Sutherland insights insurance news flash jan 16, 2014

INSURANCE NEWS FLASH January 16, 2014

Table of Contents Sales & Marketing ................................................................................................................. 3 Finance ................................................................................................................................. 9 Technology .......................................................................................................................... 16 Strategy .............................................................................................................................. 22

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Sales & Marketing Investment Analysts Cautious on Insurers as Pricing Momentum Eases January 15, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/01/15/investment-analysts-cautious-on-insurers-aspricin “Caution” is the word of the day when it comes to investment-analyst sentiment regarding the property and casualty industry.

Sterne Agee analysts Dan Farrell and Nitin Chhabra as well as Nomura analysts Clifford Gallant and Matthew Rohrmann point in particular to pricing challenges in the reinsurance sectors as an area of concern. “Reinsurance brokers have all published reports highlighting Jan. 1 pricing weakness, and we remain cautious on the sector,” the Nomura analysis says.

The Sterne Agee analysis adds, “Reinsurance pricing and terms are both under pressure given ample capacity and increasing alternative capital in the marketplace.”

Sterne Agee notes that property-catastrophe pricing shows the most downward pressure, but the firm adds that “other lines are experiencing competition as well to varying degrees.

Primary insurers are faring better so far, but the analyses agree that it may only be a matter of time before increasing competition takes its toll. A bullet point in the Nomura analysis asks, “U.S. primary—the next domino?” It states that reserve releases, share buybacks and good weather are expected to drive strong profits for 2013’s fourth quarter, but cites investor concerns over the growing competition.

Nomura also says personal auto appears to be entering “the early days of a challenging market.”

The Sterne Agee analysis says, “Insurance pricing is holding up better currently vs. reinsurance…but we believe rate increases will moderate and increasing pressure will gradually emerge in insurance lines through 2014.” Capital management, though, “is a silver lining that should continue,” according to Sterne Agee.

Nomura says brokers are in for “a mixed bag as pricing softens but the economy improves.”

Sterne Agee is a bit more upbeat on this sector, stating, “While pricing could be a headwind, we feel gradual economic improvement will be a greater driver of growth. Additionally, the insurance brokers would benefit from rising interest rates…and any emergence of inflation."

Insurance Coverage for Commercial Drones: Sky's the Limit January 15, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/01/15/insurance-coverage-for-commercial-dronesskys-the

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Though the use of small, unmanned aircraft systems (UAS)—more familiarly known as “drones”—is in its infancy, commercial growth is predicted to significantly increase in the next 10 years as businesses such as Amazon and UPS explore using them for deliveries and enthusiasts adopt them for commercial and recreational purposes.

Drones will require insurance coverage, which can open the door to new business for agents and brokers. But insuring an unmanned aircraft system means considering a multitude of insurance liability and coverage issues, ranging from personal injury and invasion of privacy to aerial surveillance and data collection.

The Federal Aviation Administration (FAA) estimates that by 2020, about 30,000 small, unmanned aircrafts will be used for all types of business purposes. Worldwide, total spending for these aircraft systems is expected to top $89 billion in the next decade, thanks to strong military and commercial demand, according to a 2012 market study by Teal Group, an aerospace industry analyst.

The FAA has allocated $63.4 billion to modernize the country’s air traffic control systems and expand airspace to accommodate the commercial use of these aircrafts. As regulatory constraints are modified to reflect the introduction of these new aircraft systems, commercial markets for their use will expand rapidly. The FAA estimates that roughly 7,500 commercial drones could be viable in five years.

This is quite a change; before the FAA approved two flying robotics models for commercial operations, the only way the commercial/private sector could fly an unmanned aircraft in U.S. airspace was with an experimental airworthiness certification.

The FAA-approved drones each weigh less than 55 pounds and is about 4.5 feet long. They have no pilot on board but are controlled by an offsite operator using a sophisticated remote-control system and data link transmissions.

These flying systems can carry high-powered cameras, infrared sensors, facial-recognition technology and license plate readers.

Business uses are endless. Halstead Property, a real estate business in Darien, Conn., has been using aerial robotic cameras for almost four years to showcase home listings. The business recently demonstrated on the Today show how its drones capture footage of homes for sale, showcasing their interior and exterior features. The use of the technology has increased Halstead's online listings views threefold, and clients are impressed by the company's progressive marketing efforts and cutting-edge technology.

Congress has tasked the FAA with integrating unmanned aircraft systems into the national airspace system by late 2015. This demand requires the FAA to quickly develop a comprehensive plan focused on the safety of UAS technology as well as operator certification. To meet these objectives, the FAA created a new UAS Integration office in March 2012 to tap the knowledge of specialists in aviation safety and air traffic control.

The FAA must develop effective policies and standards to address the increasing number of drones taking to the skies, balancing efficiency and predictability while enhancing safety; operating globally; creating a viable system for airspace use and protecting both safety and the environment.

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And legal issues will also arise: Can a property owner claim a drone is “trespassing” on his land? How will stalking, harassment and other laws regulating criminal behavior be applied to drone use? Does airspace ownership apply to unmanned aircraft systems? What about claims of invasion of privacy and spying?

And how will federal aviation law conflict with state law on some of these issues? The government has already made a foray into this quagmire with the Drone Aircraft Privacy & Transparency Act of 2013, introduced to create a regulatory structure for the private use of drones, including privacy protection, data collection and enforcement.

In addition to many regulatory and legal challenges, a slew of complex liability and coverage issues related to insuring unmanned aircraft systems for commercial use is on the horizon too. New and serious problems are likely to arise over airspace procedures, types of accidents and inadvertent eavesdropping.

Fewer than two dozen insurers provide insurance to the aircraft industry—up from less than a dozen a few years ago—and this number is likely to grow once the FAA gives its OK. Although carriers are developing policies to cover insurance exposures relating to drones, they don’t have much data to guide them as they branch into this new territory.

To properly insure these aircrafts, insurers will need to know their function or intent, their takeoff and landing locations, whether they will be operating over populated areas, and their flying altitude.

And because these systems can collect massive amounts of data, they can pose a threat to individual privacy and a significant challenge for insurers. In drafting policies, insurers must know how the owner of these aircraft systems will use the data it has gathered and what steps it will take to safeguard or destroy the information it has amassed.

Two areas have the potential to raise huge red flags for the insurance industry: personal injury and invasion of privacy.

Unmanned aircraft systems will have much the same insurance requirements as other aircrafts— only on a smaller scale given their size, flying range and price tag. Given the inherently conservative nature of the insurance industry, carriers might require even stricter guidelines than what the FAA may mandate. Expect to see these types of coverage for drones and their ancillary business activities: liability, personal injury, invasion of privacy, property, and workers’ compensation.

