www.pwc.com
2012 Connecticut insurance market report Ideas, strategies and perspectives from the Connecticut insurance industry
November 9, 2012 About PwC
Although the worst of the financial crisis is over, insurers still face a challenging economic environment. Maintaining adequate capital, managing risks, retaining business, containing costs and achieving profitable growth in a highly competitive market are essential to long-term success.
As the leading provider of professional services to insurance companies, PwC has extensive knowledge of the issues, trends and challenges that matter to insurers. We use integrated teams of insurance accounting, tax, business and information technology advisory professionals to help our clients address critical business issues. Our client base includes more than 4,000 insurance companies around the world. The depth and breadth of our insurance industry experience means that PwC has the right resources to serve our clients, whatever their issues, wherever and whenever they need us. About Connecticut Insurance & Financial Services Cluster (CT IFS)
With the understanding that strong insurance and financial services sectors are critical to sustaining economic and employment growth in Connecticut, the MetroHartford Alliance developed The CT IFS cluster in 2003. The CT IFS cluster is a strategic initiative comprised of 30 corporate sponsors whose shared vision is to create competitive advantages in business attraction and retention, to assist with recruitment and education of a trained workforce, and to increase public awareness through advocacy. Leaders from business, state government and academia collaborate to foster growth among all of the industries’ segments. Introduction by Governor Malloy
November 9, 2012
As the Governor of the State of Connecticut, I am pleased to present the 2012 Connecticut Insurance Market Report prepared by the Connecticut Insurance and Financial Services Cluster and PricewaterhouseCoopers LLP. The insurance sector has a lengthy and rich history in our state, and I look forward to its continued growth.
It has been over two centuries since industry pioneers founded some of the country’s first insurance companies in Connecticut. Today, insurance is a vital sector of our economy, with Connecticut ranking #1 nationally in insurance employment as percentages of both total employment and total payroll. In addition, Connecticut insurance companies have created a supply of skilled professionals and contributed to a median state income that ranks third highest in the nation. According to Moody’s, each new insurance job adds 1.46 jobs to the Connecticut economy. To that end, Connecticut looks to expand the insurance industry not only domestically but also to a global network of customers, partners and suppliers.
My administration recognizes the significance of insurance companies to the Connecticut economy, and I am committed to improving Connecticut’s business climate and attracting and retaining top talent. Fortunately, we have several educational programs in the state that continue to provide an educated and skilled supply of human capital. My hope is that we can position Connecticut to remain an Insurance Capital for the next 200 years.
There is much opportunity in Connecticut, and we invite you to seize that opportunity by joining the most important and impressive insurance community in the world.
Dannel P. Malloy Governor Introduction by PwC
November 9, 2012
Connecticut is a vibrant and growing business community, of which PwC and our employees are proud members. As a leading professional services firm, we are deeply committed to serving this state and its many thriving industries, including insurance. And of course, we are far from alone. Over 50,000 Connecticut citizens are directly employed by the insurance industry, with many more indirectly impacted from both a business and community perspective.
This report is the culmination of months of work and collaboration with more than 100 contributors from the insurance, financial services, government and educational sectors. Together, we have combined global and local statistics, thought leadership and insightful executive perspectives to create a clear picture of the Connecticut insurance sector’s rich history, current status/issues, and promising future.
After reading this report, we are confident that you will agree that the insurance industry is vital to Connecticut’s prosperity and be impressed by Connecticut’s role in the global insurance ecosystem.
It has been a pleasure working with the Connecticut Insurance and Financial Services Cluster and other contributors on this important report and our sincere thanks to all who have participated. Through continued teamwork and investment in the industry, we can all play a part in helping Connecticut maintain its global insurance leadership role well into the future.
Sincerely,
Paul V. Veronneau Hartford Advisory Leader, PwC Introduction by CT IFS
For hundreds of years, the insurance industry has been synonymous with Hartford and Connecticut—the Insurance Capital. Perhaps it’s because of its competitive focus on technology, an unyielding commitment to quality and excellence for the consumer, and a global reach to the consumer and financial markets. Or maybe it’s because our employees are the most educated and experienced in the industry.
All things considered, the insurance industry is one of the most vital in Connecticut. As the CT IFS, an initiative of the MetroHartford Alliance, we host the Insurance Market Forecast in Hartford to bring together the brightest minds in insurance. Our collaboration with PwC has produced this Insurance Market Report, a significant source of information and thought leadership for Connecticut’s insurance industry. Together, along with our business partners in state government and academia, we continue to support and encourage the next generation workforce to advance the industry to even greater heights.
On behalf of the leadership of the CT IFS, we are pleased to provide and invite you to learn about this dynamic industry in the Insurance Capital.
Susan Winkler James Bedard Oz Griebel Executive Director Chair, CT IFS President and Chief CT IFS Executive Officer, Chief Financial Officer/ MetroHartford Alliance Chief Operating Officer, Northeast Region, UnitedHealthcare Table of contents
Executive summary 1
A rich history 3
A vital sector of Connecticut’s economy 13 Connecticut by the numbers 13 Insurance in Connecticut 16 Top insurance issues for 2012 17 Employment 18 Wages 22 Gross State Product 25
Insurance connectivity 27 Customers 28 The Connecticut Insurance and Financial Services Cluster 32 Asset management 33 Education 36 Community 39 Government 42 Other partners/suppliers 59 Competing globally 59
Looking ahead—Insurance 2020 65 Strategic opportunities 65 Strategic drivers and factors 66 Social 69 Technological 73 Environmental 78 Economic 79 Political 81 Implications for the future of your business 83
Connecticut Insurance and Financial Services Cluster Members 89
Acknowledgments 99
Supporting thought leadership 104
PwC | 2012 Connecticut Insurance Market Report Perspectives
Making healthcare simpler, more personal for consumers, 31 Gail Boudreaux, Chief Executive Officer, UnitedHealthcare Asset management in insurance: Increasing complexity is changing the 34 rules of the game, Woody Bradford, Chief Executive Officer, Conning The impact of the Travelers Championship in Connecticut, Brian MacLean, 41 President and Chief Operating Officer, The Travelers Companies Connecticut insurance regulatory environment, Thomas Leonardi, 43 Commissioner, Connecticut Insurance Department Connecticut economic development, Catherine H. Smith, 53 Commissioner, State Department of Economic Development ConnectiCare’s Provider Partnerships reflect collaborative approach to 58 healthcare, Michael R. Wise, President, ConnectiCare, Inc. & Affiliates Pioneering innovative customer-centric global health services, 63 Matt Manders, President, Regional and Operations, Cigna Corporation Making the P&C industry more relevant, Mike McGavick, 64 Chief Executive Officer, XL Group plc Lincoln Financial Group empowers an aging society to sustain financial 68 independence, Mark Konen, President, Insurance and Retirement Solutions, Lincoln Financial Group Saving for retirement, Christine Marcks, President, Prudential Retirement 70 Technology, communication and the “personalization” of retirement 72 saving, Maliz Beams, Chief Executive Officer, ING US Retirement The importance of data, analytics and models to the current and 74 future success of property and casualty insurers, Michael Klein, Senior Vice President, The Travelers Companies Tapping a neglected supply of energy, Greg Barats, President and Chief 77 Executive Officer, Hartford Steam Boiler Inspection and Insurance Company The Terrorism Risk Insurance Act, Doug Elliot, President, 82 Commercial Markets, The Hartford Financial Services Group Creating the new healthcare marketplace, Mark Bertolini, 84 Chairman, Chief Executive Officer and President, Aetna
PwC | 2012 Connecticut Insurance Market Report Executive summary
Connecticut by the numbers Connecticut’s rich history in insurance Like most of the world, Connecticut dates back to more than 200 years is being impacted by the economic Population 3,580,709 ago when industry pioneers founded downturn. The state’s seasonally some of the country’s first insurance adjusted unemployment rate remains Population growth rate 3.5% companies. With an enduring success high. Population is declining and story of leadership, innovation, taxes are rising. Insurance industry $65,415 Median household growth, new entrants, mergers, challenges include risk and capital income acquisitions and divestitures; management, persistently low interest Labor force 1,897,800 Connecticut’s insurance sector rates; financial reporting; strategy and continues to prosper. execution; and regulatory compliance. Unemployment 8.9% Insurance is a vital sector In spite of this, Connecticut is of Connecticut’s economy, holding its own. The overall gross Insurance carriers in Connecticut representing 3.1% of the workforce, state product has increased over the 5.7% of the payroll and nearly 9% of past 10 years and is forecasted to Carrier full-time 50,242 the gross state product. Connecticut continue along this trajectory. Median employment ranks first nationally in insurance household income ranks Connecticut employment as a percentage of total the third highest in the nation. Employment as 3.1%, state employment and insurance #1 Nationally % CT employment payroll as a percentage of total payroll. However, Connecticut insurers And insurance impacts other sectors of must compete on a global basis. Payroll as % 5.7%, the state’s economy as well. According The insurance market extends far CT payroll #1 Nationally to Moody’s Analytics as calculated by beyond Connecticut’s borders, to Average wage $117,101 the Connecticut Economic Resource a global network of customers, Center (CERC), one new job in the partners and suppliers. Government, GSP as % 8.9%, insurance industry adds an additional community and education are CT GSP #1 Nationally 1.46 jobs to the Connecticut economy; integral to its success. Although the an increase of $1 in insurance labor US economy continues to expand, Note: Above statistics are footnoted later in this document. income puts an additional $0.78 the industry’s best opportunities for into state commerce; and every year growth and product innovation may the insurance industry purchases exist in emerging markets. Many an average of $2 billion in goods Connecticut insurers have already, and services from other industries or are planning to grow their business in Connecticut. globally. Conversely, foreign-based insurers have expanded their presence in Connecticut.
1 PwC | 2012 Connecticut Insurance Market Report Like most sectors, insurers rely upon Connecticut’s insurance companies Looking forward, Connecticut’s a distributed workforce of employees and their employees recognize their insurance executives must address an and vendors in Connecticut, other responsibility to give back to the incredible variety of challenges and states and around the world to deliver community in meaningful ways. strategic drivers. Although no one can cost-competitive products and services. There are countless examples of predict exactly what changes will occur With globalization, technology and their commitment to Connecticut in the next decade, we believe five an increasingly mobile workforce, it is communities through charitable key megatrends will influence the important for Connecticut to produce giving, volunteerism and support world’s insurance industry: a highly educated population with programs including diversity, • Social: The balance of power skills that are relevant to the industry’s healthcare, education, arts and is shifting toward customers future. Fortunately, there are several culture, community development educational programs in Connecticut and the environment. • Technological: Advances in that are already working to feed the software and hardware that insurance sector’s need for top talent. So the question must be asked: transform ‘big data’ into And additional help is on the way with Can Connecticut compete on a actionable insights global scale? The short answer is a much-needed educational reform. • Environmental: The rise of resounding “yes.” The path forward more sophisticated risk models Government plays a key role. for Connecticut is clear—compete in and risk transfer to address the The cost of doing business in the region the global arena by developing and increasing severity and frequency is high. New regulatory legislation retaining talent for the highest value of catastrophic events such as the healthcare Affordable Care and/or highest proximity jobs (jobs Act(ACA) and the Dodd-Frank Wall that must be local). High value is not • Economic: The rise of economic Street Reform and Consumer Protection just about high pay, but also includes and political power in emerging Act (Dodd-Frank) add significant leadership, innovation, knowledge markets federal oversight to already formidable and quality that justify high pay. • Political: Harmonization, state regulations. Government-led High value jobs align well with standardization, and globalization economic development initiatives have the Connecticut insurance sector’s the insurance market the power to attract and retain jobs in strengths and high-proximity jobs will the short-term, but to be sustainable, stay in the state by default. Jobs that are This report highlights the implications they must also be accompanied by neither high value nor high proximity of these megatrends and ideas for long-term efforts to reduce costs and will increasingly be threatened by embracing them. Armed with the improve responsiveness. The current information technology advances right mix of strong customer demand, administration recognizes this and and/or lower cost geographies. insurance industry leadership, has launched several programs. Human capital is Connecticut’s and progressive government and Governor Malloy has declared that greatest asset. educational reforms, Connecticut the state is open for business and will be well-positioned to remain that “Connecticut is home to a an insurance capital for the next 1 reinvigorated insurance industry.” 200 years.
2 PwC | 2012 Connecticut Insurance Market Report A rich history Connecticut’s insurance industry enjoys a rich history of innovation, challenges and success. From our early days as industry pioneers to more recent corporate mergers, acquisitions and divestitures, Connecticut’s insurance sector continues to prosper. With each new challenge comes a new growth opportunity. Below is a small sample of events that have shaped Connecticut’s insurance landscape.
18th century
1732 The first insurance company in the US underwrote fire insurance and was formed in Charles Town (modern-day Charleston), South Carolina.
1752 Benjamin Franklin founded the Philadelphia Contributionship, which is the nation’s oldest insurance carrier still in operation. As the first company to make contributions toward fire prevention, it set a precedent by refusing to insure buildings where the risk of fire was too great. 1759 Presbyterian Synods in Philadelphia and New York founded the Corporation for Relief of Poor and Distressed Widows and Children of Presbyterian Ministers, marking establishment of the first life insurance company in the US. 1792 After a series of meetings in Philadelphia’s Independence Hall, a group of prominent citizens formed the Insurance Company of North America (INA, predecessor of Cigna). INA is the first marine insurance company in the US, and is the nation’s oldest stockholder-owned insurer today.
