One of our retail broker subscribers posted a note internally to colleagues about why they should use Advisen - because it helps them make money. I have excerpted in the below for weekend reading - on the flight to RIMS?
Ready to Close that Deal?
Advisen may be the solution!
Whatever happened to the good old days of loyalty coupled with an insurance broker who provides better value than their competitors? In these tough times as all sectors of the economy struggle to tread water, many of us are probably wondering why accounts that we have had ten or twenty years are heading for the door. There is one answer: The bottom line. Do not give up quite yet! There is a software tool that can:
1) Increase the ratio of your sales
2) Provide your client or prospect with valuable information about their industry and insurance policy
3) Clearly put the term “value” back into the minds of the consumers
Advisen is fueling global business insurance with the industry’s first ever online knowledge marketplace.
Advisen’s wealth of information resources, combined with a sophisticated search engine, data mining, and analytical tools provide strategic information services to the insurance industry. By aggregating information relevant to the business insurance industry, Advisen has created a workspace where insurance underwriters, brokers and business managers assess, quantify and evaluate risk within and across domains, benchmark performance against best practices, and track regulatory developments.
Recently, a colleague asked me if I could check what the self-retention average for a company who specializes in real estate management with revenue over $100 million dollars would be. After filling out the brief search engine questionnaire on the software, I was able to create a graph which illuminated the average retention of similar companies across the country. Based on this information, we were able to determine that the retention was right where it needed to be.
We didn’t stop there. I used Advisen to do a policy form comparison between the incumbent broker’s policy form and the carrier’s form that we were planning to use. We were able to show the prospect where the norm in terms of retention fell for their industry, the difference in wording between policies, and also how that could affect the payout of a claim in the event of a loss. To say the least, the prospect was very impressed.
Showing posts with label brokers. Show all posts
Showing posts with label brokers. Show all posts
Friday, 17 April 2009
Monday, 8 September 2008
Notes from the John Street Club Luncheon - New York, Sept 5th
Talking about the soft market:
John Keogh, head of ACE Overseas pointed out that beyond continued overcapacity, rates won’t change while carriers are cash flow positive in a soft market. But that when cash dries up they will have a panic and topping up balance sheets now will not be as easy as in 2005. John thought we’re probably 2 years away from the bottom.
Greg Flood, head of IronPro, echoed those thoughts and noted that the soft market will be strengthened after the end of the releasing of reserves but also pointed out that subprime is percolating and is major, even beyond the D&O market for financial institutions.
Talking about industry M&A activity:
Bill Malloy of Private Equity firm Aquiline Capital talking about actively looking for new investments but finding the challenge in valuations, focused on “distribution space” saying that 1-2% growth doesn’t sustain their desired valuations of 8-10x EBITDA.
Tuesday, 15 July 2008
Willis and Contingent Commissions
To follow up on my post about Marsh hoping for new revenue from contingent commissions (here), Willis CEO Joe Plumeri spoke out in a story (story here) saying that it's unfair that only certain brokers are prohibited from taking these commissions while other brokers and agents are free to do so.
Mr. Plumeri believes that transparency is a competitive advantage for Willis and would like to see these fees abolished for all brokers.
In the UK, risk management association AIRMIC took one of its strongest positions on the subject (story here) calling for automatic disclosure. Currently if asked brokers must disclose, but AIRMIC is calling for disclosure even when not asked by clients.
The issue has been addressed by the FSA, the regulator for financial services including the insurance industry, but the latest position seems to indicate that the market should decide. The association of brokers (BIBA) has unsurprisingly agreed that regulation is not required.
If AIRMIC didn't stand up to take this position and raise awareness to the FSA, nobody would.
Mr. Plumeri believes that transparency is a competitive advantage for Willis and would like to see these fees abolished for all brokers.
In the UK, risk management association AIRMIC took one of its strongest positions on the subject (story here) calling for automatic disclosure. Currently if asked brokers must disclose, but AIRMIC is calling for disclosure even when not asked by clients.
