Wednesday, December 9, 2009

Report: Insurance industry faces major changes next 5 years

NU Online News Service, Dec. 8, 11:43 a.m. EST

The insurance industry will undergo increasing consolidation as part of the fallout from government intervention and potential tax law changes following the financial crisis, a consulting firm is advising.

And insurance industry stability and certainty may not return for a few years as insurers react to regulatory reform, PricewaterhouseCoopers LLP said.

PwC projects in a report that within five years the industry landscape could look markedly different and Americans may find their insurance policies underwritten by a handful of large, well-capitalized firms that can demonstrate financial strength and economies of scale.

Titled “Emerging from the Storm: The Day After Tomorrow for Insurance,” the PwC analysis outlines nine key developments the firm said are expected to reshape the insurance industry and their strategic implications during the next five years.

The most significant of these developments for U.S. insurers, PwC said, will likely be sweeping regulatory changes resulting from proposed legislation to reform health insurance and increase federal oversight of the insurance and financial industries.

Creation of a Federal Insurance Office could provide federal policymakers with the information and resources to better respond to crises, mitigate systemic risks and help ensure a well-functioning financial system, but it could also lead to dual regulation at both the state and federal levels, according to the report.

Bill Chrnelich, PwC insurance sector partner, said, “Insurers are in the business of managing risk and measuring probability. They don’t like uncertainty, yet they are facing two massive reform initiatives, the outcomes of which are unknown but could alter their destiny.”

He noted, “Some insurers are taking a cautious wait-and-see approach, while others see this period as a once-in-a-generation opportunity to shape their future.”

According to PwC, the insurers most likely to succeed once regulatory changes are enacted are those that closely monitor developments and create business strategies that anticipate the most likely possibilities for reform.

PwC said the U.S. insurance market remains highly fragmented, and there is a strong underlying rationale for consolidation and restructuring, which means merger and acquisition activity may be set to accelerate rapidly.

This could particularly occur, according to the firm, as larger, better-capitalized firms consume smaller firms.

The report said consolidation is expected to help deliver the capital stability and economies of scale that will be important in attracting customers and demonstrating financial strength, not only to ratings agencies but also to third-party distributors whose “ownership of the customer” makes them a key determinant of an insurers’ fate.

PwC found that the faith of investors, who had become accustomed to high yields but were unaware of the related risks, “appears to have given way to shock, disillusionment and caution.”

A pursuit of innovation, said PwC, appears to have been displaced by a focus on stability, risk management and demand for simpler, more straightforward and transparent policies and investment products such as index-linked investments.

As an example of this, the firm mentioned the recent resurgence in demand for whole life insurance.

But it cautioned that the apparent desire for guarantees could create dilemmas for insurance companies that want to scale back such products as they seek to limit risk.

Potentially higher costs of risk and guarantees, along with what may be higher commission payments to distributors, could change product economics, and insurers will need to better understand component costs, pricing and profit profiles, the report advised.

PwC predicted that governments will be looking closely at insurance companies’ tax status as the industry is a major source of potential tax receipts and has moved significant business capacity to other jurisdictions in recent years.

Insurers, PwC said, can expect renewed scrutiny of their tax planning techniques, as well as more stringent requirements for transparency and information exchange relating to clients.

As a result of the financial crisis, the consultants noted, many insurers have been forced to raise prices, restrict the pursuit of new business, or withdraw from high risk and peripheral markets.

It forecasted that as insurers withdraw from some of their geographic markets and scale back particular lines of business, the market shares and opportunities for those that remain could sharply increase, leading to a significant reconfiguration in the list of leading players.

Companies with a better understanding of their risks, said PwC, are likely to be in a stronger position to capitalize on potential openings that less-informed and less-assured competitors may miss.

PwC warned that without an industry consensus on a genuinely relevant, intelligible and comparable basis of accounting and disclosure, insurers may find it increasingly difficult to compete for capital.

Further, with funds constrained, many portfolio investors could simply choose to put their money elsewhere, leaving the insurance industry with major challenges, according to the firm’s analysis.

PwC said in a statement that “it seems imperative that the industry come together to develop a basis of relevant disclosures that reflect the nuances of their business and satisfy analyst and investor demands.”

As the government exerts a stronger influence over the insurance market as a result of bailouts, regulatory reform and greater control over pensions, health care, trade credit and mortgage support, the relationship between the public and private sectors could change, PwC suggested.

With the appointment of the Special Master for Troubled Asset Relief Program Executive Compensation in the United States, insurers are likely to base much more of their performance-related pay on risk-adjusted measures aligned to their business strategy. They also are expected to face tougher regulation over how compensation is governed, said PwC.

