Monthly Archives: January 2020

Business Risk, Cyber Risk

Ransomware payments doubled in fourth quarter 2019

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The average ransomware payment increased by a whopping 104 percent in the fourth quarter of 2019, spiking to $84,116 from $41,198 in Q3, according to a report from Coveware, a security vendor.

Ransomware, also known as cyber extortion, involves the use of malicious software designed to block access to a computer system until a sum of money is paid. The 4Q increase reflects the diversity of the cyber criminals attacking companies.

Some ransomware variants are focusing on large companies where they can attempt to extort the organizations for seven-figure payouts. Small businesses, on the other hand, are bombarded with ransomware variants with demands as low as $1,500.

The total cost of a ransomware attack depends on its severity and duration and includes the costs of the ransom payment (if one is made), as well as remediation costs, lost revenue, and potential brand damage.

In Q4, ransomware actors also began exfiltrating data from victims and threatening to release it. In addition to remediation and containment costs, this complication adds to the potential costs of third-party claims.

Other key takeaways from the report include:

  • 98 percent of companies that paid the ransom received a working decryption tool in Q4 2019, unchanged from Q3.
  • Victims who paid for a decryptor successfully decrypted 97 percent of their data, a slight increase from Q3.
  • Average downtime increased to 16.2 days, from 12.1 days in Q3 of 2019. The was driven by a higher prevalence of attacks against larger enterprises, which often spend weeks fixing their systems.
  • Cyber criminals demand Bitcoin almost exclusively now in all forms of cyber extortion because it’s easier to swap extortion proceeds into a privacy coin after they collect, than to require a victim to purchase a less liquid type of digital currency.
  • Less sophisticated and well-financed attackers will target small companies with small IT budgets.
  • Public sector organizations continued to account for a high percentage of ransomware attacks in Q4. The attacks are expected to continue until these organizations are able to increase their security budgets.

 

Industry Financials

JIF 2020 Insights: Insurance guaranty funds – an essential safety net you may not have heard of

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By Loretta Worters, Vice President, Media Relations, Insurance Information Institute
Roger Schmelzer, president of the National Conference of Insurance Guaranty Funds (NCIGF), was on hand at the Joint Industry Forum (JIF), Thursday, January 16, to discuss the organization’s role in economic resilience, an important insurance industry theme.

“At the heart of every property and casualty insurance contract lies a promise that if misfortune occurs, insurance will step in to soften the blow by covering outstanding claims,” said Schmelzer.  “But what happens when an insurance company becomes financially troubled, fails, and is no longer able to uphold its end of the bargain?”

According to Schmelzer, that’s when the state property and casualty guaranty fund system – a system few know much about – steps in.

“Put simply, guaranty funds provide an essential safety net for policyholders, one that meets the needs of those least able to deal with losses should their insurance company fail,” he told reporters.  “Guaranty funds are part of the resilience formula in the insurance industry.”

How Is the System Funded?

The property and casualty guaranty fund system is a non-profit statutory structure funded by the proceeds of failed insurance companies and assessments on operating insurers that provides coordination to property and casualty guaranty funds in each of the 50 states and the District of Columbia. The system pays covered claims up to a state’s legally allowable limits and has safeguarded countless policyholders who might otherwise have faced financial ruin because of unpaid claims related to an insolvency.

“For nearly five decades, the guaranty fund system has paid out more than $35 billion to cover claims against about 600 insolvencies,” said Schmelzer. “Through the years, the system has successfully met every challenge that’s come its way and has been instrumental in supporting that insurance promise.”

What about life and health insurers?

A state life and health insurance guaranty fund system also exists, but it operates independently from the property and casualty system. NCIGF’s counterpart is the National Organization of Life and Health Insurance Guaranty Associations (NOLHGA), a voluntary association made up of the life and health insurance guaranty associations of all 50 states and the District of Columbia.  NOLGHA was founded in 1983 when the state guaranty associations determined that there was a need for a mechanism to help coordinate their efforts to provide protection to policyholders when a life or health insurance company insolvency affects people in many states.

 

 

Disaster Preparedness, Disaster Resilience

JIF Insights: Changingthe ConversationOn Extreme Weather

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Extreme Weather panel (L to R): Charles Chamness, National Association of Mutual Insurance Companies; Francis Bouchard, Zurich Insurance Group; Stephen Clarke, ISO; Dr. Daniel Kaniewski, FEMA; Dr. Rick Knabb, The Weather Channel; Kenneth Tolson, Crawford & Company

It was like music to my ears to hear risk and resilience experts at Triple-I’s Joint Industry Forum, in a panel on extreme weather, talk so much about communication.

