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Data Protection – the growing risk for the Healthcare industry

BMS Professional & Financial Services Director, Phil Murphy, discusses how significant data protection is to the healthcare industry:

Healthcare providers face rising costs and pressures from politicians to cut budgets, while at the same time they are waking up to the significant cost a data breach can have on their business and reputation.

The healthcare industry currently collects and stores massive amounts of private data, from a wide range of individuals, including credit card numbers and social security numbers. This can include details belonging to government officials, politicians and celebrities. This data is easily lost or stolen by individuals seeking to gain financial advancement through the use of this data. This means the healthcare industry now sees this as an additional exposure that needs to be considered when looking at an insurance programme.

It is very much a growing problem. After a few high-profile incidents of breaches publicised in the media and the resultant cost of those profile breaches to the healthcare industry –  has had a massive impact on bottom line revenues.

Hospitals are places where data is often at risk. The physicians within the hospital systems generally use laptops or handheld data palm readers which store a lot of data. They are very easy to lose, and sadly with the laws in the US, once you have lost something like this, you have to then involve the regulators and everyone else in making sure that the data breaches are communicated to the public and that credit monitoring and various steps are put in place to ensure that the data is protected and that affected individuals are recompensed for it.

With the HITECH law that has just been introduced, there are very severe regulatory sanctions and penalties that can be imposed for loss of data. They can fine you up to $25,000 per patient record, plus an additional $100 per day for every individual affected that it goes unreported.

On top of that, there is the reputational risk and harm that you can do to your own goodwill by the loss of data. The attendant crisis management costs associated with that can be quite staggering.

Overall, the need for the insurance industry to offer protection to the healthcare industry in case of a data breach or loss has never been more prominent and it takes the right kind of broker to provide tailored products that will amply cover all areas of potential loss.

Click here to access the full BMS Intangible Asset Protection site and Phil Murphy’s Video discussing Data Protection & the Healthcare Industry.

A.M. Best 2012 Review & Preview Conference – P&C Highlights

Brett Bordelon, VP BMS Analytical Services, discusses the recent A.M. Best Review & Preview Conference and below is his summary report from the event.

A.M. Best 2012 Review & Preview Conference – P&C Highlights. This year, A.M. Best held its Review & Preview Conference on March 12-14 in Naples, FL. At the conference, A.M. Best and other insurance industry leaders provided their insights on the industry’s performance in 2011 and viewpoints on where the industry is heading in 2012. Senior A.M. Best analysts also gave presentations rich with insights on the rating process and rating methodologies.

Click on the link to read BMS’ P&C-focused recounting of many of the conference’s highlights.

Click here for our Analytical Services information page.

The Med Mal Reform Bill

Urban Friesz, BMS’ Vice President of Claims discusses his research on the recent med mal reform bill that passed in the US House of Representatives last week:

The US House of Representative passed legislation on March 22, 2012, that the Congressional Budget Office projects will reduce direct and discretionary spending by $46.6 billion over the 2013-2022 period (H.R. 5, Help Efficient, Accessible, Low-Cost, Timely Healthcare (HEALTH) Act of 2011).

The bill, labeled H.R. 5, contains significant implications for medical malpractice insurance carriers and, in a prior form, could have meant big changes in how insurance is regulated in the United States. The McCarran Ferguson repeal amendment, which is part of the broader bill, has since been narrowed to exempt property and casualty and life products. The McCarran-Ferguson ACT of 1945 (15 U.S.C.A. § 1011 et seq.) recognized authority among the states to regulate the business of insurance unless federal law specifies otherwise. Broad repeal of this act would have likely meant larger regulatory oversight by the federal government under the Commerce Clause of the US Constitution.

The Bill Summary & Status published on the Library of Congress website lists the following elements of the bill:

• Sets conditions for lawsuits arising from health care liability claims regarding health care goods or services or any medical product affecting interstate commerce.

• Sets a statute of limitations of three years after the date of manifestation of injury or one year after the claimant discovers the injury, with certain exceptions.

• Limits noneconomic damages to $250,000. Makes each party liable only for the amount of damages directly proportional to such party’s percentage of responsibility.

• Allows the court to restrict the payment of attorney contingency fees. Limits the fees to a decreasing percentage based on the increasing value of the amount awarded.

