Category: Risk Management

Former Swinton Execs Fined and Banned from Senior Roles
InsuranceRisk Management

Former Swinton Execs Fined and Banned from Senior Roles

The Financial Conduct Authority (FCA) has fined three former senior executives of Swinton Group Limited (Swinton) £928,000. The FCA’s action follows previous enforcement action taken against Swinton: in 2013 it was fined £7.4m after it adopted an aggressive sales strategy that resulted in mis-sales of monthly add-on insurance policies; and in 2009 the firm was fined £770,000 for failures in its sales of PPI.

Peter Halpin (former chief executive) is also banned from acting as chief executive of a financial services firm, while Anthony Clare (former finance director) and Nicholas Bowyer (former marketing director) are banned from performing significant influence functions at financial services firms.

Tracey McDermott, director of enforcement and financial crime at the FCA, said:

‘A culture was allowed to develop within Swinton that pushed for high sales and increased profit without regard to the impact on the firm’s customers. We expect firms to put customers at the heart of their business. These three directors should have recognised the risk to customers and redressed the balance so that the drive to maximise profits did not jeopardise the fair treatment of customers.

‘Those with significant influence within firms are responsible for setting the tone and the culture; they set the example that others will follow. Today’s enforcement action should serve as a timely reminder to those at the very top of firms that the FCA is determined to hold individuals to account where they fall short of the standard we require.’

The FCA has found that a sales-focused culture in Swinton was encouraged by Clare and Bowyer driving a business strategy that was designed to boost the firm’s profits in 2011. The three former directors did not recognise the risk of this culture developing or take reasonable steps to prevent it.

Swinton’s participating directors (including these three directors) stood to gain a bonus of approximately £90million under the directors share scheme if operating profits reached £110million in 2011. Halpin, Clare and Bowyer would have benefited significantly under the scheme had these results been achieved.

Details of the findings against the three individuals are as follows.

Peter Halpin Halpin has been fined £412,700 in addition to a ban from acting as a CEO of an FCA authorised firm because of a lack of competence in his FCA approved CEO role. The FCA found that Halpin failed to ensure that Swinton’s management information was adequate for the firm to identify compliance issues with the sales of the monthly add-ons and to ensure its customers were being treated fairly. He also failed to respond to warning signals about those sales and, when he did act, his actions did not go far enough. He should have stepped back and considered whether, when taken together, those warnings pointed to fundamental problems with Swinton’s sales of the monthly add-ons.

Halpin also failed to recognise the risk that the potentially lucrative incentive scheme for Swinton’s executive directors could give rise to a culture within Swinton that increased the risk of mis-selling.

Anthony Clare Clare has been fined £208,600 and is now banned from holding a position of significant influence in an FCA authorised firm because of a lack of competence as an FCA approved director. In addition to his role as finance director, Clare had oversight for the firm’s compliance department and a particular responsibility for ensuring that Swinton treated its customers fairly.

Similarly to Halpin, Clare also missed warnings of compliance problems with the monthly add-on products and failed in his responsibility to ensure Swinton’s compliance department was producing accurate and representative management information. Further, Clare was involved in specific decisions concerning the development of Swinton’s breakdown and home emergency insurance policies and did not recognise the risk to customers that arose from these decisions.

As finance director, Clare was instrumental in the creation and implementation of a business strategy to maximise Swinton’s operating profits in 2011. Clare should have seen the risk that this strategy was leading to a sales-focused culture that acted to the detriment of the fair treatment of customers. Despite his responsibilities, he missed the warning signs.

Nicholas Bowyer Bowyer has been fined £306,700 and banned from performing any significant influence function at an FCA authorised firm, again because of a lack of competence as an FCA approved director.

As marketing director, Bowyer played a central role in the development and launch of the monthly add-on policies and was responsible for their design, development and marketing. He was involved in a number of decisions which were not fair to consumers.

Bowyer was also integral to the successful delivery of the directors’ strategy to maximise Swinton’s profits in 2011 and encouraged a culture to develop within Swinton that prioritised sales to the detriment of customers. Crucially, Bowyer did not appreciate that – although he was not part of Swinton’s compliance framework – he still had a personal responsibility as an FCA approved director to consider the fair treatment of customers in every decision he took in performing his role.

All three former directors settled at an early stage of the FCA’s investigation and therefore qualified for a 30 per cent discount on their fines.

Arabian Earthquake Catastrophe Model Launched
Natural CatastropheRisk Management

Arabian Earthquake Catastrophe Model Launched

Impact Forecasting, Aon Benfield’s catastrophe model development team, launched a catastrophe model to estimate the financial impact of earthquakes in the Arabian Peninsula. Aon Benfield is the global reinsurance intermediary and capital advisor of Aon plc(NYSE:AON).

The demand for catastrophe modelling in the countries of Gulf Cooperation Council (GCC) is increasing as a result of the region’s rapid economic growth. The new probabilistic earthquake model for the Arabian Peninsula addresses this market demand and can be used by insurers and reinsurers to gain a more accurate view of the seismic hazard for risk pricing and reinsurance purchasing.

The model covers Saudi Arabia, Yemen, Oman, the UAE, Qatar, Bahrain and Kuwait. Key features include:

  • up-to-date understanding of the seismic risk in the region with the model incorporating state-of-the art research on the
  • regional seismic risk published in leading academic forums
  • 500,000+ stochastic events capturing the full range of potentially damaging events
  • understanding of the insured building stock of the region, drilling down to 24 different structural types, three building age and height categories, and detailed residential, commercial and industrial occupancies
  • ability to model buildings, contents and business interruption
  • incorporation of model uncertainty with regards to hazard, location and vulnerability in order to quantify the intrinsic variability behind the model.

