INSURANCE NEWS FLASH November 4, 2013
Table of Contents Sales & Marketing ................................................................................................................. 3 Finance ................................................................................................................................. 9 Technology .......................................................................................................................... 15 Strategy .............................................................................................................................. 21
2|Sutherland Insights Insurance News Flash Nov 04, 2013
Sales & Marketing New South Wales bushfires to cost insurers AUS$145m October 28, 2013 | Insurance Insights http://www.insuranceinsight.com/insurance-insight/news/2303240/new-south-wales-bushfiresto-cost-insurers-aususd145m The Insurance Council of Australia has estimated AUS$145m of damage from the New South Wales fires which ripped through the Blue Mountains over the last two weeks. So far 1041 claims have been lodged with insurers, with losses estimated at AUS$145m. The ICA advises that more than 90% of damaged and destroyed properties in bushfire catastrophe regions in New South Wales have been assessed by a loss adjuster. ICA's CEO Rob Whelan said: "Insurers have responded incredibly quickly and we believe this is in the best interests of residents and business owners affected by the bushfires." He added:"Insurers can now go to the next step in guiding policyholders through the recovery process by seeking quotes from approved tradespeople and detailing scopes of work. Once these have been agreed, the rebuilding phase can then start in earnest." Some policyholders have already received payouts from their home or contents insurance. On Friday evening last week, the ICA and insurers partnered with the New South Wales government to participate in a community forum on the NSW bushfires, briefing residents and business owners on how insurers were handling their claims. The ICA urged anyone who knows they have been affected to contact their insurer as soon as they can to lodge a claim, even if they are not yet sure of the full extent of their losses.
MSIG launches travel alerts in Singapore October 22, 2013 | Insurance Insights http://www.insuranceinsight.com/insurance-insight/news/2302114/msig-launches-proactivetravel-policy-in-singapore MSIG will provide travel insurance customers with information over delays, natural disasters and political unrest to produce as a personalised service for them.
3|Sutherland Insights Insurance News Flash Nov 04, 2013
With the new travel alert service, MSIG's travel policyholders will receive SMS alerts on security related information throughout their journey. The free alerts cover situations or incidents such as extreme weather, earthquakes and natural disasters, public transportation delays, riots, strikes, political unrest, war and terrorism. They also cover health related information like outbreaks and contamination, such as the recent outbreak of bird flu in China. Paul Faulkner, CEO, MSIG Singapore said: "We have conducted a pilot test earlier this year and the positive feedback from our policyholders has led us to the launch. This innovation will enable us to provide even better service and is part of our continuous efforts to stay responsive to our customers' needs." From October, those with TravellerShield insurance plans from financial services group DBS and bank POSB will have access to the travel alert service. MSIG will be rolling out a similar service to its intermediaries and direct customers in the next few months. The travel alerts are provided by AidCom AS, an independent service provider headquartered in Norway.
Global takaful market "in its infancy" October 22, 2013 | Insurance Insights http://www.insuranceinsight.com/insurance-insight/news/2302056/global-takaful-market-in-itsinfancy The global takaful industry grew 16% in 2012 and the growth potential is huge according to a report by EY. According to EY's latest report,Global Takaful Insights 2013: Finding growth markets, more developed markets continue to offer growth prospects with low market penetration rates, but wider opportunities in emerging markets are beckoning. The global takaful industry grew 16% in 2012, a reduction from the 2007 to 2011 average of 22%. According to the report, takaful in most markets is still in its infancy, and its potential to replace conventional insurance in leading Islamic finance markets is still largely untapped. Saudi Arabia, the United Arab Emirates and Malaysia lead the industry with their relatively welldeveloped Islamic finance industries, including Sukuk markets, strong customer reach and competitive pricing. According to the report, the role of authorities in simplifying regulatory frameworks across borders and encouraging consolidation will also be key in propelling the industry's expansion. Quality of underwriting, operational efficiency and capital requirements are all key areas to consider.
4|Sutherland Insights Insurance News Flash Nov 04, 2013
Ashar Nazim, global Islamic finance leader, EY commented: "Takaful operators must adopt a clear strategy and capital plan that includes both organic and inorganic growth, and maintain and refine segmentation or exit and acquisition strategies, which can mitigate potential risks." Abid Shakeel, senior director of EY's global Islamic banking centre, said: "Adopting a multi-market approach not only helps manage risk diversification but also offers profitable opportunities in niche segments. Investing in rapid growth markets, which are often made up of young, growing populations, can lead to achieving critical mass very quickly. However, detailed market analysis and planning are required to ensure strategic success."
Reinsurers to Meet as Alternative Capital Presents Challenge to Needed Rate Increases October 16, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/10/18/reinsurers-to-meet-as-alternative-capitalpresents FRANKFURT (Reuters) - Europe's reinsurers will soon test the strength of competition from alternative investors like pension funds, whose activity may keep a lid on reinsurance price rises and add to challenges for a sector already facing crimped investment income. Reinsurers, including the world's top three players Munich Re, Swiss Re and Hannover RE, gather over the weekend in the German resort of Baden-Baden for annual contract talks with insurance companies, whom they help cover the cost of disasters in exchange for part of the profit. They meet after flooding in central Europe in June and hailstone damage in southern Germanyin July prompted more than a million claims. According to a trade body, the sector faces a cost of about 4.5 billion euros ($6.2 billion) in Germany alone. Such events would normally lead insurers and reinsurers to raise prices, but a supply of insurance from alternative sources like pension funds, which have been seeking higher yields by pouring money into investment vehicles that supply reinsurance, could hinder those efforts. "We are currently seeing only moderate price increases in the property business, which certainly is an indirect effect of the supply of new risk capital flowing into the market," said Georg Braeuchle, managing director at insurance broker Marsh . "There are certainly insurers who have their backs against the wall and who are demanding much higher premiums, but they will have to give away those risks because other market players are ready to write the business on the same terms or are willing to accept a lower price increase," he added. Alternative reinsurance has fared particularly well in the high-margin market for U.S. hurricane risks, where traditional reinsurance premiums have consequently slid.
