Sutherland insights insurance news flash 30082013

INSURANCE NEWS FLASH 30th August 2013

Table of Contents Sales & Marketing ................................................................................................................. 3 Finance ............................................................................................................................... 10 Technology .......................................................................................................................... 13 Strategy .............................................................................................................................. 22

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Sales & Marketing E&O Market Update: Rate Hikes for Select Sectors 28 August, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/08/28/eo-market-update-rate-hikes-for-selectsectors Many professionals are fending off the double-digit rate hikes that longtime underwriters of errors & omissions coverage are seeking, with many of those clients finding themselves able to negotiate flat or only slightly higher rates.

The overriding market-stabilizing force is abundant capacity due to newer professional liability underwriters that do not have legacy losses that have forced them to pursue high premiums.

“That’s helping slow the increase in rates,” says Gary Mann, director of Professional Liability for Novato, Calif.-based Fireman’s Fund Insurance Co., a subsidiary of Allianz Group.

Some professionals will not be able to escape tougher renewals, however, either because of huge losses within their classes or their own claims. Professionals in some problem classes face varying degrees of renewal difficulties, depending on their specialties and locations. That makes for a relatively stable E&O insurance marketplace.

“I would say the market in general is not softening; it’s stable, though maybe tightening for those accounts with *claims+ issues,” says Stanley Loar, chairman of Assurex Global network agency Woodruff-Sawyer & Co. in San Francisco.

James Grant, divisional director-ExecProSolutions at independent London-based broker R.K. Harrison, tells NU that he has seen some recognized carriers in the U.S. retrench or pull out of certain sectors, “and then two or three jumping in and writing at 20 percent less” over the past 12 to 18 months.

“I wouldn’t say *the E&O market+ is soft, but it’s definitely not firming,” adds Ken Rand, a New Yorkbased managing director and the head of the U.S. E&O practice at Marsh Inc. E&O liability market experts say most professionals are negotiating rates no more than 5 percent higher to reflect claims and defense-cost inflation. Even then, those slightly higher rates amount to a win for professionals, producers maintain, because longtime E&O carriers have been pushing for 10 percent to 20 percent increases.

The most attractive risk for E&O underwriters are “miscellaneous” professionals, market executives say. This includes as physical therapists, computer programmers, medical transcribers, grant writers and hair stylists.

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“We’re selling 10 to 20 a day to independent consultants” of various types, says Loar in San Francisco. “We’re selling those like hotcakes, and they’re cheap,” from about $500 to $1,500 for $1 million in limits.

Rates for even some loss-addled classes are fairly stable because “there are still some competitors out there that are aggressive” since they do not have legacy losses, said Chris DuPuy, a New Yorkbased senior vice president-Special Casualty at Liberty International Underwriters, a unit of Liberty Mutual Group.

Mann at Fireman’s Fund agrees, citing as an example the E&O market for real estate agents. Despite recent heavy losses for some of those clients, new capacity is replacing exiting capacity “almost on a constant basis,” he notes, which has resulted in a flat to slightly soft market for those risks.

Still, as Loar notes, many carriers are refining what they want to write in the E&O space. For example, LIU has reduced its appetite for the largest architect and engineering firms even as other insurers compete for the business. Some of LIU’s reduced writing in this space reflects the fact that the weak economy has claimed some large A&E risks, says DuPuy. Who’s paying more?

That’s not to say that all E&O risks can escape rate hikes. Reina Gregorio, New York-based president of the new Professional Liability Division at Great American Insurance Co., says law firms representing large real estate clients face double-digit rate increases.

Likewise, E&O rates for real estate attorneys these days are 10 percent to 15 percent higher on average, says LIU’s DuPuy, but adds that those can range from 5-25 percent and he has seen rate filings seeking increases as high as 35 percent. The market is tightest for real estate attorneys in Florida, California and New Jersey, he notes. Home inspectors and appraisers face 5-15 percent higher rates in several states: Arizona, California, Florida and Michigan.

Title agents are seeing double-digit rate hikes of up to 50 percent when they are able to find coverage, says Gregorio, who adds that new underwriters in that space typically will not cover prior acts.

Meanwhile, insurance agents who place property coverage in regions of the country recently hit by catastrophes—particularly the Northeast, Texas and regions of California beset by wildfires—also are paying more for E&O coverage, says Mann at Fireman’s Fund. Superstorm Sandy, which ravaged the Eastern seaboard last October, “is a great example” of the kind of incident that will trigger E&O claims from inadequately insured property owners six to 18 months later, Mann adds.

Other professionals facing higher-than-average rate hikes include: •

Financial institutions, whose E&O rates continue to rise 10-15 percent and even more for those with continuing losses. Plus, retentions are higher and coverage is more restrictive.

•

Intellectual-property law firms. Grant noted that two or three insurers each face about $10 million of IP claims filed against law firms that paid only about $300,000 for their E&O coverage.

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•

Nurse practitioners. If doctor’s office visits increase as expected under the nation’s health care reforms, doctors likely will turn to nurse practitioners for help in handling their increased caseload, Mann says, which likely will mean more claims against nurse practitioners. “I think underwriters are trying to get ahead of it as they always do,” he adds, “but the real rate will come after the claims.”

Insurers Earn Lukewarm Marks for Sandy; Overall Claims Satisfaction Stable 22 August, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/08/22/insurers-earn-lukewarm-marks-for-sandyoverall-cla Insurers are acutely aware of the fact that time does not heal all wounds.

As Sandy victims struggle to rebuild their lives—and homes—ruined by last year’s storm, P&C insurers face heavy scrutiny from both policyholders and the general public. While some of this can be attributed to media prejudice toward the industry, some property owners are saying that insurers need to do a better job handling the influx of claims.

About a month ago, J.D. Power reported that policyholders in Mid-Atlantic States were “very dissatisfied” with how their Sandy-related auto claims were processed, particularly those deemed total losses. Total loss claims of course, are intrinsically problematic under even the best circumstances, as happy outcomes and by extension customers are few and far between. However, the findings of a subsequent report focusing on property claims suggests there is much room for insurers to improve.

According to the J.D. Power 2014 Property Claims Satisfaction Study—Wave 1, a large number of Sandy victims aren't exactly thrilled with how their property claims have been handled. In fact, claimant satisfaction with Sandy-related property claims has decreased by 20 points to 826 (on a 1,000-point scale), compared with 846 during the previous period. Despite this substantial decline, overall satisfaction with the property claims experience remained relatively stable at 832 points, J.D. Power adds.