3 PwC | 2012 Connecticut Insurance Market Report 19th century
1810 Hartford-area merchants pooled their money to create the Hartford Fire Insurance Company.
1850 Aetna Insurance Company organized an Annuity Fund to sell life insurance.
1851 Phoenix is founded by a group of prominent Hartford, Conn. business, religious and civic leaders as the American Temperance Life Insurance Company, a company that insures only those who abstain from alcohol. George Rice, a Connecticut life insurance agent, formed MassMutual in Springfield, MA with $100,000 of capital from 31 people.
1853 Alexander Wilkin and 16 other St. Paul businessmen founded St. Paul Fire and Marine Insurance Company to deal with the increasing threat of fire. St. Paul later merges with Travelers.
1860 Home Life Insurance Company formed in Brooklyn, NY as the first life insurer authorized by the newly founded New York Insurance Department to do business in the state. Later merges with Phoenix.
1861 One of the oldest examples of The Hartford using a stag logo appears on an 1861 fire insurance policy issued to President Abraham Lincoln. In 1875, The Hartford’s logo began to echo the majestic stag in Sir Edwin Landseer’s “Monarch of the Glen” painting. Shortly after being inaugurated, Abraham Lincoln purchased a fire insurance policy from The Hartford to protect his home and property in Springfield, IL.
“As the state’s first insurance company, we are proud to call Connecticut home. Throughout its long history, The Hartford has insured some of the nation’s most famous construction projects, including the Golden Gate Bridge and the Hoover Dam, and has paid claims related to some of the largest and most destructive disasters: the Great Chicago Fire of 1871, the San Francisco earthquake of 1906, and more recently, the September 11 terrorist attacks and Hurricane Katrina. Abraham Lincoln, Buffalo Bill Cody, Babe Ruth and Dwight Eisenhower are among the notable citizens who have been Hartford policyholders.”
Liam McGee, Chief Executive Officer, The Hartford
4 PwC | 2012 Connecticut Insurance Market Report 19th century
1864 J.G. Batterson and nine fellow Hartford businessmen founded Travelers Insurance Company “for the purpose of insuring travelers against loss of fire or personal injury while journeying by railway or steamboat.”
1865 The Governor of Connecticut, William A. Buckingham, signed a special act of the General Assembly incorporating the Connecticut General Life Insurance Company (CG, predecessor of Cigna).
1866 The Hartford Steam Boiler Inspection and Insurance Company was founded.
1875 The Prudential Friendly Society, founded by insurance agent John Fairfield Dryden in a basement office in downtown Newark, NJ, became the Prudential Insurance Company of America two years later and eventually the parent of Prudential Retirement.
1897 Travelers issued the first automobile policy to a mechanic who built a one-cylinder car.
1899 Aetna became one of the first stock insurance companies to enter the health insurance business.
5 PwC | 2012 Connecticut Insurance Market Report 20th century
1905 A group of Fort Wayne, IN, bankers, attorneys, wholesalers, hoteliers, manufacturers, physicians and brokers founded the Lincoln National Life Insurance Company.
1907 Savings Bank Life Insurance was established. 1912 Conning & Company was founded in Hartford. CG organized the Accident Department and began to offer individual accident and, later, health insurance. Phoenix became the first life insurer to use direct mail advertising to obtain sales leads. Aetna wrote the nation’s first comprehensive coverage for autos, combining several coverages into one contract. After the Titanic sank, Travelers paid more than $1 million to beneficiaries in accident claims and life insurance benefits. 1913 CG wrote its first group life insurance contract covering 100 employees of The Hartford Courant newspaper. The Hartford Accident and Indemnity Company was formed. 1919 The Travelers tower was completed under the direction of New York City architect, Donn Barber, who also designed the Connecticut State Library, Supreme Court Building and the Hartford Times building. 1923 Prudential entered the retirement business (predecessor to Prudential Retirement Insurance and Annuity Company, Hartford, CT). 1929 The stock market crash of 1929 signaled the beginning of the Great Depression that did not end in the US until the onset of American mobilization for World War II at the end of 1941. Connecticut’s major insurance companies survived. 1931 Aetna constructed its new headquarters building in Hartford, which remains a historic and architectural gem.
6 PwC | 2012 Connecticut Insurance Market Report 20th century
1935 The Social Security Act was passed by Congress as part of President Franklin D. Roosevelt’s New Deal. The landmark law insures older Americans against poverty, offers unemployment and disability benefits, and protects “widows and orphans” through lump-sum payments on the death of a provider family member. 1936 Led by Harry B. Kennedy, the “Hospital Service Fund” was established in New Haven, Connecticut (predecessor to Connecticut Blue Cross). 1942 Savings Bank Life Insurance Fund established by Special Act of the Connecticut Legislature (predecessor to Vantis Life). 1944 Aetna became the first insurer to advertise on television. After several name changes, the “Connecticut Blue Cross” name and insignia were adopted.
1945 Congress adopted the McCarran-Ferguson Act, which declared that states should regulate the business of insurance and affirm that the continued regulation of the insurance industry by the states is in the public’s best interest.
1950 CG introduced medical catastrophe (major medical) insurance, writing the first policy in the US for its own employees. 1951 Aetna became the first insurer to provide catastrophic health insurance protection.
1955 Recognizing that women generally live longer than men, Phoenix was the first company to offer reduced life insurance premium rates for women. 1957 CG moved to its new home office to Bloomfield, becoming the vanguard of the development of office parks. Pioneering a new concept in the insurance industry, Phoenix began selling group life and health insurance plans by allowing small businesses to band together by industry to offer employees benefits usually available only through larger corporations.
1959 CG purchased an RCA 501 computer and begins to apply electronic data processing to its insurance operations.
1963 Aetna wrote the first individual life insurance policies for the seven Mercury astronauts. Phoenix moves into its new corporate headquarters, the world’s first two-sided building in Hartford, known as the “Boat Building.”
7 PwC | 2012 Connecticut Insurance Market Report 20th century
1965 Congress amended the Social Security Act to create Medicare under Title XVIII and Medicaid under Title XIX. By guaranteeing healthcare for the elderly and the poor, the new programs established government as a payer in the same industry as private health insurers. 1966 Aetna paid the first Medicare claim in the country; the payment was made to Hartford Hospital. 1968 Lincoln National Corporation (LNC) was formed, introducing one of the first holding companies in the insurance industry. 1970 The Hartford was acquired by ITT Corporation, the largest corporation takeover to date. 1973 Congress passed the Health Maintenance Organization Act to promote HMOs as a way to contain costs. 1977 United HealthCare Corporation was created to reorganize Charter Med Incorporated and become its parent company. Connecticut Blue Cross and Connecticut Medical Service form Blue Cross & Blue Shield of Connecticut.
1979 Lincoln National Corporation acquired Security Connecticut Life Insurance Company of Avon. 1981 Hartford Life became the first major insurer to introduce universal life insurance coverage. ConnectiCare was incorporated as a non-profit, Connecticut-licensed health maintenance organization.
1982 Cigna Corporation was formed by the combination of Connecticut General Corporation and INA Corporation. The name “Cigna” was created using a combination of the initials “CG” and “INA”.
1984 United HealthCare Corporation became a publicly traded company, specializing in technology and service systems for healthcare. 1986 Hartford Life moved its new headquarters to Simsbury.
1987 Aetna sold the industry’s first employer group Long Term Care plan. Lincoln National Corporation created the Administrators Network, the nation’s largest third-party administrators (TPA) organization.
8 PwC | 2012 Connecticut Insurance Market Report 20th century
1992 Phoenix and Home Life merged into Phoenix Home Life Mutual Insurance Company.
1995 Metropolitan Life Insurance Co. and Travelers Insurance Co. announced the completion of the formation of The MetraHealth Companies Inc. In a move that created the nation’s largest healthcare management company at the time, United HealthCare Corp. bought MetraHealth Companies, Inc. The Hartford becomes an independent entity when ITT streamlined its operations. MassMutual merged with Connecticut Mutual Life Insurance Company.
1996 The Travelers Indemnity Company and Aetna Casualty and Surety Company merged to form the fourth largest property and casualty company—Travelers/ Aetna Property Casualty Corp. Aetna acquired US Healthcare, creating the nation’s largest managed health care insurer at the time. MassMutual completed merger with Connecticut Mutual Life Insurance Company. 1997 Anthem Insurance Company was created when Anthem Blue Cross Blue Shield merged with Blue Cross Blue Shield of Connecticut. Cigna acquired Healthsource, a New Hampshire-based healthcare company. Lincoln National purchases the individual life insurance and annuity businesses of CIGNA Corp.
1998 Cigna completed the sale of its individual life insurance and annuities businesses to Lincoln National Corporation. Lincoln National Corporation introduced its new marketing name “Lincoln Financial Group” to increase its recognition as a financial services company. Lincoln National signs an agreement with Aetna to buy its domestic individual life insurance operations for $1 billion. United HealthCare Corporation became known as UnitedHealth Group and launched a realignment into independent but strategically linked business segments, including UnitedHealthCare and several other segments that have since been renamed (UnitedHealthcare, Ovations, Uniprise, Specialized Care Services and Ingenix).
9 PwC | 2012 Connecticut Insurance Market Report 21st century
2000 Cigna sold its US accidental death, individual life and group life reinsurance businesses to a subsidiary of Swiss Reinsurance Company. Dutch-based ING Group acquired Aetna Financial Services, capping off a string of insurance and financial services acquisitions in the US that established ING’s brand. AIG acquired HSB Group, Inc., the parent company of The Hartford Steam Boiler and Inspection Company, for about $1.2 billion. 2001 Phoenix converted from a mutual to a publicly traded company called The Phoenix Companies, Inc. 2002 The Savings Bank Life Insurance Company changed its corporation name to Vantis Life Insurance Company (Vantis Life). 2003 The Connecticut Insurance and Financial Services cluster is formed.
2004 MassMutual’s Enfield, CT office opened. St. Paul and Travelers merged to create The St. Paul Travelers Companies, Inc. UnitedHealth Group acquired Oxford Health Plans. Wellpoint, Inc. was formed when Wellpoint Health Networks merged with Anthem, creating the nation’s largest health insurance and managed care company at the time. Magellan moved headquarters to Avon, CT. Prudential acquired Cigna’s retirement business.
10 PwC | 2012 Connecticut Insurance Market Report 21st century
2005 MetLife acquired Travelers Life & Annuity. XL Group of Ireland unveiled a new consolidated office in Hartford. XL specializes in P&C insurance and reinsurance. Specialty insurer AIX Holdings Inc. is formed in Windsor, CT. ConnectiCare was acquired by the Health Insurance Plan of Greater New York (HIP). Aetna acquired SRC, beginning an acquisition strategy that also includes Goodhealth Worldwide (2009), Horizon Behavioral Services (2009), PayFlex Holdings (2011), Healthagen (2011), Genworth Financial’s Medicare Supplement business (2011), Prodigy Health Group (2011) and Medicity (2011). 2006 Catlin US formed as a specialty insurance and reinsurance underwriter serving many lines of business. HIP, parent of ConnectiCare, merged with Group Health Incorporated, creating EmblemHealth. Lincoln National Corporation completes its merger with Jefferson Pilot Financial, branding the new company Lincoln Financial Group. 2007 The St. Paul Travelers Companies, Inc. changed its name to The Travelers Companies, Inc. ING moved into its new energy-efficient facility in Windsor, CT. 2008 Cigna acquired Great-West Healthcare. Captive insurance regulations (Chapter 38a-91aa) were enacted enabling captive insurance companies to be licensed in the state. The Hanover Insurance Group acquires AIX Holdings, Inc. Global financial crisis shook housing markets and Wall Street firms and threw the nation into recession. ING acquired the CitiStreet retirement recordkeeping business, positioning ING as one of the largest retirement plan service providers in the US
11 PwC | 2012 Connecticut Insurance Market Report 21st century
2009 HSB Group, Inc., the parent company of The Hartford Steam Boiler and Inspection Company, was acquired by Munich Re. UnitedHealth Group acquired Health Net of the Northeast’s licensed subsidiaries and obtained rights to renew Health Net’s membership in Connecticut, New York and New Jersey.
2010 Affordable Care Act signed into law. As upheld by the Supreme Court two years later, many more Americans are projected to gain healthcare benefits, but insurers must operate under tighter controls and constraints. The Hartford celebrates its 200th anniversary. 2011 Cigna moves headquarters from Philadelphia to Bloomfield and acquired FirstAssist in the UK, expanding into travel and related insurance services in targeted markets outside of the United States. 2012 Cigna acquired HealthSpring and Great American Supplemental Benefits Supreme Court upheld Affordable Care Act. Aetna received a license to begin selling health insurance in Singapore. An amendment to the captive insurance company regulations was adopted in August to provide a lower tax rate on captive insurance premiums in efforts to attract and encourage additional business revenue and growth. Following this amendment, Thomson Reuters established Connecticut’s first captive insurance company. Aetna announced Coventry acquisition. Stanley Black & Decker relocated its captive to Connecticut. The Hartford Financial Services Group Inc. announced sale of its Individual Annuity new business capabilities to Forethought Financial Group, Retirement Plans business to MassMutual, Individual Life Insurance business to Prudential Financial and Woodbury Financial Services to AIG’s Advisor Group.