The issue has been addressed by the FSA, the regulator for financial services including the insurance industry, but the latest position seems to indicate that the market should decide. The association of brokers (BIBA) has unsurprisingly agreed that regulation is not required.
If AIRMIC didn't stand up to take this position and raise awareness to the FSA, nobody would.
Thursday, 10 July 2008
Marsh stock, 4 years later
As a follow-up to my earlier post today about Marsh, the following stock price shows the dramatic fall in prices in late 2004 after the Spitzer investigations were announced. The market took out nearly $1b from Marsh in reflection of the projected lost revenues from contingent commissions. Since then both Willis and Aon have outperformed Marsh with Aon up close to 75% from its 2004 share price.
Marsh settlements - closure?
Two stories in the news about Marsh this week caught my eye.
First was Advisen Senior Legal Analyst Anne Wallace's summary of an update to one of the nearly 9,000 cases in Advisen's large loss database of litigation which talks of the closure or final settlements stemming from the Spitzer investigation:
Second was the story by Liam Pleven of the Wall Street Journal (story here) which talks about how authorities in NY are reconsidering the settlements and opening the door to potential reinstatement of contingent commissions in some form. Liam's articles states how Marsh has a lot riding on this.
So is it closure? With European brokers reinstating these fees at 2.5% of premium and the EU to review this and potentially New York reconsidering, could we see these come back? I know our friends at AIRMIC and RIMS will have a lot to say about this, or should.
To subscribe to our alerts on this and similar litigation e-mail me or call +1.212.897.4820.
First was Advisen Senior Legal Analyst Anne Wallace's summary of an update to one of the nearly 9,000 cases in Advisen's large loss database of litigation which talks of the closure or final settlements stemming from the Spitzer investigation:
On July 3, 2008, attorneys for Marsh filed a Settlement Agreement and Brief in support of settlement of the Multidistrict Litigation entitled “In Re Insurance Brokerage Antitrust Litigation” filed in 2004.
This action alleged that insurance companies and insurance brokerage firms worked with one another to allocate customers and markets resulting in charging and collecting inflated premiums from policyholders.
The district court dismissed plaintiffs’ federal antitrust and RICO claims in the commercial case. Plaintiffs’ third attempted appeal has been withdrawn in favor of this settlement.
This Settlement is funded by the undistributed remainder of the earlier NYAG settlement, which totals about $69 million. $62 million will form the Litigation Settlement Fund; $5 million of this fund will be to resolve state claims. The remaining $7 million will be available to Marsh to settle the remaining “tag along” cases.
All parties have agreed with this settlement and set a final fairness hearing date of August 8, 2008.
When settlement is approved, this will bring to a close a large chapter in this 4 year saga for the insurance industry.
The class for this settlement does not include any valid “opt-out” plaintiffs or any party that has benefited from any prior “actual or threatened or other proceeding…concerning their purchase of Insurance, including but not limited to any Participating Policyholders in the NYAG Settlement Agreement”.
The class plaintiffs have previously settled with both the Zurich and Gallagher Defendants for $121.8 and $28 million respectively.
Second was the story by Liam Pleven of the Wall Street Journal (story here) which talks about how authorities in NY are reconsidering the settlements and opening the door to potential reinstatement of contingent commissions in some form. Liam's articles states how Marsh has a lot riding on this.
So is it closure? With European brokers reinstating these fees at 2.5% of premium and the EU to review this and potentially New York reconsidering, could we see these come back? I know our friends at AIRMIC and RIMS will have a lot to say about this, or should.
To subscribe to our alerts on this and similar litigation e-mail me or call +1.212.897.4820.
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.
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.
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.
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, 20 May 2008
D&O Premium Correction, When not If
Further to my recent posts about the coming change in D&O premium rates (see here), another wholesale broker in London and Advisen client gave some specifics about REIT D&O policies being non-renewed (again, non-renewals are rare) and also suggested an interesting angle about coverage terms.