Cristina Arango, seismologist and catastrophe model developer at Impact Forecasting, commented: “Our Arabian Peninsula model is built upon the latest scientific data gathered during recent earthquakes as well as research on regional seismic hazard. The model allows insurers and reinsurers to understand how their portfolio will stand up in events of varying severity, as they look to expand their business in the region. Earthquake is considered to be the number one peril in the region, however, countries such as Saudi Arabia have also experienced flood so this peril is also being investigated by the Impact Forecasting team.”

Ahmed Rajab, CEO of Aon Benfield in the Middle East, added: “The new model for the Arabian Peninsula will help insurers and reinsurers to quantify their exposure, making sure that they are adequately protected against this risk and preserving the capital that they have been entrusted with by their shareholders. Crucially, the new insight into the hazard will develop knowledge, open new opportunities and allow better designed insurance products for households, commercial and industrial buyers as well as for governments and reinsurer buyers. This is a clear statement of Aon’s contribution and long-term commitment to the region.”

Cybercrime Incidents on the Rise
Due DiligenceRisk Management

Cybercrime Incidents on the Rise

The number of reported information security incidents around the world rose 48% to 42.8 million, the equivalent of 117,339 attacks per day, according to The Global State of Information Security® Survey 2015, released by PwC in conjunction with CIO and CSO magazines. Detected security incidents have increased 66% year-over-year since 2009, the survey data indicates.

“It’s not surprising that reported security breach incidents and the associated financial impact continue to rise year-over-year,” said David Burg, PwC’s Global and US Advisory Cybersecurity Leader. “However, the actual magnitude of these breaches is much higher when considering the nature of detection and reporting of these incidents.”

As security incidents become more frequent, the associated costs of managing and mitigating breaches are also increasing. Globally, the estimated reported average financial loss from cybersecurity incidents was US$2.7m – a 34% increase over 2013. Big losses have been more common this year as organisations reporting financial hits in excess of US$20m nearly doubled.

But despite elevated concerns, the survey found that global information security budgets actually decreased four% compared with 2013. Security spending as a percentage of IT budget has remained stalled at 4% or less for the past five years.

“Strategic security spending demands that businesses identify and invest in cybersecurity practices that are most relevant to today’s advanced attacks,” explained Mark Lobel, PwC Advisory principal focused on information security. “It’s critical to fund processes that fully integrate predictive, preventive, detective and incident-response capabilities to minimise the impact of these incidents.”

Organisations of all sizes and industries are aware of the serious risks involved with cybersecurity; however, larger companies detect more incidents. Large organisations – with gross annual revenues of US$1bn or more – detected 44% more incidents this year. Medium-sized organisations – with revenues of US$100m to US$1bn – witnessed a 64% increase in the number of incidents detected. And while risk has become universal, the survey found that financial losses also vary widely by organisational size.

“Large companies have been more likely targets for threat actors since they offer more valuable information, and thus detect more incidents,” said Bob Bragdon, publisher of CSO. “However, as large companies implement more effective security measures, threat actors are increasing their assaults on middle-tier companies. Unfortunately, these organisations may not yet have security practices in place to match the efficiency of large companies.”

Insiders have become the most-cited culprits of cybercrime – but in many cases, they unwittingly compromise data through loss of mobile devices or targeted phishing schemes. Respondents said incidents caused by current employees increased 10%, while those attributed to current and former service providers, consultants and contractors rose 15% and 17%, respectively. “Many organisations often handle the consequences of insider cybercrime internally instead of involving law enforcement or legal charges. In doing so, they may leave other organisations vulnerable if they hire these employees in the future,” added Bragdon.

Meanwhile, high profile attacks by nation-states, organised crime and competitors are among the least frequent incidents, yet the fastest-growing cyber threats. This year, respondents who reported a cyber-attack by nation-states increased 86% – and those incidents are also most likely under-reported. The survey also found a striking 64% increase in security incidents attributed to competitors, some of whom may be backed by nation-states.

Effective security awareness requires top-down commitment and communication, a tactic that the survey finds is often lacking across organisations. Only 49% of respondents say their organisation has a cross-organisational team that regularly convenes to discuss, coordinate, and communicate information security issues.

PwC notes that it is critical for companies to focus on rapid detection of security intrusions and to have an effective, timely response. Given today’s interconnected business ecosystem, it is just as important to establish policies and processes regarding third parties that interact with the business.

“Cyber risks will never be completely eliminated, and with the rising tide of cybercrime, organisations must remain vigilant and agile in the face of a constantly evolving landscape,” said PwC’s Burg. “Organisations must shift from security that focuses on prevention and controls, to a risk-based approach that prioritises an organisation’s most valuable assets and its most relevant threats. Investing in robust internal security awareness policies and processes will be critical to the ongoing success of any organisation.”

Risk Appetite Reaches Record Highs
InsuranceRisk Management

Risk Appetite Reaches Record Highs

Risk appetite among the chief financial officers (CFOs) of the UK’s largest companies has reached a seven year high, according to the Deloitte CFO Survey for Q3 2014.

Deloitte’s survey, which gauged the views of 118 CFOs of FTSE 350 and other large private UK companies, suggests that risk appetite is being supported by a rebound in the US economy, UK growth and easy access to finance.
72% of CFOs say now is a good time to take risk onto their balance sheets, up from 65% in Q2 2014 and three times the level (23%) seen in Q3 2012.