5|Sutherland Insights Insurance News Flash Nov 04, 2013
As well as displacing some traditional reinsurance business, the knock-on effect has also been to shift supply of risk-cover to Europe, putting downward pressure on prices. Walk away? While reinsurers insist they would rather let business walk away than accept prices that were too low for the risks they cover, the stakes in the coming weeks are high. Munich Re renews about half of its 17 billion euro property-casualty book on Jan. 1 each year, with the Baden-Baden talks playing a key role. Hannover Re renews about two-thirds of its nearly 6 billion euro book on Jan. 1. At an industry meeting last month, reinsurers played down the competition from alternative capital, saying it was narrowly focused and possibly of limited duration. But they have also been forced to play the game as well, often organising the bond issues that have undercut profit in the traditional reinsurance market. Alternative investor capital for natural catastrophe risk is set to rise to $75 billion, or 25 percent of the market, in 2016, from $44 billion, or 17 percent, in 2012, Munich Re said. Strong investor interest helped the second biggest European insurer, Axa, this week place 350 million euros in catastrophe bonds, the biggest issuance in euros of such paper. There is more to come of such bonds, which shift risks like payouts for wind storm damage to investors and free up insurer capital for underwriting. Broker Aon Benfield expects $100 billion of alternative capital over the next five years. "In order to deploy $100 billion, we are going to have to expand the availability of the product beyond cat (natural catastrophe cover)," said Paul Schultz, a specialist in Insurance Linked Securities at Aon Benfield. "It is inevitable that we are going to see capital flow into other types of insurance and reinsurance risks, namely liability and casualty, in addition to cat."
Nomura: Auto is All About Price; Independent Agent Role Diminishing October 16, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/10/16/nomura-auto-is-all-about-price-independentagent-r In auto insurance, the direct model is winning, the value of independent agents is diminishing and the proof is in an examination of the continued rise of Geico—the only major pure direct model— versus challenges at Progressive Corp. due to a “legacy agency business,” according to an analysis released today.
6|Sutherland Insights Insurance News Flash Nov 04, 2013
In a report, “PGR Losing the Race to Geico,” investment bank Nomura analysts Cliff Gallant and Matthew Rohrmann argue that auto insurance has been commoditized, and in a world where price rules, the direct model wins, as savings from not paying commissions can be used to offer lower rates while maximizing ad spend. “We believe a critical point has been crossed in the American consumer’s view regarding auto insurance, making it a commodity,” the analysis states. “The causes are numerous, including relentless ads emphasizing cost, increased comfort with online shopping, falling numbers of claims, tight household budgets and improved auto safety.” For independent agents, the analysis points to a recent McKinsey & Co. study breaking down the auto-insurance shopping experience, which revealed that agents are still involved at some stage of the shopping process in the bulk of transactions. But Gallant and Rohrmann contend that the value added by independent agents is quickly diminishing. “Technology has enabled insurers to have a more direct relationship with consumers, even when the product is purchased through an independent agent,” they write. The Nomura analysis also says that as insurers’ underwriting-model sophistication grows, “the value of ‘frontline underwriting’—the strategy of paying talented agents to differentiate good vs. bad risks on behalf of the insurer—has declined. Even the ability to provide price comparison has been diminished because the consumer has been made aware of a cheaper alternative to the independent agent’s best deal.” The McKinsey report likewise pointed to obstacles faced by independent agents, arguing that they are in danger of becoming obsolete in lines like auto insurance. In its analysis, Nomura focused mainly on two insurers to illustrate its point: Geico, which uses a purely direct model, and Progressive, which uses both an agency model and a direct model. Regarding the strategy of charging less and advertising more, the analysis says, “Geico offers the consumer value and makes sure they are aware of the offer.” For Progressive, meanwhile, the analysis says the company is “saddled with a legacy agency business that absorbs dollars that could produce greater return in ad spend and lower prices.” Essentially, according to a subhead within the analysis, “Geico spends on ads that appear to deliver whereas Progressive pays agents that don’t.” The analysis cites figures from SNL Financial as well as its own research showing that Geico spent about $1.1 billion in advertising in FY 2012 and just $76.3 million in direct commissions. Progressive, meanwhile, spent $526 million in advertising and over $1 billion in direct commissions. “The amount Progressive spends on agents is taken away from the ad budget,” the analysis contends. The analysis further states that Progressive’s initiatives such as customer-retention efforts and its Snapshot user-based insurance product are “either missing the problem or worse—investing into an agency business that is incapable of growth.”
