COMPLIANCE DRIVING SECURITY IN INSURANCE INDUSTRYRegulatory compliance has taken the lead as the primary driver of information security in the insurance industry, according to a new survey by Ernst & Young, New York.

The sheer number of regulations and the consequences of not complying with them has escalated information security to the boardroom. Nearly four-fifths (79%) of insurance industry respondents to the survey cited compliance with regulations as the primary driver of information security in their companies during the past year.

Asked to rank the top three type of regulations or requirements that impact their company's information security practices during the past year, insurance industry executives said internal controls (67%), privacy (58%) and "industry-specific regulations" (38%).


Boston-based AIR Worldwide Corp. (AIR) and Risk Management Solutions (RMS), Newark, Calif. (AIR) conducted separate analyses of the potential impact on insurers of the Terrorism Risk Insurance Extension Act of 2005. The Act was signed into law in December and extends the Terrorism Risk Insurance Act of 2002 (TRIA) through the end of 2007.

To illustrate the legislation's impact, AIR modeled three scenarios based on the portfolio of a typical medium-size, multi-line property and casualty company. The sample company, with $2 billion in total annual premiums, is assumed to have a higher concentration of exposures in major cities. All losses are estimated using AIR's Terrorism Loss Estimation Model.

The first scenario results in an insurance industry loss of almost $12 billion and the company retains 100% of its $230 million total loss, since the deductible will not be reached in any year; the second scenario results in a $40 billion loss for the insurance industry and the company would retain $345 million of its $760 million total loss in 2006, more than $400 million in 2007, and all $760 million after the expiration of TRIA; the final scenario results in an $85 billion insured loss for the industry and the company would retain $407 million of its $1.4 billion total loss in 2006, nearly $500 million in 2007, and the full $1.4 billion after the expiration of TRIA.

"The impact of these changes on insurers will vary depending on the severity, location and timing of any future attack and on an individual insurer's actual book of business," says Jack Seaquist, senior manager at AIR. "Therefore, it is essential that insurers re-evaluate their own terrorism risk assessment strategies with respect to industry best practices."

RMS also performed a number of analyses for the Congressional Budget Office to assess the absolute risk of terrorism and quantify how the terms of the renewal of the Terrorism Risk Insurance Act (TRIA) would shift the relative share of the risk from the government to the insurance industry. RMS analysis shows that while TRIA provides solvency protection in extreme events, it is not an insurance industry subsidy.

Based on the new TRIA terms, over 90% of the RMS modeled average annual loss would be retained by the industry. If an attack occurred, there is also less than a 10% chance that it would cause the industry deductible to be reached, since only the most extreme, low-probability attacks will cause losses in excess of $30 billion.

"Since the introduction of TRIA in 2002, risk management practices have advanced significantly, and virtually all of our clients with a material amount of terrorism exposure are actively managing their risk in an increasingly sophisticated and broad manner," says Peter Ulrich, senior vice president of enterprise risk management.


Chicago-based Blue Cross and Blue Shield Association (BCBSA) is developing a bank to help Blue Cross and Blue Shield (BCBS) companies give consumers greater financial options and simplify how they direct their healthcare spending. Blue Healthcare Bank will facilitate administrative and financial support for BCBS companies and their members enrolled in consumer-directed health plans (CDHPs) or in health savings accounts (HSAs), health reimbursement arrangements (HRAs) and flexible spending accounts (FSAs).


A new car security system that identifies car owners through their mobile phones is being touted as a revolutionary way to fight car theft. Auto-txt, developed by Richmond Design & Marketing Group (RDM), a Coventry, U.K.-based automotive supplier, immediately identifies a car as stolen if the car is started with the keys but the mobile phone is not present. When the police are following a stolen car, Auto-txt enables them to track the vehicle and prevent it from restarting using remote wireless technology once the vehicle ignition is turned off.


In response to insurance regulators considering a national catastrophe insurance program, the American Insurance Association (AIA), Washington, D.C., urges caution. "AIA urges regulators and other public policymakers to exercise caution when discussing any greatly expanded potential role for the federal government or state governments specifically with regard to whether catastrophe funds are necessary or appropriate," says Tammy Velasquez, AIA vice president of state affairs. "The private sector insurance mechanism comprises many different-and often interconnected-parts that must function smoothly in order to work properly and create a robust market for personal and commercial property insurance consumers. Hastily imposed changes could cause the system to fall apart, rather than continue to endure." Short of creating an extraordinarily complex new government remedies, AIA believes Congress and states should advance proactive solutions to reduce and manage catastrophe exposures from hurricanes, earthquakes, seasonal storms, and other natural catastrophes. This agenda should include support for strong building codes, the use of computerized catastrophe modeling to measure risk, and support for insurance regulatory environments that foster competition among insurance companies.

Register or login for access to this item and much more

All Digital Insurance content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access