However, CFOs’ perceptions of economic and financial uncertainty rose in the third quarter for the first time in two years. 56% said the level of financial and economic uncertainty facing their business was above normal, high or very high, up from 49% in Q2 2014. Scotland’s independence referendum seems to have been a dominant factor. Perceptions of risk amongst CFOs completing the survey before the result were twice as high as for those who responded after.

Sentiment about the euro area has deteriorated markedly, with a net percentage of -39% seeing improving prospects for the region, down from +54% in Q1 2014. Confidence in emerging markets continued to decline, with a net balance seeing an improvement of -13%. By contrast CFOs are upbeat on prospects for the UK, a net balance of +85% reported improved growth prospects.

CFOs have become significantly more positive about official policy in the UK which is seen as increasingly conducive to the long term success of businesses. 97% said that the Bank of England’s monetary policy was appropriate, up from 91% in Q4 2012. 94% approved of the government’s labour market policies, up from 88% in Q4 2012. Tax policy was endorsed by 90% of CFOs, up from 75% in Q4 2012 while public spending plans were backed by 89%, up from 58% two years ago. 73% saw the government’s immigration policy as being appropriate, a rise from 60% in Q4 2012.

However, policy remains a prominent concern for business, more so than economic worries. CFOs ranked the 2015 general election and a future UK referendum on EU membership ahead of deflation, weakness in the Euro area and higher interest rates as risks to their businesses.

Credit conditions continued to improve. A net 83% of CFOs said that credit is easily available and a net 82% said that credit was cheap, the highest levels recorded in the past seven years. CFOs remain confident about growth with a net 90% expecting revenues to increase in the next 12 months.

Ian Stewart, chief economist at Deloitte, said: “With a resurgent US economy, good growth in the UK and plentiful liquidity, CFOs have shrugged off the effects of rising uncertainty and weakness in Europe, sending corporate risk appetite to a seven year high. Expectations for corporate revenues and margins remain close to the four year high seen in Q2.

“Large corporates face few obstacles to raising finance, credit is cheaper, and more available, than at any time in the last seven years. In reversal of the situation during the credit crunch, CFOs say that financing conditions are one of the key factors enabling companies to raise investment spending.

“CFOs have become more positive about official policy – from government, regulators and the Bank of England. Confidence has risen in eleven separate areas of policy, and most markedly on public spending, tax policy, immigration and financial regulation.

“But it’s not all plain sailing for the corporate sector, perceptions of economic and financial uncertainty rose for the first time in two years. Weakness in the euro area economy, events in the Middle East and Ukraine and, particularly, the Scottish referendum have created new uncertainties. Political risk has eclipsed worries about the economy as concerns for CFOs.”

UK Pork Farmers Facing Pressure to Reduce Prices
Due DiligenceRisk Management

UK Pork Farmers Facing Pressure to Reduce Prices

The warning was issued by BPEX, the trade body for pig production in the UK, which went on to say it will detrimentally effect many Western countries, as demand drops and supply is maintained.

Mick Sloyan, the director of BPEX, said:

“This will increase competition on global markets,

“It may have some knock-on effect on the EU market and, hence, the UK,”

Russian Ban and Canada’s Woe

The ban imposed by Vladimir Putin is in response to the sanctions which have been imposed on Russia over the continuing crisis in Ukraine.

Coming into effect from last Thursday, August 7, the ban has been introduced for at least a year. All members of the EU, Australia, Canada, Norway and the US are affected alongside the UK.

With all pork producers likely to undergo further due diligence processes to understand the full potential of the ban, the biggest hit country will be Canada. Russia presently imports about 90% of its pork products, with the North American country supplying 40% of that total.

UK Demand and Chicago’s Warning

The result could see prices in the UK drop significantly, with the boss of Midland Pig Producers, James Leavesley, telling the BBC:

“If Russia bans pork from other countries there is a danger it could be dumped into the UK market,”

With prices falling already and low margins as a result, Mr Leavesley fears for the future of the industry. His fears could be backed up by results overseas.

Chicago is seen as a benchmark for global pork pricing with ‘Lean Hog’ futures and options traded on the Chicago Mercantile Exchange (CME). After peaking in July the market has seen a fall of 18%.

At the time of writing, the market price was hovering at around 114¢.

Global Tensions “Heighten Cyber Security Risks”
Natural CatastropheRisk Management

Global Tensions “Heighten Cyber Security Risks”

“Businesses are so focused on cyber attacks by organised crime that it is easy for them to ignore the possibility of being targeted by groups wanting to make a political point, possibly even with backing from a hostile government,” says Malcolm Marshall, UK and global lead in KPMG’s cyber security practice.

“Over the past five years the international business community has seen a number of incidents where websites have been hacked so that political messages can be uploaded where they will receive widespread exposure – the Syrian Electronic Army is just one example, amongst many. Hacktivists are certainly more active during periods of international tension, but it’s the next step that businesses should be wary of.

“Cyber attacks are becoming part of international conflict and it seems that probing cyber attacks are likely to be the first phase in the hostile phase of future conflicts. The well-worn phrase about who has their ‘finger on the button’ has taken on a new meaning and this is something that banks, financial institutions and global businesses need to consider. After all, the ability to disrupt electronic trade, divert funds, or overload IT systems so that transactions cannot be completed, can have an effect that goes far beyond the geographies where disputes are raging.

“It doesn’t mean organisations should panic and ‘bunker down’. What it does mean is that, just as scenarios are planned to help deal with major physical security breaches, organisations need to put plans in place that recognise we now operate in a world without cyber borders. If they can successfully build these defences and take proactive steps to protect themselves, they will reduce the chances of inadvertently becoming embroiled in a wider dispute.”