7|Sutherland Insights Insurance News Flash Nov 04, 2013
Regarding customer-retention efforts, Gallant and Rohrmann say, “The challenge is that the independent agent appears to be either poorly incentivized or structurally unable to partner in meeting this challenge.” On Progressive’s UBI initiative, Gallant and Rohrmann say it appears to further commoditize the auto-insurance product, emphasizing price and reducing the profits made from the best drivers in the pool. It also does not solve the basic problem, according to the analysis: “Geico charges less and advertises more.” The news in the Nomura analysis is brighter for captive agents. Gallant and Rohrmann state that the “long-term advantage of the captive agent/insurer—i.e., the ability to lower cost by bundling multiple products under a single brand—appears to be solid.” Additionally, while the Nomura analysis mentions Geico’s rise in the auto-insurance market share— now second highest with 9.9 percent of the market—the company still trails leader State Farm, which uses a captive-agency model, by a significant margin (State Farm has 18 percent of the market). In an email, Gallant says, “I think that the captive agency model is much better positioned than the independent agent.” He says the ability to offer value through bundling “remains powerful,” and adds that, despite Geico’s rise, “I can see State Farm holding market share for a long time to come still.” Geico may eventually take over the number-one spot, he says, but if it happens at all, it could still take another decade. A Progressive representative did not respond to a request for comment. On Progressive’s UBI initiative, Gallant and Rohrmann say it appears to further commoditize the auto-insurance product, emphasizing price and reducing the profits made from the best drivers in the pool. It also does not solve the basic problem, according to the analysis: “Geico charges less and advertises more.” The news in the Nomura analysis is brighter for captive agents. Gallant and Rohrmann state that the “long-term advantage of the captive agent/insurer—i.e., the ability to lower cost by bundling multiple products under a single brand—appears to be solid.” Additionally, while the Nomura analysis mentions Geico’s rise in the auto-insurance market share— now second highest with 9.9 percent of the market—the company still trails leader State Farm, which uses a captive-agency model, by a significant margin (State Farm has 18 percent of the market). In an email, Gallant says, “I think that the captive agency model is much better positioned than the independent agent.” He says the ability to offer value through bundling “remains powerful,” and adds that, despite Geico’s rise, “I can see State Farm holding market share for a long time to come still.” Geico may eventually take over the number-one spot, he says, but if it happens at all, it could still take another decade. A Progressive representative did not respond to a request for comment.
8|Sutherland Insights Insurance News Flash Nov 04, 2013
Finance Mapfre net income rises 4.3% in first nine months October 30, 2013 | Insurance Insights http://www.insuranceinsight.com/insurance-insight/news/2303968/mapfre-net-income-rises-43in-first-nine-months Spanish insurer Mapre posted net income of €683.9m for the first nine months of 2013, a 4.3% increase on the previous year’s total. The growth in profits was driven by the company's continued business expansion overseas, which now generates 70% of total Group revenues. Consolidated income climbed by 0.3% to €19.47bn, with premiums totalling €16.56bn, despite the appreciation of the euro against the Group's main trading currencies, particularly the US dollar and the Brazilian real. On a constant currency basis, year-on-year premiums and profits would have grown by 5.8% and 9.4% respectively. Shareholders' equity rose to €8bn over the last twelve months, an increase of €237m, (+3.1%), while total assets managed grew by 2.4% to €58.27bn. Worthy of note is the group's combined ratio of 95.3%, resulting from an improved expense ratio coupled with a drop in claims in Latin America and in the Group's global businesses division. The Spain and Portugal insurance division, which represents 29.1% of the Group's premiums, reported premium income of €5.24bn, down 9.3% on the same period last year, reflecting the fall in demand for insurance products. The impressive combined ratio in Spain - resulting from more moderate claim levels and a 3.6% reduction in operating costs - helped profits rise to over €340m. Non-Life premiums for Spain and Portugal reached €3.37bn, while life premiums totalled €1.87bn. The combined ratio for Spain was decidedly healthy, despite the impact of adverse weather conditions in the first half of the year that affected the Home and Homeowners' Association lines heavily. The Spain and Portugal division recorded a gross profit of €567.7m, an increase of 0.7% on the same period in 2012, while the insurer's international insurance division, which accounts for 47.6% of group premiums, generated revenue of €8.59bn, up 3.8%.
9|Sutherland Insights Insurance News Flash Nov 04, 2013
In Latin America, the Group recorded premium income of €6.63bn, up 0.3% on last year. Discounting the adverse impact of the depreciation of the Brazilian real and the Argentinian peso, as well as the devaluation of the Venezuelan bolivar, premiums grew by 18.5&%. Business volume in Colombia was strong, at €530m, (+22%), and also in Venezuela, up 14.8% to €646m. Peru grew by 12.8% to €232m; Brazil rose by 6% reaching €3.79bn in premiums, while Mexico was up 2.3% to €546m. In the Division's other territories - the United States, the Philippines, Malta, Puerto Rico and Turkey - premiums totaled €1.96bn, a growth of 17.6%. Turkey grew by 47.5% to €412m, driven by to strong performances in the auto and health lines and an aggressive expansion of the branch network. In the United States, premiums climbed to 1.12 billion euros, an increase of 2.3%. outside of its Massachusetts base, the 16 other states where Mapfre does business contributed 24% of total US business volume. The combined ratio in Latin America improved by 3.5 percentage points, to stand at 96.6% - the result of a more benevolent claims environment, as well as improved cost management, particularly in Brazil. The international insurance division's gross profit amounted to €642m, up 5.5%. The global businesses division, comprising Mapfre's reinsurance, global risks and assistance businesses, brought in €4.34bn, representing 23.3% of group premium volume, an increase of 13.4%. Accepted reinsurance premiums grew to €2.67bn, a rise of 17.1%. The Global Risks unit delivered premiums totaling €845.6m, 2.6% less than in the same period last year, reflecting the transfer of its Credit insurance portfolio to Solunion. The assistance unit, (premiums and income from insurance-related services), registered strong growth of 21.3%, generating €825.5, thanks in the main to continued organic in Asia and Europe. The division's gross profit rose by 13% to €194m. The insurer also announced that it has named state attorney Catalina Miñarro Brugarolas as an independent director of Mapfre.
