How can insurers enhance microinsurance offerings?

Michael McCord, managing director of the MicroInsurance Centre at Milliman, recently spoke with A.M. BestTV at the International Insurance Society’s Global Insurance Forum, which was held in Singapore. In the interview, Michael discusses how important it is to understand what microinsurance clients need in order to provide them with the right risk management tools. He adds that insurers need to become more flexible and understand not just clients and products, but also the back office administration.

Major flooding points to record prevented planting payments in 2019

Drenching rains and lingering flooding have devastated the Midwest region’s agricultural economy and left many farmers with a difficult choice of deciding whether it is worthwhile to plant this growing season. Their decisions will have a substantial impact on insurers’ crop insurance losses. How large could these losses be and where will they originate? A growing amount of data points to record insured prevented planting (PP) losses.

With the heavy rains this spring, many states are expected to develop double-digit PP loss ratios, which will result in overall diminished underwriting gains or possibly losses. How leveraged the “all other” loss ratios will be in many states still depends on a number of factors, but PP losses are expected to be substantial. This means that “all other” losses will need to be minimal in many states to maintain double-digit underwriting gains in these states.  While it is too early to predict 2019 results with certainty, the underwriting returns posted in the last several years look like a fleeting possibility.

In this paper, Milliman’s Carl Ashenbrenner discusses how farmers purchase crop insurance, what PP losses may look like for 2019, and what the overall industry impact could be.

Critical Point: Key takeaways for insurers managing the US GAAP Targeted improvements

Insurance companies that issue long-duration contracts (LDTI) can expect volatility, increased data and disclosure requirements, and the potential for a new market for reinsurers thanks to recent accounting changes, according to Milliman’s William Hines and Francois Dauphin. In the latest episode of Critical Point, Milliman’s life insurance actuaries discuss key takeaways from the Financial Accounting Standards Board (FASB) Targeted Improvements to the Accounting for Long-Duration Contracts (LDTI), which will require significant risk management and has a go-live date of January 2021.

To listen to the entire podcast, click here. Also, to hear past Critical Point episodes, click here.

5 strategies to capitalize on the LDTI extension

On July 17, 2019, the Financial Accounting Standards Board (FASB) announced it will extend the timeline to implement the Targeted Improvements for Long Duration Contracts (LDTI), moving the go-live date to January 1, 2022.  The original timeline was aggressive, forcing companies to address several hard realities to meet the deadline. With an extra year, how should companies respond?  Below we list five strategies to capitalize on the extension, ranging from conservative to aggressive.

  1. Reduce risk. With the original timeline, a misstep or an unknown delay could have potentially put compliance at risk. This risk still exists even with the extension.  Companies may want to stick with the current implementation plan and be operational and compliant as soon as possible.  Then they can work incrementally to improve upon a compliant foundation.
  2. Reduce cost.  For many companies, the original timeline required costly approaches to meet the deadline.    Project plans were highly parallelized, often with throw-away work required.  Further, additional external resources were brought in to staff the multiple work streams. With extra time, companies can hire, redeploy, or pursue other options to reduce the need for external resources.  More efficient project plans with less redundancy can also be pursued.   Companies can adjust their plans to reduce cost with the same target objectives.
  3. Evaluate wider range of options.  Limited time meant that companies could not fully evaluate all options on transition approaches, cohort definitions, and other methodology choices.  With extra time, companies can now choose to do more analyses to understand the financial impact of various methodology levers and optimize the approach.
  4. Focus on strategic value. The original LDTI timeline put pressure on companies to take shortcuts and other ”triage” approaches that were necessary for compliance but were not consistent with a long-term, strategic implementation.  With the extension, companies can now choose to pursue implementation approaches that will deliver a compliant solution, but with more strategic value.
  5. Paradigm-shift. Taking the prior strategy a step further, some companies may choose to change some or all of their approach to LDTI, create a new trajectory for their implementation, and dramatically reshape the target end-state.  With the prior timeline, some implementation options (e.g., migrate to a new valuation, data platform, etc.) could not even be considered.  With the extension a company could choose a paradigm-shift in their approach. Clearly this is still a bold move, but that option is back on the table for consideration.

The original timeline was a wake-up call that spurred the industry to action.  LDTI is now firmly in focus, with the substantial implementation challenges much better understood.  This is a unique opportunity.  Companies need to decide how they will attempt to capitalize on the FASB extension:

A conservative approach where the LDTI implementation is pursued ahead of schedule may not seem sexy, but if there are unknowns that cause delays, that prudence may be rewarded.  Reducing cost is also always is good idea, and in many situations is the most certain way to add value.

On the other hand, a practical approach where the core implementation plan remains intact, but additional analysis is conducted to better understand the methodology choices, explain impacts, and educate leaders and senior management will pay dividends for many companies who were feeling panic at the thought of standing in front of the investor community to explain results.  If value from operational efficiencies is not obvious, putting effort towards additional analysis may drive the greatest returns through better methodology choices and deeper understanding of LDTI financial drivers.

Finally, an aggressive approach to implement LDTI not only to comply with the new requirements but create systems and processes that generate value through efficiency and insights across all actuarial and reporting functions has the potential to drive value for years. Armed with greater information and understanding, and offered another chance to choose their path, some may attempt to try to leapfrog their peers with new technology, new systems, new approaches to data or other aggressive initiatives.

The right answer will depend on each company’s situation, and mix-and-match strategies that combine two or more of the options are also possible approaches. While the strategies each entail some risk, one thing is certain – complacency is not an option.

Insurtech innovations create new risks

While the number of newly founded insurtech companies decreased in 2018 and the early months of 2019, insurtech funding for 2018 continued to break records by exceeding $4.5 billion and funding in 2019 is on track to exceed $5 billion. This suggests that the industry is maturing and establishing a strong foundation within the insurance world.

The increased funding of insurtech companies shows that the insurance industry will continue to evolve. Companies seeking new opportunities to take advantage of AI, big data, and autonomy will need to enhance existing risk management approaches to account for new risks created by innovation. In this paper, Milliman’s George Barrett explores innovation driven by insurtech within the global insurance market. He also considers the emerging risks faced by insurance companies.

Fixed indexed annuities survey

Milliman conducted a new broad-based survey on fixed indexed annuities (FIAs), capturing historical data for key industry competitors, as well as company perspectives on a range of issues pertaining to these products into the future. Twenty-two companies submitted responses. According to Wink, Inc., these companies represent around 78% of the FIA industry, based on sales year-to-date June 30, 2018. Milliman consultants Tim Hill and Sue Saip provide more perspective in this report.