Friday the 13th: Unluckier for Some
InsuranceRisk Management

Friday the 13th: Unluckier for Some

The age old superstition about falling prey to bad luck on Friday the 13th does in fact ring true for some motorists according to new data from Aviva, the UK’s largest insurer. Analysis of 10 years of claims data reveals that motor collision claims increase by an average of 13% on Friday 13th, compared to other days in the same month.

This unlucky day spookily sees more bumps and shunts than normal no matter what time of year Friday 13th falls on – be it a cold winter, rainy spring or sunny summer.

And although around two-thirds of people (63%) admit to holding some superstitious beliefs, just one quarter of us (26%) believe that Friday 13th is an unlucky day, according to research from the insurer.

Half of us (50%) admit to using the phrase “touch wood” to prevent bad things from happening, while two-fifths (43%) avoid walking under ladders and more than one in three (36%) avoid opening an umbrella indoors.

The top five superstitions that people believe in:

1. 50% use the phrase “touch wood” in the hope that something bad won’t happen

2. 43% avoid walking under ladders

3. 36% avoid opening an umbrella indoors

4. 30% will not place a pair of new shoes on a table

5. 26% believe Friday the 13th is an unlucky day.

When it comes to drivers, almost one in ten (9%) said that that they keep a lucky charm in their car and 5% said they believe getting bird mess on their car is a good omen.

Heather Smith, marketing director of general insurance at Aviva, said: “Friday the 13th is traditionally a superstitious day for many but it’s spooky to see motor claims rise by an ‘unlucky’ 13%.

“While we don’t wish to cause a bout of friggatriskaidekaphobia (fear of Friday the 13th) among the population, we hope these figures will help encourage people to take extra care today, whatever they might be doing.

 

Natural CatastropheRisk Management

Which are the Riskiest Countries for Business?

The 2014 FM Global Resilience Index finds Norway, Switzerland and Canada top the list of nations most resilient to supply chain disruption, one of the leading causes of business volatility. The first-of-its-kind Index, commissioned by FM Global, one of the world’s largest commercial property insurers, is an online, data-driven tool and repository ranking the business resilience of 130 countries. More than a year in development, the Index is designed to help executives better assess and manage supply chain risk. The Index finds Kyrgyzstan, Venezuela and the Dominican Republic as nations least resilient to supply chain disruption.

“Natural disasters, political unrest and a lack of global uniformity in safety codes and standards all can have an impact on business continuity, competitiveness and reputation,” said Jonathan Hall, executive vice president, FM Global. “As supply chains become more global, complex and interdependent, it is essential for decision makers to have concrete facts and intelligence about where their facilities and their suppliers’ facilities are located. The Resilience Index is a dynamic resource to better understand unknown risk in order to strategically prioritize supply chain risk management and investment efforts.”

Key findings for 2014 include:

• The United States and China are each divided into three separate regions because the geographic spread of these countries produces significantly disparate exposures to natural hazards. All three regions of the US rank in the top 25 and China’s regions rank 61, 66 and 75. China’s weakest grouping, which includes Shanghai, ranks particularly low as a result of poor risk quality due to acute natural hazards.

• The biggest riser since 2013 is Bosnia and Herzegovina, climbing 19 places due to improvements in the country’s political risk and in the quality of local suppliers.

• Bangladesh is one of the top fallers due to declining quality of both natural hazard risk management and fire risk management.

FM Global commissioned analytics and advisory firm Oxford Metrica to develop the rankings with the aim of bolstering intelligent dialogue around building resilience and avoiding supply chain disruption.

The data comes from a combination of independent third-party sources and FM Global’s RiskMark benchmarking algorithm, which measures the risk quality of more than 100,000 insured commercial properties worldwide. The inaugural index allows for browsing of countries’ rankings and scores from 2011 to 2014, to reflect both improvements and declines in individual countries’ relative rankings.

“We live in a volatile world and whether that’s because of what nature wrought or the human element, every nation is prone to some form of risk,” said Margareta Wahlstrom, United Nations Special Representative of the Secretary-General (SRSG) for Disaster Risk Reduction. “The question is why are some countries, whether developing nations or economic power houses, more resistant to supply chain disruption or better able to bounce back? It’s a puzzle that world leaders are perpetually trying to solve and there’s endless value inherent in a tool like the FM Global Resilience Index to help answer that.”

New CEO at Lockton UAE
InsuranceRisk Management

New CEO at Lockton UAE

Lockton, the largest privately held insurance broker in the world, and 9th largest overall, has announced the appointment of Ian Walton as Chief Executive Officer of Lockton Insurance Brokers (LLC), UAE. Walton will be responsible for developing and managing Lockton’s expanding client base in the UAE.

Wael Khatib, Senior Partner & Chairman, Lockton (MENA) Ltd, said: “We are delighted to welcome Ian to our senior management team. Ian’s extensive experience complements our distinctive approach that delivers practical and reliable solutions to our clients, providing an important opportunity to meet and exceed their unique and diverse needs.”

Commenting on his role and appointment, Walton said: “I am thrilled to be joining Lockton, and look forward to working closely with their clients and continuing to provide the level of service and advice for which the company is renowned.”

Prior to his appointment, Ian held senior international positions in both the insurance broking and underwriting sectors, with over 25 years’ working experience in the UAE and the Middle East.

More than 4,950 professionals at Lockton, which was founded in 1966 in Kansas City, Missouri, provide 35,000 clients around the world with risk management, insurance and employee benefits consulting services that improve their businesses.

