INSURANCE NEWS FLASH 16th August 2013
Table of Contents Sales & Marketing ................................................................................................................. 3 Finance ................................................................................................................................. 9 Technology .......................................................................................................................... 15 Strategy .............................................................................................................................. 20
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Sales & Marketing Chinese broker under investigation for huge fraud 16 August, 2013 | Insurance Insights http://www.insuranceinsight.com/insurance-insight/news/2289305/chinese-broker-underinvestigation-for-huge-fraud It is understood Chen Yi, general manager at Shanghai Fanxin Insurance, has left China for Canada as the broker is investigated for fraud. According to the Chinese media, Shanghai's largest insurance broker, which sells both life insurance and general insurance is being investigated for illegal sales practices by Shanghai's insurance regulator. Some reports suggest that Yi has fled the country with as much as 500m yuan ($81.6m). Reports suggest the company may have been dishonest with both policyholders and insurers. The regulator is investigating the possibility the broker was using fees and commissions from insurers to give to policyholders as rebates so it could grow rapidly and ask for more commissions and fees from insurers. The broker started in 2007 but has grown incredibly fast over the last few years selling 480m yuan's worth of insurance policies last year. The broker was fined 50 000 yuan ($8 180) in March.
Desire for Wild Spaces Ignites U.S. Fire Insurance Hazard 14 August, 2013 |Property Casualty 360 http://www.propertycasualty360.com/2013/08/14/desire-for-wild-spaces-ignites-us-fireinsurance-h The summer of 2013 has been another severe fire season for the United States, a trend that has insurance companies bracing for a new normal: higher rates of property damage as Americans move to wildfire-prone areas in ever greater numbers. The deaths of 19 firefighters in Arizona's Yarnell Hill fire in June, the biggest such loss since 1933, shocked the nation and was the most visible evidence to date of a general trend of rising threats to lives as well as property. The insurance industry has seen a dramatic upward trend in fire-related property losses in recent decades, according to data from the Insurance Information Institute.
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Wildfires in the United States accounted for $13.7 billion in total economic losses and $7.9 billion in insured losses from 2002 through 2011. That is a spike from the prior decade, which saw $6.8 billion in economic losses and $1.7 billion in insured losses. Federal government spending has also sharply risen as firefighters must dedicate more time to wildfire suppression. Numerous factors are involved, including longer fire seasons tied by some to climate change, logging and diminished fire prevention funds that have allowed the build-up of flammable fuel, turning some communities into fire-season tinderboxes. The biggest culprit though, according to many experts, is the rapid increase in development in areas where wilderness meets human development. As the population has increased, so has the appeal of living in areas away from cities. "It's definitely something we've been seeing more and more in recent years as cities get congested," said Nicole Farr, a spokeswoman for the Arizona Insurance Council, a group that represents the state's insurance industry. Between 2000 and 2010, 10 million new homes were built in wildland-urban interface (WUI) areas in which residences either border or are built on land prone to wildfires. Those homes in WUI areas accounted for two-thirds of all homes built in the United States during that time, according to research jointly conducted by the U.S. Forest Service, University of Wisconsin and Oregon State University. Nationwide, more than 47 million homes, or 36 percent, reside in the WUI, which is 10 percent of the country's area, the research showed. Some insurance companies are striking back with stricter rules for obtaining homeowner's insurance, which often includes wildfire damage, for those living in high-risk areas. "More and more, these communities that are in these fire-prone areas are growing," Farr said. "That is creating these more costly wildfires because people are living in these areas." The most common goal of the new rules is to incentivize or require homeowners to create "defensible spaces," an area around the house cleared of debris and overhanging branches that could contribute to fire spreading to a house. State Farm, the largest home insurer in the country, has started reassessing high-risk properties in specific western states as they come up for policy renewal and making recommendations for defensible spaces. In some cases, according to the company, fewer than 1 percent of people decline to modify their property and discontinue their insurance policy. "Most people take great pride in their property," said State Farm spokeswoman Angela Thorpe. "They're interested in mitigating their fire risk."
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Farr said the Arizona insurance industry has always been conscious of wildfire risk. She could not say how policies may have changed recently but areas deemed to be higher risk were likely to see higher rates. Carole Walker, executive director of the Rocky Mountain Insurance Information Association, said people in some areas of Colorado might be left high and dry. "If people are moving into a class-10 (high-risk area)... they're basically in no man's land," Walker said. "It may be difficult for you to find insurance." PRESSURE TO PROTECT PROPERTY The development of wildfire-prone areas is also driving up government spending on fire containment, according to a paper from Headwaters Economics, a Bozeman, Montana, research group that focuses on land management decisions in the western United States. The research, published in June, highlighted a 1995 policy change by the U.S. Departments of Agriculture and the Interior that made protecting private property and natural resources equal in priority after the protection of human life. "The political reality is that protecting people's homes is given priority over protecting lands and resources ... (and) structures adjacent to federal lands can significantly alter fire control strategies and raise costs," the group said. In the 1990s, average federal spending on wildfire suppression was less than $1 billion per year, according toHeadwaters Economics. That has ballooned to more than $3 billion since 2002 and does not account for state spending, estimated at another $1 billion to $2 billion a year. Chris Mehl, a policy director with Headwaters Economics, said reforming the 1995 policy on private property could be one way to reduce WUI growth, by conveying to property owners that once residents in the path of a wildfire are evacuated, their property might not be protected. Questions remain for insurance agencies about the best way to reform wildfire coverage. So far, losses to wildfires have been far eclipsed by losses from other natural disasters, but that's a cold comfort for companies that see increases in risk. Mehl said insurers are currently grappling with the question of whether damages from wildfires could eventually rival those of other natural disasters, and how effectively they can mitigate potential losses. "They've made some big strides, but it remains to be seen how consistently they can apply these policies," he said.