With D&O underwriters only now issuing new forms in response to the subprime crisis, by the time premiums correct these forms will still be in use meaning that premiums will go up and coverage terms stay broad.
When will premiums correct? His forecast is that general or commercial D&O rates will shift to a hard market in Q2 or Q3 of 2009.
With D&O underwriters only now issuing new forms in response to the subprime crisis, by the time premiums correct these forms will still be in use meaning that premiums will go up and coverage terms stay broad.
When will premiums correct? His forecast is that general or commercial D&O rates will shift to a hard market in Q2 or Q3 of 2009.
Thursday, 1 May 2008
Benchmarking comes to the UK
Yesterday Advisen and AIRMIC announced the launch of a Benchmark Survey similar to the one Advisen has produced for RIMS for 6 years.
Picking up on my theme of how empirical data is superior to anecdotal data (see post here) AIRMIC Benchmark Survey is the only one of its kind in the UK where data is collected directly from risk managers, thereby providing the most accurate tracking of buying trends for all major coverage lines across a wide array of commercial insurance buyers.
For more information on participating or getting results, please e-mail airmic@advisen.com.
The survey results will provide AIRMIC members and other subscribers with benchmarking charts using relevant peer group comparisons. The data will make risk managers and other industry professionals more informed in considering the structure and expected cost of their insurance programmes. The service will answer questions such as “How much coverage do my peers buy?” or “Am I paying too much for my insurance?”
Risk managers who are not currently AIRMIC members are welcome to participate and/or to use the results of the survey in making more informed decisions about their insurance programs.
AIRMIC chief executive John Hurrell said,
Picking up on my theme of how empirical data is superior to anecdotal data (see post here) AIRMIC Benchmark Survey is the only one of its kind in the UK where data is collected directly from risk managers, thereby providing the most accurate tracking of buying trends for all major coverage lines across a wide array of commercial insurance buyers.
For more information on participating or getting results, please e-mail airmic@advisen.com.
The survey results will provide AIRMIC members and other subscribers with benchmarking charts using relevant peer group comparisons. The data will make risk managers and other industry professionals more informed in considering the structure and expected cost of their insurance programmes. The service will answer questions such as “How much coverage do my peers buy?” or “Am I paying too much for my insurance?”
Risk managers who are not currently AIRMIC members are welcome to participate and/or to use the results of the survey in making more informed decisions about their insurance programs.
AIRMIC chief executive John Hurrell said,
“We have long admired the RIMS Benchmark Survey and are delighted to work
with Advisen on producing something similar.”
Monday, 28 April 2008
Benefits of ECF
This month's Market Reform newsletter (here) offers a very good article by executives at Lockton detailing how use of ECF has allowed a higher degree of focus and execution on the complex tasks of broking claims while reducing the unnecessary overhead of handling routine claims matters. Here are some of my favorite quotes:
You can put together a package of, say, six claims, totalling no more than
€1000 in a matter of minutes. Previously these would have taken hours to walk
round the market.
The MI reports that the in house workflow system is now capable of producing
allow for a much more proactive approach to the working day....(which) allows us
to start to measure each stage of the process. This in turn means we can start
to set target turnaround times for each stage and flag up where these aren’t
met. This means that we can manage by exception and not just progress work in
strict order.
(Before ECF) claims staff were constrained by the hours that underwriters
were open to accept files
What brokers do and how they get paid
How do buyers of commercial insurance work with their brokers now? Since the Spitzer investigations rocked Marsh and others in the industry, have things changed? How has the fierce soft market impacted the way brokers are paid? Advisen and RIMS wanted to find out.
Today is the first day of the annual RIMS Conference and we announce the results of the Advisen / RIMS Broker Services and Remuneration Study — based on data gathered in February from 1,519 participants — which has found that insurance buyers are driving brokers to change their service offerings and the way brokers are compensated.