12 PwC | 2012 Connecticut Insurance Market Report A vital sector of Connecticut’s economy
Connecticut by the numbers Connecticut was swayed by the global economic downturn, but has retained According to the US Census Bureau, its strong center. Overall gross state Connecticut’s population in 2011 was product dropped slightly from 2007 estimated at 3,580,709, representing to 2009.4 The state’s economy has just under 1% of the national total.2 otherwise steadily increased over Connecticut’s population grew 3.5% the past 10 years and is forecasted by from 2002 through 2011, less than Moody’s Analytics to continue along half the national average population this trajectory. Median household growth of 8.3%.3 income of $65,415 in 2011 ranks Connecticut the third highest in the nation, and well above the national median of $50,054.5
Connecticut historical and projected Gross State Product
400
350
300
250
200 Billions
150
100
50
0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Total Insurance carriers
Source: CERC calculation of Moody’s Analytics, actual 2002-2011; projected 2012-2022.
13 PwC | 2012 Connecticut Insurance Market Report As of September 2012, Connecticut’s At the crossroads of the Northeast, seasonally adjusted unemployment Connecticut is conveniently situated rate as was 8.9% (or 169,500 among some of the most populous people), exceeding the national rate metropolitan areas in the nation. of 7.8%. Unadjusted, Connecticut’s There are 28 million people within a unemployment rate stood at 8.2% 100 mile radius of Hartford and over overall, ranging from 4.0% in Scotland 100 million people within a 500 mile to 15.4% in Hartford, compared to the radius; roughly equal to one-third of national average of 7.6%. Connecticut’s the United States population and two- labor force in September was 1,897,800, thirds of the Canadian population.8 down .95% since January 2012.6 Despite being a relatively Despite being a relatively small state small state dealing with In developing its 2012-2013 state dealing with tough economic times, tough economic times, budget, Connecticut closed an Connecticut has many desirable expected budget shortfall by adding attributes, making it an attractive Connecticut has many $1.5 billion in taxes to individuals place to do business. desirable attributes, and businesses; saving $1 million making it an attractive from state employees; and reducing spending by $758 million.7 place to do business.
State of Connecticut vs. United States unemployment (seasonally adjusted)
12%
10%
8%
6%
4%
2%
0% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 United States unemployment rate State of Connecticut unemployment rate
Source: Connecticut Department of Labor, September 2012.
14 PwC | 2012 Connecticut Insurance Market Report Insurance sectors
Several different insurance sectors are discussed in Health Insurance this report and it is important to note that any single The health insurance industry underwrites group insurance company, although assigned to a single sector and individual health and medical insurance policies, for reporting purposes, may compete in multiple sectors. including hospital and medical, prescription drug, dental, A general description of each sector follows: vision, and Medicare/Medicaid coverages. Companies also Property & Casualty (P&C) Insurance provide administrative services for self-funded insurance plans (where an employer funds health benefits to its P&C insurers underwrite insurance policies covering employees). More than 200 million Americans receive various property, casualty, legal and other general coverage from private health plans from an employer, risks. P&C insurance provides protection against from the individual market or through government damage or loss caused by a variety of events, from sponsored programs. Health insurers continue to focus car accidents to medical malpractice to earthquakes. on innovation and quality to manage costs and improve P&C insurance includes both Personal Lines such as patient care by providing extensive wellness and health auto, homeowners, farmowners, title and umbrella management programs for chronic conditions such as coverages, and Commercial Lines products including asthma, diabetes and many others. commercial auto, multi-peril, medical malpractice, workers compensation, business interruption, directors Reinsurance and officers liability, inland marine, fidelity and surety, mortgage guaranty, product liability, aircraft and crop. Reinsurance companies specialize in assuming all Outside the US, P&C insurance is referred to as non-life or part of the risk associated with existing insurance or general insurance. policies underwritten by primary insurance carriers. The fundamental business of reinsurance is insuring insurance Life Insurance, Retirement & Annuities (LR&A) companies. A reinsurer typically assumes part of the risk and part of the premium charged by the primary insurer. LR&A companies underwrite individual and group Reinsurance effectively increases an insurer’s capital and insurance policies covering life, health and medical therefore its capacity to sell more business. Reinsurers don’t risks. They include term life, ordinary life, credit life, pay policyholder claims; rather, they reimburse insurers industrial life, individual life, disability, critical illness, for claims paid. While the increasing globalization of accidental death and dismemberment and long-term reinsurance has slowed domestic industry growth, it has care coverages. LR&A companies also offer various improved the industry’s ability to handle major catastrophes retirement products and benefits that support the long- because US losses are spread globally over a larger and term financial objectives of individuals and businesses, more diversified capital base. including deferred and immediate annuity products, mutual funds, IRAs and other income producing Captive Insurance products to help individuals avoid outliving their assets. The LR&A industry includes publicly traded insurers, Captives are becoming fast-growing alternatives to the privately held insurers, fraternal organizations, and traditional insurance market and Connecticut has recently mutual insurance companies. According to the Federal approved legislation enabling the legal formation of captives Reserve Bank of Chicago, “life insurance companies in the state. A captive insurance company is wholly owned make up a substantial share of the US financial sector. At and controlled by a parent company or association, and the end of 2011, they held $5.3 trillion in assets, which operates to insure the parent’s own risks. By self-insuring, is about one-third the size of the $14.6 trillion banking companies have greater control over their costs and can sector.” 9 Life insurance companies play an important customize their insurance needs to specific risks. Captives are role in financing corporations, holding 18% of all managed by specialty firms that provide a range of financial outstanding corporate and foreign bonds in the US.10 and legal professional services. Once established, captives provide revenue to the state in the form of premium taxes and, potentially, tourism because captives must hold their annual meetings in the state in which they are based.
15 PwC | 2012 Connecticut Insurance Market Report Insurance in Connecticut domestic and 1,294 non-domestic Additionally, for each major insurance insurance entities doing business in company in the state there are several Although Connecticut is a relatively the state, each developing, selling and smaller insurers and many more small state in terms of geography administering a variety of products and insurance-related businesses dotting and population, it is an insurance services. Some of the world’s largest the Connecticut landscape. As we powerhouse. The numbers are insurance companies call Connecticut will explore throughout this report, impressive. According to PwC analysis home and even more compete for Connecticut is both a major consumer of Connecticut’s 2011 Annual Report of Connecticut business. Connecticut and exporter of insurance products the Insurance Commissioner (Business businesses are generating over $30 and services and all players, large and of 2010), there are approximately 110 billion in direct written premiums. small, are competing on a global scale.
Domestic Non-Domestic Total Line of business Number of Direct written Number of Direct written Number of Direct written entities premiums entities premiums entities premiums Life 26 $9,159,461,852 338 $8,283,529,106 364 $17,442,990,958 P&C 71 1,127,008,510 666 5,273,355,685 737 6,400,364,195 Health 11 4,987,396,604 19 460,470,002 30 5,447,866,606 Other* 2 44,517,848 271 713,443,123 3 757,960,971 Total 110 $15,318,384,814 1,294 $14,730,797,916 1,404 $30,049,182,730 Source: 2011 State of Connecticut Annual Report of the Insurance Commissioner, Business of 2010. *Includes Fraternal, Title, Surplus Lines—US, Surplus Lines—Non-US, and Risk Retention.
Did you know? Major insurance carriers in Connecticut Connecticut’s insurance industry ranks #2 in Hartford Tolland the US for total direct Windham written premium.11 Litchfield
New London New Haven Middlesex
Fairfield
NAICS Sector 524113 Life insurance 524114 Health insurance 524126 Property/casualty insurance 524130 Reinsurance
Source: CERC calculation of D&B Sales and Marketing Solutions, 2012.
16 PwC | 2012 Connecticut Insurance Market Report Top insurance issues • Strategy and execution: for 2012 From a merger and acquisition perspective, many insurance Connecticut’s insurance industry must companies continue to search for contend with a myriad of local and opportunities to effectively deploy global issues. As highlighted in PwC’s their excess capital. Health insurers Top Issues—The Insurance Industry in particular have expanded in 2012, challenges include: through acquisition. Insurers are increasingly interested in emerging • Risk and capital management: markets, where the population Interest rates are at historic lows is younger, the middle class is Did you know? and there is every indication that growing and governments are they will remain there. Significant Connecticut’s insurance investing. Other strategies include changes in insurance regulation customer-oriented operating industry ranks #2 for around the globe are underway, models, “Big data” analytics and written life insurance.12 including Solvency II and the the implementation of new policy National Association of Insurance administration systems. Commissioners (NAIC) Solvency Modernization Initiative (SMI). • Regulatory compliance: As covered There are also concerted efforts to later in this report, Dodd-Frank move towards a consistent approach Wall Street Reform and Consumer to cross-territory supervision in the Protection Act (Dodd-Frank) and the US, including enterprise strategic healthcare Affordable Care Act (ACA) risk management and Own Risk represent significant challenges. New and Solvency Assessment (ORSA). tax technical and tax accounting guidance includes the NAIC’s SSAP • Financial reporting: For many 101 and the US government’s years, industry stakeholders have Foreign Account Tax Compliance Act expressed their desire for more (FATCA).Notably, 72% of insurance credible and relevant financial industry respondents to PwC’s 15th reporting metrics. Although Annual Global CEO Survey said they most annual reports and investor were “extremely” or “somewhat” presentations contain a great concerned about over-regulation and deal of data, they fail to clearly 68% said that changes in regulation link strategy, performance and were influencing their anticipated shareholder value. While insurers need to change strategy. have justified concerns about performance data confidentiality Connecticut’s insurance companies and information disclosure, this have enormous strength and are well must be balanced with the need positioned to address these challenges to provide investors and analysts in a way that provides leadership to the information they want. the national and global markets.
17 PwC | 2012 Connecticut Insurance Market Report Employment Many companies are attracted to Connecticut because of its strong The insurance industry is vital to insurance sector and workforce. For Connecticut’s employment status. example, Magellan Health Services In fact, Connecticut ranks first moved its corporate headquarters to nationally in insurance employment Connecticut in 2004, and has doubled as a percentage of total employment. the number of its employees in the At 3.1%, Connecticut’s insurance state since 2010. “We are proud to be employment as a percentage of total based in Connecticut,” said René Lerer, employment is approximately three M.D., Chairman and Chief Executive times the national average.13 Officer. “What we’ve found is that we Did you know? can attract a talented and experienced Of insurance-based employment in workforce with unique skill sets. As Connecticut ranks Connecticut, P&C insurers employ the a company focused on growth and greatest number of people, followed #1 nationally in innovation in the highly competitive by health, life and reinsurance. From healthcare sector, the quality of insurance employment a geographic perspective, Hartford the workforce is an important as a percentage of County is the leader with insurance consideration for us.” total employment.13 jobs at slightly over 8% of total employment, followed by Fairfield, New Haven and Middlesex counties.
“We are proud to be based in Connecticut. What we’ve found is that we can attract a talented and experienced workforce with unique skill sets. As a company focused on growth and innovation in the highly competitive healthcare sector, the quality of the workforce is an important consideration for us.” René Lerer, M.D., Chairman and Chief Executive Officer, Magellan Health Services
18 PwC | 2012 Connecticut Insurance Market Report Connecticut’s insurance industry has Population and employment in seen employment declines over the a particular state are driven by a past decade, but according to CERC variety of complex factors (e.g., calculation of Moody’s Analytics, supply, demand, strategic, economic, is projected to grow 9.7% by 2022. demographic, political, etc.) at both As of 2011, the state ranks ninth the business and personal level. We nationally in absolute insurance carrier will address several of these factors employment with 50,242 full-time throughout this report. With negative insurance employees. An additional population and employment growth, 11,341 people are employed full-time other states could easily threaten by agencies, brokerages and other Connecticut’s insurance ranking. Did you know? insurance businesses for a total of 61,583 full-time insurance employees. Connecticut is only as strong as its Connecticut has the human capital. Despite Connecticut’s highest concentration of Connecticut is also losing residents. historical pre-eminence in insurance, actuaries in the US.14 According to the US Census, complacency is not an option if the Connecticut’s population fell by state is to retain its global leadership 13,493 from 2010 to 2011, ranking position into the future. Keeping a the state 45th in the nation in net skilled workforce is important for all domestic migration.15 sectors, not just insurance. However, insurance may be more vulnerable than other industries.
Insurance employment by state
States Number of full-time employees
Carriers Total Texas 90,857 163,690 California 87,817 179,936 New York 87,160 144,077 Ohio 75,275 108,492 Florida 74,032 134,393 Pennsylvania 70,436 110,484 Illinois 65,543 112,408 New Jersey 52,261 81,119 Connecticut 50,242 61,583 Wisconsin 49,657 71,509
Source: CERC calculation of Moody’s Analytics, 2011. NAICS 5241 (Carriers) and NAICS 524 (Total).
19 PwC | 2012 Connecticut Insurance Market Report Insurance carrier employment as percent of total employment from 1992 to 2012
4%
3%
2%
1%
0% 1994 1997 2000 2003 2006 2009 2012 United States Connecticut
Source: CERC calculation of Moody’s Analytics, Actual through 2011 and estimated for 2012. Employment for NAICS 5241.
