Brokers List Legislative Priorities
You don’t have to spend your days watching C-SPAN to know that insurance issues are taking a prominent role on Capitol Hill lately.
“I don’t think I’ve ever seen the parochial interest [the insurance industry] holds having risen to the national priority that is the current environment,” said Joel Wood, senior vice president of government affairs for The Council of Insurance Agents & Brokers. “Agents have a lot of skin in the game.”
With the passage of the flood insurance bill, many agents are breathing a sigh of relief that the specter of massive rate increases won’t become a reality. However, several other pending issues could have weighty consequences for the insurance industry at large, and agents in particular.
The Affordable Care Act
“The independent agents are small business owners that are being impacted greatly by the implementation of health care reform,” said Mike Becker, executive vice president and CEO of the National Association of Professional Insurance Agents (PIA).
“We’ve been incredibly loud advocates for the agent, ensuring that they’re able to participate, should they desire to do so, and they’re fairly and justly compensated for doing so, whether they’re participating in the traditional market or through an exchange,” he said.
PIA is currently asking members to find cosponsors for H.R. 2328, the Access to Professional Health Insurance Advisors Act, introduced by U.S. Reps. Mike Rogers (R-MI) and John Barrow (D-GA), to ensure that agent compensation is not disadvantaged by implementation of the ACA.
Wood pointed out that the current political climate during mid-year elections may make it difficult to achieve much change on the legislative end, so the CIAB is focusing more on regulatory issues related to health care.
“The pieces we’ve been engaged on are with respect to issues that impact ERISA [Employee Retirement Income Security Act] with the Department of Labor, to testifying on the wellness provisions, to working with the various agencies on trying to develop the right kind of nondiscrimination rule that has yet to come forward and the auto-enrollment rules that have yet to come forward.
“There are a million moving parts on the Affordable Care Act, and we try to engage on all of that impact our clients,” Wood said.
Another issue that is top of mind for agents is renewal of the Terrorism Risk Insurance Act (TRIA), which is set to expire at the end of the year.
“Almost every major commercial policy today has a rider on it that says that post-Dec. 31st 2014, terrorism coverage will not be in place depending upon the outcome of this debate,” Wood stated.
“It’s a product that’s not easily accessible in the private market without the terrorism risk and insurance program,” said Becker. “We support those programs and we’re going to be advocating for its passage.”
The CIAB is also focusing on the Foreign Account Tax Compliance Act, which is designed to prevent tax evasion in transactions with offshore companies.
“We have unsuccessfully argued to the IRS that we should be exempted from implementation and reporting requirements on commercial insurance transactions,” Wood said. “Now, we’re moving to the implementation side and it’s going to be a burden both on the brokers and on their clients.
“Theoretically this sounds pretty simple, but there are unanswered questions. What is Lloyd’s of London, for example? Is that one insurance company or is it 200 companies, or is it 20,000 syndicates?”
To that end, CIAB is seeking clarification within the rules so that it can become a clearinghouse to help international insurers to comply with FATCA.
One of PIA’s biggest concerns involves federal regulation of insurance.
“We don’t think that there’s any further reason for federal regulation in this sphere,” said Jon Gentile, PIA national director of federal affairs.
“The insurance industry historically has been regulated at the state level. One of the things that came out of the financial crisis was that state regulation did, in fact, work and it worked well. We just want to make sure that our members are up on the Hill letting members of Congress know that state-based regulation does work well and has been for some time.”
However, the CIAB views this issue through a different lens.
“We think that it’s almost an embarrassment that our industry’s regulation is so fragmented when it comes to international trade,” said Wood. “We’re surprised at the degree to which some state insurance regulators have taken umbrage at the obvious role, as asserted in Dodd Frank for the Federal Insurance Office, to participate in reflecting U.S. goals in global talks.
“It’s a national business,” he said. “There has been a huge amount of consolidation. All the trend lines are going further in that direction.”
Wood also said that CIAB is advocating for passage of the National Association of Registered Agents and Brokers Reform Act that is designed to streamline interstate insurance licensing.
“It was big disappointment on not getting it [added as a rider to] the flood legislation. Shame on us, if we can’t get that to the finish line this year,” he said.
6 Emerging Supply Chain Risks You Should Know
2015 General Liability Renewal Outlook
There was a time, not too long ago, when prices for general liability (GL) insurance would fluctuate significantly.
Prices would decrease as new markets offered additional capacity and wanted to gain a foothold by winning business with attractive rates. Conversely, prices could be driven higher by decreases in capacity — caused by either significant losses or departing markets.
This “insurance cycle” was driven mostly by market forces of supply and demand instead of the underlying cost of the risk. The result was unstable markets — challenging buyers, brokers and carriers.
However, as risk managers and their brokers work on 2015 renewals, they’ll undoubtedly recognize that prices are relatively stable. In fact, prices have been stable for the last several years in spite of many events and developments that might have caused fluctuations in the past.
Mark Moitoso discusses general liability pricing and the flattening of the insurance cycle.
Flattening the GL insurance cycle
Any discussion of today’s stable GL market has to start with data and analytics.
