Security risk

What do you do when you are bound by law to educate thousands of employees in less than a year on privacy standards contained in a 350-page, fine-print document?If you're like most health insurers, you spend a lot of time interpreting the privacy rules of the Health Insurance and Portability and Accountability Act (HIPAA), you boil them down to simplified policies and guidelines, you determine what employees need to know to perform specific jobs, you develop a training program, and you begin instruction.

"No more easy money for criminals, just hard time." With those words, President George Bush signed into law the most sweeping corporate reform legislation since the New Deal of the 1930s.Under the new law, the stakes for white-collar crime have increased dramatically, with the CEOs and CFOs of America's corporations now required to attest under oath to the accuracy of their financial statements under the threat of million-dollar fines and prison sentences.

To most insurance companies, knowing the identities of their customers has always been motivated by commission-that is, the more insurers know about them increases the rate at which they can market additional services.Following the passage of the USA PATRIOT Act in late 2001, carriers are gleaning details about their customer base motivated by omission-that is, how to eliminate unsavory customers whose sole objective is setting up insurance accounts to break the law.

While the plenary body of the National Association of Insurance Commissioners (NAIC) gave its final approval to the proposed interstate compact at its Winter meeting in San Diego, opposition and questions raised in the debate bode for the process taking years rather than months.The proposal now goes before numerous organizations representing state lawmakers and policymakers before a final package to create a single national filing system for life products will be presented to state legislatures.

Still in its infancy, knowledge management technology has the potential to help carriers deliver a consistent brand image and high-impact advertising to target audiences.Advocates of knowledge management systems have long pointed to the many benefits insurance carriers could derive from the technology, but one area frequently overlooked is brand image.

Throughout much of the 1990s, the road to auto insurance accountability and compliance in the state of New York was in disarray. That's because throughout the decade, New York state officials and auto insurers watched with helpless dismay as a growing number of New York motorists circumvented a mandatory auto insurance law. They did this by carrying fraudulent insurance identification cards.In many instances, using a fake ID will only take the illegal user so far. But in New York, the inability of state databases to crack down on the activity enabled card carriers to run amok. With detection difficult, motorists saw an opportunity to create their own proof-of-insurance cards.

Faced with a whole new ball game of unprecedented federal backup for catastrophic losses caused by a terrorist attack, the U.S. insurance industry, including underwriters, reinsurers and brokers, are scrambling to interpret the new legislation and revise their underwriting programs to deal with the issues presented by the new law.The Terrorism Risk Insurance Act of 2002 will take effect upon date of enactment and provides for a sliding scale of government backup over its three-year life. While there seems little disagreement that the backstop will increase availability of terror risk coverage, its effect on pricing remains to be seen.

Although the use of credit scores as an underwriting tool for auto and homeowners insurance is now an established practice, consumer groups, legislators and regulators still have not had their final say on the matter.Indeed, state lawmakers across the nation can look forward in 2003 to consideration of numerous measures to curb the practice-and in some cases outright ban it.

In law enforcement, the most egregious acts of theft are often solved more quickly than cases of simple theft. That's because law enforcement officials often devote vast resources to bringing high-profile crimes to justice.High-profile insurance fraud also is often solved expeditiously for the same reason-the resources committed to the big-dollar cases are significant. But when it comes to common fraud, insurers have found that the jury's out on their overall ability to identify and curb it.

Insurance industry lobbyists acknowledge that the financial services industry could come under some expensive and restrictive privacy compliance rules next year if Congress follows through on plans to hold extensive hearings on the issue.Indeed, Congress could decide to write new laws mandating that consumers be allowed to "opt-in" to sharing of financial data given to one unit of a financial services company with another unit. Currently, the policy at both the state and federal level is that consumers have the right to "opt-out" of companies' cross-marketing programs.

While in flight to Boston on the morning of Sept. 11, 2001 and hearing news of the horrific attacks in progress, Hemant Shah's first concern was the fate of the business associates he met with the previous day at the World Trade Center.But as the founder of Newark, Calif.-based Risk Management Solutions (RMS), he must have realized the seismic change the field he helped pioneer-catastrophe modeling-would soon experience.

Before the days of integrated marketing programs, independent agents or their customer service representatives picked up the phone and called customers in the hopes of retaining the business of the agency's most profitable clients.Times have changed. Today, it's too expensive and time-consuming for an agency to hunt and peck its way through a large client list looking for its most profitable customers-then conceive ways to keep them on board. And it's too expensive for agencies to have a marketing arm or customer service representatives who do anything more than sell, sell, sell.

As the needs and demands of e-business evolve, companies are faced with an emerging security threat. And it's not a new hacking technique or vulnerability in a particular technology.It's complexity-the complexity of technologies, the complexity of balancing business and security demands, and the complexity of relationships among user communities.

Until last month, the strongest positions regarding modernization of insurance regulation have been proposals for an optional federal charter for insurance companies. But another compelling-and opposing-perspective entered the debate in August, when the Alliance of American Insurers published a report that firmly argues against federal regulation for property/casualty insurance."Optional federal chartering entails a significant risk of adverse and unexpected consequences, no matter how carefully and narrowly initial legislation is crafted," the report concludes. "The better and more prudent policy is to reject federal chartering and encourage and support further modernization of state regulation."

To many insurance carriers, back-end processing of small-business insurance through accurate underwriting has long been a source of frustration.On the front end, providing thorough servicing for demanding business policy owners can represent another challenge. In the middle, furnishing independent agents with automated tools to build small-business volume has seen its share of tribulations.

A major step in streamlining agent licensing across the states was taken in August when the National Association of Insurance Commissioners (NAIC) made the preliminary determination that at least 35 states had met the reciprocity requirements for nonresident producer licensing under the Gramm-Leach-Bliley Act (GLBA).At press time, the Kansas City, Mo.-based NAIC was expected to officially certify those states at its meeting in September in New Orleans.

Ever since Gramm-Leach-Bliley passed in November 1999, momentum has been building to reform the state-based insurance regulatory system. The landmark legislation, which allows banks, insurers and brokerages to merge and compete with one another, also ordered the states to enact uniform producer licensing laws by November 2002 (see "Here Come The Feds, May 2001).Yet, although the law mandates uniform producer licensing, it essentially left the rest of insurance regulation to the states. And, according to many in the industry, the state-based system puts insurers at a disadvantage-especially when they're trying to compete nationally with banks and brokerages.

Most insurers and reinsurers espouse a belief that new business doesn't always equal good business. To most insurance providers, the honeymoon period with a new customer ends as soon as claims activity intensifies.

For years, paper-based processing for a commercial insurance policy has made it exceedingly difficult to assess risk and issue accurately priced coverage. Moreover, many insurers and reinsurers have had a hard time fully analyzing client data due to the lack of disclosure by the client.But Schaumburg, Ill.-based Zurich North America launched in February a Web-based solution-called the Business Interruption Coverage calculator-which will be an integral part of its underwriting procedure for business interruption coverage.

As two bastions of tradition, neither the legal profession nor insurance carriers eagerly jumped onto the Internet bandwagon in the late 1990s.But now, the dust of the dot-com wreck is settling, and carriers and their counsel are beginning to see where it makes sense for them to use online technology to manage legal costs and improve collaboration.