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13 Emerging Trends for Insurance in 2016

Where does the time go?  It seems as if we were just ringing in 2015, and now we’re well into 2016. As time goes by, life changes, and the insurance industry—sometimes at a glacial pace—does, indeed, change, as well. Here’s my outlook for 2016 on various insurance topics:

  1. Increased insurance literacy: Through initiatives like The Insurance Consumer Bill of Rights and increased resources, consumers and agents are both able to know their rights when it comes to insurance and can better manage their insurance portfolios.
  2. Interest rates: The federal funds target rate increase that was announced recently will have a yet-to-be determined impact on long-term interest rates. According to Fitch Ratings, further rate increases’ impact on credit fundamentals and the longer end of the yield curve has yet to be determined. Insurance companies are hoping for higher long-term rates as investment strategies are liability-driven. (Read more on the FitchRatings website here). Here is what this means: There will not necessarily be a positive impact for insurance policy-holders (at least in the near future). Insurance companies have, for a long period, been subsidizing guarantees on certain products or trying to minimize the impact of low interest rates on policy performance. In the interim, many insurance companies have changed their asset allocation strategies by mostly diversifying their portfolios beyond their traditional holdings—cash and investment-grade corporate bonds—by investing in illiquid assets to increase returns. The long-term impact on product pricing and features is unknown, and will depend on further increases in both short- and long-term interest rates and whether they continue to rise in predictable fashion or take an unexpected turn for which insurers are ill-prepared.
  3. Increased cost of insurance (COI) on universal life insurance policies: Several companies—including Voya Financial (formerly ING), AXA and Transamerica—are raising mortality costs on in-force universal life insurance policies. Some of the increases are substantial, but, so far, there has been an impact on a relatively small number of policyholders. That may change if we stay in a relatively low-interest-rate environment and more life insurance companies follow suit. Here is what this means: As companies have been subsidizing guaranteed interest rates (and dividend scales) that are higher than what the companies are currently (and have been) earning over the last few years, it is likely that this trend will continue.
  4. Increasing number of unexpected life insurance policy lapses and premium increases: For the most part, life insurance companies do not readily provide the impact of the two prior factors I listed when it regards cash value life insurance policies (whole life, universal life, indexed life, variable life, etc). In fact, this information is often hidden. And this information will soon be harder to get; Transamerica is moving to only provide in-force illustrations based on guarantees, rather than current projections. Here is what this means: It will become more challenging to see how a policy is performing in a current or projected environment. At some point, regulators or legislators will need to step in, but it may be too late. Monitor your policy, and download a free life insurance annual review guide from the Insurance Literacy Institute (here).
  5. Increased complexity: Insurance policies will continue to become more complex and will continue their movement away from being risk protection/leverage products to being complex financial products with a multitude of variables. This complexity is arising with products that combine long-term care insurance and life insurance (or annuities), with multiple riders on all lines of insurance coverage and with harder-to-define risks — even adding an indexed rider to a whole life policy (Guardian Life). Here is what this means: The more variables that are added to the mix, the greater the chance that there will be unexpected results and that these policies will be even more challenging to analyze.
  6. Pricing incentives: Life insurance and health insurance companies are offering discounts for employees who participate in wellness programs and for individuals who commit to tracking their activity through technology such as Fitbit. In auto insurance, there can be an increase in discounts for safe driving, low mileage, etc. Here is what this means: Insurance companies will continue to implement different technologies to provide more flexible pricing; the challenge will be in comparing policies. The best thing an insurance consumer can do is to increase her insurance literacy. Visit the resources section on our site to learn more.
  7. Health insurance and PPACA/Obamacare: The enrollment of individuals who were uninsured before the passage of Obamacare has been substantial and has resulted in significant changes, especially because everyone has the opportunity to get insurance—whether or not they have current health issues. And who, at some point, has not experienced a health issue? Here is what this means: Overall, PPACA is working, though it is clearly experiencing implementation issues, including the well-publicized technology snafus with enrollment through the federal exchange and the striking number of state insurance exchanges. And there will be continued challenges or efforts to overturn it in the House and the Senate. (The 62nd attempt to overturn PPACA was just rejected by President Obama.) The next election cycle may very well determine the permanency of PPACA. The efforts to overturn it are shameful and are a waste of time and money.
