Insurance Industry Challenges

Insurance Asset Growth Lags

Insurance company assets-under-management growth is weak compared to other global asset management.
By: | July 23, 2014 • 3 min read
Assets

Global insurance assets under management are growing — but not nearly as much as they could be, according to the Boston Consulting Group.

One key problem, though not the only one, is that insurers tend to under-invest in information technology, securities processing and other operations integral to asset management, according to BCG.

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Insurance company assets comprise nearly 20 percent of the $68.7 trillion in total global assets under management, as recorded by BCG last year.

Insurers’ total assets under management (AUM) reached $13 trillion in 2013. Yet, their AUM growth of 7 percent in 2013 was far lower than the overall average 13 percent increase in global AUM.

The fact that global insurers have lagged behind their asset-management peers in operations and information technology capabilities is something of a Catch-22, said Achim Schwetlick, a BCG partner and managing director in New York.

“The lower growth has likely contributed to the under-investment, not the other way around,” he said.

But clearly, this is an area that needs to be addressed, he said.

Between 2012 and 2013, insurance asset managers reduced their operations and IT spending by 4 percent per unit of AUM, said Schwetlick, who is a member of BCG’s insurance practice. In contrast, the broader asset-management industry increased that spending by 3 percent.

The serious expense reductions required by the “meager years” during and after the financial crisis prevented increased investments, he said.

“Now that we’re getting into growth territory again and expense pressure has mitigated, we think this is a good time to break that pattern,” Schwetlick said.

In addition, whereas most insurers have outsourced asset management in alternative asset classes, the vast majority of insurers still manage most of their assets in-house, he said.

The newly released BCG report, entitled “Steering the Course To Growth,”also pointed to the “large proportion of fixed-income assets” held in insurance company portfolios as a reason they “did not benefit as much from the global surge in equity markets.”

Insurers’ “exposure to high-growth specialties was similarly limited,” it said.

Regulatory and Organizational Inefficiencies

That may be difficult to overcome, said Schwetlick, given regulatory constraints preventing insurance companies from investing more aggressively.

This is particularly true in the United States, he said, although even European insurers tend to have no more than 10 percent of their assets invested in equities. In the U.S., equity investment is closer to 1 percent, said Schwetlick.

Organizational impediments have helped to sustain inefficiencies related to asset management, according to the BCG report.

The inefficiencies include regional fragmentation of assets, so that the asset managers of most insurers operate in regional silos as well as asset class silos, exacerbating fragmentation and complexity.

Insurers should move to a more global model to address those issues, said Schwetlick.

“You really want to have processes that are similar across the globe,” he said, that are related to both investment management and access to information about insurance company loss exposure.

Third-Party Management Benefits

The good news, finally, is that many insurers have benefited from third-party asset management over the past several years.

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“While insurers’ asset managers have not historically focused on profitability and growth, they are tempted by the high returns on equity of third-party management,” according to the BCG report.

“Some managers have built this business to more than a third of their activity, and, in doing so, have invested and grown stronger commercially,” the report stated.

“As a result, they have achieved higher revenue margins and profits — averaging 25 basis points of revenues and 39 percent profitability, compared with 12 basis points and 26 percent, respectively, for mostly captive managers that focus predominantly on the insurer’s general account.

Leaders in this area include Allianz, AXA, and Prudential, said Schwetlick.

Janet Aschkenasy is a freelance financial writer based in New York. She can be reached at [email protected]
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Column: Roger's Soapbox

Interconnected Idiocy

By: | April 28, 2016 • 2 min read
Roger Crombie is a United Kingdom-based columnist for Risk & Insurance®. He can be reached at [email protected]

You gotta love this. Experts advise not to worry about computer hackers compromising your company’s data.

Instead, you should be concerned that they’re going to take over your toaster. The risk is imminent. Smart toasters, refrigerators and corporate ventilation systems are among the greatest emerging risks, it seems.

Your freezer is one quick hack away from running amok. Your alarm clock is a silent killer. Mention that to your broker, before his security people come to throw you into the street.

Household wireless networks, on the other hand, have famously weak firewalls. This is why your coffee maker is now a deadly threat.

OK, let’s calm down. The Internet of Things (IoT) is the topic. It’s the wireless network of the future that will, for example, read your refrigerator’s contents, note that you have no milk, and contact your online grocer to order a quart and its delivery.

The IoT will also check how much fuel oil is in your tank and order whatever is needed before winter sets in.

But what if Russian hackers decide it might be amusing if you instead had 8,000 gallons of milk delivered to your fuel oil tank?

Given our total submission to things Internetty, you know that critical infrastructure has been and will further be thrown onto the IoT faster than you can say, “Wait! What if …”

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The good news is that much of what has been placed online is protected. Anything can be hacked, but the important stuff is run with a suitable awareness of the risk attached, experts say.

Household wireless networks, on the other hand, have famously weak firewalls. This is why your coffee maker is now a deadly threat.

Cyber-assisted burglary might blossom, since bad guys could suck data from your heating system to tell them you’re not home, and then burgle you senseless. Remotely increasing the room temperature at a data center might eventually burn out a competitor’s servers.

This may all sound a little far-fetched, but I’m quoting (approximately) “Bloomberg,” which quoted (exactly) experts of the highest caliber. Technological systems require updating, and not even the few of us who know how to do that can be bothered. I mean, it’s a blender, right? How bad could it be if I don’t spend three hours trying to find the latest driver updates?

