Category Archives: Regulation

IRC: P/C Insurers Not Immune to Effects of Affordable Care Act

The Insurance Research Council (IRC) has taken a closer look at the potential effects of the Affordable Care Act (ACA) for property/casualty insurers.

Its analysis – which doesn’t make any specific estimates of the potential cost implications for the P/C industry – identifies the possible ways in which P/C insurance claim costs will be affected by the Act.

The upshot is that the IRC believes the most significant impact will be cost shifting by hospitals and other providers from public and private health insurers to p/c insurers.

According to the report:

Cost shifting will occur in response to increased cost containment efforts by public and private health insurers, and will appear in the form of higher charges and a higher volume of billed services.†

And:

Cost shifting will be particularly severe in state jurisdictions and with coverages where the differences between public and private health insurance reimbursement levels and property-casualty reimbursement levels are greatest.†

The potential magnitude of the cost-shifting is likely to be major, the IRC notes.

To mitigate this potential impact, the IRC suggests that P/C insurers should consider options to ensure that the prices paid as reimbursement for medical services are consistent with prices paid by public and private health insurers.

While market-based fee schedules and bill review authority are among the tools often applied to address medical pricing issues, the IRC says P/C insurers should also consider alternatives to ensure that only medically necessary and appropriate treatment is provided to P/C insurance claimants and reimbursed by insurers.

Utilization review authority, evidence-based treatment guidelines, and the authority to deny reimbursement for unnecessary or inappropriate treatment are among the tools that P/C insurers should consider, the IRC suggests.

PC360 reports on the IRC analysis here.

Health Care Reform and Potential Impact on P/C Industry

The Affordable Care Act (ACA) will have both potential positive and negative effects on the property/casualty insurance industry, according to a recently published paper by Travelers.

In the paper, Travelers notes that medical trends impact workers compensation, general liability, and auto insurance costs, which make up about 5 percent of health care revenue.

Key ACA components expected to affect the P/C industry are:

— Extended healthcare coverage – a 15 percent increase in demand for a fixed supply of healthcare services

— Black lung presumptions – any miner (or surviving spouse) with 15 or more years of underground coal mine employment and a totally disabling respiratory or pulmonary impairment is presumed to be disabled due to pneumoconiosis and eligible for Black Lung benefits.

— Pharmacy and durable medical equipment (DME) taxes and assessments – the potential to increase costs 1.5 percent and 2.3 percent, respectively.

— Medical data – enhanced electronic record-keeping and sharing of data among providers.

Some of the potential positive effects of the ACA on P/C insurers include increased wellness – a healthier and better conditioned population – and a decreased incentive to file questionable P/C claims, Travelers says.

However, on the negative side, the ACA could result in decreased access to care, increasing indemnity costs as prompt access to physicians is reduced and return to work is delayed, the paper notes.

Travelers also cautions that there could be increased cost shifting from Medicare to P/C payers by physicians and hospitals due to declining Medicare reimbursement rates.

Hat tip to Claims Journal for its report on P/C insurer impacts of the ACA here.

Lloyd’s: Global Business Leaders Worry about Taxes

High taxation has become the number one threat to global business, soaring up the rankings from 13th to 1st place in the last two years, according to the third Lloyd’s Risk Index.

Other top risks concerning more than 500 of the world’s most senior business leaders in 2013 are loss of customers/cancelled orders, cyber risk, increased material costs and excessively strict regulation.

Interestingly, the survey found that U.S. businesses feel even more unprepared to deal with the risk of high taxation than their European counterparts.

While both regions put high taxation as their number one risk, U.S. respondents rank their preparedness at 37 out of 50, compared to European businesses at 21 out of 50.

But does the increase in volume on the subject of corporate taxation reflect reality? Not necessarily, Lloyd’s says.

It cites data showing that corporate taxes have actually declined or remained static in the past few years, despite the financial problems of most major economies.

Still, personal tax rates in some economies have risen, which particularly affect global businesses competing for international talent, it adds. Indirect taxes are also on the increase.

Lloyd’s says:

The reality for businesses appears to be that government ambiguity about business taxes, whether about extending jurisdictions, amending legislation or changing rates, may actually be more damaging for business confidence than the reality.†

In a  press release  Lloyd’s chief executive Richard Ward warns that focusing on near-term issues at the expense of longer-term strategic decision making can leave organizations over-exposed to future business challenges:

With business tax in the spotlight and rising up the political agenda, executives are understandably concerned. Yet the danger is that an emphasis on near-term, operational issues comes at the expense of significant, strategic decisions that have previously exercised business leaders.†

First published in 2009, the Lloyd’s Risk Index is run in conjunction with Ipsos MORI.

Regulating Insurance: The Grades Are In

Many factors, including demographics, economic conditions and the litigation landscape, can affect an insurer’s decision to operate in or to continue doing business in a particular state. The regulatory environment is another important consideration for insurers.