Moderator Charles Chamness, president and chief executive officer of the National Association of Mutual Insurance Companies (NAMIC), kicked off the session by asking Dr. Rick Knabb – on-air hurricane expert for the Weather Channel (TWC) – about the impact on disaster preparedness of tools like TWC’s “storm surge depth simulator,” which Chamness described as “somewhat terrifying.”

If you haven’t seen it, the simulator uses virtual reality technology to show viewers what different water depths could look like and the kind of damage they could generate (see video below).

“We’ve gotten a lot of feedback,” Knabb replied. “Some people tell us, `Wow, I didn’t know how bad water can be.’  Some people tell us ‘You’re scaring me.’  And on some level, we’re trying to scare people just enough to respond and to prepare.”

Knabb added that he had no data to prove people who watch such simulations take immediate steps to improve their preparedness, “but we’re seeing the conversation change. Social media is one of the best ways I have to see that happening.”

The challenge remains, he said, to overcome “the positive bias” of people saying, “That looks really scary – but I don’t think it will ever happen to me.”

Francis Bouchard, Zurich’s group head of public affairs and sustainability, took the insurance industry to task for talking about risks in language customers don’t necessarily understand.

“We’re all risk elites here,” Bouchard said. “Our vernacular is not what normal people speak. And yet we insist on using our language to describe something that’s totally alien to most of the public.”

FEMA Deputy Administrator for Resilience Dan Kaniewski agreed.

“At FEMA, we no longer speak in these technical terms like `a one in 100-year event’” – a phrase, he said, that “makes a homeowner who’s just purchase their home think they have 99 years before they have to worry.”

Prepare, Mitigate, Insure

“When we at FEMA talk about ‘resilience,’” Kaniewski said, “what do we mean? We mean preparedness. We mean mitigation. We mean insurance.”

Kaniewski cited evidence from FEMA’s annual household surveys indicating that people in disaster-prone states are “more risk aware and better prepared” than elsewhere in the nation.

“But it’s not enough,” he said. “They have to do so much more.”

Beyond physical preparedness, Kaniewski said, “we have to talk to people about being financially prepared. That means having cash on hand. That also means insurance. Insurance is the best resilience tool.”

“Demand flood insurance”

Knabb agreed, calling upon meteorologists around the world to “talk about insurance more.” He also called on insurance agents to discuss flood coverage for their customers who aren’t in flood zones.

“If it can rain where you live,” he said, “it can flood where you live.”

He recounted buying a new home, asking his agent about flood insurance, and being told, “You don’t need it.”

“I told him, ‘Get it for me anyway,’” Knabb said. “And I’ve changed the graphics I use on The Weather Channel – instead of saying, ‘Ask Your Agent If You Need Flood Insurance’ to ‘Demand Flood Insurance.’”

The panel discussion covered a range of topics, including insurers’ need to emphasize risk reduction and resilience  and the “data fluency” of insurance regulators. You can watch the session below.

Insurance Industry

Joint Industry Forum: Seeing Beyond 2020

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L to R: David Sampson, American Property Casualty Insurance Association; Vincent Dowling, Dowling & Partners Securities; Hayley Spink, Lloyd’s

At a fast-paced Joint Industry Forum session called Insurance Vision: Seeing Beyond 2020, the subject of artificial intelligence (AI) was bound to come up. Insurers are leveraging AI and machine learning (ML) as part of the data-driven revolution transforming the industry.

Sixty-two percent of top 100 U.S. carriers say they have adopted AI and ML initiatives.

Session moderator David Sampson, President and CEO, American Property Casualty Insurance Association, asked about how U.S. regulators are likely to react as carriers add data analytics to pricing toolkits.

In response, V.J. Dowling, Managing Partner, Dowling and Partners, predicted that “one of the biggest topics of the next 10 years” will be regulatory focus on disparate impact as insurers introduce AI into underwriting and claims handling.

Disparate impact refers to the disproportionate impact of an insurance rate structure on the premiums paid by protected minority classes. Dowling explained that while  personal lines insurers 30 years ago might have put customers into broad risk buckets to set a price for each, “technology and data has allowed the number of buckets to increase until, arguably, you get to a point where each individual person has their own price based on their specific characteristics. And what that means is, you get a much bigger dispersion of rates from high to low. The subsidization starts going away.”