10 | S u t h e r l a n d I n s i g h t s I n s u r a n c e N e w s F l a s h N o v 0 4 , 2 0 1 3
Australian catastrophes have cost AUS$8.8bn since 2010 October 29, 2013 | Insurance Insights http://www.insuranceinsight.com/insurance-insight/news/2303503/australian-catastropheshave-cost-aususd88bn-since-2010 Catastrophes since the start of 2010 have caused billions of dollars of damage across Australia with insurance losses of more than AUS$8.8bn ($8.4bn). Catastrophes include windstorms, floods and bushfires. Bushfires have contributed AUS$297m of this total has come from bushfires, but this excludes the estimated AUS$145m from the recent bushfires in New South Wales. Rob Whelan, chief executive of the Insurance Council of Australia, said: "It's important for everyone in the community to understand what they can do to prepare for disasters. Every effort, no matter how small, can help save lives and secure property." He added: "Households and businesses need to start preparing now - make sure your insurance is up to date and look at what you can do to prepare your property by using our bushfire preparation checklist." Highlighting the threat to South Australia in paricular, Whelan commented: "This is a timely reminder to South Australians of the need to prepare their own properties for bushfires this spring and summer.� He added: "The risks are real — at the weekend, total fire bans were declared in three SA districts and a bushfire watch and act notice for the Verran bushfire in the Eastern Eyre Peninsula. With large fuel loads in many parts of the state and warmer days and nights predicted over the summer, a difficult bushfire season is likely."
Ping An's profits more than double in Q3 October 28, 2013 | Insurance Insights http://www.insuranceinsight.com/insurance-insight/news/2303242/ping-ans-profits-more-thandouble-in-q3 Insurance and banking group Ping An saw a 115% increase in profits in the third quarter of 2013. Net profit rose to 5.4bn yuan ($887.87m) in the quarter ended September from 2.1bn yuan in the third quarter of 2012 as it was boosted by its life insurance and banking divisions.
11 | S u t h e r l a n d I n s i g h t s I n s u r a n c e N e w s F l a s h N o v 0 4 , 2 0 1 3
There was also reduced impairment charges on equity investments that hit the profitability of Chinese insurers last year when stock markets underperformed.
Travelers Q3 Net Unchanged, Operating Profit Rises to Record Level October 22, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/10/22/travelers-q3-net-unchanged-operating-profitrises U.S. insurer Travelers Cos Inc posted a record operating profit that breezed past Wall Street estimates and said it expects to keep raising premiums to counter low interest rates and potential losses from natural disasters. Travelers, which also announced a $5 billion share buyback plan on Tuesday, took the lead in raising prices as the industry struggled with low interest rates that squeezed interest incomes. "We intend to stay the course on this strategy as our expectations of more volatile weather patterns and continued low interest rates have not changed," Chief Executive Jay Fishman said in a statement. Travelers expects interest rates to remain at historically low levels at least until 2016, a company executive said on a post-earnings conference call. Shares of Travelers, a component of the Dow Jones industrial average, were up 1 percent at $87.68 in early trading. They have risen 21 percent this year. Fishman said third-quarter results benefited mainly from rate increases and low weather-related losses. "We believe these are excellent results with Travelers continuing to show it can manage the pricing environment," BMO Capital Markets analyst Charles Sebaski said in a client note. Travelers said it planned to introduce a new auto insurance product with a lower cost structure in about 15 states in the current quarter to tackle increasing competition. The company said in July it would cut jobs and reduce prices in its auto insurance business, an indication that rate hikes could have reached a peak amid increasing competition. Strong Underwriting Results Travelers reported flat third-quarter net income of $864 million. On a per share basis, earnings increased to $2.30 from $2.21 per share a year earlier. The company reported operating earnings of $2.35 per share. Analysts on average had expected earnings of $2.05 per share, according to Thomson Reuters I/B/E/S.
12 | S u t h e r l a n d I n s i g h t s I n s u r a n c e N e w s F l a s h N o v 0 4 , 2 0 1 3
Catastrophe losses, net of reinsurance, rose to $99 million from $91 million a year earlier. Travelers said the $5 billion buyback authorization was in addition to the $759 million that remained from a previous repurchase plan. The company's combined ratio, the percentage of premium revenue an insurer has to pay out in claims, fell to 88.9 percent from 90.3 percent last year. A combined ratio of under 100 indicates an underwriting profit. "This is a sign that most P&C insurers are going to have strong underwriting results for the quarter," BMO's Sebaski told Reuters. Net investment income fell about 9 percent to $657 million, mainly due to low interest rates.
A.M. Best: U.S. P&C Insurers Report Strong First-Half; Record Polichyholder Surplus October 21, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/10/21/am-best-us-pc-insurers-report-strong-firsthalf-re The property and casualty industry posted its first half-year underwriting profit since 2007 and saw net income and pretax operating income increase by 65 percent and 40 percent respectively compared to 2012’s first half, a new report states. According to an A.M. Best six-month financial review, the industry benefitted from lower catastrophe losses, stabilizing investment income, improvements in the pricing environment and a boost in exposures as the economy recovers. Policyholder surplus reached a record level at $627 billion, representing a 7.4 percent increase over 2012’s first half, says A.M. Best. “Favorable net income and a $20 billion shift in the industry’s unrealized capital gain position, to a $17.5 billion unrealized gain from a $2.5 billion unrealized loss for the same period in 2012, were the primary drivers of the increase,” states the report. Personal lines saw after-tax net income increase by 53.3 percent, to $8.1 billion, while underwriting income swung to positive territory—$0.7 billion compared to an underwriting loss of $2.6 billion in 2012’s first half. “Several factors contributed to the improved underwriting results, including increased net premiums earned and fewer catastrophe losses, which was offset somewhat by less favorable development of prior years’ loss reserves,” says A.M. Best.
