INSURANCE NEWS FLASH June 16, 2014
Table of Contents Sales & Marketing ................................................................................................................. 3 Finance ................................................................................................................................. 8 Technology .......................................................................................................................... 14 Strategy .............................................................................................................................. 21
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Sales & Marketing Luxury home mortgage insurance is being offered by fewer players June 11, 2014 | Live Insurance News http://www.liveinsurancenews.com/luxury-home-mortgage-insurance-offered-fewer-players/ Among the recent cuts that the Canada Mortgage and Housing Corp has been making, and that have been toping insurance news headlines in the country, is one of the latest that includes the elimination of luxury home mortgage insurance products. The properties that will no longer be covered will be those that cost $1 million or more. The CMHC has stated that as of July 31, it will no longer be providing luxury home mortgage insurance for those properties, regardless of whether or not the buyer has made a 20 percent deposit on the purchase. This announcement was made on the heels of another in which it revealed that it would officially no longer be selling the coverage to new condo developers – something that they have not been doing since 2011, but that they have only just now made official. The removal of luxury home mortgage insurance is one of many risk reducing moves by the corporation. According to the senior vice president of insurance from the corporation, “CMHC helps Canadians meet their housing needs and contributes to the stability of the housing market and finance system.” He also added that “The changes announced as part of the review ensure that CMHC’s products and services are aligned with these objectives.” Though this won’t be problematic in some areas, there are some specific markets that will be particularly impacted by this decision. For instance, in Calgary, the MLS market, by the end of May, there had been 359 properties listed for over $1 million. This represented 3 percent of the total figures for sales activity. During that same period, there had been 318 sales of those properties, which also represents 3 percent of the total sales. In 2013, there had been a record breaking 727 sales of properties for $1 million or more, listed through MLS. Of all of the sales that occurred in that city, that figure represented 3.1 percent. This, according to the figures released by the Calgary Real Estate Board. As of the end of next month, those types of properties will no longer be able to obtain luxury home mortgage insurance coverage through the CMHC.
Employers Committed to Offering Benefits Amid Rising Costs, Uncertainty June 10, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/06/10/employers-committed-to-offering-benefitsamid-risi Employers are mainly taking a “wait and see” approach before making major changes to how they offer employee benefits, and most say they still feel it is important to continue to offer benefits to their workers even if distribution and delivery methods change, a recent survey reveals.
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The Willis Group survey questioned over 1,000 employers, 62% of which employ 499 or fewer workers. In a summary of findings, Willis says nearly 75% report an increase in their health-plan costs from 2013 to 2014. However, employers generally do not plan to respond by eliminating benefits. Willis says in a summary of the survey’s findings, “Despite some highly visible reports in the media, employers generally do not plan to eliminate group medical benefits as a part of their compensation practices.” Willis says over 60% rated “Moving away from benefit engagement” as “extremely unlikely,” and another 17% rated it “somewhat unlikely.” Willis says, “Employers view their medical benefits as an important and desirable part of their compensation offerings and they will take steps to manage costs so that they can continue to offer benefits to their employees.” Steps include cost-shifting, but not exclusively and not in all cases. Willis says 22% of respondents kept employee contributions the same this year. “Strategies other than cost shifting…include increasing new-hire waiting periods, reducing benefits to minimum-essential coverage and managing seasonal and variable-hour employees to reduce the number of potentially benefit-eligible employees, says Willis. Private exchanges are another option employers are exploring, with 20% stating they are considering this path and 8% reporting they have strategies in development. “The majority of respondents also indicated that they are likely to promote employee choice, engagement and consumerism as part of their benefits strategy,” says Willis. Just 10% of employers are considering the complete elimination of spousal coverage, recognizing the “potential employee-relations ramifications” of doing so, says Willis. “Overall,” Willis states, “employers are taking steps to adjust contributions and eligibility within the parameters set by the Patient Protection and Affordable Care Act (PPACA) regulations, though they are doing so with a key objective in mind: continuing to offer benefits to their employees” Interestingly, while the cost of PPACA is a top concern for employers, nearly two-thirds say they have not identified the costs to their businesses. Forty-four percent say they have not specifically identified the cost of the Cadillac tax. Willis says, “While this seems counterintuitive considering the significance and attention applied to the costs of healthcare reform, it demonstrates that employers’ focus has, in many cases, been drawn to the immediate compliance needs and administrative difficulties. “Despite the fact that industry consultants have identified the concern over the impact of the Cadillac tax to their clients, lack of employer engagement on this topic might be because employers view the ongoing cost analysis as a ‘luxury’ as compared to the day-to-day administrative requirements demanded of them more immediately.”
Insurance company signs Peyton Manning for national ads June 04, 2014 | Live Insurance News http://www.liveinsurancenews.com/insurance-company-signs-peyton-manning-national-ads/ While Peyton Manning is already a quarterback for the Denver Broncos, is well known as a motivational speaker, and is even considered to be a skilled pizza maker as a Papa John’s pizza representative, he has now signed on with an insurance company to be featured in their U.S. ads over the next season.
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Nationwide Insurance has managed to sign him in order to feature Manning in next season’s advertising. This insurance company endorsement deal with Nationwide represents the first time that Manning has worked in advertising within this industry. That said, the deal with Nationwide wasn’t the insurer’s only interaction with the Broncos. In fact, it has also announced that it is broadening its complete marketing agreement with the team. This is a tremendous marketing achievement at a time in which insurers are regularly signing on with sports giants and top athletes. That said, this deal with the insurance company is the biggest splash Manning has made since his franchise purchases. Not long after Manning moved to Denver, he purchased a number of franchises of the Papa John’s national pizza chain. At the same time, he signed on to star in some of the company’s commercials and to appear in some of their print media ads. Clearly, the advertising industry is not new to this NFLer. Manning has clearly been keeping himself very busy throughout the off season, as he has made a number of appearances for his motivational speaking efforts, and was even able to squeak in a segment on David Letterman’s show. Still, he managed to be able to ink the deal with Nationwide to ensure that his opportunities continue and that he remains a very busy player –both on the field and off. During a recent media conference, Manning appeared with a Broncos jersey which he presented as a gift to an insurance company executive, with the number 18 and the name “Nationwide” sewn onto the back. To keep up a lighthearted spirit for the moment, Manning jokingly added “Don’t put it on eBay.”