Liability coverage typically includes protection for personal injury, which also covers invasion of privacy. The scope of coverage will depend on what the aircraft is meant to do. If it’s meant to gather data rather than deliver packages, the coverage may need to be broader to provide additional protection.

Property coverage broadly applies to the production, assembly and wholesaling process, which not only protects the parts and the finished product in a warehouse, but also the machinery.

In addition, although whole coverage will be essential, aircraft underwriters have not yet decided how to write these policies. Drones are significantly smaller than standard aircraft, and at this stage, it's difficult to predict what they will or will not do.

Workers’ compensation coverage is necessary to protect the people working for and in the facilities of UAS-related businesses.

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Also, since many of the businesses that will spring up around the UAS industry are likely to be entrepreneurial startups funded by investors, insurers would be wise to offer protection against financial loss due to mismanagement. Exploring directors and officers liability insurance is a prudent option under the circumstances.

Brokers looking to get into the UAS industry must ask extensive questions and "go deep" as they gather information. For example, brokers should inquire about data collection, storage and usage policies as well as a drone's particular purpose and other physical specifications. This information is essential to help the underwriter prepare a policy that takes all risks into account and provides the proper coverage.

Expect to see the capacity to underwrite drone policies increase as insurers become more familiar with the territory. But insurance is about the collective, so when insurers are hit with the first few claims alleging serious injury or death, they will inevitably start to pull back, resulting in less available coverage and higher prices.

Discovery of New West Coast Fault Lines Could Impact Rates; Development January 10, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/01/10/discovery-of-new-west-coast-fault-linescould-impa New earthquake fault lines have been discovered on the West Coast, including in Los Angeles and Spokane, Wash., but it is yet unclear how this may affect home development or insurance rates in the at-risk areas.

In California, state geologists revealed two maps of active faults running through several Los Angeles neighborhoods. One is of the Hollywood Fault, a 10-mile long fracture the Wall Street Journal reports may produce a 7.0 magnitude quake strong enough to rupture the earth.

It splinters right below the site of Millennium Hollywood, a proposed $664 million residential and commercial development in halted development (the 1972 Alquist-Prolio Act prohibits building above active earthquake faults). Luke Zamperini, the city’s chief building and safety inspector, said all planned projects in the neighborhood would have to be re-evaluated under a fault-rupture study.

“It’s not uncommon for new fault lines to be discovered,” says Chris Hackett, director of personallines policies for the Property Casualty Insurers Association of America (PCIAA). “The 1994 Northridge Earthquake occurred on a fault line that was previously unknown to scientists.

“Claims activity pertains more to a specific building or location, including construction type and replacement costs of the house, as well as contents coverage or additional living expenses (ALE).”

Earthquake insurance is typically excluded under standard homeowners policies; most buyers in high-risk states in the Pacific Northwest purchase it as endorsement, and in California, from the California Earthquake Authority (CEA).

The CEA works with 20 participating earthquake-ready insurers, covering 75% of the approximately 10% of Californians who have earthquake insurance.

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“The discovery of fault lines would affect rates greatly if it caused a location to be considered a higher-risk area,” says Gina Plessas, customer service representative for the CEA. “They wouldn’t go up everywhere, but more details would depend on the rate filings of the California Department of Insurance.”

Swiss Re data ranks Los Angeles and San Francisco as two of the global cities most in danger from a seismic event. Adjusted to inflation, the 296-mile long scar of the 1906 San Francisco earthquake would cost up to $60 billion if it occurred today, according to Fireman’s Fund.

Further north, an airborne magnetic overview by the United States Geological Survey (USGS) showed potential danger near Spokane, Wash. Caused by the known Cheney fault zone and a second, previously unrecognized zone of faults and fractures, and combined with the Latah Creek fault, the USGS calls this hotspot a “complex alignment of magnetic anomalies.”

One fault crosses Spokane in a northeast direction, passing through a zone where 105 magnitude 4.0-or-below earthquakes occurred in 2001. The USGS plans to investigate further for the cause of the quakes.

“There are many geologic reasons for linear magnetic anomalies, and the presence of unrecognized faults is just one possibility,” says the USGS. Last year, two Los Angeles City Councilmembers called for a statewide ballot that provides funding to cities to retrofit old buildings with “soft” ground floors, or those made with concrete.

Insurers' 25% HO Rate Increase Request in N.C. Draws Rebuke from Commissioner January 06, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/01/06/insurers-25-ho-rate-increase-request-in-ncdraws-r Insurers in North Carolina submitted a rate filing for a statewide average increase in homeowners rates of 25.3%, a request that drew an angry response from the state’s insurance commissioner.

The request, submitted Jan. 3 by the North Carolina Rate Bureau (NCRB) on behalf of insurers in the state, seeks rate changes that range from -2.7% to +35%, the Department of Insurance says.

Insurance Commissioner Wayne Goodwin issued a statement criticizing the request. He says, “New homeowners insurance rates went into effect in July 2013. I am appalled that the insurance companies would request another increase just six months later.”

But according to NCRB General Manager Ray Evans, the request is due in part to the new rates that went into effect in July. Evans says the NCRB proposed a rate increase of just under 30% in its last filing, but settled for “a little less than 7%.” The difference in what was asked for and what was approved makes up “the bulk of the change we’re requesting,” he notes.

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Evans also says the experience period for this request is the five years up to and including 2011, and he notes that 2010 and 2011 were particularly bad years for the state’s insurers. The experience period lags some, Evans explains, because it takes a little over a year to accumulate the relevant data.

Evans further says that the NCRB’s larger rate-increase requests stem from the infrequency of filings.

The current request—which would go into effect in August—on the heels of the last rate approval signals an effort to get on a schedule of annual filings, Evans says. Typically there is a three or four year interval in between filings and “what might be a 2% increase for one year” turns into an 8% or 10% increase covering several years, he adds. Evans says the current filing is just the fifth since 2000.

Goodwin, though, wasted little time making his thoughts known. In his statement, he says, “I believe the insurance companies should withdraw this rate filing immediately. If they do not, the insurance companies should expect a full hearing on this matter; I will not entertain any settlement negotiations.”

For his part, Evans says the NCRB is prepared for a full hearing, and constructs its filings in a way that anticipates a hearing.

Goodwin also criticized the timing of NCRB’s filing. He says, “Also, I take offense at the insurance companies' concerted efforts to file this request late on a Friday afternoon, when they think the public won't be paying attention.”

