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New From the GAO

July 29, 2014 Comments off

New GAO Reports and Testimonies
Source: Government Accountability Office

Reports

1. USDA Farm Programs: Farmers Have Been Eligible for Multiple Programs and Further Efforts Could Help Prevent Duplicative Payments. GAO-14-428, July 8.
http://www.gao.gov/products/GAO-14-428
Highlights – http://www.gao.gov/assets/670/664671.pdf

2. 401(K) Plans: Improvements Can Be Made to Better Protect Participants in Managed Accounts. GAO-14-310, June 25.
http://www.gao.gov/products/GAO-14-310
Highlights – http://www.gao.gov/assets/670/664392.pdf

3. National Flood Insurance Program: Additional Guidance on Building Requirements to Mitigate Agricultural Structures’ Damage in High-Risk Areas Is Needed. GAO-14-583, June 30.
http://www.gao.gov/products/GAO-14-583
Highlights – http://www.gao.gov/assets/670/664517.pdf

4. Medicaid Financing: States’ Increased Reliance on Funds from Health Care Providers and Local Governments Warrants Improved CMS Data Collection. GAO-14-627, July 29.
http://www.gao.gov/products/GAO-14-627
Highlights – http://www.gao.gov/assets/670/665076.pdf

Testimonies

1. Screening Partnership Program: TSA Has Improved Application Guidance and Monitoring of Screener Performance, and Continues to Improve Cost Comparison Methods, by Jennifer Grover, acting director, homeland security and justice, before the Subcommittee on Transportation Security, House Committee on Homeland Security. GAO-14-787T, July 29.
http://www.gao.gov/products/GAO-14-787T
Highlights – http://www.gao.gov/assets/670/665067.pdf

2. Budget Issues: Opportunities to Reduce Federal Fiscal Exposures Through Greater Resilience to Climate Change and Extreme Weather, by Alfredo Gomez, director, natural resources and environment, before the Senate Committee on the Budget. GAO-14-504T, July 29.
http://www.gao.gov/products/GAO-14-504T
Highlights – http://www.gao.gov/assets/670/665090.pdf

3. Federal Real Property: Better Guidance and More Reliable Data Needed to Improve Management, by David J. Wise, director, physical infrastructure issues, before the Subcommittee on Government Operations, House Committee on Oversight and Government Reform. GAO-14-757T, July 29.
http://www.gao.gov/products/GAO-14-757T
Highlights – http://www.gao.gov/assets/670/665086.pdf

4. Tobacco Taxes: Disparities in Rates for Similar Smoking Products Continue to Drive Market Shifts to Lower-Taxed Options, by David Gootnick, director, international affairs and trade, before the Senate Committee on Finance. GAO-14-811T, July 29.
http://www.gao.gov/products/GAO-14-811T
Highlights – http://www.gao.gov/assets/670/665082.pdf

5. Medicaid: Completed and Preliminary Work Indicate that Transparency around State Financing Methods and Payments to Providers Is Still Needed for Oversight, by Katherine M. Iritani, director, health care, before the Subcommittee on Energy Policy, Health Care and Entitlements, House Committee on Oversight and Government Reform. GAO-14-817T, July 29.
http://www.gao.gov/products/GAO-14-817T
Highlights – http://www.gao.gov/assets/670/665070.pdf

6. Combating Nuclear Smuggling: Past Work and Preliminary Observations on Research and Development at the Domestic Nuclear Detection Office, by David C. Trimble, director, natural resources and environment, before the Subcommittee on Cybsersecurity, Infrastructure Protection, and Security Technologies, House Committee on Homeland Security. GAO-14-783T, July 29.
http://www.gao.gov/products/GAO-14-783T
Highlights – http://www.gao.gov/assets/670/665073.pdf

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Retirement — How Much Should People Save?

July 29, 2014 Comments off

How Much Should People Save?
Source: Center for Retirement Research at Boston College

The brief’s key findings are:

  • The National Retirement Risk Index framework is used to address how much working-age households need to save for retirement.
  • A typical household should get a third of its retirement income from a savings plan, with the low income needing one quarter and the high income one half.
  • A typical household needs to save about 15 percent of earnings, with the low income requiring less and the high income more.
  • For those with a savings shortfall, the necessary savings hike is much more feasible for younger households than for older households.
  • Starting to save early and retiring late dramatically reduce a household’s required saving rate.