Top 5 and Bottom 5 U.S. States for Home and Auto Bundling Savings June 04, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/06/04/top-5-and-bottom-5-us-states-for-home-andauto-bun Last month insuranceQuotes.com commissioned a Quadrant Information Services study that examined the average economic impact of bundling auto insurance with either homeowners, condo, or renters insurance. A multi-policy discount, or bundling, is one of the most popular discounts property and casualty insurers have to offer. According to insuranceQuotes.com, insurers offer bundling (typically home and auto) because it saves both them and insureds money in the long run. “Insurance companies want to maximize profits, and the more business they write, the better,” says Mark Carrasquillo, an insurance agent with the New York City-based E.G. Bowman Co. “Bundling discounts are a way to entice the consumer, which means more business for the insurer.” Using a hypothetical 45-year-old married woman with a bachelor’s degree, excellent credit score, and no lapse in coverage, the insuranceQuotes.com study compared the average preminum discount for three types of bundling in all 50 states and Washington D.C. The study found that bundling an auto policy with a homeowners policy produced the most significant discount. The national average premium discount for bundling the two is 15%.
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The top five states with the greatest average premium discount for bundling auto and homeowners insurance are: •
Oklahoma - 22% discount
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Missouri - 22%
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Iowa - 21%
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Nebraska - 21%
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Oregon - 20%
To explain why Oklahoma is at the top of the list, Oklahoma Insurance Comissioner John Doak told insuranceQuotes.com that carriers that write policies in the state want to spread their risk among different kinds of policies because of the large numbers of catastrophic events in Oklahoma. Bundling discounts gives consumers an incentive to maintain multiple policies with the same insurance company. On the other end of the list, the bottom five states with the lowest average premium discount for bundling auto and homeowners are: •
Florida - 5% discount
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Hawaii - 7%
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New York - 11%
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North Carolina - 11%
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Rhode Island - 12%
Florida, the state with the lowest average premium discount for bundling, has to contend with hurricanes, which makes it expensive for residents to insure their homes and cars and makes it difficult for insurers to cut rates, says insuranceQuotes.com.
Insurance fraud reaches record heights June 03, 2014 | Live Insurance News http://www.liveinsurancenews.com/insurance-fraud-reaches-record-heights/ The Association of British Insurers (ABI) has now revealed its latest figures regarding insurance fraud, which have shown that last year bogus claims exceeded £1.3 billion, breaking records from previous years. The vast majority of that total amount came from false or exaggerated claims made on auto policies. The ABI also pointed out that insurance fraud throughout the industry – not just in the auto sector – has been on the rise at a startling rate, and that it has now reached its highest rate, following a growth of 18 percent, last year, when compared to the figures that were collected in 2012. The insurers, themselves have detected a massive number of claims that have been entirely faked or that have been exaggerated over the truth.
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The number of claims that involve insurance fraud have reached a striking rate. In total, last year, insurance companies detected about 118,500 claims that were false or exaggerated. That worked out to about 2,279 every week for the entire length of the year. The average amount of fraud that was detected throughout all of the various fraudulent claims, last year, was £10,813. Overblown or entirely falsified auto policy claims were both the most common and the most expensive, last year. The total in that sector was estimated to be approximately 59,900 claims, which was an increase of 34 percent over the figure from 2012. Moreover, the cost associated with the claims also rose, having increased by 32 percent over the previous year, to reach a total of £811 million. Within the auto category, one of the biggest contributors to the totals in the ABI report was from the “crash for cash” schemes. Here, unsuspecting drivers found themselves in accidents when fraudsters smashed right into them so that they could make a claim for injuries and damage. The total estimated exposure to insurers from those scams, alone, was estimated to be £120 million. At the same time, though, the report showed that insurance fraud in the property sector dropped by 38 percent from having been £137 million in 2012.
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Finance AIG Begins $1.5 Billion Tender as CFO Herzog Reduces Debt June 12, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/06/12/aig-begins-15-billion-tender-as-cfo-herzogreduces American International Group Inc., the largest property-casualty insurer in the U.S. and Canada, announced a tender offer for as much as $1.5 billion of its bonds as Chief Financial Officer David Herzog seeks to cut debt. The offer expires on July 10, New York-based AIG said today in a statement. It covers securities issued in dollars, pounds and euros, some with coupons of more than 8 percent. AIG has been reducing debt to improve its standing with credit-rating firms and regulators as the company prepares for increased oversight from the Federal Reserve after its designation as a systemically important financial institution. About 40% of the insurer’s debt is from 2007 and 2008 when the global credit crisis and the company’s near collapse forced borrowing costs higher, Herzog said at a conference last month. “Some of that is pretty expensive,” he said May 20 at an investor presentation. “It provides an opportunity for us to think opportunistically about how to manage the cost of our debt capital to a more sensible level.” AIG’s $3.6 billion of 8.175%, junior subordinated notes due 2058, which are included in the tender offer, gained 2.5 cents to 137.75 cents on the dollar for a yield of 5.36% at 10:45 a.m. in New York, according to Trace, the bond- price reporting system of the Financial Industry Regulatory Authority. That’s the highest price since the bonds were issued in 2009. Perceptions of the insurer’s creditworthiness also benefited from the cash-and-stock sale in May of International Lease Finance Corp. to AerCap Holdings NV, Herzog said. AIG received $3 billion of cash and got rid of $26 billion of liabilities in the deal, he said. Coverage Ratio AIG had the top Aaa credit rating at Moody’s Investors Service as recently as 2005. The insurer has had a Baa1 grade, the eighth highest of 10 investment-grade levels, since 2011. The insurer said this week that Peter Hancock, the head of the property-casualty unit, will take over as chief executive officer Sept. 1, replacing Robert Benmosche. Deploying capital while under Fed oversight will be among Hancock’s challenges, Jay Gelb, an analyst at Barclays Plc, said in a note to investors June 10. “The company would like to improve its interest coverage ratio, a critical metric for the rating agencies,” and has opportunities to redeem and refinance debt, Gelb wrote.
