State of the Healthcare Market

Posted by , and on August 28, 2015 | Be the First to Comment

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The Healthcare industry continues to move forward in the face of great uncertainty, driven largely by government legislation and economic pressures. Lockton’s Northeast Healthcare Practice is seeing leaner organizational structures challenged with operating complex systems while delivering a broader range of services. “More With Less” seems to be the new norm.

Many providers are expanding their geographic footprint to bring greater scale to their operations. Often, this is to compete with – or promote integration with – larger health systems. Furthermore, reforms under the Affordable Care Act (ACA) have the healthcare industry moving toward a “continuum of care” which has encouraged many of these structural changes.

The various iterations of what networks and health systems look like, and the new ways providers are delivering care, will be an evolving process that balances profitability and the delivery of higher quality care. Overlay reimbursement changes, consolidation among the major commercial payers, and the uncertainty of the current insurance marketplace, and it becomes clear the industry has a challenging environment to navigate.

As it relates to the healthcare P&C market outlook, here are some quick points from Lockton’s Northeast Healthcare Practice:

General, Professional and Excess Liability

  • Ample capacity sustains a competitive environment
  • Favorable loss experience often offsets an increase in underwriting exposures; as hospitals continue to consolidate, underwriters look to other healthcare segments for new opportunities
  • Underwriters concerned with the increasing number and severity of “batch” claims

Managed Care Errors and Omissions

  • Pricing beginning to firm
  • Carriers will be looking to delineate cyber exposure from the historical managed care risks
  • Separate cyber/privacy policies and managed care policies will need to dovetail appropriate coverage elements
  • Stacking of limits with other coverages, such as cyber and D&O, is a concern

Workers’ Compensation

  • Pressure on deductible levels based on escalating claim severity
  • Guaranteed-cost programs are experiencing stable conditions due to positive frequency trends and market competition
  • Loss-sensitive programs are seeing single digit rate increases, again due to loss severity

Automobile Liability

  • Guaranteed-cost programs continue to experience stability in the market
  • Loss-sensitive programs are generally seeing flat to single digit rate decreases


  • Extremely competitive
  • Rate reductions of 5-10 percent
  • No pressure to raise deductibles

Directors and Officers

  • Heightened sensitivity to management liability as a result of privacy breach claims
  • Rate increases of 2-5 percent on policies written for private and non-profit companies
  • Rate increases of 0-4 on policies covering public companies


  • Market in turmoil
  • Rate increases ranging from 10-20 percent with some underwriters pushing for higher retentions
  • Renewal terms are largely dependent on the controls in place
  • Some markets beginning to insist on sub-limits for regulatory and breach response coverage
  • Much uncertainty surrounding not “if” but “when” the next catastrophic breach will occur
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India Market Update: Heightened Focus on Changes Impacting Regulations

Posted by on July 30, 2015 | Be the First to Comment


In the last year since Prime Minister Narendra Modi took office, India has experienced changes and growth across numerous industries, but especially in the insurance sector. As foreign direct investment continues to flow into India and the economy exhibits growth not found in most parts of the world (7.5 percent GDP growth in 2015), there is understandable focus and attention paid to the changes happening in India.

The recent changes to the insurance industry commenced with the Companies Act of 2013. The Companies Act brought Indian company law closer to global standards by improving regulations on corporate social responsibility, mergers, corporate governance, auditor rotation, and investor protection. The Act also introduced changes to the liability of directors and officers of companies in India in the event of fraud. In the past year, D&O policies sold in India increased by 30 percent.

In the next year the Indian insurance regulator plans to announce more than 40 additional regulations that will cause further evolution of the regulatory landscape. A recent example is that effective January 1, 2015, Insurance Regulatory and Development Authority (IRDA) guided all Indian insurers to raise their rates to at least the burning cost. This has resulted in some immediate increases in premiums in some cases and is expected to result in more increases across several lines, including property and auto.

Another change that has significantly impacted the insurance industry in India is the recent legislation that raised foreign direct investment limit in Indian insurers from a limit of 26 percent to 49 percent. By investing more than $200M USD, AXA became the first foreign insurer to increase their stake in their joint ventures with Bharti AXA General Insurance and Bharti AXA Life Insurance. This is likely a sign of things to come as additional foreign insurers look to increase their ownership stakes as well.

The last change affecting many companies in India is the June 1, 2015 increase in the federal service tax from 12.36 percent to 14 percent, which applies to insurance premium tax. This is part of the larger movement by Modi’s government to streamline and improve the country’s tax system; more changes are expected in the future.

