How much, how soon?

November 19, 2008

With Congress and the incoming Obama administration sure to make reforming financial services regulation a top priority in 2009, there seems to be a growing sense in the insurance industry that some sort of federal insurance regulation is inevitable.

The only questions seem to be: how much federal regulation of insurance, and how soon will it be put in place.

capitolI had the pleasure last week of moderating a webinar involving a panel of experts on the subject of insurance regulation, and they were unanimous in the opinion that federal regulation is coming. The Industry Focus Online Executive Forum, “The New Regulatory Reality: Reforming Regulation in Times of Turmoil,” if you want to give it a listen.

The panelists included Howard Mills, director and chief advisor in the insurance industry group of Deloitte L.L.P. in New York and former New York insurance superintendent, Francine L. Semaya, chair of the insurance corporate & regulatory practice at the Cozen O’Conner law firm in New York, and J. Stephen Zielezienski, senior vp and general counsel of the Washington-based American Insurance Assn., and between them there was no shortage of strong opinions about the future direction of insurance regulation.

Mr. Mills said he expects the new Congress to move quickly in all areas of financial services regulatory reform, including insurance. And, he said, the outcome might see the much discussed Optional Federal Charter for insurance companies becoming something much more than an option.

Under the reformed regulations, he speculated that state regulation may well continue over such areas as solvency and consumer protection, with a federal regulatory overlay, perhaps responsible for regulating systemic risk issues.

Meanwhile, Ms. Semaya suggested that in the clear climate, with “the insurance industry almost in an upheaval,” it’s possible the industry will see “not just an Optional Federal Charter, but more federal regulation than we ever asked for.”

Mr. Zielezienski agreed that there will “undoubtedly” be some federal role in insurance regulation. And he noted that much of the framework for those changes has already surfaced in Congress, with OFC bills introduced in the last two Congresses and a proposed federal Office of Insurance Information figuring prominently in the financial regulatory modernization blueprint presented by the U.S. Treasury earlier this year.

The panelists in the Industry Focus Online Executive Forum also covered such topics as efforts to harmonize insurance regulation worldwide, solvency issues and regulation, modernization of reinsurance regulation and the likely impact of this month’s elections on insurance regulation. It was quite an interesting discussion. You should check it out, if you can, at www.businessinsurance.com/webinars.


Betting wisely

November 10, 2008

las-vegasI’m attending the annual ISOTECH conference, held this year in Las Vegas, where a conversation that’s come up repeatedly in my discussions with technology companies exhibiting at the show is what impact the current economic situation might have on insurance industry IT investment.

It’s understandable to think that in the face of current economic challenges, companies might be unwilling to take on sizable expenditures.

But, it seems a case can be made for wise investments in areas that are ultimately likely to reduce costs such as claims systems.

Several recent studies have shown that in fact insurers do seem to recognize that rather than representing a prudent cost cutting strategy, not making necessary IT expenditures because of the current economic climate is actually a bad bet.

In particular, studies from the Property Casualty Insurers Assn. of America and Gartner Inc., Datamonitor P.L.C. and Celent have shown companies directing their IT spending to areas that support business growth, risk management and compliance and in technology that helps them reduce costs, increase revenue and make better use of data.

That sort of selective IT spending seems like the smart play.


Welcome!

October 16, 2008

I wrote a couple of years back in my Industry Focus column about the fact that the insurance industry seemed to be slowly intersecting with the world of blogs. I received further evidence of that development today, by way of a release from Westfield Insurance announcing that it had created two new blogs.

As part of the redesign of the Westfield, Ohio-based insurer’s Web site, the company launched the two blogs, one on information security, and the other on loss control.

Mike Rossander, corporate information security manager at Westfield, will be the author of the information security blog, leading discussions on security issues of interest to both businesses and individuals, including tips for maintaining the security of private information.

Lisa Mundt and Jay Gumbrecht, senior risk control representatives at Westfield, will be responsible for the loss control blog, covering a variety of risk management and loss prevention topics aimed at helping businesses manage and reduce risk.

Earlier this year, San Francisco-based Technorati Inc. indicated it was tracking more than 110 million blogs. In the column I referred to at the top of this post from November 2006, the number was 60 million, so the blogging trend is obviously still quite healthy.

With that in mind, it’s good to see a 160-year-old company like Westfield embrace current technology to better serve its customers.


Buyers’ market?

September 24, 2008

Interesting news today that Warren Buffett and his Berkshire Hathaway Inc. are interested in purchasing some American International Group Inc. units.

Mr. Buffett had reportedly expressed interest in some of the troubled insurers’ holdings the weekend of Sept. 13 and 14, as the insurer staggered under the combined weight of its exposure to mortgage market downturns through credit default swaps, mortgage backed securities investments and mortgage insurance.

Faced with having to sell off assets to repay an $85 billion emergency bailout loan from the Federal Reserve, AIG officials have indicated they expect to release an asset sale plan next week.

The insurer has indicated it plans to remain in the property/casualty insurance business, so assets like AIG’s aircraft leasing operation and its American General life insurance and annuity unit are thought by many to be among those on the for sale list.

Mr. Buffett, who offered his comments about buying AIG assets a day after buying $5 billion Goldman Sachs preferred stock will likely see something of interest on AIG’s list.


Talent is key

July 15, 2008

I’ve spent the last several days in Taipei, where I’m attending the 44th Annual Seminar of the International Insurance Society. Not surprisingly, given the conference venue and current trends in local business, much of the discussion has centered on the insurance industry’s Asia efforts.