The study, which is being conducted on a quarterly basis for the first time, draws from responses from 2,517 homeowners' insurance customers who filed a property claim after April 1, 2012. The current wave of the J.D. Power study was fielded during the second quarter of 2013. This information follows the previous reporting period, the 2013 study that published in March, covering claims that were filed between July 2011 and December 2012.

More Complex Claims = Slower Settlements To gauge homeowners' satisfaction with the claims experience, J.D. Power examines five factors: the settlement; first notice of loss (FNOL); estimation process; service interaction; and repair process.

The current findings indicate an increase in the severity of property damage, settlement amount and length of claims payment processing for Sandy, when compared with the previous period.

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J.D. Power says the average settlement amount for property claims increased to $10,205 from $5,517 in the previous period. Moreover, a higher number of claims related to damage to the exterior of the house—71 compared to 65 percent previously) contributes to the higher settlement figures.

"Since we wait until the conclusion of each claim to survey the customer, the complexity of the Sandy claims in this wave has increased from the last reporting period," explains Jeremy Bowler, senior director of the insurance practice at J.D. Power. "Property claims related to Superstorm Sandy were primarily for items damaged in the yard, and the settlement process was expedient. The current wave study findings include more complex Superstorm Sandy property claims being processed for the structure of the home."

Bowler notes that settling a claim for structural damage tends to take significantly more time because of the scope of the claim. The longer claimants must wait for settlement, the less satisfied they generally are with their experience.

These more complex claims captured in this wave took much longer to settle than the Sandy claims captured in the previous period, and all of the timing metrics related to claims handling increased.

The most dramatic changes are an increase of nearly 10 days in the time it takes to inform claimants about the settlement terms (19.6 days after reporting claim), and an increase in the number of days until the initial payment is received by the claimant to 25 days (from 14.1 days).

"Providing an accurate estimate of how long it will take to settle a claim is very important in managing the claims experience," says Bowler. "When estimates to settle are extended and claims become drawn out, the possibility that insurers will not return claimants' calls increases, as does the likelihood claimants will be required to repeat information, both of which contribute to a decline in claims experience satisfaction."

With the timing of key milestones in the claims process taking significantly longer for Sandy claims, performance in several key performance indicators (KPIs) has also declined substantially. For example, J.D. Power found that "returning all promised calls" slipped 10 percentage points to 82 percent; avoiding having claimants repeat information is down by 12 percentage points to 61 percent; and providing an accurate claims length estimate is down by 5 percentage points to 69 percent.

Survey: Auto Insurance Buyers Willing to Try UBI for Premium Discounts 22 August, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/08/22/survey-auto-insurance-buyers-willing-to-tryubi-fo One in every three consumers is aware of usage-based insurance (UBI), tripling its awareness in the last three years, according to a new research from LexisNexis Risk Solutions, although only three percent of respondents to the LexisNexis study are “aware and use� telematics.

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The number of consumers who are aware of what UBI is has steadily increased over the last three years. LexisNexis reports only 10 percent of consumers were aware of it in 2010 with that number at 36 percent this year.

The study found discounts are the number one driver for UBI enrollment with 50 percent of consumers likely to sign up for telematics in exchange for a 10 percent premium discount while 36 percent of consumers would change carriers to receive a 10 percent discount.

A telematics program shares information about when, how much, and how your car is driven. This information is automatically collected and stored and is available for an insurance company to review in order to determine if a driver is eligible for discounts on premiums.

The study also found that: •

61 percent are more likely to accept telematics if insurers offer a trial period for three months, while 72 percent of drivers are more likely to accept if an insurer offers an automatic discount of 10 percent for the first six months.

•

One in every three consumers finds the idea appealing and is likely to use a personal smartphone to collect and transmit telematics data.

“While UBI continues to become more mainstream, many consumers also find the use of their smartphone in UBI appealing,” says Ash Hassib, senior vice president and general manager, auto insurance, LexisNexis. “For insurers, this creates an opportunity to offer programs that fit consumers’ lifestyles such as smartphone use, value-added services based on their interests, and capture important information to gauge future driver risk.”

The report listed several factors that would increase interest for UBI with the largest being the ability to opt out without penalty (80 percent); receive discount (79 percent); choose the information provided to the insurer (77 percent); control over what you pay (75 percent); and information is saved for a short time (69 percent).

LexisNexis also learned from the survey that consumer behavior supports the success of a telematics mobile app. Sixty-three percent of respondents to the survey have smartphones and estimates are that 81 percent of households will have smartphones in 2014.

The survey also showed that one insurance carrier has a clear lead in awareness of UBI among consumers. Progressive dominated that aspect of the study with 78 percent while Allstate was at eight percent and State Farm at six percent.

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Lloyd's eyes Beijing underwriting office 20 August, 2013 | Insurance Insights http://www.insuranceinsight.com/insurance-insight/news/2289848/lloyds-eyes-beijingunderwriting-office Lloyd's is to open another underwriting office in China once regulatory approval has been granted.

Richard Ward, Lloyd's outgoing chief executive, has told The Sunday Telegraph that Lloyd's is to open an underwriting office in Beijing, in addition to its existing office in Shanghai. Lloyd's already has a representative office in Beijing.

Ward said the move was part of his "Vision 2025" plan to ensure the market is able to service fastgrowing economies.

According to Ward, Lloyd’s underwriters in China would focus on a range of speciality insurance products including specialist marine cargo, renewable-energy technology and agriculture.

Ward is stepping down from his post by the end of the year, and did not put a timetable on the office opening.

Opportunities reducing for China motor tie-ups, says KPMG 19 August, 2013 | Insurance Insights http://www.insuranceinsight.com/insurance-insight/news/2289600/opportunities-reducing-forchina-motor-tieups-says-kpmg Foreign insurers are looking to capitalise on the opening of the motor market and rising M&A activity in China. This follows the removal of restrictions to write compulsory third party liability insurance, according to a new industry survey by KPMG. Responding to the results of the survey, Tony Compton, head of insurance consulting, KPMG China, said: "Acquisitions are in play, but perhaps at first sight they may appear expensive, but there is a premium to be paid for rapid access to the Chinese non-life market, where growth will continue to be driven by motor insurance premiums for many years as the consumers, who are becoming more wealthy, continue to buy more cars. Motor penetration still remains low compared to developed markets, there is much room for growth. The number of insurers available for a tie-up with foreign entrants has fallen to no more than a handful, so the opportunity to gain this sort of access may soon be gone."

Axa recently bought a 50% stake in Tian Ping.