India is currently the second most populous country in the world and within a generation will be the most populous. GDP is projected to continue to grow and foreign direct investment will follow this growth. Despite the myriad of opportunities, doing business in India is not without risk or challenges. Along with the growing litigious environment, corruption, bribery and corporate fraud continue to be the top risks of doing business in India. India ranks 85th of 175 countries in Transparency International’s Corruption Perceptions Index and 142 of 189 in the World Bank’s Doing Business rankings.

India will continue to be a dynamic and fast-moving environment in which to do business. MNC’s with operations in or an eye on expanding into India would be well advised to keep abreast of all developments and work with their advisors to properly navigate all current and future risks.


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Argentina Market Update: Recent Changes Adversely Affect International Insurance Programs

Posted by and on July 21, 2015 | Be the First to Comment


In the past few years, there have been a number of economic and regulatory changes in Argentina that adversely affect international insurance programs covering companies with operations in Argentina. A few of these changes are currency devaluation, premium charges, and reinsurance restrictions.

Over the past year, the Argentine peso has lost approximately 12 percent of its value. Its current exchange rate against the USD marks the weakest the currency has been in nearly 12 years. This devaluation is important for insurance buyers to consider, because as currency fluctuates during the policy period, so will the limits associated with a local insurance policy, if values are to be managed in, or kept consistent with, another currency.

Argentina Mkt Update July 2015

To guard against a possible discrepancy, the insured and broker should discuss strategies to mitigate currency risk. One strategy might be to have local policy limits issued in USD. By doing so, the insured may avoid wild fluctuations in limits relative to global program intent. This approach does not work well in the unlikely event that the local currency significantly appreciates versus the dollar.

Argentina Mkt Update2 July 2015

Due to recent regulatory change, brought on by a shortage of USD availability in country, premium payments must now be paid locally in Argentine pesos. The need for payment to be made in pesos is a recent amendment to Argentine regulations. In order to ensure local premiums are issued in the appropriate amount, all parties should agree prerenewal upon an exchange rate as of a specific date.

This will alleviate administrative burdens for both the insured and the insurer, in that local premiums will not fluctuate from the agreed-upon premium at the date of binding. This devaluation has impacted the free flow of reinsurance funds as well. In 2012, the Argentine Central Bank passed reinsurance regulations obligating banks and exchange brokers to report USD transfers to local authorities. This guideline was implemented in an attempt to control national reserves.

The change poses a huge issue for insurers and reinsurers, due to transactional burdens and a delay in the transfer of premiums. In some cases, insurance premiums en route to reinsurers in the USA have been known to be held up by the local authorities for up to nine months. Global and local insurers and local authorities continue to work to develop a solution that is acceptable to all parties involved.

These are just a few of the many items to think about when placing an insurance program in Argentina (or in the myriad of other countries facing similar currency volatilities). Please call upon a Lockton International Specialist should you wish to discuss further.

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P&C Market Update: Market Continues to Soften, Competition Continues to Rise

Posted by on June 12, 2015 | Be the First to Comment

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The US property and casualty insurance market has seen a surplus of growth in the last several years, leading to ample capacity and favorable rates. Overall, it continues to be a buyer-friendly environment that is not expected to change soon, barring a catastrophic event. In this Market Update, Lockton provides current insight into this trend’s effects on clients’ insurance programs.

For property, the increased capacity and decreased rates are prompting traditional insurers to become more competitive to maintain market share. This has led to lower prices and a variety of options for buyers in both the capital and middle markets.

The abundance of capacity in casualty has created what some refer to as “E&S creep.” Historically only accessible through wholesalers, excess and surplus (E&S) lines are now entering the retail space and producing greater competition for standard lines markets. The sourcing of capital is evolving and going to have a continued impact on the market.

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The competitive trend is also reaching into workers’ compensation. Data from Lockton’s own analytics group on policy rate changes in guaranteed-cost and loss-sensitive programs are featured, highlighting a decrease in rates for both.

Read more about these developments along with special updates in cyber (including its impact on the financial services and healthcare sectors), surety, construction, and energy in Lockton’s latest Property & Casualty Update.

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Cyber Bits and Bytes

Posted by on June 2, 2015 | Be the First to Comment

Global Cyber

IRS Data Breach

Everyone in the U.S. has probably heard about the breach that the Internal Revenue Service (IRS) disclosed this past week. For those unfamiliar with the event, criminals reportedly located in Russia used personal identifiable information (PII) of taxpayers (possibly obtained as a result of healthcare data breaches such as the ones suffered by Anthem and Premera earlier this year) to obtain transcripts of the individuals’ prior tax return filings.