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Swiss Re Unit Agrees to Buy HSBC Life U.K. Pension Business June 11, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/06/11/swiss-re-unit-agrees-to-buy-hsbc-life-ukpension-b Swiss Re Ltd., the world’s second- biggest reinsurer, agreed to buy the U.K. pensions business of HSBC Holdings Plc for an undisclosed sum. Underlying assets under management forming part of the deal are valued at about 4.2 billion pounds ($7.1 billion) at the end of last year, the companies said in statements today. The transaction, between HSBC Life (UK) Ltd. and Swiss Re’s Admin Re unit, is scheduled to be completed in the second half of 2015. Admin Re, one of the three business pillars of Zurich-based Swiss Re, buys and manages blocks of closed life and health insurance funds, mainly in the U.S. and the U.K., which no longer sell new contracts. The unit has been looking for joint- venture partners after merger talks with Phoenix Group Holdings failed in November. “The transaction is an attractive opportunity for Admin Re and confirms our commitment to execute on the strategy to grow the Admin Re business in the U.K.,” John Dacey, chairman of Admin Re, said in a statement. “Transactions such as this allow Admin Re to maintain and increase the scale of its business and provide attractive shareholder returns.” The sale includes more than 400,000 corporate and individual pensions policies, and an associated annuities book, “by way of an insurance business transfer scheme,” HSBC said in the statement. HSBC Global Asset Management will remain the investment manager of the underlying assets. The lender will continue to offer pension products underwritten by other providers, the bank said. HSBC, Europe’s biggest bank, has sold or closed more than 60 businesses since 2011 as Chief Executive Officer Stuart Gulliver seeks to controls costs and increase profitability. The deal comes after U.K. Chancellor of the Exchequer George Osborne scrapped rules in his March budget that pushed retirees to buy an annuity with their pension savings.
In Q1, Commercial Lines Rates See Smallest Increase in 2 Years June 09, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/06/09/in-q1-commercial-lines-rates-see-smallestincrease Commercial-insurance rates climbed by 4% in Q1 2014 compared to the same period last year, the smallest quarterly increase in over two years, according to Towers Watson. In its latest Commercial Lines Insurance Pricing Survey (CLIPS), which polled 43 insurers representing approximately 20% of the U.S. commercial-insurance market, Towers Watson says prices increased in every line of business, mostly in the low- to mid-single digits. “Although prices continued growing, the increases are the smallest in over two years — a full percentage point lower than last quarter, and a steep decrease from the 6% to 7% reported in the second half of 2012 and first half of 2013,” Towers Watson says in a statement.
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Rate increases were lower that those reported in the fourth quarter for all but professional liability lines. Towers Watson says employment practices liability experienced the largest price year-overyear increase. The firm adds that there were no significant differences in pricing between small, midmarket and large accounts. Despite the slowdown, rate increases continue to outpace low claim-cost inflation, says Towers Watson, evidenced by a 2% improvement in respondents’ accident-year-to-date loss ratios compared to the same period in 2013. “This development builds on the estimated improvement of nearly 5% between 2012 and 2013,” Towers Watson says. “In aggregate, carriers reported approximately 1% claim cost inflation for 2013 and 2% for 2014.” Tom Hettinger, Towers Watson’s Property & Casualty sales and practice leader for the Americas, says in a statement, “Price increases continue to decline. First quarter increases are one percentage point lower than last quarter, following several quarters of a moderate but steady slide. On the other hand, the resiliency of price increases is consistent with our view of the market’s focus on the management of risk, the uncertain inflationary environment and still-low fixed-income investment yields. Price increases may be mitigating, but they’re still outpacing claim inflation.”
AIG to Repurchase as Much as $2 Billion of Its Common Shares June 06, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/06/06/aig-to-repurchase-as-much-as-2-billion-of-itscomm American International Group Inc., the largest commercial insurer in the U.S. and Canada, said it may repurchase as much as an additional $2 billion of common stock after selling its aircraft-leasing business. The insurer has bought back about $418 million of shares since the end of the first quarter, according to a statement today from the New York-based company. It has $2.12 billion remaining on its share-repurchase authorization. AIG sold International Lease Finance Corp. to AerCap Holdings NV last month for $3 billion in cash and about $4.6 billion in AerCap stock. The insurer got rid of about $26 billion of liabilities in the deal. The ILFC sale “and our strong capital position have allowed us to authorize this share repurchase, which enables us to return a portion of our sale proceeds directly to our shareholders,” AIG Chairman Robert S. Miller said in the statement. AIG shares were little changed today at $54.95 in New York. They have gained 7.6% this year, beating the 5% advance of the Standard and Poor’s 500 Index.
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ING to Sell Over Half of European Insurance Unit by End of 2015 June 05, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/06/05/ing-to-sell-over-half-of-european-insuranceunit-b ING Groep NV, the biggest Dutch financial services company, plans to sell shares of its European insurance unit in an initial public offering as early as July. “If markets hold up as they currently look, there are not that many issues in the way of coming somewhere after the next two, three weeks,” ING Chief Executive Officer Ralph Hamers told reporters on a conference call today. “The moment the prospectus will come out, we will also give more information on offer size and price range.” His comments represent the first firm indication of the timing of ING’s bid to cut its stake by more than 50 percent before the end of 2015. The company, based in Amsterdam, may sell the remaining shares before December 2016, according to an ING statement today. Shares of ING Groep rose 0.7% to 10.49 euros by 10:18 a.m. in Amsterdam trading. The deal, on the heels of Lloyds Banking Group Plc’s announcement last month that it will sell 25% of its TSB consumer bank, comes amid declining investor demand and growing IPO supply. Companies including Italian state-run shipbuilder Fincantieri SpA, U.K. retailer B&M European Value Retail SA and eastern Europe’s largest budget carrier Wizz Air Ltd. announced plans last month to sell their shares. The Dutch bank is seeking to value its NN unit at as much as 8 billion euros ($11 billion) in a transaction that may raise as much as 2 billion euros, three people with knowledge of the matter said May 29. ING plans to list the unit on the Euronext Amsterdam exchange and the prospectus will be published after it has been approved by the financial markets regulator AFM. The approval process is ongoing, ING said. “We welcome the IPO of NN Group which will be the final major transaction in ING Group’s five-year restructuring program,” Matthias de Wit, a Brussels-based analyst at KBC Securities, said in a note today. “The IPO of NN Group will provide investors with an interesting opportunity to invest in one of the industry’s strongest free cash flow and and capital generators.” De Wit has a “buy” rating on the stock. ING was ordered to dispose of insurance businesses from the U.S. to Malaysia to comply with a European Union restructuring plan, a condition for receiving a government bailout in 2008. The company has until the end of 2016 to complete that process. The NN Group intends to pay out a second-half 2014 dividend of 175 million euros in 2015 with a pay-out policy of as much as 50 percent of net operating result from 2015, ING said. “Our business strategy is focused on increasing cash and capital generation through efficiency, while delivering excellent service and products to our customers, Lard Friese, vice-chairman of NN Group, said in the statement.