Top 3 Homeowners Insurers in Texas Seek Rate Hikes for 2014 January 06, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/01/06/top-3-homeowners-insurers-in-texas-seekrate-hikes The top three homeowners insurers in Texas are seeking to raise rates—one by up to 15%—in 2014, the Dallas Morning News reports, but the state’s public insurance counselor tells PC360 she will challenge the requests.

According to the Dallas Morning News story, written by Terrence Stutz, Farmers, State Farm and Allstate have submitted rate hike requests of 14.9%, 9.8%, and 6.5% respectively to the Texas Department of Insurance (TDI), citing reasons from increasing damages from natural catastrophes in recent years to high business costs.

A State Farm spokeswomen says in the article that the company spends $1.11 for every premium dollar it collects for claims processing and other business expenses.

Texas Public Insurance Counselor Deeia Beck, though, tells PC360 she is challenging all three rate increases, saying the estimates of current and future cost increases are exaggerated.

“Non-modeled catastrophe provisions include trend assumptions that appear largely arbitrary and unsupported,” Beck wrote to Farmers Insurance Exchange in a statement she shared with PC360, in which she also wrote that “the premium and loss trend selections used in the filing are unreasonable and significantly inflate the rate indication.”

She shared similar concerns regarding State Farm Lloyds and Allstate filings.

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Finance CBO: Bill to Delay Flood-Rate Hikes Would Add $2.2B to NFIP Debt over 10 Years January 08, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/01/08/cbo-bill-to-delay-flood-rate-hikes-would-add22b-t The Congressional Budget Office says efforts to delay flood-insurance rate hikes—as proposed in a Senate bill under consideration—would add $2.2 billion to the National Flood Insurance Program’s debt over 10 years, raising concerns that the bill will run into strong opposition in the House.

Indeed, an industry official says that the CBO score, released Tuesday, is sending supporters of the Senate bill scurrying for legislative language providing an offset for the cost.

“I am not sure why reducing premiums then adding on an assessment makes the end result any more attractive to policyholders, but it's a clue that waiving the budget point of order in the Senate isn't going to be easy,” the official says.

The CBO “scored” the legislation as costing $900 million over five years, according to R Street Senior Fellow R.J. Lehmann. Lehmann says he did not know about the efforts underway to offset the cost, but adds, “I am not surprised.”

There is no score over 10 years, but it results in an additional $2.2 billion deficit to the program over that period, Lehmann says. “That part does not score because of technical issues related to the need for more borrowing authority, which CBO does not count until Congress approves an increase in the NFIP borrowing authority,” Lehmann says A procedural vote Wednesday on whether to clear the Senate bill for floor action was postponed, likely until next week, after the Senate decided to take up an extension of long-term unemployment benefits instead.

The Senate bill is the Homeowner Flood Insurance Affordability Act, S. 1846.

According to an industry lobbyist, the report “ensures that the House Financial Services Committee will demand jurisdiction over the bill before it hits the House floor; then amend it to reduce the impact on the underlying legislation, the Biggert-Waters Act of 2012.”

Jimi Grande, senior vice president of federal and political affairs for the National Association of Mutual Insurance Companies, said on a conference call sponsored by SmarterSafer.org Wednesday, “What we’re seeing is the worst Washington has to offer, as short sighted-political gains trump good long-term policy.

He said that a stable, financially viable flood-insurance program benefits everyone –taxpayers, communities and homeowners who face a risk from flooding.

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But, he said, “The delay legislation threatens to return the program to one that was broken and incapable of meeting its obligations.”

He said NAMIC wants Congress to instead provide targeted relief for only those homeowners who truly face a hardship as flood-insurance rates transition to risk-based levels.

In a statement, Lehmann says, “While it is reasonable for Congress to address hardships that could make flood insurance unaffordable for lower-income homeowners, a blanket delay would mean continuing to subsidize beach homes for the wealthy, as well” He says the Senate “should be careful not to throw the baby out with the bathwater. To avoid that fate, Senate leadership must allow an open amendment process, so that more targeted compromises may be considered.”

MarketScout: Rates for High-Valued Homes Readjusting After Years of Strong Competition January 07, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/01/07/marketscout-rates-for-high-valued-homesreadjustin In the past year and a half, there has been a turnaround in pricing for high-valued homeowners risks, as insurers readjust after several years of strong competition in this line, MarketScout CEO Richard Kerr says.

Kerr, in a statement accompanying the latest MarketScout Market Barometer covering the month of December, notes that over the last four years, competition from newer high-net-worth insurers pressured rates. But more recently, insurers have been raising rates “to more appropriately price for the broader coverage provided,” Kerr says.

Insureds have been willing to pay for the increases thus far, he points out. In December, this translated to a 5% increase in rates for homes valued over $1 million—the largest increase for any line. Rates for homes valued under $1 million and personal articles increased by 3%, while auto was up by 2%.

Overall, Personal-lines rates were up by 3% in December compared to a year ago, unchanged from November's year-over-year increase.

Commercial lines The New Year might not be welcoming for insurers hoping to see significant rate increases, as alternative capital will most likely continue to pressure pricing, according to Kerr.

He says, “If you are in favor of significant rate increases in 2014, you may be disappointed sans a catastrophic event or some sort of new tort-liability issue.”

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Kerr notes that investors are “clamoring for decent returns in instruments not directly connected to the stock market,” and adds, “Insurance-linked securities and new-age reinsurance structures have opened the insurance market to many new investors, and, as a result, additional capacity. This added capacity may well put additional pressure on rates in 2014.”

As for December’s Market Barometer, MarketScout says rates increased by 3% compared to the same month in 2012, moderating a bit from November’s 4% year-over-year increase.

In December, as in November, commercial-auto rates increased the most out of any line, but while rates were up by 5% in November for this line, in December rates rose by 4%.

Crime, surety and fiduciary rates increased the least in December—up by 1%.

By account size, rates for small (up to $25,000 in premium) accounts increased the most—up by 5%.

Medium ($25,001 to $250,000) and large ($250,001 to $1 million) accounts were up by 3% and jumbo accounts (over $1 million) were up by 1%.

By industry class, rates for contracting and transportation risks increased the most in December at 5%, while public-entity risks increased the least at 2%.

