Industry Trends Property amp Casualty Life Accident amp Health Fred E Karlinsky karlinskyfgtlawcom Fred E Karlinsky 2019 Louisiana Insurers Conference Shareholder CoChair Insurance Regulatory amp Transactions Practice Group ID: 784844
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Slide1
Louisiana Insurers’ Conference
Industry Trends – Property & Casualty, Life, Accident & Health
Fred E. Karlinsky
|
karlinskyf@gtlaw.com
Slide2Fred E. Karlinsky
2019 Louisiana Insurers' Conference
Shareholder
Co-Chair, Insurance Regulatory & Transactions Practice Group
Greenberg Traurig, P.A.
Telephone: (954) 768-8279E-mail: KarlinskyF@GTLaw.com
Slide3The materials in this presentation are intended to provide a general overview of the issues contained herein and are not intended nor should they be construed to provide specific legal or regulatory guidance or advice. If you have any questions or issues of a specific nature, you should consult with appropriate legal or regulatory counsel to review the specific circumstances involved.
Disclaimer
2019 Louisiana Insurers' Conference
Slide4Agenda
Industrywide Trends
Cybersecurity & Data Privacy
InsurTech/Sandboxes
Corporate GovernanceProperty & CasualtyAssignment of Benefits (AOB)Catastrophic LossFlood Insurance
Accident and HealthPBMsOpioid CrisisLifeUse of Genetic Information Use of fitness trackers and related data NAIC Overview2019 Louisiana Insurers' Conference
Slide5Industrywide Trends
Cybersecurity
Slide6Risks Caused By:
using technology in your operations, or handling/collecting/storing confidential information
What are Cyber Risks?
2019 Louisiana Insurers' Conference
Slide7Cyber Is An Evolving Risk |
Many Factors, Many Attacks
Nation State Attacks
In 2014, North Korean targeting of a media company with “wiper malware,” disabling networks for more than a week and triggering 7 class action data breach lawsuits.
RansomwareWANNACRY and PETYA. (2017) targeted the “Eternal Blue” vulnerability for a legacy Microsoft protocol. Self-proliferating capability spreads ransomware worldwide.
Industrial Control Attacks
CrashOverride (2016) Second known malware designed to disrupt physical systems. Highly adaptable to target specific industrial control systems.
Data Breach
For a decade, hackers have persistently and successfully targeted consumer data.
System Outages
Cyber attacks & system failures repeatedly create havoc for airline systems, affecting major carriers.
Dependent Business Interruption
DYN DDoS (2016) Attackers using the Marai botnet to target a DNS provider with the largest DDoS attack ever recorded, degrading cloud services and websites worldwide.
2019 Louisiana Insurers' Conference
Slide8Latest Cybersecurity Trends and Statistics
Percentage of Denial of Service Attacks targeted large organizations
2
98
%
Median number of days from an intrusion to containment of a breach4 62
Ransomware infections have increased by
5
36%
88
%
75%
Breaches perpetrated by outsiders
2
Cyber crime costs the global economy annually up to
6
$575B
Symantec,
Internet Security Threat Report 2017
Verizon,
Data Breach Investigation Report 2017
SANS Institute,
Combatting Cyber Risks in the Supply Chain
Trustwave,
Global Security Report 2017
Symantec,
Internet Security Threat Report 2017
CSIS & McAfee,
Net Losses: Estimating the Global Cost of Cybercrime
IBM
.