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NN Group has operations in the Netherlands, Poland, Turkey, Czech Republic, Slovakia, Romania, Hungary, Bulgaria, Belgium, Spain, Greece and Luxembourg, and Japan. It also includes ING’s asset management arm. The NN Group sale comes after ING cut back its ownership in its U.S. unit, now named Voya Financial Inc., to about 43%. It also still owns a 10% stake in Sul America in Brazil.
MarketScout: Personal, Commercial Rates Trend Up in May June 05, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/06/05/marketscout-personal-commercial-ratestrend-up-in ING Groep NV, the biggest Dutch financial services company, plans to sell shares of its European insurance unit in an initial public offering as early as July. “If markets hold up as they currently look, there are not that many issues in the way of coming somewhere after the next two, three weeks,” ING Chief Executive Officer Ralph Hamers told reporters on a conference call today. “The moment the prospectus will come out, we will also give more information on offer size and price range.” His comments represent the first firm indication of the timing of ING’s bid to cut its stake by more than 50 percent before the end of 2015. The company, based in Amsterdam, may sell the remaining shares before December 2016, according to an ING statement today. Shares of ING Groep rose 0.7% to 10.49 euros by 10:18 a.m. in Amsterdam trading. The deal, on the heels of Lloyds Banking Group Plc’s announcement last month that it will sell 25% of its TSB consumer bank, comes amid declining investor demand and growing IPO supply. Companies including Italian state-run shipbuilder Fincantieri SpA, U.K. retailer B&M European Value Retail SA and eastern Europe’s largest budget carrier Wizz Air Ltd. announced plans last month to sell their shares. The Dutch bank is seeking to value its NN unit at as much as 8 billion euros ($11 billion) in a transaction that may raise as much as 2 billion euros, three people with knowledge of the matter said May 29. ING plans to list the unit on the Euronext Amsterdam exchange and the prospectus will be published after it has been approved by the financial markets regulator AFM. The approval process is ongoing, ING said. “We welcome the IPO of NN Group which will be the final major transaction in ING Group’s five-year restructuring program,” Matthias de Wit, a Brussels-based analyst at KBC Securities, said in a note today. “The IPO of NN Group will provide investors with an interesting opportunity to invest in one of the industry’s strongest free cash flow and and capital generators.” De Wit has a “buy” rating on the stock. ING was ordered to dispose of insurance businesses from the U.S. to Malaysia to comply with a European Union restructuring plan, a condition for receiving a government bailout in 2008. The company has until the end of 2016 to complete that process.
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The NN Group intends to pay out a second-half 2014 dividend of 175 million euros in 2015 with a pay-out policy of as much as 50 percent of net operating result from 2015, ING said. “Our business strategy is focused on increasing cash and capital generation through efficiency, while delivering excellent service and products to our customers, Lard Friese, vice-chairman of NN Group, said in the statement. NN Group has operations in the Netherlands, Poland, Turkey, Czech Republic, Slovakia, Romania, Hungary, Bulgaria, Belgium, Spain, Greece and Luxembourg, and Japan. It also includes ING’s asset management arm. The NN Group sale comes after ING cut back its ownership in its U.S. unit, now named Voya Financial Inc., to about 43%. It also still owns a 10% stake in Sul America in Brazil
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Technology Big Data to Reach $30 Billion by end of 2014 June 11, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/06/11/big-data-to-reach-30-billion-by-end-of-2014 Big data vendors are predicted to reach nearly $30 billion by the end of 2014, according to a report “Big Data Market: 2014-2020” from Signals and Systems Telecon. Big data investments also are expected to grow 17% during the next 6 years, eventually reaching $76 billion from hardware, software and professional service vendors by 2020. Originally used to describe datasets whose size is beyond the ability of traditional databases, big data has expanded to include a set of technologies that capture, store, manage and analyze large and variable collections of data to solve complex problems. Hardware sales and professional services account for more than 70% of big data investments. Large growth will come from vertical market applications, ranging from fraud to R&D. Software vendors, particularly those involved in analytics, will significantly increase their stake in the market, the report states.
Core in the Cloud: It’s Getting Pretty Serious June 10, 2014 | Insurance and Technology http://www.insurancetech.com/architecture-infrastructure/core-in-the-cloud-its-getting-prettyser/240168427 Core systems replacement is always a hot topic at the annual IASA conference, the 2014 edition of which is being held in Indianapolis this week. But the vendor community is reporting that many of their new contracts have a distinct wrinkle: Increasingly, insurance companies are opting to place their core systems in the cloud rather than continue to maintain mainframe systems. “Of the last eight deals we’ve made, only one hasn’t been cloud,” says Andy Scurto, president of ISCS. That’s counting customers as low as $25 million in revenue and up to $300 millon, he adds. “Most of it is risk mitigation: They don’t want to deal with the complexity of keeping [mainframe] operational.” With insurance increasingly becoming a 24/7 business, Scurto explains, traditional carrier-side data centers become impractical from a maintenance and staffing standpoint. Keeping staff on to deal with a data center around the clock in order to appease agents and customers who want anytime, anywhere access is a losing proposition. Ross Orrett, global head of insurance industry innovation and development for SAP Canada says that insurers have now reached a high comfort level with cloud software after using it for several years in ancillary functions.
