Category Archives: Regulation

Impact of new TX insurance law exaggerated

A new property litigation law goes into effect in Texas on Sept. 1. Its impact has been exaggerated.  (If you read the entire story at this link, you will see that it debunks its own headline.)

If you will be filing a homeowners insurance claim, here is what you need to know:

Under the new property litigation law:

  • The claims process for filing a claim for an insurer to handle a claim has not changed.
  • Consumers still have all legal remedies available under the consumer protection laws in the event an insurer engages in bad faith conduct.
  • The Texas Department of Insurance is available to handle any complaints about insurers.
  • The new law does not take away any right to sue and does not diminish any cause of action that a person has against an insurance company. HB 1774 does, however, require notice before a lawsuit is filed.
  • The pre lawsuit notice is effective for all “actions filed on and after the effective date, which is September 1, 2017.” Any lawsuit filed after September 1, 2017, would be governed by the new law.

Texans should contact their insurance companies directly to file claims, work with your adjuster to identify all damages and coverages, and resolve your claim quickly.

Guaranty Funds: A Safety Net For Policyholders

News headlines about the failure of long-term care insurer Penn Treaty American Corp. of Allentown, Pennsylvania, underscore that while failures of U.S. insurers are rare, they are possible.

The New York Times reports that the order from state authorities calling for the liquidation of the medium-sized insurer and the closure of its operations leaves tens of thousands of Penn Treaty policyholders in limbo.

The good news is that a safety net exists to protect policyholders.

For decades, life/health (including long-term care) and annuity policyholders, as well as property/casualty insurance customers have been protected against the insolvency of an insurance company through what is known as a guaranty fund system.

So in this case, state life and health insurance guaranty funds will continue to service the policies of Penn Treaty policyholders, ensuring that they continue to receive coverage, despite the insurer’s failure.

To be eligible for guaranty fund coverage protection, it is important that policyholders continue to pay their policy premiums in full and on time.

Maximum levels and types of policies covered by state guaranty funds vary from state to state. Here is a list of the maximum amount each state’s guaranty fund will pay.

More information on the Penn Treaty Network America Insurance Company liquidation via the National Organization of Life & Health Insurance Guaranty Associations.

And here is additional background information on insolvencies and state guaranty funds, via the I.I.I.

Style Over Substance? Not when it comes to insurance

Can style trump substance? Not when it comes to the business of insurance, according to new regulations issued by the China Insurance Regulatory Commission (CIRC).

The Financial Times reports that China’s insurance regulator has banned “exotic” insurance products as part of a broader push to restrict the sale of non-traditional products.

The new regulations cover products “where the insured event will not result in any loss to the customer” and “products with no real content, where the purpose of the product is for creating marketing hype.”

Smog insurance, overtime insurance that pays out if the insured is at the office after 9pm, and so-called gourmets’ insurance that provides cover against indigestion are among the non-traditional products now banned by China’s regulator.

Insurers have sometimes used these exotic products as promotional tools, with attention-grabbing advertisements that aim to go viral, the FT reports.

The new regulations come one month after the CIRC cracked down on insurers that sell short term investments called universal insurance products, proceeds of which were used to fund acquisitions.

CIRC chairman Liu Shiyu warned insurers not to become “barbarians” and “robbers” by aggressively acquiring companies in leveraged buyouts.

Insurance Information Institute’s daily members bulletin has more stories like these. Email daily@iii.org for info.

Modernizing Regulation Key To Insuring Sharing Economy

How free are insurers to provide the insurance products consumers want?

That’s a key question that the R Street Institute’s Insurance Regulation Report Card seeks to answer.

And it’s a very good question.

In the fourth and latest edition of the report R Street observes that regulation, in some cases, may hinder the speed with which new products are brought to market:

We believe innovative new products could be more widespread if more states were to free their insurance markets by embracing regulatory modernization.”

R Street says the most recent illustration of this challenge is seen in the different approaches individual states have taken to enable the timely introduction of commercial and personal insurance policies to cover ridesharing.