Employment by detailed insurance sector for Connecticut from 2001 to 2011
20,000
15,000
10,000
5,000
0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Property/casualty insurance Health insurance Life insurance Re-insurance
Source: CERC calculation of Bureau of Labor Statistics and United States Census Bureau Local Employment Dynamics. Q1 2001-Q1 2011. Imputed Employment by Industry for NAICS 524113, 524114, 524126, and 524130. Quarterly Census of Employment and Wages and Quarterly Workforce Indicators.
20 PwC | 2012 Connecticut Insurance Market Report After bottoming out in 2009, high utilities and 3.6% for manufacturing. performer turnover in the insurance High performers typically stay within industry has grown at a compound their industry, reinforcing the benefit annual growth rate of more than of a strong insurance cluster in 5% since 2009. Results from PwC Connecticut, enabling high performers Saratoga’s US Human Capital to switch jobs without leaving the state. Effectiveness survey show that more than 5.5% of high performers changed A bigger threat, perhaps, is that many employers in 2011. This is a relatively insurance jobs can be performed high percentage when compared with remotely due to the nature of the other industries. For example, high work and significant improvements in performer turnover is only 3.1% for telecommunications and information technology. Working remotely is a significant trend in the insurance industry. Some jobs follow the Representative sample of Connecticut insurance company employees trajectory from working in the office, Company Number of to working remotely in Connecticut, employees to then working remotely from anywhere. Many insurance workers Aetna Inc. 6,700 can be productive from anywhere, so it is imperative to encourage them AIX Group, a member of Hanover Insurance Group 185 to remain in Connecticut. Anthem 1,280
Catlin US (Catlin Group Limited) 30
Cigna Corp. 3,800
ConnectiCare 550
The Hartford Financial Services Group 10,300*
The Hartford Steam Boiler Inspection and Insurance Company 425
ING Group N.V. 1,800
Lincoln Financial Group 550
MassMutual Financial Group 1,400
OdysseyRe 131
The Phoenix Companies, Inc. 350
Prudential Financial Inc. 1,839
The Travelers Companies, Inc. 7,000
UnitedHealth Group Inc. 4,200
Vantis Life Insurance Company 88
XL Group plc 650
Source: Provided by companies listed. *As of December 31, 2011
21 PwC | 2012 Connecticut Insurance Market Report Opportunity for action: Developing Wages and retaining skilled workers The insurance industry is even more Government officials are actively important to Connecticut from a wage collaborating with corporations in an perspective. At 5.7%, the state ranks effort to attract more businesses to first nationally in insurance payroll as the state. Hopefully, these actions will a percentage of total payroll. This can provide the environment to attract be attributed to the industry’s average new business. However, short-term wage of $117,101 resulting from the economic development incentives need for a workforce of relatively will not address the root causes of high-paying occupations such as residents moving out. High cost of management, legal, business and living, increasing taxes, high utility finance and computer and math.16 rates, highway congestion and lack of mass transit north of New Haven are some of the underlying conditions that directly influence the working population’s decision to remain or leave the state. Government and industry must collaborate to address these root cause issues.
Insurance carrier employment as a percent of total employment by state in 2011 US overall and top 10 states
Connecticut
Nebraska
Wisconsin
Iowa
Minnesota
Ohio
New Hampshire
Rhode Island
New Jersey
Maine
United States
0% 1% 2% 3%
Source: CERC calculation of Moody’s Analytics, 2011. NAICS 5241.
22 PwC | 2012 Connecticut Insurance Market Report Insurance carrier employment as a percent of total employment in Connecticut for 2011
Tolland .2% Hartford 8.5%
New London Middlesex .1% New Haven .8% .9%
Fairfield 1.4%
Source: Source: CERC calculation of Bureau of Labor Statistics and United States Census Bureau Local Employment Dynamics. Q1 2011. Imputed Employment by County for NAICS 524113, 524114, 524126, and 524130. Quarterly Census of Employment and Wages and Quarterly Workforce Indicators.
23 PwC | 2012 Connecticut Insurance Market Report Insurance carrier payroll as a percent of total payroll by state in 2011 US overall and top 10 states
Connecticut
Iowa
Minnesota
Wisconsin
Nebraska
New Hampshire
Maine
New Jersey
Massachusetts
Pennsylvania
United States
0% 2% 4% 6%
Source: CERC calculation of Moody’s Analytics, 2011. NAICS 5241.
Did you know? Connecticut occupational employment and wages in the insurance carriers sector Q1 2012 Occupation category Employment Average wage Connecticut ranks #1 Management 8,290 $127,553 nationally in insurance Business and financial operations 17,000 $75,731 payroll as a percentage Computer and mathematical 8,040 $86,461 17 of total payroll. Legal 840 $116,619 Healthcare practitioners and technical 1,380 $69,230 Sales and related 5,430 $71,155 Office and administrative support 17,910 $43,467 Source: Connecticut Department of Labor, Q1 2012. NAICS 524.
24 PwC | 2012 Connecticut Insurance Market Report Gross State Product Insurance and financial services Did you know? combined comprise 20% of The most dramatic financial impact the Connecticut’s GSP, highlighting Connecticut’s insurance insurance industry has on Connecticut the importance of the CT IFS. is its contribution to the gross state industry contributes Additionally, Connecticut defines product (GSP). With only 3.1% of the “super sectors” for reporting purposes nearly 9% of the state’s workforce and 5.7% of the payroll, the 18 and the Financial Activities super gross product. insurance industry contributes nearly sector includes insurance, financial 9% of Connecticut’s GSP, making services and real estate. The Financial insurance one of the state’s top sectors Activities super sector is the state’s from a GSP perspective.19 largest by far, accounting for 33% of Connecticut’s GSP.20
Insurance carrier Gross State Product as a percent of total Gross State Product by state in 2011 US overall and top 10 states
Connecticut
Delaware
Iowa
Wisconsin
Nebraska
Minnesota
New Hampshire
Rhode Island
Ohio
Illinois
United States
0% 2% 4% 6% 8% 10%
Source: CERC calculation of Moody’s Analytics, 2011. NAICS 5241.
25 PwC | 2012 Connecticut Insurance Market Report Insurance carrier Gross State Product as percent of total Gross State Product from 1992 to 2012
9%
8%
7%
6%
5%
4%
3%
2%
1%
0% 1994 1997 2000 2003 2006 2009 2012 United States Connecticut
Source: CERC calculation of Moody’s Analytics, Actual through 2011 and estimated for 2012. GSP for NAICS 5241.
2011 Connecticut Gross State Product by sector
Financial activities: Other Insurance
9.3% 8.8% Government Financial activities: Finance 9.4% 11%
Education and 10.3% health services 13.4% Financial activities: Real estate
11% Manufacturing 14% 12.8% Trade, transportation, and utilities Professional and business services
Source: CERC calculation of Moody’s Analytics, 2011. GSP Aggregated to NAICS Super-sectors.
26 PwC | 2012 Connecticut Insurance Market Report Insurance connectivity
Connecticut insurance ecosystem
Connecticut US Global
Financial Insurance services
Community Customers Government
Other partners Education and suppliers
27 PwC | 2012 Connecticut Insurance Market Report Insurers’ primary focus is on serving Customers their customers, as they strive to The insurance industry serves protect groups and individuals from a businesses, governments, groups myriad of risks with an ever-growing and individuals, developing and variety of products and services. administering products and services The impact of this sector extends to protect those customers against a far beyond the customer-insurer wide range of potential risks. relationship. As the insurance Product and service innovation workforce grows, so does the state. According to IMPLAN as calculated by Innovative products and services CERC, one new job in the insurance are augmenting the more traditional carrier industry adds 1.46 jobs to the products. Insurers must meet the needs Connecticut economy. An increase of of an ever-changing and uncertain $1 in insurance labor income puts an world by developing innovative new additional $0.78 into state commerce. products and services that embrace And every year the insurance industry the concept of shared risk and enable purchases an average of $2 billion it with leading-edge technology. in goods and services from other Relatively recent product innovations industries in Connecticut. range from insuring pets to terrorism insurance. Service innovations embrace This section of the report explores mobile computing and social media. how the insurance sector collaborates with numerous other sectors and Insurers, dependent on information highlights some of the issues that are technology for productivity gains, critical to sustaining Connecticut’s have developed and/or acquired vital insurance system from a local, leading-edge capabilities so advanced US and global perspective. that some consider themselves technology companies at their core. And thanks in large part to information technology, massive databases and mobile computing, insurers are able to provide a wide variety of services never before possible, including predictive
“We are uniquely positioned to help change health care and make the world a healthier place. That puts Connecticut at the center not just of our perfect storm but of the future of health care.” Mark Bertolini, Chairman, Chief Executive Officer and President, Aetna
28 PwC | 2012 Connecticut Insurance Market Report modeling, rapid in-field assessments investment yields, regulatory tightening and highly personalized self-service and slow overall growth. Established programs. The end result is a better global insurers, meanwhile, are facing and more cost-effective customer increased competitive pressures experience, precisely when customers through industry consolidation, as need their insurer most. well as international expansion by regional and global players. US and global markets The US economy continues to expand, The increasing wealth of the with Swiss Re Economic Research and expanding middle class—especially Consulting predicting real GDP growth in the rapidly growing emerging of 2.2% for the remainder of 2012 and markets of Africa, Asia, Eastern Europe 2.7% in 2013.21 and Latin America—has created a growing demand for a broad range Emerging markets are expected to P&C and life insurance products. sustain annual growth of 8% to 10% Each of these regions also includes a over the next 10 years. With rising segment of consumers who have not disposable household income, low yet ascended to the middle class. This deposit interest rates and improving is an opportunity for innovative micro- investment sentiment, insurance insurance products that can function as companies could witness an increased entrees into more traditional products. demand for life insurance, health insurance, non-life insurance and From a healthcare perspective, investment-linked insurance products.22 government-run healthcare programs around the globe are seeking We believe that the industry’s opportunities to better manage rising best opportunities for growth and healthcare costs. This is creating innovation exist in emerging markets. opportunities for insurers to work Since the financial crisis of 2007-2009, with governments on health and the insurance industry in developed cost management programs. countries has experienced low
29 PwC | 2012 Connecticut Insurance Market Report Our latest global CEO survey found that insurers as a whole are just behind the technology, communications and entertainment sectors in their readiness to embrace business model innovation.
Readiness to innovate To what degree are you changing the emphasis fo your company’s overall innovation portfolio in the following areas? Responses of ‘significantly increase’.
50
Global average 19 Communications
40
6 4 30 Banking and capital markets 1 7 2 5 12 13 8 9 11 Technology 3 14 20 Entertainment 10 18 15 17 and media 20 16 Asset INSURANCE management
Cost reductions to existing processes 10
0 01 02 03 04 0 New business models
1 Banking and capital markets 6 Metals 11 Chemicals 16 Pharma and life 2 Business and professional services 7 Industrial manufacturing 12 Forestry, paper, and packaging 17 Insurance 3 Healthcare 8 Retail 13 Global 18 Technology 4 Automotive 9 Consumer Goods 14 Construction/engineering 19 Communications 5 Transportation and logistics 10 Hospitality and leisure 15 Asset management 20 Entertainment and media
Base: All respondents Source: PwC 15th Annual Global CEO Survey 2012
30 PwC | 2012 Connecticut Insurance Market Report Executive perspectives
Making healthcare simpler, more personal for consumers Gail Boudreaux Chief Executive Officer, UnitedHealthcare
As individuals today assume more activity. An expert panel of researchers, local Harness technology to provide personal and financial responsibility pediatricians, school nurses, YMCA officials greater transparency and easier for their healthcare, they’re demanding and UnitedHealth Group leaders guide the access to health services. According more affordable products, greater program. On average, 84% of the original to a new survey UnitedHealthcare released transparency on cost and quality and 155 participants in the JOIN study achieved in September, approximately 14% of personalized help to navigate a complex a 3.5% reduction in excess weight. US consumers now use online tools to health system. They want more value, comparison shop for healthcare treatments more choice and more control. Encourage healthier behaviors by and procedures. While this figure might offering financial discounts.Incentives seem small compared with the 66% of At the same time, millions of new consumers need to go beyond rewarding simple survey respondents who use the Internet will soon enter the health system, putting enrollment in a program. Individuals should to comparison shop for cars, electronics, additional stress on existing resources and be rewarded for changing their behavior and airline tickets, auto insurance, and other contributing to a growing gap in the quality achieving better health. UnitedHealthcare consumer goods, it highlights a clear trend: and accessibility of care, particularly as has found that individuals are more likely to more individuals and families are turning greater numbers of Americans suffer from participate in wellness classes and connect to online tools to compare healthcare preventable chronic diseases that drive with a health coach when tangible financial costs and better understand their specific medical costs higher. What is the solution incentives are tied to their taking action. conditions and treatments. Online tools to promoting higher-quality care for more For example, today nearly 1 million people that make “comparison shopping” for people at a more affordable cost? Empower are enrolled in our Personal Rewards for healthcare easier are becoming even more and engage individuals, and incentivize Health program. Program participants are important as health reforms encourage healthier lifestyles. able to earn up to $1,000 off their annual greater transparency and flow of health insurance premiums. The impact is information to consumers. UnitedHealthcare has firsthand experience real: 45% of plan participants have lost an advancing programs that give consumers average of more than nine pounds each. Consumer engagement is a powerful tool the tools and information to help them that enables individuals, young and old, engage in healthier behaviors, make smarter Partner with care providers to to improve their quality of life, optimize choices and become more financially savvy. keep patients healthy. The shift health resources and transform the Working together, care providers, payers, toward increased collaboration with care personal healthcare experience. and individuals can make a difference. providers is transforming how healthcare is delivered to millions of consumers. Promote healthy lifestyles early New incentive-based payment models in life. With a startling 32% of children are utilizing integrated care solutions between the ages of three to nine being that are designed to align incentives overweight, childhood obesity has become a between care providers and health plans true epidemic. A new program called JOIN and reward physicians and hospitals for for ME engages parents and their children quality outcomes and for keeping patients to actively participate in a series of group healthy. Ultimately, that is how we will sessions to achieve a healthier weight by embed greater quality and affordability reducing calories and increasing physical across the healthcare continuum.