Promoting Patient Safety Through Effective Health Information Technology Risk Management

July 29, 2014 Comments off

Promoting Patient Safety Through Effective Health Information Technology Risk Management (PDF)
Source: RAND Corporation

The potential for health information technology (IT) to improve health care delivery has been appreciated for decades, but “digitizing” health care can also introduce new risks and even harm. As the use of health IT has grown, these risks have become more apparent. The authors of this report evaluated the efforts of 11 hospitals and ambulatory practices to use an improvement strategy and tools developed to promote safe use of health IT and to diagnose, monitor, and mitigate health IT–related safety risks. Through interviews, the authors discovered that some health care organizations (especially hospitals) with expertise in process improvement were able to identify and begin to mitigate health safety risks, but in most others, awareness of these risks was limited (especially in ambulatory practices). The authors concluded that better tools like the recently released Safety Assurance Factors for EHR Resilience (SAFER) Guides are needed to help organizations optimize the safe use of health IT. However, health care organizations will require a better understanding of the safety risks posed by electronic health record (EHR) use to take full advantage of the SAFER Guides. There may also be a need for additional tools and metrics (and further usability studies of existing tools and metrics) to better support the needs of health care organizations as they increasingly rely on health IT to improve the quality and safety of patient care.

UK Life Insurance Customers Prefer Buying Policies Online but Personal Touch is Important for Advice, According to Accenture Research

July 29, 2014 Comments off

UK Life Insurance Customers Prefer Buying Policies Online but Personal Touch is Important for Advice, According to Accenture Research
Source: Accenture

The most popular way to buy life insurance is now through digital channels but customers still value face-to-face contact for financial advice, according to the latest survey of UK life and pensions customers conducted by Accenture (NYSE: ACN).

According to the poll of 2,870 UK life and pensions customers, 38 percent of consumers purchasing life insurance in the last 12 months, bought online. This included purchases through websites run by insurers, independent financial advisors (IFAs) and banks. By comparison 33 percent bought policies in person and 22 percent completed transactions over the phone.

The survey also reveals that a significant number of customers (19 percent) used price comparison websites to buy a life policy in the last 12 months. In addition, 41 percent of all customer interactions with life insurance providers and 38 percent of interactions with pension providers over the last 12 months were digital, including time spent researching, buying and servicing products.

However, in-person meetings were the preferred way to conduct long-term financial planning. Almost one-third of customers (30 percent) do their planning in this way, and 43 percent would like to do so.

Do Coastal Building Codes Make Stronger Houses?

July 22, 2014 Comments off

Do Coastal Building Codes Make Stronger Houses? (PDF)
Source: Cato Institute

The National Flood Insurance Program (NFIP), which provides federal flood insurance to property owners in participating communities, is currently $24 billion in debt. The shortfall has long been foreseen by policymakers because the insurance is underpriced, effectively subsidizing property owners of coastal properties. Congress attempted to curtail that subsidy with the 2012 Biggert–Waters Flood Insurance Reform Act, which was intended to put the burden of flood risk squarely on property owners rather than taxpayers. However, beneficiaries of the subsidies rallied against the legislation, and earlier this year both houses of Congress passed, and President Obama signed, legislation delaying the 2012 subsidy reform.

Communities that participate in the NFIP must adopt the program’s building code, which incorporates minimum building standards set forth by the Federal Emergency Management Agency (FEMA). Economists have theorized that building codes associated with the provision of subsidized insurance may create moral hazard by inducing risk taking. That is, the acquisition of insurance against some contingency is associated with a decreased incentive to avoid or prevent the insured loss because policyholders do not bear the full consequences of their actions. Independent of any insurance provision, moral hazard can also result from a false perception of safety if building codes are not effective.

This article examines the effectiveness of the NFIP’s building code in reducing damages to barrier island property in a hurricane. We determine whether similarly located properties fare better or worse in a hurricane based on the code regime under which they were constructed. We use data from Lee County, Fla., where 2004’s Hurricane Charley made landfall. Our findings raise questions about the optimal scale of code design, and about unintended consequences from building code changes.

The Effects of Premium Subsidies on Demand for Crop Insurance

July 21, 2014 Comments off

The Effects of Premium Subsidies on Demand for Crop Insurance
Source: USDA Economic Research Service

Premium subsidies are a major factor in the current success of the Federal crop insurance program. This study measures the change in crop insurance demand across multiple crops and regions following a legislated increase in subsidies. Findings reveal the influence of premium subsidies on participation in the program.

