Category Archives: Insurance

Employment practices liability considerations in the #MeToo generation

Public attention from U.S. athletes and celebrities and movements like #MeToo and #TimesUp have drawn increased awareness of—and action around—sexual harassment.

As employers work to improve existing sexual harassment training and policies, they continue to find themselves dealing with the repercussions of past incidents, often through lawsuits or insurance claims that are typically covered under their employment practices liability (EPL) policies. These policies provide employers with liability insurance covering wrongful acts arising from the employment process, one of the most common of which is sexual harassment.

When pricing for an EPL policy, actuaries typically use historical claims experience to predict the emergence of claims in the future. Similarly, actuaries estimate incurred but not reported reserves on existing claims to account for growth in the claim value expected above that contemplated in the claims adjusters’ case reserves. To the extent that trends in claim frequency and severity are changing, the historical claims experience may no longer be an accurate predictor of future claims experience. It is essential for companies writing these policies to consider this level of uncertainty in their estimates.

Legislative changes are also introducing a level of uncertainty to claims that may affect pricing and reserving in the future. And now more than ever, companies must find the right balance of coverage and retention limits as well as establish a plan and budget for prevention. This includes sexual harassment training, policy establishment, and enforcement. With this evolving climate, it is also essential for employers to closely monitor their EPL coverage.

To read more about the current state of EPL in the age of #MeToo, read Maigh Wright’s article here.

Market risk benefits: What is in scope?

The Financial Accounting Standards Board recently approved changes to the accounting for long-duration insurance contracts. This included the creation of a new category of benefits called market risk benefits. This paper by Milliman consultant William Hines discusses market risk benefits and contract features that might be within their scope.

How can advancements in predictive analytics help identify reinsurance workers’ comp claims early?

Developments over the past few years in predictive analytics are providing opportunities to improve the early identification of claims with a higher likelihood of piercing workers’ compensation reinsurance layers. Over the past decade or so, the field of claim analytics has moved from performing forensic work on closed claims to analytics that can identify at 60 days from the date of injury (or sooner) claims with a high likelihood of exceeding a retention level.

While an excess loss is obvious for some catastrophic claims, the buildup to the attachment point is less obvious for many excess loss claims due to the subtleties of compounding factors. A significant challenge with early identification analytics for claims that have not reached an excess loss attachment point is that the administration of the claim is often handled by several specialists without any single participant noticing the aggregation of costly factors.

A recent development in predictive analytics is the use of machine learning software that extends the principles of conventional multivariate analyses. In contrast to the conventional analyses, these advanced analytic methods are not limited to linear relationships. Another development is the extraction of text information from claim adjusters’ notes, nurse care manager reports, and medical reports.

The advances with machine learning software and text mining algorithms are necessary tools for the early identification of claims most likely to become excess loss claims. To learn more about how analytics has affected the early identification of claims, read this article by Lori Julga and Phil Borba.

Over 90% of homes in New Jersey and New York could see cheaper premiums with private flood insurance

Milliman has announced the results of a new, independent analysis showing what a private flood insurance market could look like in New Jersey and New York. The study, which was conducted in collaboration with Risk Management Solutions, Inc. (RMS), modeled premiums for most single-family homes across the two states. It also analyzed the potential effect a private market could have on take-up rates—that is, the percentage of consumers eligible for flood insurance who then purchase it.

The report includes additional context for the findings in light of the changing rating structure of the National Flood Insurance Program (NFIP). The study also explores the potential ramifications of “cherry-picking”—the concern that private insurers might target only attractive risks, leaving the NFIP underfunded.

Key findings from the study include:

• Across each state, approximately 94% of homes in New Jersey and 96% in New York could see cheaper premiums with private insurance than with the current NFIP structure.

• In New Jersey’s high-risk zones (NFIP’s Special Flood Hazard Areas), 85% of homes could see premium rates cheaper than the NFIP, while in New York, 72% of homes could see premium reductions.

• Over 360,000 homes could be newly insured for flood if just 10% of homeowners outside high-risk zones purchased cheaper policies in a private market.

• Of the vast majority of homes located outside high-risk zones, approximately 94% (New Jersey) and 95% (New York) could see private insurance premiums as low as $250 annually.

“Hurricanes Harvey and Irma just last year, and Sandy before them, demonstrated the devastating financial effects flood can have on those who are not sufficiently insured,” says Nancy Watkins, a principal and consulting actuary at Milliman and coauthor of the market feasibility study. “As the NFIP begins to modernize its rating structure, Milliman’s study sheds light on how a private market could work in conjunction with the federal program to reduce premiums for many consumers, provide more choices, and increase coverage across New Jersey and New York.”

“As demonstrated in this study, an established private flood market brings with it many benefits, including the opportunity to close the insurance protection gap in the United States,” says Holly Widen, RMS Product Manager, Americas Climate Models. “There are ample opportunities for private insurers to offer competitive coverage in the market, but a strong understanding of the underlying flood risk is critical to maintaining their profitability.”

The study reflects the market of single-family homes in those states, not only those who are currently purchasing flood insurance from the NFIP, and the modeled NFIP premiums do not include the effects of grandfathering. The estimated private insurance premiums were developed using RMS catastrophe model results and reasonable assumptions selected by Milliman. To view the complete report including additional findings and critical assumptions,visit

New Milliman report maps Asia’s life insurance regulatory landscape

Milliman has released its latest report entitled ‘Regulatory diversity across Asia.’ The report is a compilation and insightful analysis of current regulations applicable to life insurers across 14 Asian markets. It provides an analysis of the life insurance regulations in Brunei, China, Hong Kong, India, Indonesia, Japan, Malaysia, the Philippines, Singapore, South Korea, Sri Lanka, Taiwan, Thailand and Vietnam.

The report includes an overview of the main regulations in these 14 markets, governing the following areas:

• Products and pricing
• Distribution
• Reserving
• Capital and solvency requirements
• Investments
• Policyholder protection
• Taxation
• Enterprise risk management (ERM)

Understanding the different stages of evolution of the regulatory regime across Asia will help life insurers, and other organisations with an interest in the life insurance industry, get a better perspective and help them in strategic business planning, market entry, mergers and acquisitions (M&A) and cross-border activities in these markets.

A few observations from the report:

• The markets in Asia are still very much ‘rules-based’ (as opposed to ‘principle-based’). Detailed rules and regulations govern different aspects of the industry.
• Regulators are increasingly looking at areas such as customer protection and meeting policyholders’ reasonable expectations (PREs), although these areas are still at a nascent stage in many of the markets.
• There is also an increasing focus on strengthening the governance environment through the Appointed Actuary/Chief Actuary systems and the role of board committees.
• There is a clear trend towards adoption of risk-based capital (RBC) regimes and the enhancement of such frameworks, wherever already adopted.
• The regulations in several markets are changing rapidly.

To read the report, click here.

EIOPA’s Insurance Stress Test Exercise 2018

In May, the European Insurance and Occupational Pensions Authority (EIOPA) launched its fourth stress test exercise for the 42 largest insurance groups in the European insurance sector. The 2018 EIOPA stress test exercise aims to assess the vulnerability of the EU insurance sector and comprises three specific hypothetical adverse scenarios which are informed by current market conditions, the risk climate and their potential impacts on the insurance sector.

This paper by Ian Humphries and Fred Vosvenieks looks into the three stress scenarios, the calculation methodology requirements, reporting timeframes and disclosure requirements, whilst highlighting why non-participating insurers may find the exercise and the subsequent results of interest.