31 PwC | 2012 Connecticut Insurance Market Report The Connecticut Bruce Katz and Mark Muro at Insurance and Financial the Brookings Institution propose Services Cluster that clusters matter because these geographic concentrations of Insurance has perhaps its closest companies, suppliers, coordinating affinity with financial services, with entities, and institutions like many insurers having significant universities or community colleges financial service capabilities within can “unleash powerful synergies and their own organizations to manage efficiencies among member firms that their large capital reserves. So it is have the power to markedly boost the natural for insurance and financial performance of the state economy.”23 service organizations to be one in the same and/or collaborate very closely. Connecticut’s industry cluster initiative began in 1997, with business, The physical clustering of major government, education and civic insurance and financial services sections collaborating to accelerate firms within Connecticut generates the cluster development process.24 In tremendous benefits for the industry, 2003, CT IFS became one of nine formal neighboring industries, and for clusters and is considered a model for residents who share in the prosperity. cluster development. As an insurance mecca for centuries, Connecticut underscores the verity of Today, the mission of the CT IFS the contemporary push for regional remains the same, to advance and industry clusters—synergistic regional strengthen the industry. The strategic concentrations of industry and related goals of the organization are routed activity in particular fields. Such in workforce development, public clusters, argue economists and urban advocacy and business/economic planners, can reignite innovation, development. Nowhere does the entrepreneurship, and job creation. synergy between financial services and insurance intersect more than in
“The CT IFS Cluster is a place where business leaders from across the Hartford region—both colleagues and competitors alike—work together on the common goal of developing the future workforce and raising public awareness of one of Connecticut’s most important industry sectors. Together as one community, we are a unified and powerful voice for the industry.” James Bedard, Chair CT IFS and CFO/COO Northeast Region, UnitedHealthcare
32 PwC | 2012 Connecticut Insurance Market Report workforce planning and development. a unique approach to defining its asset With yields on traditional core fixed Both industries share similar needs for management function, but by and large, income portfolios at generational actuaries, underwriters, accountants, this function encompasses a significant lows and sovereign credit risk a real and business analysts and universal skill portion of the overall business cost concern in certain geographies, sets such as analytical, underwriting, —from resources and operations insurers are looking at other strategies verbal and written communication. functions, to IT hardware and to enhance returns and diversification software costs, support and third party while maintaining liquidity to meet The CT IFS companies, both relationship costs (e.g., asset servicers, liabilities. Alternative investments, insurance and financial services, broker/dealers, pricing services, including hedge funds, remain a agree that cultivating the workforce etc.). Many insurers are considering small but growing proportion of of the future is paramount to their various actions to transform their asset insurers’ portfolios and sourcing and economic prosperity. The CT IFS management function, particularly the monitoring these investments requires supports workforce programs such middle and back offices. In the front specialized skill sets. Pressures on as the Actuarial Boot Camp for high office, many insurers outsource a large insurance companies continue to school seniors, Get Hired—an annual, portion of investment decisions to squeeze profitability and long-term state-wide insurance and financial specialized insurance asset managers; sustainability—a low-interest return services career fair; and High School others take the opposite approach environment, regulatory pressures, Inc., Hartford’s public high school and lend their investment expertise tax and compliance changes—which dedicated to the study of insurance to outside parties, earning significant all continue to present significant and finance. management fee income to supplement challenges to all asset managers. core revenue streams. Investors, regulators and policyholders Asset management continue to demand a higher level Insurance companies must actively of trust and transparency. manage the complex risks of both the asset and liability sides of their balance sheets and a key determinant of success lies in the ability of their “Working with the Connecticut IFS Cluster, Webster asset management functions to achieve Bank is committed to preparing tomorrow’s optimal risk-adjusted returns while workforce today. With Hartford, CT, being known adhering to capital requirements and, most importantly, supporting as the ‘Insurance Capital of the World’ and Webster their businesses. Each company has Bank being a leading regional bank servicing businesses and consumers throughout a four- state footprint, we understand the importance of training an interconnected local workforce. This, in turn, feeds a cycle of empowerment—productive residents investing in and committing themselves to their communities and providing a groundswell for economic growth.” Joe Savage, Executive Vice President, Commercial Banking, Webster Bank
33 PwC | 2012 Connecticut Insurance Market Report Executive perspectives
Asset management in insurance: Increasing complexity is changing the rules of the game Woody Bradford President and Chief Executive Officer, Conning
Asset management is an important facet limited to low returns on investments. It is Over the longer term, the insurance of the insurance sector, and one that further complicated by the interaction of industry and its investment operations will has become more complex and taken on low interest rates and liabilities, leading to likely be challenged by demographic forces more risk, even as investment yields have a surprising build-up of risks arising from a that will continue to act on both assets and plummeted. Combined invested assets for number of factors including, but not limited liabilities. As people live longer and the the US insurance industry segments (Life, to, policyholder arbitrage, inflation risks, average age of the population increases, Property-Casualty, and Health) amounted and asset-liability duration mismatches. insurance companies face changing risk to $7.0 trillion as of year-end 2011, up profiles and product needs across all from $2.6 trillion in 1995. Invested assets Companies wishing to moderate some of segments of the insurance industry. An support the promise of insurers to pay this low yield environment by expanding increase in long-dated liabilities will claims, sometimes many years from when into broader classes of investments are contend with increasing demand and a policy is issued. Investment income also facing an increasingly complex range of competition for quality long-dated assets— is an important part of total income in the investment choices. At the same time, demand not only within the insurance insurance industry, representing (on average they must address increasing regulatory industry but also across the pension over the past eight years) 103% of property- demands for risk management and world, banking and financial services, casualty income, 24% of health insurance disclosure. The question has moved and consumer retirement markets. income and 402% of life insurance income, beyond “how do I get more yield?” to exclusive of realized capital gains and “what risks am I prepared to take and Under these conditions, insurers may find losses. For some insurance companies, asset how do I get paid for taking those risks?” that solely relying on traditional fixed management also is a source of direct sales, income securities can be less effective as providing investment services and products Companies rising to these challenges solutions to liability matching and risk to consumers, corporate customers, and are adopting a more holistic approach to management needs. Replicating portfolios even other insurance companies. their investment and risk management and baskets of securities that meet the strategy, focusing on generating superior needs of liquidity, inflation protection, and Today, and for the next several years, the risk-adjusted returns on capital across the duration management are emerging in the insurance industry is being challenged by enterprise. This requires understanding marketplace, but successful employment changes taking place in the investment the interaction of risk and reward between of these solutions requires additional world. In many ways, these challenges operations and investments and across expertise, infrastructure and heightened match or exceed those in core operating changing economic and competitive risk management capabilities. areas. At the same time, these challenges environments. It also requires a deeper present opportunities for the creative, and appreciation of risk and capital within New economic realities are leading to for those ahead of the curve. economic, accounting, and regulatory many changes in the role played by regimes that also are undergoing change insurance company asset management. Among these challenges, one of the most and evolution. The most successful Opportunities are expanding and leading pronounced and widely discussed is the organizations are breaking down the to the development of new products fact that extremely low interest rates are silos across their organizations, forcing and services, new technology and risk changing the short-term and long-term collaboration and innovation. Additionally, management applications, and broader profit equation. Investment yields are many insurers are increasingly leveraging integration with the products and financial roughly half of what they were just a short outside expertise and experience to assist performance characteristics across the five years ago, putting pressure on income, them in identifying options and best full insurance enterprise. Leading firms risk, and expenses. The challenge isn’t practices as well as implementing them will take a holistic perspective, encourage to more successfully navigate the current collaboration across their firm, and take investment environment. advantage of best practices to optimize their risk-adjusted return on capital.
34 PwC | 2012 Connecticut Insurance Market Report And Connecticut’s hedge fund funds are blurring every day, with industry is well positioned to support mutual fund companies creating the insurance industry’s alternative or buying alternative investment investment needs. As Bruce McGuire, capabilities, and hedge funds adopting President, Connecticut Hedge Fund registered investment company and Association puts it: “Connecticut even full mutual fund structures. is one of the top global centers of Connecticut is uniquely positioned the hedge fund industry, and is to be a leader in this industry home to many of the largest and best transformation. It is imperative performing alternative investment that our leaders recognize the management firms. The lines between opportunity that exists and continue traditional asset management such to do everything in their power to as mutual funds and “alternative encourage the growth of the industry investment management”, such as and help to ensure that Connecticut hedge funds and private equity emerges as a leading global center of the asset management industry.”
Top 10 hedge funds by equity assets under management in Connecticut
CT Hedge fund name Equity assets Location rank (millions)
1 AQR Capital Management LLC $16,692 Greenwich
2 SAC Capital Advisors $16,586 Stamford
3 Lone Pine Capital $16,120 Greenwich
4 Viking Global Investors $12,250 Greenwich
5 ESL Investments $12,250 Greenwich
6 Bridgewater Associates LP $6,429 Westport
7 Discovery Capital Management $5,533 South Norwalk
8 Chilton Investment Company $4,281 Stamford
9 Kenisco Capital $3,022 Greenwich
10 Diamondback Capital Management $2,976 Stamford
All Connecticut Top 10 Hedge Funds $90,370 Connecticut
Source: HedgeTracker.com. Copyright ©2012 HedgeTracker.com. All rights reserved. Note: Assets are as of March 31, 2012.
35 PwC | 2012 Connecticut Insurance Market Report Education to many other locations, employers will increasingly think of Connecticut Connecticut’s educational status fares as a location for high-paying positions well by some standards but is not with lower paying positions being without its challenges. From a positive performed elsewhere (refer to the perspective, Connecticut has a highly “Competing globally” section of this educated population, ranks well in report). Therefore, the quality of terms of education quality and invests Connecticut’s educational system heavily in public education. needs to be high enough to enable our citizens to compete for these highly However, like many states, skilled positions. Otherwise, these Connecticut also has a well- With globalization, jobs may leave the state. documented achievement gap technology and an between the rich and poor. This Help wanted increasingly mobile combination of high investment workforce, it is more and mixed results was deemed The insurance sector is comprised unacceptable, prompting Governor of a diverse set of jobs requiring a important than ever Malloy, with near unanimous support wide range of educational and skill to produce a highly from the House and Senate, to sign requirements. As highlighted earlier educated population an education reform bill in May in this report, important insurance 2012. The law authorizes nearly industry skills include management, with skills that are $100 million in new funding for the business and finance operations, relevant to our future. state’s troubled schools, which will be computer and math and sales. Based on used to create 1,000 more pre-school an informal survey of select insurance slots for students, 10 family resource company human resource executives centers and 20 school-based health as reported in the IFS Occupational clinics. It also provides for grants to Outlook Report (October 2012), on help low-performing schools recruit the corporate side, there is a demand teachers and a new evaluation process for actuaries, underwriters, product for administrators and teachers. managers, attorneys and accountants. Demand for information technology Why is public education so important professionals includes architects and to Connecticut, the nation, and the software engineers. Future needs are insurance sector? expected to be similar, but also include sales professionals, project managers, With globalization, technology and business analysts, financial analysts, an increasingly mobile workforce, it is claims examiners and customer more important than ever to produce a service representatives. highly educated population with skills that are relevant to our future. Fortunately, there are several educational programs in Connecticut Globalization and technology enable a that are working to feed the insurance significant amount of work to be done sector’s need for talent. anywhere and many insurance jobs do not require proximity or significant Programs like these will play a key role infrastructure. For these jobs, the most in enabling Connecticut to retain and important employee sourcing factors grow its greatest asset, human capital, are cost and quality. With Connecticut to meet the insurances sector’s future being a high-cost environment relative talent needs.
