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Dr. Jack Nordhaus – News of the Day

Latest insurance industry news, with commentary.

NEWS OF THE DAY March 7, 2014

Jack Nordhaus Jack Nordhaus , 3/7/2014
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“Who speaks, sows; Who listens, reaps."

Argentine Proverb


National Underwriter

By Steve Kempsey

March 5, 2014 

Early each year, Marsh’s U.S. Casualty Practice considers the key trends that it expects to drive the casualty market in the coming months. Following, Marsh presents its views on how those trends could affect risk managers' companies.

1. Average Rate Changes To Be More Stable: Insurers continue to seek rate increases, but abundant capacity helped to stabilize the market in the second half of 2013. This trend should continue in 2014.

Due to previous structure and rate corrections, some of the more difficult classes of business might also experience rate stabilization toward the year’s end. However, these tougher classes — including guaranteed cost Workers Compensation, risks with high employee concentrations for Workers Compensation, and those with adverse experience — likely will continue to see larger increases than others. 

Interest rates are improving — but unless they jump by several hundred basis points, this will not on its own cause significant market softening. Meanwhile, property reinsurers are faced with increased competition and reduced demand; their redeployment of capacity to casualty lines may further temper rate increases.

2. Your Risk Profile Matters: The standard deviation of rate changes will remain large as risk profile differentiation and loss experience drive individual results (with the best-in-class companies in desirable risk classes able to secure premium reductions). Underwriters’ continued scrutiny of risks — including the involvement of home offices on traditional underwriting issues — is lengthening the renewal process. Insurers continue to seek more historical loss information and detailed exposure data. The more data that individual insureds can provide to demonstrate favorable long-term trends, the more aggressively these insurers will be able to quote.

3. The Incumbent Advantage: After marketing their programs over the last several renewal cycles, many insureds are likely to look to establish continuity with their incumbent insurers and overall marketing activity is likely to decline. Programs will continue to be marketed, however, when incumbents are not willing to provide both a client-friendly approach to the expiration of the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA) and coverage guidance. Meanwhile, lead umbrella underwriters will continue to scrutinize attachment points and limits, increasing buffer layer marketing efforts for tougher classes. Collateral can still provide an advantage for incumbents, but to a lesser degree as the marketplace relaxes requirements for financially strong insureds.

4. The Field Continues to Grow: New capacity continues to enter the US casualty marketplace, including some from Asian and European markets. As policyholder surplus increases to record levels, existing insurers will continue to reevaluate their appetite in order to drive premium growth. Unfortunately, for tougher risk classes and for excess workers’ compensation, we do not foresee an inflow of hungry capacity.

5. A Bird in the Hand: After losing some business over the last few years that they had wished to retain, many insurers will be eager to avoid further marketing in 2014 and will likely be more flexible on rates and other terms. Following rate increases over the last few years, there is less of a gap between insurers underwriting on a “technical” basis — driven by losses and other market fundamentals — and those in the “trading” market that are seeking to gain market share. Rather than simply walking away, many incumbents may take more aggressive positions to retain their accounts — especially if faced with competition. New entrants, meanwhile, will continue to be aggressive on both price and collateral in order to build their books of business, which will drive the trading market.

6. Portfolio Risk Management: Analysis of aggregate exposures across coverage lines will continue to drive insurers to modify their appetite for some risks, and to redeploy capacity. The growth in exposures and continued rate lift will increase overall premiums written in Workers Compensation and other lines, = giving insurers greater flexibility to achieve their underwriting objectives. Limit management likely will continue, and average limits deployed likely will shrink. Insurers will be able to translate and act on portfolio decisions and positions for individual risks, and will often provide insureds with clearer indications and more lead time to prepare for pricing and/or capacity changes.

7. Changes Afoot: The economic recovery will drive insurers’ strategies. With surplus at an all-time high and the economic outlook improved, consolidation in the marketplace is likely in 2014 which will result in changes to carrier appetites. In 2012 and 2013, some noteworthy underwriting talent moved to new insurers. These underwriters are expected to take aggressive positions on risks that are “new” to them, which in turn will pressure incumbent markets.

8. Coverage Matters: Consistency and clarity of coverage will have more of an impact on how individual insureds select their insurers in 2014. Multi-year deals and alternative risk financing methods likely will gain popularity this year. Coverage clarification efforts will be most crucial regarding potential TRIPRA non-renewal language, product recall coverage, professional versus general liability triggers, and gray areas between General Liability and Cyber insurance.

9. Data-Driven Decisions: The use of data will further influence the decisions of risk managers and insurers on Primary and Excess Casualty. The development of advanced loss control analytic tools will revitalize insureds’ focus on claim reduction, and potentially lead to increased investments in loss control. Meanwhile, insurers are relying more on data to make important portfolio decisions, including exiting some businesses because of modeling results. Insurers are also placing even greater emphasis on state-specific Workers Compensation trends,  General Liability jurisdictional anomalies, and the severity of recent Auto Liability verdicts. Predictive modeling pricing parameters will have greater influence on individual risks.

10. Innovation by Necessity: Insurers and brokers will continue to innovate in order to remain relevant and competitive. Legislative changes, unfavorable court rulings, and greater complexity of risk drive the development of new products, services, and analytical tools. Industry-specific offerings will broaden and as a result buying philosophies will evolve. In health care, for example, provider stop-loss usage will increase to combat capitation risk post-health-care reform. Globalization will lead to further alignment of international exposures and coverages with core casualty programs. Meanwhile, although most market participants expect that TRIPRA will be reauthorized — with more risk being borne by insurers — novel strategies will likely emerge in 2014 to combat the “worst-case scenario” of non-renewal.