The results are part of the 2008 RIMS Benchmark Survey™ book available here.
While virtually all survey respondents continue to use brokers to place insurance programs, the majority agree that brokers are shifting from commissions to fee-based compensation. With this shift towards fee-based pricing, respondents note a broker trend towards supplementing dwindling commission income with added services.
It's an incredible tool for buyers to benchmark the value for money received from their brokers and for management at brokerage firms to benchmark the level of services they offer as compared to their competition.
Today is the first day of the annual RIMS Conference and we announce the results of the Advisen / RIMS Broker Services and Remuneration Study — based on data gathered in February from 1,519 participants — which has found that insurance buyers are driving brokers to change their service offerings and the way brokers are compensated.
The results are part of the 2008 RIMS Benchmark Survey™ book available here.
While virtually all survey respondents continue to use brokers to place insurance programs, the majority agree that brokers are shifting from commissions to fee-based compensation. With this shift towards fee-based pricing, respondents note a broker trend towards supplementing dwindling commission income with added services.
It's an incredible tool for buyers to benchmark the value for money received from their brokers and for management at brokerage firms to benchmark the level of services they offer as compared to their competition.
Thursday, 17 April 2008
Empirical strikes back
A lot of one, one of the other.
Many journalists are running stories on the soft market and are using surveys as the base of their articles. There are two types of surveys data: anecdotal and empirical. There are a lot of anecdotal surveys while the RIMS Benchmark Survey produced by Advisen is the only one based on empirical data.
Today we announce the publication of the 2008 RIMS Benchmark Survey book which details the 2007 buying year for Risk Managers in North America (get your copy here). Just as our quarterly results showed, the soft market gained momentum across the board, including falling property rates for the first time since the 2005 hurricanes.
The annual book goes deeper than premiums and analyzes the total cost of risk (TCOR) including the retained losses and the expense of risk administration (salaries, etc.).
Anecdotal data comes from questions of brokers such as "do you think rates will continue to fall?" or "will they fall between 5 and 10%?" Instead, Advisen collects data right from risk managers on their buying of all commercial lines insurance coverages and with over 1,000 corporations reporting in 2007, the data set is the largest available.
While the overall picture is of a free-fall in premiums, this amount of benchmarking data enables comparison by industry, size of company, and other combinations to find any aberrations. For instance, changes in TCOR were not evenly distributed across industries and the book lists 14 industry groups for peer comparison.
Importantly, we also include the first installment of an annual survey about broker compensation. Risk managers provide a clear indication of how they compensate their brokers (general fee / placement commission); how much they compensate their brokers; broker market share by product; which services are currently included in their fees and which additional services risk managers would like to buy from their brokers.
It's an incredible benchmarking tool for corporate risk managers to demonstrate their relative sophistication in insuring their risk as well a road map for brokers to develop additional products and services for clients and prospects.
To buy your copy of the RIMS Benchmark Survey book including the full results of the broker survey click here. Discounts apply to RIMS members.
Many journalists are running stories on the soft market and are using surveys as the base of their articles. There are two types of surveys data: anecdotal and empirical. There are a lot of anecdotal surveys while the RIMS Benchmark Survey produced by Advisen is the only one based on empirical data.
Today we announce the publication of the 2008 RIMS Benchmark Survey book which details the 2007 buying year for Risk Managers in North America (get your copy here). Just as our quarterly results showed, the soft market gained momentum across the board, including falling property rates for the first time since the 2005 hurricanes.
The annual book goes deeper than premiums and analyzes the total cost of risk (TCOR) including the retained losses and the expense of risk administration (salaries, etc.).
Anecdotal data comes from questions of brokers such as "do you think rates will continue to fall?" or "will they fall between 5 and 10%?" Instead, Advisen collects data right from risk managers on their buying of all commercial lines insurance coverages and with over 1,000 corporations reporting in 2007, the data set is the largest available.