36 PwC | 2012 Connecticut Insurance Market Report High School, Inc. is a life changer. As Hill explains, Beginning at the high school level, they get to see the relevance of what there are schools such as Hartford’s they’re learning much earlier than High School, Inc., which is a college students in schools not connected to preparatory school for 400 high industry professionals. For example, school students, grades 9-12, who 12 companies opened their doors are interested in pursuing careers in recently for a job-shadowing day that the insurance and financial services allowed 116 students and five parents industries. In effort to help build the to participate. One of the goals of High workforce of the future, High School, School, Inc. is to change the lives of the Fortunately, there are Inc. is supported by the CT IFS and its students and their families. As Hill puts member companies. The students are it: “Changing student’s mentality can several educational afforded an opportunity to participate change the community.” programs in in corporate field experiences, such as Actuarial Boot Camp Connecticut that job shadowing and internships, and make a real-world connection to daily Also at the high school level, CT IFS are working to feed corporate life, especially as it relates to and Prudential Retirement sponsor the insurance sector’s curriculum and classroom lessons.25 an Actuarial Boot Camp, an intensive need for talent. and interactive one-week program that The school is closely affiliated with the teaches high school students about the National Academy Foundation (NAF), actuarial profession and prepares them which fosters partnerships between the for their first actuarial exam. Sessions business and education communities to focus on writing skills, negotiation provide opportunities to underserved strategies and professional ethics. The students. High School, Inc. is among program also provides networking about 500 schools across the country opportunities with actuaries working that follows the NAF curriculum. in insurance, finance, government, risk assessment and consulting. Guest The school also teaches softer skills, speakers from companies like Cigna, such as the fine art of networking with Hartford Life, Phoenix, Travelers industry executives. “These kids are and UnitedHealthcare participate getting connections that enable them and provide students with guidance to get internships and move on to on internships, employment and college,” said Terrell Hill, the school’s career advancement. principal. Giving inner city students exposure to real world experiences
“Connecticut has a long-standing partnership among its businesses, academia and state government in building a ‘center of excellence’ in workforce development programs for the IFS industry.” Diane Bengston, Senior Vice President Human Resources, The Travelers Companies
37 PwC | 2012 Connecticut Insurance Market Report This year, 41 students applied and 24 Center of Actuarial Excellence, as students in their post-graduation were accepted. In the words of some one of only 14 schools in the country job search. This industry-led and student participants: (and one of only 23 in the world) to focused program enables students to be so recognized by the Society of develop and document competencies • “My experience at Actuarial Boot Actuaries.26 which the IBFS seeks in high value Camp definitely reinforced my desire new hires.29 to want to be an actuary and got me • The University of Connecticut excited about my future.” School of Law is home to The • Connecticut’s community colleges Insurance Law Center, which was offer a variety of courses, lectures • “I had an awesome experience. founded in 1998 with a generous and associate degree programs If I could go again I would!” endowment from the insurance geared towards helping students • “I am 100% certain that I want community. Located in downtown prepare for a career in the insurance to be actuary.” Hartford, the Center is recognized industry. Gateway Community • “I learned a lot and am now around the world for the study of College in New Haven teaches excited to pursue a career in law, insurance and risk. It boasts an leadership, customer service, actuarial sciences!” insurance law collection unmatched medical billing, insurance pre- by any other US university, and licensing, healthcare reform, • “I will recommend this to anyone publishes the Connecticut Insurance computers and web design.30 Capital interested in being an actuary.” Law Journal.27 Community College in Hartford has insurance and finance programs • The University of Hartford’s Barney Higher education that teach commercial underwriting School of Business has an Actuarial Within higher education, a number of principles, property and liability Science Minor program as part of its programs produce a steady stream of insurance principles, risk assessment Career Ready Business Education workers to support the insurance sector. and business law for insurance Program. Actuaries from area firms While most colleges and universities professionals.31 have been deeply involved in the have broad based curriculums (e.g., design of the actuarial science business, finance, math, information Opportunity for action program and their guidance helps systems, etc.), some have programs that to refine the curriculum and place Connecticut has built strong are keenly focused on the insurance students in actuarial internships. The connections between academia and sector. A few examples include: University of Hartford is also home the insurance sector and must continue to the RC Knox Center for Insurance to do so, especially with respect to • The University of Connecticut’s and Risk Management Studies, well-compensated and emerging skill (UConn) Graduate Business which has been in place since the requirements. To gain more of an Learning Center in Hartford is home 1980s and supports undergraduate advantage, employers and educators to the Janet and Mark L. Goldenson and graduate study in Insurance, should continue to work together to Center for Actuarial Research. It Risk Management and Employee develop industry-specific programs offers students the opportunity Benefits.28 targeted directly at future insurance to participate in academically workforce needs. Doing so will help rigorous research projects on • Central Connecticut University’s to ensure that the state’s academic real-world problems. The center School of Business created an institutions continue to provide partners top actuarial students and Insurance, Banking and Financial education that is relevant to the needs faculty at UConn with actuarial Sector (IBFS) Initiative in 2010. of the cluster and that Connecticut professionals in the insurance and A workgroup of Business School workers are a top priority for insurance financial services industries from faculty and IBFS businesses was company recruiters. And in return, firms in Hartford and the region. formed to drive this initiative with Connecticut’s insurance companies Additionally, the University of the goal to create a workforce and employees will continue to fund Connecticut is recognized as a development initiative that aids the educational sector.
38 PwC | 2012 Connecticut Insurance Market Report Community • Volunteerism: The Hartford disadvantaged areas of Hartford to employees donate more than the business world and providing an Connecticut insurance companies 100,000 volunteer hours nationally overview of the insurance sector. An and their employees recognize their each year. UnitedHealth Group estimated 200,000 people attended responsibility to give back to the employees contributed 29,000 hours the Travelers Championship in community in meaningful ways. of volunteer service in Connecticut 2012 and generated $1 million There are countless examples of their in 2011. Vantis Life employees for charity and an estimated $28 commitment to communities through participate in the United Way million in economic impact. Each charitable giving, volunteerism and campaign and “Day of Caring” and year, MassMutual employees collect support of programs including diversity, received two “Best Of Awards” for hundreds of pounds of food for healthcare, education, arts and culture, outstanding participation. Prudential the Enfield Food Shelf, and donate community development and the helps to improve the Hartford hundreds of winter coats and environment. A few examples include: area by investing over $1 million thousands of toys to the Salvation • Grants and scholarships: of financial resources annually, Army’s annual Coats for Kids and Aetna has given more than $413 providing business expertise and the US Marine Corps’ Toys for million in grants and sponsorships associate volunteer skills in programs Tots drives. ING US has supported to non-profit organizations since that increase human potential and local communities through multi- 1980. OdysseyRe employees vote individual self-sufficiency. Catlin year title running sponsorships such on charities they want to support, donates to charities, works on as the ING New York City Marathon, including after-school and summer community projects and supports ING Miami Marathon and ING education programs for low-income individual fundraising activities. Hartford Marathon, as well as children, food and homeless shelters, Catlin is also the title sponsor through its ING Run For Something domestic violence, medical aid and of the Catlin Seaview Survey, a Better youth fitness initiative which research, support for wounded scientific exploration of the impact has committed over $4 million warriors and their families to of environmental change in our to fund grants and school-based animal welfare. The foundation oceans. Prudential helps to improve running programs in Connecticut of Anthem’s parent company has the Hartford area by investing over and across the country. granted more than $130 million $1 million of financial resources • Environment: Catlin assesses their to organizations that support their annually, providing business carbon footprint annually and makes Healthy Generations program and expertise and associate volunteer an effort to reduce it by purchasing their commitment to the health and skills in programs that increase credits to offset 100% of global air well-being of the individuals and the human potential and individual travel. These credits are used to communities they serve. Since 2005, self-sufficiency. finance a variety of projects with MetLife Foundation has donated • Community service and environmental benefits. Since 2007, more than $7.5 million to nonprofit development: Lincoln Financial ING has realized a 23% reduction organizations serving community Group has donated $9 million to in energy use, 50% reduction in needs throughout Connecticut. Hartford non-profits since 2006 paper use and has reduced by 57% The MetLife Foundation also through its Lincoln Foundation. the company’s generated landfill supports United Way organizations, XL Group plc holds an annual waste. They received both the provides volunteer grants to Global Day of Giving to support the Green Power Leadership Award and employees, matches employee communities in which they operate. the Connecticut Climate Change gifts to Connecticut colleges and In 2012, XL Group’s projects included Leadership Award in 2008. Several universities; and has partnered with assembling information packages other insurers have implemented KaBOOM! to provide hundreds of and course materials for Hartford sustainability programs that include volunteers to help build safe, fun middle school students enrolling in environmentally friendly policies and playgrounds for kids, families and an educational enrichment program, communities in Hartford, New introducing young people from Haven and Bridgeport.
39 PwC | 2012 Connecticut Insurance Market Report initiatives, such as the installation • Arts and culture: Connecticut of solar panels and electric vehicle insurers and their employees play charging stations at their facilities. prominent roles in numerous Insurers are also helping to influence art and cultural programs and customers with products that include events across the state. Board “green” incentives. positions, sponsorships and active participation abound. Just a few • Healthcare: ConnectiCare supports examples of mutually beneficial health-based organizations that relationships between insurance center on wellness, prevention and the arts include: The Bushnell and strengthening the delivery Center for the Performing Arts, the system in the greater Hartford area. Connecticut insurance Mark Twain House and Museum, UnitedHealth Group, in partnership Wadsworth Atheneum and the companies and their with Youth Service America (YSA), Greater Hartford Arts Council. In employees recognize created UnitedHealth HEROES— addition to sponsoring these and a program that awards grants their responsibility other arts and cultural organizations to schools and youth-focused directly, The Hartford Steam Boiler to give back to community organizations for projects Inspection and Insurance Company the community in that children develop for their peers and its employees have been the No. to combat obesity. Cigna introduced meaningful ways. 1 workplace supporter of the United a new element for its sixth year Arts Campaign in their category for as sponsor of the Calhoun Cancer the past 15 years. Challenge—gamification. Cigna provided fifty participants with • Ethics: The Ethisphere Institute, devices showing calories burned a leading international think- during the Hartford event, and the tank dedicated to the creation, Cigna Foundation contributed fifty advancement and sharing of cents per calorie best practices in business ethics, to fight cancer. has recognized The Hartford as one of the “World’s Most Ethical • Education: Employees at The Companies” for the last five years. Phoenix Companies mentor and tutor students from Fred D. Wish • Mentoring and employment: Elementary School in Hartford at Magellan Health Services their offices each week. Now in its founded the Hero Health Hire 27th year, the program is the longest initiative in 2011, which is continuously operated corporate a coalition of 38 healthcare tutoring partnership in the Hartford companies and organizations school system. committed to recruiting, hiring and supporting disabled veterans and their families. Collectively, these member companies employ more than 750,000 people in more than 5,000 worksites across all 50 states, the District of Columbia and US territories.
40 PwC | 2012 Connecticut Insurance Market Report Executive perspectives
The impact of the Travelers Championship in Connecticut Brian MacLean President and Chief Operating Officer, The Travelers Companies
Travelers is proud to be the official property “The Travelers Championship is so special As title sponsor, Travelers is committed casualty insurance provider of the PGA not only because of the generous support to working closely with the tournament TOUR and title sponsor of the Travelers provided by every sponsor and participant, staff to identify ways to make the Championship at TPC River Highlands in but also because of the broad public tournament bigger and better each year. Cromwell, Connecticut. awareness that it generates for our mission,” In addition to the event’s focus on military said James Canton, Chief Executive Officer appreciation, providing free admission The success of our community is vitally of The Hole in the Wall Gang Camp. “We to all active, reserve and retired military important, and this is a key reason extend our heartfelt appreciation to the service members and their dependents, that Travelers supports the Travelers Travelers Championship and lead sponsor the Travelers Championship partners Championship, which donates 100 percent Travelers for their devoted generosity and with Operation Shower to provide a baby of its net proceeds to charity. Since belief in our mission, which has allowed us shower for expectant military wives. Other Travelers became title sponsor in 2007, to serve more seriously ill children and fan activities include a 5K race for charity, the Travelers Championship has generated their families than ever before.” the Celebrity Pro-Am featuring sports and approximately $6 million for more than 100 entertainment stars like Bill Murray, Chris deserving nonprofit organizations across The tournament also benefits the Berman and Andre Tippett, a concert series the state and has generated more than community through the economic activity with music legends like Huey Lewis and KC $30 million for charity since its inception it brings to the region. According to a & the Sunshine Band, and Women’s Day, in 1952. One of the major beneficiaries is December 2011 economic impact study by which was created to broaden the audience The Hole in the Wall Gang Camp, which the Connecticut Economic Resource Center, of the Travelers Championship by offering provides a summer camp experience for Inc., in the first five years of Travelers’ a range of activities that give women the seriously ill children. Camp programs title sponsorship of the tournament, the opportunity to connect with one another serve more than 17,500 children and event had produced an estimated $135 while supporting our local community. The their families free of charge each year. million economic impact on the state of PGA TOUR has recognized the combined Connecticut. The tournament sustains efforts of Travelers and the tournament 250 jobs and generates roughly $28 staff with the award for “Best Sponsor million in economic activity each year. Integration” in 2009 and 2010 and “Best Of that $28 million, $13.5 million of the Marketing Plan” in 2011. economic activity comes from the rental of hotel rooms and cars, transportation “Travelers has been a part of this expenses, restaurant meals, purchases of tournament from the beginning in 1952,” special merchandise, and other goods and said Andy Bessette, Travelers Executive services. In addition to having a positive Vice President and Chief Administrative economic impact on Connecticut, the Officer. “We’re a hometown company Travelers Championship brings a sense of supporting a hometown event benefiting pride and enthusiasm to the region as a top hometown charities. It doesn’t get any professional sporting event in New England. better than that, and we are so honored to have tremendous support from the players, sponsors and the community.”
