Category Archives: Regulatory Risk

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TRIA Will be Renewed, P-C Panel Agrees

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Photo by Don Pollard

NEW YORK—Insurance industry experts in a panel discussion agreed that while terrorism risks are changing, they believe the Terrorism Risk Insurance Act (TRIA), set to expire Dec. 31, 2014, will be reauthorized by Congress. In fact, a poll taken at the annual Property/Casualty Insurance Joint Industry Forum found that 93% of attendees believe TRIA will be renewed.

“In the U.S., we’re moving away from the risk of catastrophic-scale terrorism. But we are probably more likely to have the Boston Marathon type of terrorism,” said Stephen Flynn, professor of political science and founding director of the Center for Resilience Studies at Northeastern University in Boston.

The reasons are that, “The know-how to carry out these low-end acts is pervasive and the opportunities for this type of terrorism are relatively high. Because they can be conducted on a small scale, they are difficult to plan for in advance and intercept,” he explained, adding, “In my mind there is no question that the feds need to play a backstop role. This isn’t a natural market. It’s not a natural disaster environment. The role an industry can play in educating about risk and engaging mitigation measures is a very useful public policy outcome of the feds playing a role as a backstop.”

The six-member panel was moderated by Julie Rochman, president and CEO of the Insurance Institute for Business & Home Safety.

Robert H. Easton,executive deputy superintendent of the insurance division at the New York Department of Financial Services [pictured above with John Huff, director of the Missouri Department of Insurance] said, “We would like to see TRIA in some form become permanent so we don’t have to have this discussion every few years.”

Easton added, “The political reality is that this is unlikely to occur, but our view is that if anybody should be taking one of the more extreme views it is New York. The program has been critical to insuring that there is sufficient capacity in the marketplace.”

Huff agreed that it needs to be renewed, but noted that TRIA should not be a “big state, small state issue.” Rather it should be supported by states of all sizes. “Missouri has a significant urban, suburban and rural presence,” he said.

Jay Gelb, managing director and senior equity analyst for Barclays believes TRIA will be reauthorized at the last minute. If reauthorization doesn’t happen, “It would be concerning from an investment viewpoint,” however, “Insurers could underwrite the exposure or limit their concentrations in target areas, especially in lines where losses cannot be excluded, such as workers compensation.”

Matthew Mosher, senior vice president and chief rating officer for the A.M. Best Company observed that while insurers can, indeed, manage the risk of terrorism, and even avoid it, “what does that do for the nation as a whole? When you look at the impact of TRIA, it comes down to how much risk you want individuals to absorb. At this point insurers are not able to provide a large amount of coverage without a backstop.”

In terms of adjustments to the program, Easton said, “We would like to see the inclusion of cyber as a risk that TRIA addresses. The cyber world is very different today than even 12 or 13 years ago.”

For the poll questions and full survey results, go to 2014 Property/Casualty Insurance Joint Industry Forum Questionnaire.

Workers Compensation Issues to Watch in 2014

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With 2013 behind us, here are my thoughts on some workers compensation issues to watch for in 2014:

Rates Continue to Climb

In most of the U.S., rates for workers compensation insurance continue to rise. Rates are being driven by rising medical costs, the low interest rate environment, and the general unprofitability of the line of business.

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Potential Expiration of TRIPRA

Unless Congress takes action, the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA) will expire on Dec. 31, 2014. Companies with high employee concentrations in certain cities are already seeing fewer options, with some carriers scaling back their writings to reduce their exposure to a potential terrorism event.

Impact of the Affordable Health Care Act (AHCA)

There has been much speculation about the potential impact the AHCA will have on workers compensation. With a finite number of medical providers available to handle the increased utilization, it is imperative that workers compensation payers identify the providers who deliver the best clinical outcomes for injured workers.