  8. Long-term care insurance: Rates for in-force policies have increased and will almost certainly face future increases—older policies are still priced lower than what a current policy would cost. This is because of many factors, including the prolonged low-interest-rate environment, lower-than-expected lapse ratios, higher-than-expected claims ratios and incredibly poor initial product designs (such as unlimited benefits on a product where there was minimal if any claims history). These are the “visible” rate increases. If you have a long-term care insurance policy with a mutual insurance company where the premium is subsidized by dividends, you may not have noticed or been informed of reduced dividends (a hidden rate increase). Here is what this means: Insurance companies, like any other business, need to be profitable to stay in business and to pay claims. In most states, increases in long-term care insurance premiums have to be approved by that state’s insurance commissioner. When faced with a rate increase, policyholders will need to consider if their benefit mix makes sense and fits within their budget. And, when faced with such a rate increase, there is the option to reduce the benefit period, reduce the benefit and oftentimes change the inflation rider or increase the waiting period. More companies are offering hybrid insurance policies, which I strongly recommend staying away from. If carriers cannot price the stand-alone product correctly, what leads us to believe they can price a combined product better?
  9. Sharing economy and services: These two are going to continue to pose challenges in the homeowners insurance and auto insurance marketplaces for the insurance companies and for policy owners. There is a question of when is there actually coverage in place and which policy it is under. There are some model regulations coming out from a few state insurance companies, however, they’re just getting started. Here is what this means: If you are using Uber, Lyft, Airbnb or a similar service on either side of the transaction, be sure to check your insurance policy to see when you are covered and what you are covered for. There are significant gaps in most current policies. Insurance companies have not caught up to the sharing economy, and it will take them some time to do so.
  10. Loyalty tax: Regulators are looking at banning auto and homeowners insurance companies from raising premiums for clients who maintain coverage with them for long periods. Here is what this means: Depending on your current auto and homeowners policies, you may see a reduction in premiums. It is recommended that, in any circumstance, you should review your coverage to ensure that it is competitive and meets your needs.
  11. Insurance fraud: This will continue, which increases premiums for the rest of us. The Coalition Against Insurance Fraud released its 2015 Hall of Shame (here). Insurance departments, multiple agencies and non-profits are investigating and taking action against those who commit elder financial abuse. Here is what this means: The more knowledgeable that consumers, professional agents and advisers become, the more we can protect our families and ourselves.
  12. Uncertain economic and regulatory conditions: Insurance companies are operating in an environment fraught with potential changes, such as in interest rates (discussed above); proposed tax code revisions; international regulators who are moving ahead with further development of Solvency II; and IFRS, NAIC and state insurance departments that are adjusting risk-based capital charges and will react to the first year of ORSA implementation. And then there is the Department of Labor’s evaluation of fiduciary responsibility rules that are expected to take effect this year. Here is what this means: There will be a myriad of potential outcomes, so be sure to continue to monitor your insurance policy portfolio and stay in touch with the Insurance Literacy Institute. Part of the DOL ruling would result in changes to the definition of “conflict of interest” and possibly compensation disclosure.
  13. Death master settlements: Multiple life insurance companies have reached settlements on this issue. Created by the Social Security Administration, the Death Master File database provides insurers with the names of deceased people with Social Security numbers. It is a useful tool for insurers to identify policyholders whose beneficiaries have not filed claims—most frequently because they were unaware the deceased had a policy naming them as a beneficiary. Until recently, most insurers only used the database to identify deceased annuity holders so they could stop making annuity payments, not to identify deceased policyholders so they can pay life insurance benefits. Life insurers that represent more than 73% of the market have agreed to reform their practices and search for deceased policyholders so they can pay benefits to their beneficiaries. A national investigation by state insurance commissioners led to life insurers returning more than $1 billion to beneficiaries nationwide. The National Association of Insurance Commissioners is currently drafting a model law  that would require all life insurers to use the Death Master File database to facilitate payment of benefits to their beneficiaries. To learn more, visit our resources section here. Here is what this means: Insurance companies will not be able to have their cake and eat it too.