Unit-Linked Guarantees
InsuranceRisk Management

Unit-Linked Guarantees “Could be £4 Billion a Year Market”

The unit-linked guarantee market is set to nearly treble to £4 billion a year by the end of 2015 as the Budget reforms highlight the continuing need for certainty on capital and income, insurance firm MetLife believes.

It estimates the current market is worth between £1.2 billion and £1.5 billion a year with providers and advisers focusing on pension pots worth more than £50,000.

However, the Budget reforms ending the need to buy an annuity and allowing retirement savers to access defined contribution funds however and whenever they like from April 2015 onwards will drive increased innovation and attract more providers into the market.

MetLife’s own analysis shows around 33% of single life annuities and 45% of joint life annuities are bought for premium sizes of more than £30,000 could benefit from unit-linked guarantee solutions. Unit-linked guarantees are also suitable for the 21,000-plus new drawdown customers a year looking for certainty on income and capital.

Association of British Insurers’ data shows annuity sales were already in decline before the Budget – having already fallen 16% in 2013 to 353,000 individual sales worth around £11.9 billion.

MetLife’s research among advisers shows 62% believe products offering guarantees on capital and income have become more attractive following the Budget reforms. Retirement savers are concerned about the risks of outliving their pension savings, research shows with 41% saying they are worried about running out of money underlining the need for certainty about income and capital.

Dominic Grinstead, Managing Director at MetLife UK, said: “Sales of guaranteed products which offer flexibility and certainty will take a much bigger share of the retirement income market in the future as innovation and competition increases.

“The current annuity market will change massively but the good things about annuities including guaranteed income for life and no risk of running out of money should be retained which is where unit-linked guarantees can play a major role.

“Clearly unit-linked guarantees are not suitable for all, but they enable advisers and clients to guarantee income and capital now and retain flexibility and freedom in the future as their circumstances change.”

 

Bulk Annuity Market Should be Priority for Insurers
InsuranceRisk Management

Bulk Annuity Market Should be Priority for Insurers

More insurers should focus on the bulk annuity market if they expect to write fewer individual annuities under the new pensions regime announced in the recent budget, says American global professional services firm Towers Watson. The firm’s latest research into the bulk annuity market shows 2013 was dominated by three big players, with one insurer alone writing half of the market’s total premiums.

Towers Watson’s latest Settlement in Focus highlights that, in 2013, eight insurers wrote 186 bulk annuity deals worth more than £7.2 billion. £3.7 billion was written by one insurer, with two other insurers writing £1.4 billion and £1.3 billion respectively. Towers Watson advised on over half the £7.2 billion total, having advised on deals ranging from £5 million to £1.5 billion. The research also shows that sub-£10 million bulk annuity deals outnumbered those over £10 million, suggesting the insurers who focus on medical underwriting have the opportunity to significantly increase their share of the total number of deals written.

Sadie Hayes, transaction specialist at Towers Watson said: “The last year has shown a move towards an even greater domination of the market by a few insurers. Rothesay Life’s recent announcement of its planned acquisition of MetLife appears to compound this effect further. Counteracting this, Just Retirement’s and Partnership’s share of the market may increase as medical underwriting takes off, perhaps becoming the norm for smaller schemes.

“With the recent budget announcement on removing the forced annuitisation of defined contribution (DC) pots, we expect to see more insurers redirecting capital from their individual annuity business to their bulk annuity business.”
According to Towers Watson, there are currently five insurers which operate in both the individual annuity and bulk annuity markets, of which two wrote their first bulk annuity deals in 2013. A larger number of insurers currently operate in the individual annuity market, and with the predicted decline in this business, many are already considering a move into the bulk annuity space according to the firm.

Sadie Hayes said: “Besides those insurers which already operate in both the individual and bulk annuity markets redirecting more capital towards their bulk annuity businesses, we also expect there to be a number of new entrants to the bulk annuity market in the next few years. These insurers will need to develop their new business process, administration and the financial systems to write this business. This will help to meet the expected increase in demand from pension schemes for these products.”

Insurance Stress Test Launched
InsuranceRisk Management

Insurance Stress Test Launched

The European Insurance and Occupational Pensions Authority (EIOPA) has launched an EU-wide stress test for the insurance sector.

The test package comprises two modules. The core module of the exercise includes two adverse market scenarios, covering financial asset stresses (sovereigns, corporate bonds and equities) as well, as shocks to real estate assets prices’ and interest rates stresses. The adverse market scenarios are complemented by a set of independent insurance-specific shocks covering mortality, longevity, insufficient reserves and catastrophe shocks. The second module addresses the impact of a low yield environment and is a follow-up to EIOPA’s Opinion on Supervisory Response to a Prolonged Low Interest Rate Environment. The adverse market scenarios have been developed in cooperation with the European Systemic Risk Board (ESRB).

It is envisaged that the stress test will cover at least 50% of the market share in each country both of life and non-life segments. Its results will provide a clear vision on the resilience of the insurance sector to different shocks and identify issues that require further supervisory response.

The technical basis of the stress test is the new insurance regulatory regime Solvency II, which will apply as of 1 January 2016. Simultaneous with the launch of the exercise, EIOPA publishes the Solvency II Technical Specifications for the preparatory phase that will provide a ground for undertakings to value assets and liabilities and to calculate solvency or minimum capital requirements and own funds.

The exercise will be run in close cooperation with national supervisory authorities (NSAs). The NSAs will collect data from undertakings in July 2014 and validate the information before it is aggregated at the EU level. To improve consistency in the calculations, during August and September 2014, EIOPA in cooperation with NSAs will conduct an EU-wide validation of the data received. Results of the stress test analysis will be disclosed in November 2014.