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Personal Lines Moderating; No Signs of Hardening 14 August, 2013 |Property Casualty 360 http://www.propertycasualty360.com/2013/08/07/personal-lines-moderating-no-signs-ofhardening There are no signs that the personal lines market should be experiencing dramatic upward pressure, and could be moderating thanks to increased premiums and light catastrophe season so far this year. The latest indicator is MarketScout’s barometer for July that shows personal lines rates edging down to plus 3 percent after two consecutive months at plus 4 percent. Compared to 2012, catastrophe losses have thus far been lighter. A.M. Best recently reported P&C insurers’ combined ratio dropped 2.7 points in the first quarter of this year to 94.7 as catastrophes accounted for 2 points of the combined ratio in 2013 compared to 3.2 points in 2012. The combination of higher rates and light catastrophe losses has driven the positive second-quarter results for such insurers as Selective Insurance Group, State Auto Financial Corp. and Hanover Insurance Group. “Generally speaking, personal lines insurers are having a pretty good 2013,” says MarketScout CEO Richard Kerr. However, Kerr warned that hurricane season is upon us—and there is the continued threat of earthquakes or brush fires in the West, so the possibility of catastrophic events still looms on the horizon. Should there be no major catastrophes this year, Kerr believes this could be a good year for personal lines carriers and rates “will adjust downward a bit.” Insurance Information Institute Senior Vice President and Chief Economist, Steven N. Weisbart, says for personal lines insurers, it still remains a struggle to keep rates profitable. For property lines, if the remainder of 2013 turns out to be a low catastrophe year, then carriers will deem rates adequate. However, a major catastrophe could change that direction. On the casualty side, Weisbart says the cost of health care will be the major determining factor. Those rates appear to be moderating and that would translate to the benefit of carriers. Over the long term, inflation is remaining moderate and not putting pressure on rates, he says. The auto line is one area in which premiums are increasing, but that has more to do with people buying newer model cars and thereby increasing exposure. Overall, carriers’ books are healthy and they appear positioned to easily handle catastrophic losses. “Right now, because [insurers’] surplus is in such good shape, I would say the likelihood of a hard market is fairly low,” says Weisbart.
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Through June of this year, MarketScout says personal lines rates have hovered around plus-4 percent for four out of the past six months, dipping to plus-3 percent in April and February. In July, Homeowners coverage of over $1 million in value dropped 1 point from June to plus 3 percent while Homeowners coverage under $1 million in value remained unchanged at plus 4 percent. Automobile and Personal Article also moderated by 1 point to plus 3 percent and plus 1 percent, respectively.
Philippines embraces microinsurance guidelines 13 August, 2013 | Insurance Insights http://www.insuranceinsight.com/insurance-insight/news/2288403/philippines-embracesmicroinsurance-guidelines The Philippine Insurance Commission has issued concrete guidelines to implement the Alternative Dispute Resolution for Microinsurance framework. The guidelines for the Implementation of ADReM will require all insurance entities, agents and brokers who are engaged in the microinsurance business to follow mediation-conciliation processes of claims dispute based on parameters offset under the banner, least cost, accessible, practical, effective and timely. "The ADReM is another milestone for the initiatives on microinsurance. With it, we can ensure consumer protection to the more than four million lives covered by microinsurance," Insurance Commissioner Emmanuel Dooc expressed during the circular signing event. ADReM aims to provide options to resolve disputes outside the courtroom and to minimize the expense and delays of litigation. The circular took reference from the ADReM Framework adopted by the PIC and the industry in October 2012 after a series of stakeholder consultations around the country. "The ADReM is about building bridges, closing the distance - physically and administratively between conflicting parties and the insurance regulator," said Department of Finance - National Credit Council Director Joselito Almario. To implement the resolution procedures, the PIC will accredit a pool of mediator-conciliators from which the parties in dispute can select. The conflict will then be settled through a graduation of levels, beginning at community-level mediation, prior to reaching the PIC level, if necessary. Distinct ADReM procedures have been designed for commercial insurance companies, for mutual benefit associations, and for cooperative insurance societies. The ADReM Framework is an output of a public-private collaboration through a working group composed of the DOF-NCC, life and non-life insurance associations, Rural Bankers Association of the Philippines, Chamber of Mutual Benefit Associations, Microfinance Council of the Philippines, Society
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of Independent Insurance Intermediaries of the Philippines, Life Underwriters Association of the Philippines and MicroEnsure Insurance Brokers Philippines. The Deutsche Gesellschaft fuer Internationale Zusammenarbeit has been providing technical assistance and funding. "The German Development Cooperation has committed, through the ‘Regulatory Framework Promotion of Pro-poor Insurance Markets in Asia' program, to support consumer protection measures in the field of (micro)insurance and will be providing further assistance in the dialogue process and the information dissemination campaign for the ADReM to be rolled out in seven regions beginning in September," said GIZ-RFPI Program Director Dr. Antonis Malagardis.