Below-Average U.S. Losses Lead Relatively Mild Year for Catastrophes January 07, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/01/07/below-average-us-losses-lead-relatively-mildyear The year 2013 was not a good example of natural catastrophes caused by climate change, as the extreme weather events that did occur in this rather mild year—such as high-temperature spikes and record precipitation in the Northern Hemisphere—could have happened without climate change, according to Peter Hoppe, head of geo risks research/corporate climate center at Munich Re. Hoppe’s comment came in response to queries during Munich Re’s webinar, 2013 Natural Catastrophe Year in Review, presented jointly with the Insurance Information Institute. He further says that the company’s view of climate change—it has indeed been caused by a rise in greenhouse gasses over the past 10 years—is based on its own research and that of the Intergovernmental Panel on Climate Change (IPCC), in its September 2013 assessment report.

Yet Hoppe did not attribute the nation’s current deep freeze to climate change. The Polar Vortex creating dramatically low subzero temperatures across the country, while unusual, is considered a 10- or 20-year event and not an indicator of any change in overall global climate. It also does not forebode a major influx of insured losses.

“It’s very cold out there and normal life is not possible in many places, but there are not much in damages,” Hoppe says. Agricultural insurance could be affected if the severe cold trend lasts “very long” and affects spring planting.

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However, what remains to be seen is if a prolonged deep freeze due to the Polar Vortex causes any pipe freezing, either for commercial or personal risks, and what losses may occur from those events, notes Carl Hedde, head of risk accumulation, Munich Reinsurance America Inc. Overall, the global natural-catastrophe outlook for 2013 was marked by lower-than-average windstorm activity in the Western Hemisphere and increased typhoon activity in the eastern part of the world. Compared to the long-term, 2013 was below average in both loss of life and assets, the experts say.

Worldwide insured losses came to $31 billion, with the United States leading the pack, even though U.S. losses were relatively low: insured losses in the U.S. for 2013 totaled $12.8 billion, which experts say is “far below” the 2000-to-2012 average loss of $29.4 billion (reported in 2013 Dollars). That includes 128 natural catastrophes for the year, accounting for 207 recorded deaths. Just nine of those events were considered Significant Natural Catastrophes, meaning they accounted for at least $1 billion in economic losses and/or 50 fatalities.

Germany was the second largest contributor to worldwide insured losses, with $6.6 billion. A chuck of those losses is due to two severe hailstorms in the southwest and northern areas of the country within two days, accounting for insured losses of $3.7 billion—the largest insured loss event in 2013.

The deadliest worldwide catastrophe belongs to the Philippines, which is still reeling from super typhoon Haiyan. The storm produced record wind speeds, destroyed more than half a million homes and left over 6,000 people dead. Many people are still missing.

Tower Group to Merge with ACP Re in $172.1M Deal; Renewal Rights Sold January 06, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/01/06/tower-group-to-merge-with-acp-re-in-1721mdeal-ren Privately-held Bermuda-based reinsurer ACP Re Ltd. will acquire 100% of the outstanding stock of Tower Group International for $3 per share—an aggregate value of about $172.1 million—and merge Tower with one of its subsidiaries, pending shareholder and regulatory approval, according to statements.

Additionally, New York-based AmTrust Financial Services will acquire the renewal rights and assets of Tower Group’s commercial lines insurance operations, and specialty personal-lines insurer National General Holdings Corp. (NGHC), also based in New York, will acquire the renewal rights and assets of Tower Group’s personal lines insurance operations, according to AmTrust.

As part of the merger with ACP Re, Tower will be “the surviving corporation in the merger and a wholly owned subsidiary of ACP Re,” says Tower in its statement. The merger agreement was unanimously approved by the boards of both Tower and ACP Re. Michael H. Lee, chairman, president and CEO of Tower, beneficially owns approximately 4.2% of the issued and outstanding common stock of Tower, and has agreed to vote his shares in favor of the merger.

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The transaction is expected to close by the summer of 2014.

Tower also says several of its subsidiaries have entered into cut-through reinsurance agreements with AmTrust and NGHC, “pursuant to which, subject to receipt of necessary regulatory approvals, a subsidiary of AmTrust and a subsidiary of NGHC will reinsure Tower's new and renewal commercial lines or personal lines policies, as applicable, and have each acquired a 10-day option to reinsure on a prospective basis not less than 60% of the unearned premium reserve relating to Tower's in-force commercial-lines or personal-lines business, as the case may be.”

Tower says it will receive a 20% ceding commission from AmTrust or NGHC on all Tower premiums that are subject to the cut-through reinsurance agreements.

AmTrust President and CEO Barry Zyskind says in a statement, “The reinsurance agreement and cutthrough endorsement, along with similar actions undertaken by National General, are designed to stabilize and secure Tower's business and allow Tower's agents, brokers and policyholders to rely on the financial strength of AmTrust and National General to stand behind Tower's new, renewal and in-force policies.”

Fitch Ratings Director Gerry Glombicki explains the arrangement by noting that cuts to Tower’s ratings were causing some difficulty in writing business. When a company drops below an A- rating from A.M. Best, he says, agents must disclose that to clients through a letter.

Such a scenario is not a “death blow,” says Glombicki, noting that plenty of companies have a rating under A- and are doing fine, but the lower the ratings go, the tougher time a company has, he says.

Tower, after being downgraded to B++ by A.M. Best in October, was downgraded again to B in December.

To help resolve the issue, Glombicki says AmTrust and NGHC will write the business while Tower gets a fee. Buying renewal rights, says Glombicki, is essentially buying a “relationship asset.” Tower has value with the customers it has, he says, and that is what AmTrust and NGHC are buying.

AmTrust says that, upon the completion of the Tower-ACP Re merger, AmTrust expects to “acquire the assets necessary to support the commercial-lines business,” including several of Tower's domestic insurance companies, the commercial-lines business renewal rights as well as systems, books, records and the right to offer employment to Tower employees that deal with the commercial-lines business.

The total purchase price for the commercial-lines business is expected to be about $125 million, says AmTrust.

Zyskind adds, “We expect that the Tower book of business will further establish AmTrust as a market leader in the small commercial-insurance business. We look forward to integrating Tower's commercial-insurance operations into our organization.”

The controlling shareholder of ACP Re is a trust established by the founder of AmTrust, Maiden Holdings, Ltd. and NGHC.

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Fitch Downgrades Tower Group Again After Q3 Reserve Charge January 03, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/01/03/fitch-downgrades-tower-group-again-afterq3-reserv Fitch Ratings has downgraded Tower Group International’s issuer default rating to CC from B, and downgraded Tower’s operating subsidiaries’ insurer financial strength ratings to B from BB. According to Fitch, the CC rating means it feels a company has “very high levels of credit risk.

The decision was triggered by the Bermuda-based company’s third quarter 2013 statutory financial statement filings and recent GAAP disclosures, in which it disclosed that it has added an additional $75 million to $105 million in reserve charges. This is on top of the $364 million previously taken in the first half of 2013.