Data Breaches Lead to Drop in Sales
InsuranceRisk Management

Data Breaches Lead to Drop in Sales

Consumers avoid doing business with an organization that has suffered a data breach at an alarming rate, according to a new study.

Financial and banking institutions, healthcare providers and retailers stand to have significantly increased expenses and lose up to one-third of its customer or patient base after a data breach, says the study, which was conducted by Javelin Strategy & Research and commissioned by sensitive data management solution provider, Identity Finder.
It found that 33 percent of consumers will shop elsewhere if their retailer of choice is breached, 30 percent of patients will find new healthcare provider if hospital or doctor’s office is breached and 24 percent of consumers will switch bank or credit card provider if the institution is breached.

“A significant proportion of affected consumers discontinue or reduce their patronage post-breach,” said Al Pascual, Senior Analyst of Security, Risk and Fraud at Javelin Strategy & Research. “That’s real money lost in customer churn and reduced sales, and certainly demonstrates how the reputation of the organization hits the bottom line. It’s noteworthy that about a third of people will go as far as to find a new doctor, if their provider is breached, as we all know healthcare services can be a big hassle to change.”

US retailer Target recently quantified the reputational damage and sales impact of their recent data breach and stated it resulted in significantly reduced revenue following the announcement on December 19, 2013. However, the fiscal impacts expanded well beyond sales. Target saw stock prices drop and estimates $61 million (£36.3 million) in expenses to investigate the breach, offer credit-monitoring services, increase call centre staffing and procure legal services.

After a breach, not only will revenue go down, but also expenses will go up, the study claims, pointing to data which supports a significant increase in post-breach expenses such as compliance, legal, and victim reparation costs. The research finds identity protection services alone are a common cost to each industry, with 54 percent of healthcare providers offering victims protection, 40 percent of financial and banking institutions offering victims protection and 30 percent of retailers offering victims protection.

“Businesses are experiencing pressure to protect sensitive data not only from industry and government regulators, but also customers and shareholders. Consumer behaviour indicates that data breaches impact both expenses and revenue,” said Todd Feinman, CEO at Identity Finder.

“Organizations must be more proactive in preventing a breach by understanding where a data leak can originate. By discovering and managing sensitive information at its source and not at the perimeter or after the fact, businesses can identify risk, change employee behaviour, and justify where to spend security dollars.”

Nearly 80% of European Insurers on Track to Implement Solvency II by 2016
InsuranceRisk Management

Nearly 80% of European Insurers on Track to Implement Solvency II by 2016

Nearly 80% of European insurers expect to meet the requirements of Solvency II—the EU Directive that codifies and harmonises the EU insurance regulation, primarily concerning the amount of capital that EU insurance companies must hold to reduce the risk of insolvency—before January 2016, according to EY’s European Solvency II Survey 2014. Overall, Dutch, UK and Nordic insurers are the best prepared, while French, German, Greek and East European (CEE) insurers are less confident.

The survey of 170 insurance companies, conducted in the Autumn of 2013, is an update of EY’s 2012 pan-European survey and spans 20 countries including Europe’s largest insurance markets. The findings reveal a consistently high state of readiness to implement the Pillar 1 quantitative requirements and fulfil most of Pillar 2 (systems of governance) but Pillar 3, the reporting requirements, still presents a major challenge, with almost 76% of respondents saying they have yet to meet most or all of the requirements.

Martin Bradley, EY’s Global Insurance Risk and Regulation Leader, said: “Postponing the Solvency II regulatory deadline to 2016 has bolstered insurer confidence that they can meet the requirements in the time frame. However, as companies become more realistic about their implementation readiness, it is clear that some are less prepared than they had expected – many simply delayed their plans by at least one year, which might cause them issues now. While insurers are sending a strong message that they are seeking to improve their risk management effectiveness, they have a long way to go in terms of reporting, data and IT readiness.”

Insurance fraud up 19% over 2012
InsuranceRisk Management

Insurance fraud up 19% over 2012, Says Aviva

Aviva, the UK’s largest insurer, detected over £110 million worth of insurance fraud in 2013 – a 19% increase compared with 2012.

The insurer’s figures show that insurance fraud is a diverse crime and can range from exaggerating genuine claims or injuries to entirely fictitious claims and accidents. Increasingly, insurance fraud is carried out by third parties – people who are not insured with Aviva but who are making a claim against an Aviva customer—for example for spurious injuries as a result of an accident—and also by organised gangs.

Tom Gardiner, Head of Fraud at Aviva, said: “Our priority is to pay genuine claims quickly and fairly while offering a great service to our customers. Last year in the UK, for example, Aviva settled over 910,000 claims worth £2.65 billion. We identified fraud on less than 1.9% of claims we received.

“However, a combination of factors including the economic climate, social attitudes toward insurance fraud as a ‘victimless crime’, and a lack of effective deterrents are increasing the frequency of insurance fraud. The good news is that we are constantly improving our ability to prevent and detect fraud, helping to keep premiums down for innocent policyholders. The ABI estimates fraud adds £50 to the cost of insurance premiums.”

The most common type of fraud in the UK, according to Aviva, is motor injury fraud, which represents 54% of Aviva’s total detected claims fraud costs. Over 50% these are from organised so-called “cash for crash” claims.
Organised fraud is often linked to wider gang-related crime, which Aviva says puts innocent motorists at risk, diverts scarce emergency service resources away from real need, and has a significant impact on premiums and the public purse.