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More Cloud & Core News: •
Church Mutual
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The Hartford
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Farmers of Flemington
“We were seeing big uptake in our cloud software Success Factors [for human resources management] and Ariba [for procurement management],” Orrett says. SAP also has offered SAP Circular Authority software entirely in the cloud since acquiring it and Orrett’s former company, Camilion, last year. However, Orrett says, when it comes to core systems there is still some variance in insurer strategy. Some want different components of their core software in mainframe and cloud deployments, and so SAP plans to offer over the long term two deployment options for core insurance systems. “Right now, it’s a mixed environment -- they’re looking for choice,” Orrett says. “We can’t put one model out there, because they have a lot of legacy they can’t get rid of overnight.” While SAP is looking to become a provider of both infrastructure and software in the cloud, Microsoft is looking to partnerships on the software side and positioning itself as an infrastructure expert. It’s partnered with Accenture Duck Creek to offer a version of the latter’s core systems software on Microsoft’s Azure cloud platform. Berkshire Hathaway Specialty is a recent customer of the combined offering. “We’re going to remain a horizontal product and platform company,” says Anthony Jacob, Microsoft’s worldwide managing director of insurance partnerships. “But we do have direct engagement with insurance companies when they’re turning to our partners.”
Websites ‘Not Very Exciting,’ Apps Provide More Convenience, Simplification June 09, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/06/09/websites-not-very-exciting-apps-providemore-conve The insurance industry doesn’t operate in a vacuum. Customer demands for mobile capabilities are shaped by all the companies they do business with while on the move—whether it’s pulling out their phone to pay for a $2 cup of coffee or conducting a banking transaction worth thousands of dollars on a tablet. Edgar J. Higgins Jr., former owner and current vice president of Thousand Islands Agency in Clayton, N.Y., believes that consumers will gravitate to companies that provide the best mobile service. “This is not unique to insurance but, rather, a simple market result of more potential convenience coming to an end user’s fingertips,” he says. “More and more carriers are providing mobile capabilities because customers demand them. It’s just expected—it’s part of the consumerization of data and technology,” says Dave Dalton, divisional assistant vice president, Great American Insurance Group – Property and Casualty Operations. (GAIG).
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Mobile Movement Smartphone apps are the focus of carriers in mobile development, particularly when it comes to consumer-facing technology. “Using a web browser to get to a portal is not very exciting,” says Karen Pauli-Bradshaw, research director at CEB TowerGroup. “Insurers want to have apps in an app store because that’s what consumers want.” “Customers see that it’s just as convenient to download an app as it is to find and use a website when they need it,” says Chad Hersh, managing director of Novarica’s Insurance Practice. “However, insurers need to consider that they can’t have just a dumbed-down version of the website. The app needs to provide an incentive for customers by making it easier to do business and providing capabilities they truly need.” Ease of business has been an ongoing focus for State Farm since the company rolled out its Pocket Agent app in 2009. “We know that our customers are expecting simplification,” says Patty Gaumond, the company’s vice president of digital operations. “We also know that we have to take a broad look at the mobile capabilities to offer. We have to look not just at what our competitors do, but how we compare to other industries.” When it was first introduced, Pocket Agent included all the basics—reporting claims, locating repair facilities, and contacting State Farm agents. Those capabilities have expanded to include enhanced accident documentation, online insurance cards, and insurance premium payments, as well as links to State Farm Bank account capabilities, including online deposits, balance, and transaction history. The company has added mobile features beyond account services as well. On the Move allows consumers to respond to incoming text messages automatically while they are driving or occupied. State Farm Driver Feedback helps drivers by using a phone’s accelerometer to analyze acceleration, braking, and cornering and to provide tips for improvement. State Farm’s Steer Clear Mobile provides an incentive for young drivers who complete a program designed to reinforce good driving behavior and use the app’s logging feature. Carving a Niche “Pockets of really excellent apps can be found in niche products, such as truckers’ insurance, which include not only some good insurance functionality but social aspects as well,” Hersh says. GAIG’s Trucking Mobile App allows owner operators and motor carriers to report a claim, find the closest repair shop in GAIG’s Rig Ready program, access policy information and export policy documents, and link to GAIG’s social media presence on Facebook. The specialty insurer’s first app, launched three years ago, is targeted to equine insurance customers and provides class-specific services, such as the ability to locate large-animal veterinary clinics. “The goal is to provide our customers—whether it’s the agent, insured, or even an internal customer—actionable data that’s relevant to them,” Dalton says. In addition to its trucking and equine apps, GAIG also provides a common mobile app for policyholders across all lines that provides basic policy, bill payment and claim functionality. “Those are essential features for every carrier looking to provide mobile capability today,” Dalton says.