A compromise model bill to govern insurance requirements for ridesharing was announced by major representatives of the insurance industry and the burgeoning transportation network companies in March 2015.

The legislation alleviated what had been a major source of interindustry friction, R Street notes.

The model requires that:

– liability insurance with limits of $1 million be in-force any time a driver either is actively transporting a customer or en route to pick up a fare.

– any other time the driver is logged in to the TNC service, he or she must have coverage with minimum liability limits of $50,000 per passenger, $100,000 per incident and $25,000 for physical damage liability.

R Street writes:

The model would permit coverage to be procured either by the driver or the TNC,   expressly stipulates that it may be provided by the surplus lines market, preserves insurers’ right to exclude coverage and encourages states to approve new products to cover this emerging risk.”

Signatories to the compromise include Allstate, the American Insurance Association, Farmers Insurance, Lyft, the National Association of Mutual Insurance Companies, the Property Casualty Insurers Association of America, State Farm, Uber Technologies and USAA.

The report notes that in April 2015, Georgia became the first state to pass the compromise model ridesharing bill. The measure, H.B. 190, took effect January 1, 2016.

Have more questions? Check out the Insurance Information Institute’s (I.I.I.) Q&A on Ridesharing and Insurance.

An I.I.I. issues update on regulation modernization is available here.

Eye On China

The Chinese insurance market is changing as quickly as any in the world, writes Insurance Information Institute (I.I.I.) chief actuary James Lynch.

China is the fourth largest insurance market, behind the United States, Japan and the United Kingdom, but it is poised to grow quickly as the government looks to insurance to “play a larger role in the country’s patchy social welfare system,” the Financial Times reports (subscription required).

The market may be best known for buying trophy properties worldwide. In the past two years, Anbang bought New York’s Waldorf Astoria, China Life bought a majority share of London’s Canary Wharf, and Ping An bought the home of insurance, the Lloyd’s Building of London.

Beyond the property plays, Fosun Group in May agreed to buy the 80 percent of property/casualty insurer Ironshore that it doesn’t own and  Fosun’s acquisition of U.S. p/c insurer Meadowbrook Insurance Group just received state regulatory approvals in Michigan and California.

The Financial Times report focuses on changes in the life sector, as the Chinese government encourages citizens to buy traditional life products and 401(k)-like pensions, but the P/C market is changing as well, as I recently wrote for the Casualty Actuarial Society (CAS):

China’s market has grown between 13 and 35 percent a year for the past decade . . . Property/casualty insurers wrote RMB 754 billion ($120 billion in U.S. dollars) of premium in 2014, 16.4 percent more than a year earlier. By contrast, U.S. property/casualty insurers wrote about $500 billion and grew just over 4 percent, with both figures reflecting the maturity of the U.S. market.”

Starting June 1, six provinces — about one-fifth of the country – overhauled the way auto insurance is priced, moving a bit closer to the U.S. model of loading expected claim costs for expenses and adjusting rates for underwriting factors like a good driving record.

China is also strengthening of capital standards, working on the same January 1, 2016, deadline as Europe’s Solvency II. It hopes its standard, known as C-ROSS, will become a template for emerging markets:

The new standard splits “supervisable” risks that regulators are good at addressing from the ones better handled by market mechanisms.

The supervisable risks are split between quantifiable ones, like insurance risk, and unquantifiable ones, like reputation risk. Another class of supervisable risks is control risk. For emerging economies like China’s, Huang said, it is even more important to watch how companies control their risks. Good risk management may result in a reduction in regulatory capital requirement, and poor risk management can result in a capital add-on of up to 40%.

There’s also a systemic risk element, which requires systemically important insurers to set aside more capital.”

The I.I.I. is drafting a white paper about global capital standards to be published later this year. I.I.I. President Robert Hartwig gave a presentation that covered global insurance issues (and quite a bit else) late last year.

Litigation Trends and the Class Action Factor

Survey more than 800 corporate counsel representing companies across 26 countries on litigation trends and issues and you get some insightful findings.

Such is the case with the recently released Norton Rose Fulbright 2015 Litigation Trends Annual Survey.