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Walkman Lee, head of insurance sector, KPMG China, says: “As an increasing number of foreign insurers enter China’s CPTL market, competition will intensify and domestic insurers are set to feel more pressure, but they will defend their position tenaciously. The Chinese consumers, who have thirst for all things on line, may aid foreign insurers to grow market share if they can use their ‘outof-China’ experience to develop their online direct propositions faster and more effectively than domestic players.”

The survey notes that relaxation of commercial motor insurance product and pricing regulation will "provide large domestic insurers with another tool to potentially grow their market share through better risk selection, lower prices, and better insurance coverage to the disadvantage of smaller challengers." Meanwhile, 64% of insurers have started to conduct regular risk-based pricing analysis, compared to 33% in last year’s surve. According to KPMG, this "indicates that insurers are attaching greater importance to customer selection and risk-based pricing methodologies in the run-up to CTPL liberalisation that KPMG expects to happen within a few years."

The survey, Are You Ready for the Challenges and Opportunities of China’s Motor Insurance Reforms? gathered responses from 90% of China’s general insurance market by premium and 60% of the market in terms of the number of companies.

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Finance Ping An's profits rise 28.3% 30 August, 2013 | Insurance Insights http://www.insuranceinsight.com/insurance-insight/news/2291678/ping-ans-profits-rise-283 China's largest insurer Ping An has reported a 28.3% rise in its first-half profit.

The company earned 17.9bn yuan ($2.92bn) in the first six-months of the year, up from 13.96bn yuan from the same period a year earlier.

Ping An's life insurance premiums rose 10.4% to 126.8bn yuan, and premium income for property and casualty insurance increased by 10.2% to 53.7bn yuan.

Total investment income increased 90% to 26.43bn yuan.

Moody's: Commercial Carriers Indicate Decline in Risk Appetite 27 August, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/08/27/moodys-commercial-carriers-indicate-declinein-ris Moody’s reports its rated commercial lines insurers are indicating a reduced appetite for risk.

According to a survey by the rating agency, insurers “continue to indicate a moderate decline in risk appetite for 2013 for the commercial liability lines despite improving combined ratios.”

Moody’s concludes rate increases will continue in 2014 but the size of the increases are expected to “slowly taper off” given plentiful capacity in the marketplace, and as companies improve returns on capital.

Rates in commercial property, for instance—after three years of rate increases—are slowing.

The lack of risk appetite in workers compensation isn’t as marked as the early part of the decade, says Moody’s, but there is a moderate decline.

Profit in the four major commercial liability lines—workers’ compensation, general liability, professional liability and auto—is expected to significantly improve in accident-year 2013 and 2014 if rate and loss trends continue and exposure growth become visible.

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Commercial liability lines insurers see rate increases of about 7.5 percent in 2013—up from an increase of 6.5 percent in 2012 and 2.5 percent in 2011.

The rating agency can see a combined ratio of 101 in AY 2013 and a profitable 96.5 in AY 2013 after combined ratios of 105.5 and 108.5 in AY 2012 and 2011, respectively.

QBE European GWP up 15% to $3.1bn after Brit acquisition 22 August, 2013 | Insurance Insights http://www.insuranceinsight.com/insurance-insight/news/2290452/qbe-european-gwp-up-15-tousd31bn-after-brit-acquisition QBE Europe has reported a 15% rise in gross written premium to $3.1bn (ÂŁ1.98bn) for the first half of 2013 (H1 2012: $2.7bn) but a 40% fall in insurance profit to $105m (H1 2012: $175m).

Net earned premium increased by 11% to $1.7bn from $1.5bn last year or up 13% in local currency.

The Australian insurer said its GWP growth was largely due to the expansion of its London property portfolio with the acquisition of Brit UK, which contributed $193m of GWP for H1, and the sale of shareholding in QBE Macedonia.

The insurer's combined operating ration deteriorated to 95.7% in the first half of 2013 from the 95.0% reported for H1 2012.

QBE's average premium rates registered an increase of 2% amid challenging market conditions. The insurer's claims ratio was adversely impacted by the European floods and a frequency of large individual risk losses, which required the use of its H1 2013 allowance. However, QBE reported a $65m favourable discount rate impact for H1.

Steven Burns, chief executive officer, European Operations said: "The first half of 2013 saw challenging market conditions with negligible premium rate increases and stiff competition although good premium growth was achieved, supported by our 2012 acquisitions. Strong underwriting discipline enabled us to deliver a creditable underwriting profit despite the late flurry of catastrophe claims and a higher frequency of large property losses."

John Neal, QBE group chief executive officer, pictured, added: "We remain on track to deliver what we anticipate will be top quartile performance in the global non-life insurance market with a target 92% combined operating ratio and an 11% insurance profit margin for 2013.

"We are making good progress in improving key capital ratios and metrics, together with the overarching strength of our balance sheet, and we are pleased with the progress being made on the first phase of our operational transformation program."

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Lloyds Bank completes €300m German life insurer sale 22 August, 2013 | Insurance Insights http://www.insuranceinsight.com/insurance-insight/news/2290491/lloyds-bank-completeseur300m-german-life-insurer-sale Lloyds Banking Group has completed the sale of life insurer Heidelberger Leben to a combination of Hannover Re and Cinven, a private equity group.

The sale was confirmed today after Hannover Re confirmed earlier this week that it was in talks for the business.

Funds advised by Cinven will acquire 80% of Heidelberger Leben shares, leaving Hannover Re with the remainder.

The deal will raise €300m (£255.1m) for the British bank, however, it will also result in a loss of roughly £330m from Lloyds' group accounts.

The net result will be boost of £400m to tier 1 capital, Lloyds said in a statement.

The unit was first acquired by Halifax Bank of Scotland in 1995.

Hannover Re enters talks to buy Heidelberger Leben 19 August, 2013 | Insurance Insights http://www.insuranceinsight.com/insurance-insight/news/2289722/hannover-re-enters-talks-tobuy-heidelberger-leben Hannover Re is poised to buy Lloyds banking group’s German insurance arm for a fee of €400m, according to media reports.

The German reinsurer has has teamed up with private equity groups to hold talks ahead of a bid for Heidelberger Leben, the Sunday Telegraph reported.

An announcement confirming the disposal could be made as early as this week, according to sources close to the matter.

The lender, which is backed by the UK tax payer, has been trying to sell the business for several years.

According to the Financial Times, in 2011 investment bankers claimed the business had an embedded value of about €1bn leading several insurers to look into the business, but bids never materialised.

All parties declined to comment on the disposal.