National Underwriter

By Gary Irvine

March 6, 2014 

Insurance industry recruitment is becoming more urgent as the Baby Boomer generation retires. According to McKinsey & Company, nearly 500,000 insurance professionals will retire between 2008 and 2018. As a result, insurance companies will face major shortages in top talent. In many cases, they are now turning to candidates from the younger generation (ages 18 to 27), often referred to as Millennials—or Generation Y—to fill these gaps.

Insurers are focused on attracting this new talent, yet they struggle to find ways to appeal to this generation. Although the industry is relatively recession proof and offers interesting opportunities and growth potential, there is generally a lack of interest among young professionals in pursuing a career in insurance. As a result, insurance companies must communicate the rewards of a career in the industry to help combat these misconceptions and close this talent gap.

First, carriers must understand the Millennial workforce. According to a report by the Griffith Insurance Education Foundation, Millennials are looking for a work environment that offers:

Meaningful, satisfying and challenging work they will enjoy.
Collaborative work environments.
Employers that demonstrate social responsibility through workplace efforts.

By understanding Millennials’ work preferences, carriers can then implement strategies that both attract and retain young talent. Here are a few examples of what we’re doing at Columbus, Ohio-based Grange Insurance to achieve this goal:

Strategies to Attract Millennials

1. Onsite recruitment fair: Millennials need to know that there’s a lot more to insurance than meets the eye. By offering an onsite recruitment fair, hiring managers have a chance to educate them about the benefits of a career in the insurance industry, the employment perks and the variety of jobs available. Hiring managers from every area of the business should be represented in order to showcase the rich mix of employment options available. This includes managers from actuarial, claims, commercial lines, call centers, finance, human resources, information technology, legal, life, personal lines, project management office and sales and marketing.

2. Internship program: A summer internship program is another initiative companies should use to attract young job seekers. The internship program should include four crucial areas: corporate projects, networking, work experience and professional growth. Through an internship program, Millennials will receive an opportunity to network with each other, meet with senior leaders and connect with young professional groups. This internship structure gives Millennials a much more positive, engaging and meaningful employment experience, which they are seeking.

3. Relationships with local high schools/colleges: It's essential to introduce the industry to young students and connect with young talent who are already interested in joining the insurance industry. This can be accomplished by building relationships with local high schools and colleges. By helping schools develop insurance curricula students will then have an opportunity to learn how their skills can lead to a rewarding career in insurance. This ultimately makes recruiting the next generation of insurance employees easier, since these students will be exposed to the industry early on.

Strategies to Retain Young Talent

Once insurance companies have hired Millennials, it is important to offer additional benefits that will make them want to stick around. For example:  

1. Associate Resource Groups (ARGs): The Griffith Insurance Education Foundation has found that Millennials want to continue to learn and that these programs, including mentoring, are expected from employers. By offering employees an option to join Associate Resource Groups (ARGs), such as women in leadership and young professionals, this will help create an environment that fosters learning, innovation and growth, which is essential to Millennials. ARGs give employees an opportunity to learn from one another on a personal and professional level, contribute to the business outside of their current role and feel vested in the business as they foster new and innovative ideas that will help move the company forward. 

2. Emerging leader and future executive programs: Griffith also reports that Millennials expect ongoing opportunities for training and development. For this reason, it's important to offer an emerging leader program. This program should involve senior leader mentorship, business simulation, community outreach projects and internal business projects. A future executive program should also be available to those who are already on the leadership track, but want additional exposure to elements of business simulation, executive mentorship and project management. These programs will appeal to Millennials who want a broader emersion into leadership and are necessary tools for professional development and employee retention
3. Community service opportunities: Millennials are not only examining a company for its professional development opportunities, benefits and salary, but are also interested in an employer who values social responsibility. In fact, a new report by Nielsen found that 70% of Generation Y says a company’s commitment to the community would influence their decision to work there. As a result, it is important for carriers to have a philanthropic focus. The first step in adopting the “do the right thing” principle is by offering company-sponsored volunteer opportunities that help charitable organizations in the community, such as Meals-on-Wheels and Big Brothers/Sisters. To encourage volunteerism, companies can also set-up a recognition program to acknowledge employees’ volunteer efforts. In addition to community service opportunities, agencies can help retain employees by offering flexible work environments, free fitness centers and fun employee events such as chili cook-offs and volleyball tournaments.
With thousands of baby boomers retiring each year, the need for new talent has never been greater. That’s why it’s critical for insurance companies to start dedicating both time and energy into attracting and retaining new talent to avoid this serious employment shortage. By investing in young professionals now, agencies will help close this talent gap and ensure the insurance business thrives in the future as Millennials take the helm.



Live Insurance News

By Stephen Vagus

March 7, 2014

Despite its volatility, Bitcoin continues to grow as an attractive currency for those in the digital world. As the digital currency gains more momentum, the need to provide it with some form of security is becoming greater, Bitcoin insurance is gaining popularity among firms that deal in the digital currency. 

Falcon Global Capital has launched a new insurance fund  to protect Bitcoin holders against the financial implications of the sudden disappearance of the digital currency. Several thousand consumers have fallen victim to this problem in recent months due to problems with Mt. Gox and Flexcoin, two prominent Bitcoin exchanges. Both exchanges were targeted by hackers who exploited their lackluster security protocols to steal millions. 

The fund is backed by Elliptic, a firm based in the United Kingdom that provides insurance coverage tailored to Bitcoin. Elliptic is reportedly backed by Lloyd’s of London, The coverage offered by Elliptic is meant to provide Bitcoin holders with a financial safety net that could mitigate the damage caused by theft and exploitation, as well as providing some stability to the digital currency.