experienced before,” says Tom Hettinger, Towers Watson’s P&C sales and practice leader for the Americas.

“Carriers are taking rate, which is logical, as they focus on measuring the capital required to support the business rigorously and realistically, and adjust their return expectations accordingly.”

Employment practices liability experienced the largest year-over-year price increase.

Price increases across all lines were smaller compared to the prior quarter, except for EPL. Midmarket accounts had higher price increases than large and small commercial accounts, and specialty lines prices increased at a lower rate than standard lines.

Loss ratios are “benign”, says Hettinger, as the change in earned loss ratios between accident years 2012-2013 have fallen by about 6%, a 1.5% improvement since the Q3 2011- Q3 2012 reporting period.

Still, says Hettinger, “the explicit recognition of risk, whether in the form of investment yield, inflation risk or catastrophe exposure, seems to be leading to much more disciplined pricing decisions.”

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Australia's QBE Warns of Annual Loss on North American Claims, Writedowns December 09, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/12/09/australias-qbe-warns-of-annual-loss-on-northameri SYDNEY (Reuters) - QBE Insurance Group Ltd said it expects to post a $250 million net loss this year due to writedowns and unexpectedly large claims after weak crop prices hit its U.S. operations, sending shares in Australia's biggest insurer down 20 percent.

The profit warning was the latest in a string of earnings disappointments from QBE, which has completed more than 75 acquisitions in the past 10 years to expand to 50 countries and grappled with hefty claims from at least one major market for each of the past few years.

The warning and resulting sell-off drew comparisons to gold miner Newcrest Mining, which similarly suffered a slew of profit warnings after writedowns on previous deals.

“It's a horrible situation, it's akin to what we have seen from Newcrest over the years,” said Chris Weston, an analyst at IG based in Melbourne.

“If you are an investor, you are looking at consistent disappointment from the management level.”

QBE said it was putting aside more money for claims made a year earlier from things such as workers compensation and construction defect risks, while its North American crop insurancebusiness had also suffered.

“The record crop yield projected by the U.S. Federal Government has not materialised, increasing QBE's exposure to revenue claims as a result of the collapse in crop prices (particularly for corn) after early season preventive planting claims eroded the Federal Crop Insurance Corporation reinsurance deductible,” QBE said.

Corn futures fell to a three-year low in November as a bumper U.S. crop and a proposal to lower the use of corn-based ethanol in the United States dragged on prices.

QBE, which posted a net profit of $761 million a year earlier, said on Monday it expected a net loss of around $250 million for 2013. It forecast a cash net profit after tax of around $850 million for 2013. This is down from $1.04 billion the year before, and about 28 percent below analysts' forecasts, according to Thomson Reuters data.

QBE, which generates about 30 percent of its revenue from North America, said it had already put in place a new executive team for the region.

The insurer separately announced that Belinda Hutchinson, a director for 16 years, would step down as chairman in March 2014 and be replaced by board member Marty Becker.

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The downgrade followed a review of QBE's North American operations that prompted it to increase its provision for prior accident year claims and write down goodwill, intangibles and other assets.

The revision was largely due to a $300 million claims increase and $330 million in write-offs of identifiable intangibles associated with QBE's financial partner services business in North America, it said.

QBE also cut its an insurance profit margin to around 6 percent for 2013, from a previous guidance of 11 percent.

Shares in the insurer, which were placed on a trading halt last Friday, were trading down 19 percent at A$12.50 at 0130 GMT, after earlier hitting A$12.25.

2014 Could See Drop in Personal Lines Rates; Commercial Rate Increases Slow December 05, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/12/05/2014-could-see-drop-in-personal-lines-ratescommer Personal-lines rates may be on their way down in 2014 due to a quiet hurricane season and expected strong earnings in 2013, according to MarketScout CEO Richard Kerr.

“If insurers’ profits are tallied as anticipated, we expect lower rates in 2014,” Kerr says in a statement accompanying MarketScout’s latest monthly Market Barometer report.

Personal-lines rates in November were up by 3% compared to the same month a year ago, unchanged from October’s rate movement. Both months saw some moderation compared to September, during which rates were up by 4% compared to September 2012. Kerr said last month that homeowners and auto coverages on traditional accounts were seeing premium reductions due to little catastrophe activity.

At that time, rates for dwellings under $1 million increased by 3%. In November, according to MarketScout, rates for such dwellings were up by 2%. Rates for higher-value homes valued over $1 million, though, were up by 5 percent in November.

Auto was up by 3% in November and personal articles were up by 2%.

Commercial lines Commercial-lines rates, meanwhile, rose by 4% in November compared to the same month a year ago, unchanged from October and, according to Kerr, a sign that rate increases in general are moderating compared to past months. “The market is still on an upward trajectory,” says Kerr, “but rate increases are slowing.”