Dowling recommended that everyone interested in the subject read this blog post by Lemonade CEO Daniel Schreiber. In the post, Schreiber says “algorithms we can’t understand can make insurance fairer.” Addressing regulators directly, he proposes a “uniform loss ratio test” for pricing outcomes.

To get an idea about how regulators are reacting to the increasing use of consumer data, Dowling points to this letter to life insurance companies from the New York State Department of Insurance.

“It basically says, you can do this, but if it has a disparate impact on the end result, you can’t do it. To me, there was a double negative. You effectively can’t do it,” he concluded.

Sampson asked the other panelist, Hayley Spink, head of global operations at Lloyd’s, to describe the hurdles insurers encountered to complying with the general data protection regulation (GDPR) that went into effect in 2018. GDPR governs how European Union companies handle, collect, and process personal data.

“Especially in our industry, we deal with personal data all the time and we share that personal data between ourselves and third parties, so this has had a big, big impact across the EU,” Spink said.

Insurers could face fines of up to €20 million for noncompliance with the GDPR. In the U.S., California and New York are working to implement similar consumer data privacy laws.

Turning to insurers’ innovative uses of technology, Spink spoke about the use of drones to assess damage after catastrophes and the use of parametric insurance to trigger payments of flood claims in the UK. Lloyd’s runs an innovation accelerator in which pioneering start-ups  are partnered with mentors from managing agents across the market.

The panelists also discussed social inflation, third-party capital, and adapting to the skills and interests of the modern workforce.

For the full Joint Industry Forum 2020 agenda click here. Check out this video for an overview of the conference. Interested in attending next year’s conference? Contact us at jif@iii.org.

 

 

Insurance Industry

From the Triple-I Daily: Our most popular content, January 16 to January 22

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Here are the 5 most clicked on articles from this week’s I.I.I. Daily newsletter.

  1. Orlando bank employees quit in mass exodus — and go work at a competitor the next day. A lawsuit ensues, Orlando Sentinel
  2. This ‘incredibly powerful’ home-insurance policy will make payouts even if your property isn’t damaged, MarketWatch
  3. Social inflation keeps rising for insurers: Panelists, Business Insurance
  4. Some homeowners looking to cash in Super Bowl week, NBC Miami
  5. Recreational cannabis impairs driving even when driver not high: Harvard research, Insurance Journal

To subscribe to the Triple-I Daily email daily@iii.org.

 

 

 

Careers and Employment, Insurance Industry

The Joint Industry Forum Discusses the Push for Greater Inclusiveness

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By Max Dorfman, Research Writer

(L to R): Margaret Redd, National African-American Insurance Association (NAAIA); Deborah Aldredge, Farmers Insurance; Denise Campbell, AIG; Craig Lapham, The Lapham Group; Randa Rawlins, Shelter Insurance

This year’s Joint Industry Forum (JIF) featured a panel titled “A 21st Century Workforce that Reflects the Communities We Serve,” with the speakers discussing the move to increase diversity in the insurance industry.

Moderated by Margaret Redd, Executive Director, National African-American Insurance Association (NAAIA), the panelists noted that the push to create diversity must be intentional. This, according to Craig Lapham, CEO, The Lapham Group, whose organization specializes in recruiting within the industry, becomes more difficult with the increased desire for specialists. “The generalist is not favored anymore,” Lapham said. “The question is often, ‘who do we know,’ when it should be ‘where do we go?’”

The panel agreed. Although hiring individuals who are highly familiar with the industry can mitigate short-term risk, there may be long-term risk. For the panelists, missing out on highly capable talent to other industries was in itself a concern; to lose this talent because the industry wasn’t willing to look beyond exactly-relevant credentials was myopic.

In fact, for panelist Denise Campbell, AVP, National Accounts, AIG, the insurance industry wasn’t originally part of her plans. After graduating from New York University with a major in music technology, Campbell joined AIG as an administrative assistant. Yet she invested in the company, and in turn, AIG invested in her. She admitted than when she first started rising through the ranks of the company, she would readily admit experience she didn’t have. Yet she knew she could learn. “It was important to have people that believed in me,” Campbell said. For Campbell, many of her first champions were from employee resource groups for African-Americans.

The panel also discussed the shift in age of many employees within the insurance industry. With older generations retiring, the speakers remarked that the next cohort of talented insurance professionals need to be nurtured. Randa Rawlins, Executive Vice President, Shelter Insurance, stated how important it is for millennials and Gen Z to join the insurance industry. However, she acknowledged that challenges remain.