Percentage of breaches at companies with less than 1,000 employees
Same 9 patterns identified in 2014
2
60%
Breaches perpetrated by insiders
2
Overall volume of malicious Android apps increased significantly
1
105
%
Breaches directly caused by unintentional actions of insiders
2
76%
Cost per Incident
7
2019 Louisiana Insurers' Conference
Slide9Federal Approach
Regulate certain sectors and information – especially the financial markets and banking systems, where the public and trust is paramount.Health Insurance Portability and Accountability Act (HIPPA)
Protects privacy of protected health information
Separate privacy laws protect specific areas of the U.S. health-care system
Family Educational Rights and Privacy Act (FERPA)Children’s Online Privacy Protection ActEU General Data Protection Regulation (GDPR)Federal Cybersecurity Standards
2019 Louisiana Insurers' Conference
Slide10Feb. 2017: New York DFS issues broad Cybersecurity Regulation
Oct. 2017: NAIC adopted Insurance Data Security Model LawEarly Adopters: Alabama, Connecticut, Delaware, Ohio, Michigan, Mississippi, New Hampshire, and South Carolina
June 2018: California Consumer Privacy Act (
CCPA
) passedEffective January 1, 2020Similar in many respects to GDPRInsurance Data Security & Data Privacy Standards
2019 Louisiana Insurers' Conference
Slide11Since the California Consumer Privacy Act (
CCPA), all 50 states have introduced data privacy legislation or updated their data breach notification laws
Louisiana, South Carolina & Vermont most recent states to enact data protection legislation
Potential for national legislation: Oregon Senator and Hawaii Senator have drafted privacy and cybersecurity legislation
State Data Privacy Requirements
2019 Louisiana Insurers' Conference
Slide12Dearth of Historical Data
Existing data often includes non-cyber lossesData often does not have useful information“Silent cyber” risk
Underwriters Must Rely More Heavily on Models to Price Cyber Risk
Pricing Challenges
2019 Louisiana Insurers' Conference
Slide13Annual premium volume information about the Cyber insurance market is hard to come by, but in reviewing the market, it is estimated that the annual gross written premium is anywhere from $2 billion to $4 billion (2019)
Industry divided by size (gross written premium)
A limited number of very large writers, with premiums in excess of $100 million
Several carriers in the $50-100 million range
Several carriers and large managing general underwriters in the $25-50 million rangeNumerous carriers and smaller managing general underwriters in the $10-25 million rangeNumerous entities writing in the $5-10 million and $1-5 million rangeCyber Insurance Marketplace
2019 Louisiana Insurers' Conference
Slide14Industrywide Trends
InsurTech & Regulatory Sandboxes
Slide15States with Regulatory Sandboxes
Participating States Arizona, Kentucky, Utah, Vermont and WyomingAllows InsurTech Companies to
Gain limited access to market
Test financial products or services
Operate without certain licenses or authorizationsInsurTech & Regulatory Sandboxes
2019 Louisiana Insurers' Conference
Slide16NAIC Innovation and Technology Task Force
Identified Anti-rebating and Unfair Trade Practice Laws as Obstacles for InsurTech companiesThe IT Task Force is Considering the Following Proposed Three-Part Test
Does value-added service or product harm an insurer’s solvency?
Does value-added service or product directly relate to the insurance policy?
Is value-added service or product offered on a nondiscriminatory basis?InsurTech & Regulatory Sandboxes
2019 Louisiana Insurers' Conference
Slide17Industrywide Trends
Corporate Governance
Slide18What is Corporate Governance?
Procedures and StructuresShapes Interactions
Multi-faceted Subject
Private v. Public Companies
Privately Held: Owned by private groupPublicly Held: Sold a portion to public via an IPOPublic DisclosuresCorporate Governance
2019 Louisiana Insurers' Conference
Slide19Board Structure
Lead Independent Director or Independent Chairperson of the BoardIndependent Directors
Majority of board should be independent
Investor representative not disqualified from being independent
Look for directors with diversity of skills, perspective and experienceProper vetting of new board members is criticalCorporate Governance
2019 Louisiana Insurers' Conference
Slide20Board Committees
Audit CommitteeIndependent Board MembersCompensation Committee
CEO + Independent Board Members
Risk Management Committee
CEO + Independent Board MembersManagement should make recommendations to board regarding committee nomineesCorporate Governance
2019 Louisiana Insurers' Conference
Slide21Executive Officers
Good corporate governance requires management team with skill, experience and good judgment to lead company and execute strategy.Board Responsible for Assembling, Overseeing and Evaluating Executive Team
Executives Must Have Clearly-Defined Responsibilities
General Counsel Should Serve as Chief Corporate and Legal Compliance Officer
Corporate Governance
2019 Louisiana Insurers' Conference
Slide22Boards must enhance shareholder value
Form and promote corporate identityDevelop long-term strategies to maximize profits
Environmental and Social Governance
But, insurer boards must also protect policyholder interest
Ensure proper claims-handling protocols are in placeCompliance with notice and coverage of regulatory requirementsRisk-based financial and market conduct considerationsInsurance Company Boards Have Competing Duties
2019 Louisiana Insurers' Conference
Slide23Corporate Governance Annual Disclosure (
CGAD)Determining which entity reports
What should be included in
CGAD
Lead State FilingNeed to establish and document organization and proceduresCorporate Governance Annual Disclosure
2019 Louisiana Insurers' Conference
Slide24Review and Oversight
Insurance Commissioners take a closer look at an insurer or insurance group’s corporate governanceAnnual Disclosure Filing
Who reports?