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Technology Data Mining and Relationship Mapping: Hybrid Approaches To Fraud Detection 27 August, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/08/27/data-mining-and-relationship-mappinghybrid-approa On a daily basis, p&c insurance providers mine through vast repositories of data to validate and process thousands of claims.

Yet, billions of dollars are lost annually because of fraudulent insurance claims. In order to provide quality services to their customers, providers need to recover this lost money. Preventing fraud requires mining and analyzing massive volumes of data to gain better insights and, in turn, improve decision-making ability.

According to a recent survey by FICO1 and Property Casualty Insurers Association of America (PCI), 45 percent of insurers estimated that insurance fraud costs represent 5 to 10 percent of their claims volume, while 32 percent said the ratio is as high as 20 percent. More than half (54 percent) of insurers expect to see an increase in the cost of fraud.

Now let’s evaluate some of the challenges that persist and the changing insurance landscape that is driving innovative solutions and approaches.

Challenges include: •

Information overload and the rise in the number of security threats and frauds.

•

Technological limitations that make it challenging to process and analyze data in a timely manner.

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Information silos, disparate systems and departmental processes that create information leakages.

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Evolving demand to keep up with changing compliance and regulations requirements.

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Lack of skilled resources to investigate and address fraudulent activities.

•

A Changing Landscape Leads To New Realizations

While the insurance industry has matured over the past few years, traditional methods of fraud detection are unable to keep pace with the rapid advances in technology. Criminals these are days are sophisticated, constantly change their tactics and are very skilled in identifying the loop holes. As such, carriers need to implement a robust strategy built on advanced analytics foundation that is

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capable of handling security issues that arise because of information siloes as well detect fraud promptly.

Fraud can occur at any stage of the claims process, leading to a security breach, which is one of the biggest concerns for both for consumers as well as the insurance companies. The results of the Javelin Strategy & Research study, “Identity Fraud Report: Consumers Taking Control to Reduce their Risk of Fraud” revealed the number of people affected by data breaches has grown 67 percent since 2010.

In 2011, more than 11.6 million adults in the United States were victims of identity fraud and the number is increasing year on year. Organizations must start analyzing national and public security trends holistically across the organization to prevent large-scale threats. Using robust advanced analytics, organizations can accomplish the following goals: •

Advance the precision of fraud detection.

•

Reduce false positive ratios.

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Detect fraudulent claims before payment at a faster rate.

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Reduce financial liability.

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Reduce operational cost by using a common technology platform for fraud and security issues.

Organizations can also deploy these measures to counter fraud: •

Connect the enterprise tightly. Deploy a common infrastructure across the organization and ensure a smooth flow of information across various systems to make it easy to analyze data from across channels such as users or accounts and provide a comprehensive view of an individual’s relationship with the organization.

•

Monitor continuously. Leveraging advanced analytics to monitor and authorize transactions in real-time enables proactive identification of a fraudulent transaction with no negative effect on the customer experience, thereby protecting brand reputation.

•

Discover relationships in your data. Establish links between your data entities such as customers, products, accounts or services to easily identify organized or collaborative fraud activities that would otherwise go unnoticed.

•

Mash up structured and unstructured data. Useful information can often reside in unstructured data formats like claims log, survey reports, emails, social media and geospatial information.

Once mashed up with the structured information from internal systems, this unstructured data can provide valuable insights into detecting claim patterns.

No single analytics approach is perfect and each organization needs to experiment and evolve to come up with a fraud detection system that works the best for them. That said, it is important to incorporate a hybrid analytics approach which combines various methods including monitoring past patterns and business rules, detecting anomalies, predictive data mining, analyzing social, champion-

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challenger adaptive segmentation with advanced neural networks, and relationship mapping for greater accuracy and improved detection.

Secondly, as mentioned earlier, combining information from structured data with the unstructured data is important to link unrelated events, unearth hidden facets and detect security threats and fraud in the early phases.

Mobile Apps Open the Door for Agents 26 August, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/08/26/mobile-apps-open-the-door-for-agents It only takes a few years for technology to leap the gap between novelty and indispensable business tool. In the mid-1990s, during the Internet's infancy, it was hardly uncommon for corporations to do business without e-mail or a website. By 2000, the thought a corporation without a robust investment in both of those areas was a joke.

Now, mobile devices have taken on the role once occupied by the fledgling Internet. In the space of five years, "there's an app for that" has gone from punch line to foregone conclusion. If there's not an app, there should be. If there's not an app, the company is losing customers and income.

Mobile applications are now simply part of the cost of doing business, a fact that holds true for insurance companies as surely as it does for any other customer-facing industry. Those who don't offer mobile applications are being left behind just as those companies were a decade ago who didn't embrace the Internet.

Mobile devices are becoming the preferred computing device of younger users. This mobileconnected generation uses their mobile devices as the 40-year-olds use their laptops. Obviously their use is more about consumption of content rather than producing content (yes, they deem Twitter and Facebook posts as creating content), but the amount of content they consume is vast.

According to a recent Nielsen study, some 61 percent of mobile subscribers own a smartphone of some kind, an increase of more than 10 percent over 2012, the first year smartphones became the majority in mobile devices. The highest penetration is among users aged 25-34 at 78 percent, but use of such devices is growing in all demographic groups. An increasing number of Americans are spending more time with their phones than they are with their computers, their televisions or any other kind of media.

The majority of this time is not spent making calls, texting or using the web, it is spent in mobile applications. According to app analytics firm Furry, roughly 80 percent of the time mobile users spend on their devices is spent in apps. What company in their right mind wouldn't pay attention to that?

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In March, ABI research reported downloads of applications for mobile smartphones will be in the range of 56 billion for 2013. Additionally, mobile users will download around 14 billion applications for their tablets. Given 365 days a year, 24 hours in a day, this equates to close to 8 million applications downloaded per hour or more than 133,000 downloads per minute. There are currently more than 800 applications in the Apps store under the category of “insurance.” Everything from insurance glossary and dictionaries, to insurance industry journals, life insurance, homeowners, even home inventory management applications, auto insurance, healthcare, home mortgage insurance, and patient check-in applications to streamline the check-in at healthcare providers' offices. Every major provider—Allstate, USAA, Progressive, Humana, United, Aetna, Blue Cross, Anthem, and Geico—have mobile applications in the mobile application stores. This is true for many brokers and agents as well.