For example, class action lawsuits were listed as the top issue by respondents in the United States, Canada and Australia.

U.S.-based respondents also reported a more litigious business environment than their peers, with 55 percent facing more than five lawsuits filed against their companies in the previous 12 months, compared with 23 percent in the United Kingdom and 22 percent in Australia.

There are also significant differences in the types of litigation that U.S. companies face compared with their peers worldwide.

For example, personal injury litigation is much more prevalent in the U.S. than elsewhere, with 21 percent of those polled selecting it as one of the most numerous types of cases faced in the previous 12 months, compared to just 15 percent in the survey overall.

In addition, intellectual property/patents (18 percent) and product liability (17 percent) cases were more common in the U.S. than worldwide (13 percent and 11 percent, respectively).

Going forward, more U.S. respondents say regulatory/investigations are a top concern (48 percent) compared with the broader sample (39 percent).

Intellectual property (IP)/patents disputes are also of greater concern in the U.S. (30 percent) compared with all respondents (21 percent).

In addition, more U.S. respondents list class actions (25 percent) and product liability (18 percent) as top concerns compared with the total sample (18 percent and 14 percent, respectively).

In the words of Richard Krumholz, head of dispute resolution and litigation, United States, Norton Rose Fulbright:

Our survey clearly demonstrates that the litigation and regulatory environment in the United States continues to pose some of the greatest risks which businesses from around the world face. This is reflected in rising litigation budgets and the size of disputes-focused staff compared to peer companies around the globe.”

Just to be clear, the average U.S. company has 20 in-house lawyers to handle disputes and the number of U.S. companies with an annual litigation spend of $1 million or more increased from 52 percent to 69 percent from 2012 to 2014.

Slightly more than half of the survey respondents are from companies with headquarters in the U.S.

The  Insurance Information Institute (I.I.I.)  has an excellent resource on business liability insurance here.

WEF: New Technologies Present Regulatory Challenges

How to balance the risks and rewards of emerging technologies is a key underlying theme of the just-released World Economic Forum (WEF) 2015 Global Risks Report.

The rapid pace of innovation in emerging technologies, from synthetic biology to artificial intelligence has far-reaching societal, economic and ethical implications, the report says.

Developing regulatory environments that can adapt to safeguard their rapid development and allow their benefits to be reaped, while also preventing their misuse and any unforeseen negative consequences is a critical challenge for leaders.

John Drzik, president of Global Risk and Specialties at Marsh, says:

Innovation is critical to global prosperity, but also creates new risks. We must anticipate the issues that will arise from emerging technologies, and develop the safeguards and governance to prevent avoidable disasters.”

The growing complexity of new technologies, combined with a lack of scientific knowledge about their future evolution and often a lack of transparency, makes them harder for both individuals and regulatory bodies to understand.

But the current regulatory framework is insufficient, the WEF says. While regulations are comprehensive in some specific areas, they are weak or non-existent in others.

It gives the example of two kinds of self-flying aeroplane: the use of autopilot on commercial aeroplanes has long been tightly regulated, whereas no satisfactory national and international policies have yet been defined for the use of drones.

Even if the ramifications of technologies could be foreseen as they emerge, the trade-offs would still need to be considered. As the WEF says:

Would the large-scale use of fossil fuels for industrial development have proceeded had it been clear in advance that it would lift many out of poverty but introduce the legacy of climate change?”

Geopolitical and societal risks dominate the 2015 report. Interstate conflict with regional consequences is viewed as the number one global risk in terms of likelihood, with water crisis ranking highest in terms of impact.

The report also provides analysis related to global risks for which respondents feel their own region is least prepared, as highlighted in this infographic:

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The report was developed with the support of Marsh & McLennan Companies and Zurich Insurance Group and with the collaboration of its academic advises: the Oxford Martin School (University of Oxford), the National University of Singapore, the Wharton Risk Management and Decision Processes Center (University of Pennsylvania), and the Advisory Board of the Global Risks 2015 report.