Controlling Party
Holding CompanyLegal Entity/Insurance CompanyCorporate Governance Annual Disclosure
2019 Louisiana Insurers' Conference
Slide25CGAD
must be detailed and addressInsurer’s corporate governance framework and structurePolicies and practices of its board of directors and committees
Policies and practices directing senior management
Internal oversight procedures
Corporate Governance Annual Disclosure | Content
2019 Louisiana Insurers' Conference
Slide26NAIC expects all U.S. jurisdictions to adopt
CGADAs of February, 2019Over half states have enacted the
CGAD
Model Law
20 states have enacted the CGAD Model Regulation Issues with sporadic adoption of model regulations from a compliance perspectiveWill there be an impact?What should a company do?Corporate Governance Annual Disclosure | Uniform Adoption
2019 Louisiana Insurers' Conference
Slide27Corporate Governance Annual Disclosure | Model Act Adoption
2019 Louisiana Insurers' Conference
Slide28Corporate Governance Annual Disclosure | Model Act Adoption
2019 Louisiana Insurers' Conference
Slide29Corporate Governance Annual Disclosure | Florida
Florida passed
CGAD
– signed by then Governor Rick Scott on April 8, 2016
Initial Disclosures submitted by December 31, 2018Subsequent submissions by June 1st of each yearFlorida Office of Insurance Regulation could require a CGAD earlierUnique Circumstances Insurer deemed to be in hazardous financial conditionIf insurer member of insurer group in which Florida is lead stateBest interests of the state
2019 Louisiana Insurers' Conference
Slide30Corporate Governance Annual Disclosure | Louisiana
Aligns more closely with NAIC Model Law than Florida’s version
Disclosure required of all domestic insurers
Lead state filing for insurer member of insurance group
What about when there are multiple insurers in group with multiple lead states?Must consider confidentiality issuesInsurance Commissioner authorized to request CGAD
2019 Louisiana Insurers' Conference
Slide31Property & Casualty
Assignment of Benefits
Slide32AOB – A contractual agreement between an insured and a contractor pursuant to which the insured assigns certain rights under the policy
AOBs are common in connection with health insuranceInsureds assign rights/benefits to preapproved health providers
Health providers perform services and bill insurers directly
AOBs now being used in homeowners insurance and auto glass claims
Third-party contractors perform work and bill insurers directlyAssignment of Benefits
2019 Louisiana Insurers' Conference
Slide33Why do policyholders enter into an AOB?