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Only two coverages—business owners policies (BOP) (up by 4%) and general liability (up by 4%)— showed higher increases than October. MarketScout notes that the general-liability increase was “possibly an adjustment from the unusually large percentage rate reduction in October.”

The greatest rate increase was seen in commercial auto (up by 5%). Crime and surety showed the lowest increases, each up by 1%.

By account size, rates for small (up to $25,000 in premium), medium ($25,001 to $250,000) and large ($250,001 to $1 million) accounts were all up by 4%, while jumbo accounts (over $1 million) were up by 3%.

By industry class, manufacturing, contracting and service were up by 5%; habitational, transportation and energy were up by 4%; and public entity was up by 3%.

Quiet Hurricane Season to Cause Reinsurance Rate Drop; Alternative Capital Here to Stay December 04, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/12/04/quiet-hurricane-season-to-cause-reinsurancerate-d Catastrophe-reinsurance pricing will likely see a low-double-digit drop at Jan. 1 renewals thanks to the “quietest U.S. Atlantic hurricane season in decades,” says Fitch Ratings.

This hurricane season saw the fewest named hurricanes since 1982 and no major hurricanes, Fitch says.

The light activity should translate to higher industry earnings, says Fitch, but “much of the extra profit is likely to be returned to investors through dividends and share buybacks.”

The quiet hurricane season will further pressure U.S. excess of loss catastrophe pricing that has already been weakened in part because of additional capacity from alternative capital sources, says Fitch.

And alternative capital appears to be in the market to stay, at least in the near term, Fitch Senior Director of Insurance Brian Schneider says. He says the type of risk being transferred to the capital markets tends to be primarily the well-modeled U.S. peak zone type risk. “That’s something investors and reinsurers have a good handle on,” he says.

Even in the case of a significant loss event, Schneider says the biggest investors in these risks— pension funds—will likely stick around. Pension funds, he says, “tend to be more careful when they get into new asset classes,” and they do not put a significant part of their assets into risky classes, limiting their allocation to 5 percent or less.

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Hedge funds, which are more susceptible to moving in and out of classes, may pull back in the case of a large-loss event, Schneider notes, but he says pension funds make up far more of the new capital, and also represent the biggest potential source of additional capital going forward.

Schneider says the near future could see alternative capital moving more to areas outside the U.S., “maybe into Europe as their modeling gets better.”

Additionally, a Property Claim Services report on catastrophe-bond issuance through the first nine months of 2013 shows, “This year has already become the third-most active in the history of the catastrophe-bond market, and a new record appears likely.”

The report, “PCS third-Quarter 2013 Catastrophe Bond Report: Broader and Deeper” states, “More than $5.4 billion came to market in the first nine months of 2013, up approximately 32 percent from $4.1 billion in the first nine months of 2012.”

Schneider says the presence of this new capital will have a longer-term impact to the traditional property catastrophe reinsurance model, and companies focused in this area will continue to be pressured.

Given the new capacity, Schneider says he does not expect property catastrophe rates to rise significantly even after a major loss event.

Ratio of Auto Insurance Expenditure to Income Down, but Is Insurance 'Affordable?'

December 02, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/12/02/ratio-of-auto-insurance-expenditure-toincome-down An Insurance Research Council (IRC) study finds that the average auto-insurance expenditure in relation to median income has declined from the 1990s into the 2000s, but a consumer representative warns against confusing improvement with actual affordability.

The IRC study, “Auto Insurance Affordability,” says the ratio of average auto-insurance expenditure to median income fell by more than 9.5% from the ‘90s to the ‘00s. Analyzing only the lowestincome quintile, the study says the ratio declined by 9% over that time, “implying a strong improvement in affordability from decade to decade for those in the lowest-income quintile.”

Looking at the 1990s to the 2000s, all states but Alaska, Florida, Louisiana, Michigan, Montana and Wyoming showed a lower ratio in insurance expenditure to median income, according to the study.

All 50 states and the District of Columbia showed a lower ratio when comparing 2001-2005 to 20062010.

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The IRC says, “The long-term trend of improving affordability is evident,” noting that the insurance expenditure to income ratio both overall and for the lowest-income quintile hit 20-year lows in the late 2000s.

Consumer Federation of America’s Director of Insurance, J. Robert Hunter, however, says CFA conducted a series of five reports looking at the affordability question from many angles and did not come to the conclusion that coverage is affordable for low- and moderate-income Americans.

He says he did not see the entire IRC report, but briefed on its conclusions, he says “improvement” does not necessarily mean “affordable.” Mentioning CFA’s research, he says, “So, when we show that the lowest quintile of Americans are asked to pay $1,000—which is more than 10% of their income—for the required coverage, [the IRC is] saying it used to be $1,025. So a guy who could afford, say, $400 for insurance now misses by ‘only’ $600, not $625 as earlier. Where is Charles Dickens when we need him?”