India confirms banks can become brokers 12 August, 2013 | Insurance Insights http://www.insuranceinsight.com/insurance-insight/news/2288121/india-confirms-banks-canbecome-brokers The India Regulatory Development Authority has confirmed banks can become brokers and sell the products of several general and life insurers. The IRDA has muted the changes for months but they are now finally confirmed. The idea is to give rural Indians more access to insurance, although some have criticised the move. Requirements include appointing an executive solely in charge of the broking unit. There is also a 25% cap on the amount of insurance placed with any life and general insurance business, and no more than 50% of premium can come from any one client. Complaints will also be handled by the banks. Speaking to Insurance Insight earlier in the year, Ajay Bimbhet, managing director, Royal Sundaram Alliance Insurance said: "Allowing banks to act as brokers for insurance companies is a progressive step. It is certainly an opportunity for the insurers to address the challenges of distribution to micro levels and increase insurance penetration in the country." He added: "This move will also create a healthy competition among players, enabling them to offer a variety of innovative products to the specific customers of the banks. The implementation of the same will witness insurance companies and banks to lay significant stress on proper training and orientation system before distribution of any product to the customers." Banks will need to obtain a license, valid for three years, from the Reserve Bank of India, althought the Insurance Regulatory Development Authority will be monitoring the situation closely. The changes will also apply to foreign-owned banks.
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Finance Zurich's GI profits and premiums grow in Asia-Pacific 15 August, 2013 | Insurance Insights http://www.insuranceinsight.com/insurance-insight/news/2288973/zurichs-gi-profits-andpremiums-grow-in-asiapacific In general insurance, business operating profit at Zurich's Asia-Pacific's operations increased from $101m in the first half of 2012 to $141m in the first half of 2013. Overall in the Asia-Pacific region premiums at the Swiss insurer grew $200m from $1.4bn to $1.42bn when comparing the first half of 2013 to 2012. In Australia, premiums grew from $621m to $649m, in Hong Kong from $104m to $114m, in Japan they fell from $402m to $364m, in Taiwan they were static at $67m and for other markets in the Asia-Pacific region they grew from $204m to $226m.
Arthur J. Gallagher Acquires Bollinger for $276.5M 13 August, 2013 |Property Casualty 360 http://www.propertycasualty360.com/2013/08/13/arthur-j-gallagher-acquires-bollinger-for2765m Arthur J. Gallagher & Co. has acquired Short Hills, N.J.-based brokerage Bollinger, Inc., for approximately $276.5 million. Bollinger, the nation's 21st-largest insurance broker, places over $1 billion in premiums in both the retail property and casualty into the marketplace annually. Its operations include retail property and casualty business, wholesale brokerage and program management, and employee benefits and consultancy. Bollinger has over 500 employees operating out of eight offices in New Jersey, New York, Pennsylvania and Connecticut. “The Bollinger acquisition gives us a unique opportunity to significantly expand our Northeastern operating platform and market presence in three of our core businesses,” says J. Patrick Gallagher, Jr., chairman, president and CEO of AJG in a statement. “Because Bollinger's growth strategy, operating structure and sales culture are very similar to Gallagher's, I'm confident that the integration will be extraordinarily successful.” Jack Windolf, chairman and CEO of Bollinger, adds, “Gallagher is the perfect fit for our clients and employees. Our two organizations share many core beliefs. We are united by a common culture based on an entrepreneurial spirit and a constant focus of putting our customers' needs first and
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foremost.� The $276.5 million transaction includes approximately $172 million in net cash plus the issuance of approximately 3.2 million Gallagher shares valued at approximately $140 million less the value of tax assets acquired.
Swiss Re Upbeat on $786M in Net Profit After Taking Floods Hit 8 August, 2013 |Property Casualty 360 http://www.propertycasualty360.com/2013/08/08/swiss-re-upbeat-on-786m-in-net-profit-aftertaking ZURICH, Aug 8 (Reuters) - Swiss Re shrugged off the cost of floods in Europe to post better than expected second-quarter profit on Thursday and said it could beat its main annual performance target if claims remain stable in the second half. The world's second largest reinsurer took a heavy hit from claims for the floods across Europe as well as in Canada, pushing it into lossmaking territory according to the industry's main measure of profitability for the first time in two years. That prompted a 1 percent drop in shares, but Chief Financial Officer George Quinn said he was optimistic on the firm's profitability target for the year and most analysts agreed, saying prospects for a dividend payout also looked intact. Reinsurers like Hannover, Munich and Swiss Re help insurance company customers cover the cost of major damage claims like hurricanes or earthquakes in exchange for part of the premium. Swiss Re reported a group combined ratio, which measures profitability by weighing payouts against income from premiums, of 100.1 percent in the second quarter. It was the first time it had topped 100, denoting a loss, since the Japanese earthquake and floods in Thailand in 2011. Reinsurers' shares have climbed steadily since then as the huge natural catastrophes created market demand which allowed them to raise property and casualty policy prices. Swiss Re.'s net profit of $786 million for the second quarter was up from $83 million a year earlier, but it beat the average forecast of $659 million in a Reuters poll only because of unexpected one-off effects worth around $230 million. Analysts from Kepler Capital Markets said that while the reinsurer's largest unit, which sells property and casualty insurance, is under pressure, Swiss Re can still entice investors with its pledge for shareholder payouts. "We do not see in today's figure any threat (to the plan) for an ordinary dividend, expected to be 3.8 Swiss francs, integrated with a nice special dividend on top, although it is too early in the year however to determine the size of it," analyst Fabrizio Croce said.
