Brokers Cheer NARAB Passage
The law streamlines the national licensing process for brokers, but it may take two years to be operational.
After many years of intense lobbying, insurance agents and brokers finally have a national licensing clearinghouse.
Legislation signed into law by President Obama on Jan. 12 as part of the extension of the Terrorism Risk Insurance Act (TRIA) established the National Association of Registered Agents and Brokers (NARAB II) to make it easier for brokers to sell insurance on a nationwide basis.
NARAB II, commonly known as NARAB, was established as a permanent organization.
“This board will have to meet and develop the bylaws for exactly how NARAB is going to work. So we anticipate that NARAB probably won’t go live for about two years.” — John Prible, vice president of federal government affairs, Independent Insurance Agents & Brokers of America
Proponents of NARAB, a nonprofit membership organization to be governed by state insurance commissioners and insurance market representatives, say the group will preserve the best of the state regulatory system while adding a more effective licensing system.
“NARAB means a much more efficient and streamlined licensing process for agents and brokers operating in multiple states,” said Brady Kelley, executive director of the National Association of Professional Surplus Lines Offices (NAPSLO).
Keri Kish, NAPSLO’s director of government relations, added that currently its members, or any broker or agent, has to be licensed in their home state, but if they do business in other states they have to obtain a separate license in each of those states as well.
“With NARAB, what they’ll be able to do is get their license in their home state and then apply to NARAB,” said Kish. “If they’re approved for NARAB membership, then they would be able to operate on a national basis.”
Kish said it would be “a huge reduction in the amount of time and ease of being able to operate on a national basis and not having to administer 50 separate licenses.”
“There will still be stringent requirements to become a NARAB member,” Kelley added. “But once those requirements are met, it’s just a much more simple online, one-stop shop to get licensed nationally.”
John Prible, Washington, D.C.-based vice president of federal government affairs for the Independent Insurance Agents & Brokers of America (IIABA), said NARAB will help companies by increasing their distribution force across the country and it will help consumers by increasing competition.
He stressed that NARAB will not be up and running overnight.
“The president is going to have to appoint a board of directors,” Prible said.
“This board will have to meet and develop the bylaws for exactly how NARAB is going to work. So we anticipate that NARAB probably won’t go live for about two years,” he said. “We want to make sure we get it right.”
Top P&C Brokers Ranked
The top 150 brokers earned total global revenues of $28.5 billion from commercial P&C activity.
Finaccord, a London-based market research firm, released a ranking of the world’s top 150 brokerage groups. The ranking is based on revenues earned from commercial non-life (P&C) insurance.
The top 150 brokers earned total global revenues of $28.5 billion from commercial P&C activity — or 59 percent of the estimated $48.5 billion total global revenues in 2013, according to the firm.
Overall, the top 15 brokerage groups together earned revenues of $20.9 billion (or 43 percent) of the worldwide market.
Finaccord’s research also showed that across the world’s top 150 commercial non-life insurance brokerage groups, 67 (45 percent) were headquartered in the U.S., with a further 24 based in the U.K., 14 in France, 12 in Germany and eight in Canada.
“The strong presence of North American brokers in the ranking is primarily due to the huge size of the U.S. and Canadian commercial property and casualty markets, and the fact that brokers, including independent agents, dominate distribution in both the U.S. and Canada,” said Bernd Bergmann, a consultant at Finaccord.
Bergmann noted that “a number of large brokers in North America are driving their growth through acquisitions, while the majority of their counterparts in Europe rely more on organic growth.”
“I would say in terms of M&A activity, it is still quite patchy,” said Martin Mankabady, London-based partner in the insurance group at international law firm Clyde & Co. “We still haven’t hit the levels of activity we saw prior to the global financial crisis.
“In large part that is due to lack of confidence and market sentiment. The M&A market is particularly sensitive to that, and with the tensions at this moment in the world, plus talk of certain economies slowing down, all of that inevitably has an impact on M&A.”