They tried to get roughly 200,000 returns. They succeeded about half of the time.

They used the information obtained to file fraudulent tax returns for 2015, and received more than $50 million in refunds from the IRS.

It remains to be seen whether the IRS did anything wrong. The criminals were able to access the system because they had (or could guess) the answers to security questions on the IRS website. You’ve seen these types of questions: “What is your mother’s maiden name?” and “Where was your first job?” are typical. You’d be amazed to learn how easy it can be to get information like that from social media sites like Facebook. Once they had all of the necessary information the criminals were able to walk right through the front door of the IRS site, so to speak.

Depending on how clumsy the criminals were, it may have been possible for the IRS to see that numerous requests for tax returns were originating from computers located in Russia. My guess is the thieves covered their tracks. In any event, the moral of the story is companies should try to adopt security measures that are less easy to defeat.

Ordering a Taxi with an App on Your Phone is Great, but . . .

Earlier this month Meru Cabs in India learned that logs of users’ PII obtained from the company’s smart phone app for booking taxis had been breached. The data included users’ mobile numbers, email addresses, pickup and drop locations, masked credit card numbers, and payment notification logs. The unencrypted logs were available on a publicly accessible web server. It isn’t clear how long the information was accessible, but the company reportedly resolved the problem within an hour after learning about it. Other reports suggest that the fix took longer.

A few important takeaways from this:

1. Companies need to be careful about how they implement mobile apps.
Mobile apps can be a critical part of the business of a company like Meru Cabs. That being the case, a company may be tempted to rush a mobile app out before the app and/or supporting systems are fully ready. From what I’ve read, I don’t think there was a fault in the Meru Cabs app. The problem seems to have been on the servers with which the app communicated. While it is dangerous to extrapolate too much from what may have been a simple transitory mistake, this breach is a good cautionary tale and reminder: companies need to take the time to carefully configure mobile apps and supporting systems, and design them from the outset with privacy in mind.

2. A breach like this can really hurt.
Meru Cabs is a good-sized company. They operate more than 3,000 taxis and serve more than 1 million passengers a month in four cities. A mobile app gone bad could significantly damage its reputation. (Don’t believe me? I’ll bet Starbucks might.) An event like this could require expensive PR efforts to restore its good name. It could also result in significant lost business while the company’s reputation is being repaired. Meru Cabs was recently attempting to raise $100 million to fund expansion of its business. Reputational damage could have impacted that effort.Chances are the company has no insurance that would respond to PR and business losses. (I don’t think any insurance product would cover investor funding the company was unable to get.)It is important for companies with similar risks to understand that insurance is available for reputational loss. Done properly, the policy will be a highly customized product developed through extensive consultation with the client and the underwriters. Lockton’s Global Technology & Privacy Practice has experience with such products and can assist interested companies.

3. Data breaches are a global problem; they can happen anywhere.
With so many high-profile data breaches happening in the U.S. over the past couple of years, it would be easy to overlook the very real risks that exist in the rest of the world. Cyber risk truly is a global problem.

Australia Privacy Management Framework

Earlier this month the Office of the Australian Information Commissioner (OAIC) issued its Privacy Management Framework. The framework sets out the OAIC’s expectations with respect to companies’ compliance with the Australian Privacy Principles. It establishes a four-step process that companies should undertake to assure they are meeting their privacy obligations.

It is noteworthy that the framework stresses compliance with the OAIC’s guidance regarding data breach notifications. The guidance strongly recommends notifying affected individuals when a breach “creates a real risk of serious harm to the individual.” This stops short of a mandatory notification requirement such as those that exist in the U.S., but it may well signify a regulatory expectation that notice will be given. Companies in Australia may ignore that at their peril.

Any company located or doing business in Australia needs to become familiar with the Privacy Management Framework as soon as possible.

Ponemon Data Breach Report Released

The Ponemon Institute’s annual reports on the cost of data breaches are always eagerly anticipated because they provide benchmarks used by many to evaluate the potential financial ramifications of a breach. Their global and country-specific 2015 Cost of Data Breach Study reports are available here.

White Papers You Should Read

Members of Lockton’s Global Technology & Privacy Practice have recently published two excellent white papers.

Inside the Mind of a Cyber Underwriter, written by the Lockton London office’s Max Perkins, gives an underwriter’s point of view on the current cyber insurance environment. Max provides excellent and very timely advice for companies navigating these turbulent times.

Michael Born in Kansas City wrote The Law Firm Cyber Landscape. Michael does a fantastic job of covering the cyber risks a law firm faces, how a firm’s existing insurance might or might not respond, and the benefits of a specialized cyber policy.


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