The firm also found that for reinsurers, while demand is likely to increase within emerging markets, this is unlikely to offset the decline in reinsurance buying in developed markets and may force many reinsurers to rethink how they sustain profitability and growth.

The trend toward higher retention of straightforward risks could accelerate. As companies become more risk-aware through advances in enterprise risk management, they will be better able to choose what risks to retain and which to reinsure, PwC said.

Mr. Chrnelich said the coming changes mean the competitive landscape will be very different in five years from what exists today. “This will jeopardize some insurers' business, but it should also enable those who are better prepared to excel in a new environment.”

Friday, November 13, 2009

Consumers Missing Out on Discounts

Insurance Networking News, November 12, 2009

Americans are not utilizing all of the discounts that may be available to them in their homeowner and auto insurance, according to a new national survey conducted for Trusted Choice and the Independent Insurance Agents & Brokers of America (IIABA).

The survey queried home and auto owners about whether they are taking full advantage of all the discounts they qualified for on their homeowners and auto insurance policies. The study found 34% of respondents, representing 53 million households, admitting they are probably not taking advantage of all homeowners insurance discounts or indicating that they simply didn’t know. The results were largely similar with auto coverage, with more than 20% of car owners either not knowing or employing all the discounts available to them.

“The latest survey shows what we suspected: many Americans could be foolishly throwing money away because they fail to ask about insurance discounts for which they may qualify,” says Madelyn Flannagan, IIABA VP of agent development, education and research. “Companies often offer some unique, regional, very specific and, at times, quirky discounts. In these economic times, every dollar counts—some consumers may be able to nickel and dime their way to big savings.”

Robert Rusbuldt, IIABA president & CEO, says the results underscore the value proposition of insurance agents.

“One of the biggest advantages to using an independent insurance agent is that they can explore the various companies and find the best possible coverage for each individual family or business,” says. “Finding specific discounts can be time-consuming and confusing, so we advise consumers to consult with their Trusted Choice independent insurance agent and ask questions.”

Wednesday, November 4, 2009

Patriot Ledger: Keep senior driver discount but make sure it's earned

QUINCY — .It’s frustrating that a generous insurance discount for the state’s oldest drivers means higher rates for the rest of us, but addressing that injustice now would further weaken the push for tougher testing standards for this accident-prone group.

The Legislature would be wise to leave that plum untouched and stay focused on making sure drivers old enough to qualify for the discount deserve to be on the road at all.

The Automobile Insurers Bureau of Massachusetts recently released accident data that bolsters the push for tougher standards for older drivers. It shows those over 75 – while not the deadly drivers they are sometimes made out to be – get in more accidents and file significantly more property damage claims than all other drivers except inexperienced, youthful ones.

The document suggests that while some “senior discount” may be warranted, the 25 percent break enjoyed for more than 30 years is probably excessive.

“Whoever is getting the discount is going to be subsidized by others,” said Bob Passmore of the Property Casualty Insurers Association of America. Passmore said the Massachusetts senior discount is the largest in the nation and one of only a handful that are based solely on age. In most other states, the discount is contingent on the driver passing a defensive driving course.

“Many seniors expect a discount. They go into Dunkin’ Donuts and get a discount. They go into McDonald’s and get a discount,” said Frank Mancini, president of the Massachusetts Association of Insurance Agents. “But if competition is going to work and it’s going to be fair, then subsidies have to come out.”

While we tend to agree, the politics involved necessitate a different approach.

For the past five years, Sen. Brian Joyce, D-Milton, has been pushing a bill that would require drivers 85 and older to pass cognitive and reflex tests to renew their licenses. The version now being considered – which next goes before the Legislature’s Joint Transportation Committee – would apply to drivers 75 and older.

The bill gained traction earlier this year during a spate of deadly accidents involving drivers in their 70s and 80s but the uproar has died down and efforts to defeat the bill have not eased.

It is opposed by some senior citizen advocates who say it should be based on ability rather than age.

The bill, which is already seen as a threat to the independence of older drivers, would like lose essential support if it became tangled in discussions of taking a bigger chunk out of seniors’ fixed income.

It would be better to simply stick to the goal of making sure, through more aggressive testing, that those on the road in their later years belong there.

Doing so would, by default, reduce the number of older drivers whose declining road skills end up translating into higher insurance rates for the rest of us.

Friday, October 30, 2009

Flu Cases Could Spur Homeowner Claims, Lawyer Says

Property and casualty insurers can expect to be hit by a swirl of claims arising from swine flu that include actions against homeowners and businesses, a medical malpractice defense attorney is predicting.

