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Latest Trends Beyond 2012

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Looking further ahead, insurers will have to contend with the vicissitudes of climate,
commerce and car culture.

1. Risk Management/ Climate Control

English: Risk Management road sign

The year 2011 will undoubtedly be remembered, at least within the insurance industry, as the year of natural disasters. Unforeseen, weather-related catastrophes battered bottom lines in tandem with coastlines, and insurers saw first-hand the importance of cat modeling, predictive analytics and climate risk management. Before this year, that importance may not have been so obvious. But in April, Aon Benfield was already calling for re-evaluations of cat modeling structures with the potential of 2005-like natural disaster numbers and compliance questions looming. As those issues persisted, so have the calls for readiness within the industry.In September, Ceres performed a survey evaluating insurers on the increasing threat to halting results. While a consensus was found among insurers that climate risk management is important, only 11 of 88 insurers reported having anything of the sort in place. The industry's sluggish ability to acknowledge this risk with more than words may have contributed to a costly 2011, and will certainly continue to haunt the industry until more of an effort is put forth. As we edge closer to 2012, we have seen initiatives put in place in an effort to be better prepared. Most recently, Swiss Re announced a partnership with USAID to assist their efforts with the Global Climate Change Initiative, which aims to increase resilience to extreme climate events and accelerate the global transition to a sustainable, low-carbon economy. But that may just be the beginning, as 2011 showed us time and again how crucial updated, proficient risk management and cat modeling systems can be.

2. Telematics

For commercial and personal lines auto insurers, one potentially disruptive technology in the coming year is telematics, which fuses telecommunications hardware (GPS, wireless) with traditional information-gathering and analytics technologies. Several forward-thinking auto insurers have already begun to leverage the technologies, the most obvious manifestation being the usage-based or pay-as-you-drive policies, such as Progressive's "Snapshot," State Farm's "In-Drive" and Allstate "Drive Wise" program.

Telematics Insurance System from AIOI patent a...

While the value proposition of telematics for underwriting is readily apparent, perhaps no insurance business process is more overdue for a disruptive technology than the claims process, where telematics could prove vital to claims investigation practices and adjuster assignment. Speaking at Telematics Update's Insurance Telematics 2011 Conference in Chicago last September, Jim Noble, line of business director - Motor Fleet, Zurich Services Corp., foresees telematics engendering an even more profound shift for insurers. As technologies such as vehicle-to-vehicle communications mature, Noble sees the possibility for insurers to move up the value chain by actively helping insureds prevent accidents instead of just compensating for accidents after the fact. Looking forward, the possibility of a "crash-free" culture is possible, Noble says. However, one of the primary obstacles to establishing this culture is indeed cultural, as society at large seems to tolerate crashes as an unfortunate side effect of mobility. "Globally, there are 1.3 million deaths annually due to car crashes, that's 30,000 per day," he said. "Why should we accept deaths in car crashes? Why not zero? An accepted risk is a great obstacle."
Still other obstacles exist on the road to widespread use as a bevy of technical and business concerns remain to be addressed. One potential sticking point is consumer pushback concerning privacy and the sense their actions are being constantly monitored.

Another issue revolves around the lack of communication standards. Will the wireless component of telematics use 2G, 3G or 4G technologies? Another weighty question is who will "own" telematics. In addition to insurers, auto manufacturers and telecommunications firms are essential to the equation. With some 230 million vehicles on the road in the U.S. alone, there is bound to be a variety of solutions employed until some standards emerge, if they do at all.

3. Vendor Uncertainty

With a series of headline-grabbing transactions in the second-half of 2011, the vendor marketplace appears be undergoing a rapid transformation. The good news for insurers is that the business logic for these deals seems to revolve around large, technology-rich, platform vendors looking to refine their existing offerings to insurers by acquiring vendors of best-of-breed, insurance-specific solutions.

One prominent example of this was Accenture's recent acquisition of policy administration software provider Duck Creek. Accenture said it made the deal to enable it to offer the P&C insurance market a broader spectrum of capabilities from product configuration and policy management, to underwriting, billing, rating and claims management, and give it a bigger footprint among mid-market insurers. This abrupt timing and rapid deliverance of the deal-it was announced in July and closed in the span of a month-and-a-half-prompted Matt Josefowicz, partner and managing director at Novarica, to comment to Insurance Networking News that, "combined with Thomas H. Lee's recent purchase of Sword Insurance, this seems to herald a period of increased activity in this marketplace.

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Last Updated on Sunday, 19 February 2012 00:56

The Legal and Regulatory develpoments (Solvency II)

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The EU is currently in the process of developing a comprehensive new framework for insurance supervision and regulation. This new framework is referred to as Solvency II and is scheduled to be implemented in or around 2012. The change in approach is a significant one with the development of a comprehensive risk based approach to regulation. Insurance groups are upgrading their capital modelling in anticipation of the neSolvency IIw regime and at the same time using this as an opportunity to assess capital efficiency and ways in which that can be improved.

For some groups the spotlight has turned on the capital cost of discontinued lines of business. Discontinued lines of business arise where business has been underwritten in the past but the obligation to pay claims may continue to run for many years after the last receipt of premiums.

Historically the focus for capital measurement has been on future premium income. Capital modelling also considers the volatility in claims reserves and where such reserves relate to discontinued business this can be a significant capital drain.

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Last Updated on Saturday, 10 March 2012 11:11

Overview of Value-at-Risk (VaR)

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The paper talks about Value –at-Risk (VaR) and its basic methodologies, as a continuation to the earlier posted paper on Educational Notes on Risk Based Capital (RBC).

The Value-at-Risk 

Within three years, from its first proposal in 1993 to its final draft in 1996, a market risk committee of the Bank of International Settlement (BIS) met in Basel and amended the Basel Accord. The BIS committee has worked with international banks from different countries on standardizing the bank internal methods, so that the Value-at-Risk-results become comparable and therefore usable for the calculation of equity requirements. [3]

Last Updated on Friday, 08 October 2010 09:54

Educational Note on Risk-Based Capital (RBC)

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During the 16th Insurance Congress of Developing Countries (ICDC) held in Manila last March 2009, Professor Ostaszewski discussed, in a special technical session, the “Educational Notes” on Risk Based Capital,which he prepared for the Actuarial Society of the Philippines.  This paper provides a comprehensive presentation,which can be used as reference to design Risk Based Capital standards for General Insurance and for updating the already prescribed RBC standards for life insurers in the Philippines.  The paper contains formulas and computations of risks in assets where insurance reserves and other assets are invested.  Here is the first part of his paper.

Last Updated on Friday, 08 October 2010 09:22


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