• Allows the introduction of collateral source benefits and the amount paid to secure such benefits as evidence. Prohibits a provider of such benefits from recovering any amount from an award in a health care lawsuit involving injury or wrongful death.

• Authorizes the award of punitive damages only where: (1) it is proven by clear and convincing evidence that a person acted with malicious intent to injure the claimant or deliberately failed to avoid unnecessary injury the claimant was substantially certain to suffer; and (2) compensatory damages are awarded. Limits punitive damages to the greater of two times the amount of economic damages or $250,000.

• Denies punitive damages in the case of products approved, cleared, or licensed by the Food and Drug Administration (FDA), or otherwise considered in compliance with FDA standards.

• Provides for periodic payments of future damages.

As with any political issue, there are arguments for and against tort reform. In theory, constricting the universe of exposure reduces uncertainty and allows medical liability insurers to more accurately price insurance for practicing physicians and medical providers. Many argue that this reduction in risk also discourages practitioners from ordering unnecessary tests and procedures that serve to protect them from liability in the event of a lawsuit for medical malpractice (defensive medicine). Opponents of the bill argue that establishing caps on liability awards denies victims of medical negligence fair compensation for their injuries. They also refute that these reforms significantly reduce the cost of providing medicine.

As of March 28, 2012, govtrack.us predicts HR 5 has a 13% chance of passing congress. The related bill in the Senate S 1099 is showing an 8% chance of passing.

If you have any comments/questions about my blog or would like to contact me, please email: urban.friesz@bmsgroup.com

Disclaimer: This article and the Website content that can be linked to through this article are offered for informational purposes only. The article and linked-to Website content are made available without warranty of any kind. They are not offered or intended as advice on any specific facts or circumstances, and you should not rely on them as a substitute for independently obtaining such advice.

Brand value: The future is Apple

The big news this week is that Apple has joined the highest echelons of corporate life with a market capitalisation in excess of $500 billion. It is now worth (based on this measurement at least) more than Microsoft and Google combined, or about the same as Poland (GDP $530 billion).

Perhaps, slightly surprisingly is that Apple’s market capital is not based solely on brand. It holds $30 billion in cold cash and $67 billion in long-term investments. It also has hard assets of $138 billion. However, that still leaves $265 billion in intangibles and perfectly illustrates the challenge facing risk managers today and in the future.

Historically, insurance has been purchased to cover buildings, contents, stock, equipment and even traditional liabilities such as Employers Liability of Public/Products Liabilities. This reflected the value of those tangible assets. But as we have commented on elsewhere on our site, these days there is so much more value in intangible assets (such as intellectual property rights and goodwill) than in tangible assets. And insurance just hasn’t kept pace with the change in where the majority of the value lies.

Most risk managers can lay their hands on their “All Risks” material damager and business interruption insurance, but how many have an “All Risks” Intangible Asset Protection? The challenge for risk managers and brokers alike is to design insurance programmes to provide this protection. It may require new tools (like Data Breach coverages, Intellectual Property protection and Cyber Insurance) and new understanding, but if risk managers really do want to live up to their name it needs to be tackled right now.

China’s Cyberwar Skills

Rupert Alabaster, Director BMS Professional & Financial Servicesresponds with his thoughts following  the  US report on China’s cyberwar skills, a risk to military  – profiled by BBC News, 8 March 2012. Rupert will be establishing a regular blog on the themes of Cyber Risk, Intangible assets and the insurance market.

There is more and more talk of the next confrontation being fought in cyberspace rather than with soldiers. Certainly, there is a concern that key infrastructure from utilities and government through to emergency-responder networks and banking systems maybe targeted.

And it will not obviously be one nation state versus another, at least on the surface. Rather all sorts of cyber groups may be at work infiltrating systems, manipulating, stealing and changing data.

As more and more companies become aware that it is not just a lone hacker sitting in their bedroom that could be interested in what is on their servers, there is a much heightened focus on cyber security. In turn, risk managers are being asked to buy cyber insurance as protection against security breaches. But – and it is a big but – cyber insurance policies are not all the same and few, if any, are specifically designed to protect against a coordinated attack on behalf of a State.

The problem is that most cyber policies carry a version of the traditional War/Terrorism exclusion. They vary in their language but generally the intent is not to cover coordinated State or politically motivated attacks. And with the US declaring that State coordinated cyber attacks could constitute an act of war (BBC News, 1 June 2011) you can bet that underwriters will look closely at this exclusion in the event of a big claim.