What Can You Do?

The Insurance Consumer Bill of Rights directly addresses the issues discussed in this article.

Increase your insurance literacy by supporting the Insurance Literacy Institute and signing the Insurance Consumer Bill of Rights Petition. An updated and expanded version will be released shortly  that is designed to assist insurance policyholders, agents and third party advisers.

Sign the Insurance Consumer Bill of Rights Petition 

What’s on your mind for 2016? Let me know. And, if you have a tip to add to the coming Top 100 Insurance Tips, please share it with me.

How to Find Mobility Solutions (Part 1)

Please consider this post to be a sort of noodlin’ around the ways insurers could apply mobility solutions. I do have a bias: I think that until insurers, and insurance agencies/brokers, can operate entirely using apps on smart devices they can’t really call themselves “mobile-next.”

To find potential insurance mobility solutions, focus on the customer (you know, the rascal who pays the premiums) and enable him to:

  • Access the insurance company/insurance agency web site using a smart device. This means that the insurance firm (carrier or agency) has to have the ability to push requested information to the customer’s smart device in a manner that fits the smart device. Fit for purpose, as it were.
  • Request and consume service on a smart device. This includes getting served in the manner the customer wants, whether text, voice or video and preferably in real time. This means the insurance firm must have the business operational service systems in the “state” necessary to provide effective and efficient service to the customer in the desired manner.
  • Self-serve by using a smart device. This would include accessing and downloading documents stored in the insurance firm or perhaps in a private cloud set up for the customer (whether COI, policy forms, claim forms or loan forms).
  • Begin and preferably finish a policy application entirely on the smart device using e-signatures (which were approved way back during President Clinton’s administration). I realize that quotes/rates and underwriting decisions could very well mean that it is not a “sign on and get it done in one shot” kind of situation. However, whatever stops and starts happen, the policy application process should stay in the mobile realm and never require the customer, anyone in the agency or anyone in the carrier to have to re-enter information.
  • File the first notice of a loss and track the entire journey of the claim adjudication from beginning to end, including getting an alert when the claim check is deposited in the customer’s requested banking account.
  • Use the smart device to pay a premium by taking a picture of a check rather than mailing in a check or even using a payment service to pay the premium amount.
  • Collaborate with claim managers, customer service representatives or others in the insurance firm (carrier or agency) using only the smart device.

Next post, I’ll discuss potential mobility solutions for producers. Being wildly creative about blog titles, I’ll call the post “How to Find Mobility Solutions (Part 2).”

But sticking with the insurance customer, what mobility applications would you add to the list above?

Increasing COI Compliance

There is mounting evidence that third-party providers of certificate-of-insurance management services can go well beyond the rote skill of tracking certificates and can improve COI compliance. That is an important issue for many companies given that, nationally, seven out of 10 COIs have been shown to be noncompliant, opening up companies to all kinds of exposure to risk.    

The most efficient and accurate process to review COIs relies on a human model, where deep insurance knowledge is supported by technology, rather than the other way around.  These professionals are typically highly experienced and credentialed insurance experts who review documents to find the issues that transcend the “dot the i’s and cross the t’s” recognition of machine-based systems and move into the realm of nuance, trend and pattern.  Only after the challenges are corrected does technology intervene to confirm corrections on a quality-assurance basis and to deliver reports.

Employing these experts is a significant burden on costs and infrastructure for most any company.  However, based on economies of scale, these insurance professionals who are so crucial to the process can be employed by third-party COI management firms and shared by the companies that truly need them, thus spreading the cost.  With this in mind, there seems to be a significant upside to consider partnering with outsourced systems.

When it comes to COI management — especially within the Fortune 500 community, in which there is a tremendous tonnage of COIs to track and manage — organizations face a choice.  Does it add value to outsource or not?   In the case of COIs, it’s not only a cost-savings issue — although coming to a complete understanding of all the costs and resources  involved to properly manage the process internally can be eye-opening  — but is an efficacy issue, as well.   If the typical Fortune 500 company receives between 5,000 and 10,000 COIs over the course of a year, between 3,500 and 7,000 (or more) of those COIs will need to be followed up with, tracked down and resubmitted for review.

So, if outsourcing not only provides a significant cost savings but also an increase in COI compliance and accuracy, there would be a pretty strong business case for its implementation. Obviously, corporate management is thinking the same way because the demand for COI management outsourcing is growing.  In fact, more than 70% of senior executives predicted that demand for outsourcing would become even more prevalent over the next three years, in a 2011 study conducted by Accenture and the Economist Intelligence Unit.  

The expertise required for COI compliance is extensive, and not readily found in-house.   Here are some questions you need to ask yourself in evaluating the quality of your personnel and infrastructure with regard to COI management:

  1. Do your people really understand insurance? 
  2. Do your resources know what they should be looking for on the certificate?
  3. Do they know how to figure out if the certificate meets your requirements? 
  4. Do you also require endorsements and other supporting documents from your insureds?
  5. What reporting tools exist?
  6. How do you audit in the case of a claim?