Beyond even talk of the importance of providing appropriate products for different local markets and the various distribution challenges posed by many emerging markets, perhaps the most frequently cited issue facing the industry as companies look to expand around the globe is the talent shortage confronting them in emerging markets.

Many of the panelists addressing the talent issue spoke of not only the difficulty of finding needed talent locally, but of the importance of retaining it once companies had recruited and trained individuals.

Martyn Parker, Hong Kong-based group executive board member and chief executive officer of the Asia division of Swiss Reinsurance Co., conceded that there will always be employee turnover. That said, “The turnover that really does trouble me is the turnover to competitors, which is always disappointing after you’ve invested in people,” he said.

For Swiss Re, retaining talent in rapidly developing Asian markets is more challenging than recruitment, Mr. Parker said. Meanwhile, Michael J. Cassella, senior vp and managing director Asia-Pacific for the Chubb Group of Cos. in Singapore, took the opposite view, to an extent.

“I’d say our greatest challenge is finding the talent,” he said. Consequently, Chubb puts considerable effort into retaining employees in Asia so it won’t have to devote additional resources to finding and developing replacements.

Whether recruiting or retention is the greatest challenge facing insurance industry companies moving into emerging markets, clearly solving the talent issue is key to the success of their efforts.

“I think there’s a strong correlation between companies making the most progress and their talent management piece,” said Swiss Re’s Mr. Parker.

I’ll be posting more to the blog about the IIS in the days to come, and will be writing about the conference more extensively in the August issue of Industry Focus.


Immigrants vs. natives

May 23, 2008

Of the many meetings I had at this year’s ACORD conference last week in Las Vegas, one theme that came through in many of them was the impact a new generation of employees and consumers will have on the insurance industry from a technology perspective.

Mark W. Lewis, general manager, global insurance industry at IBM, described the issue as one of digital immigrants vs. digital natives. As a Baby Boomer who’s come to embrace information technology in my professional and personal lives, I fit into the immigrant category. Folks like my daughter and others just getting started on their adult lives and careers–who’ve grown up with personal computers and can text message like the wind–are the digital natives.

“In a few more years you’re going to have far more people who don’t even think about technology,” Mr. Lewis said. For the digital natives, IT is just a fact of life, not something that catches their attention.

“The most important part about that is you truly think differently,” he said. “The fact is the business world is being changed and it will continue to be changed by people like that.”

That everyday familiarity with technology will manifest itself in many of the decisions made by the next generation of business executives, Mr. Lewis said.

“One of the advantages that the digital natives will have is the more the business executive knows about technology, the better decisions he’ll make about what is possible,” he said.

The subject was at the heart of a meeting with Bill Hartnett, U.S. insurance industry solutions director at Microsoft Corp., as well. He and others from Microsoft were noting the impact the next generation’s expectations and experiences will have on the insurance industry, and promoting solutions to help address them.

A survey the company conducted earlier this year of adult “Millennials”–those 18 to 27 years old–show the issue cuts both in terms of the industry’s meeting its talent needs and in serving the next generation of insurance buyers.

The survey showed 91% of those questioned saying access to newer, innovative technologies would make them more likely to consider potential job opportunities.

Survey respondents also indicated they see the industry’s adoption of various technology-based customer service tools is an important issue, with 89% saying they think it’s important insurance companies provide Web-based customer support, 86% saying it’s important that insurance companies offer customers personal Web portals on which they can view their accounts and 76% saying it’s important they offer live online chats with agents.

They also are believers in blogs, according to the Microsoft survey, with 69% saying it’s important to them that insurance companies offer company blogs on which customers can post their questions or concerns. 

 

 


Tiny technology, sizable issues

May 1, 2008

From my perspective as a journalist, one of the really cool things about attending RIMS is the opportunity to have conversations with a lot of folks engaged in some really interesting issues in risk management and commercial insurance.

One such conversation I enjoyed this week was with Connie Germano, senior vp excess casualty at ACE USA in New York. The subject was nanotechnology, and her perspective on what constitute some of the key issues surrounding nanotechnology was an interesting one.

Given the work that’s going on to tap nanotechnology for everything from consumer products to medicine and the questions that remain unanswered about the potential risks associated with these molecular machines, many have questioned the possible risk exposures associated with nanotechnology, and, with those risks, the possible impact on the insurance business.

It’s not uncommon to hear someone saying nanotechnology could be “the next asbestos.”

But that sort of attitude is in fact one of the key issues that needs to be addressed if we’re to reap the benefits of nanotechnology, Ms. Germano said. While several major insurance and reinsurance companies have begun researching issues associated with nanotechnology, there are as yet no nano-specific coverages on the market, she said.

And, for some underwriters, the findings of that research might lead to “the fear stage” about nanotechnology, she said. “And they might try to exclude it as a result, which is exactly what we’re trying to avoid.”

Noting that of the $12 billion spent on nanotechnology research in the U.S. in 2005 $10 billion was spent on using nanotechnology and only $2 billion on the risks, Ms. Germano suggests that it’s critical that more research be done to identify the risks associated with nanotechnology, and then steps taken to develop appropriate standards for everything from the handling to the disposal of nano materials.

From an insurance and risk management perspective, the key to reaping the full business and societal benefits of nanotechnology is understanding any risks and managing them effectively, Ms. Germano said, adding that she doesn’t want to see the insurance industry respond to possible nanotechnology risks with “a knee-jerk reaction and just exclude it.”

“From an insurance perspective, my responsibility is to understand what’s going on in my clients’ world,” she said. “And as an insurer, my responsibility is to make sure they understand it and are addressing it to the best of their ability.”