In This Issue
· SaaS and Cloud-based computing
are here to stay says business
· Brokers are tracking insurance prices per LOB and location. You can too with SaaS
· Solvency II costs keep rising
· Think the EU’s crisis doesn’t affect you? Think again.
· Are your clients vital cogs in someone’s supply chain?
· Lloyd’s Coverholder Toolkit appears
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Software as a Service & Cloud Computing take their Seats at the Table
Last month CATEX is released its own iPad app for its Bordereau/Program Management System. iPad and iPhone users are able to download the Bordereau System application and see real time reporting results for bound and quoted delegated authority business on a per product or per coverholder basis.
If you are a careful reader of this monthly missive you are reminded that we mentioned this to you last month. We are noting it again because we have been reading article after article in the Wall Street Journal about the so called “rise of online software”. SAP AG acquired a SaaS company called SuccessFactors, Inc. for $3.4 billion last month and businesses world-wide are expected to spend over $28 billion on cloud services in 2011. By 2014 that figure is expected to more than double to $57+ billion.
Two big drivers are pushing this growth. First, of course, is the fact that just about everyone has a mobile device and companies want to make their data available to employees and customers through online access.
Second, and maybe even more important, is that in-house IT departments which formerly shunned web-based software have begun to accept it as a way to save money and simplify their operations.
As a famous American football coach (yes, US football –with helmets and very big players) once said “the future is now” and it would seem that applications like the CATEX Bordereau/Program Management System are in the right place for you at the right time. Now.
A Good idea –but one SaaS permits everyone to use
Our friends at Aon have been hard at work on something called the Global Risk Insight Platform (GRIP). When you learn about it you’ll wonder why all brokers aren’t doing it. GRIP tracks about 4,000 daily insurance placements handled by Aon throughout the world. Aon is able to determine how its premium placement flows at any moment – by stage, product, carrier and industry.
Steve McGill, chairman and CEO of Aon Risk Services says that "For the first time, brokers and their clients will be able to see in real time at what prices and with what coverages and limits carriers in all major insurance markets are quoting and binding business by class or territory. Aon will be providing clients with a unique vantage point from which to make informed strategic marketing and insurance buying decisions."
This is pretty powerful stuff, especially if you are the world’s largest broker and can mine your data for these types of trends. There is little doubt that buyers of insurance would be interested in this data. In fact just this week Willis announced that it is planning to launch WillPLACE, a real-time platform tracking all of its global placements in Q1 of next year. Marsh has already launched MarshConnect and Cooper Gay is working on its own platform.
Now brokers are in the business of making money and there’s nothing wrong with that. As of now, though, some insurers are questioning why they would pay an extra fee to a broker just to see aggregate information to a broker part of which is collected from them. The answer to that question could be pretty compelling, especially if the aggregate information can be specifically compared to your own insurance buying needs.
And here’s where we come in! The CATEX Bordereau/Program Management System already does allow you to track each and every insured risk that you as a coverholder binds or which you as a market has delegated to a coverholder to bind. Our system tracks the placement by product type, premium price, class or territory, and tracks pending claims and endorsements against and on each specific insured risk.
While our system can track only your own business, and not the sector as a whole, the Bordereau/Program Management System provides an over-the-shoulder view of all activity occurring on any risk or group of risks you care to aggregate up to. When Parliament and the US Congress get around to repealing anti-trust laws we can talk about extending our tracking beyond your own turf but for now this data alone is invaluable to our clients.
Last week Insurance Day reported that the Financial Services Authority (FSA) in the UK says that the cost to British insurers of Solvency II implementation has exceeded $3.1 billion. This amount is a $320 million increase above what the FSA estimated the same cost to be five months ago in June. That figure represents a whopping 11.5% increase in 5 months or over 23% for a year.
The FSA says that higher than expected technology costs and the greater use of external consultants are the main drivers of the cost increase. Full implementation of S2 is not required until 2014. Hopefully the costs will not continue to rise at this rate.
The View from Kansas: The Euro’s problems have nothing to do with me….right?
You can guess the answer to this question. The collapse of Lehman Brothers in 2008 affected just about everyone from Wall Street bankers to small businesses in the Punjab. So yes, if you are a coverholder far, far away from the Frankfurt headquarters of the European Central Bank, you should begin to follow the news of the Euro.
Here’s why. European insurers, like their US counterparts, have to invest their funds according to a risk calculation. A life insurer cannot for example invest all of its reserves in a hedge fund that speculates on the price fluctuations of commodities. The safest investment for European insurers –again just like in the US – is traditionally in sovereign debt. Since the 27 member European Union (17 countries use the Euro as currency) does not offer EU-wide debt guaranteed by the EU Central Bank this means that sovereign debt is just what it says –the debt instruments offered for sale by individual countries.