Cyber Risks: The Growing Threat (III – updated)

July 21, 2014 Comments off

Cyber Risks: The Growing Threat
Source: Insurance Information Institute

Amid a rising number of high profile mega data breaches—most recently at eBay, Target and Neiman Marcus—government is stepping up its scrutiny of cyber security. This is leading to increased calls for legislation and regulation, placing the burden on companies to demonstrate that the information provided by customers and clients is properly safeguarded online.

Despite the fact that cyber risks and cyber security are widely acknowledged to be a serious threat, many companies today still do not purchase cyber risk insurance. However, this is changing. Recent legal developments underscore the fact that reliance on traditional insurance policies is not enough, as companies face growing liabilities in this fast-evolving area.

Specialist cyber insurance policies have been developed by insurers to help businesses and individuals protect themselves from the cyber threat. Market intelligence suggests that the types of specialized cyber coverage being offered by insurers are expanding in response to this fast-growing market need.

There is also growing evidence that in the wake of the Target data breach and other high profile breaches, the number of policies is increasing, and that insurance has a key role to play as companies and individuals look to better manage and reduce their potential financial losses from cyber risks in future.

Oversight Issues in Mobile Payments

July 17, 2014 Comments off

Oversight Issues in Mobile Payments
Source: International Monetary Fund

This paper examines oversight issues that underlie the potential growth and risks in mobile payments. International experience suggests that financial authorities can develop effective oversight frameworks for new payment methods to safeguard public confidence and financial stability by establishing: (i) a clear legal regime; (ii) proportionate AML/CFT measures to prevent financial integrity risks; (iii) fund safeguarding measures such as insurance, similar guarantee schemes, or “pass through” deposit insurance; (iv) contingency plans for operational disruptions; and (v) risk controls and access criteria in payment systems. Such measures are particularly important for low-income countries where diffusion is becoming more widespread.

2014 CoreLogic Storm Surge Analysis Identifies More Than 6.5 Million US Homes with Total Reconstruction Value of Nearly 1.5 Trillion Dollars at Risk of Hurricane Storm Surge Damage

July 14, 2014 Comments off

2014 CoreLogic Storm Surge Analysis Identifies More Than 6.5 Million US Homes with Total Reconstruction Value of Nearly 1.5 Trillion Dollars at Risk of Hurricane Storm Surge Damage
Source: CoreLogic

CoreLogic® (NYSE: CLGX), a leading global property information, analytics and data-enabled services provider, today released its 2014 storm surge analysis featuring estimates on both the number and reconstruction value of single-family homes exposed to hurricane-driven storm surge risk within the United States. According to the findings, more than 6.5 million homes along the U.S. Atlantic and Gulf coasts are at risk of storm surge inundation, representing nearly $1.5 trillion in total potential reconstruction costs. More than $986 billion of that risk is concentrated within 15 major metro areas. This exposure could constitute significant risk for homeowners and financial services companies, as many at-risk homes lack protection from insurance coverage.

The analysis examined homes along the coastlines of 19 states and the District of Columbia in the Gulf and Atlantic regions, extending as far west as Texas and as far north as Maine. Florida ranks number one for the highest number of homes at risk of storm surge damage, with nearly 2.5 million homes at various risk levels and $490 billion in total potential exposure to damage. At the local level, the New York metropolitan area, which encompasses northern New Jersey and Long Island as well, contains not only the highest number of homes at risk for potential storm surge damage (687,412), but also the highest total reconstruction value of homes exposed, at more than $251 billion.

Free registration required to download report.

Overcoming Speed Bumps on the Road to Telematics: Challenges and opportunities facing auto insurers

July 11, 2014 Comments off

Overcoming Speed Bumps on the Road to Telematics: Challenges and opportunities facing auto insurers
Source: Deloitte

Early adopters of telematics are collecting data that can reveal a driver’s behavior, which in turn can provide a basis for greater precision in insurance underwriting, pricing and claims. Having such first-hand driving data at their disposal could give existing usage-based insurance (UBI) carriers a considerable leg up over those not using telematics. Of course, early adopters still face many challenges in executing a viable telematics program.

In order to get a better idea of consumers’ reactions to UBI, Deloitte surveyed more than 2,000 respondents about their experiences with consumer mobile technology. We have placed the respondents in three categories — Eager Beavers, Fence Sitters and Naysayers — based on their willingness to have their driving monitored by insurers.

This report provides data and analysis that may help guide carriers that have already started on the road to telematics, along with those poised to join in, as well as others that will have to compete with telematics-driven players.