He contends that CFA’s research used current income levels and current rates. “I guess IRC's point is that we would have seen something worse had we done the research 10 years ago, i.e., even more unaffordable.”

The IRC, which took its insurance-expenditure data from the National Association of Insurance Commissioners and its median-income data from the U.S. Census Bureau, addressed the philosophical debate regarding the term “affordability” in the study, noting that there is no “universally accepted measurement of auto-insurance affordability.” The study indicates that insurance-regulatory terms such as “not excessive,” “inadequate” and “unfairly discriminatory” do not necessarily correlate to the term “affordability” as it relates to “being within the financial means of most people.”

But the IRC says insurers are being asked, in a time of declining median household income related to the recessionary cycle, “how they are attempting to solve the problem and improve auto-insurance affordability,” and the IRC contends there is “little evidence that auto insurance is becoming less affordable for the poor or middle class.”

The study looked at several factors to determine what was driving affordability improvements, such as competition, regulation, government involvement via residual markets, generosity of the injured compensation system, uninsured motorists and the unemployment rate. “More affordable auto insurance was found to be associated with more competitive auto insurance markets, less government regulation, smaller residual markets, less rich compensation for injuries, fewer uninsured motorists and lower unemployment rates,” the study asserts.

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Technology Claims Innovations Make Big Inroads But Still Have a Long Way to Go December 13, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/12/13/claims-innovations-make-big-inroads-but-stillhave At an industry roundtable held earlier this year, Karlyn Carnahan, CPCU, principal at Novarica, framed today’s claims management situation this way: “People are stuck in a legacy system, culture, and environment. They read about [innovation] and are interested, but their ability to execute is challenging. How do you stay competitive in an industry where you have to keep up?”

In a more recent interview, Carnahan cited a Novarica report issued in June on claims capability, and also noted some examples of carriers that have been keeping up with the trends in this area, all in the name of both greater competitiveness and greater responsiveness to the consumer, who is accustomed to having so many more ways of accessing information, as well as choosing from among insurers.

For example, Carnahan said Nationwide was the first insurer to offer consumer mobile apps in personal lines beginning with an app for the iPhone, and that Farmers has worked with a scheduling firm to do just-in-time claim scheduling, i.e., to schedule claims at the last minute based on the best available adjustor for the type of claim. “They’ll say, ‘Who’s the guy who knows enough and who is close enough?’” she said. “But obviously you have to have a large policy holder base [to make that work].”

At the same roundtable, another insurance industry expert said that innovation is no longer an unaffordable luxury or even a “nice to have” for the industry; as the insurance marketplace becomes increasingly consumer oriented, it’s mandatory. “People are now trained to expect that innovation.

When you use that little mobile device, if it’s not going to be there, I’m going to leave. The rules have changed from just being ‘engaged’ with my insurance company. Now I’m going to be an activist,” the expert said.

What’s the common denominator? Carnahan said it’s “this megatrend we don’t talk about a lot. It’s collaboration. It’s bringing the consumer into every aspect of the business, becoming their own agent online, configuring their own products. How do you regulate the process?”

Insurers that don’t respond quickly enough to these consumer-centered trends risk being left behind, as the Novarica report suggests. Yet many carriers remain mired in legacy practices, such as manual claims processing with 30 percent of carriers still manually investigate claims, according to the report. They also have been slow on the whole to innovate, for a variety of reasons. In addition, there naturally has to be a balance between responsiveness to consumer needs and new technologies, sensitivity to privacy concerns, and the need to maintain operational efficiency.

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“Not everybody is going to get 15 quotes, because they value their time too much,” said Peter Settel, senior vice president and chief information officer for Homesite Insurance. “Consumer groups are not totally rational. There are resistance points, and some have a higher threshold for privacy than other folks. That may change as they acquire more assets, or more family members, over time. It’s really complicated because of that; ‘one size fits all’ only works if your customer is homogenous.

Maybe it used to look like that, but that’s no longer the case. As the consumer matures, it makes our job as insurance companies really complicated if we want to be growing in those channels. A few companies will be the innovators and have market share, and others will have to follow these brand leaders. [They will have a] time-to-market advantage on continuous innovation, [putting] a huge distance between *themselves+ and the rest of the industry. You’re seeing that play out,” he said.

The Novarica report also points out that while more and more insurance carriers either have replaced or are in the process of replacing their claims systems, those that have not done so are finding that these aging legacy systems are increasingly expensive to maintain, inflexible, decoupled from policy and customer systems, and rooted in financials and compliance and not customer service. That would appear to spell doom to the insurer that can’t extricate itself from legacy thinking and systems. The report, based on a survey of nearly 100 carriers, found that while innovation is certainly under way at many companies, 25 percent of those surveyed are merely maintaining their existing claims processing systems, and 41 percent are making only “minor enhancements.”