13 | S u t h e r l a n d I n s i g h t s I n s u r a n c e N e w s F l a s h N o v 0 4 , 2 0 1 3
The report notes that reserves continued to develop favorably, but at a lower rate. “There was $5.8 billion, or 4.7 points, of favorable prior accident-year reserve development for the personal lines segment, compared with $6.4 billion, or 5.5 points, through the same period in 2012,” the report explains. The personal lines combined ratio was 98.8, down from 101.6 in 2012’s first half. For commercial lines, premium volume increased thanks to improved pricing and a recovering exposure base. The segment’s combined ratio improved to 95.1 from 101.8 for the same period a year ago, driven by lower catastrophe losses and pricing improvements. Four points were shaved off of the combined ratio thanks to favorable reserve development for prior accident years, compared to 2.3 points in 2012’s first half. But A.M. Best notes that it “remains concerned with the industry’s loss-reserve position—particularly for commercial lines—given the extended soft-market cycle, which eroded pricing adequacy during those prior years while reducing the available loss-reserve cushion.” The ratings agency adds, “In light of the level of favorable development recognized on recent accident years, the available cushion of reserve redundancies has declined and may not provide the same support to future calendar-year results.” Commercial-lines net income was up by 84 percent compared to the same period last year to $20.4 billion. The net income benefitted from $9 billion in capital gains compared to $3.4 billion in 2012’s first half.
14 | S u t h e r l a n d I n s i g h t s I n s u r a n c e N e w s F l a s h N o v 0 4 , 2 0 1 3
Technology Once-A-Year Cyber Risk Assessments Aren't Enough November 1, 2013 | Insurance and Technology http://www.insurancetech.com/quickview/once-a-year-cyber-risk-assessments-arent/4547?wc=4 While it may be important that security organizations employ effective methods to walking through an IT risk assessment, the frequency with which they go through that process is almost as important as the means of carrying them out. Unfortunately, even when security organizations cover all of their bases in an IT risk assessment, if they don't assess often enough they could still be keeping themselves open to a great deal of risk. Even though many compliance mandates such as HIPAA require risk assessments only be performed annually, that's not nearly often enough for most organizations, says Gary Alterson, director of risk and advisory services for Neohapsis. Given the rapidly changing threat environment and how fast IT moves, I recommend that risk assessments be refreshed and reviewed at least quarterly, if not monthly," Alterson says. But the reality is that most organizations today have a hard enough time keeping up with their annual risk assessments, says Jim Mapes, chief security officer at BestIT, which is why he says that organizations have to rethink the way they approach the process. "A better approach is to make risk assessments more of a life cycle and process within the organization," he says. "Perform assessments continuously throughout the year, collecting data on new vulnerabilities, remediation of older vulnerabilities, and identification of problem areas where vulnerability could not be remediated and recording the business decision to mitigate the risk and impact to some other acceptable level." Crucial to that evolution to a life cycle mentality is building time and resources into the IT life cycle for internal auditors, says Alterson's colleague, Nathaniel Couper-Noles, principle security consultant for NeoHapsis. According to Couper-Noles, one of the most common refrains he has heard from auditees is they're too busy for an internal audit
15 | S u t h e r l a n d I n s i g h t s I n s u r a n c e N e w s F l a s h N o v 0 4 , 2 0 1 3
Max Life Insurance Goes Mobile for Distribution with Cognizant October 31, 2013 | Insurance and Technology http://www.insurancetech.com/business-intelligence/max-life-insurance-goes-mobile-fordistr/240163398 Max Life Insurance, a private life insurer based in Chennai, India, has selected the TruMobi platform for mobile distribution from Cognizant, based in Teaneck, N.J. The platform allows Max Life Insurance to better control enterprise mobile applications while allowing agents to access increased data via mobile, according to a release. “TruMobi will enable Max Life to seamlessly transition to the digital world of tablets and smartphones and help distribute and manage mobile applications effectively,” states Hitesh Arora, director and head of technology, IS and BCP at Max Life Insurance. [ Financial Services Mobility Spikes: Good Technology Report ] Arora adds, “With its comprehensive mobility capabilities, high levels of usability, security and control, and the ability to instantly connect to multiple enterprise systems within Max Life Insurance, the TruMobie suite is an ideal catalyst for us to build an ever more successful life insurance business and deliver the core value of long-term savings protecting.” Max Life Insurance plans on boosting distribution effectiveness and conversion rates and reduce human error risks by allowing agents to access data instantly on their mobile devices. “Dramatic shifts in consume behavior and expectations have opened a great opportunity for insurers to leverage social, mobile, analytics and cloud technology to spur innovation, drive disruptive change, and conform to regulatory mandates,” comments Sowri S. Krishnan, VP and head of social and mobile practice and Cognizant.
Telematics at Tipping Point as Execs Weigh Ultimate Impact, Obstacles October 22, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/10/22/telematics-at-tipping-point-as-execs-weighultimat Insurance telematics likely will go mainstream within five years, will have a medium-to-large impact on the auto-insurance market, and even though privacy concerns remain an obstacle, consumers are willing to have telematics devices installed in their cars if they can save enough on insurance, according to a recent survey.