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In June, Swiss Re said it would focus on hiking its dividend. After falling one percent in morning trade, Swiss Re shares recovered to trade just down at 72.40 Swiss francs by 0800 GMT. BEAT The Swiss reinsurer expects to beat its full-year combined ratio target of 92 percent so long as claims levels remain steady in the second half of the year. "If all things are normal, and we have normal or average claims experience, we will, in fact, beat the 92 percent for the year given the positive experience for the first quarter," Chief Financial Officer George Quinn said in a call with journalists. Good July policy renewals in the Americas, Australia and New Zealand and higher premium volumes, as well as a one-off tax credit helped cushion the hit from the natural catastrophes, the firm said. Flooding in central Europe as well as Canada hit the results to the tune of $477 million and there were also costs of $64 million related to last year's sinking of the Costa Concordia cruise liner. The world's biggest reinsurer, Munich Re, reported a 35 percent fall in second-quarter net profit due to more than 600 million euros ($799.14 million) in damage claims that included the European floods in June. British life insurer Phoenix Group said in July it was in talks to buy the Admin Re unit of Swiss Re, with the Swiss reinsurer to take a minority shareholding in the British group should a deal materialize.
Forecasters Reduce Hurricane Season Outlook; Still Expect Above Average Activity 8 August, 2013 |Property Casualty 360 http://www.propertycasualty360.com/2013/08/08/forecasters-reduce-hurricane-season-outlookstill Two updated forecasts for the 2013 Atlantic Hurricane Season slightly reduce the number of named storms expected this year, but there is no change in outlook for another above-average season. The National Hurricane Center released its August update calling for an above average hurricane season of 13-19 named storms, including 7-9 hurricanes and 3-5 major hurricanes. In May, NHC forecast 13-20 named storms, including 7-11 hurricanes and 3-6 major hurricanes. The weather service says there is a 70 percent probability of each of the ranges of activity.
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Factors causing the increased intensity are reduced trade winds over the Caribbean Sea and the tropical North Atlantic through September, which will influence cyclone activity in the Atlantic. Also, forecasters expect Atlantic sea surface temperatures to be slightly above normal. Aon Benfield’s research unit Tropical Storm Risk (TSR) slightly reduced its prediction to 15 named storms, seven hurricanes and three major hurricanes. In June, TSR predicted 16 named storms, eight hurricanes and three major hurricanes this season. Still, the season is poised to be stronger than the historic norm. TSR says an average year produces 11 named storms, six hurricanes and three Category 3 and above hurricanes of sustained winds of 111 mph or higher on the Saffir-Simpson Scale. TSR scientists project that there is about a 50 percent probability the 2013 Atlantic Hurricane Season Accumulated Cyclone Energy (ACE) Index will be above-average, a 41 percent likelihood it will be near-normal, and a 10 percent chance it will be below-normal. To date, four named storms have popped up in the Atlantic reaching tropical storm status and doing little damage.
Allianz grows profits 34% in Asia 8 August, 2013 | Insurance Insights http://www.insuranceinsight.com/insurance-insight/news/2287714/allianz-grows-profits-34-inasia Allianz grew its profits 34% in the first half of 2013 compared to the same period of 2012. Total revenues increased 4.9% to €3.8bn, from €3.7bn compared to the same time last year. Operating profit climbed 34% to €289m from €215m over the period. Commenting on this performance Manuel Bauer, member of the board of management of Allianz SE, responsible for insurance growth markets said: "The consistently good results reflect a combined impact of our global strength and local expertise . . . Half way through 2013, the economic climate remains challenging. We have been agile to respond quickly to the dynamic environment so that we can deliver sustainable results for the long-term benefit of all stakeholders." The property and casualty business achieved very strong growth. The segment recorded an increase in gross premiums written of 9% to €703m, and operating profit improved to €82m. Allianz in Malaysia had premium income of €251m, an increase of 19% compared to the same time last year. Its operating profit climbed by 23% to €36m. India is the largest property and casualty market for Allianz in Asia. For the first six months in 2013, operating profit in India rose to €42m due to improved underwriting results, with Allianz citing the dismantling of the Indian motor third party insurance pool as a key reason.
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"Pursuing growth in personal lines with a focus on motor business proved to be a successful strategy for us. We will accelerate the distribution growth in focus markets including Indonesia, Thailand and China. Meanwhile, our flagship operations in Malaysia and India serve as centers of competence," commented Rangam Bir, regional general manager of Allianz Asia-Pacific. Allianz's life business in Asia delivered a solid half year result. Total premiums rose 7% to €3.13bn from €2.98bn at the end of June 2012. Operating profit was similar to last year at €207m. "Our key to success is to balance profitability and risk while maintaining market position," commented Rangam Bir.