In the category of first notice of loss alone, which is a critical touch point for consumers with their insurance company, the Novarica report found that while over a third of carriers responding to the survey offer multiple channels for reporting claims, only 40 percent are able to give claimants specific advice at the time of claim. Further, only 45 percent of carriers provide instant access to policy and detailed coverage information at time of claim. The report further noted that larger carriers are much more likely to have multiple intake channels for claims, and that those companies whose claims processing systems are five years old or less were “significantly more likely” to provide direct support during the FNOL process than those whose systems were older.

So it’s no surprise that while innovation is definitely happening in some quarters, quite a bit more work remains to be done. No doubt there will be some slipups along the way.

“To be an innovator, you have to break out of that [legacy mindset] and take responsibility, but you’re going to mess it up a lot,” Settel said.

Guy Carpenter Releases Version 3.0 of its Risk-Modeling Tool December 09, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/12/09/guy-carpenter-releases-version-30-of-its-riskmode Reserve risk is perhaps the largest risk on many insurers' balance sheet, as it affects both solvency and earnings. The biggest driver of reserve deficiencies are changes in calendar-year trends, such as increases in inflation. This means the capability to measure inflationary trends in insurers' loss triangles is crucial nowadays.

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With this in mind, Guy Carpenter & Company, LLC, has introduced MetaRisk Reserve 3.0, the latest iteration of its reserve risk modeling tool. The global risk and reinsurance specialist and member of Marsh & McLennan Companies (NYSE: MMC) says the new version also features improved Solvency II reporting and other enhancements intended to help insurance organizations stay compliant with rating agency and ORSA requirements.

This version has also been integrated with MetaRisk 7.2®, Guy Carpenter’s premier risk and capital management decision-making tool, to produce reserve event files.

“MetaRisk Reserve 3.0 is the latest example of [our] commitment to improvements in technology as insurance companies look for every competitive advantage in the increasingly complex global insurance environment,” says Don Mango, vice chairman and head of enterprise analytics for Guy Carpenter.

Earlier this year, Guy Carpenter secured a U.S. patent for the system's mode of determining loss reserves. Using MetaRisk Reserve 3.0, companies can capture historical economic trends (such as inflation) to better understand how those trends can impact their loss reserves. In turn, insurers can achieve a more transparent view of reserve positions, according to the company.

The predictive modeling capabilities of MetaRisk can help companies quantify reserve risk and consequently, allocate capital more effectively, refine reinsurance strategies, and improve enterprise risk management.

Data Analytics: It's for Small Independent Agencies Too December 06, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/12/06/data-analytics-its-for-small-independentagencies Sitting down for lunch with one of our top independent agents, I asked him about his business.

“Things are great – we’re totally paperless now!” he responded triumphantly.

“So what are you doing with all of the data you’re collecting?” I asked.

“Oh, I’m too small to do any of that stuff,” he shrugged.

“You’re not,” I said. “In fact, it’s a powerful way for you to generate more business. Let me show you how….”

“Data analytics” sounds like rocket science—sophisticated, expensive, intimidating, and beyond the reach of the typical independent agency. It isn’t. Data analytics is simply the analysis of data that allows agencies to make a better decision than they could without data at all.

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The challenge occurs when there is so much data available that it becomes difficult to determine what information is relevant and what is not. It becomes even harder when the data is not stored in a way that can be easily retrieved, reviewed, and analyzed.

Today’s technology allows people to analyze huge amounts of data in whatever form. Sophisticated software can identify patterns and relationships between millions of pieces of information that provide better insight into a subject. This is commonly referred to as “Big Data” analytics.

Don't get overwhelmed by these terms or the complexity of the algorithms used to analyze data.

Just remember that the objective is to use data so you and your agency can make better decisions.

Here are the key steps you can follow to improve your agency's performance by using data analytics.

Step 1: Understand what you have Your agency contains a treasure trove of information about your existing clients and potential customers.

Before you can even begin to run a data analytics program, spend time understanding the data you already collect. Start by creating a spreadsheet with all of the data you collect when you onboard a new client—for example, birthdate, home and work address.

Add information you collect as part of the underwriting process. For example, if you write a BOP policy for a client, capture all the additional data an insurer needs to evaluate the risk - the number of employees, store locations, and industry.

When this spreadsheet is completed, you will discover the sheer volume of data you already collect about your clients.

Step 2: Understand what you want Who are my most profitable clients? Are clients more profitable if I write both their commercial and personal lines insurance? How many policies per household do I need to maintain a high retention rate? How can I best target new clients? What type of people are my best referral sources? What marketing programs generate the best leads?

If you think you know the answer to these questions because you've asked them yourself, think again. Most agency owners base their answer on their own individual experience. That's no longer good enough. Insurance sales and marketing have been transformed from an art to a science.

While the data you collect is extremely valuable, data-analytics tools also allow you to incorporate outside data into your analysis. What information would you like to have about an existing client or a potential customer? What information would you like to know about a certain area or region?