While the overall picture is of a free-fall in premiums, this amount of benchmarking data enables comparison by industry, size of company, and other combinations to find any aberrations. For instance, changes in TCOR were not evenly distributed across industries and the book lists 14 industry groups for peer comparison.
Importantly, we also include the first installment of an annual survey about broker compensation. Risk managers provide a clear indication of how they compensate their brokers (general fee / placement commission); how much they compensate their brokers; broker market share by product; which services are currently included in their fees and which additional services risk managers would like to buy from their brokers.
It's an incredible benchmarking tool for corporate risk managers to demonstrate their relative sophistication in insuring their risk as well a road map for brokers to develop additional products and services for clients and prospects.
To buy your copy of the RIMS Benchmark Survey book including the full results of the broker survey click here. Discounts apply to RIMS members.
Tuesday, 8 April 2008
Q1 2008 Premiums: No broad market impact by subprime
Advisen released the results for Q1 2008 of the RIMS Benchmark Survey. See the press release here. The picture continues to be good for buyers and not helpful to broker earnings nor the long-term profit picture for insurance underwriters.
The cycle has not found bottom despite incredible financial market turmoil. My post yesterday discussed how Lloyd's is not concerned. Advisen clients I speak with are of mixed minds - those that are in the market for professional lines insurance (e.g. directors & officers, errors & omissions, crime) to financial institutions (lenders, investment banks, funds), those guys are not comfortable with what they have written and are looking forward to the influx of claims that will shake up who writes what and how this volatility will increase pricing in this space quickly.
We have to wait and see how litigation progresses - currently we are tracking 259 cases, including 62 securities class actions related to subprime and the credit crisis. The potential is for the concentric circles of loss to mount into something that has ripple effects within the markets far beyond D&O for financial institutions. See a recent post about this here.
The results have been picked up in the trade press already with an additional quote by Advisen's Dave Bradford in a story by Financial Week here.
The cycle has not found bottom despite incredible financial market turmoil. My post yesterday discussed how Lloyd's is not concerned. Advisen clients I speak with are of mixed minds - those that are in the market for professional lines insurance (e.g. directors & officers, errors & omissions, crime) to financial institutions (lenders, investment banks, funds), those guys are not comfortable with what they have written and are looking forward to the influx of claims that will shake up who writes what and how this volatility will increase pricing in this space quickly.
We have to wait and see how litigation progresses - currently we are tracking 259 cases, including 62 securities class actions related to subprime and the credit crisis. The potential is for the concentric circles of loss to mount into something that has ripple effects within the markets far beyond D&O for financial institutions. See a recent post about this here.
The results have been picked up in the trade press already with an additional quote by Advisen's Dave Bradford in a story by Financial Week here.
Mr. Bradford said financial services and investment businesses, which have been
hit hard by the subprime mortgage meltdown, will see directors and officers’
liability insurance rates rise because of the increase in claims they face. But,
he added, there will be a steady decline in rates for most companies not exposed
to mortgage losses. “It wasn’t until the first quarter that underwriters pushed
through significant rates increases for financials. But it hasn’t spread beyond
that fairly narrow group.”
Wednesday, 19 March 2008
Tipping Point
Commercial lines insurance pricing is set by the economics of supply and demand.
As evidenced by the chart on the right there is a serious imbalance. Using US policyholder surplus as supply and US GDP as demand for insurance, the ratio of supply:demand is represented by the red line currently at 3.7%.
Note that the median in recent decades is 3.2% meaning we are at high levels and that there is a fierce downward pressure on pricing.
When does it change? What's the tipping point? Could the new litigation beyond subprime bring about this change?
I heard an interesting take today from a senior reinsurance broker in London who says the tipping point has always been the first major reinsurance firm that refuses to write anything further and that this has a ripple effect, starting with the primary insurance underwriters that rely on this reinsurance.