Hub $4.4B Deal Could Spur M&A Activity; Reaffirms Private Equity Interest in Brokers 7 August, 2013 |Property Casualty 360 http://www.propertycasualty360.com/2013/08/07/hub-44b-deal-could-spur-ma-activityreaffirms-priv Monday’s $4.4 billion acquisition of Hub International Ltd. by Hellman & Friedman LLC could raise producers’ interest in making a sale, but will likely have minimal impact on the price paid for agencies, insurance agency consultants say. President of Reagan Consulting, Kevin Stipe, was bullish on the potential for increased M&A activity, saying, “for agency M&A, it’s full-steam ahead.” He says the valuation was “very strong,” adding, “There is nothing disappointing about this deal.” He says M&A is beginning to heat up after a very quiet beginning to the year with buyers paying six to eight times earnings for agencies. Timothy J. Cunningham, managing director of OPTIS, an investment-banking and financial consulting firm, was a bit more subdued, stating, “This creates a lot of chatter; it creates a lot of noise and a lot of e-mails, but I don’t think we can say definitively in three to six months from now—‘Oh-boy—that Hub deal—we saw an uptick of 20 percent [in pricing];’ that’s not going to happen.” Cunningham adds that the $4 billion price tag for Hub may have some producers asking if now is the time to sell, believing that the price could translate into a windfall for them. However, he says the price paid for Hub is within the range of value for the firm. Indeed, he says the price should serve as confirmation of values paid for firms that run at around six times EBITDA (Earnings before Interest, Taxes, Debt and Amortization). Regarding the sale itself, Cunningham says, “It’s not unexpected.” He notes that rumors were circulating throughout the industry for over a year that Hub and its private equity partner at the time—Apax Partners—were considering an initial public offering or selling to another private equity firm.
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Both consultants agree the acquisition indicates that private equity money remains highly interested in investing in insurance agencies and brokerage firms. The advantage for them is that the firms provide continuous lines of cash flow and do not require a lot of capital for their operations. Hub was a public company traded on the New York Stock Exchange and Toronto Stock Exchange before Apax Partners took the company private in 2007 in a $1.7 billion buy-out. Cunningham says the most recent sale is a “natural progression” for private equity firms that need to sell their holdings every four to seven years to obtain the value of their investments. In an interview with PC360, Hub Chairman and CEO, Martin Hughes, says the firm agreed to the acquisition with H&F because he and the private equity firm’s management share the same view about the company’s direction—that it remains consistent with its current growth strategy through the combination of organic growth and strategic acquisitions. Hughes says he made a commitment to stay onboard for five years and senior management will remain unchanged. “We have a great track record and that is why [H&F] likes us,” says Hughes
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Technology Telematics OEMs and Insurers: Time for an Open Relationship? 14 August, 2013 | Insurance and Technology http://www.insurancetech.com/business-intelligence/telematics-oems-and-insurers-time-foran/240159960 The relationship between insurers and car manufacturers was once of peaceful coexistence. Sure, there was the occasional tension over whether immobilizers or anti-crash systems should become standard equipment in cars. But, by and large, the two sectors got along and even collaborated on the occasional joint study into car safety. The rise of usage-based insurance (UBI), which uses driving behavior and other usage-based data to price insurance risk, threatens to complicate things. Car OEMs with embedded telematics systems in their cars are now in a position to control access to the data. And there is also anxiety, particularly in Germany, that they will try to take over the insurance business altogether. "Some insurers are worried that car manufacturers will try and become insurers because they have direct access to pricing data," says Ofir Eyal, a principal management consultant in the London office of The Boston Consulting Group. He links it to a period in the mid-2000s when certain automobile manufacturers started to offer car loans. "The launch of loans from OEMs took half of the market share from banks – they were very successful." In many ways, all that is missing for OEMs to succeed in car insurance is a credible business model, something car manufacturers are studying, according to Eyal. "They've really woken up to the fact that there is financial gain to be derived from telematics," he says. In the United States, the anxiety is not so much about OEMs trying to take over the auto insurance business as it is about overcoming the wide range of data-collection systems in use. The three big American car manufacturers – General Motors, Ford and Chrysler – all have very different telematics devices and standards. "This makes it difficult for insurers to connect directly with the car manufacturers at the moment," Eyal explains. At Insurance Telematics USA 2013 (September 4-5, Chicago), Ford, Allstate and Volkswagen will 'Scrutinize the Insurer-OEM Relationship' in a dedicated session at this industry leading event. Here's an overview of the topics: •
Look at how vehicle diagnostics such as system reliability and health reports may complement a UBI program and increase customer satisfaction by reducing the cost of vehicle ownership
•
Discuss how to create an agnostic relationship between insurers and OEMs for device compatibility and data sharing to create UBI solutions that work across vehicle types
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•
Discuss how insurers can partner with OEMs to offer a comprehensive insurance program to remove fears OEMs may one day take control of the market
Insurers Must Prepare for Affordable Care Act's Data Requirements 14 August, 2013 | Insurance and Technology http://www.insurancetech.com/regulation/insurers-must-prepare-for-affordable-car/240159839 What's the biggest change from the pre-healthcare reform days to the post-implementation days that are coming? According to Kathy McCarthy, the director of health insurance for Oracle, it's the kinds of data that insurers need to collect and analyze. "Plans going into accountable care organizations (ACOs) or patient-centered medical homes (PCMHs) now have to reimburse based on performance," she says. "That requires more than claims data – they also need to collect clinical data and other nontraditional data." McCarthy says this will drive health insurers to a data warehouse model, so they can collect all the data they need in one place and make sure it's easy to meet reporting requirements. "That type of a model requires a lot more agility of the systems," she says. "It requires them to be integrated with systems they're not integrated today to provide data that's required for risk management." It's not just data, either: McCarthy notes that many plans are only now starting to get into ACOs after seeing the effects of pilot programs. With so much uncertainty around healthcare reform from day one, many insurers have been reticent to lay a solid foundation for the post-implementation world, she explains. Health insurers largely still use legacy systems built for the old world of group distribution, and these need a lot of updating so they can compete in the health insurance exchanges. "Plans are taking a wait and see attitude, but they really need a new market architecture," she says. "If you're not on the exchanges in October you're going to miss out." The exchanges require new kinds of product and new one-to-one touchpoints that have a huge impact on legacy rating, billing, and claims systems at health insurance companies. Taking billing as an example, she says, health insurers have to be able to process subsidies coming in from the federal government, at different amounts, for different policyholders, cleanly and efficiently. "On the rating side, you've got geographical and subsidy factors, and on the billing side, some of these systems have never done an individual bill," she says. "You have to probably change or touch a large majority of the code."