Integrated Disability Management

More employers are realizing that the impact of federal employment laws, like the Americans with Disabilities Act and the Family and Medical Leave Act, must be considered on workers compensation claims. Companies are also recognizing the value of managing non-occupational disability so that valued employees can get back to the workplace and be productive. Integrated disability management programs are the next generation of claims-handling and will expand in the future.

State Legislative Issues

Several states that passed significant reform legislation in the last two years are working to implement those reforms. Passing a law is only the first step, as the rules, regulations, and implementation of those laws determine if they will achieve their intended purpose. The most significant states to watch are in California, New York, and Oklahoma.

When California passed SB 863 in 2012, the expectation from the state’s legislature was that it would increase benefits to injured workers, while lowering costs for employers in the state. Litigation and unanticipated consequences of the bill have resulted in increased complexity and continually rising insurance rates. There is currently talk of potential clean-up legislation to go along with continued efforts at implementation. We will know by the end of the year whether SB 863 will be able to produce the promised cost savings.

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New York streamlined its assessment process, resulting in a significant reduction of the assessment rate for most employers. Since these rates are adjusted annually, it remains to be seen if these assessment savings will continue into the future.

The big news in Oklahoma is the bill that allowed employers to opt-out of workers compensation starting in February 2014. There have been delays in developing the rules and regulations supporting the opt-out plans, and this has in turn delayed carriers’ development of policies to cover new benefit plans. It appears unlikely that everything will be in place in time for employers to opt out beginning in February.

Vendor consolidation

In the last few years, there has been significant vendor consolidation in the workers compensation industry. First on the third-party administrator side and most recently in medical management. All this consolidation is making buyers of these services uneasy.

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They question how this will impact the quality of the services they receive and wonder how their goals of reducing costs align with the vendors’ goals of increasing revenues.

Analytics

Despite the huge amount of premium, exposure and claims data produced by the workers compensation industry, many complain about the lack of actionable information. As an industry, we will see a continued focus on the use of more meaningful analytics that can assist in identifying savings opportunities, formulating action plans, and measuring the impact of change.

Assessing ROI for Medical Cost Management Efforts

Programs including bill review, utilization review, and nurse case-management are all necessary components of any successful workers compensation program. It is important, however, that these programs are constantly monitored to ensure they are being used appropriately.

Please join me Jan. 15, for a webinar discussing these issues and other potential legislative developments to watch in 2014.  Click here to register

Reactions Mixed to FIO Modernization Report

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On December 12, 2013, the Federal Insurance Office released its report on how to modernize the United States insurance regulatory system. The report had been long awaited by the insurance industry, so it comes as no surprise that many in the industry have responded to the report’s findings. So far, reviews are mixed.

National Association of Insurance Commissioners:

“The Dodd-Frank Act established the Federal Insurance Office (FIO) within the Treasury Department and makes clear that FIO is not a regulatory agency and its authorities do not displace state insurance regulation.  While we appreciate FIO’s suggestions for improvement, the states have the ultimate responsibility for implementing regulatory changes.”

Independent Insurance Agents & Brokers of America, Inc.:

“While we agree with the report’s conclusion that insurance regulation could be improved and modernized in certain areas, we strongly believe that any federal action should be targeted and limited with day-to-day regulation left in the in the hands of state officials. The state-based system of insurance regulation has served consumers and our economy well for decades. The Big ‘I’ strongly supports the continued preservation of this system and is ardently opposed to any direct infringement by the federal government.”

National Association of Professional Insurance Agents:

“As a strong supporter of our successful state-based system of insurance regulation, we are concerned that the FIO report may be driven by assumptions and assertions that do not hold up to scrutiny. Many of FIO’s assumptions appear to have been contradicted by a Government Accountability Office (GAO) report that concluded that the state insurance regulatory system worked well to help mitigate the negative effects of the 2007-2009 financial crisis on the insurance industry.”