41 PwC | 2012 Connecticut Insurance Market Report Government individual mandate requires all citizens to purchase insurance or face a new Regulation tax penalty. The ACA establishes new Historically, the legislation and marketplace reforms regarding what regulation of insurance has been specific coverage must be offered. It within state purview. The Connecticut grants the Department of Health and Insurance Department (CID), led by Human Services (HHS) the authority Commissioner Thomas Leonardi, is to review health insurance premium responsible for licensing insurance increases and insurers must justify companies, producers and others. The rate hikes of over 10%. And the Act’s CID regulates insurance policy forms, medical loss ratio (MLR) provisions Despite new federal rates and programs, and regularly require insurers to balance benefit powers, state regulators examines insurance companies’ administration and management still wield great control financial condition and market costs with the pay out of claims. conduct. The department also over the insurance handles insurance complaints.32 Despite new federal powers, state industry. regulators still wield great control over While regulatory authority today the insurance industry. In Connecticut, remains in the hands of state insurance Title 38a of the Connecticut General regulators, following the financial crisis Statutes gives the state’s Insurance of 2007-2009, the federal government Department the authority “to see entered the business of regulating that all laws regarding insurance insurance with two landmark pieces are complied with and that the of legislation. public interest is protected by the enforcement of the insurance laws In July 2010 President Obama signed and all implementing regulations.” the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd- Insurance laws are enacted by each Frank) to avert the “systemic” risk that state and the federal government had marked housing and mortgage has only limited authority in the markets and helped to trigger the sharp supervision. With the 50 states and global economic downturn. Should US territories offering different laws, large insurers be deemed systemic, uniformity in regulating the business the new law would subject insurers to of insurance is sometimes challenging many new restrictions. Dodd-Frank for national and global companies. also establishes the Federal Insurance Office (FIO) within the US Treasury The National Association of Insurance Department to report to federal officials Commissioners (NAIC) acts as a on the insurance marketplace. It is standard setting body and regulatory also hoped that the FIO becomes a support organization that establishes singular voice for the US industry best practices and conducts peer in the international arena. reviews. States are able to coordinate activities through membership in NAIC. Federal healthcare reform, known as the Affordable Care Act (ACA) However, given the diversity of state of 2010, upheld by the Supreme approaches and the importance of Court in June 2012, gives the federal insurance to Connecticut’s economy, government greater oversight of the Connecticut is often considered the health insurance market (a more insurance leader among the states, complete overview follows in the next nationally and internationally. section). At the core of the law, the
42 PwC | 2012 Connecticut Insurance Market Report Executive perspectives
Connecticut insurance regulatory environment Thomas Leonardi Commissioner, Connecticut Insurance Department
Connecticut Insurance Commissioner (Malloy) administration signaled a If companies have an issue, we are going Thomas B. Leonardi was interviewed by strong commitment to support and grow to be willing to sit down and discuss the the state’s former Insurance Commissioner the industry and create jobs, getting problem—whether it is legislation that Thomas R. Sullivan, now a Principal in Connecticut back to business after one of they would like to propose, changes in PwC’s Financial Services Regulatory the most serious recessions of our time. regulations or simply a different way Practice and Paul V. Veronneau, Hartford On the federal level, the Dodd-Frank of doing business. Increasing the speed Advisory Leader, PwC. Commissioner Act, created in the wake of the financial in which we review filings and forms Leonardi is a member of the NAIC crisis, established a Federal Insurance are some of the key examples. We have Executive Committee. Office (FIO) to monitor all aspects of the numerous meetings with the industry US industry and coordinate policy on and industry trade groups. Consumer He was chosen by the US Department international issues. Globally, there were groups and the industry should view of the Treasury to serve on FIO’s Federal ongoing regulatory conversations that could us as a partner so that they both feel Advisory Committee on Insurance. He also directly impact our domestic carriers and, comfortable that they have a voice serves on the Financial Stability Committee ultimately, consumers. Health insurance and will be heard. That doesn’t mean of the IAIS and is an active participant was undergoing dramatic changes with we will always agree, but it does mean in a number of supervisory colleges for the Patient Protection and Affordable Care we will always listen and consider all large internationally active insurance and Act. All of this—much of it unprecedented sides to an issue. reinsurance groups in the US and Europe. and potentially very challenging—was tremendously intriguing to me. There is that fine line between being the For 22 years prior to his appointment market policeman and regulator but you as Commissioner, he was chairman and Sullivan: How do you strike that can do it in a way that allows companies CEO of Northington Partners, Inc., an balance between your number one and consumers to feel that they are being insurance specialty venture capital and mission protecting the consumers, heard and that you are reasonable. But investment banking firm. Prior to founding while at the same time creating a pro giving someone an inch doesn’t mean Northington, he was the head of M&A and growth atmosphere for insurers? that they can take a yard. I’m finding that, Venture Capital at Conning & Company. with almost no exceptions, companies are Prior to that, he was the president and vice Commissioner: The key elements very respectful of the Department and chairman of the Beneficial Corporation’s are collaboration, cooperation and appreciate what we do. I think that fosters insurance subsidiaries. communication—the “Three Cs”. As good corporate citizenship. By and large, Commissioner, if you are open and frank companies want to do the right thing. Veronneau: Why did you take this job? you set the tone for the Department and your staff as to how you will treat Commissioner: We are the “Insurance your constituents. The Department’s Capital” and this is a very dynamic time constituents include both carriers for insurance regulation in all arenas— and consumers. state, national and abroad. The incoming
43 PwC | 2012 Connecticut Insurance Market Report Veronneau: What are your top three 3. National and international regulatory so designated, what measures should those to five issues? issues are extremely important. We have companies be subject to. The Connecticut a very large number of internationally Insurance Department played a critical Commissioner: The top issues: active insurance groups in Connecticut. leadership role in working with industry, The issues being developed, negotiated other regulators, the NAIC and the IAIS to 1. The implementation of healthcare and enacted globally will have an devise a way to allow for the confidential reform. I’m blessed with an amazing enormous impact on our companies, their transfer of non-public data, without which deputy commissioner, Ann Melissa employees, and ultimately on consumers the G-SII data collection would not have Dowling, who has taken on all of the everywhere. There is only a very small been successful. healthcare and health insurance related group of US regulators that are engaged issues. She sits as my representative on in these issues and I felt it was imperative The second major IAIS initiative is the Board of the Connecticut Health that I have a seat at the table to help ComFrame (Common Framework for Insurance Exchange (the Exchange) shape these significant issues. As a result, the Supervision of Internationally Active as an ex officio member. We have a since early June of 2011 I have traveled Insurance Groups). ComFrame is intended memorandum of understanding with extensively and have now been out of to improve the quality of supervision of the Exchange whereby we will provide the state in excess of 200 days, including large cross-border insurance groups by support, whether it’s actuarial guidance more than 100 days out of the country. enhancing cooperation, collaboration or product design. However, we did not Obviously, this type of schedule is not and communication among regulators want to be a voting member in order very conducive to maintaining a quality in order to prevent gaps in supervision to remain independent and effectively life outside of work, but in addition to which led, in part, to the financial crisis carry out our role as regulator. the incredibly significant policy and of 2008. US regulators and industry are regulatory advantages to being so highly wary of ComFrame’s best intentions being 2. Public transparency is another key engaged, I know it has dramatically hijacked by certain countries’ desires to priority. We’ve enhanced transparency raised Connecticut’s profile as the impose a global capital standard. The and public accessibility through Insurance Capital on a global scale. And question of global capital standards and technology and greater use of social I would be remiss if I didn’t also mention the role and final form of ComFrame are media. We have posted all rate requests that none of the expenses associated with also significant industry concerns. On a online so an individual can read them these travels—not a cent—is paid for out related matter, Governor Malloy recently and post comments. People want to of taxpayer funds. signed into law the revisions to the NAIC’s be heard and this is a great way for Model Holding Company Act (MHCA) people to participate in the process and Veronneau: Can you explain to our which gives the Commissioner significantly be heard without having to show up readers why national and international enhanced powers to regulate large at a particular place and time and feel leadership is so important? companies, including specifically, the use intimidated by having to get up in front of supervisory colleges and the ability to of a large audience, potentially with TV Commissioner: There are two major demand data from any entity that is part of cameras and other media present. Now initiatives that the IAIS (International the insurance holding company, no matter they can weigh in from the privacy of Association of Insurance Supervisors) has where that entity is located or incorporated, their home or office. been working on for more than two years: and whether the business is insurance or the G-SII’s designation (Global Systemically non-insurance. This gives us an incredibly Important Insurer) process, which includes new and important tool above and beyond how to devise a methodology to allow anything contained in ComFrame’s regulators to identify G-SIIs and, if any are latest draft.
44 PwC | 2012 Connecticut Insurance Market Report Executive perspectives
Veronneau: So international leadership is Commissioner: It is essential to be a Sullivan: What about the federal good for Connecticut companies and good fair and honest regulator, be responsive government increasing its role in for Connecticut consumers. and not create unnecessary hurdles. We insurance regulation? Where does the are trying to be effective without being federal government play in terms of how Sullivan: If there is more harmonization difficult or distant. We are trying to work insurance companies are regulated? around the globe, the better it is for us. as a partner and work collaboratively with Give us your perspective on where the the industry because we think it ultimately federal government can be a facilitator Commissioner: There are points where benefits them and all their employees who or an enabler to help things. And where too much harmonization can become an are citizens of our state and pay taxes here. do you think limitations around federal issue. For example, some in Europe prefer It also provides a healthy market with good government’s role should be? to have a global capital standard. However, products and services to our consumers. in the US, we look at capital as one of many Commissioner: That is a great question tools in the tool box that US regulators use Veronneau: Is there anything that the and is one of the biggest issues I’m dealing to monitor and oversee companies. We industry is particularly critical of? with. The Federal Reserve has assumed know you cannot just rely on capital. the Office of Thrift Supervision’s role Commissioner: You’ll have to ask them. as thrift holding company regulator, so Veronneau: So those are your three major I am sure there are issues, but I suspect while that federal presence is a transfer issues: Healthcare, Increased Transparency that they are minor ones. I don’t think of power that already existed I think and International? there are any major issues out there where it’s fair to say that the Fed will be more industry is saying ‘we’re pulling our hair assertive in exercising its consolidated Commissioner: You also have to pay out and they just won’t listen to us.’ And if supervisory authority. We’re going to attention to your markets. For example there is I’d love to know about it. We meet have work closely together but this new the Governor and I were very appreciative with the companies and trade associations authority doesn’t change our role as the last summer that all but one of the major about two weeks prior to the three NAIC prudential regulators of the insurance insurers agreed to waive the hurricane meetings each year and spend time going entities. There are also some areas deductible in the aftermath of Tropical through their agendas. Many policy issues where insurance intersects with housing Storm Irene because the storm was not a are debated at these NAIC meetings and we and banking that could be influenced hurricane when it reached Connecticut. We want to make sure we fully understand the by other federal agencies, such as the have subsequently changed our regulations industry’s concerns in advance. We have Consumer Financial Protection Bureau so that now, in order for companies to done the same with consumer groups. (CFPB), but those are indirect impacts apply the high deductible, there has to be and not direct regulation. There is also a named storm with a hurricane warning, Veronneau: What can Connecticut the Federal Insurance Office, which is a and that storm needs to make landfall in insurance companies do to work better small department within the US Treasury Connecticut with hurricane force winds with you? and was created by the Dodd-Frank Act (74 mph or greater). In working with the in the wake of the financial crisis. Its key Legislature and the Governor’s office, we Commissioner: I think that they are roles are to monitor the industry, look can react to these types of issues to make doing a really good job. They are very for gaps in supervision and provide an sure that we maintain viable healthy proactive in communicating with us international voice for the United States markets for all. whenever something on the horizon may government on insurance matters. What have an impact. Whether it is a proposed it most decidedly is not, however, is a Veronneau: We understand your role as merger, a sale or any other piece of news, regulator, and this point has been stated regulator and consumer focus. How about I usually get a call or an email before it repeatedly by the FIO Director and the efforts to enable the industry? Attracting is publicly announced. I don’t want to Deputy Secretary of the Treasury. What business to Connecticut. be blindsided by reading about a major I’m troubled by is that FIO has a very announcement for the first time in the different view of what powers Congress paper or on the web. So I think that they are has granted to it, one that I and many very good about that, particularly the large others believe is overly expansive. And I companies, the newsmakers so to speak.