Required by contractor before commencing workCannot afford up-front repair costs
To get necessary repairs completed quickly
To avoid having to file a claim with the insurer
However, AOBs can be harmful to insuredsAssignment of Benefits
2019 Louisiana Insurers' Conference
Slide34Florida’s unique legal environment makes state ripe for AOB Abuse
Key factorsOne-way attorneys’ feesNo insurer consent required for AOB
Unique landscape encourages unnecessary expense and results in higher premiums for all
Assignment of Benefits
2019 Louisiana Insurers' Conference
Slide35HB 7065 – Signed by Governor Ron DeSantis on May 23, 2019
Defines “assignment agreement” & establishes requirementsAllows assignor to rescind within 7 days of execution, at least 30 days after work has commenced, or at least 30 days after execution if agreement does not contain commencement date and assignee has not begun substantial work
Requires assignee to provide the insurer with a copy of the agreement within 3 business days after execution
Limits AOBs in emergency situations to $3000 or 1% of coverage A
Assignment of Benefits | Florida Passes AOB Reform
2019 Louisiana Insurers' Conference
Slide36Requires AOB to contain notice to assignor that they are waiving certain rights
Requires assignee to indemnify the assignor, including against the filing of liens Ensures assignee has a duty to maintain records, cooperate in investigations, and deliver AOB to the insurer
Requires assignees to participate in examinations under oath (EOMs) and alternative dispute resolution mechanisms
Assignment of Benefits |
Florida Passes AOB Reform
2019 Louisiana Insurers' Conference
Slide37Requires notice of suit to be delivered 10 business days prior filing
Requires insurer to respond to the notice in writing within 10 days The one-way attorney fee provision no longer applies to the assignee
Offer less than 25% of disputed amount
insurer entitled to attorney feesOffer at least 25% but less than 50% neither party entitled to attorney fees If offer is at least 50% assignee entitled to attorney fees Key Final Change: HB 337 provision made attorney fee provision effective upon becoming law Assignment of Benefits | Florida Passes AOB Reform
2019 Louisiana Insurers' Conference
Slide38Requires insurers to
make available a policy restricting the assignment of post-loss benefitsRequires insurers to report detailed claims data to OIR annually beginning January 30, 2022
HB 7065 took effect on July 1, 2019
Attorneys’ fee provisions took effect immediately
Assignment of Benefits | Florida Passes AOB Reform
2019 Louisiana Insurers' Conference
Slide39Property & Casualty
Catastrophic Risk & Flood Insurance
Slide40Hurricane Michael hit Florida panhandle as a Category 5 storm, October 10, 2018
Over $6.9 billion in damage claimsHurricane Dorian - Strongest tropical cyclone to hit Bahamas
Landfall in North Carolina as a category 1 storm on September 1, 2019
Risk Management Solutions: U.S. insured losses between $
500m and $1.5bAugust 2019, CA Insurance Commissioner released data showing insurance harder to find as a result of wildfiresOver $12 billion in claims related to Camp, Woolsey & Hill FiresCatastrophic Risk
2019 Louisiana Insurers' Conference
Slide41Most Common Natural Disaster Risk in the United States
Effects Amplified by Climate ChangeCost of Events Becoming More Costly
$200 million in 2017
Debt to National Treasury was over $20 billion in 2018
Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12)Increased RatesCreated Private MarketPolitically UnpopularFlood Insurance
2019 Louisiana Insurers' Conference
Slide42NFIP Still Holds Majority of Polices
$4.3 billion in Premium in 2016 from 5 million PoliciesSurplus Lines Dominate Private MarketPrivate Flood Insurance Market Development Act of 2017, H.R. 1422
Private Flood Concerns:
Cherry Picking
Agent Commissions State Guarantee FundsFlood Insurance
2019 Louisiana Insurers' Conference
Slide43Accident & Health
Pharmacy Benefits Managers
Slide44Rising Drug Costs Have Put a Spotlight on
PBMsRecent Federal Legislation
Banning of Gag Orders
Know the Lowest Price Act of 2018
Patient Right to Know Drug Prices ActRecent State Legislation Drug Affordability BoardsIncreased Price Transparency Pharmacy Benefits Managers
2019 Louisiana Insurers' Conference
Slide45NAIC Subgroup Created