See also: Telematics: How Big Data Is Transforming the Auto Insurance Industry (SAS; PDF)

Deposit Insurance Database

July 10, 2014 Comments off

Deposit Insurance Database
Source: International Monetary Fund

This paper provides a comprehensive, global database of deposit insurance arrangements as of 2013. We extend our earlier dataset by including recent adopters of deposit insurance and information on the use of government guarantees on banks’ assets and liabilities, including during the recent global financial crisis. We also create a Safety Net Index capturing the generosity of the deposit insurance scheme and government guarantees on banks’ balance sheets. The data show that deposit insurance has become more widespread and more extensive in coverage since the global financial crisis, which also triggered a temporary increase in the government protection of non-deposit liabilities and bank assets. In most cases, these guarantees have since been formally removed but coverage of deposit insurance remains above pre-crisis levels, raising concerns about implicit coverage and moral hazard going forward.

Market Risk Premium Used in 88 Countries in 2014: A Survey with 8,228 Answers

July 8, 2014 Comments off

Market Risk Premium Used in 88 Countries in 2014: A Survey with 8,228 Answers
Source: Social Science Research Network

This paper contains the statistics of the Equity Premium or Market Risk Premium (MRP) used in 2014 for 88 countries. We got answers for more countries, but we only report the results for 88 countries with more than 6 answers.

37% of the MRP used in 2014 decreased (vs. 2013) and 9% increased.

Most previous surveys have been interested in the Expected MRP, but this survey asks about the Required MRP. The paper also contains the references used to justify the MRP, comments from 30 persons that do not use MRP, and comments from 53 persons that do use MRP.

Medicare Advantage Money Grab

June 24, 2014 Comments off

Medicare Advantage Money Grab
Source: Center for Public Integrity

Congress created private Medicare Advantage health plans 11 years ago to help control health care spending on the elderly. But a Center for Public Integrity investigation found that billions of tax dollars are wasted every year through manipulation of a Medicare payment tool called a “risk score.” The formula is supposed to pay health plans more for sicker patients and less for healthy people, but often it pays too much. The government has for years missed opportunities to corral tens of billions of dollars in overcharges and other billing errors tied to abuse of risk scores. Meanwhile, the growing power of the Medicare Advantage industry has muzzled many critics in Congress, and turned others into cheerleaders for the program.

As risks rise, boards respond A global view of risk committees

June 20, 2014 Comments off

As risks rise, boards respond A global view of risk committees
Source: Deloitte

Boards of directors have been working hard to fulfill their risk oversight responsibilities in a challenging environment. Regulations are changing rapidly in most industries, and vary significantly across countries. Investors, analysts, and the public are demanding greater transparency into risk and risk management, as are creditors, counterparties, and other stakeholders. Many boards legitimately wonder not only what regulators want, but also which approaches to risk oversight actually work.

Deloitte set out to study a specific and very effective risk governance mechanism: board-level risk committees. This report reveals the prevalence of board-level risk committees (whether standalone committees focused solely on risk, or hybrid committees such as audit/risk) based on analysis of 400 large public companies in eight countries.

The big questions about Scottish independence; Towers Watson summarises what Scottish independence could mean for pension plans, their sponsors and financial institutions.

June 17, 2014 Comments off

The big questions about Scottish independence; Towers Watson summarises what Scottish independence could mean for pension plans, their sponsors and financial institutions.
Source: Towers Watson

As we enter the final three months of the countdown to the Scottish Independence referendum, Towers Watson has released a short paper, entitled The big questions, outlining how a yes vote to Scottish independence could affect UK-wide financial institutions and pensions plans. It poses questions in several fundamental areas such as currency, membership of the European Union and tax and fiscal policy.

In the paper Towers Watson summarises the main questions for pension plans, as well as some of those likely to affect the investment and insurance industries, in the event of a yes vote. It suggests that these will only be answered through the developing economic, social and regulatory policies of an independent Scotland and not ahead of time.

New From the GAO

June 12, 2014 Comments off

New GAO Reports and Testimony
Source: Government Accountability Office

Reports

1. Nuclear Nonproliferation: Additional Actions Needed to Increase the Security of U.S. Industrial Radiological Sources. GAO-14-293, June 6.
http://www.gao.gov/products/GAO-14-293
Highlights – http://www.gao.gov/assets/670/663916.pdf
Podcast – http://www.gao.gov/multimedia/podcasts/663020

2. Terrorism Insurance: Treasury Needs to Collect and Analyze Data to Better Understand Fiscal Exposure and Clarify Guidance. GAO-14-445, May 22.
http://www.gao.gov/products/GAO-14-445
Highlights – http://www.gao.gov/assets/670/663385.pdf

