Wednesday, 25 June 2008

Market Reform in London: a status report

The Market Reform Office recently held a briefing citing the continued success of adopting online processing of accounting and claims in the London market.

April showed 90% of premiums were filed electronically with 65% of changes in premiums filed electronically. The goal is to get both figures to 100% and to have no vans driving paper from Lime Street to the processing centers outside London.

Brokers are still filing these accounting notices mostly through ACORD messaging but also uploading scanned documents as well. It might sound like scanning documents which then get printed at the processing centers is not really a big step, but the market had to start somewhere and the end vision remains of having structured ACORD messages to move data from one database to another without re-keying at the bureau processing centers.

The MRO highlighted how activity is picking up where Bermuda business processes through the London bureau – no doubt due in part to the efforts of Advisen and Web Connectivity who have now installed the island’s first ACORD messaging gateways.

While these back-office processes are moving online, the front-office insurance placing process remains a laggard in terms of market adoption. Aon proudly cited how “80% of recent treaty renewals were supported electronically”, but a recent report from consulting firm Watertrace showed that the market only wants to get involved in e-placing when full integration is available. ACORD is responding by “fattening the skinny placement guidelines”, to be piloted later this year.

Straight Talk from Bernstein Research

I always appreciate people like Todd Bault at Bernstein Research who tell it like it is.

Bernstein Research is the NY-based arm of securities brokerage Sanford Bernstein & Co and Todd is the Senior Analyst covering the insurance industry. One of their most important metrics is the Bernstein Statistical Monitor (BSM) which tracks price trends as a component in analyzing the financial health of insurance underwriters.

Todd has decided to stop relying on data collected by the CIAB survey of brokers and agents and instead to rely on data collected by Advisen on behalf of RIMS – and to restate previous BSM figures dating back to 2004.

In explaining why, Todd doesn’t hold back in citing the bias of brokers and agents when reporting pricing changes. I’ve posted before about the supremacy of empirical data over anecdotal data – that data that Advisen collects straight from risk managers is more reliable than calling brokers and asking them to summarized quarterly client renewals in ranges such as “down 5-10%”.

All of us at Advisen are glad Todd did his research and found our survey results, available here.

Tuesday, 24 June 2008

Report from AIRMIC: The Global Pain of Tax on Premiums

Cargill is the second-largest private company in the US and operates in 66 countries. David Ketley, Cargill’s UK risk manager, explained how even the best of best efforts result in less-than-perfect compliance.

Every country has rules about what tax on premium is due, who has to pay it, what filings are required and when they are due. These taxes vary by coverage type and business class, so it’s a matrix on top of a matrix. Frequently it’s the underwriters who pay on behalf of the client but sometimes it’s the duty of the broker and in some cases the client who has to pay.

Advisen carries data from a third party service provider on the rules and regulations in 165 of the world’s 195 countries, including how taxes on premiums are to be paid. David Ketley said it’s hard to keep up and cited how Advisen Front Page News alerted him to a change in Australia’s rules. But this panel discussion highlighted that while the tracking of these rules is tough, it is far from the whole of the challenge.

For example, while the tax liability is ultimately paid by the risk manager, as AIG said – it’s part of their expense ratio, getting an invoice or receipt is next to impossible and ensuring that the amount has actually been paid is also difficult – this is quite unpopular with corporate compliance officers.

Allocation by risk managers of these taxes is also difficult – the consensus among the audience was that it was more important to regulators to see a consistent approach over many years than to get every allocation correct down to the last penny.

Cargill was joined on the panel discussion by Mike Stalley, Founder & CEO of Fiscal Reps which effectively administers the tax calculations and filings and payment on behalf of insurers in EU countries, another in a never-ending series of cottage industries in the global commercial insurance market.

When the panellists ended the session by saying that tax on broker fees was another massive challenge, we left the session informed, but perhaps depressed.