Not only does COI management require administrative personnel to handle the daily clerical to-dos and followup activities, but COI management also takes the risk manager’s focus away from the strategic initiatives and other critical functions that deserve full attention.  The risk manager’s plate is more than full — it is overflowing.  Outsourcing COI management cleans up a task that should not hit the risk manager’s desk in the first place.   

Recently, technological innovations such as partially automated systems have taken hold in outsourced COI management.  This value has been enhanced with state-of-the-art, cloud-based systems that operate transparently, away from a client company’s infrastructure.  Not only does this approach provide tremendous savings in IT infrastructure and training, but it allows specialists in COI management to treat the work as though they were right down the hall.  In fact, there are some best-of-breed outsourced COI management companies that maintain full-time professionals who operate as an extension of a client’s risk management department.

Things to consider

1. What is the status of your current positioning in relation to managing vendor risk?

  • Type of insurance program you have
  • How much of it is under your control?
  • Knowledge of staff
  • Internal policies and procedures
  • Support from the top
  • Ramifications/penalties for vendor noncompliance
  • The contract language you use
  • What is the contract for?
  • Effective contractual risk transfer
  • Separate departments in various locations
  • Disconnect between the importance of vendor and the need for a compliant certificate
  • Decentralized vendor and contract tracking
  • Standardized insurance requirements

2. Elements to consider in your vendor contracts

  • Clear, concise and standardized
  • Insurance provisions support indemnity provisions
  • Language on certificates — applicable law
  • The contract is your binding document!
  • Don’t ask for things you don’t need and, if you need them, be ready to explain why!
  • Use your broker or agencies with similar exposures as a resource when determining new requirements
  • Limit any waivers or changes
  • Authority to agree to any changes or waivers should be extremely limited
  • Always consult with your legal team

3. Key vendor issues

  • Do not always understand the requirements in the contract before signing
  • Do not pay premiums on time, letting coverage lapse
  • Change insurance agencies often, making it difficult to maintain compliance
  • Do not communicate effectively with broker before signing agreement or after certificate is submitted

4. Certificate holder operational objectives

  • Central certificate tracking methodology
  • Standardized workflow
  • Centralize organization via single access point
  • Centralize deports
  • Easy access to information
  • Accountability
  • Provide clear contractual requirements
  • Provide single collection point for certificates
  • Provide a sample certificate that can be easily accessed by vendor and broker
  • Provide a centralized communication process for both vendor and broker
  • Outline specific consequences for non-compliance

5.  Smaller vendors = larger liability

  • Risk control programs are not as advanced
  • More willing to cut corners (let insurance lapse)
  • Oftentimes do not fully understand insurance requirements and why they apply
  • The most efficient way to deal with these vendors is through direct contact with their broker

6. Characteristics of larger vendors

  • Often use standardized COIs, which cannot easily be modified to reflect additional information if requested for clarity purposes
  • Self-insurance plays a larger role
  • Strong risk control programs
  • More likely to push for limited risk transfer
  • Often request contract language modifications
  • They resist whenever possible – these changes are usually not to your benefit
  • More emphasis is placed on policy language, which requires work with the broker and the insurance company to verify specific information not included on their COI


So when does outsourcing COI management make sense?  Does it cost more money for your organization to hire the talent in-house or to outsource? Just as important, can a trusted vendor do the work better?   

If your company has a compliance-centric culture, there is a clear benefit to leveraging a flexible COI support team that understands insurance language and  can quickly refine its talent mix to support your needs — a capability you probably do not have in-house.   An increasing number of executives are finding that outsourcing can create a strategic advantage, especially for a dynamic and distributed organization whose needs are often rapidly changing.

With regard to economics, an outsourcing provider has economies of scale, knowledge expertise and the dedicated infrastructure that make its solution more affordable and cost-effective than doing the work in-house.  Outsourcing the COI management processes can cost half as much as doing the work in-house, and, with the right system, you can ultimately make yourself more attractive to insurance markets for your business.

With few exceptions, outsourcing is a viable option for you that can result in operating cost reductions and better strategic insight. 

10 Tips to Achieve Increased COI Compliance

  • A strong insurance program
  • Clear contract language
  • Effective internal policies and procedures
  • Gain support from the top
  • Good relationships with your broker and counterparts
  • Willingness to reach out to the vendor’s broker or insurer if questions arise
  • Provide a centralized tracking methodology that can be shared among all departments, divisions and locations
  • Create a standardized workflow for internal and external users
  • Provide a centralized communication among vendor, broker and client personnel
  • Training, training, training. . . .