He said “real pressure on income and margins being squeezed” has led some brokers to be active in the M&A market. Also driving M&As are brokers looking to achieve greater scale and what they hope will be more clout in the market.
“You can’t help but think that [the small and midsize] market should be ripe for consolidation – that could help them achieve some economies of scale and to potentially be more competitive,” said Mankabady.
A far-reaching new rule proposed by the Food and Drug Administration has the nation’s generic drug manufacturers in a stir.
The proposed rule would require makers of generic drugs to update their warning labels for the first time.
Historically, generics manufacturers were shielded from liability, because they were required to use only the warning label language used by the branded drug maker from which the generic was derived.
If the rule becomes law, it will lead to significant insurance changes, including higher premiums, more clinical tests, more lawsuits and greater staffing, as well as heightened attention to risk management issues.
“I think it’s going to be even more important for the generic drug companies to differentiate themselves because there’s going to be much more scrutiny on them from an underwriting perspective.” — Darlene Villoresi, managing director, Marsh life sciences practice
“I will say that anything like this that creates uncertainty in the litigation climate can have a negative effect on premiums, rates and availability of insurance coverage,” said Jim Walters, Philadelphia-based managing director of the life sciences and chemicals practice at Aon Risk Solutions.
“That historically is what has happened when uncertainty reaches the litigation climate,” Walters added.
Having to do their own clinical studies to support label changes will create a tremendous amount of expense for the generics industry, Walters said.
Alison J. Renner, CEO of Chicago-based A.J. Renner & Associates, a wholesale pharmaceutical specialty broker with a strong suit in generics, said that generics manufacturers will need to be aggressive about adverse event reporting of their own products, as well as conduct extensive independent review of reported events and information from the FDA and all other sources available to them.
In addition to legal concerns, said Renner, it is more than likely that certain high-risk products that are currently “insurable” due mainly to the current legal climate will become generally excluded.
“They will need to demonstrate to underwriters that they have best-in-class procedures,” said Renner of the generic drug makers.
“Being able to demonstrate near perfection in labeling will also form a cornerstone of defense of product liability actions going forward.”
John Parente, Boston-based assistant vice president of life sciences at Berkshire Hathaway Specialty Insurance, said the generic manufacturers’ fears center on how they will make labels consistent for each product.
“When you have multiple generic pharmaceutical manufacturing companies producing Tylenol, with the generic name acetaminophen, you could have many different labels warning of multiple or different side effects versus having one consistent label that the medical community can look at and agree upon,” Parente said.
The FDA and supporters of the proposed rule say that the rule change will pressure generic drug makers to be more proactive in discovering when drugs are harming patients and to provide accurate labeling for those drugs.
Generics Save Billions
Generic drugs, which account for more than 80 percent of all drugs manufactured in the U.S., were brought into existence by the 1984 Hatch-Waxman Act, which ensures the safety and affordability of generic drugs by requiring manufacturers to duplicate the effectiveness and labels of FDA-approved brand-name drugs.
One of the most attractive things about generic drugs is their relative cost. A generic industry trade organization points to the huge savings generated by generics.
VIDEO: Even with the current FDA regulations, some are worried about the safety of generic drugs. This CBS report looks at an Indian company that falsified data as part of regulatory approval process.
“The world’s leading health care analytics firm, IMS Institute for Healthcare Information, found that generics saved $239 billion in the U.S. in 2013 (a 14 percent increase in savings from 2012) and more than $1.6 trillion over the recent decade,” according to the Washington, D.C.-based Generic Pharmaceutical Association.
The association is threatening to sue the FDA if the agency finalizes its labeling regulation in its present form.
Critics of the proposed new rule argue that it would increase drug costs by $4 billion a year and lead to a confusing array of labels for the same drug.
But Janet Woodcock, director of the FDA’s Center for Drug Evaluation and Research, said the proposed rule would create parity among application holders and “would speed the dissemination of new safety information about generic drugs to health professionals and patients.”
The FDA’s controversial new rule was expected to be finalized last December, but will not be published until the fall of 2015, an agency spokeswoman said.