“We are witnessing a trend toward third party, injury and organised fraud. For example, in 2013, we identified fraud in one in nine third party injury claims,” said Gardiner.

Aviva is currently investigating 5,500 suspicious injury claims linked to known fraud rings – an increase of 20% since 2012. The Insurance Fraud Bureau estimates that one in seven personal injury claims are linked to suspected “cash for crash” claims, with the total annual cost to insurers for such claims estimated at £392 million every year.

Ameripact Announces Due Diligence Packet for Real Estate Market
Due DiligenceRisk Management

Ameripact Announces Due Diligence Packet for Real Estate Market

Ameripact, the real-estate service platform, today released its latest home-buying efficiency and money-saving tool, the Due Diligence Packet, a lender quality portfolio of unbiased information that includes everything a buyer needs to quickly close on a home sale.

“The mission of the Due Diligence Packet is very simple. It creates trust, reduces risk, and provides unprecedented convenience to agents, home sellers, and homebuyers,” explained Ameripact CEO and founder, Haresh Sangani. “We strongly believe that this is the natural direction the real estate marketplace has to move towards. The technology is there, the consumers and brokers are hungry for it, and the right business model is finally here.”

The Ameripact Due Diligence Packet equips homebuyers with the following information upfront:

• The Summary Report

• The Title Report

• The Certified Residential Appraisal

• The Licensed Inspection

• Earnest Money Protection

This benefits all parties, encouraging more offers, reducing the chances for future renegotiations, and reducing the risk of time and money lost from transactions falling through after having been mutually accepted. Ameripact is so confident in the Due Diligence Packet, they back it up with the industry’s first Earnest Money Protection.

“‘Ameripact is not only great to work with but the Ameripact Certified properties consistently receive multiple offers from qualified buyers of 10-15% over listing price with no inspection or appraisal contingencies. My sellers are happy and I’m impressed,” said Shawn Lee, Managing Broker, Big Sound Homes Team, Keller Williams Realty GSRE. Beyond helping agents attract cleaner and better offers, the Ameripact Due Diligence Packet service creates another venue for marketing their listed properties.

“The Ameripact Due Diligence Packet is only the first of many technology enabled services we have in the works. We will continue to offer additional solutions to fill the gaps in the real estate equation,” said Sangani.

Christie Administration Wants Claim Extension for Businesses
Natural CatastropheRisk Management

Christie Administration Wants Claim Extension for Businesses

The Christie Administration has urged the Federal Emergency Management Agency (FEMA) to grant New Jersey residents and businesses who suffered property damage or destruction in Superstorm Sandy an additional six-month extension to file a complete flood insurance claim, or proof of loss, in connection with the storm. The Administration is asking that the filing deadline be extended from April 28, 2014 to October 28, 2014.

“Superstorm Sandy was the worst natural disaster to strike New Jersey in a generation, and the process of rebuilding has been expensive and complicated. Homeowners and business owners simply need more time to file their final flood insurance claims,” said Governor Christie. “Many property owners have begun to rebuild only to find there was more damage than they originally thought.”

A proof of loss is a form used by the policyholder to support the amount they are claiming under the policy, which must then be signed, sworn and submitted to the insurance company with proper supporting documentation. An extension of the filing deadline would give homeowners and business owners additional time to evaluate newly discovered damages and costs, obtain proper documentation, and submit detailed information in a supplemental proof of loss.

FEMA has twice extended the deadline for New Jersey residents to file a proof of loss. In November 2012, FEMA extended the 60-day timeframe for filing Superstorm Sandy-related proof of loss documents to October 29, 2013, one year from the date Superstorm Sandy struck New Jersey. In October 2013, the deadline was extended another six months to April 28, 2014. If FEMA grants the State’s request to extend the deadline a third time, New Jersey residents and business owners would have until October 28, 2014 to submit a proof of loss.

Governor Christie’s letter also reiterated a previous request for FEMA to clarify the interplay between the extended proof of loss deadline and the one-year statute of limitations for filing litigation relating to flood insurance claims. Under current FEMA policy, consumers have a one-year time limit to file litigation resulting from unresolved claims. The Administration sent a letter to FEMA in December 2013 asking that the agency to interpret the one-year time period as beginning after the denial or partial disallowance of a claim following the submission of proof of loss documents. The clarification requested by the Christie Administration would mean that the one-year window for residents to file Sandy related lawsuits over flood insurance claims would not begin until after a claim was denied following the submission of the
proof of loss.

World Bank Helps Solomon Islands with Disaster Resilience
Natural CatastropheRisk Management

World Bank Helps Solomon Islands with Disaster Resilience

The agreements will officially launch two new projects for Solomon Islands, one to improve electricity supply and reliability in Honiara, and the second to help protect communities against growing risks from climate change and natural disasters.

“This launch will kickstart two very important projects for our country – projects that will help improve electricity supply, a priority for the Government and people of Solomon Islands, and that will enable communities to be better prepared for climate change and natural hazards,” said Rick Houenipwela, Minister of Finance and Treasury for Solomon Islands.

“I am pleased to be launching these projects on behalf of the World Bank as it continues to expand its support for Solomon Islands, by way of projects that support national priorities, such as reducing risks from climate change and natural disasters, and improving power supply for households and businesses,” said Franz Drees-Gross, World Bank Country Director for the Pacific Islands.

The Community Resilience to Climate Change and Disaster Risk in Solomon Islands Project (CRISP) will invest US$9.1m in climate and disaster risk information and early warning systems, which can save lives in the event of a tsunami or other natural hazard, as well as community projects in climate change adaptation and disaster risk reduction, such as climate proofed buildings, in up to four provinces.