This broker sees a period of time beginning in the next 6 months where capacity is scarce and serious profits can be made from escalating prices, despite the fact that as the crisis widens and deepens, Advisen's $3.6b estimate for D&O losses is likely to increase.
He sees Q2 2008 reports leading to painful discussions about reserves among underwriting firm managers and that this will lead to somebody being that first firm to close up the Financial Institution D&O shop.
In the meantime he's placing a ton of excess layers for those wanting to take advantage of capacity while it's still available.
As the turmoil in financial institutions continues to play out wickedly in front of our eyes, the insurance industry awaits the inevitable claims. The question is whether the inevitable contraction of capacity and increase in pricing will be isolated to financial institution D&O or even to D&O or whether the impact of these claims can have a material impact on overall insurance pricing.
Thursday, 6 March 2008
Another Lloyd's Survey
Lloyd's recently released the results of its annual survey of its underwriters citing their concerns for the upcoming year, see my comments here.
Today I read about a survey measuring satisfaction with Lloyd's as related by 506 brokers, reinsureds, insureds and coverholders. The results are on page 3 of the .pdf document found here - overall satisfaction increased from 7.6 out of 10 to 7.8.
It's noteworthy that the results show good scores for turnaround speed in all areas except contract documentation and staying informed during a claim - noteworthy because these are the most important to the client. The reform agenda is working to improve these areas with contract certainty and electronic processing of claims.
The case is made that there is an uptick in overall satisfaction which can be attributed to the gains made in modernizing the processing of policies at Lloyd's. I support the assumption because of the significant progress made in processing accounting messages and claims online instead of by paper.
To evidence this progress, see the story on the same page which cites the Market Reform Group's report that 70% of accounting messages and 92% of claims are now processed online.
In terms of the impact this reform is having on brokers, one of the big 3 brokers uses ACORD messaging (the Web Connectivity gateway) and told me this week that the ROI from online processing of accounting and claims is already being felt in their bottom line.
Today I read about a survey measuring satisfaction with Lloyd's as related by 506 brokers, reinsureds, insureds and coverholders. The results are on page 3 of the .pdf document found here - overall satisfaction increased from 7.6 out of 10 to 7.8.
It's noteworthy that the results show good scores for turnaround speed in all areas except contract documentation and staying informed during a claim - noteworthy because these are the most important to the client. The reform agenda is working to improve these areas with contract certainty and electronic processing of claims.
The case is made that there is an uptick in overall satisfaction which can be attributed to the gains made in modernizing the processing of policies at Lloyd's. I support the assumption because of the significant progress made in processing accounting messages and claims online instead of by paper.
To evidence this progress, see the story on the same page which cites the Market Reform Group's report that 70% of accounting messages and 92% of claims are now processed online.
In terms of the impact this reform is having on brokers, one of the big 3 brokers uses ACORD messaging (the Web Connectivity gateway) and told me this week that the ROI from online processing of accounting and claims is already being felt in their bottom line.
Tuesday, 4 March 2008
Brokers & Cycle Management
My earlier post (here) talked about risk managers reacting to the furious soft market (isn't there a term for an modifying adjective that contradicts the object and is my grandmother rolling over in her grave to get her ruler to rap my knuckles?). See images of the soft market above - the first is rates for Directors & Offices (D&O) cover showing 4 years of declining premiums. The second is the rate of change for every quarter in the past 4 years - note that the 11% decline in Q4 2007 is the 2nd biggest in these 4 years - meaning the soft market is showing no signs of abating.
I have posted many times now about underwriters managing the cycle through "underwriting discipline" (see here and here and here).
In looking at developments in the broker market, Jardine Lloyd Thompson's (JLT) results today (here) showed top-line and bottom-line growth. This is noteworthy because most brokers fees are a percentage of premium and as the soft market erodes premium, the broker looks for other ways to grow. JLT did a lot of right-sizing to achieve these profits.
What are brokers doing?