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First Consulting Offers Enterprise Risk Management Starter Kit 13 August, 2013 |Property Casualty 360 http://www.propertycasualty360.com/2013/08/13/first-consulting-offers-enterprise-riskmanagement First Consulting & Administration, Inc. announces a new ERM product that can help any insurance company in any line of business to jump start their ERM process. The release of the Enterprise Risk Management Starter Kit is timed to assist insurance companies that need to get their ERM program ready for compliance with the new National Association of Insurance Commissioners (NAIC) Model Own Risk and Solvency Assessment (ORSA) Law, which some states have already approved with a January 1, 2015 effective date. Because of the increasing pressure of states adopting ORSA requirements to broaden risk focus to include operational as well as financial risk, First Consulting designed this package for all size companies. Client companies receive a full complement of guides, directions, and templates that provides the framework within which they can document and make use of their existing risk protocols and manuals, thereby helping identify gaps. First Consulting recently hired Carol Stern, as a senior consultant, in their operational compliance and enterprise risk management practice. Stern developed this new product based on her ten years of experience as ING’s chief compliance officer dedicated to the ERM team. “With 30 years of experience in the industry, Carol brings a Chief Compliance Officer perspective to the practice for risk management for insurers and wholesale broker dealers,” says Francine Fetyko, president of First Consulting & Administration. As part of the ERM Starter Kit, Carol will spend up to three hours with client companies to assist in implementation of the program.
Applied Updating Agency Management System this Fall 13 August, 2013 |Property Casualty 360 http://www.propertycasualty360.com/2013/08/13/applied-updating-agency-managementsystem-this-fal Applied Systems announces the general release of Applied TAM 2013, the latest version of the Applied’s agency and brokerage management software for the insurance industry. Applied TAM 2013 will enable insurance agencies and brokerages to enhance customer service, streamline workflows, promote producer productivity, and ensure continued regulatory compliance. The company also introduces an enhanced user interface to improve the user experience and
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increase user productivity. Many new capabilities in Applied TAM 2013 were identified in collaboration with the Applied Systems Client Network’s (ASCnet) product advisory committee to drive growth and profitability in today’s insurance marketplace. These enhancements include updates to the user interface and greater integration with Applied MobileProducer and the upcoming release of Applied CSR24 2013 to improve the user experience and increase online customer self-service capabilities and mobility.
Key Applied TAM 2013 enhancements: •
More document sharing options between Applied TAM and Applied CSR24 2013 to enhance customer self-service
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Added information filtering options with automatic sync to Applied MobileProducer to assist mobile users
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Additional certificate printing and electronic signature capabilities for faster customer service and efficient workflows
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New, intuitive interface for an improved user experience and streamlined workflows for greater productivity
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Updated ACORD and CSIO forms for regulatory compliance
Applied TAM streamlines workflows, optimizes carrier relationships, and increases productivity with an easy-to-navigate user interface and detailed prospect, client and policy management workflows. “More agencies and brokerages build and grow successful insurance businesses with Applied TAM than any other agency or brokerage management system,” says Kathleen Cox, vice president of product management, Applied Systems. “Applied Systems will continue to lead agency and broker management system innovation with investments in Applied TAM that continue to provide greater value for our customers and their insureds.”
Eqecat Releases RQE Model Updates to Nat Cats and Financial Perils 12 August, 2013 |Property Casualty 360 http://www.propertycasualty360.com/2013/08/12/eqecat-releases-rqe-model-updates-to-natcats-and Eqecat has released the newest version of its catastrophe risk modeling platform RQE, which includes multiple updates to its country, natural catastrophe, and financial models, as well as the program’s work flow and technical integration.
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"To create RQE v.13, we brought together some of the best science, engineering and insurance talent and perspectives from virtually every segment and geography in the global re/insurance industry to gain deeper model insight,” said Dr. Mahmoud Khater, Eqecat’s executive vice president and chief technical officer. “With the release of RQE v.14, we are building on a strong foundation for the future. Our goal is to have the RQE platform become the industry benchmark while continuing to bring greater value to our clients." Peril updates available on Risk Quantification & Engineering (RQE) version 14 are a new North Atlantic Hurricane Model, exclusion capabilities for areas in Germany predicted to flood more than once a decade, and the addition of a Workers’ Compensation sub-peril for its U.S. earthquake risk model. The hurricane model’s windfield calculation time has been reduced from 15 minutes to five minutes, its probabilistic database has been recalibrated with National Hurricane Center data for 2012, and the model is now certified by the Florida Commission on Hurricane Loss Projection Methodology. Financial risk upgrades to RQE’s latest version enable the modeling of insurance conditions based on the season, and allow for analysis of complex reinsurance arrangements including many lines of business. A new Portfolio Aggregator functionality predicts both treaty recoveries and loss net of treaty in order to model complex reinsurance structures such as umbrella covers. Prior to version 14, the last version of RQE, released in January 2013, replaced Eqecat’s WORLDCATenterprise system.