The agreement was also signed for US$13m in new financing for the Sustainable Energy Project (SISEP), which is working to improve the reliability and efficiency of electricity supply for the 65,000 residents of Honiara.

“Efficient, affordable and reliable electricity access is essential for every aspect of development from running hospitals to doing business, while the Climate and Disaster Resilience Project is vitally important in a country where communities face very real, very present threats from natural disasters and climate change, especially in the remote Outer Islands,” said Drees-Gross.

The SISEP project began in 2008 and has supported the financial turn-around of the Solomon Islands Electricity Authority (SIEA), and improvements in power reliability in Honiara. During the course of SISEP, the annual total length of time that a customer is without power in Honiara has fallen by more than 80 percent, from 864 hours in 2007 to 124 hours in 2012.

This new funding will build on SISEP’s achievements and enable investments to further strengthen power systems, in particular through improvements to the grid in Honiara.

SISEP is being funded through US$13m in grants and low-interest credits from the International Development Association (IDA). CRISP is funded through a US$7.3m grant from the Global Environment Facility for Least Developing Countries, with a further US$1.8m from the Global Facility for Disaster Risk Reduction and Recovery Grant through the European Union Asian, Caribbean and Pacific Natural Disaster Risk Reduction Program.

Ximen Due Diligence Agreement with Huldra
Due DiligenceRisk Management

Ximen Due Diligence Agreement with Huldra

The agreement has been reached for the purposes of determining the feasibility and conditions of a proposal for the acquisition of Huldra Silver.

The transaction is subject to approval from the court and the creditors in the CCAA proceeding and the TSX Venture Exchange. Ximen intends to commence legal, financial and commercial due diligence shortly.

Ximen Mining Corp. is a publicly listed company trading on the TSX Venture under the symbol ‘XIM’, and is also listed on the Frankfurt, Munich and Berlin Stock Exchanges in Germany under the symbol ‘1XM’ and a German Securities Number of ‘A1W2EG’.

Insurers Open Up to External Managers
InsuranceRisk Management

Insurers Open Up to External Managers

As returns on sovereign bonds sink to their lowest, opportunities proliferate for managers to do business for the general accounts of insurance companies.

Cerulli’s Associates’ inaugural European Insurance Industry 2014: Allocators in a State of Flux report finds that low interest rates and high guarantees on traditional insurance contracts are pushing European insurance companies to diversify their investment portfolios away from core fixed-income strategies. However, insurers’ investment appetite is limited by the strong regulatory environment under Solvency II.

Diversification is likely to happen within the fixed-income pocket-high yield, credit, infrastructure debt. Insurers will need external managers with the right investment expertise as well as a strong understanding of the insurance world to have access to these strategies.

“Being an expert in European credit is simply not enough,” said David Walker, associate director at Cerulli. “Asset managers need to show insurers they know their business model inside out. Having a team dedicated to the insurance business greatly helps in achieving this kind of credibility in front of the client.”

A total of 75% of managers based in Europe agree that insurers are outsourcing more of their assets. Competition in the space is intense.

Insurer-affiliated managers have an advantage owing to their insurance background for managing their parent group assets. However, it is difficult for them to win business from other insurers because of the perceived conflict of interest.

“Even the strong captive French and Italian markets are slowly opening up to third-party managers. Insurance companies increasingly want to be seen as independent by their board and their clients. They are also realizing that, by sticking with their captive, they might miss out on some investment opportunities. This is where third-party managers can strike,” said Sabrina Lacampagne, an analyst at Cerulli and the main author of the report. 

The research also discusses which markets are the most addressable to third-party asset managers, and how insurers are selecting their managers.

Managers need to target these clients with an investment solution that encompasses local regulatory, tax, and accounting restrictions, and is also adapted to each insurer’s specific balance sheet situation.

Paul Williams New Brightside CEO
InsuranceRisk Management

Paul Williams New Brightside CEO

Specialist insurance broker, Brightside, has announced that Paul Williams has joined the Board as Chief Executive Officer.

As announced on 28 November 2013, Paul joins Brightside from Towergate Partnership Ltd, Europe’s largest independently owned insurance intermediary writing in excess of £2 billion of gross written premiums per annum, where he was a Director on the Retail Executive Committee responsible for all insurer and market relationships across the broking businesses.

Following Paul Williams’ arrival, the company remains focused on delivering compelling customer propositions, significant and sustainable growth and shareholder value. His breadth of leadership experience and market knowledge significantly strengthens the Group’s ability to achieve these objectives.

On joining Brightside, he said: “Brightside has a history of rapid growth with considerable opportunity for further policy and profit growth without the underwriting risk of an insurer. As a new CEO, it is essential to ensure continuity in the implementation of the Company’s growth plan.

“Initially, I will focus on a number of key areas to grow the profitability of the book. These will include; negotiating deals with key insurers, expanding our insurer panel and redefining our insurance capacity through the introduction of Delegated Authority and Managing General Agent agreements to augment the Group’s income streams. As well as continued strengthening of our validation techniques, which reduce our insurer partners’ exposure to fraud, to allow us to offer more competitive rates to our customers.

“In addition, there are several exciting new partnerships planned for 2014, the first of which, with RatedPeople.com, the UK’s largest online trade recommendation service, was announced last week.

“These partnerships are key to developing our distribution and we will continue to concentrate on markets where we have strength and scale, particularly in the motor and SME arenas where we have developed expertise online and through our UK based call centres. Using our Quote Exchange platform we will use our technological advances to introduce additional niche brands to our portfolio.”