American Insurance Association:

“The Report provides a valuable guidepost for collectively working toward improvements that lead to greater regulatory effectiveness, efficiency, and marketplace competition.  The overall objective of modernizing and improving U.S. insurance regulation should be to promote the growth of healthy, competitive private insurance markets at home and abroad that will ultimately benefit and protect insurance consumers while emphasizing safety and soundness.  The FIO Report affirms these essential goals.”

RIMS:

“RIMS strongly supported the creation of the Federal Insurance Office as a first step toward needed federal regulation of the insurance market. There is no question that commercial insurers, producers and policyholders would benefit from more consistency and uniformity in terms and conditions when insurance is purchased from a single insurer.  Opportunities to streamline the insurance purchasing process are a priority for this Society and we’re happy to see the FIO make progress to enhance regulations.”

There is obvious tension between the FIO and many in the industry over what exactly the FIO’s role is and should be going forward. Now that the report has been released, it will be interesting to see what the FIO’s next steps are. Many government issued reports are released and never heard from again. It remains to be seen if the FIO’s report meets that same fate.

Tech Trends in 2013 and New Year Predictions

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With the New Year comes added awareness of the hazards social media can present to corporations, the risks of data exchange between business systems and other challenges inherent with technology. Here is a look at the top trends of last year and predictions for the year ahead.

2013 Key Trends

1.      Growing Convergence between IT, Security and the Business

Evolving risk challenges require that internal and external stakeholders are on the same risk page. For many organizations, however, internal audit, security, compliance and the business have different views of risk and what it takes to build a risk-aware and resilient business. Effective risk management starts with good communications. This includes a common taxonomy for dealing with risk, and a collaborative discussion framework to facilitate the cross-functional sharing of ideas and best practices.

2.      Focus on Managing Third Party IT and Security Risks

Organizations are increasingly global and hyper-extended, with a heavy reliance on third parties such as partners, vendors, and cloud-based service providers. Data flowing within and throughout this modern business ecosystem supports critical business processes, and also contains sensitive and regulated information. Therefore, strong oversight and management of the various IT and security risks is critical to protect the business and its reputation.

3.      Movement Towards Risk-Based Security Operations Management

In 2013, IT & Security Operations adopted a more formal, structured approach that is more closely aligned with the business and its priorities. Using a risk-based approach to prioritize security initiatives drives efficacy and efficiency—which can help secure greater buy-in and support from senior management. Risk-based security management allows security teams to promote an understanding of risk by communicating in the terms and context needed to support decision-making.

4.      Bring Your Own Device (BYOD) and Mobile Device Risk Management

Mobile, e-commerce, online, wireless—this is how business is done today. Furthermore, employees are increasingly mobile and rely heavily on their devices, such as smartphones and tablets, for a variety of business activities. The threats that come with this trend are many, including data leaks, theft, and misuse. Corporate IT departments have to create stronger policies and tighter controls to manage corporate data, applications, and user behavior.

2014 Predictions

1.      Leveraging social media to drive situational awareness

Security and business continuity management teams have begun to realize the power of both social media and technology solutions that can mine and analyze data from sources such as Google Crisis Maps, Twitter, Facebook, and more, to provide real time crisis updates. Further extending this intelligence can help governments and businesses gain a complete understanding of a crisis and all of its associated financial, operational, and reputational risks.

2.      Focus on Continuous Monitoring in Risk Management

Effective risk management requires the real-time monitoring of threats, vulnerabilities, and potential exposures. In 2014, IT, Security, Risk and Compliance teams will need to work more closely together to create mature monitoring processes, supported by technology, and guided by regulations and standards such as PCI DSS 3.0, ISO 27001, and NERC CIP 5.

3.      Security and Risk Analytics Based on IT and Security “Big Data”

Incorporating security analytics and metrics alongside more traditional performance metrics such as liquidity and revenue will be critical for management to gain a much-needed holistic view of the operational risk portfolio. Leveraging IT and Security “big data” can provide the risk intelligence needed to create a truly data-driven business, guide continuous improvement processes, and lay the foundation for organizational transformation.