“Millennials want tech savvy, big projects,” Rawlins posited. The panel concurred, remarking that the insurance industry is striving to create more opportunities of this kind.

“They’re also very focused on people management,” said Deborah Aldredge, Chief Administrative Officer, Shelter Insurance.

The speakers noted that although there have been measures to recruit more millennials, it’s still unclear what the future holds. Indeed, recognizing the human element of insurance will continue to be enormously important for the future of the industry and its success.

 

Insurance Industry

I.I.I. Joint Industry Forum: Panel Discussion on the Future of Insurance Marketing

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Pictured left to right: Kathleen Bromage, Brad Auerbach, Avril Castagnetta, Bill Keogh, Scott Steele

By Brent Carris, Research Analyst, Insurance Information Institute

The 2020 Joint Industry Forum began its afternoon sessions with an informative discussion on how businesses can best adapt to the tech driven customer experience. Moderated by Kathleen Bromage, Chief Marketing and Communication Officer at The Hartford, panelists resoundingly agreed that the shift in customer interaction must be a company-wide initiative, not just the job of the Chief Marketing Officer (CMO).

Bromage started the conversation by addressing how focus is shifting more to the services that surround the product, adding how the role of the CMO is facing fundamental change. Panelist, Scott Steele, CMO of Church Mutual noted there is an, “overwhelming amount of information in the technology explosion, ” and CMO’s can make stronger more unified opportunities for marketing to grow.

“Start with consumer expectations and how they are changing,” said Bill Keogh, Insurtech and Fintech Advisory at Ingenium. Every role needs to understand insurance marketing, Keogh added, from the senior level to hiring the right team. Furthering this sentiment, Avril Castagnetta, Americas Insurance Marketing Transformation Leader at EY, addressed the importance of agents and brokers being better at social selling and “someone who engenders trust online”, adding that some customers are even obtaining life insurance policies through WhatsApp.

Personalization and a “0 friction future” are important for the industry to think about, per Brad Auerbach, Head of Industry, Insurance at Facebook. “Look at solutions that are already out there and how you can personalize it for your company,” said Steele. “The more you know about the consumer the more you can bring them the most relevant services, product or communication” added Auerbach, noting the importance of a focus on loyalty and retention.

Wrapping up the conversation, panelists stressed the importance of the CEO pushing and empowering teams to test and learn. “Products are changing and you want marketing to be the front of that,” concluded Keogh.

Business Insurance, Cyber Risk

JIF Insights: Cowbell CEO On Simplifying Cyber For Smaller Firms

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At Triple-I’s Joint Industry Forum last week, I had the opportunity to meet with Jack Kudale, CEO and founder of Cowbell Cyber, and learn more about how the startup aims to simplify and demystify cyber insurance for small and medium enterprises.

Cowbell CEO Jack Kudale’s background includes 25 years in enterprise software and five in cyber security. He led three startups before founding Cowbell.

Cyber remains a tough sell among smaller companies. As previously reported by Triple-I, many believe their risk profiles don’t warrant the cost of the coverage, and some complain the policies contain too many exclusions. A 2019 Advisen survey of brokers and underwriters – all involved in cyber insurance – found “not understanding exposures” (73 percent), “not understanding coverage” (63 percent), and “cost” (46 percent) to be the top three obstacles to writing and issuing cyber.

‘We eliminate the application’

Cowbell this morning announced the launch of Cowbell Prime 100 – the company’s A.I.-powered platform that promises to assess customers’ cyber exposures in real time and match them with the most relevant coverage for their business – all in about five minutes.

“Basically, we eliminate the application,” Kudale said. “The coverage is highly individualized for each specific business.“

And, if that isn’t enough, instead of an annual process of underwriting and renewal, Cowbell Prime 100 will continuously monitor customers’ exposures and recommend coverage changes in real time.

“For smaller companies, the concern is about speed and simplicity,” Kudale said. “Do I have to fill out long forms or answer intrusive questions? We remove all that friction and provide coverage tailored to their exposure.”

Larger companies, Kudale said, “are more interested in insights. Our continuous underwriting will help them better understand their cyber risks and how the recommended coverage addresses them.”

“The more customized the policy,” he continued, “the less concern there is about excessive exclusions.”

Cowbell Factors

The platform’s proprietary “Cowbell Factors” assess:

  • Projected loss costs based on hundreds of thousands of cyber cases,
  • Risk signals from internet-exposed infrastructure,
  • The customer’s cyber security practices,
  • “Dark web” intelligence,
  • Industry-specific business-interruption data, and
  • Regulatory compliance data.