Identify your “data gaps”—information you don't have but would like to have about a client or a prospect. This might include their net worth, whether they own another home or their business affiliations. Consider any information you would like to have about a specific geographic area or other external information that would be helpful in allowing you to attract and retain clients.

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Capturing all of this additional “outside” data is beyond the capability of any individual agency. But today there are companies that do just that. Find one that offers subscription- or transaction-based solutions with little or no startup costs that is easily accessible by using their secure website. Find a platform you can use any time to plug in or access the data you want.

The data relationships that you build will allow you to create a strategic advantage. Stay away from cookie-cutter solutions that just provide “answers” to data questions. They don't allow you to differentiate the results of the data analysis.

Step 3: Put the Data to Work Does your agency-management system have a data-analytics feature or tool? If it does, subscribe to it. If it doesn’t, demand that the vendor offer such a tool.

If your agency-management system doesn't have a data-analytics tool, reach out to the insurance company you write a lot of business with and ask if you can partner with it on a data-analytics project. Offer to share your information if they will analyze your book of business. Make sure you play a key role in defining the data to be analyzed and most importantly make sure you define the hypothesis or data relationship you are looking to uncover.

Take Action Today customer acquisition and retention takes place in real time, or close to it. The more information you have about current and potential customers, the better you will be able to address their needs when and where they want it. That's why you need to embrace data analytics—it gives you the information you need—when you need it.

If you are like most agencies, you’ve already done the hard part by getting rid of your paper files and moving to an electronic agency-management-system platform.

Now you need to start using your data. You have a great opportunity to become a sophisticated marketer and drive better performance and growth out of your agency.

What are you waiting for?

Insurers Ignore Disruptive Technologies At Their Own Peril December 04, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/12/04/insurers-ignore-disruptive-technologies-attheir-o The ways in which technology can both transform and destroy traditional mechanisms for providing services to customers are far-reaching. Disruptive technologies specifically need to reshape the insurance industry. Failure to adapt to these technologies can leave a major insurer looking as obsolete as brands such as Kodak or EMI do today.

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Disruptive technology is rapidly advancing, its impact has a broad scope and it has a significant and profoundly changing effect on the global economy. These disruptive technologies that supplant older processes, rendering old skills and organizational approaches irrelevant, need to be encouraged to advance the insurance industry as they will result in significant economic value.

Indeed, disruptive technologies, such as the increasingly established telematics, must be welcomed and have a definite place in the insurance market. Examples of disruptive technology include mobile Internet, cloud technology and 3D printing. For example, Rolls-Royce recently announced that it was preparing to use 3D printers for producing parts for its jet engines. High-value, low-volume industries will be the earliest adopters and they are the ones that will ultimately benefit. Indeed, it is counter-intuitive that today the biggest provider of cloud technology IT services is a book and CD retailer and that the largest seller of music is a computer company.

Using Big Data There are two specific disruptive forces that are very close to home for the insurance industry. One is Big Data. The ability to harness this will have a significant benefit for those insurance businesses that can use it effectively. Insurers already use new data sources and sophisticated analytics for more accurate pricing of risk and in turn use this information to drive new loss-prevention measures.

Where risk has always been priced on the basis of probability, this exponential growth in data and the ability to personalize risk to a more accurate degree takes away that broad brush of probability based loosely on geographic data or mortality tables. This means that premiums can now be priced to every person's or business's risk profile. From a convergence perspective, the data being collected from a black box in someone's car could be just as useful to a life insurer as it is to the property/casualty insurer. If you're a high-risk driver, prone to speeding, or driving late at night, your life is likely to be more at risk than someone whose driving habits are more sedate and whose car is safely garaged overnight.

The second significant disruptive force to the insurance industry is what will come from the wealth of alternative capital in the reinsurance market. There are estimates that US pension funds alone could inject up to $100 billion into the reinsurance market by the end of the decade. This wall of capital is going to be looking for innovative ways to be deployed and reach the end customer and it won't respect traditional distribution networks. This will lead to commodity capital insurance trading platforms seeking to bypass the traditional broker role and break up the current supply chain.

The need for businesses to move with the times and turn disruptive technology to their advantage, in the process transform their operating model, is not a new concept. IBM used to sell commercial scales and punch-card tabulators, now it deals in software, consulting services and IT services.

Nintendo started out by selling gaming cards, now it's video games. Unfortunately, one company failed to change with the times: Kodak. It originally produced photographic film, now it is bankrupt.

Kodak was unsuccessful because it stuck too rigidly to its traditional model. So, will the insurance players of today soon look as obsolete as, say, HMV? The simple answer is yes, unless they deploy disruptive technologies in their favor.

