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Insurance company industry trends, Q1 2020

Key issues to watch

Insurance Consulting and Technology
COVID 19 Coronavirus|Insurer Solutions

By Kevin Kirby | May 21, 2020

Key concerns and recommendations for insurance companies.

Cost of Insurance – Universal Life

Observation:

With interest rates at historical lows and stock markets in freefall, carriers with Universal Life Insurance exposure are struggling to keep associated cash value accounts above water. In order to sustain the policies, insurers have been forced to adjust the premiums charged to policyholders and have faced significant litigation as a result.

Concern:

Insurers face challenges both from regulators and from class action policyholder suits as to whether adjustments to premiums are illegal or outside contractual bounds. Several such cases have settled with amounts in excess of $100M. According to the WSJ, regulatory bodies were already aiming to implement new disclosure rules prior to equity markets being decimated by COVID-19.

Suggestion:

Insurance companies need to secure the broadest regulatory and investigations coverage possible. Care must also be taken to limit the applicability of exclusions pertaining to underwriting, contractual liability and inadequacy of reserves. Coverage specific to sales & marketing practices may also be implicated.


Cybersecurity requirements for insurers

Observation:

The National Association of Insurance Commissioners (NAIC) proposed a Data Security Model Law in 2019 which has been adopted by 8 states, with other states likely to follow the lead of NY and CA in implementing their own regulations. Outside of the US, General Data Protection Regulation (GDPR) in Europe applies stringent guidelines and threatens substantial penalties for failure to implement appropriate controls and procedures.

Concern:

Failure to juggle an increasingly complex and evolving regulatory framework could result in substantial fines and penalties. Insurers must be able to demonstrate that they have maintained a robust information security program.

Suggestion:

Insurers – particularly those operating on a national or international basis – must ensure that all applicable regulations are being accounted for and adhered to. Interplay between the D&O, E&O/ICPL and Cyber insurance policies should be carefully considered, especially where the market may look to address “silent cyber” through an exclusion.


Climate change

Observation:

Insurance companies face exposure to climate change on multiple fronts. There is risk for P&C carriers which insure against natural disasters, reputational risk in insuring companies connected to fossil fuels and challenges both as an investor (in selecting which firms to invest in) and as an investment (attracting partners seeking ESG adherence). Failing to address any of the foregoing exposures could result in liability for Directors and Officers, coming from regulators, shareholders and potentially sovereign nations as a human rights issue.

Concern:

Leadership at insurance companies – particularly those which are publicly-traded – may be held liable for taking inadequate steps to prepare against climate change risks.

Suggestion:

Coverage for investigations and special sublimits like Public Relations Costs and Asset Protection Costs are especially important given the focus on individual accountability. For multinational insurers, those serving unique functions such as the UK’s Senior Managers and Certification Regime (SMCR) should affirmatively be granted coverage.


Social inflation

Observation:

The term “social inflation” has featured prominently in recent earnings calls and commentary among leadership in the P&C insurance industry. Many executives have attributed challenges in profitability to this dynamic, particularly when it comes to commercial auto insurance and general liability.

Concern:

Social inflation is anticipated to drive an increase in frequency, cost to defend and ultimate settlements for certain classes of business.

Suggestion:

Limit purchase should be revisited to account for the substantial increase in settlement values – particularly as it applies to extra-contractual liability.

Conversely, insurers of ICPL are looking to impose higher retentions and premiums to counter this same dynamic.

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Insurance Companies Industry Leader Willis Towers Watson

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