Winter 2014 News - Analysis
Federal Insurance Office Industry Reform Report
The Federal Insurance Office issued its long awaited report to Congress on insurance industry reform. The review and report, mandated under Title V of the Dodd-Frank Act, recommends perpetuation of the existing hybrid model of state and federal regulatory oversight of insurer solvency and market conduct. This means continued primary oversight by state insurance departments. This is a big relief at the state level because states generate considerable tax revenue from the industry as part of their regulatory oversight activity. The report recommends increased oversight of captives and the collection and use of personal data to set rates for consumer products. View the complete report.
Health Industry Director and Officer Liability Insurance Rates
Health industry Director and Officer Liability insurance rates are rising. As a result of industry consolidations, Marsh Risk Management reports that D & O policy rates are increasing. These consolidations among competing health systems, health care providers and health plans are accompanied by increased data sharing, which increases antitrust liability exposure for those entities. The increased risk is now reflected in higher premiums for these products that protect management from the liability consequences of their business decisions.
Health Care Premium Rates
Health care premium rates for 2014 increased but at a notably lower level than any time over the past ten years. Health insurance actuaries and economists are debating the causes and sustainability of this trend. Clearly, health care spending has declined overall over the past three years. Most agree that the economic recession has had a significant effect, and as those effects wane, and millions of consumers acquire access to coverage under the Affordable Care Act, spending is likely to increase. Additionally, the past several years of higher, more conservative rates due to the uncertainties of both the market and the timing and impact of the ACA, are now being reset to reflect conditions that did not match projected claims experience to the actual cost of claims. Unfortunately, these lower rate trends may be short lived, not only because spending on services is projected to increase due to pent up demand and expanded benefits, but also because new transitional insurance fees and health industry fees that are phased in under the ACA, will be reflected in future rates.
Super Storms Impact on Insurance
Super storms have a devastating impact on the availability and cost of property insurance: Super storm Sandy hit the eastern seaboard area of the United States on October 29, 2012. Fifteen months later, thousands of homeowners are awaiting insurance settlements. The storm destroyed 650,000 homes. Auto, homeowners and business insurance claims resulted in private insurance policy claims payout of $18.75 billion. About half of the privately insured losses were claimed by businesses. The National Flood Insurance Program has received $ 7.1billion in claims not covered by privately purchased policies.
According to an analysis by the Insurance Institute of America, at $18.8 billion in damages, Sandy is the third costliest storm in insurance history, behind Katrina in 2005 and Andrew in 1992. Many Sandy victims learned the hard way that flooding is not covered under most homeowners, renters or business property policies. Separate, but limited flood insurance should have been purchased from the Federal government’s national Flood Insurance program. The NFIP caps coverage for the structure of the home at $250,000 and provides a maximum of only $100,000 protection for personal property. Moreover, it covers a policyholder’s primary residence, excluding the many vacation homes along the coast. As Florida coastal residents learned after Hurricane Andrew, it is becoming increasingly more costly and difficult to protect coastal property in storm prone areas. Moreover, coastal communities are finally getting serious about flood mitigation policies and, building along the water is likely to be subject to new legislation restricting the type of construction that will be permitted within flood plains.