16 | S u t h e r l a n d I n s i g h t s I n s u r a n c e N e w s F l a s h N o v 0 4 , 2 0 1 3
Telematics Update surveyed 270 insurance telematics-focused executives, including respondents at insurers, telematics-service providers, consultant firms, telecommunications companies, software developers and others. Of the 83 respondents asked by Telematics Update in August 2012 about when telematics will go mainstream for insurance, 52 percent said within three to five years and 27 percent said within three years. Twenty-one percent replied between five and ten years. Asked about the expected impact of telematics on the U.S. insurance industry, 98 percent indicated telematics will have a medium-to-large impact on the auto segment of the marketplace. Forty-one percent expect telematics to have a large impact and “reinvent auto insurance.” An additional 57 percent said telematics will have a “medium” impact, changing pricing engines. Just 2 percent said it will have a “limited impact.” A recent report from Telematics Update indicates that approximately 1 million vehicles in the U.S. currently use insurance telematics, and the firm asserts that the number is expected to hit 60 million by 2019. But there are some obstacles to wider adoption of the technology. Of the 83 survey respondents who weighed in on these impediments, customer privacy concerns were cited most often, mentioned by 33 percent of the executives. Of course, even given the privacy concerns, the more consumers can save on insurance, the more willing they are to allow telematics devices in their cars. Telematics Update cites the result of a 2011 Deloitte query of 1,080 consumers regarding how much of a discount they would require to allow a telematics device in their car. Forty-seven percent responded “over 20 percent,” 22 percent responded “16-20 percent,” 17 percent said “11-15 percent, and 11 percent said “6-10” percent. Only 2 percent said they would allow installation for savings of 1-5 percent. The Telematics Update report indicates that consumers might be lured to telematics by more than price alone. “For customers who do not respond to discounting strategies, the additional Value Added Services insurers offer may entice customers to select insurance telematics products,” the report says. In the Telematics Update survey, 225 of the insurance telematics-focused executives weighed in on some additional services that could play a role in the success of the technology. Navigation and destination management were the two most commonly-cited features, with 72 percent and 65 percent respectively indicating that the services are “important” or “critically important” to the future success of telematics. Internet ratio was the least-cited example, with just 17 percent saying it would be important or critically important and 55 percent saying it would not be important to future success.
17 | S u t h e r l a n d I n s i g h t s I n s u r a n c e N e w s F l a s h N o v 0 4 , 2 0 1 3
Insurers urged to embrace digital strategies October 22, 2013 | Insurance Insights http://www.insuranceinsight.com/insurance-insight/news/2302064/insurers-urged-to-embracedigital-strategies Insurers have been warned to take mobile more seriously and not merely ‘play’ at being digital leaders, or be “left on the side lines”. According to a new report from EY published today, ‘Insurance in a digital world: The time is now' they should also be taking social media more seriously, recognising its value as a relatively inexpensive marketing tool and a means to engage with and influence skeptical, digitally-savvy younger consumers. The EY survey, conducted in July with over 100 insurance companies, found only 43% of insurers currently provide mobile quotes compared to 72% who provide these online. Asian insurers are less likely than their global counterparts to use social media and mobile tools to interact with customers and agents: 30% use mobile apps - lower than half the global ratio of 61%. However, they are more likely than their global counterparts to interact with customers at financial stages. Graham Handy, EY's global insurance customer leader, said: "Insurers focus on mobile products and services is limited. But with mobile and tablet use growing exponentially, neglecting mobile is turning one's back on the future." The report draws a number of damning conclusions not least the disconnect between ambition and level of investment among those surveyed. 57% of respondents said that they intended to have a regularly updated digital business case and 78% aimed to have an organisational structure to support their digital strategy within the next three years. Almost 80% of survey respondents do not see themselves as digital leaders, believing instead that they "only play the digital game" or are "still learning to use digital capabilities for a competitive advantage." More than two-thirds of insurers globally feel that they have delivered some quick, easy wins but that has not been accompanied by a long-term strategy to realize their ambitious digital objectives, according to EY. 68% of respondents globally spend less than 10% of their business and IT development budget on digital. A significant number of Asia-Pacific respondents did not know current levels of digital development spend: 79% versus 40% globally. Such lack of clarity is mirrored in their view of expected future spend: 58% anticipate an increase over the next year, compared to 80% globally.
18 | S u t h e r l a n d I n s i g h t s I n s u r a n c e N e w s F l a s h N o v 0 4 , 2 0 1 3
EY concludes that legacy technology, slow pace of delivery and company culture are also hindering the process. In the Americas, 96% cite legacy technology constraints as a major impediment to growth versus 80% globally. While in Europe, 93% say the slow pace of delivery by insurers versus 64% globally hampers their digital ambitions. Globally respondents also consistently cite intermediary and agent channel strength or resistance as one of the top three inhibitors in implementing a digital strategy. Nearly 50% of European insurers cite this as an inhibitor to digital growth while only 34% of AsiaPacific insurers believe this is an issue. However, this reflects the central role that the intermediary plays in the Asia-Pacific region. Handy said: "Digital is a new market force that is driving a massive change in consumer expectations. Insurers cannot afford to be left on the side lines of the move to digital. They must evolve and respond to constantly shifting consumer expectations, but currently they are holding themselves back due to internal factors, primarily technology and culture." He added: "Whether insurers can make the ambitious changes they envisage within the next three years remains to be seen. Attaining their goals will require significant - and rapid - improvement to close the current gap. However, customers will demand considerable changes in how their insurance is delivered, and the winners will be those insurers who execute well against their digital ambitions in the coming years."