In its downgrade statement, Fitch analysts said that since their last review in October, the agency believes Tower's “competitive position has been substantially reduced and has material concerns about Tower's ability to maintain current business.”

The statement notes that Tower Group has “engaged an investment bank to explore strategic alternatives but no alternatives have been publicly announced to date.”

Fitch analysts say that, with the most recent adverse reserve charges, the ratings agency has concerns that some of the U.S. operating subsidiaries have Risk Based Capital (RBC) ratios below the company action Level.

In Bermuda, Tower Reinsurance Limited's (TRL) solvency ratio is below that of the minimums established by the Bermuda Monetary Authority (BMA), Fitch says. Fitch, however, did note that Tower is working with the Bermuda regulator to transfer certain assets of another Bermuda subsidiary to cure the deficiencies at TRL. Fitch says its concerns with Tower Group’s long-term viability stem from its high risk of litigation, rapid deterioration in reserves, ineffective corporate governance, and “untimely public updates of financial information.”

It said it is also concerned that Tower Group might have difficulty refinancing for $150 million in a senior convertible note due in September 2014.

The $150 million represents the second of three classes of debt Tower had. The first was a $70 million bank-loan facility, which Tower paid off through the sale of its stake in Canopius Group last month.

The remaining debt is longer term subordinated debt that is due beginning in 2033.

Fitch says Tower Group has been forced to add to reserves because it tried to grow via acquisitions during a period when high capacity in insurance markets caused rates to drop.

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That has resulted in the need to add substantively to reserves in “long-tail” products for accident years 2008–2011. The losses Tower Group is reserving for are centered in workers' compensation, commercial multi-peril liability, other liability, and commercial-auto liability.

Fitch also voiced concern about inadequate internal controls relating to the loss reserving process at Tower Group.

In justifying its decision to downgrade the company, Fitch Ratings also cited Tower Group's inability to timely produce accurate financial statements. That has led Fitch to “consider its level of corporate governance to be ineffective,” Fitch Ratings analysts say in their statement.

Tower filed its second-quarter results late in November.

In October, A.M. Best downgraded Tower Group to “B++” from “A-” after the second-quarter reserve shortfall came to light. Fitch had also downgraded Tower Group in October.

In November, the company reported that there is “substantial doubt about *its+ ability to continue as a going concern." It did so after reporting a $507.3 million 2013 second-quarter net loss that stemmed from the over $300 million in reserve charges in October.

Still, Tower President and CEO Michael H. Lee, in a Nov. 15 letter issued to business partners, stated his belief that the company would be able to meet all of its obligations, "including to our policyholders as well as our lenders."

In November, Tower Group also said it would cut its workforce by 10 percent as part of an initiative to “streamline its operations and focus resources on its most profitable lines of business.”

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Technology How Farm Bureau Insurance Brought Self-Service to a Legacy System Landscape January 15, 2014 | Property Casualty 360 http://www.insurancetech.com/how-farm-bureau-insurance-brought-self-s/240165454 Farm Bureau Insurance of Michigan wanted to offer its customers more self-service online while preserving the agent's role as a trusted advisor. However, its legacy systems presented several barriers.

Farm Bureau, based in Lansing, Mich., is a multiline carrier with $709 million in property-casualty and life premium. The insurer wanted to offer customers an intuitive agent locator, online quoting, policy inquiry, ability to request changes, access to documents, electronic bill payment, claims reporting and status inquiry -- all while keeping the agent informed.

Its executives wanted its customers to be able to go on its website to answer questions such as 'What's my deductible?' 'When is my payment due?' 'When is my policy up for renewal?' 'What's the status of my claim?'

A prerequisite to all of this was overcoming four key data challenges. First, customer data was fragmented across multiple source systems. There were separate policy administration systems for auto, home and life. Developing the common notion of a customer was not straightforward.

Previous attempts to piece data together from disparate sources had led to "integration spaghetti."

Cheri Barnhart, Farm Bureau Insurance of MichiganSecond, there was inconsistency and incompatibility in data formats. There were systems from multiple vendors, and each vendor implemented a custom data representation, some of which were proprietary.

Third was varying data quality. Separate business units manage specific product lines and operate fairly autonomously. This has resulted in different data entry practices leading to inconsistencies.

Fourth, the systems were only available in defined windows of time during the day, not 24/7.

Furthermore, updates made throughout the day were not available in the system until after-hours batch processing was completed.

To implement its online customer self-service roadmap, Farm Bureau IT staff chose insurance technology consulting firm X by 2. This included designing and implementing a strategy to address all four data challenges at the outset. The project team closely blended in-house and X by 2 teams, and included business analysis, testing, data developers and project management. Team building and having a close partnership were priorities from the start.

The strategy called for a holistic data management approach and program that would serve as the backbone for customer self-service and also serve as an enabler for service orientation, data warehousing, and core systems modernization -- projects scheduled for the near future.

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The core of the solution involved creating an operational data store (ODS) with a canonical data model based on a reference model published by the Object Management Group (OMG), a nonprofit organization. OMG's reference model was chosen because it's a community-developed, opensource, and licensing-free model, which makes it a very suitable starting point for further development. Over the years it has received increasing acceptance in the insurance industry.

The ODS would serve as a central repository where data from all of the source systems relevant for customer self-service could be consolidated. With all customer-related data in a single repository, forming the previously elusive holistic view of "the customer" started to become possible. By exposing the data in the ODS through data services using the OData standard, this holistic view of "the customer" was made accessible to other applications.

[From X by 2's Frank Petersmark: What's so innovative about innovation?]

The three-year project is ongoing, but Farm Bureau Insurance has already achieved many of its goals, including 24/7 availability, online access to policy details and documents, improved online payment capability with comprehensive bill presentment, expanded payment options and increased ease of use, and online first notice of loss (FNOL) claims reporting. Along the way, the team learned these key lessons: •

Enterprise assets are best built as a means to an end. The ODS was built to enable customer selfservice, and an ETL framework was built to aid development. Reusability of these assets for other enterprise initiatives was a purely opportunistic benefit.

•

Think big, start small with enterprise architecture. While the ODS was meant to enable delivery of customer self-service, its role as a stepping stone towards service orientation, data warehousing and core systems modernization was contemplated from the beginning.

•

There are no silver bullets, only skilled marksmen in successful implementations. Investing in team-building from the beginning was invaluable.

•

Build in quality from the beginning by following iterative development and testing.

•

Challenge the status quo. Trailblazers walk a lonesome path, but crowds do come after the chasm's been crossed.