Changing U.S. Liability Claims Environment

Growth in U.S. liability claims could accelerate to 5-6 percent in the near future, according to a just-released report by Swiss Re sigma.

The slowdown in U.S. liability claims paid after 2008, primarily due to economic drivers such as the recession and weak recovery, is expected to reverse.

Why the change?

Cyber risk and the liability from emerging technologies including hydrofracking and autonomous cars, combined with stronger economic growth will drive liability claims costs higher, sigma says.

Interestingly the report suggests that the effects of tort reform, which contributed to a slowdown in claims growth in the mid-2000s in the U.S., were a one-off benefit and will no longer suppress claims growth to the same degree.

It notes:

Often these types of reform have only a temporary effect on claims growth, which fades as the rules eventually soften again or the legal profession learns how to optimize the pursuit of claims in the new framework.”

Tort reform in the U.S. has focused on medical malpractice and class action claims, the report says.

Many early studies concluded that medical malpractice reforms such as limits on lawyers’ fees and non-economic compensation were effective in reducing medical malpractice liability. However, some of these caps were later overturned by state supreme courts.

Despite passage of the Class Action Fairness Act in 2005, empirical evidence on the effects of federal class action reform in the U.S. remains inconclusive, sigma adds.

The report also warns that litigation funding, in which a third-party funding company pays the costs of litigation and is paid only if the litigation is successful, is still in its infancy in the U.S. but developing.

There are fears it will grow, driving up litigation and future claims costs for insurers.”

Check out this I.I.I. backgrounder on the U.S. liability system here.

Impact of ACA Like Hurricane, Says WCRI Exec Victor

I.I.I. chief actuary James Lynch reports from Day  2 of the WCRI annual conference in Boston:

Health insurance and workers compensation are sort of kissin’ cousins, in that changes that affect one inevitably affect the other.

But that’s my metaphor. Dr. Richard Victor, executive director of the Workers Compensation Research Institute (WCRI), likens the impact of health care reform to a hurricane.

Like a storm whose path is not quite defined, health care reform could take a significant toll – but we don’t know precisely where. Since workers comp differs from state to state, the impact of the Affordable Care Act (ACA) will differ from state to state. Like a good weatherman, Dr. Victor told an audience of about 400 at WCRI’s annual conference in Boston on Thursday he could make some educated guesses what might happen.

He is assuming the ACA is enacted exactly as written – a tough assumption but as good a starting point as any. In that case, the increase in insured Americans will increase demand.

The marketplace might decrease the use of doctors, relying instead on well-trained nurses or even sophisticated computers to help provide care.

Or doctors might raise prices in the face of rising demand.

What actually happens will differ by state. Some states make it difficult to take diagnosis and treatment out of the doctors’ hands. In those states, medical costs – and their kissin’ cousin, comp costs — are likely to rise. Elsewhere, the effect will be muted.

Other insights:

â–  Health care reform will result in a healthier work population. This will tend to help the comp system, because healthy workers are less likely to get hurt on the job, and if they do get hurt, they get well faster.

â–  Changes in billing, Dr. Victor said, will “absolutely† lead to upcoding – in which a doctor exaggerates the severity of a treatment to receive a bigger reimbursement. The practice is well-documented in workers comp, he said, citing examples from Florida and California.

â–  Changes are likely to shift into workers compensation. That’s because many employers are increasing deductibles that employees pay for treatment. Workers comp, meanwhile, has no deductibles and no co-pays – giving an employee the incentive to label an injury as work-related.

I blogged about Day  1 of the conference here. Other highlights from Day 2:

â–  Alex Swedlow, president of the California Workers Compensation Institute (CWCI) noted that even after all appeals are exhausted only about five percent of denials of comp claims are overturned. Swedlow also said evidence-based pain management guidelines effectively control costs; and a comparison of California and Washington pharmaceutical costs show that more cost savings are possible.

â–  Harry Shuford, chief economist of the National Council on Compensation Insurance (NCCI), argued that underwriting cycles are closely linked to bond yields and that when it comes to managing their business, insurers in the long run “do a much better job than other financial intermediaries† like banks.