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Telematics is an obvious and well-established example of a disruptive technology which the insurance industry is trying in earnest to adopt. By 2017, it's estimated that more than 60 percent of the world's vehicles will be connected, actively monitoring the safety and security of vehicles and drivers. Research carried out in the UK expects that by 2017, 57 percent of all drivers in the U.K. will switch to a telematics-based car insurance policy. Any new disruptive technologies will have a huge effect on consumer expectations. The creation of these new insurance products, which were not possible before, opens them up to potential for new markets such as the burgeoning middle-class areas in Latin America, Asia and Africa. To many of these, insurance is becoming more accessible and desirable, thus opening up new revenue streams.

It is clear that disruptive technologies have the capability to transform industries; wipe them out; grow them; shrink them; turn them upside down and back to front. Industries such as publishing, travel and music have been completely transformed by technology. We in the insurance industry must ignore these examples at our peril.

Understanding Today's Customer Through Data Mining December 03, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/12/03/understanding-todays-customer-throughdata-mining Imagine a customer calling an insurance provider and reaching a representative that has never spoken with her/him and is unfamiliar with the customer’s claims history or company policies.

That doesn’t sound like a good experience.

Now imagine after a quick verification from the customer, the same representative is able to access the customer’s complete insurance profile, detailing coverage history and other information needed to forward the inquiry to the proper agent or broker.

The latter experience is now a reality made possible by connecting data sources across connected networks. Bringing together data allows insurers to get a full picture of their customers and allows them to create a differentiated customer experience, helping to increase customer satisfaction, retention, loyalty and referrals.

By employing data mining coupled with collaboration technology, insurers are changing the way transactions are conducted. “Data mining” means data gathered from a variety of sources including customer transactions, claims history and/or third-party vendors. Insurers also gather data and analytics by utilizing demographic information: one’s Zip Code, credit scores, and birth announcements.

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More recently, insurers have turned to social media to help drive increased knowledge of the customer and compare that data with third-party data, broad-based demographics and financial information. Social media’s role in helping insurers obtain data about their customers is continuing to grow. For example, insurers can look at customer posts on social-media feeds like Twitter, Facebook and LinkedIn and make informed decisions regarding customer needs. Often, social-media feeds can give an agent insight about a customer’s daily life. The customer may post about specific home repairs that affect a certain region or neighborhood, and the agent could then offer the additional coverage that would benefit the customer, increasing the sale and giving the customer a more personalized experience.

Data is often gathered in many different places and computing systems, and with the help of a virtualized data center, networking and security solutions, insurers can make sure the data they compile runs efficiently. This data center will help companies use the customer data they’ve collected to make quick routing and business decisions. While it does not provide the customer information for insurers, a virtualized data center can support virtual applications that enable a single view of the customer.

Things such as transaction history, third-party data and an understanding of the demographics of a customer’s Zip Code can be accessed in one location and can then be routed to the appropriate party, whether it is an agent or the provider, through collaboration tools. By aggregating this data, insurers have a better picture of individual customer needs and are able to give customers a more personalized experience while helping the insurance provider and agent’s cross-sales. Through the use of this collaboration platform, customers will be connected with the right expert via voice, chat or video that will help address their individual needs and find the right coverage for them. This expert could also be their independent agent who can be “connected” into the extended network to deliver a consistent experience in all communication channels.

With information gathered from data-mining practices, insurance providers and agents can collaborate on customer data in order to find opportunities to provide additional coverage at the appropriate time for the customer. To stay ahead of increasing competition, insurance agents and providers need to become innovators in the industry and adapt to new trends such as collaborationenabled technology and data mining techniques more quickly than before.

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Strategy AIG in Talks to Sell ILFC to AerCap Holdings: Bloomberg December 13, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/12/13/aig-in-talks-to-sell-ilfc-to-aercap-holdingsbloom (Reuters) - Insurer American International Group is in talks to sell its jet-leasing finance business to AerCap Holdings NV, Bloomberg reported, citing people with knowledge of the matter.

Netherlands-based AerCap, the world's largest independent aircraft lessor, may team up with other bidders for International Lease Finance Corp, Bloomberg reported.

AIG has not formally terminated its agreement with the Chinese group that agreed last year to buy a majority of ILFC for about $4.2 billion, Bloomberg reported.

AIG declined to comment on the report.

Chief Executive Robert Benmosche said in November that AIG hoped to decide on a sale or an initial public offering of ILFC in the fourth quarter.

AIG said in December 2012 that it had reached an agreement to sell a stake of up to 90 percent of California-based ILFC to a consortium of investors, based mainly in China, for $4.7 billion.

ILFC is one of the biggest aircraft lessors in the world, but has recorded big write-downs in recent years on the value of the older planes in its fleet.

Hartwig: U.S. Budget Deal 'Positive' for Insurance Industry December 12, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/12/12/hartwig-us-budget-deal-positive-forinsurance-indu The bipartisan budget deal heading to the House may indirectly improve the U.S. insurance landscape, according to Robert Hartwig, president of the Insurance Information Institute.