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GAIG offers producers an Agent Portal App to view a book of business, access policy documents, check billing and payment status and retrieve loss runs. “Agents can pull up the same information through our apps or through our mobile site on a tablet, phone, or laptop,” Dalton says. The company is poised to release an update to the agent portal to provide expanded reporting capability. Likewise, State Farm has a responsive web presence for customers. “Our goal is to provide the same capability through a mobile browser as customers could do through a desktop,” Gaumond says. As insurers reach out to customers through mobile capabilities, they also must keep other constituencies in mind, particularly for companies that utilize independent agents. “A lot of agents actually resent first report of claim to the insurer because they feel it takes them out of the loop,” says Higgins Jr. “I don’t, because as long as the insurance company simultaneously sends me notification, I can provide my value-added piece. We agents need to get ourselves past the immediate perception of what used to be called disintermediation.” Higgins Jr.’s Thousand Islands Agency—which sports a QR code on its front door for customers to scan—recently adopted Applied’s MobileProducer application. “MobileProducer was really designed to help an agent write business in the field, but we saw it as a way to support 24/7 claim service,” Higgins Jr. says. “We use the system to pull up the entire client file when we’re responding to a claim, look at the last activity that took place on the file, and enter that information on a tablet.” Assessing Effectiveness Mobile is not a “set it and forget it” activity. “We utilize analytics that show us what apps customers download and from where, as well as what capabilities customers are accessing once they get to the site,” says Gaumond, adding that State Farm also monitors social media using a cross-functional team and a variety of social listening tools to uncover customer comments and consider them in making enhancements to the mobile platform. Recently, State Farm finished the beta test of a telematics app for Android app RightLane, offering customers $50 gift cards to try the program. “Our goal is to determine if telematics via a mobile device is feasible,” Gaumond says. After analyzing test results, the company hopes to deploy a telematics solution by next year. GAIG monitors usage of all its apps. “We look not just at downloads, but when are customers are logging in and what functions are they using the most,” Dalton says, adding that the company has put that knowledge to use as it has developed additional mobile capability. “In our first app, we had spent a decent amount of time building out claim functionality, but claims happen infrequently compared to paying premiums or getting information. We’ve used that knowledge in our new apps to focus on providing more informational resources for customers,” he explains. The company has also worked to align business and IT around mobile technology. “IT has partnered with many of our insurance divisions to build apps and ensure that those apps are providing value to our insureds and our agents. It also helps us to determine what new features should be incorporated. It’s a continuous process,” Dalton explains.
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Tech Evolution Pauli-Bradshaw cautions that, while investment in mobile apps is important, carriers can’t overlook the back office. “At this point in time the problem we see in the industry is that everyone is rushing to that bright and shiny new mobile capability, but their back end is still old,” she says. “If you have an old billing system, don’t put a fake front end on it to make people think you have a modern system because it will still be clunky with manual workarounds, which will look worse to customers than doing nothing at all.” Having a service-based, internally built core administration platform was essential to both speed of deployment and reuse of mobile services at GAIG.
77% of Companies to Have Cyber Insurance in the Next Year June 05, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/06/05/77-of-companies-to-have-cyber-insurance-inthe-nex More than three-quarters (77%) of risk managers in the U.S. plan to have some level of cyber insurance coverage in place in the next 12 months, according to a Munich Re survey. Of the 23% that do not plan to purchase cyber, five out of six say that current insurance offerings do not meet their needs or are not relevant to their business. The study, conducted at the Annual Conference of the Risk and Insurance Management Society (RIMS) in Denver, also reports that 42% of risk managers plan to increase their level of cyber insurance or purchase cyber for the first time. Nearly half of the risk managers (42%) say that conducting regular network penetration tests or security audits is the best way to mitigate risk. Other ways they lessen cyber risk: •
Hiring trained security personnel to handle the cyber exposure (15%)
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Conducting automated/centralized security patch updates (15%)
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Outsourcing IT applications and data warehousing (12%)
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Ensuring acceptable use of policies and procedures (9%)
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Purchasing insurance (7%).
“For businesses, it’s far easier and less expensive to prevent a cyber-related loss than to recover from one,” said Eric Cernak, Vice President of Hartford Steam Boiler, a subsidiary of Munich Re. “Regular network penetration tests along with automated security patches should be a key component of a company’s risk mitigation plan. These actions greatly reduce the probability of incurring loss due to a cyber incident.” Skepticism regarding cloud security remains, as 43% of risk managers are reluctant to use or increase cloud software. Among those individuals, hacking (29%), theft of data (25%), loss of control over data (22%), loss of data (13%) and loss of access to data (11%) are top concerns.
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Insurers Focus on ‘3CM’ for Customer Experience: SMA June 04, 2014 | Insurance and Technology http://www.insurancetech.com/management-strategies/insurers-focus-on-3cm-for-customerexper/240168379 New research from Strategy Meets Action (SMA) indicates an increased focus on customer communications and content management (3CM) among insurers in the P&C and L&A sectors. SMA polled 112 North American insurers to better learn how they communicate with customers and distribution partners as well as how they capture, create, store, manage and deliver documents. The study includes four areas of communication: enterprise content management (ECM), customer communications management (CCM), contact centers, and document archiving and retention. Insurance is unique from other industries in that electronic channels have not replaced human sales representatives. SMA found that while agents and producers will continue to handle the majority of customer interactions, their roles will be enhanced by new technologies and digital channels as insurers focus more on customer-centric strategies. “We try to take a broad look at digital content from the inbound side through the outbound side, and digital content internally as well,” says Mark Breading, partner at SMA and author of the report. “The big driver is the energy around the customer experience.” Most survey respondents (65%) are investing in 3CM to improve customer service. Increased digitization not only leads to better service but also contributes to cost reduction, which 47% of insurers identified as the primary driver of investment. The increased focus on customer experience has increased insurers’ focus on outbound correspondence, says Breading. According to survey results, three of insurers’ top five projects for 2014 and beyond emphasize e-billing, e-delivery and e-signature capabilities. “I think e-delivery is a really critical area,” he explains. “It’s complicated and it’s going to be a long journey as insurers look at all the different types of touches they have with their customers.” Breading advises insurers to be thoughtful about their communications strategies and urges them to fully understand their consumers’ preferences. While the world primarily communicates through electronic channels, insurers should balance customer values rather than transition to all-digital correspondence. “Some people may want their policy in the mail but if they have a claim, they want to communicate via mobile phone so they know what the status is,” he says. Many companies are trying to optimize printed output and decrease print center cost to move towards digital. While there are many opportunities to decrease printed documents, save money and invest in new projects, Breading explains, there are still certain communications that must legally be done on paper. The types of documents prioritized by P&C and L&A insurers are similar but there are various differences due to the nature of their business lines. All typically offer electronic quotes, policies and bills, but P&C is placing increased focus on claims and renewals while L&A emphasizes marketing and promotions.