According to the 2012 Insurance Regulation Report Card from non-profit think tank R Street Institute, Vermont, Illinois and Ohio had the best property/casualty insurance regulatory environments in the U.S. this year, receiving ‘A+’ grades.

At the other end of the scale, Florida was the only state to receive a failing grade, falling more than two standard deviations below the mean (the mean was -3.1).

Other states falling more than one standard deviation below the mean include Alaska, Michigan, New York, California, Massachusetts and Texas.

Interestingly enough the best state, Vermont, only scored 26 out of a maximum possible score of 55.

R Street based its assessment of states on 14 objective metrics, including:

– the concentration of their home and auto insurance markets and relative size of their residual markets

– the effectiveness of state solvency and fraud regulation

– the transparency and politicization of insurance regulation

– the tax and fee burdens placed on insurance markets and the proportion of fees used to support insurance regulation

– the relative freedom granted to insurers to set risk-based rates, including through the use of credit and territorial information

A press release cites the report’s author R.J. Lehmann saying:

Overall, in 2011 and early 2012, we saw continued modest trends toward greater consumer and business freedom in the homeowners and automobile insurance markets, as well as real efforts in some states to scale back, or otherwise place on more sound financial footing, residual insurance markets and state-run insurance entities.†

Those are positive trends, and we hope this report card encourages other states to move forward in that direction over the next year.†

Stay tuned.

P/C Insurance: No Systemic Risk To Financial System

Yesterday’s U.S. House of Representatives’ hearing on Congressional ‘Oversight of the Financial Stability Oversight Council (FSOC)’ has made for a number of headlines.

Check out coverage of the hearing in the Wall Street Journal, the  Hill’s Finance and Economy  blog, a Reuters report via Insurance Journal and PropertyCasualty360.com.

A new Insurance Information Institute (I.I.I.) white paper provides insights on the property/casualty insurance industry and systemic risk.

In the paper co-authors Dr. Robert Hartwig, president of the I.I.I. and an economist, and Dr. Steven Weisbart, senior vice president and chief economist for the I.I.I. remind us that not one property/casualty insurer failed as a result of the financial crisis or the ensuing “Great Recession†.

As financial regulators consider criteria for determining which financial institutions might be systemically risky, the authors note that P/C insurance is fundamentally different from banking, and poses no systemic risk to the financial system.

Inappropriate inclusion of P/C insurers could cause harm not only to insurers, but to consumers and the efficacy of financial institution regulation in general, the paper concludes.

Check out the  I.I.I.  issues update  on regulation modernization.

Geneva Association: Key Industry Issues For 2011

Regulation and financial stability will be key issues for the insurance industry in 2011, according to international insurance think tank, The Geneva Association.

Hat tip to Business Insurance for more on this story.

Patrick Liedtke, secretary general and managing director of the Geneva Association, observed that the direction of international insurance regulation is going to be critical for the industry this year.

Major regional projects such as Solvency II, which have gained reference status even beyond Europe, and global projects such as International Financial Reporting Standards (IFRS) reforms and International Association of Insurance Supervisors (IAIS) initiatives will see key decisions in 2011.†

Getting the next wave of regulation right is critically important, not only for the industry, but for continued economic growth and development, he said.

On financial stability, Liedtke noted that while systemic threats do not emanate from insurance activities there are a number of issues that remain poorly understood or simply have not been discussed but where important decisions will be taken by governments in 2011.

The key is to ensure that regulatory imprecision or over-stretch do not hamstring well-functioning industry and damage societal interests.†

Two longer term issues that are also of importance are climate change and demographics.

Climate change presents insurers with both long and far-reaching challenges and also opportunities. The shift towards longer life expectancy and ageing populations will change the way societies view risks.

Check out  I.I.I. facts and stats on U.S. demographics and information on climate change and insurance.

Bumper To Bumper

This just in from the Insurance Institute for Highway Safety (IIHS): bumpers on cars and SUVs don’t line up leading to huge repair bills in what should be minor collisions in stop-and-go traffic.

The Institute’s crash test results show that in fender-benders with SUVs, cars often end up with excessive damage to hoods, engine cooling systems, fenders, bumper covers, and safety equipment like lights. SUVs don’t always come out unscathed either, often needing extensive work.

Hat tip to the New York Times Wheels blog for more on this story.

The Institute conducted 10mph front-into-rear crash tests involving seven pairs of 2010-11 models, each composed of a small car and small SUV from the same automaker.

In the tests, an SUV going 10mph struck the back of its paired car, and then the test was reversed with the car striking the back of its paired SUV.

Damage repair costs in the tests varied widely, but ran into the thousands of dollars, even for the best performers.

Total damage estimates ranged from $2,995 to $7,444 in the SUV into car tests, and from $3,601 to $9,867 in the car into SUV tests. It’s worth noting that the SUV didn’t always have the lower damage estimate either.

In the words of Joe Nolan, the Institute’s chief administrative officer:

“In the real world that money comes straight out of consumers’ wallets through deductibles and insurance premiums.†

So what’s the solution?

According to the Institute, regulating SUV bumpers would ease the burden.