The COO of a London market broker told me he'd taken out all of the cost he could and growth would need to come from new revenues. His Board was looking at consulting services to provide clients wth even greater advice in enterprise risk management.
Going back to JLT, our friends at the Insurance Insider wrote (here) that they felt JLT and competitor Thompson Heath and Bond (THB) were looking for new revenue by launching underwriting divisions. See press releases for JLT here and THB here.
It's going to be very interesting to follow these developing stories - will Thistle Underwriters (JLT) and Unicorn Underwriting (THB) be soft-market panaceas or more disruptive innovations for the industry. Advisen Front Page News will follow this story - subscribe here.
Wednesday, 27 February 2008
Answering Gargamel – Part II of II
To further the discussion of how the insurance industry is evolving, it’s important to put into context what commercial insurance is transacted online.
ACE, among others, offers D&O quotes on its website. This is driven by a matrix of basic exposure assumptions as maintained by ACE underwriters. The key is that this commoditisation of D&O is only available for small clients, to get a quote from anyone, including ACE, you have to speak to an underwriter which means you have to go through a broker.
No insurance underwriter is prepared to provide online quotes for large, complex risk. There’s no liquidity, no exposure benchmarks to use, it’s not like adding spreads to treasury bonds and deriving pricing. Just like new issue pricing in the bond markets, new issue insurance pricing is more art than science.
This is why the adoption of technology is evolving late – just as I was nearly done with implementing online trading solutions for the secondary bond market before we drafted the first prototype for new issuance.
That being said, it’s sad that there is still paper in the process and I applaud the progress made by those firms at Lloyd’s who have made online accounting and online claims processing such a success. The majority of this success is made possible by simple, yet deep, integration using ACORD standards.
Mr. Gargamel I apologize for the delayed response, but I hope I’ve addressed your points. Thank you for the thoughtful comment to Part I of this response (see here).
ACE, among others, offers D&O quotes on its website. This is driven by a matrix of basic exposure assumptions as maintained by ACE underwriters. The key is that this commoditisation of D&O is only available for small clients, to get a quote from anyone, including ACE, you have to speak to an underwriter which means you have to go through a broker.
No insurance underwriter is prepared to provide online quotes for large, complex risk. There’s no liquidity, no exposure benchmarks to use, it’s not like adding spreads to treasury bonds and deriving pricing. Just like new issue pricing in the bond markets, new issue insurance pricing is more art than science.
This is why the adoption of technology is evolving late – just as I was nearly done with implementing online trading solutions for the secondary bond market before we drafted the first prototype for new issuance.
That being said, it’s sad that there is still paper in the process and I applaud the progress made by those firms at Lloyd’s who have made online accounting and online claims processing such a success. The majority of this success is made possible by simple, yet deep, integration using ACORD standards.
Mr. Gargamel I apologize for the delayed response, but I hope I’ve addressed your points. Thank you for the thoughtful comment to Part I of this response (see here).
Answering Gargamel – Part I of II
I admit to poor form in spending more time trying to (unsuccessfully) identify “Mr. Gargamel” who posted a thoughtful comment to a post (here) than in addressing the many and important issues in the comment.
The crux of his comment is the pivot point of who is boss in the insurance industry – He Who Pays Premium, Places Premium or Writes Policies for Premium.
If you agree that the impact of the internet has been to empower the consumer (who now dictates the terms of engagement for the purchase cycle of many products), then why hasn’t the commercial lines insurance industry evolved to this model?
Personal lines insurance products have – they are all transacted online, competition is fierce and comparison sites are hugely successful.
What’s the difference in commercial lines whether in the US, Bermuda or on Lime Street?
I compare the commercial insurance industry to the syndication of new bond issuance. Although Bill Hambrecht has launched an auction site to connect companies raising capital through IPO or secondary offerings to investor capital, this is both new and relatively insignificant.
Ford issues paper through Merrill, Morgan, Lehman & Goldman because of distribution – these houses can provide valuable analysis AND provide a wide network of significant buyers. There is no comparison site for this large issuance and there is little to no activity on the insurance equivalent – RI3K.