First telematics product launched in Australia October 22, 2013 | Insurance Insights http://www.insuranceinsight.com/insurance-insight/news/2302053/first-telematics-productlaunched-in-australia QBE and NIA Underwriting Agency have teamed up with technology house SSP in Australia to launch the first telematics product in the country Insurance Box. The technology uses an on-board telematics device to measure driving behaviour, such as speed, acceleration, cornering, breaking, time of day and familiarity with the route which should help lower premiums for good drivers. Drivers and insurers will be presented with the feedback. The device has been launched this week with a dedicated website, with a target audience of around 7% of the Australian market. Michael Clarke, SSP's managing director in Australia, said: "We are delighted to be able to support the launch of the first Australian insurance product to offer in-car telematics technology. The speed with which QBE and NIA have been able to launch Insurance Box is another demonstration of SSP's commitment to investing in innovation and providing insurers with the tools they need to compete effectively in a rapidly modernising industry."
19 | S u t h e r l a n d I n s i g h t s I n s u r a n c e N e w s F l a s h N o v 0 4 , 2 0 1 3
He added: "Our capability helps clients integrate quickly and seamlessly with telematics providers, allowing them to differentiate themselves in a highly competitive marketplace. With the latest technology in place and usage-based insurance set to grow rapidly over the next few years, Insurance Box looks set to benefit from its market-leading proposition."
20 | S u t h e r l a n d I n s i g h t s I n s u r a n c e N e w s F l a s h N o v 0 4 , 2 0 1 3
Strategy Hyperion acquires US underwriting agency October 29, 2013 | Insurance Insights http://www.insuranceinsight.com/insurance-insight/news/2303534/hyperion-acquires-usunderwriting-agency Hyperion Insurance Group has acquired PGI Commercial through its subsidiary Dual. Headquartered in Florida, PGI Commercial is a 10 year-old underwriting agency that controls premiums approaching $200m (ÂŁ124.25m). It has underwriting offices in California, Florida, Georgia, Maryland, New Jersey and New York. The business consists of specialty programs for both property and casualty classes and is written on an admitted and also an excess and surplus basis. David Howden, chief executive of Hyperion (pictured), said: "The opportunity for the group in North America is significant, but it has always been vital to us that we only enter markets where we identify people with a similar energy and dynamism to Hyperion." He added: "PGI have the perfect blend of strong leadership and underwriting culture to match our ambitions and they will make a great platform on which we will build our US and Latin American underwriting presence." Justin Tweedie, president of PGI, who will become CEO of Dual's operations in the Americas, said: "Joining Hyperion and becoming a part of Dual represents a major step in the development of PGI's operations." He continued: "We are now a part of one of the largest unaffiliated international underwriting agencies in the world, and this brings both resource and network benefits to our clients and employees. We were attracted by the ambition and sheer energy of Hyperion and believe that this new partnership will help fuel our growth." Combined, Dual and PGI will have premiums exceeding $600m (ÂŁ372.74m), with 24 offices in 12 countries, spanning five continents.
21 | S u t h e r l a n d I n s i g h t s I n s u r a n c e N e w s F l a s h N o v 0 4 , 2 0 1 3
Chaucer expands outside marine in Singapore October 25, 2013 | Insurance Insights http://www.insuranceinsight.com/insurance-insight/news/2302963/chaucher-expands-outsidemarine-in-singapore Lloyd's specialist Chaucer is to offer property, accident and health, engineering, casualty and motor treaty accounts from Singapore. Tom Graham (pictured), an international non-marine underwriter has transferred to Singapore from Chaucer's London office to develop an underwriting hub for non-marine treaty business across the Asia-Pacific region. Graham will work with Chris Wildee, CEO for Chaucer Singapore, and his team to develop Chaucer's property, accident & health, engineering, casualty and motor treaty accounts. The Chaucer Singapore platform will provide Syndicate 1084 with a local capability to service regional treaty business, in addition to existing Lloyd's broker channels. Graham joined Chaucer in 2008 as treaty underwriter and has over 10 years of non-marine treaty market experience, writing all lines of international non-proportional treaty and retrocessional business. Chris Wildee, CEO Singapore and regional development director for South-East Asia at Chaucer, said: "I am pleased to welcome Tom to Chaucer Singapore. He is an extremely experienced and skilled treaty underwriter and will be a valuable addition to the team, enabling us to extend our underwriting portfolio to our Asian clients." Graham commented: "This is an exciting opportunity, not only for me personally, but for Chaucer to be seen as a serious underwriting authority for treaty business in Asia. I look forward to working with Chris and his team to develop our Asian treaty business."
JLT Peru restructures business October 23, 2013 | Property Casualty 360 http://www.insuranceinsight.com/insurance-insight/news/2302609/jlt-peru-restructuresbusiness JLT Peru has split its business into separate retail and reinsurance operations. The retail business, covering broking and employee benefits, will remain under the leadership of president and chief executive Jose Ramon Mariategui and will be known as Mariategui JLT.
22 | S u t h e r l a n d I n s i g h t s I n s u r a n c e N e w s F l a s h N o v 0 4 , 2 0 1 3
Juan Brignardello has been appointed executive commercial vice president of Mariategui JLT. The reinsurance business, operating as JLT Re will be led by chief executive Jose Miguel Gonzalez. The businesses will occupy separate offices but will both report to JLT Latin America. Mariategui said: “This change is a natural evolution of our operations in Peru following many years of strong growth on both the retail and reinsurance side.” Of Brignardello’s appointment he commented: “The combination of his unique skills will further help us to attract and retain clients and people.” Commenting on the restructure, Gonzalez said: “We already provide a first class platform in Peru for cedents and clients who are looking for expertise, specialisation and innovation. The establishment of this platform will continue this strong legacy while also bringing renewed focus to our reinsurance operations that will benefit our clients and our people.” Methley said: “We are very excited by the opportunities that these two businesses now have to continue to develop and win market share.”