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Strategy Acturis targets European market with AIG tie-up 16 August, 2013 | Insurance Insights http://www.insuranceinsight.com/insurance-insight/news/2289457/acturis-targets-europeanmarket-with-aig-tieup Software provider Acturis has struck a deal to provide services to AIG in continental Europe, Post can reveal. The deal is across several European jurisdictions and marks the UK firm's first foray into the European market, Post understands.
According to sources, the deal has been in the pipeline for several months. Acturis revealed its international ambitions in an interview with Post in January. Co-founder David McDonald said he would be "disappointed" if the firm did not achieve some international activity by the end of the year, with Europe and South America discussed as likely targets. The company, which provides front and back-office system for brokers and underwriters, was launched in 2000 by Theo Duchen and David McDonald, who first joined forces when they were partners at consultancy giant McKinsey. In October 2012 Simon Ronaldson was promoted to serve as director responsible for international expansion.
NAIC Pushes to Remove Bias Against Foreign Branches 14 August, 2013 |Property Casualty 360 http://www.propertycasualty360.com/2013/08/14/naic-pushes-to-remove-bias-against-foreignbranche The National Association of Insurance Commissioners (NAIC) is advocating for more flexibility for its regulated U.S. insurers to operate both subsidiaries and branches in foreign countries without international supervision favoring the former over the latter. The NAIC is concerned, for example, that the international regulatory community has stated that the lack of a board of directors at the branch level may limit the host supervisor’s ability to manage governance arrangements effectively.
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The International Association of Insurance Supervisors (IAIS) recently released an issues paper, Supervision of Cross-border Operations Through Branches, and although the industry feels it is much milder than earlier drafts, both the NAIC and industry still want the paper to reflect a more balanced, flexible approach so branches aren't discredited. “Although it is true that lack of a board at the branch level can hinder a supervisor’s ability to supervise governance, most governance is driven from the ultimate controlling party. Therefore, supervisors can also be limited regarding governance at the legal entity [subsidiary],” the NAIC said in comments addressing the concern about adequate supervision of branches. “We think the current version of the paper has been improved and we hope it is improved further; we will see when the final draft comes out,” said Connecticut Insurance Commissioner Tom Leonardi on a conference call today. Pennsylvania Insurance Commissioner Michael F. Consedine said that there have been great improvements since the original anti-branch bias in the first drafts. Consedine called the matter “a very significant issue,” and said it is something that European counterparts might want to leverage to gain some “fairly significant operational changes” for some of their own companies. The NAIC recommended that the negative statements about the branch oversight be deleted because it is misleading, "since it only captures that facet from the branch level and not the subsidiary level as well.” On the call, property casualty and life insurance trade representatives lauded progress of the NAIC input on the branches/subsidiaries white paper. But the group also wants to close the books on the matter once the paper is done, and do not want the IAIS to open up the matter further, possibly leading to a recommendation for one form of affiliate over another. U.S. insurers and reinsurers strongly favor the ability to open up branches in foreign countries, as well as operating subsidiaries, because they say it gives them a way to get their feet wet in a new market, and also requires less of a capital commitment. SOme foreign supervisors, for their part, fear that branches are not as stable as subsidiaries and cash could flee their country more easily when an insurer decides to decamp the country due to political or financial stability there, or other reasons. However, branches are important to insurers as well because of market size perception, one insurance company representative noted.A company does business with a branch of a large alien insurer/reinsurer, that entity's entire capital stands behind its policy and the company has recourse against the branch as well as the entire entity. With a subsidiary, the company only has recourse only against that entity, he said. In the United States, branches have the same capital maintenance requirements (including risk based capital) as a subsidiary.
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"U.S. regulators generally regulate and supervise branches the same as they do subsidiaries. We appreciate that the IAIS added language in this paragraph to note that 'Operations through both subsidiaries and branches have advantages and disadvantages,' since it creates a more balanced tone," the NAIC said. However, the NAIC is pushing for inclusion of a sentence displaying an openness to flexible structuring, noting that "jurisdictions should allow for flexibility in terms of business structure (whether branches, subsidiaries, etc.) depending on the business and market needs of that particular jurisdiction."
Progressive July Net Income Up 72% 14 August, 2013 |Property Casualty 360 http://www.propertycasualty360.com/2013/08/14/progressive-july-net-income-up-72 July net income jumped 72 percent for auto insurer Progressive Corp. Monthly profit was $101.5 million compared to $59 million during the same month a year ago. Progressive reports net premiums written during July went up 5 percent to $1.73 billion and the combined ratio for the month improved 4.2 points to 92.7. Policies acquired by agencies were down 1 percent to 4,840 while policies from direct distribution increased 3 percent to 4,141. Net premiums written are up 5 percent and 7 percent in agency and direct distribution channels, respectively. The Mayfield Village, Ohio-based insurer offered no additional commentary about the month’s financial results. To date, net income at Progressive is up 69 percent to $734.7 million as net realized gains on securities were $225 million compared to 89.7 million a year ago.