Kudale’s background includes 25 years in enterprise software and five in cyber security. He led three startups before founding Cowbell with partners from the insurance and tech worlds.

Cowbell Prime 100 offers an A.M. Best ‘A’-rated admitted policy backed by Boost Insurance and prominent reinsurance partners, including Markel Global Reinsurance Company, Renaissance Re Holdings, and Nephila Capital. The company currently is appointing brokers and agents in California, Colorado, Arizona, Illinois, Oregon and Nevada.

Insurance Industry

JIF 2020 Crystal Ball

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My first Triple-I Joint Industry Forum (JIF) did not disappoint.

Between panel discussions and conversations with thought leaders and decision makers from across the insurance industry,  I learned a lot and accumulated insights and leads that will feed this blog for some time to come.

At a high level, an informal poll during one session – “JIF 2020 Crystal Ball—What Does the Future Hold?” – asked attendees several questions to get a sense of where they see the greatest opportunities and threats for the coming year.  Asked where they thought innovation would have the greatest impact in 2020, 36 percent said claims, followed by 26 percent who said they believe product marketing would be most affected.

I suppose this isn’t very surprising, as claims and product marketing both touch customers very directly. Marketing makes the promises and, when it works well, claims keeps them.  These should be high-priority areas for companies that expect to remain in business and competitive.

When asked what they expected to affect their companies’ bottom lines the most, 47 percent of participants said natural disasters and 30 percent said litigation costs (highlighting the increased attention being paid to social inflation).

I was a bit surprised to see cyber didn’t rank higher – especially given the fact that it recently came out at the top of concerns cited in the 2020 Allianz Risk Barometer. Autonomous vehicles – for all the media attention they receive – was the top choice of no one in the room.

When asked which of the following natural perils – tornadoes, hail, hurricanes, wildfires, and floods – keeps participants up at night, someone piped up to ask, “Why don’t you have an ‘all of the above’ choice?”

Forced to choose, the group’s top nightmares were: floods, wildfires, and hurricanes, in that order.

Asked about global events and trends they expect to have an impact on insurers worldwide, “Protectionism and trade disputes” was the top answer by far, at 58 percent – far above the next-highest: 28 percent for Brexit.

When asked about their expectations (not necessarily their preferences) for the 2020 election results, more participants (54 percent) said they expect a continuation of the status quo, with a Republican White House and Senate and Democratic House of Representatives. Twenty-nine percent said they expect the Democrats to take the White House and the Senate and House to remain essentially unchanged.

I found these results a bit surprising, given the mid-term turnout that led the House to flip from a Republican to a Democrat majority. The dynamics don’t seem to have changed much since the mid-terms. If the Presidency doesn’t change parties, one might reasonably expect a change of balance in the Senate. If a Democrat wins the Oval Office, I would expect the dynamics that get him or her there would also result in the Senate changing hands.

While interesting, this is not at all a scientific study. What are your thoughts and expectations on these or other topics affecting insurance in 2020?

Insurance Industry

Joint Industry Forum 2020: A clear vision for the insurance industry

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Each year Triple-I hosts a conference called the Property/Casualty Joint Industry Forum. This event, which took place on January 16 this year, assembles key figures from the business, policymaking, and media spheres to explore topics of vital interest to the property/casualty insurance industry.

During his opening remarks, Triple-I CEO Sean Kevelighan laid out many of the key issues the industry is facing: extreme weather events (wildfires can now be as costly as hurricanes), flat interest rates, populism and political risk around the world, building the workforce of the future, and the race to better engage with customers. Making disaster resilience a win/win proposition for both insurers and their customers is another vital issue.

He then sat down with CBS News’ senior foreign affairs correspondent and Face the Nation host Margaret Brennan. They discussed current events, including the impeachment of President Trump and the recently signed trade deal with China. Ms. Brennan advised news consumers to make sure that they have a trusted source: “if they are a pain to each side,” then you know they get it right.

Sean Kevelighan and Margaret Brennan

Over the next week or so, we’ll be blogging about the fascinating conversations that took place during the conference. Upcoming  posts will cover:

  • Extreme Weather
  • The Future of Insurance Marketing
  • JIF 2020 Crystal Ball—What Does the Future Hold for the Insurance Industry?
  • A 21st Century Workforce That Reflects the Communities We Serve
  • A Conversation with Economist Dr. Glenn Hubbard on Business and the Economy

For a full agenda click here. Check out this video for an overview of the conference. Interested in attending next year’s conference? Contact us at jif@iii.org.