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“Success in life insurance is really about customer acquisition,” Breading explains. “Nobody’s focusing you to buy an annuity, it’s all optional.” Life insurance typically involves more intense communication on the front end, he says, because there is usually less customer interaction after a policy is purchased. When life insurers need to initiate customer interaction, it typically requires the more personal approach of a meeting or phone call. In contrast, says Breading, P&C is a more mature and saturated market because people need insurance for their cars and homes. Claims are a top priority in this space because multiple transactions are likely to occur after a policy is on the books. “The challenge right now is that so many companies are thinking about how to improve the customer experience and move towards this omnichannel environment where communications are more seamless,” Breading says. “It makes for a complicated picture.” Despite the differences in their correspondence priorities, both P&C and L&A insurers face challenges when evaluating their communications strategies. Breading advises them to step back and consider how they can design a unified digital strategy that covers the entire spectrum of customer transactions. This involves determining an ideal form of communication and choosing the right platform to optimize that. Breading identifies social media and mobile as two areas that are poised for growth. The question of mobile is vital and insurers are in the process of making content available through mobile apps. In addition, many use social media for advertising and branding purposes, he says, but have not yet begun to interact with policyholders or create communities. There is still potential for them to capitalize on the power that social media can bring.
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Strategy The Insurance Industry and Climate Change June 14, 2014 | Live Insurance News http://www.liveinsurancenews.com/insurance-industry-climate-change-2/ When it comes to climate change, insurance can be a tricky subject. The global insurance industry does not typically deal in “what ifs� and many large insurers are not willing to debate whether or not climate change is real. These insurers are more apt to address the issue of climate change by offering new insurance products and finding ways to mitigate the risks associated with the phenomenon. Powerful storms, rising temperatures, and depleting food and water resources are becoming issues that the insurance industry is beginning to involve itself in. A changing climate represents a costly problem for insurance companies. Climatic phenomena are leading to a higher frequency of powerful storms that are proving to be devastating in nature. These storms are costing billions of dollars worth of damages and insured losses. Insurers have been noting the increasing frequency in these natural disasters, suggesting that climate change is to blame for the problem, but these concerns often go ignored or become fuel for political debates. As such, insurers are beginning to take steps to design products that are specifically related to climate issues, such as extreme flooding from rising sea levels and powerful storms. How the insurance industry is reacting to climate change is not consumer-specific. Insurers are not simply changing their property insurance policies to take into account the effects a changing climate may have on the world. There are some companies that are offering displacement insurance for those that could actually lose their homes because of climate change. This coverage is becoming particularly popular among island nations that could at some point in the future disappear because of rising sea levels. Some risks are becoming so profound that insurers are simply abandoning certain sectors. Flood insurance is one such sector that insurance companies have been loath to participate in for several years. Floods are one of the most costly natural disasters in the world and represent a serious financial risk for the insurance industry, especially when the increasing frequency of powerful storms is favored in. While the industry is well suited for addressing and overcoming certain risks, it has yet to find an effective way to offer protection against the myriad issues relating to climate change.
AIG Commits $1.5 Billion to Lending Venture with Oak Hill June 11, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/06/11/aig-commits-15-billion-to-lending-venturewith-oak American International Group Inc., the largest property-casualty insurer in the U.S. and Canada, joined private-equity firm Oak Hill Capital Management to help start a lender serving medium-sized companies.
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AIG has committed $1.5 billion to Varagon Capital Partners, the companies said in a statement today. The venture will be led by Chief Executive Officer Walter Owens, who previously worked at GE Capital and CIT Group Inc. Institutional investors have been seeking to diversify holdings beyond bonds with interest rates near record lows. Many have added loans to so-called middle-market companies to boost yields. In addition to insurers, “pension funds, family offices and endowments that have become investors in middle-market credit are looking to take the next step,” Owens said in a phone interview. They’re “really perfect candidates to be talking with us.” Competition has intensified as more investors pour capital into commercial lenders. That prompted the Federal Reserve to report in April that underwriting standards are deteriorating. Commercial and industrial loans rose at a seasonally adjusted annual rate of more than 12 percent, the fastest of any loan category in a tally by the central bank published last week. Varagon said its offerings will include first-lien and mezzanine financing and be backed by “robust risk management.” The New York-based company will focus on borrowers with $10 million to $75 million of earnings before interest, tax, depreciation and amortization. Nayden, Schreiber Loans will be for as much as $350 million, according to the statement. AIG plans to hold $20 million to $100 million of a typical transaction and syndicate the rest to other investors, Jon Diat, a spokesman for the insurer, said in an e-mail. Varagon’s chairman is Denis Nayden, a managing partner of Oak Hill and former chairman and CEO of GE Capital. The board includes Brian Schreiber, a deputy chief investment officer at New Yorkbased AIG; Michael Gaudino, former CEO of GE Corporate Financial Services; and Morris Offit, chairman of Offit Capital and a former AIG director. “The board is going to be very helpful in setting strategic direction and providing us with value in building and scaling the business,” Owens said. Oak Hill manages funds with more than $8 billion of initial capital commitments. Partners and affiliates of the firm joined AIG in backing Varagon, according to the statement.
Travelers Touts Bank-Beating Returns Amid Wall Street Regulation June 06, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/06/06/travelers-touts-bank-beating-returns-amidwall-str Travelers Cos. Chief Executive Officer Jay Fishman highlighted the insurer’s history of posting better returns than banks and other large financial companies amid a period of increased Wall Street regulation. Fishman’s company had an average annual return on equity of 12.3% from 2005 through 2013, compared with 6.5% for banks in the Standard & Poor’s 500 Index, according to a slide show from New York-based Travelers.
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“Investors are going to begin to contemplate, in this new arena of regulation, have relative returns within the financial sector changed?” Fishman, 61, asked at a shareholder presentation today. “I’m not coming to any conclusions here. I’m just sharing data with you, but I do think it’s going to be an increasingly relevant question.” Banks have reduced leverage and retreated from some trading operations amid new and heightened regulations after the financial crisis. Wall Street firms also had to pay billions of dollars to settle probes into abuses during the housing bubble. Travelers, the only property-casualty insurer in the Dow Jones Industrial Average, avoided subprime mortgage bonds in 2007 and 2008 and didn’t need a bailout. The company has climbed 4.9% this year, compared with the 7% slide at Goldman Sachs Group Inc. and a decline of 2.7% at JPMorgan Chase & Co., which took government assistance in the crisis and are also in the Dow. Fishman ran Travelers when it was a part of Citigroup Inc. under CEO Sanford “Sandy” Weill. The insurance executive left in 2001 to run rival St. Paul Cos. and then in 2004 engineered the merger with Travelers. Weill’s view Weill, whose creation of Citigroup, ushered in the era of U.S. banking conglomerates, said in 2012 that the biggest financial firms should be broken up to unlock value and avoid future bailouts. Citigroup, once the world’s largest bank, has dropped about 90 percent since the end of 2004 in New York trading while Travelers has more than doubled. Travelers’ return on equity beat banks last year as well, and Fishman said that shows the advantage wasn’t limited to a period that included the financial crisis. The insurer’s ROE also exceeds results at diversified financial companies and life insurers, he said.