Farm Bureau's successful data management program has spanned several business and IT disciplines, and is a good working example of the power of focused collaboration and shared business goals and objectives. The key to ensuring outcome coherency across all of the business and IT disciplines was the early adoption of a practical and sustainable architecture, including the use of the OMG data model.

For Farm Bureau, it was crucial to have an architect capable of conceiving the initial infrastructure, data, and integration architectures required for the successful implementation of the project.

Beyond that, the enterprise approach taken by the team will allow Farm Bureau to leverage its modernized data management program to deliver improved customer service for years to come.

About the authors: Samir Ahmed is an architect with X by 2, a technology company specializing in software and data architecture and transformation projects for the insurance industry. Cheri Barnhart is director of information systems at Farm Bureau Insurance of Michigan overseeing Web, architecture, and data services.

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World's First Insured Bitcoin Vault Opens in UK January 14, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/01/14/worlds-first-insured-bitcoin-vault-opens-in-uk The world's first Bitcoin storage service that insures deposits of the digital currency against hackers and accidental loss has opened in London, according to a story in The Economic Times.

Lloyds of London is the underwriter for the Elliptic Vault service and insurance payouts will be calculated using the Bitcoin to U.S. dollar exchange rate at the time a claim is made, notes the story.

Although the digital currency is gaining popularity, concerns about its security are on the rise, the article states. Online wallets used to store Bitcoins have been subject to a number of cyber-attacks and some users have also suffered from accidental loss.

The new Bitcoin storage service offering insurance in UK, named Elliptic Vault, uses "deep cold storage" techniques to secure the digital currency, the articles says. Bitcoin keys are encrypted and stored offline. There are multiple copies, protected by layers of cryptographic and physical security.

The copies are accessible only via a quorum of Elliptic's directors.

The facility's founders claim they are the "first in the world" to offer insurance for Bitcoin owners.

Milliman Releases New Claims Management Software January 07, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/01/07/milliman-releases-new-claims-managementsoftware Milliman launched LCase, a claims management system to supplement existing software. LCase translates unstructured claim notes into actionable information, thereby reducing the amount of time workers' compensation professionals spend manually reading claim information.

Among its features, the LCase data set addresses claimant demographics and employment; medical and expense benefit statutes; settlements; liability sharing; litigation; and records identities of insureres, reinsurers, TPAs and brokers. It provides action plan fields and reminders that can be updated to focus on key management decisions necessary to resolve claims, without the repetitive cut-and-paste process normally employed in claim note-based systems.

The multi-user database is accessable via either a workstation or web access. It can be used for any workers' compensation or liability claim, but its intended use is for claims that do not close soon after an injury.

Bob Briscoe, Milliman principal, said "LCase liberates claims handlers from the need to continually review and re-review extensive free-form claim notes by recording key claim information in discrete data fields. LCase is designed to facilitate best practice claims management decisions and case reserve estimates, including using actuarially-correct lifetime benefit calculations."

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Milliman provides actuarial and related products and services. It has has consulting practices in healthcare, property & casualty insurance, life insurance and financial services, and employee benefits.

Self-Driving Cars to Take the Wheel by 2030?

January 06, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/01/06/self-driving-cars-to-take-the-wheel-by-2030 Fully autonomous self-driving cars will completely take over roadways before mid-century, predicts data analyst IHS Automotive, creating complex questions about accident liability and safety risk management to auto insurers and brokers.

In a new report, IHS says that self-driving cars (SDC’s) will begin to enter the commercial market with 230,000 yearly sales in 2025 and increase to 11.8 million sold annually by 2035, putting about 54 million self-driving cars on the map worldwide. North America will lead global SDC sales (30%), followed by China and Western Europe.

At first, autonomous capabilities will add up to $10,000 to a car’s sticker price but drop to $3,000 in 2035, decreasing the purchasing barrier for most customers. Eleven companies, including AudiVolkswagen, BMW, Ford, General Motors, and Mercedes Benz have already begun to test SDC technology or plan to offer it within the next 10 to 15 years.

On one hand, self-driving cars (SDC’s) will slowly but positively affect driver and pedestrian safety as “accident rates will plunge to near zero for SDCs, although other cars will crash into SDCs,” says Egil Juliussen, principal analyst for HIS Automotive.

However, the report says, “There is no question that electronics of the car will become a target for malicious hacking attacks. This becomes increasingly feasible when the car is wirelessly connected to various types of networks.”

Automotive risk managers will have to ensure products are reinforced with hardware-based, tamper-proof security, as well as highly sensitive software and data integrity controls that detect unauthorized access.

“The self-driving car will have large programs and complex software code that will require extensive testing to make the software reliable,” says IHS. “It is extremely difficult to test the SDC software for all events that could happen. The solution is to use a software architecture that has built-in fault tolerance to limit bad events if something goes wrong.”

Only three states currently have laws for safety testing for self-driving cars, posing legal questions that must be untangled and established before a framework for lawmakers and insurers is established.

For example, how will liability for accidents between SDC and manually driven cars be determined?

Currently, autonomous capabilities in most vehicles are at what IHS calls “level 0,” or simple driverassist warnings for lane departures or forward collisions, or “level 1” with lane keep assistance or autonomous braking features to avoid crashes.

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As the technology becomes more intuitive with time, the lines between decisions made by driver and machine will blur.

IHS says self-driving cars are already a question of “not if, but when”, however, there are many miles to go before insurers and agencies have to take the wheel in offering SDC coverage to the average consumer.

Separate Holiday Data Breaches Show Complexity of Cyber Attacks January 03, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/01/03/separate-holiday-data-breaches-showcomplexity-of The holidays began and ended with the bang of newsworthy cyber breaches that illustrated the complexity of hacking scenarios, which vary in their intent and fallout on targeted companies and their customers, who are viewed as the victims.

Beginning on Black Friday in December and lasting until Dec. 15, Target experienced a data breach involving 40 million credit, debit, and RedCard records. The retailer announced the leak in a public blog post on Dec. 19.

“The legal framework for data theft notification is governed by states, which makes handling a multistate breach very challenging,” says Matt Donovan, assistant vice president and underwriting leader of technology and privacy at Hiscox. “In Target’s instance, they posted a public disclosure on their website to direct customers to call their banking providers, but they didn’t directly issue mailed letters to customers notifying them of exposed information, as a breached healthcare provider would do.”

According to Donovan, the main concern for retailers facing leaked payment data is the Merchant Services Agreement between it and a payment card processor, such as Heartland Payment Systems (which itself suffered a breach years ago), which would make the retailer liable for card reissuance expenses and fraudulent charges.