Cyber is not only the new front for war and criminal activity, it is also at the vanguard of new risks being identified and insurances designed. It is early days and the present crop of coverages have a long way to go before risk managers can sleep easy at night.

Click to view the BMS Wholesale, Professional and Financial Services homepage

Bad Faith Claims Handling for Natural Disasters

BMS’ Vice President of Claims, Urban Friesz discusses bad faith claims handling for natural disasters. He will be establishing a regular client services and claims themed blog.

In light of the immense storm activity we experienced in the South and Midwest last week, I thought it might be timely to revisit an article titled 3 Steps Insurers Can Take To Avoid Class Action Litigation Stemming From Natural Disasters, which was published in October 2011 on Property Casualty 360°, a National Underwriter Website.

As a reinsurance claims specialist, the part of the article that drew my attention dealt with claims for bad-faith. Most treaty reinsurance agreements include coverage for the insurer’s liability for loss or damage arising because of certain failures of a company in handling a claim. Two of the three recommendations included in the article involve claims handling. As a general rule, claims handling methodology should satisfy fair claims handling practices as required by each state as well as meet the prescribed duty of care required of the relationship between policyholder and insurer. A handy 50 State guide for claims handling practices assembled by Lynch & Associates can be found at Claim-Handling Guidelines.

Insurance companies typically have claims handling manuals which set forth acceptable claims handling practices and procedures in the acknowledgement, investigation and settlement of claims. In addition to these standard elements of the claims process, these manuals often prescribe additional steps to be taken in the event of a full or partial denial of coverage or other claim dispute. So, as long as you have a sound claims handling manual and your claims staff adhere to these practices, you should be good right?

Well….what about the scores of independent adjusters and appraisers that get involved when disaster strikes? Because of the difficulty in planning and deploying claims resources for sudden catastrophic events, most insurance companies rely heavily on local or national independent adjusting firms to help adjust catastrophe claims. What happens when these adjusters don’t adhere to a company’s claims procedures or fail to operate within the scope of the service agreement between the insurance company and the adjusting firm? What happens if the “failure” in claims handling mentioned above is attributed to actions of an independent adjuster?

The Vermont Supreme Court stated in Hamill v. Pawtucket Mutual. Ins. Co., No. 2005-025, 2005 WL 3556694 (Vt. Dec. 30, 2005) that, because the conduct of an adjuster acting within the scope of his or her authority as agent for the insurer is imputed to the insurer, the insurer is subject to liability for the adjuster’s mishandling of claims in actions alleging breach of contract or bad faith. An action for breach of contract or bad faith stems from the terms of the insurance policy itself or the implied covenant of good faith and fair dealing which commonly exists in the contract between an insured and his insurer. Absent privity of contract with the insured, the independent adjuster does not owe an independent duty to the insured unless the insured is suing for an intentional tort such as fraud or deceit (Dumas v. ACCC Insur. Co., Eleventh Circuit Court of Appeals, Case No. 09-13027). As a result, the insurer is often on the hook for activities of an independent adjuster when they lead to bad faith allegations.

It’s hard to think about bad faith claims handling in light of the devastation and tragedy experienced across parts of the country last week. Insurance companies are diligently deploying resources and capital to help individuals and communities in need as a result of these storms. Nonetheless, taking a few moments to review your service agreements with independent adjuster firms and formalizing expectations may save you time and money later.

If you have any comments/questions about my blog or would like to contact me, please email: urban.friesz@bmsgroup.com

Disclaimer: This article and the Website content that can be linked to through this article are offered for informational purposes only. The article and linked-to Website content are made available without warranty of any kind. They are not offered or intended as advice on any specific facts or circumstances, and you should not rely on them as a substitute for independently obtaining such advice.

Raymond James & BMS Partner to offer essential Premium Line Data

BMS is pleased to announce, from Monday 21st November 2011, we will be offering access to the Raymond James Premium Line Data on our Website Media Centre and also on our daily BMS Industry Newsletter every Monday thereafter. Please see the Orange button at the bottom of the Media Centre homepage to access the data.

This Raymond James & Associates research offers up-to-date stock valuation data and insight into the market on a weekly basis bringing together essential research – at the touch of a button.