These powerful new capabilities offer deeper insight into trends and uncover new information about risks. As a result, buyers, brokers and insurers are increasingly mining data, monitoring trends and building in-house analytical staff.
“The increased focus on analytics is what’s kept pricing fairly stable in the casualty world,” said Mark Moitoso, executive vice president and general manager, National Accounts Casualty at Liberty Mutual Insurance.
With the increased use of analytics, all parties have a better understanding of trends and cost drivers. It’s made buyers, brokers and carriers much more sophisticated and helped pricing reflect actual risk and costs, rather than market cycle.
The stability of the GL market also reflects many new sources of capital that have entered the market over the past few years. In fact, today, there are roughly three times as many insurers competing for a GL risk than three years ago.
Unlike past fluctuations in capacity, this appears to be a fundamental shift in the competitive landscape.
“The current risk environment underscores the value of the insurer, broker and buyer getting together to figure out the exposures they have, and the best ways to manage them, through risk control, claims management and a strategic risk management program.”
— David Perez, executive vice president and general manager, Commercial Insurance Specialty, Liberty Mutual
Dynamic risks lurking
The proliferation of new insurance companies has not been matched by an influx of new underwriting talent.
The result is the potential dilution of existing talent, creating an opportunity for insurers and brokers with talent and expertise to add even greater value to buyers by helping them understand the new and continuing risks impacting GL.
And today’s business environment presents many of these risks:
- Mass torts and class-action lawsuits: Understanding complex cases, exhausting subrogation opportunities, and wrangling with multiple plaintiffs to settle a case requires significant expertise and skill.
- Medical cost inflation: A 2014 PricewaterhouseCoopers report predicts a medical cost inflation rate of 6.8 percent. That’s had an immediate impact in increasing loss costs per commercial auto claim and it will eventually extend to longer-tail casualty businesses like GL.
- Legal costs: Hourly rates as well as award and settlement costs are all increasing.
- Industry and geographic factors: A few examples include the energy sector struggling with growing auto losses and construction companies working in New York state contending with the antiquated New York Labor Law
David Perez outlines the risks general liability buyers and brokers currently face.
Managing GL costs in a flat market
While the flattening of the GL insurance cycle removes a key source of expense volatility for risk managers, emerging risks present many challenges.
With the stable market creating general price parity among insurers, it’s more important than ever to select underwriting partners based on their expertise, experience and claims handling record – in short, their ability to help better manage the total cost of GL.
And the key word is indeed “partners.”
“The current risk environment underscores the value of the insurer, broker and buyer getting together to figure out the exposures they have, and the best ways to manage them — through risk control, claims management and a strategic risk management program,” said David Perez, executive vice president and general manager, Commercial Insurance Specialty at Liberty Mutual.
While analytics and data are key drivers to the underwriting process, the complete picture of a company’s risk profile is never fully painted by numbers alone. This perspective is not universally understood and is a key differentiator between an experienced underwriter and a simple analyst.
“We have the ability to influence underwriting decisions based on experience with the customer, knowledge of that customer, and knowledge of how they handle their own risks — things that aren’t necessarily captured in the analytical environment,” said Moitoso.
Mark Moitoso suggests looking at GL spend like one would look at total cost of risk.
Several other factors are critical in choosing an insurance partner that can help manage the total cost of your GL program:
Clear, concise contracts: The policy contract language often determines the outcome of a GL case. Investing time up-front to strategically address risk transfer through contractual language can control GL claim costs.
“A lot of the efficacy we find in claims is driven by the clear intent that’s delivered by the policy,” said Perez.
Legal cost management: Two other key drivers of GL claim outcomes are settlement and trial. The best GL programs include sophisticated legal management approaches that aggressively contain legal costs while also maximizing success factors.
“Buyers and brokers must understand the value an insurer can provide in managing legal outcomes and spending,” noted Perez. “Explore if and how the insurer evaluates potential providers in light of the specific jurisdiction and injury; reviews legal bills; and offers data-driven tools that help negotiations by tracking the range of settlements for similar cases.”
David Perez on managing legal costs.
Specialized claims approach: Resolving claims quickly and fairly is best accomplished by knowledgeable professionals. Working with an insurer whose claims organization is comprised of professionals with deep expertise in specific industries or risk categories is vital.
“We have the ability to influence underwriting decisions based on experience with the customer, knowledge of that customer, and knowledge of how they handle their own risks, things that aren’t necessarily captured in the analytical environment.”
— Mark Moitoso, executive vice president and general manager, National Accounts Casualty, Liberty Mutual
“When a claim comes in the door, we assess the situation and determine whether it can be handled as a general claim, or whether it’s a complex case,” said Moitoso. “If it’s a complex case, we make sure it goes to the right professional who understands the industry segment and territory. Having that depth and ability to access so many points of expertise and institutional knowledge is a big differentiator for us.”
While the GL insurance market cycle appears to be flattening, basic risk management continues to be essential in managing total GL costs. Close partnership between buyer, broker and insurer is critical to identifying all the GL risks faced by a company and developing a strategic risk management program to effectively mitigate and manage them.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Liberty Mutual Insurance. The editorial staff of Risk & Insurance had no role in its preparation.