Further complicating Target’s situation is that while representatives denied the possibility of compromised customer PIN numbers, it admitted just after Christmas that this information had been captured as well.

Shortly after this incident, on New Year’s Day 2014, security researchers from SnapchatDB.info captured and posted 4.6 million usernames and phone numbers from Snapchat, a “private” service that lets users send each other photos or videos that disappear after viewing.

The New York Times reports that Snapchat users send up to 350 million photos a day.

Cyber analysis firm Gibson Security wrote to Snapchat that its database was vulnerable to hacking, and posted about it on the web after its message was ignored.

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“Theoretically, if someone were able to upload a huge set of phone numbers, like every number in an area code, or every possible number in the U.S., they could create a database of the results and match usernames to phone numbers that way,” said Snapchat creators Evan Spiegel and Bobby Murphy, in a blog post responding to the warning on December 27, just before the data dump.

“Over the past year we’ve implemented various safeguards to make it more difficult to do.”

Donovan says that Snapchat’s breach would be handled differently than one affecting a retailer.

“Unlike Target’s hack that was done for direct financial gain, Snapchat’s breach was an example of hacktivism to expose the vulnerability of the company,” he says. “The hackers do not seem to have breached Snapchat for a financial gain; rather to expose how security vulnerabilities can affect individuals.”

One thing the breaches had in common was their influence on raising awareness regarding the imperative of companies to watch their data.

“Newsworthy issues like this drive awareness to the general public,” says Donovan. “It always helps to see real world examples.”

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Strategy Fitch: Federal Life Reinsurance Captive Concerns Could Impact Traditional Captives January 15, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/01/15/fitch-federal-life-reinsurance-captiveconcerns-co Federal-regulatory concerns about life-reinsurance captives could give rise to “mission creep” that would sweep up traditional single-parent and group captives in any actions taken, warns Fitch Ratings.

“While federal interest currently centers on life reinsurance captives—i.e., captives sponsored by life insurers—and not traditional single-parent or group captives formed by industrial corporates, Fitch believes that traditional captive insurance could be swept up in the vortex if some regulators and others do not appreciate the difference between the two types of entities,” the ratings agency says.

Fitch notes that the SEC has asked at least five publicly traded life insurers for information on their use of captive reinsurance, used to finance conservative statutory reserve requirements for some products sold by life insurers. “This heightened federal interest may stem from a New York State Department of Financial Services report in June that criticized life insurers’ use of captive reinsurance,” says Fitch.

The National Association of Insurance Commissioners, says Fitch also is looking into life insurers’ use of captive reinsurers.

Fitch expressed concern that somewhere along the line, “captive reinsurers” could become “captive insurers,” leading to complications for traditional captives.

“In the extreme,” says Fitch, “subjecting traditional captive insurers to new reporting requirements or other new regulation would add cost and complexity to the captive-insurance process and may ultimately result in non-insurance sponsors deciding not to form new captive insurers, and possibly even to wind up existing captive insurers.”

Cyber Risk a Fast Riser on Allianz 2014 Risk Barometer January 14, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/01/14/cyber-risk-a-fast-riser-on-allianz-2014-riskbarom Cyber risk roared into the top 10 on Allianz’s 2014 Risk Barometer, climbing seven spots from last year to rank eighth among corporate insurance experts’ concerns.

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The third annual Allianz Risk Barometer surveys over 400 corporate insurance experts from more than 30 countries, asking each to identify her/his top concerns.

The top four risks in 2014’s survey remain unchanged compared to 2013: business interruption/supply chain; natural catastrophes; fire/explosion; and changes in legislation/regulation.

Regarding the rise in concern for cyber risks, Nigel Pearson, global head of fidelity, Allianz Global Corporate & Specialty, says, “There is now a general understanding among people who are not IT specialists that this is an emerging risk.”

And Pearson says IT security isn’t enough to address the risk. “A comprehensive set of information and network-security policies and procedures backed by the board of directors is essential,” he says.

“They also need to be properly implemented, tested and updated on a regular basis to ensure the risk-management approach is adequate.”

Pearson points to the link between cyber and another rising risk in 2014—loss of reputation, brand value, which jumped four spots from last year to place sixth among respondents’ concerns—to show that many top risks are actually interconnected.

“Industry reports indicate that if a company loses someone’s data then that person’s trust in that company diminishes. It damages their brand and reputation. This shows such risks can have a cumulative effect,” says Pearson.

With respect to the top risk on the barometer, business interruption/supply chain, Allianz says global supply chains work “to an ever-tighter set of interdependencies, where ‘just-in-time’ and ‘lean manufacturing’ have become standard practices.” Furthermore, Allianz notes that companies increasingly source globally, and in areas prone to increasingly disruptive natural catastrophes.

Volker Muench, AGCS property expert, says, “Revenues, profits, reputation, market position and share price are seen as the pillars of corporate resilience; a blow to any of these could cause serious issues for a company and its management team.

“Yet all are at risk of crumbling if an organization cannot maintain its supply chain of raw materials or critical-component parts.”

AGCS, citing Swiss Re estimates, says BI and supply-chain-related losses typically account for 50% to 70% of insured property-catastrophe losses—as much as $26 billion a year.

Other risks appearing in the top-10 on the Allianz Risk Barometer include: market stagnation/decline, which ranked fifth (up three spots compared to 2013); intensified competition, which ranked seventh (down two spots); theft, fraud and corruption, which ranked ninth (up two spots); and quality deficiencies/serial defects, which ranked tenth (down four spots).

S&P: Some Insurers' Reserve Troubles Not Indicative of Larger Industry Issues January 08, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/01/08/sp-some-insurers-reserve-troubles-notindicative-o

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Standard & Poor’s concedes that its longstanding belief about diminishing reserve releases has not yet come to pass.

But the ratings agency is standing firm in its projection, stating in a recent report, “Commercial-lines reserve releases have nowhere to go but down.”

S&P adds, “Most of the reserve redundancies accumulated during the last hard-market cycle—20022006—have likely already been released into earnings, so any further earnings benefit should be smaller.”

Still, S&P says it believes overall property and casualty reserves are adequate, and does not believe that recent reserving troubles at QBE Ltd., Tower Group International, and Meadowbrook Insurance Group are indicative of an overall trend for the industry. S&P says, “These three companies’ casualties reflect the poor choices of their respective management teams.”

Concerning the rest of the industry, S&P states, “We believe the industry has displayed improved enterprise risk management capabilities and underwriting discipline since the last wave of reserve strengthening in the early 2000s, lowering our concern about repeat offenders.