We are pleased to partner with Raymond James to offer access to our clients and people, ensuring that they have the expert advice and data they need to make decisions in this ever-more competitive market. To register for the daily BMS Industry Newsletter – please subscribe using the button on the Media Centre hompage, under the Twitter logo.

Pre-Baden Baden Review

Jonathan Morris, Managing Director of the BMS Retro team, considers the hot topics for debate at the upcoming Baden Baden Meeting.

I have been going to Baden Baden for the last four years and although relatively internationally focused, it has become an increasing important conference where after the early discussions of Monte Carlo Rendez-Vous; we finally get down to business and focus on client/contract specific topics. This concentration of market players in one location all with a focus on the renewal season ahead, to my mind makes Baden the real beginning of the new season.

BMS Re will be represented this year by myself and Georgina Glander. We will be hosting meetings between our clients and their markets. We also plan to see other existing and potential retro markets form Europe, Bermuda, Barbados and Scandinavia. These markets include hedge funds as well as traditional reinsurance.

I think the key discussions at Baden Baden will be focused around the poor results relating to the sizeable losses experienced in New Zealand and Japan earlier in the year and how these losses will impact throughout the market and potentially drive change. It is obvious that it will take more than one year to recoup such exceptional losses and to get clients’ portfolios back into the black.

Capacity is always a hot topic and this year talk will be around whether traditional or less-traditional forms of capacity emerging from capital-based market will be used to complete programs. These new players in the retro scene are good for clients, as a buyer they need a mix of traditional and capital markets to try to smooth out any volatility in pricing each year. There is an increase in choice for clients overall, be it Insurance linked securities (ILS), Industry Loss Warranties (ILW), traditional cover or capital markets.

In terms of the retrocessional market, it is early days regarding 1/1 renewals, but Baden will set the scene for the latter weeks in December when the decisions are made. Our biggest competitors are ‘net retentions’ and deductibles. For me, if retro reinsurance is too expensive; people will buy less of it and stay out of the marketplace for longer, which is not what we want.

I foresee loss reporting from cedants as growing concern for reinsurers and their retro reinsurers. Earthquake losses, in particular, take a long time to gather reliable data from, so both the Japanese earthquake and New Zealand have taken a long time to get accurate loss estimates to base any sort of pricing around.

Overall it is definitely going to be a tough renewal season for all concerned and I believe the above themes will dominate the industry conferences for some time to come.

The 3rd Annual Reactions North America Conference, Risk and Capital Management Issues, New York, September 27th 2011

There were some stimulating panel discussions at this conference, the highlight being the CEO panel, which had a great line up. I particularly enjoyed all the discussion around “when will the market turn.”

One panel member described the market as a “not yet” market, that there have been pockets of change but nothing has as “yet” had enough impact. Another panel member cautioned us about blaming others/other industries for our results.

Of obvious interest to me, as EVP of BMS’ Specialty Casualty team, was when one panel member expanded on the casualty market commenting that the casualty business looks surprising good – in spite of the depressed rate levels.

I also enjoyed the CFO panel where one debate focused on the benefits of reinsurance and whether or not it is felt the capital markets sector will displace the demand for reinsurance. One panel member was quick to comment that reinsurance does more than provide capital for their company, that it helps to de-risk as they build a diversified book and they value the reinsurance partnership with key players in the industry.

The keynote speaker raised some valid discussion points when he pushed thinking around the question; “Are we driving people/companies out of the market?” based upon the increased retentions. Furthermore, he talked about growth opportunities in this challenging market and how the real money is in the “specialties” (Practice Groups by Industry/Product). He concluded with the fact that opportunity lies in differentiated talent, that the focus of companies, needs to be on obtaining the best talent – then lead, motivate and retain them.

The MPL Market – What’s the Prognosis?

Since 2006 the Medical Professional Liability (MPL) market has become increasingly competitive, but it remains both healthy and profitable, particularly when compared to other casualty lines. The key challenge faced by the Physician Insurers Association of America (PIAA) member companies is whether they can reverse the declining trend in profitability before the market hits the unprofitable levels experienced in the early 2000’s.

BMS’s recent analysis looks at the results of PIAA member companies (who make up more than 50% of the MPL market) from 2001 – 2010 to look at where results have been and where they might be heading.

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