Net premiums written are up 6 percent to $10.57 billion so far in 2013. Earlier his month Progressive says second-quarter net income was $324.6 million, up 174 percent. CEO Glenn Renwick says Progressive has had a hard time getting consumers to engage with the insurer’s telematics product, Snapshot but the company will continue to try and get the message out to them. Renwick says the struggle to inform and involve customers is “a battle worth winning.”
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Buyers Using Captives to Escape Market Cycle, Rather Than in Reaction to It 13 August, 2013 |Property Casualty 360 http://www.propertycasualty360.com/2013/08/13/buyers-using-captives-to-escape-marketcycle-rathe Companies are increasingly using captives as a long-term strategy to insulate themselves against commercial market-cycle volatility, rather than using captives as a shorter-term solution when rates harden, a new report says. In a Special Report on U.S. captives’ performance in 2012, A.M. Best says, “Before 2000, the captive cycle followed the underwriting cycle for the commercial-lines industry,” explaining that when the commercial market hardened, businesses formed and increased the use of their captives to protect themselves from the steep rate increases. As the commercial market softened and rates declined, captives would be run off or downsized as companies took advantage of the lower prices and more generous coverages in the conventional market. Since 2000, though, A.M. Best says captives “seem to have found a permanent place in U.S. corporations’ risk-management strategies.” The report says that analysts have been told that “corporate memories are longer” and companies are using captives to hedge against volatile rate changes and changes in coverage inherent in the insurance pricing cycle. “Some captives rated by A.M. Best have eliminated the commercial insurer altogether and cede directly to the commercial reinsurance market,” says the report. Regarding U.S. captives’ financial results in 2012, A.M. Best says net income for its captive composite was $1.5 billion, down by 26 percent compared to 2011. The drop, says the report, resulted from a 71 percent drop in underwriting income as well as smaller dips in net investment income and realized capital gains. Underwriting income was impacted by a $630 million increase in incurred loss and loss-adjustment expenses, due mostly to property losses. Still, despite the reduction in net income, A.M. Best notes that captives’ surplus grew $1.39 billion, or 6 percent, in 2012 compared to 2011. The composite’s combined ratio for 2012 increased to 97.5, compared to 90.9 in 2011. But A.M. Best notes, “Over the longer term, the resulting five-year combined ratio for the captive composite of 92.3 still compares extremely favorably with the commercial casualty composite of 103.3.”
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Treasury Renews FACI for Another 2 Years 9 August, 2013 |Property Casualty 360 http://www.propertycasualty360.com/2013/08/09/treasury-renews-faci-for-another-2-years The Federal Advisory Committee on Insurance (FACI) has gotten its charter renewed for two more years. FACI’s original two-year charter was up Aug. 4. The new charter was renewed until July 29, 2015. The advisory group, headed by Federal Insurance Office (FIO) Director Michael McRaith, has met publicly about five times, although records are not complete, and has had many interim phone calls. Its next scheduled open meeting is Sept. 18. The group has briefed or been briefed on affordability issues, demographics, National Flood Insurance Program challenges, influence of credit rating agencies, responses to Superstorm Sandy and the use of captive vehicles by life insurers to parcel out excess reserves. For instance, FACI availability and affordability subgroup, headed by consumer representative Birny Birnbaum, urged the FIO to utilize its methodology for analyzing availability and affordability in specific product markets while always analyzing characteristics of race and income in that process. FIO has a statutory charge to monitor the extent to which traditionally underserved communities and consumers, minorities and low-and moderate-income consumers have access to affordable insurance products regarding all lines of insurance, except health insurance. It wants FIO to use its authority to identify different product markets and consumer segments -- in addition to minority and low- and moderate-income communities and consumers -- which are underserved for various products. Another group created to look into the practices of the captive insurance industry, chaired by Washington, D.C., Insurance Commissioner William White, briefed FIO on the National Association of Insurance Commissioners (NAIC)’s work on captives by an NAIC subgroup. It is unclear if FIO is proceeding with its own investigation of captives or letting the NAIC work stand in. FIO will likely press for more information, given the fact that New York regulators, who are represented on FACI, issued a strong broadside against the captives industry, made public right before the day of the most recent FACI meeting on June 14. They even called for a moratorium on the practices. The NAIC scoffed at that suggestion later that day. Another FACI group looked at credit rating agencies and concluded that capital management decisions by carriers such as stock buybacks, debt to capital ratios, and dividend yields, as well as rate-making decisions are influenced significantly by the credit rating impacts. As the inaugural FACI meeting March 30, 2012, McRaith said he hoped FACI would be a forum for discussion. “My hope is to have thoughtful discussion on one or two issues of the day, ... we identify four, five, or six high-level issues this committee feels are important,” he said.
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New York Superintendent of Financial Services Benjamin Lawsky said, “There is a risk of biting off more than we can chew and disappearing for two years and coming back with a 1,000-page report.� There has been no such lengthy report, but at each open meeting there is an awkward allusion to waiting to hear more pointers once the Dodd-Frank-mandated FIO report addressing modernization of the industry is published. McRaith, at the last meeting, said the overdue report would come out sometime this summer, but indications that it would see the light day in the near future have been common since the report was due in late January 2012.
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