NAIC Health Carrier Prescription Drug Benefit Management Model Act #22 and Network Adequacy Model Act #74U.S. Department of Health and Human Services (HHS) and U.S. Food and Drug Administration (FDA) guidelines for safe importation of drugs originally intended for foreign markets
Priority for President Trump
Pharmacy Benefits Managers
2019 Louisiana Insurers' Conference
Slide46Accident & Health
Opioid Epidemic
Slide47Over 2 million Americans Suffer from Opioid Addiction
OxyContin Introduced in 1996Purdue Pharma Bankruptcy
Settling Litigation via Bankruptcy
Opioid Epidemic
2019 Louisiana Insurers' Conference
Slide48New York Department of Financial Services has subpoenaed several opioid manufacturers, insurers, and
PBMsPBMs
and the Opioid Epidemic
Ruling in Texas
Centers for Disease Control (CDC) Guidelines Due to their proximity to the prescribing of medicine more cities and counties are looking at PBMs for answersOpioid Epidemic
2019 Louisiana Insurers' Conference
Slide49Life Insurance
Genetic Information
Slide50Access to DNA Information has Proliferated
Genetic information covered under HIPAA Genetic Information Nondiscrimination Act (GINA)
Prevents health insurers from denying coverage or increasing rates based on genetic predisposition to various health conditions
Can do so once you show symptoms
Does not apply to life, long-term care, or disability insuranceUse of Genetic Information
2019 Louisiana Insurers' Conference
Slide51Life Insurance
Fitness Trackers & Data
Slide52Wearable devices with technology that collects statistics related to physical activity, vital signs and location
E.g., Fitbit, Apple Watch, and Xiaomi
Insurers see this as a way to promote a healthier lifestyle and engage their clients on a long-term basis
John Hancock only using Interactive Devices for Life Insurance
Use of Fitness Trackers and Related Data
2019 Louisiana Insurers' Conference
Slide53Insurers see this as a way to promote a healthier lifestyle and engage their clients on a long-term basis
Increased Insurer InteractionPrivacy concerns around Protected Health Information (HIPAA)
Cyber Attacks
Reliability of Data and Devices
Use of Fitness Trackers and Related Data
2019 Louisiana Insurers' Conference
Slide54The National Association of Insurance Commissioner
Slide55Key Priorities
Long-Term Care InsuranceHealth Insurance
Data, Innovation and Cyber
“State Ahead” Themes and Goals
Theme I: Safe, Solvent and Stable MarketsTheme II: Consumer Protection and EducationTheme III: Superior Member Services and ResourcesNAIC Update
2019 Louisiana Insurers' Conference
Slide56Chair: Commissioner Doug
Ommen (IA)
Mission of Life Insurance and Annuities (A) Committee: consider issues relating to life insurance and annuities and review new life insurance products
Notable sub-groups
Life Actuarial Task Force: identifies, investigates, and develops solutions to actuarial problems in the life insurance industryAnnuity Disclosure Working Group: reviews and revise required disclosures to better inform consumers in light of recent product innovationsLife Insurance and Annuities (A) Committee
2019 Louisiana Insurers' Conference
Slide57Chair: Commissioner Jessica Altman (PA)
Mission of Health Insurance and Managed Care (B) Committee: Consider issues relating to all aspects of health insurance
Notable sub-groups
Regulatory Framework Task Force: (i) develops NAIC model acts and regulations for state health care initiatives; and (ii) considers policy issues affecting state health insurance regulation
Long-Term Care Insurance Task Force: Coordinates all aspects of the NAIC’s work regarding the LTCI marketHealth Insurance and Managed Care (B) Committee
2019 Louisiana Insurers' Conference
Slide58Chair: Superintendent Elizabeth Dwyer (RI)
The mission of Property and Casualty Insurance (C) CommitteeMonitor and respond to problems associated with products, delivery and cost in P&C insurance market and surplus lines market as they operate with respect to individual persons and businesses
Monitor and respond to problems associated with financial reporting matters for P&C insurers that are of interest to regulatory actuaries and analysts
Monitor and respond to problems associated with financial aspects of surplus lines market
Property and Casualty Insurance (C) Committee
2019 Louisiana Insurers' Conference
Slide59Contact Information
Fred Karlinsky
Shareholder and Co-Chair, Insurance Regulatory & Transactions Practice
Greenberg
Traurig, P.A.(954) 768-8278Karlinskyf@gtlaw.com