While bumpers on cars are designed to match up with each other in collisions (a federal standard requires all cars to have bumpers that protect within a zone of 16 to 20 inches from the ground), a long-standing gap in federal regulations exempts SUVs from the same rules.

The Institute is calling on regulators to require bumpers on SUVs and pickups to match up in the same way as cars, shielding both from costly damage.

Check out I.I.I. facts and stats on auto insurance and info on auto crashes.

Motorcycles And Helmets

You may have read yesterday’s USA Today article on the National Transportation Safety Board’s (NTSB) call for mandatory helmet laws for all motorcycle riders in the United States.

Motorcycle rights groups oppose the move by the NTSB, criticizing it for interfering in state affairs and proposing laws that are not needed, while highway safety groups are in favor.

According to the NTSB, motorcycles comprise just 3 percent of vehicles on the nation’s road but are involved in 13 percent of fatalities. Head injury is  a leading cause of death in motorcycle crashes, says the U.S. Department of Transportation.

A map accompanying the USA Today article shows those states that require helmets for all riders, states  that require helmets for some riders and states that have no helmet laws.

This got us thinking about motorcycle helmet laws around the world.

According to the World Health Organization (WHO), motorcyclists wearing a good-quality helmet can reduce the risk of death in a road crash by almost 40 percent and the risk of severe injury by over 70 percent.

Yet, only 40 percent of countries have motorcycle helmet laws that cover both riders and passengers, and mandate quality standards for helmets.

A map shows helmet laws and standards by country.

The WHO also has information on road safety laws by country relating to other key risk factors, such as speed, drink-driving, seat belts and child restraints.

Check out the I.I.I. issues update on motorcycle crashes.

Florida’s Sinkhole Claims: The Numbers

The problem of sinkholes in Florida is increasing, both in terms of frequency and cost, according to a new report from the state’s Office of Insurance Regulation (OIR).

OIR’s study puts numbers around a problem that’s been making the headlines as many property insurers in Florida have sought approval for rate increases, citing a surge in non-catastrophe losses – read sinkhole claims.

So what do the numbers tell us? OIR requested information on all sinkhole claims occurring in Florida between 2006 and 2010.

It found that total sinkhole costs over the sample period amounted to approximately $1.4 billion and increased from $209 million in 2006 to $406 million in 2009.

Of the total claims reported, 66 percent are concentrated in Hernando, Pasco and Hillsborough counties –known sinkhole hotspots. But Miami-Dade and Broward counties – where sinkholes have traditionally not been an issue – have seen a 4.2 percent increase in claims so far in 2010.

A key takeaway from the OIR report is that just one percent of the claims were catastrophic ground cover collapse sinkholes, while nearly 57 percent were allocated to subsidence.

Still, insurers are paying out more than $140,000 for the average sinkhole claim, regardless of whether its due to catastrophic ground collapse or subsidence.

As I.I.I. Florida representative Lynne McChristian comments in her Straight Talk blog: “All I can say is†¦what??!!†

McChristian highlights another key finding from the report –  while insurers are paying sinkhole claims,  only 20 percent of claimants actually have repairs made:

So, 80 percent make an insurance claim for sinkhole damage, do not make repairs (because repair work is optional) and do what with the money? Some pay off their mortgage; others may just take the money and stay – or take the money and run.†

Bottom line:

Insurers paid a total of $406 million for Florida sinkhole claims in 2009. True, that amount pales in relation to the billions paid out following a hurricane. But when insurers talk about non-catastrophe losses rising, now you know what they mean.”

We couldn’t have put it any better.

Check out the I.I.I. Florida website for more on the issue of sinkholes.

Election Day Impact On Insurance

As millions of Americans head to the polls and wait to see how the nation’s political landscape may or may not change after today’s mid-term elections,  commentators say  the results could have significant implications for insurance.

A.M. Best’s Election News 2010 website reports that voters nationwide could overhaul the insurance landscape:

Because of term limits and decisions not to run, about half of the country’s governors will be new. That could bring a tremendous change in the U.S. regulatory climate and will surely mean a great number of state insurance regulatory offices will soon be occupied by new commissioners.”

On the federal level, A.M. Best notes that key congressional races with insurance industry implications include those of Rep. Paul Kanjorski, D-PA; Rep. Earl Pomeroy, D-ND; Rep. Richard Neal, D-MA; and Rep. Walt Minnick, D-ID.

Both A.M. Best and Insurance Journal report that insurance commissioners will be elected in four states. Races will be determined in Georgia, Oklahoma and California, while in Kansas Sandy Praeger faces no opposition after prevailing in the August 3 Republican primary and will retain the commissioner’s post.

Results of governor races in two key insurance markets – California and Florida – will be keenly watched by the industry. Florida will also elect a new chief financial officer to fill the post vacated by Alex Sink, the state’s Democratic candidate for governor.

Follow the latest insurance-related election news and state-by-state coverage of the results on A.M. Best’s Election News 2010 website.