3. IRS 2015 Budget: Long-Term Strategy and Return on Investment Data Needed to Better Manage Budget Uncertainty and Set Priorities. GAO-14-605, June 12.
http://www.gao.gov/products/GAO-14-605
Highlights – http://www.gao.gov/assets/670/664082.pdf

Testimony

1. Nuclear Nonproliferation: Additional Actions Needed to Increase the Security of U.S. Industrial Radiological Sources, by David Trimble, director, natural resources and environment, before the Senate Committee on Homeland Security and Governmental Affairs. GAO-14-681T, June 12.
http://www.gao.gov/products/GAO-14-681T

As risks rise, boards respond; A global view of risk committees

June 4, 2014 Comments off

As risks rise, boards respond; A global view of risk committees
Source: Deloitte

Boards of directors have been working hard to fulfill their risk oversight responsibilities in a challenging environment. Regulations are changing rapidly in most industries, and vary significantly across countries. Investors, analysts, and the public are demanding greater transparency into risk and risk management, as are creditors, counterparties, and other stakeholders. Many boards legitimately wonder not only what regulators want, but also which approaches to risk oversight actually work.

Deloitte set out to study a specific and very effective risk governance mechanism: board-level risk committees. This report reveals the prevalence of board-level risk committees (whether standalone committees focused solely on risk, or hybrid committees such as audit/risk) based on analysis of 400 large public companies in eight countries.

Here’s what we found:

  • Board-level risk committees are well-established and widespread — present in 38% of the 400 companies analyzed. About a quarter (22%) have standalone board-level risk committees, while 16% oversee risk through hybrid board-level committees.
  • As might be expected, board-level risk committees are most prevalent in FSI companies (88%), but are also present in other industries (26%), often to a significant extent, depending on the country.
  • Local regulations affect risk oversight structures. Australia, Brazil, Mexico, Singapore, the UK, and the US have regulations that require risk committees at the board level for FSI companies (sometimes dependent on the type and size of the company).
  • Overall, 62% of all companies analyzed do not have a board-level risk committee. This largely reflects the lack of regulatory requirements for board-level risk committees in non-FSI companies in most countries.

Managing Corruption Risks in India

May 29, 2014 Comments off

Managing Corruption Risks in India
Source: Deloitte

In the past few years, India has emerged as one of the most promising destinations for investments. Its democratic government and large economy in terms of purchase power parity, highly skilled workforce, growing domestic market and sizeable English-speaking population, has resulted in an increasing number of global investors. According to a recent survey conducted by United Nations Conference on Trade and Development (UNCTAD), India has been ranked as the third most attractive destination for investments by transnational companies. In addition, the United States is one of India’s largest investment and trade partners and both countries are currently negotiating a bilateral investment treaty as part of their effort to strengthen their mutual economic ties and enhance investor confidence.

While India presents increasing investment opportunities, foreign companies in India face some unique challenges. This article focuses mainly on the corruption landscape in India, several associated risks and the need for implementing an effective anti-corruption compliance program in India.

Insurers Should Push for Climate Resilience

May 14, 2014 Comments off

Insurers Should Push for Climate Resilience
Source: Lloyd’s

The debate over whether climate change is a man-made phenomenon is no longer as important as the debate over how to plan for, and mitigate, the risks posed by it.

The past year has been one of many weather extremes; several all-time temperature records were set in both the Northern and Southern Hemispheres, death Valley in California hit 129.2 °F (the hottest temperature ever recorded in June on Earth), and January 2014 was the wettest month in the UK since 1767. We talk to Lloyd’s Chairman, John Nelson, about the implications of extreme weather conditions for insurers, and how they should be tackling the issues.

Lloyd’s has published a report Catastrophe Modelling & Climate Change which calls for the insurance industry to think about climate change and the potential impact it will have on their bottom line. As part of this, insurers should ensure that the tools they use – and I am expressly thinking about models here – adequately measure and price risks, including the influence of climate change.

New From the GAO

May 9, 2014 Comments off

New GAO Reports
Source: Government Accountability Office

1. Military Training: DOD Met Annual Reporting Requirements for Its 2014 Sustainable Ranges Report. GAO-14-517, May 9.
http://www.gao.gov/products/GAO-14-517
Highlights – http://www.gao.gov/assets/670/663082.pdf

2. Overview of GAO’s Past Work on the National Flood Insurance Program. GAO-14-297R, April 9.
http://www.gao.gov/products/GAO-14-297R

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