Insurance companies may not see the need for mobile applications as clearly as, say, a banking institution or a retailer. However, the truth is, while insurance customers may not need to access services as often as customers of other business sectors, believing that the mobile capabilities are not needed or should be limited to what amounts to brochures is a dangerous path. Such thinking ignores the myriad advantages of offering a mobile application: •

Extending the image of the company

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Increased self-service and straight-through processing

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Expense reduction in postage, labor to answer calls, and processing customer requests

One could argue that for insurance users, policyholders may not need remote access very often, but when they do, they'll want it immediately. For example, some companies offer a digital insurance card (where states allow) that the customer can access through a mobile application, a service the customer will want immediately in the case of anything from a traffic citation to a visit to the doctor's office.

For insurance companies, the advantage of putting information at their customers' fingertips can add critical functionality to maintain that "stickiness" in the relationship, giving the customer something that can be used more often than simply whenever the customer needs to access insurance information. Health insurance companies may augment their mobile application with an exercise tracker or calorie counter; auto insurance companies may add in a mileage log or automated reminders for oil changes.

These aspects of added functionality, related to the central business of the insurance company, can dramatically increase the "face time" the mobile customer spends with the application, serving to strengthen the relationship between company and customer. Every section of the insurance industry is beginning to adapt to mobile applications. The ones that will be successful are the ones that are providing more functionality, a use beyond simply accessing insurance information. Interactive, daily use keeps people coming back to the app, and keeps customers engaged with the company.

For policyholders and members, insurance carriers are improving customer service with mobile applications to assist in finding covered medical providers, linking hours of operations, maps, and other information on the provider. Obviously many carriers are providing mobile applications for

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claims inquiry, deposit notifications, adjuster status and other traditional functionality that once required a phone call or a connection to the insurance company's web site. Healthcare carriers have built mobile applications for wellness and health maintenance that aid members in tracking physical fitness activity and other wellness activity.

A mobile application for an insurance company can go far beyond policyholders or members and extend to agents, brokers, and employer groups.

P&C carriers have jumped at providing some of the same claims and traditional call-center support via the mobile device, as well as the ability to track and report workflow activities in a much more real-time fashion via the mobile device. Taking pictures of an auto accident or of storm damage on the device and attaching them within a mobile claim application provides functionality that allows the claimant to provide all necessary information straight from the mobile device at the scene of the accident or event.

Something as simple as a claim on homeowner’s insurance has changed dramatically in the past few years, simply because of the mobile technology now available to adjusters. An adjuster can come out to the home, take pictures from his mobile devices, fill out the forms and have them signed by the policyholder on the mobile devices and wirelessly transmit payment to a blue tooth printer in his truck to print the check for the policyholder. That's a lot of functionality and service in 15 minutes from a mobile device.

While many carriers have enhanced their website for mobile access, best practice is moving to a much richer device-resident application that interfaces with the web to provide a robust and interactive user experience.

Perhaps the greatest usage for many carriers has been the increased functionality to the agents and brokers. This is an area where the carriers have not only been able to reduce cost by moving work to the field, they have also streamlined transactions to reduce time and float in the system to gain a more real-time understanding of the activities in the field.

It can be a powerful tool in the carrier-to-agent relationship, expanding the agent's image and putting a wealth of information at the agent’s fingertips, allowing them to focus on what they need to do.

The amount of mobile functionality being rolled out to the agent and broker community is staggering. For example, interactive sales presentations can be customized by industry in a matter of minutes for an iPad. In one case a company developed a “sales presentation application”, that allowed the agent to pick and choose the elements in the applicat

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Who's Using What: The Latest Insurance Software Implementations 23 August, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/08/23/whos-using-what-the-latest-insurancesoftware-impl Valen Analytics announces a new customer engagement with Dallas National Insurance with the carrier utilizing both the Manage and Predict features of Valen’s InsureRight platform to make predictive analytics more accessible to underwriters and to provide more insight into the potential risk associated with workers’ compensation policies.

Assurity Life has selected iGO DTC (Direct to Consumer) from iPipeline to provide a consumer-facing tool to kick start the buying experience on line for disability insurance. Data about the consumer and product of interest is captured via an online short form, delivered to an Assurity distributor for screening, and submitted electronically to a home office interviewer, who engages the consumer to complete the process.

Generali US Branch migrated its commercial auto and liability lines of business to Instec’s Quicksilver Cloud policy administration platform running on Microsoft’s Windows Azure cloud platform.

Generali is investing heavily in cloud technology for core systems as part of its overall strategy to modernize its operational systems. By moving its core policy administration platform to Windows Azure, Generali has improved system uptime as well as immediate access to data backups.

RSA has signed an extension to its application outsourcing agreement with Accenture for five additional years through 2020. The agreement is designed to reduce RSA’s IT costs, enhance its product offerings and online presence, and improve customer service. Accenture will provide ongoing development, implementation, and maintenance services for RSA’s applications that support the insurer’s commercial and personal lines operations in the UK, including customer relationship management, claims processing, policy administration, and back-office applications.

Phoenix Life Insurance Company is leveraging StoneRiver’s LifeSuite to perform an automated assessment of risk during a point-of-sale telephone interview process; gather information from providers for MIB, Rx, and MVR; Interpret the collected data via the LifeSuite Rules Engine to determine eligibility and; deliver an underwriting decision to the applicant during a single phone call.

Erie Insurance has integrated Symbility Solutions Claims Connect software into its operations to streamline the claims estimating process by reducing cycle time and increasing accuracy in all aspects of the claims handling process. Erie Insurance will also use Symbility Mobile Claims smartphone and tablet-enabled field estimating solution to enhance adjuster and third-party contractor productivity.

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Building Better Mousetraps: Technology Imperatives To Fight Fraud 23 August, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/08/23/building-better-mousetraps-technologyimperatives Finally, a new number to bounce around the P&C insurance industry lexicon: $80 billion. Gulp. That’s quite a number, isn’t it?

For years, we have been estimating that fraud siphons about $30 billion from P&C insurers’ pockets, and arguably much more from the public at large. I must confess to having grown tired, and rather skeptical, of this figure, even in spite of the disclaimers about its opacity.

But having a shiny new projection is the opposite of refreshing; it’s alarming. That’s because, according to Aite Group, we’ll be contending with about $80 billion in fraud “taxes” by 2015. As for 2012, Aite estimates this rampant crime cost P&C insurers about $64 billion.

As claims departments and their SIU brethren attempt to keep up with the growth in fraud, which is penetrating every line of business, it’s clear that a more realistic snapshot of the magnitude of the problem is at best, a sort of preface to a Tolstoy-esque novel.