As we know from the financial news the interest rates offered by EU countries to buyers of their national debt varies. In Germany, France and the Netherlands for instance the interest rate is low as typically there is high demand for their debt since it’s perceived of as safe and secure. For other countries though the picture is not so bright and very high interest rates are offered to stimulate demand so that buyers will risk buying a less safe instrument attracted by high interest rates.
Over time this “spread” between the interest rates on perceived “safe” countries and perceived “un-safe” countries increased. At one point last month the spread between the asking price for similar amounts of German and Italian debt was over 4% annually.
Insurers are in the business of managing risk so many of them did notice this trend before we started reading about it and, after following normal human impulses of acquiring higher paying sovereign bonds, began to realize what was going on. Many insurers and reinsurers quickly rebalanced their sovereign portfolios and have continued to offload the debt of countries thought to be in financial trouble. Now the largest continental carriers have publicly stated that their exposure to problem sovereign debt is minimal and certainly manageable.
When Solvency II, which lays out insurer investment guidelines, was originally drafted several years ago this problem hadn’t yet appeared. Sovereign debt was sovereign debt whether it was German, Greek, Spanish or Dutch. It was regarded as safe.
The head of the European Insurance and Occupational Pensions Authority (think of him as one of the EU’s insurance regulators) Gabriel Bernardino, has called for changes to Solvency II to reflect the European sovereign debt crisis of today.
He told a conference last month in Frankfurt: “I believe in the future we need to explore ways to deal more efficiently with the risks of sovereign exposures and find a suitable way to integrate them into the overall risk-based framework.”
Solvency II does not demand additional equity when insurers invest in government bonds. At the time the rules were developed this was reasonable, Bernardino said; now, however, adjustments are necessary.
The insurance industry is sympathetic to his suggestions. Oliver Bäte, chief financial officer of Allianz, acknowledged: “We need to reflect that some of the assumptions are not right – for example, in the standard formula there is no charge for government default risk.
“We obviously know this is wrong, so we had to acknowledge that fact.”
Stay tuned. Any investor who learns that he needs to bolster his protection to guard against default of a previously super-safe investment usually has to come up with more money. That would seem to be a cost of doing business which means even Dorothy and Toto out in Kansas will hear about it.
Business Interruption and the Global Supply Chain
These photos of the recent flooding in Thailand don’t even begin to offer a clue about the devastation that wracked the country last month. The World Bank estimates that some $43 billion in economic losses were caused by the floods and resulting interruptions to businesses worldwide.
In case you remain one of those people who still don’t appreciate how integrated the global economy is read these comments from Brian Gray, the chief underwriting officer at Swiss Re.
He is expecting a $600 million loss to Swiss Re as a result of the flooding and says, “The floods have forced the closure of several major industrial estates. For weeks, factories were under several meters of water and have been unable to produce and supply key parts to global car manufacturers or digital and electrical goods manufacturers.”
The reinsurer said the industrial facilities affected are mainly factories belonging to and supplying Japanese companies and, to a lesser extent, Western-based international companies. “Thailand is a significant link in the global manufacturing industry supply chain and is the world’s second-largest producer of hard disk drives for computers.”
We monitor the news closely and were not surprised to see production interruption at the Japanese automakers as a result of the Thai flooding. But we had no idea that Thailand was the second largest producer of computer hard disk drives. Talk about a ripple effect! No doubt when the computer manufacturer Q4 earnings reports come out next month we will be hearing more about it.
Do you think that a client of yours who buys coverage through a delegated authority facility could be a key cog in a global supply chain somewhere? If you don’t think so then you are probably wrong. Could you even begin to find out even if you wanted to? If you had the CATEX Bordereau Program Management System you could quickly add a required data field asking clients to identify downstream businesses that could be affected by a business interruption and what the value of the loss would be for a week, two weeks or a month. That would be invaluable data and would offer many product possibilities for both your client and the businesses potentially affected.
Our friends at Lloyd’s have put together a very helpful package of information for anyone involved in delegated authority business. The Coverholder Toolkit is probably most helpful to Lloyd’s coverholders but there is a wealth of information included that will interest anyone involved with binder authority or program business.
At the Lloyd’s Coverholder Technology Conference in London, at the end of September, we heard much discussion of this toolkit and it has lived up to its billing so far. You can link right to it by clicking the Coverholder Toolkit icon above.
We want to wish all of you a Happy Holiday Season and the best for 2012. It’s hard to believe that this season is upon us already.