Munich Re: U.S. 'Home Turf' for Alternative Capital; Threat to European Market Limited October 21, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/10/21/munich-re-us-home-turf-for-alternativecapital-thr BADEN-BADEN, Germany (Reuters) - Reinsurer Munich Re expects to keep its pricing power steady in renewing risk cover contracts with insurers in the coming weeks, playing down the competitive threat from pension fund investors that may undermine prices. The world's biggest reinsurer said it was well positioned for negotiations with insurance companies for new contracts for reinsurance cover that take effect on Jan. 1, as talks with insurers get underway in this southern German spa resort. "Munich Re expects prices for business in its own portfolio to remain largely stable," Munich Re board member Ludger Arnoldussen told a media briefing. Many observers have suggested reinsurance prices would be under pressure in 2014 from an inflow of capital from pension funds, which is increasing the supply of reinsurance available in the market. Reinsurance prices in Europe's largest market, Germany, would reflect loss claims for flooding and hail storms in June and July that cost insurers billions of euros, much of which they passed on to the reinsurance companies like Munich Re, Swiss Re and Hannover Re.
23 | S u t h e r l a n d I n s i g h t s I n s u r a n c e N e w s F l a s h N o v 0 4 , 2 0 1 3
Reinsurers provide a financial backstop against such claims in exchange for part of the profit. "I would expect prices to reflect the loss experience, so an upward movement in prices," Arnoldussen said. While some insurers had very high local exposure to the hail storms and were hit particularly badly by claims, Arnoldussen said the event was likely to prompt a wider review by insurers of the amount of reinsurance cover they buy. Munich Re itself has pencilled in claims of 180 million euros ($247 million) for the hail storms in late July, of which 160 million was allocated to its reinsurance business and 20 million to its insurance unit Ergo. For the June floods, Munich Re sees its share of insured damage at 230 million euros, with a hit of 180 million euros in reinsurance and 50 million at Ergo. It is due to update the figures with its third-quarter results on Nov. 7. Rival Capital Pension funds have had a significant effect in the U.S. reinsurance market, particularly for covering risks such as hurricanes in Florida, Arnoldussen said. "In European markets, I think this is going to be limited," he said, mainly because the relative price level for reinsuring European wind storm risks was much less attractive than U.S. wind storm exposures. "The U.S. is basically the home turf of alternative capital. There will be some effects in other peak exposures as well but to a much lesser extent," he said. Munich Re renews about half of its 17 billion euro ($23.3 billion) global property and casualty book as of Jan. 1 each year, mainly for contracts affecting Europe and central Asia.
EU Close to Breaking Deadlock on Solvency II October 17, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/10/17/eu-close-to-breaking-deadlock-on-solvency-ii The European Union is close to finalising a deal on how insurance companies will hold enough capital to keep policyholders safe which will severely water down the version sought by industry regulators, a senior EU lawmaker said. Negotiations on the law known as Solvency II have dragged on for years due to disagreements over how much capital firms must hold to cover to cover products offering guaranteed returns over a long period.
24 | S u t h e r l a n d I n s i g h t s I n s u r a n c e N e w s F l a s h N o v 0 4 , 2 0 1 3
"I guess we are all hoping of a deal in principle on the big points next week," Sharon Bowles, UK Liberal Democrat chairwoman of the European Parliament's economic affairs committee, told Reuters. Talks take place on Oct. 24, with a second meeting in early November to tie up loose ends ahead of a plenary vote in parliament in early 2014, Bowles said. The new law, which will apply to insurers like Aviva, Generali, Allianz and Axa, is expected to take effect in January 2016. The final version of the new rules will weaken what the sector's regulator, the European Insurance and Occupational Pensions Authority (EIOPA), has proposed, Bowles said. The three key elements are now largely agreed though there could still be some "chiselling" at the numbers, she added. The first element, known as a volatility dampener, determines how much insurers can ignore market price swings when it comes to working out how much capital they need. EIOPA has proposed that 20 percent of volatility can be discounted but the final deal will bump this up to about 65 percent in a move set to please French insurers in particular. The second element, the matching adjustment, refers to how insurers regard swings in credit spreads. EIOPA has taken a very conservative approach by introducing a minimum equivalent to 75 percent of long-term average spreads in bonds. The final law now looks set to set a minimum of about 35 percent for corporate bonds and 30 percent for government bonds an industry official with knowledge of the talks said. This change would please Ireland, Britain and Spain. "We can live with this. Ideally it would be zero," the official said. A third element, known as extrapolation, looks at how an insurer must work out the discount rate on cash flows. EIOPA has called for a period spanning 40 years for basing this calculation and this is likely to be maintained in the final law, rejecting a push by industry for a much shorter period of a decade. The sector is also likely to be given 16 years to phase in some of the changes, far longer than EIOPA wanted, but will please German firms. The regulator has already warned legislators not to water down its proposals but parliament and member states are keen to get a deal before time runs out ahead of European Parliamentelections next May and the appointment of a new European Commission later that year. Industry officials said a deal was also needed to maintain EU credibility in shaping efforts underway to design a global capital rule for insurer.
25 | S u t h e r l a n d I n s i g h t s I n s u r a n c e N e w s F l a s h N o v 0 4 , 2 0 1 3