For these reasons, I disagree with the sentiment from the comment that “traditional agency channels will almost certainly decline”.
PS - Adoption of ACORD standards will not by itself empower the Risk Manager, the influence dynamic will not shift from the brokers and underwriters. Instead, adoption of efficient placement using ACORD will help take unnecessary cost out of the process and these savings should be passed on to the client. Call the management team at Web Connectivity to learn more.
The crux of his comment is the pivot point of who is boss in the insurance industry – He Who Pays Premium, Places Premium or Writes Policies for Premium.
If you agree that the impact of the internet has been to empower the consumer (who now dictates the terms of engagement for the purchase cycle of many products), then why hasn’t the commercial lines insurance industry evolved to this model?
Personal lines insurance products have – they are all transacted online, competition is fierce and comparison sites are hugely successful.
What’s the difference in commercial lines whether in the US, Bermuda or on Lime Street?
I compare the commercial insurance industry to the syndication of new bond issuance. Although Bill Hambrecht has launched an auction site to connect companies raising capital through IPO or secondary offerings to investor capital, this is both new and relatively insignificant.
Ford issues paper through Merrill, Morgan, Lehman & Goldman because of distribution – these houses can provide valuable analysis AND provide a wide network of significant buyers. There is no comparison site for this large issuance and there is little to no activity on the insurance equivalent – RI3K.
For these reasons, I disagree with the sentiment from the comment that “traditional agency channels will almost certainly decline”.
PS - Adoption of ACORD standards will not by itself empower the Risk Manager, the influence dynamic will not shift from the brokers and underwriters. Instead, adoption of efficient placement using ACORD will help take unnecessary cost out of the process and these savings should be passed on to the client. Call the management team at Web Connectivity to learn more.
Comments on the Lloyd's Annual Underwriting Survey
What does thr Lloyd’s Annual Underwriting Survey tell us?
1) Lloyd’s is committed to providing more information about its performance than its competitors do. Survey respondents cited such transparency as a major competitive advantage and I believe it's part of why Lloyd’s brand is one of the business world’s most powerful.
4) On the subject of Lloyd’s Market Reform, there is great progress in going to paperless accounting and claims. The report cites 82% agreeing that there is “high commitment” to reform but I’d like to see Lloyd’s boost its market reform marketing efforts by conducting a study about the impact of adopting ACORD standards. For instance, is manual upoad/download sustainable as compared to integrating ACORD standards into the process? We at Web Connectivity have volunteered to conduct this survey.
1) Lloyd’s is committed to providing more information about its performance than its competitors do. Survey respondents cited such transparency as a major competitive advantage and I believe it's part of why Lloyd’s brand is one of the business world’s most powerful.
2) Subprime is a concern to all, not just the D&O guys. The majority of respondents write property, marine, energy, and reinsurance yet “Managing the Cycle” is the most important issue, and “Global Financial Market Instability” the most significant factor, facing the global insurance industry in 2008.
3) Head East – the greatest area of growth according to Lloyd's underwriters is in China and India. I think this should say “untapped area of growth” because I believe Lloyd’s could write a lot more North American risk than it does. The combination of relaxed rules about how brokers can bring risk to Lloyd’s and the ease-of-access through adoption of ACORD standards will make it far easier for brokers to include quotes from Lloyd’s in marketing run-of-the-mill U.S. risk.
4) On the subject of Lloyd’s Market Reform, there is great progress in going to paperless accounting and claims. The report cites 82% agreeing that there is “high commitment” to reform but I’d like to see Lloyd’s boost its market reform marketing efforts by conducting a study about the impact of adopting ACORD standards. For instance, is manual upoad/download sustainable as compared to integrating ACORD standards into the process? We at Web Connectivity have volunteered to conduct this survey.
5) There is one underwriter who should be removed from the premises – see the chart below:
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