However, to deploy more effective anti-fraud technologies, U.S. carriers are going to have to spend…a lot. In fact, spending allocated to fraud solutions (split roughly evenly between analytics and scoring products and services) is expected to grow by 44 percent between 2011 and 2016, according to “The Escalating War on Insurance Fraud: P&C Carriers and Fraudsters Up Their Games,” Aite Group’s overview of the North American P&C insurance fraud battlefield, including its history and evolution.

Stephen Applebaum, the author of the Aite report, based his findings on interviews with 22 p&c insurance industry stakeholders and fraud-prevention organizations conducted from July 2012 to March 2013.

“The growth in both cost and type of fraud show no sign of easing, even as claims frequency and premiums written have remained relatively flat,” explains Applebaum. “What puzzles and strikes me more than anything is that [fraud] keeps growing in spite of the significant efforts expended in traditional detection and deterrence processes.

“More potentially effective solutions are available, both technological and in the areas of industry and public agency information exchange and cooperation,” he continues. “*These solutions+ are proven to work, but need to be more aggressively adopted.”

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Bigger Cheese, More Mice Applebaum cautions that insurers that fail to “up their game” could will not only become competitively disadvantaged but also adversely selected by enterprising fraudsters. Therefore, carriers should revisit and update their enterprise fraud strategies and actively review new and more effective solutions in the marketplace. “Simple rules-based scoring and workflow solutions, while still effective, are now just table stakes,” says Applebaum.

“Insurers must focus on solutions that enable detection as early as possible in the process— preferably in underwriting or at least during the claims reporting process—before payments are made and valuable investigative opportunities are lost. This capability will not only yield the highest financial results but will also encourage fraudsters to seek softer targets.”

Sizing Up The Rats Last year, claims fraud costs averaged about 14 percent of the total net premium written in the U.S. P&C industry. When breaking down the cost by product line, Aite finds private passenger auto suffered by far the greatest hit, accounting for $26 billion of the total $64 billion in 2012. After that, homeowners’ multi-peril ($14 billion) and workers’ comp ($8 billion) were the only other two lines to suffer costs more than $4 billion.

Numbers released earlier this year by the National Insurance Crime Bureau (NICB) reaffirm the magnitude and scope of this pervasive crime. Questionable claims (QCs) are piling up, as NICB notes a 27-percent increase in QCs over the last three years. In 2010, the agency logged 91,652 QCs from member insurers, with 100,201 in 2011 and 116,171 in 2012.

There is compelling evidence that U.S. p&c insurers are not exactly resting on their laurels. The sector spent $271 million last year on fraud analytics and scoring products and is expected to spend $291 million this year. Aite anticipates spending to annually rise $20 million per year, on average.

This means that by 2016, insurer spending could top $360 million, split evenly between scoring and analytics investments.

Applebaum emphasizes the importance of text mining, case management, visual link/social networks analytics, and more-evolved instances of identity management and verification in early detection and fraud deterrence. Increasingly, cyber defenses and outlier detection, along with fresh investigative techniques, such as behavioral analytics and speech biometrics, will be key to strengthen insurers’ holistic, proactive solutions as well.

Risk Control Technologies, e2Value Integrate Solutions 20 August, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/08/20/risk-control-technologies-e2value-integratesoluti

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Risk Control Technologies Inc., a provider of loss control survey software for insurers, announces integration of the RC Inspection solution with e2Value Insurance-to-Value valuation tools. E2Value provides online replacement cost solutions for the insurance industry and estimating products for Mainstreet homes, high-value homes, manufactured and kit homes, commercial properties, and farm and ranch properties. “By providing the ability for our property clients to integrate seamlessly with the e2Value replacement cost products from within their loss control system, we are able to help them streamline the end-to-end loss control process,� says Dave Hanley of Risk Control Technologies.

RC Inspection now includes integration points with various e2Value products, allowing insurers to call the XML-based e2Value service directly from the loss control survey within RC Inspection. The calculations and supporting data are returned directly to the user within RC Inspection, which can then be fed into reports for insureds and/or underwriters.

RC Inspection also allows field inspectors and surveyors, disconnected from the Internet, the ability to enter data in the field on a Windows or iPad tablet device. With the integration of the e2Value product set to RC Inspection, users will now be able to enter key property details in the field which will be sent to the e2Value service to calculate the replacement cost once the user is back online.

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Strategy FSB: U.S. Regulatory System Constrains Uniformity 28 August, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/08/28/fsb-us-regulatory-system-constrainsuniformity The U.S. insurance regulatory system is in a state of major disrepair, an international body that monitors and makes recommendations about the global financial system said in a new report.

The so-called “peer review” of the U.S. insurance regulatory system by the Financial Stability Board (FSB) said one option the country should strongly consider is “migrating towards a more federal and streamlined structure” as a means of “achieving greater regulatory uniformity.”

The report said that U.S. authorities should promote greater regulatory uniformity in the insurance sector by conferring additional powers and resources at the federal level where necessary.

It said the Federal Insurance Office (FIO) should enhance its monitoring of the insurance sector “and be further strengthened to be able to take action to address issues and gaps identified.” The report notes FIO is scheduled to come out shortly with a report to Congress and the president will set forth how to modernize and improve the system of insurance regulation in the U.S. and, among other factors, will consider the degree of national uniformity of state insurance regulation.

It urges U.S. authorities, both state and federal, to further enhance insurance group supervision by introducing requirements for consolidated financial reporting for all insurance groups and by giving lead supervisors additional powers to fully assess the financial condition of the entire insurance group.

An excerpt from the report: "The US authorities should carefully consider and provide recommendations to Congress as to whether migration towards a more federal and streamlined structure may be a more effective means of achieving greater regulatory uniformity. Moreover, the FIO’s current human resources may need to be augmented to fully address the tasks that it has been mandated under [the Dodd-Frank Act]. The FIO should also enhance its monitoring of the insurance sector through greater use of nonpublic information that it is able to access, and be given more resources and powers to be able to address issues and gaps that it identifies."

Summing up the report, Mike Nelson, chairman of insurance law firm Nelson Levine, said the FSB report made a number of pointed comments about shortcomings in the U.S. regulatory landscape, particularly involving insurance issues.

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The report said, “The architecture for insurance supervision in the U.S., characterized by the multiplicity of state regulations, the absence of federal regulatory powers to promote greater regulatory uniformity and the limited rights to pre-empt state law, constrains the ability of the U.S. to ensure regulatory uniformity in the insurance sector.”

Lastly, the FSB encouraged state governments to implement changes to those state laws that empower insurance regulators "so regulatory agencies can improve rule making powers and bolster departments of insurance with better funding and staffing."