“The budget deal is an unambiguous positive for the U.S. economy in general and P&C insurance specifically,” Hartwig tells PC360. “The October shutdown took a toll on business and consumer confidence, which translates into lower consumer spending, reduced investment activity by businesses and less hiring. All of these are negatives for P&C insurers because they reduce the growth rate of new exposures *such as+ property, liability, and for workers’ compensation payroll exposures.”

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The two-year bill, proposed by House Budget Committee Chairman Paul Ryan, R-Wis. and Sen. Patty Murray, D-Wash., is an $85 billion agreement the politicians say mostly aims to avoid another government shutdown.

Hartwig says the timeframe should make greater inroads to reducing uncertainty rather than a deal “that merely kicked the can down the road for a few more months.”

A statement from Ryan says the bill would provide $63 billion in sequester relief over two years, split evenly between defense and non-defense programs, and would reduce the deficit by between $20 and $23 billion, although news reports say this would occur over the next decade.

“The deal restores some federal spending, which will bolster the economies of certain states and help offset weaknesses associated with sequestration,” says Hartwig. “Agents located in areas with exposure to large defense contractors or other economic dependencies on federal spending had reported a slowdown in business.”

The I.I.I. says the top states dependent on government spending are Maryland, Virginia, Hawaii, Arkansas and New Mexico.

“The deal will reduce investor uncertainty and should therefore have a beneficial impact on financial markets,” Hartwig concludes.

USI Acquires Van Gilder Insurance December 05, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/12/05/usi-acquires-van-gilder-insurance USI Insurance Services agreed to acquire Van Gilder Insurance Corp. The acquisition of the Denver, Colo. company is expected to close Dec. 10.

Van Gilder is a full-service insurance brokerage firm that offers employee benefit programs, business insurance, risk management services and personal insurance products. The acquisition will enable USI to expand its footprint in the Rocky Mountain region and further solidify the company’s vision of becoming the number one brand in the middle-market insurance brokerage industry.

“For over a century, Van Gilder has been working with clients to listen, learn and assess their needs.

In addition to delivering top-notch solutions that are competitively priced, their experienced staff provides ongoing education, advice and guidance to make the insurance process even easier.

Through this acquisition, we are not only expanding our national footprint, but our mutual strengths in client service and industry knowledge will benefit both Van Gilder and USI’s clients,” said Michael J. Sicard, president, chief executive officer and chairman of USI. Van Gilder’s current president of Donald McG. Woods and chief financial officer Edward M. Harrington, Jr., will remain in their leadership roles following the acquisition, although the company’s name will be changed to USI Colorado.

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“Our acquisition by USI represents a very important step in our current strategic plan to grow our services and products for clients throughout the Rocky Mountain region,” said Woods.

Customers of Van Gilder will continue to receive the same level of service, and policies will not be impacted.

“We’ll be focused on ensuring a smooth transition in the coming months and collaborating with the USI team,” said Woods.

CFA, Industry Spar over Report Supporting Tighter Auto-Insurance Regulation December 04, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/12/04/cfa-industry-spar-over-report-supportingtighter-a The debate continues over a controversial Consumer Federation of America report released last month holding that only through California’s Proposition 103 has the state managed to control the cost of auto insurance—implying that in most other states, oversight of auto insurance is lax, and rates are therefore too high.

In a conference call with reporters, J. Robert Hunter, CFA director of insurance, today challenged what he called the industry’s “rapid-response style, multiple critiques of the study.”

Hunter said, “Rather than confront the facts, the insurance industry is throwing the kitchen sink at our report hoping to steer regulators, policymakers and the public away from the very compelling data that show how good regulation of insurance companies provides the best results for consumers by lowering rates and enhancing competition.”

The report studied auto insurance rate regulation in every state and found that over the past 25 years auto insurance expenditures in America have increased by 43 percent on average, with the median state, Wisconsin, jumping 56 percent.

In Nebraska, rates rose by as much as 108 percent. These increases occurred despite substantial gains in automobile safety and the arrival of several new players in the insurance markets.

Only in California, where a 1988 ballot initiative “transformed oversight of the industry and curtailed some of its most anti-consumer practices,” did insurance prices fall during the period, the CFA report found.

The report said CFA found that the amount that drivers spend on auto insurance in California declined by 3 tenths of one percent, resulting in billions of dollars of annual savings.

The industry has challenged the report’s findings.

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The Insurance Information Institute said in a reaction that factors other than Proposition 103 played a role in lowering rates. I.I.I. said that a competitive market, less litigation and safer vehicles have made auto insurance coverage in California, and elsewhere, more affordable for drivers.

“The Insurance Information Institute calculated last year that annual auto insurance expenditures for the typical U.S. driver rose only 4.2 percent between 2002 and 2012, even as the Consumer Price Index (CPI) over these same 10 years grew by 27.6 percent,” Robert Hartwig, president of the I.I.I., said.