S&P says it would be concerned if insurers were to release reserves from long-tail lines in recent accident years.

Citing ISO statistics, S&P says that P&C insurers had $10.8 billion in favorable reserve development for the first nine months of 2013, compared to $10.1 billion for the same period in 2012. The industry released $10 billion of reserves in 2012 compared to $13 billion in 2011. However, S&P notes that the commercial-lines sector released $3.6 billion in reserves in 2012 compared to $7.4 billion in 2011.

“We think that benign frequency loss-cost trends are unsustainable,” S&P states.

Overall for the industry, S&P says it expects 2013 to be the strongest year since 2007 for underwriting profitability since 2007, thanks to steady rate increases, lower catastrophes and the impact of reserve releases. S&P is maintaining its stable outlook on the U.S. P&C sector.

S&P notes, though, that it expects rate increases to lose steam throughout 2014. Additionally, the ratings agency expects challenges and uncertainties, such as possibly heightened regulatory hurdles and the potential for greater inflation that could inflate claims costs.

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

New Farm Bill Would Bring More Insurable Risks, Premiums to Crop Insurers January 07, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/01/07/new-farm-bill-would-bring-more-insurablerisks-pre

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The crop-insurance industry and the agents who produce for it will be prime beneficiaries of a new five-year farm reauthorization bill now working its way through Congress.

Legislation now being debated by a Senate-House panel reconciling differing bills contains a provision establishing a new program to cover “shallow losses,” or losses incurred by farmers but not covered currently by crop insurance.

The four key members of the panel could meet as early as Thursday and a final bill could be completed by the end of January, according to industry lobbyists and congressional staffers.

The Supplemental Coverage Option (SCO) would be available for as an additional policy to cover part of the deductible under the crop producer’s underlying policy.

R.J. Lehmann, a senior fellow at the R Street Institute, says the SCO would cover up to 90 percent of a farmer’s crop revenue when elected in combination with a conventional crop-insurance policy.

Among the issues the reconciliation panel must deal with is that the cost of the SCO provision under the House bill would be $3.85 billion over the next decade, compared to $2.25 billion in the Senate bill.

The SCO provision was first introduced in the last Congress as the CROP Act by Rep. Randy Neugebauer, R-Texas, a key member of the House Financial Services Committee.

A spokesperson for Neugebauer says, “It’s not accurate to say it raises the subsidy program.” She says farm subsidies include Title I provisions like direct payments—which the new bill seeks to substantively reduce—price-loss coverage, revenue-loss coverage, etc.

“The goal is to move to a more market-based, shared-risk program that only pays out in the event of a loss,” says the Neugebauer spokesperson, Heather Vaughn, who formerly was a staffer at the House Ag Committee.

But the provision does have its critics. Bruce Babcock, a professor in the Agriculture Department at Iowa State University, argues that, because SCO takes on the same type of coverage as the underlying coverage, it will lead to overpayment of farm losses.

He says, “If the coverage were limited to pure revenue insurance coverage and if the group plan were to cover deep losses, then the program would not just be another unneeded subsidy but rather an improvement in how risk-management subsidies are provided to farmers. But, alas, it is neither so I would characterize it as just another unneeded subsidy.”

Babcock adds, “It has the potential” to be helpful in managing farm risk if reworked.

At the same time, coverage of crop losses incurred by cotton producers will be covered by the cropinsurance program, instead of current policies which pay for losses by cotton farmers on a directly subsidized basis. Under existing law, cotton was designated a “commodity,” with the government directly subsidizing cotton producers, according to David Graves, manager for the American Association of Crop Insurers.

He estimates the arrangement under the new bill would bring $2.5 billion in crops into the insurance program. “A farmer may very well wind up buying more insurance,” he added.

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In total, the changes will mean that “direct payments to farmers are going by the wayside in the next farm bill and that the Federal Crop Insurance Program (FCIP) will be the centerpiece riskmanagement tool for farmers,” says Jennifer McPhillips, senior director of federal government affairs for the Independent Insurance Agents and Brokers of America.

She says, “This is not to the detriment of taxpayers, but in fact the opposite. The FCIP is actuarially sound, but it relies on a broad pool of participants to function correctly. Insurance is all about participation as well as the ability to spread the risk to the largest possible number of policyholders, most of whom will never have a claim. Strong participation in the FCIP, coupled with the ability for farmers to buy up coverage, further strengthens the baseline of this program.”

For producers certified to sell crop insurance, Graves believes it will mean more work in terms of training staff and selling and servicing policies. While compensation for the extra effort is “not always automatic,” Graves says the supplementary coverage option “will bring new revenue to the program to help defray costs.”

He adds, “The farmers will also have to pay premiums for those new policies, which brings additional revenue to the table. When we look back on this in 10 years, we will see this bill as another landmark development in the federal crop-insurance program,” Graves said.

The Wall Street Journal estimates that, under the new system, the federal government will subsidize 65 percent of premiums, as opposed to the nearly 63 percent it is currently subsidizing.

Senate Unemployment Debate Likely to Push Back Vote on Flood Premiums January 07, 2014 | Property Casualty 360 http://www.propertycasualty360.com/2014/01/07/senate-unemployment-debate-likely-to-pushback-vot A vote to delay flood-insurance rate hikes for up to four years will likely be delayed as the Senate decided to take up other issues.

The vote on a motion to proceed was supposed to be held Wednesday, however an industry lobbyist said late Tuesday that the procedural vote is likely to be delayed until later in the week because the Senate today surprisingly cleared for floor action legislation to extend long-term unemployment insurance for three months and is now engaged in a lengthy debate.

The flood bill is the Homeowner Flood Insurance Affordability Act, S. 1846.

It needs 60 votes to allow for a Senate debate on the legislation.

Supporters include the governors of more than 20 states, the National Association of Counties, thousands of homeowners impacted by exponential rate increases, Realtors, homebuilders and bankers.

Concerns about the bill have been raised by states from Hawaii to Vermont.

In the middle are the Write-Your-Own insurance companies, which deal with all but approximately 850,000 of the 5.5 million NFIP customers.

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As a middle ground, the WYO companies suggested in a letter sent to the Senate today a “glidepath” with up to a 25% maximum premium increase as an alternative to a complete “roll-back” to rates pre-Biggert-Waters Act. The letter also asks the Senate to remember that the changes cannot be made overnight and WYO insurers would need at least six months to implement them.

The letter also says that the WYO companies are prepared to meet with Congress, and “discuss and work with them” on a “targeted solution that would address the key issues.”

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