Given the current political barriers to imposing a more unified system, the report implied that, at the very least, states should implement changes to those state laws that empower insurance regulators so that regulatory agencies can improve rule-making powers and bolster departments of insurance with better funding and staffing.

Specifically, the report said that governors should allocate money to insurance departments so they can hire technical specialists able to adequately monitor new regulatory standards, such as principles-based reporting.

For example, according to the report, no action has been taken on a recommendation that states use quantitative techniques and practices or apply insurance capital requirements to the consolidated insurance group. The recommendation was made by the Financial Sector Assessment Program (FSAP), a unit of the International Monetary Fund.

The report also said that, “While the vesting of regulatory powers in the state insurance commissioner in principle ensures that departments are operationally independent, the ability of the governor in most states to dismiss commissioners at any time, and without a public statement of reasons, continues to expose departments to potential political influences.”

It specifically points out gaps in regulation of life insurance companies. It said that as principlesbased reserving (PBR) is enacted by the states, the National Association of Insurance Commissioners (NAIC) and state regulators will need strong actuarial expertise and regulatory tools to deal with the complexities of a less-formulaic framework.

“Further work is needed to revise capital requirements in light of PBR and to evaluate the appropriateness of the capital treatment of market risks associated with life insurance products,” the report said.

It said the absence of a target safety level of reserving and an associated target safety level for capital “makes it difficult to make peer comparisons across insurers and against other international insurance regimes, although NAIC is of the view that an overall target safety level is unachievable and unnecessary. The safety level targets for individual risks are in most cases not set out in NAIC models,” the report said.

As Nelson noted in his analysis of the report, it called for greater regulatory uniformity, noting that the NAIC is not a regulatory authority, “and thus attempts by it to create uniformity is weakened by its lack of authority.”

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Nelson cited a part of the report that said only 15 states have adopted the Insurance Company Holding Model laws.

The commentary also noted that FIO should make greater use of non-public information to strengthen gaps in the regulatory system, and the United States should enhance group supervision by requiring greater consolidated financial reporting.

A Treasury Department spokesman said in reaction to the report that, "As a member of the FSB, we welcome the evaluation of our financial sector policies by an independent international body. We agree with the findings that the establishment of the Financial Stability Oversight Council, the Office of Financial Research and the Federal Insurance Office represent important steps to enhance the stability of the financial system.”

Travelers Cos. Exits Write-Your-Own Business 27 August, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/08/27/travelers-cos-exits-write-your-own-business Travelers Insurance Cos. are exiting the Write-Your-Own market, selling the National Flood Insurance Program (NFIP) policies its companies write to American Bankers Insurance Company of Florida (ABIC).

ABIC is part of an Assurant Inc., unit that is based in Atlanta.

Write-Your-Own companies sell National Flood Insurance Program policies as part of their homeowners’ insurance business, and also handle claims processing.

There are approximately 85 WYO companies.

Gary Griffin, a spokesman for Travelers, said, “This was a small, non-core part of our business and exiting the program eliminates the operational complexity associated with maintaining separate underwriting and claim processes required for participation.”

Griffin said Travelers is working with ABIC to ensure a smooth transition for policyholders and agents. We will continue to service and provide claim handling for policies issued through Travelers.”

He said Travelers is retaining the underlying homeowners’ policies written by Travelers companies.

Travelers said it will stop writing new WYO business on Sept. 15, 2013, and it will stop offering WYO renewal policies on Sept. 1, 2013, for policies effective Oct. 15, 2013, and later.

The action is unlike the decision of State Farm to exit the WYO market in 2010 due to uncertainties related to the authorization of the NFIP.

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At that time, State Farm turned over approximately 831,972 NFIP policies in stages back to the Federal Emergency Management Agency. They are now being administered through “NFIP-direct.”

A data processing company called CSC, based in Virginia, took over those policies. CSC was sold in August to National Flood Services, Inc. (NFS), based in Kalispell, Mont. NFS does most of the backoffice work for 50 Write-Your-Own companies.

FIO Model Draft Near Completion 26 August, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/08/26/fio-model-draft-near-completion INDIANAPOLIS -- One of the gaps in state insurance regulation is in the area of insurers use of captives, Federal Insurance Office (FIO) Director Michael McRaith said today in a closed meeting with state insurance regulators, staff and leadership of the National Association of Insurance Commissioners (NAIC) here at the NAIC summer meeting.

McRaith also reportedly told the assembly of regulators at the NAIC Commissioners Roundtable that the overdue FIO modernization report could be out in as little as two weeks to perhaps a longer horizon of a month or more, and that although he s an optimist, he has been wrong before, according to attendees.

The long-anticipated report was officially due in January 2012, and has long been seemingly imminent, so the timetable can shift, still. It must be scored by the Office of Management and Budget, still, although certainly earlier drafts have been sent up before. Treasury needs to give final approval to the FIO's reports.

At the meeting, former NAIC CEO Sen. Ben Nelson, D-Neb., asked McRaith five prepared questions on major issues, although Nelson would not disclose the questions and attendees said that McRaith did not answer questions directly, deferring to Treasury and the Administration at times.

Conversation also touched on the Financial Stability Board (FSB) now “coming out of the shadows” and issuing directives to the international insurance supervisors, Nelson noted. Nelson said McRaith reminded regulators that FSB does not have statutory authority.

The National Flood Insurance Program (NFIP) was also mentioned by the NAIC. While McRaith didn’t answer the question directly, he did suggest that there may be a delay when it comes to Federal Emergency Management Agency (FEMA) implementing a provision of the 2012 law reauthorizing the NFIP provision that mandates phased-in rate increases for grandfathered properties, according to NAIC President and Louisiana Commissioner Jim Donelon, who participated in meetings today by conference call.

Nelson also said that although the use of captives for reinsurance issue may be seen as a gap in state regulation by FIO, it is a gap “we are closing,“ Nelson told reporters, and noted that the NAIC has been diligently working on the issue for some time.

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However, FIO appears to have a laser focus on the captives issue, and indications that it had stepped back from the issue now appear misguided.

Nelson described the meeting as congenial and said the NAIC leadership meets with the FIO director regularly and will have another meeting the week after next.

Nelson said at a press conference Sunday that the relationship between FIO and the NAIC had improved over the past two months.

The captives issue is of concern to many state regulators, who have worked on drafts of white papers and conducted research on captive reinsurance transactions and special purpose vehicles over the past two years. New York has gone so far as to call for a moratorium and NAIC, although not accepting a moratorium, has acknowledged that the use of captives is indeed a practice that needs oversight through various arms of the NAIC. Many regulators want not only more transparency with these transactions so they can follow the money, but they want the risk that is insured to be “real,” and not a ploy to offload redundant reserves or shift risk into a less stable vehicle. The use of captives on lender-placed insurance is also an issue.