Charles Kutner, whose New York-based law firm defends individuals and institutions in the health industry, said he believes that p&c insurers may have to modify coverage to limit liability.

As hypothetical examples of the kind of legal action the illness could create, Mr. Kutner suggested that a suit could arise if a guest contracted flu after attending a cocktail party where the host did not warn that their child had the illness.

Similarly, a homeowner could be at risk of becoming a defendant if they failed to vaccinate their child against flu and the youngster passed on that illness to children invited for a play date--one of whom sickens and dies.

“The exposure is there [and] you’ve got a lawsuit on your hands,” he warned.

Mr. Kutner said he thought malpractice actions could arise because of a lack of availability of flu vaccine, but he doubted they would be found to have merit.

There are also possible actions from medical complications arising from a flu shot, because “invariably there are complications from vaccines and lawsuits.”

Employees, he said, can be encouraged to get flu shots, but, “Can you force employees to get flu shots? Probably not.”

On the other hand, Mr. Kutner said that he believed an employer could be held liable “if you knew an employee was diagnosed with flu and you didn’t tell everyone else on the staff.”

To prevent against that sort of liability, he noted, universities make it a point to announce it to everyone at their institution when a student has contracted a communicable illness such as meningitis.

The key to a defense, he said, is putting third parties on notice when you have information. When a suit is brought, Mr. Kutner explained, the key issues are “What did you know? When did you know? And, what did you do about it.”

In New York, Mr. Kutner noted there is a pending $40 million lawsuit brought by the family of school principal Mitchell Weiner against the city, claiming the Board of Education failed to alert the principal that he had been in contact with children who had tested positive for the virus; that it did not act quickly enough to stop the transmission of the disease; that it did not disseminate adequate information about health conditions that would increase the risks of the virus; and that it did not provide a safe working environment for Mr. Wiener and other school employees, among other allegations.

Mr. Kutner suggested that with so much exposure, insurers “are going to have to start thinking about homeowner policies and these big general liability policies.”

“If there is a pandemic, it’s potentially a major casualty loss,” he said.

NU Online News Service, Oct. 29, 1:20 p.m. EDT

Wednesday, October 7, 2009

Insurance Covers Fantasy Football Nightmares

It is a common fear of fantasy football players: If my No. 1 pick goes down with an injury in the first game, the whole season—and my $50 entry fee—could be lost.

Not to worry—there’s insurance for that.

Intermarket Insurance recently launched its Fantasy Sports Insurance, allowing fantasy football players to insure up to three top players against the risk of injury. FSI is a player disability coverage that will protect your fantasy league investment, said Anthony Giaccone, president of Huntington, N.Y.-based Intermarket.

In fantasy football, players draft a team of real National Football League players, whose stats determine the success of the fantasy teams.

The insurance policy allows injury-plagued fantasy owners to recoup their league investment and continue with the season, while cushioning the blow of losing the team’s top performer. The idea, Mr. Giaccone said, stemmed from one of his co-workers last football season losing All-Pro New England Patriots quarterback Tom Brady for the year in the first game.

Intermarket offers a policy with an average of $150 coverage limits for a premium of $16, he said. In the event of a season-ending injury, FSI will reimburse the policyholder for the his or her league entry and for products such as draft guides.

This year, Mr. Giaccone said, Tom Brady is the most insured player.

“Coming back from knee surgery, and he tweaked his shoulder in the preseason. You bet a lot of people out there are concerned,” he said.

Copyright 2009 Crain Communications Inc. All Rights Reserved.

September 18, 2009

Wednesday, September 2, 2009

Friday humor - insurance ads from the Netherlands

The Dutch insurance company Centraal Beheer is well known in Europe for their humorous TV commercials in which the characters are put in precarious positions - the implied message being "Is your insurance up to date? Call us." You can learn more about the company and the commercials on the Wikipedia page for Centraal Beheer's. Here's a sampling of a few commercials:

For Congress, Massachusetts Serves as Model and Warning

As Congress jousts over how to reform the nation’s health care system, many experts say that the Massachusetts model, which has reduced the state’s uninsured rate to the lowest in the nation, is a good place to start. Yet those reforms, while doing wonders for coverage, don’t tackle the longer-term issue of cost-containment, which is largely the reason federal policymakers are pushing for reform this year.