Hackers could send your microwave oven fallacious updates. The damn thing could spend years nuking your dinner while simultaneously serving North Korea without you even knowing.

Note to the insurance industry: Gentlemen, start your models. Hardly anyone writes stand-alone coffee maker insurance (except for extended warranties). The cyber-home opportunity is what Donald Trump would call “yuge.”

Profitability even more so, since — surely — the notion that your mom’s curling iron is working for the KGB seems unlikely, at best.

But remember this: You can’t spell idiot without IoT. &

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Sponsored Content by IPS

Compounding: Is it Coming of Age?

Prescription drug compounding is beginning to turn a corner in managing chronic pain.
By: | April 28, 2016 • 5 min read
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The WC managed care market has generally viewed the treatment method of Rx compounding through the lens of its negative impact to cost for treating chronic pain without examining fully the opportunity to utilize “best practice” prescription compounds to help combat the opioid epidemic this nation faces. IPS stands on the front lines of this opioid battle every day making a difference for its clients.  

After a shaky start cost-wise, prescription drug compounding is turning the corner in managing chronic pain without the risk of opioid addiction. A push from forward-thinking states and workers’ compensation PBMs who have the networks and resources to manage it is helping, too.

Prescription drug compounding has been around for more than a decade, but after a rocky start (primarily in terms of cost), compounding is finally coming into its own as an effective chronic pain management strategy – and a worthy alternative for costly and dangerous opioids – in workers’ compensation.

According to Greg Todd, CEO and founder of Integrated Prescription Solutions Inc. (IPS), a Costa Mesa, Calif.-based pharmacy benefit manager (PBM) for the workers’ compensation and disability market, one reason compounding is beginning to hit its stride is because some states have enacted laws to manage it more effectively. Another is PBMs like IPS have stepped up and are now managing compound drugs in a much more proactive manner from an oversight perspective.

By definition, compounding is a practice through which a licensed pharmacist or physician (or, in the case of an outsourcing facility, a person under the supervision of a licensed pharmacist) combines, mixes, or alters ingredients of a drug to create a medication tailored to the needs of an individual patient.

During that decade, Todd explains, opioids have filled the chronic pain management needs gap, bringing with them an enormous amount of problems as the ensuing addiction epidemic sweeping the nation resulted in the proliferation and over-consumption of opioids – at a staggering cost to both the bottom line and society at large.

As an alternative, compounded topical cream formulations also offer strong chronic pain management but have limited side effects and require much reduced dosage amounts to achieve effective tissue level penetration. In fact, they have a very low systemic absorption rate.

Bottom line, compounding provides prescribers with an excellent alternative treatment modality for chronic pain patients, both early and late stage, Todd says.

Time for Compounding Consideration

IPS_SponsoredContentThat scenario sets up the perfect argument for compounding, because for one thing, doctors are seeking a new solution, with all the pressure and scrutiny they’re receiving when trying to solve people’s chronic pain problems using opioids.

Todd explains the best news about neuropathic pain treatment using compounded topical analgesic creams is the results are outstanding, both in terms of patient satisfaction in VAS pain reduction but also in reduction potentially dangerous side effects of opioids.

The main issue with some of the early topical creams created via compounding was their high costs. In the early years, compounding, which does not require FDA approval, had little oversight or controls in place. But in the past few years, the workers compensation industry began to take notice of the solid science. At the same time, medical providers also were seeing the same science and began writing more prescriptions for compounding – which also offers them a revenue stream.

This is where oversight and rigor on the part of a PBM can make a difference, Todd says.

“You don’t let that compounded drug get dispensed when you’re going to pay for it without having a chance to approve it,” Todd says.

Education is Critical

IPS_SponsoredContentAt the same time, there is the growing, and genuine, need to start educating the doctors, helping them understand how they can really deliver quality pain management to a patient without gouging the system. A good compounding specialty pharmacy network offering tight, strict rules is fundamental, Todd says. And that means one that really reaches out to work with the doctors that are writing the prescriptions. The idea is to ensure that the active ingredients being chosen aren’t the most expensive sub-components because that unnecessarily will drive the cost of overall compound “through the ceiling.”

IPS has been able to mitigate costs in the last couple years just by having good common sense approach and a lot of physician outreach. Working with DermaTran Health Solutions and its national network of compounding pharmacies, IPS has been successfully impacting the cost while not reducing the effectiveness of a compounded prescription.

In Colorado, which has cracked down on compounding profiteering, Legislative change demanded no compound could be more than $350.00 period. What is notable, in an 18-month window for one client in Colorado, IPS had 38 compound prescriptions come through the door and each had between 4 and 7 active ingredients. Through its physician education efforts, IPS brought all 38 prescriptions down 3 active ingredients or less. IPS also helped patients achieve therapeutic success (and with medical community acceptance). In that case, the cost of compound prescriptions was down to an average of $350, versus the industry average of $788. Nationwide IPS has reduced the average cost of a compound prescription to $478.00.

Todd says. “We’ve still got a way to go, but we’ve made amazing progress in just the past couple of years on the cost and effective use of compound prescriptions.”

For more information on how you can better manage your costs for compound prescriptions, please call IPS at 866-846-9279.

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This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with IPS. The editorial staff of Risk & Insurance had no role in its preparation.




Integrated Prescription Solutions (IPS) is a Pharmacy Benefit Management (PBM) and Ancillary Services partner to W/C and Auto (PIP) Insurance carriers, Self Insured Employers, and Third Party Administrators who specialize in Workers Compensation benefits management.
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