If adopted, the FDA rule would put in doubt two landmark U.S. Supreme Court decisions that currently protect generics manufacturers from most liability lawsuits.
In PLIVA vs. Mensing, a woman who took a generic drug had a horrible reaction to it. In June, 2011 the Supreme Court ruled that the generic manufacturer, under federal law could not alter the label, therefore it was not liable.
In a similar case, Mutual Pharmaceutical Co. vs. Bartlett, the Supreme Court held in June 2013 that federal law pre-empted a state law that would have required the generic manufacturer to make a safer drug, either by altering the drug’s composition or through changes in its labeling.
One well-regarded industry observer noted that the erosion of the Mensing and Bartlett defenses could increase claim expenses and potential judgments, which would likely impact the availability and affordability of generics product liability policies.
“In the event the rule went through as proposed, the degree and scope of the increased litigation might not only impact the cost of insurance but also the amount of capacity available,” the expert said.
Risk Management Needed
Kati Ballantyne, Whitehouse Station, N.J.-based assistant vice president and life science underwriting manager for Chubb Group of Insurance Cos., said that if the rule goes through as proposed, generic drug companies will face material changes in labeling and may consider adopting practices similar to those used by the innovator drug companies to help ensure that they’re doing all they can to identify potential patient issues that belong on the label.
“The changes may come at a cost for generic drug companies and could potentially have a downstream impact on the ultimate consumers,” Ballantyne noted.
Ballantyne added that if the rule is adopted, some best practices in risk management that would be critical include effectively managing adverse events, identifying trends in adverse events, and executing rapid escalation plans for external and internal early reporting to the FDA of adverse event trends that may warrant a label change.
“In addition, generic drug companies will need to make manufacturing adjustments to ensure the timeliness of changing labels,” Ballantyne said.
Allison Zieve, general counsel and director of the litigation group for the Washington, D.C.-based advocacy group Public Citizen, said, “The way the regulating scheme is set up, the drug manufacturers have the primary responsibility for ensuring the adequacy of the labeling. That makes sense because the FDA doesn’t have the resources to monitor the thousands of drugs on the market.
“Most of the labeling changes are based on adverse-event reports submitted to the FDA, and the FDA makes those reports available to any manufacturer,” she said.
If the FDA rule goes through as proposed, there are a couple of important impacts, said Darlene Villoresi, Morristown, N.J.-based managing director with Marsh’s life sciences practice.
“One is all about differentiation,” she said.
“I think it’s going to be even more important for the generic drug companies to differentiate themselves because there’s going to be much more scrutiny on them from an underwriting perspective.
“They’re going to get many more questions about underwriting data more in line with the branded drugs.”
Right now, she said, they’re protected from failure-to-warn claims so the underwriters don’t focus as much on pharmacovigilance.
If the proposed rule is adopted as planned, or in some form close to its current structure, Villoresi also envisions an impact on pricing.
There will be more pressure on generic companies to implement new programs to detect early warning signs for adverse events, and that’s going to cost money, she said.
“And underwriters will evaluate how successful they are in their plans, including how well they’re tracking their adverse events, their safety signals, how well they are identifying safety trends in the products that are out there,” Villoresi said.
In the risk management realm, Chubb’s Ballantyne said that the key to successful management of the FDA proposal is the implementation of best practices by the generic drug companies going forward.
“Since the FDA proposal first became known about a year and a half ago, we’ve been working with our customers in anticipation of the change to help them achieve best practices,” Ballantyne said.
“We’ve utilized our loss control expertise in the area of post-market surveillance and anticipate that our resources in this area will grow in value to those drug companies if the proposal goes through,” she said.
Aon Risk Solutions’ Walters said his team’s advice for generic drug manufacturers is to beef up their staffs and urge them to have the necessary tools to monitor adverse events and trends more effectively.
“There are lots of third parties that can help with monitoring adverse events, and we would look to advise our generic manufacturer clients with help from companies like these,” Walters said.