With the White House insisting that any national reform proposal address both cost and coverage simultaneously, the lessons from Massachusetts will be limited. Indeed, the funding issue is expected to be the thornier topic. Democratic leaders — who hope to include several key elements of the Massachusetts plan into their own health reform proposal — will also have to come up with more creative ways of paying for it. The Massachusetts’ experiment can offer some guidance, experts say, but it also serves as a warning that coverage expansion and cost reduction don’t often go hand in hand.

James Mongan, president and CEO of Partners Health Care, a Boston-based managed care nonprofit, said the cost issue has thwarted federal stabs at health reform for decades. “This discussion has never been a discussion about health care,” Mongan said Tuesday during a health reform discussion in Washington hosted by the Kaiser Family Foundation. “It’s always been a discussion about financing and who’s going to pay for it. And that’s how we’ve been stuck as a nation for the last 30 years.”

The comments arrive as congressional Democrats are struggling to craft a comprehensive health reform proposal capable of squeaking through the Senate, where 60 votes will likely be required to elude a GOP filibuster. A House proposal, passed by three separate committees before the August recess, adopts a number of the Massachusetts provisions, including an individual insurance mandate, a broad expansion of Medicaid, and the requirement that all insurers offer a minimum menu of benefits. The proposal likely to be taken up in the Senate is still being crafted by select members of the Senate Finance Committee.

Launched in 2006, the Massachusetts reform model requires residents to have insurance while offering generous subsidies for low- and moderate income residents. Larger employers, under the plan, must contribute to their employees health insurance costs or pay the state $295 per employee per year — “fair share” funds the state uses to subsidize the low-income coverage. The legislation also created something called the Commonwealth Health Insurance Connector Authority, which administers the subsidies and oversees the exchange of private insurance plans by individuals and employers alike. For good measure, the model also expanded SCHIP and Medicaid eligibility to reach larger segments of the uninsured population. In the eyes of the officials running the show, the “experiment” has been a smashing success.

“The model in terms of shared responsibility, and insurance reform and exchanges really is based on something that works,” said Jon Kingsdale, executive director of the Commonwealth Health Insurance Connector Authority. “We do not consider this an experiment in Massachusetts any longer.”

The numbers support Kingsdale’s claims — as least as they pertain to coverage. In 2006, before the reform plan took effect, Massachusetts had roughly 600,000 uninsured residents, or 10 percent of the state population. Three years later, an estimated 430,000 of those folks have gained coverage, lowering the uninsured rate to 2.6 percent — the lowest in the country.

Still, Kingsdale conceded that state lawmakers and health officials still have left to tackle “the tough, tough issue of cost containment,” something he deemed “a separate question.”

Congress, charged with addressing the coverage and cost containment issues simultaneously, won’t have the same privilege.

Critics have blasted the Massachusetts reform model from numerous angles, not least of all with the charge that its cost will break the state’s budget. In a June report, the libertarian Cato Institute estimated that the strategy has led to a spike in overall health care spending in Massachusetts. “With the ‘Massachusetts model’ frequently cited as a blueprint for health care reform, it is important to recognize that giving the government greater control over our health care system will have grave consequences for taxpayers, providers, and health care consumers,” the report warns.

Others sharply disagree that the Massachusetts strategy — or the national reforms being debated — are unaffordable. A recent report from the Massachusetts Taxpayers Foundation, a business-funded budget watchdog, found that the additional cost to fund the 2006 reforms will be roughly $700 million through fiscal year 2010, with the federal government picking up half the tab. Those costs, said Michael Widmer, president of the budget group, are “very much in line with the anticipated cost increases around reform.”

Rather, Widmer and other experts say the nationwide trend of skyrocketing health care costs, not the reform efforts, is fueling criticisms like Cato’s.

Still, Widmer also warned that the Massachusetts experience is no indication that the same model would work on a national level. Massachusetts, for one thing, has the advantage of having a high number of people enrolled in employer-sponsored plans — something not every state enjoys. Also, the state can defray subsidy costs with its “fair share” system.

“We can’t conclude at a national level that the additional cost [of health reform] is insignificant,” he said.

And, of course, congressional lawmakers don’t have the same privilege of looking to Washington for help paying for their reforms, as Massachusetts did to jump-start its model. With the Democrats’ bills tickling the $1 trillion mark, much of the opposition has been over the source of the funding — a thorny issue in any environment, but even more so considering the current partisan bickering that practically defines Washington politics these days. Not to mention the difficulty of passing tax hikes in recent years.

Citing “a thorough triumph of the anti-tax forces” in recent decades, Mongan predicted a diluted health reform bill this year, with additional reforms for years to come.

“The best thing to do is to pass what we can pass,” Mongan said. “But this will not be over for a number of legislative cycles.”