Monday, 23 June 2008

Report from AIRMIC: Today’s D&O Cover (Part II of II)

With recent D&O cases focusing on fraud exclusions, extradition and a focus on financial mismanagement, you could easily forget some of the other core exposures for companies and their Directors & Officers.

Law firm K&L Gates reminded us of the need for protection against cases where Directors & Officers are sued for “putting profits in front of safety” in cases where employees suffer fatal accidents on the job – where Derivative Actions can be brought on the back of suits against the company.

Further exposures include where Directors & Officers are held liable for pollution by the company, or where cartel activity occurs (see the 2 British Airways executives resigned after the fuel surcharge price-fixing investigations).

Jane Harte-Lovelace and Sarah Tulpin of K&L Gates’ Insurance Coverage Practice (they defend companies and their Directors and Officers, and don’t act on behalf of insurers) gave a series of tips – specific policy form wordings that can cause the D&O product not to work as expected. I will ask them if we can republish their whitepaper in Advisen Front Page News but here are a few highlights:

  • The definition of “wrongful act” needs to include any “breach of duty” as the recent Companies Act of 2006 in the UK codified the duty of Directors & Officers to include the broad definition “duty to promote the success of the company”.
  • Ensure that the allocation provisions are in place should the company and the Directors & Officers share defense legal teams and costs.
  • Pay particular attention to the definition of “investigation” as it relates to cartel activity

Advisen has a repository of over 2,000 standard policy forms including 400+ D&O policy wordings. Each can be compared on a topic-by-topic basis and with keyword searching, it’s very easy for clients or their brokers to check these terms of coverage. Drop me an e-mail for more information.

Report from AIRMIC: Today’s D&O Cover (Part I of II)

In a detailed presentation to close the workshops at last week's AIRMIC Conference in Edinburgh, broker HSBC and law firm K&L Gates gave a serious lesson about how the devil is in the details for companies and their Ds & Os looking for the right form of coverage.

Adrian Jenner, who heads HSBC’s Mergers & Acquisitions and Management Liability practices out of London, talked about the evolving D&O structure saying that most companies are pulling back on excess entity coverage for the company’s securities and instead focusing premium spends on coverage for the Directors and Officers themselves as well as for the company.

Adrian further noted that HSBC has just placed D&O policies for 3 clients where there was specific DIC D&O coverage for individual directors, and that all of these clients had taken audit committee Side A coverage as well.

This talk of evolving D&O program structures reminds me that in the PLUS Bermuda D&O Symposium that Dan Bailey suggested separate sublimits for defense claims and expect Advisen to issue a report shortly on rising defense costs and why the end of the Lerach and Weiss era is not as warmly received among underwriters as you might expect.

Tuesday, 17 June 2008

Report from the AIRMIC Conference in Edinburgh, Scotland

Good showing at the Conference - the biggest turnout for a non-London event in AIRMIC's history. Some of the developing themes in discussions here:

Two issues highlight the delicate balance AIRMIC straddles between the demands of the membership of risk managers and the leverage of the insurers whose products are so necessary to those risk managers.

First, risk managers last year announced that they would band together to produce a benchmark of claims paying by underwriters. In the last 12 months there has been a high level of serious discussion with the insurers but no product. Perhaps this discussion is the baseline goal for AIRMIC, but they are looking to produce some results of this survey by the end of the year.

Second, risk managers are upset about insurers' overuse of Reservation of Rights in the claims negotiation. The expected response from underwriters of an agreed protocol for this was well-received.

Separately, Directors & Officers Insurance (D&O insurance) is at the forefront of many panel discussions and with the hardening market for financial institution buyers of D&O and the expected impact on the general corporate market for D&O, it's not surprising.

Marsh sent a press release out about its online benchmarking database which highlights just how much larger Advisen's is.

And finally, John Hurrell, CEO of AIRMIC is a great public speaker and not just because of his impassioned plug for the Advisen / AIRMIC Benchmark Survey, but because he's already connected to the AIRMIC membership in this, his first Annual Conference.