Bitcoin insurance now available to businesses June 06, 2014 | Live Insurance News http://www.liveinsurancenews.com/bitcoin-insurance-now-available-businesses/ Companies that have been hoping to be able to open up to new types of currency and payments opportunities but who would also like to minimize the risk connected with doing so will now be able to obtain Bitcoin insurance from another provider, as Great American Insurance Group has announced that it is offering this type of protection. This virtual currency has been creating quite a stir but is maintaining its growth in adoption. The insurer’s crime policies didn’t yet cover what it referred to as “virtual peer-to-peer mediums of exchange.” That being the case, businesses that were looking to branch out into other forms of transaction have been rather limited in their opportunities unless they were willing to take on the entire extent of the risk onto themselves. However, Great American has recognized that the need for this protection is growing and has therefore formed a new Bitcoin insurance to offer through its Fidelity/Crime Division. This Bitcoin insurance policy can be purchased by both commercial and government customers.
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According to the insurer, itself, when explaining its decision to offer the product, “Standard crime insurance policies, including Great American’s crime policy, currently do not automatically provide coverage for virtual peer-to-peer mediums of exchange. Crime insurance coverage for bitcoins can now be granted by endorsement to an existing crime policy.” The company is based in Windsor, Connecticut, but it is now offering the Bitcoin policy products in the majority of U.S. states. It claims to be the first company in the insurance industry to offer a commercial coverage that is specific to this virtual form of currency. At the moment, this company, which is a part of the American Financial Group Inc., has an estimated underwriting capacity of $50 million. Its annual revenues are estimated to be about $5 billion, annually. The Bitcoin insurance is designed to provide virtual currency coverage specifically when it comes to crime. Therefore, there are limitations to the protections that it offers. What is covered is problems relating to money and securities, employee dishonesty, forgery, and computer fraud.
Industry’s TRIA Reaction: Praise for the Senate; Concerns About the House June 04, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/06/04/industrys-tria-reaction-praise-for-the-senateconc The property and casualty insurance industry lauded the Senate Banking Committee for reporting out a Terrorism Risk Insurance Act extension Tuesday, but “caution” remains a byword because it is not certain when Congress will ultimately act, and whether final legislation will provide the same federal support as current law. The bill sent to the full Senate yesterday is S. 2244, the Terrorism Risk Insurance Program Reauthorization Act of 2014. The current reauthorization expires Dec. 31. Wendy A. Peters, senior vice president, Willis North America’s Terrorism Insurance Practice, says the 22-0 vote Senate-panel vote provides “momentum” for eventual re-enactment, and “bodes well for passage prior to the fall.” Leigh Ann Pusey, president and CEO of the American Insurance Association (AIA), says the panel’s action “represents a significant step forward toward reauthorization,” and the unanimous vote “proves there is strong bipartisan support for the program.” Nat Wienecke, senior vice president, federal government relations at the Property Casualty Insurers Association of America (PCI), called it “a big step toward minimizing disruptions in the terrorism insurance market.” Jimi Grande, senior vice president of federal and political affairs for the National Association of Mutual Insurance Companies, called on other legislative bodies to follow the Banking panel’s action. “With approval by the Senate Banking Committee, we’re hoping that the pace of progress for reauthorizing the TRIA program will pick up considerably,” he says. “Given the unqualified success of the TRIA program, and the widespread agreement on both sides of the aisle that it should be maintained, reauthorization has been put off for far too long.”
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Charles Symington, senior vice president of external and government affairs for the Independent Insurance Agents and Brokers of America, says, “It is critically important that agents and brokers have the ability to provide protection to our customers in the form of terrorism insurance, and the current TRIA program has worked well to ensure the availability of this coverage.” Mike Becker, executive vice president & CEO of the National Association of Professional Insurance Agents, adds, “PIA strongly supports a clean bill providing for a long-term reauthorization.” Concerns While industry representatives were supportive, that support does not come without concerns. PCI’s Wienecke, for example, says PCI member companies “remain concerned with the language in the legislation increasing each insurer’s co-share by a third, from 15% to 20%.” Willis’ Peters spoke to the impact of “the protracted delay and lack of clarity” as to what the reauthorization legislation will ultimately look like. She says this uncertainty “is negatively impacting the industry.” She also says the private-market insurance, with limited availability in highly concentrated risk areas, remains insufficient to fill the demands of the current marketplace. “More specifically, many workers’ compensation insurers, when faced with potential credit rating downgrades in the absence of a solution, have been forced to offer significantly reduced lines or withdraw from the market altogether,” Peters said. What will the House do? Peters also says what course the House Financial Services Committee will take remains a concern. Peters says the panel has yet to release a formal draft of its legislatives changes, though sources widely anticipate this will be far more limiting than that proposed by the Senate. “While the consensus is that some variation of the current legislation will be the basis of an extension going forward, certain key elements of the proposals have raised concerns—particularly those which have been suggested by the House Financial Services Committee staff in their briefing memorandum,” Peters says. The Self-Insurance Institute of America (SIIA) also voiced concern about the intentions of the House. The SIIA says in a statement that, based on concerns about the House FSC draft and the panel’s apparent intention to “reform the program,” it has had private discussions with the committee staff. At the meeting, the SIIA officials say they “outlined concerns about the future treatment of captives and urged the committee to refrain from restricting their access to TRIA coverage.” The statement says SIIA and other industry groups “are continuing discussions with committee staff and members to help craft an effective and politically workable reauthorization.”
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