Indeed, Robert Detlefsen, vice president of public policy for the National Association of Mutual Insurance Companies, charged that the report reinforces CFA’s “well-deserved reputation for manipulating statistics and omitting critical information to reach pre-fabricated conclusions.”

Detlefsen cited several examples which he said demonstrated why the report’s data and analysis cannot be considered reliable, noting that the CFA report claims that “the average expenditure on auto insurance” country-wide increased by 43.3 percent between 1989 and 2010.

“CFA doesn’t say whether this percentage increase is adjusted for inflation, nor does it indicate whether the ‘average expenditures’ mentioned throughout the report are per policy, per capita or per household,” Detlefsen said.

Detlefsen added that the price of the average vehicle rose considerably between 1989 and 2010, as did the number of cars owned per household and even per capita. As the total insured value of automobiles increased, he said “it stands to reason that the amount spent on auto insurance would increase as well.”

He also said the report fails to consider the most important determinant of auto-insurance prices: claim costs. “Consequently, the reader has no way of assessing the extent to which the increases in the amount spent on auto insurance in any given state can be attributed to increases in insurers’ claim costs in that state,” Detlefsen said.

Robert Passmore, senior director of personal lines policy for the Property Casualty Insurers Association of America (PCI), said, “Opponents of competition-based rating systems such as the Consumer Federation of America have the misguided impression that prior-approval systems keep insurance rates down. However, National Association of Insurance Commissioners (NAIC) data demonstrates that on average states with competitive-based regulatory systems have the lowest average annual premiums when compared to the countrywide average and states with priorapproval systems.”

The data, he said, shows preliminary average annual premiums (2010) as: competitive-based states (including Flex-Rating), $901.15; prior-approval states $921.62; all countrywide $907.38.

Passmore adds, “Although the CFA highlights California and Proposition 103, this type of regulatory approach is not a recipe for success. In reality insurers have been able to function despite the stringent, bureaucratic prior-approval rate regulation system. California’s competitive auto insurance market is actually the result of a series of tort reform ballot initiatives and court decisions coupled with improvements in highway safety and auto manufacturing as well as California drivers’ continued high use of seat belts which lowered the cost of providing insurance, therefore lowering insurance premiums.”

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CFA, in its report, said that on the 25th anniversary of Proposition 103, it had found that the proposition delivered over $102 billion in savings for California’s motorists, an average annual savings of $345 per household, or $8,625 per family over the entire period.

CFA’s Hunter said that that this was the result of strong regulatory oversight and a more competitive market fostered by the 1988 insurance-reform measure.

In the report, CFA looked at each state and evaluated the various types of insurance-regulatory regimes found across the country. Using this data, CFA identified best practices from a consumerprotection perspective.

CFA said that, on insurance costs, it found that the states with the highest average expenditure on auto insurance are Nebraska, Louisiana, Montana, Wyoming and Kentucky; and the states with the lowest increases are Hawaii, New Hampshire, New Jersey, Massachusetts, and Pennsylvania.

As to regulation, the CFA report found that the prior-approval system of regulation, in which insurers must apply for rate changes before they can be imposed in the market, is most effective at keeping rates low; markets that are less or not regulated tend to have the most substantial increases; that the prior-approval 25-year increase was 48 percent, the File and Use system was 60 percent, the Use and File system was 62 percent, the FLEX system was 67 percent and the deregulated system was 70 percent.

“While mildly and strongly regulated states tend to have very or somewhat competitive markets for auto insurance, deregulated and flexible-rating states have the least competitive markets,” the report found.

Aspen Re Creates Silverton Re to Expand Alternative Reinsurance Capabilities December 02, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/12/02/aspen-re-creates-silverton-re-to-expandalternativ Aspen Re, the reinsurance segment of Aspen Insurance Holdings Limited, says Silverton Re will provide additional collateralized capacity to support the company's global reinsurance business. The company says Silverton Re will be capitalized initially at $65 million with $15 million of funding provided by Aspen Re and additional funding secured from third-party investors.

Aon Benfield Securities, Inc. acted as the placement agent.

Brian Tobben, managing director of Aspen Capital Markets, says, “Our objective is to partner with the capital markets so that we are able to provide investors with access to diversified natural catastrophe risk backed by the distribution, underwriting, analysis and research expertise of Aspen Re.” Silverton Re will enter into a quota share retrocession agreement with Aspen under which it will

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reinsure a proportionate share of Aspen’s globally diversified property catastrophe excess of loss portfolio, the company says.

James Few, Aspen Re CEO, says, “When we established Aspen Capital Markets earlier this year, our focus was to develop alternative reinsurance structures to leverage our existing underwriting franchise, increase our operational flexibility in the capital markets and develop strong partnerships with new investors. Establishing Silverton Re is the starting point for this strategy and we are excited by the partnerships we are building.”

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