McRaith took a pointed interest in captives and said it is something that FIO should monitor this past March, calling for a task force on the subject during a meeting of the Federal Advisory Committee on Insurance. There was immediate friction between the FIO and Connecticut Insurance Commissioner Tom Leonardi on FIO’s actions on the captives issue, with Leonardi reiterating that he does not think FIO should be weighing in or intruding on work that the NAIC is already undertaking effectively.

Federal Cat Reserving Legislation Pushed by D.C. Regulator 26 August, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/08/26/federal-cat-reserving-legislation-pushed-bydc-reg INDIANAPOLIS--Federal catastrophe reserving legislation is re-emerging with William White, the District of Columbia’s insurance, banking and securities commissioner, telling fellow regulators that a bill is expected to be introduced this fall from Rep. Eleanor Holmes-Norton, D-Wash.,D.C. White (pictured) noted during a meeting of the NAIC’s Catastrophe Insurance Working Group this weekend that he was reintroducing an idea that has circulated for some time.

White is looking for support among his brethren at the NAIC for the bill, which would allow P&C insurers the ability to accumulate long-term catastrophe reserves tax-free given a change in the federal tax code.

Although tax-deferred catastrophe reserving is a perennial issue, there are some new twists that supporters hope will give the draft bill, only seven pages long, the impetus to finally get traction in Congress.

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First, the proposed program would not just store accumulating reserves for natural catastrophes, according to Larry Mirel, a partner at Nelson Levine de Luca & Hamilton, and a former D.C. commissioner familiar with attempts at similar legislation.

Terrorist event reserves are now incorporated into the draft legislation to the extent that the Terrorism Risk Insurance Act is not reauthorized or doesn’t provide coverage. This idea was raised last year by the DISB’s then-general counsel during a presentation at the NAIC fall meeting in Maryland but the new bill contemplates TRIA not even getting renewed.

Second, unlike last year’s draft, the Federal Insurance Office (FIO) will not be a part of the administration of the proposed program.

FIO is not needed for this program, Mirel said in discussing the bill afterwards.

His view meshes with sentiments expressed last year by NAIC leadership that FIO was not necessary or needed for this catastrophe reserves program.

However, at a presentation at the fall national meeting of the NAIC last year, it was noted that the addition of FIO was intended to trigger Congressional committee jurisdiction different from prior legislation.

Including FIO provided an opportunity to get legislation before the U.S. House Financial Services Committee, a key committee, according to the presentation. Without FIO, then the House Ways & Means Committee has sole jurisdiction and Ways and Means has had versions of that legislation before them since 2004, it was noted.

Of course, without FIO, there is still need for federal involvement, and White thinks he has the key.

Because the District is a federal entity subject to federal oversight, the D.C. Department of Insurance, Securities and Banking (DISB) would be the steward regulator, White explained.

This strategy avoids the controversial federal pre-emption issues and regulatory arbitrage that has held up this type of legislation before, according to White, “If you do not do this in a way that provides federal oversight there was no way to get a revision to the tax code. We think that by utilizing D.C. as a federal entity, we can do something that all the states would like to have without subjecting the states to federal oversight,” White said.

Under the bill, D.C. would license a company and maintain the National Disaster Protection Fund for them. “No company needs to move out or redomesticate," White said. "We would regulate it like we would any other company,” he said.

Fellow supporter Mirel said the legislation would have many features of the South Carolina Catastrophe Savings Account law, with some of the same features built into the program.

The South Carolina law passed in 2007 allows homeowners to set up a “catastrophe savings account” that grows state income tax-free to help with the deductibles. Any state or federally chartered bank can set up this interest-bearing account.

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Consumers can use money for catastrophes and also get tax credits for retrofitting or strengthening home and properties through an approval process with certified contractors.

If they withdraw funds from your catastrophe savings account to pay for qualified catastrophe expenses, they do not have to include the withdrawal in their South Carolina taxable income.

Lloyd’s Survey Shows Taxes, Cyber Threat as Top Risks of 2013 20 August, 2013 | Property Casualty 360 http://www.propertycasualty360.com/2013/08/20/lloyds-survey-shows-taxes-cyber-threat-astop-risk Corporations consider cybercrime and taxes to be nearly equal threats to the survival of their business, according to a new Lloyd’s of London report ranking risk perception internationally.

The top three risks of 2013 according to a survey of nearly 600 C-Suite and board-level executives, are high taxes, customer loss, and cyber threat, respectively.

“The public scrutiny given to corporate taxation has become increasingly intense over the last two years, with governments and the taxpayer alike demanding greater transparency and changes to legislation,” says Lloyd’s chief executive Richard Ward, in the study’s foreword.

High taxation, while not even a top-40 risk in Lloyd’s first “Risk Index” study conducted in 2009, jumped to 13 in 2011 before claiming the top spot among companies worldwide. Overall, corporate preparedness was ranked 5.3 out of 10 points.

The fear is not necessarily reflective of reality, however. KPMG tax rate tables show that corporate income taxes have actually trended downward in recent years: the global average rate having fallen from 24.5 percent in 2011 to 24.1 percent in 2013.

“The reality for businesses appears to be that government ambiguity about business taxes, whether about extending jurisdictions, amending legislation or changing rates, may actually be more damaging for business confidence than the reality,” states the report.

Cyber risk has been on international risk index since the study’s inception, climbing seven points from number 20 between 2009 and 2011, and settling as the top-third threat of 2013.

Businesses have a real reason to worry over the dangers of malicious code, denial-of-service and web-based attacks on corporate and customer data. In 2012, the Ponemon study found that cyber crime wreaks $8.9 million of damage a year, with a range of $1.4 million to $46 million annually per company.

“It appears that businesses across the world have encountered a partial reality check about the degree of cyber risk. Their sense of preparedness to deal with the level of risk, however, still appears remarkably complacent,” the study says. Overall, preparedness for cyber risks ranked at 5.9 out of 10 in 2013.

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The top three risks of 2009 were credit cost and availiability, currency fluctuation and insolvency; these were replaced by customer loss, loss of a talented or skilled staff, and reputational risk in 2011.

According to the survey, risk management preparation has decreased overall—in 2011, 70 percent of respondents said they were better able to manage business and operational risks compared to 2009. Only 46 percent felt better-prepared than they were in 2011.

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