45 PwC | 2012 Connecticut Insurance Market Report also believe the office has and continues to Commissioner: It is not incremental Veronneau: How important is the overstep its authority, fails to coordinate and some folks are letting it happen. My Connecticut insurance cluster concept? effectively with the states before expressing concern is the lack of coordination with views, some of which are inconsistent the state regulators. If you are going Commissioner: I think it helps. Look at with what we, as the prudential regulators to try to carry something out from the the Route 128 corridor in Massachusetts view as being in the best interests of US federal government standpoint with or Silicon Valley. I think there is a tipping consumers and industry. FIO’s positions foreign regulators at the IAIS for example point for economic development and on global capital, solvency, ComFrame and and you haven’t coordinated with state we may very well be there on insurance supervisory colleges are among the most regulators, you are doomed to fail. Nothing here in Connecticut. Having a proactive glaring and alarming examples. FIO also the FIO agrees to internationally (other Governor being accessible to the industry defends its inappropriately expansive view than “Covered Agreements”) will have and saying we want this industry to grow, of its role by simply dismissing arguments any effect if US regulators and ultimately we value it is an important driver to our to the contrary. To repeatedly say “the law state legislatures are unwilling to adopt economy, is immeasurable. The industry is the law” as though that justifies actions those measures. More importantly, what employs thousands of people directly and that are clearly not authorized under the kind of signal does this send to the world indirectly in CT. There are resources here, a law is disingenuous at best. FIO also claims at large? The US is the largest insurance concentration of skilled professionals that it is not impacted by political influence market in the world with a very successful you don’t find in many other places in the since the director is a civil servant who track record of an effective, national-state world. For example, Hartford, Connecticut can only be fired for cause, (as opposed based regulatory system. Our Number One has the highest per capita number of to a political appointee who serves at the priority is and always has been protecting actuaries of any city in the world. You’ve got pleasure of the Administration). But what our policyholders. Obviously there’s a FIO folks like yourselves who are consultants FIO fails to point out is that nearly every report coming out at some point that will providing advice at the highest levels to our employee at Treasury is a civil servant, that identify perceived gaps or problems with nation’s largest companies. There are law “cause” can mean a lot of things, and that insurance regulation. Our system has been firms, systems consultants, accountants the opening sentence in the section in DFA subject to federal scrutiny before so we’re to go along with a top flight and highly that establishes FIO specifically states that used to this kind of attention and we think professional regulatory authority. We the FIO director will carry out its limited it can be a good thing, but I also think that have long been known as “The Insurance powers “ ...at the direction of the Secretary Congress and others should be skeptical Capital,” and I think that the cluster is all of the Treasury.” Don’t get me wrong, the of any calls for the FIO to expand federal about the critical mass that comes with FIO can and should play a meaningful role, authority. The financial crisis demonstrates being that. And we are trying to make it but in my view the current track record is that simply shifting regulation to the bigger and better all the time. one of building an empire, inappropriately federal level doesn’t necessarily provide encroaching on the role and responsibility stability or improvement, and our track of the state regulator and communicating record and our system compared to other and siding more often with European regulators during the crisis speaks for itself. regulators than with US regulators, The burden of proof for any shifting of consumers and industry. power, incremental or otherwise, should be on FIO to demonstrate what real problems Sullivan: Do you worry the authority of it intends to solve in what is already Dodd-Frank will broaden incrementally, if a competitive and stable pillar of the you will, that bit by bit, meeting by meeting, financial system. interaction by interaction, the federal government’s role will grow?
46 PwC | 2012 Connecticut Insurance Market Report Federal healthcare reform At the same time, we are entering The law aims to refashion core The US Supreme Court ruling an era of megapayers—the federal elements of the health insurance upholding the 2010 healthcare law government, large employers and business. Prior to the ACA, insurers reinjects a sense of urgency into the state exchanges empowered to direct mitigated risk by underwriting policies transformation of an industry that business based on health outcomes. at the individual and the small group represents nearly one-fifth of the US Economic uncertainty and federal market levels. Under the law, risk economy. Across the healthcare sector budget reductions add muscle to efforts mitigation becomes a population-level and beyond, implementation deadlines to improve efficiency, eliminate waste exercise. At the core of the law, the that once seemed far off now rapidly and constrain overall cost growth. individual subsidies and individual approach, putting fresh pressure Coordinated, integrated care, powered mandate mitigate the risk of adverse on health organizations to devise by richer data, continues its spread selection by encouraging a mix of innovative ways of delivering high- across the healthcare landscape. healthy and less-healthy populations quality, affordable care. to enroll in the individual market and The ACA could still be repealed, state exchanges. The Supreme Court ruled that a core revised or defunded by Congress provision of the Affordable Care Act or a new administration. Despite When state insurance exchanges (ACA)—the requirement that every the political uncertainty, private- open enrollment in 2013, along with American carry health insurance—is sector initiatives—accentuated and private exchanges, payers must decide a tax and as such, is constitutional. accelerated by the law—are moving whether they will compete in all or The ruling also permits the federal forward. The crucial question now only certain exchanges and, if so, government to pursue a broad is: Will health reform define your with what plan offerings. Insurers expansion of the Medicaid health organization, or will your organization with plans in place and ready to go program for the poor, but gives states define the post reform landscape? by 2014 will be in the best position to maximum flexibility on whether The 2010 law accelerated changes compete and gain market share early to do so. already underway in the US health on. The market for individual policies system by expanding and enforcing is expected to explode with customers As a result, incentives for collaboration payment models that revolve around who could determine how health are quickening the convergence of performance quality. Under the ACA, insurance is sold in the future. By hospitals, insurers, drugmakers, about 30 million more Americans are 2021, the individual and small business physicians and technology companies. projected to secure insurance coverage exchange market is projected to grow Creation of new state and private by 2021, while insurers are obligated to about $205 billion in premiums insurance exchanges, greater pricing to operate under tighter controls and $148 billion in exchange subsidies transparency, mobile technology and constraints. and related spending. Insurance and nontraditional competitors are companies, especially those focused turning the health business into a on the wholesale market of employer- retail operation. sponsored coverage, will have to devote considerable resources to individual policies sold on the exchanges.
47 PwC | 2012 Connecticut Insurance Market Report While many have experience With the medical loss ratio (MLR) Employer market remains dominant with direct-to-consumer sales in provisions still in place, payers Insurance companies should be the retail market through Medicare must continue balancing benefit prepared for strategic conversations Advantage plans, PwC’s Health administration and management costs with their clients. Small companies may Research Institute (HRI) research with the payout of claims. When MLRs find the Small Employer Health Options shows that the exchanges create are too low, consumers benefit through Plan (SHOP) business exchanges an huge consumer education challenges rebates. Approximately $1.3 billion in attractive option for introducing or regarding eligibility for subsidies, rebates were expected to be paid out in continuing to offer insurance to their access, benefits and pricing. Some August 2012, with $541 million going workforces. Four million people are insurance companies have already to the large group market, $377 million expected to receive employer coverage partnered with retailers and mass- to the small group market, and $426 through the SHOP business exchanges market wholesalers to establish and million to the direct purchase market. by 2021. Additionally, companies not market outreach programs for new Since individual market membership is currently offering health insurance healthcare consumers. expected to increase under the new law, may face pressure to do so since insurers should quickly adjust practices their workers must comply with the Government review impacts to manage MLRs, including accrual, individual mandate or make a payment. the business model reporting and distribution of rebates. The ACA grants the US Department Conversely, some businesses may The growth of high-deductible health of Health and Human Services consider the individual exchanges an plans underscores consumers’ cost (HHS) the authority to review health attractive alternative for their workers. sensitivity and puts increased pressure insurance premium increases, and Estimates vary, but small employers on insurers for the most cost-effective insurers must justify rate hikes of over and firms with high concentrations healthcare options, such as retail 10%. HHS publicly announced that of low wage workers will be the most clinics, e-visits and mobile health, premium increases in nine states were likely to consider dropping coverage. which provide convenient primary unreasonable. The Department reports Overall disruptions to the traditional care services. Expanded coverage that the review program has led to a employer market should be minimal. will continue to reinforce trend. With drop in proposed double-digit premium The nonpartisan Congressional Budget physician services already constrained, increases. With the ACA upheld, health Office (CBO) projects that in 2021, physician extenders, telehealth, retail plans must be prepared to justify about four million fewer people are clinics and Federally Qualified Health increases in premiums. expected to have employer-sponsored Centers can play an important role in insurance, a 3% reduction. helping the US healthcare system meet the needs of the newly insured.
The US Supreme Court ruling upholding the 2010 healthcare law reinjects a sense of urgency into the transformation of an industry that represents nearly one-fifth of the US economy. Across the healthcare sector and beyond, implementation deadlines that once seemed far off now rapidly approach, putting fresh pressure on health organizations to devise innovative ways of delivering high-quality, affordable care.
48 PwC | 2012 Connecticut Insurance Market Report States and Medicaid will generate increased coverage of non-disabled childless need for insurance market regulation adults, and early market reform Two central elements of health reform to protect against adverse selection, activity. State exchange establishment strongly affect states: health insurance provide consumers with greater determined the progress level, while exchanges and Medicaid expansion. access, and ensure that premium Medicaid/waiver coverage and early The Supreme Court’s decision that dollars are spent on healthcare. market reform activity served as states cannot be penalized for not differentiators within each level. participating in Medicaid will put HRI analysis shows that so far, 31% more decisions in the states’ hands. of states (15 states plus Washington, Another benefit that Connecticut may To date, more than $1 billion in grants DC) have made significant progress reap from the presence of the health has been allocated to support state toward reform, while 37% (19 states) insurance industry is better insurance exchange readiness, and the Medicaid have made moderate progress. The coverage. In 2010, 58% of Connecticut expansion is expected to increase the remaining 31% (16 states) have done residents had employer sponsored federal deficit by $642 billion from less to implement the law. HRI has health insurance compared to the 2012-2022. With 25 million individuals identified three types of states based US average of 49%. Similarly, only anticipated to buy insurance from on their progress under the ACA: high 11% of Connecticut residents were the exchanges and 11 million people progress, moderate progress and low uninsured compared to a US average enrolling in Medicaid by 2021, the two progress. Progress was measured of 16%.33 The ACA is expected to provisions are heightening activity in by three factors: health insurance reduce the percent of residents who states. New enrollment in exchanges exchange establishment, Medicaid are uninsured to 7% in 2021.34
Individuals with healthcare coverage
Connecticut US
Type 2010 2021 2010 2021
Total Population 100% 100%
Employer 58% 55% 49% 46%
Individual (Non-Group) 5% 4% 5% 4%
Exchange (Non-Group) 7% 7%
Medicaid 11% 8% 14% 13%
Medicare 14% 19% 14% 19%
Other Federal 1% 1% 1% 1%
Uninsured 11% 7% 16% 9%
Source: PwC Analysis; US Census Bureau, Current Population Survey, March 2011 Supplement; CBO, “Estimates for the Insurance Coverage Provisions of the Affordable Care Act Updated for the Recent Supreme Court Decision,” July 2012. Percentages may not total 100% due to rounding.
49 PwC | 2012 Connecticut Insurance Market Report Connecticut Health for Medicare and Medicaid Services and families with incomes up to 400% Insurance Exchange (CMS). In September, the exchange of the federal poverty level ($92,200 for The Connecticut Health Insurance selected its system integrator for ACA a family of four) pay for their premiums 36 Exchange (the Exchange) was administration and its “shop and on the Exchange. established as a quasi-public agency to compare” portal. satisfy the ACA requirement described “Our vision for the exchange is to on the prior page.35 Nancy Wyman, Scheduled to launch in October 2013, reduce the mystery and complexity Lieutenant Governor, is the chairman the exchange will be a marketplace of purchasing health insurance by of its board of directors and Kevin where Connecticut consumers and providing an easier, simpler and more Counihan, who played a pivotal role in small businesses can buy health transparent shopping experience,” Massachusetts healthcare exchange, insurance. Its goal is to increase said Counihan. is its Chief Executive Officer. The the number of insured Connecticut Connecticut’s health insurers Exchange is funded by the State and residents, improve healthcare are busily preparing products to federal grants. In August 2012, the quality, lower costs and reduce offer on the exchange as well as Connecticut exchange was awarded health disparities while providing the operational and information a $107 million Federal Level-Two an exceptional consumer experience. technology infrastructure that is Establishment Grant from the Center Federal tax credits will help individuals required to sell and administer them.
What will the newly insured look like? The newly insured compared to the currently insured are...
Race Health status Marital status Language Educational Employment status attainment ...less likely ...less likely to rank self ...more likely ...less likely ...less likely to have to be white excellent/very good/good to be single to speak English ...less likely to have full-time employment a college degree
75% 88% 69%
42% 79% 92% 88% 52% 59% 14% 29% 37%
White Excellent/ Single English College degree Employed very good/ or higher full-time good
Median age Median income Newly insured 33 166% FPL Currently insured 31 333% FPL
Sources: PwC HRI analysis for year 2021. Current Population Survey, Medical Expenditure Panel Survey and CBO.
50 PwC | 2012 Connecticut Insurance Market Report Connecticut Medicaid in Medicaid starting in 2014, but also Opportunity for action: Connecticut’s Medicaid program is allows states to get federal funding for adapting to healthcare reform the responsibility of the Department immediate enrollment. The Centers Health insurers are already making of Social Services. The Medicaid for Medicare & Medicaid Services decisions about which markets they program provides for remedial, (CMS) approved Connecticut’s state will pursue, how they will engage preventive and long-term medical plan amendment on June 21, 2010. and educate new consumers, and how care for income eligible aged, blind At the time, Connecticut estimated they will operationalize, scale and or disabled individuals and families that approximately 45,000 adults manage risk. Business as usual will with children. Payment is made would become eligible for Medicaid pivot toward satisfying a broader directly to healthcare providers, by under this health reform expansion scope of consumers who are faced the department, for services delivered and it would save the State at least with more choices. to eligible individuals. The program $53 million by July 2011. Under complies with federal Medicaid law provisions of the Affordable Care Act, Insurers need to differentiate (Title XIX of the Social Security Act) beginning January 1, 2014, the federal products, services and their consumer and regulations in order to receive government will pay 100 percent of experience. Membership retention and 50% reimbursement from the the costs related to this new eligibility growth through the state insurance federal government.37 group for three years. Beginning in exchanges should be driving decision- 2017, the federal matching rate will making now. Developing a social media Under ACA, states have three main decline gradually until it reaches strategy to reach consumers could be paths to take on Medicaid: 90% of allowable costs, where it a key differentiator and provide better will remain indefinitely. understanding of consumers’ needs 1. Choose to expand Medicaid and behaviors. By collaborating with eligibility to 133% of FPL and In addition to meeting infrastructure employers, insurers can reinforce receive federal matching dollars requirements for Medicaid enrollees, the value proposition of employer- to cover new lives states need to create environments provided coverage related to health 2. Forgo expansion without penalty in which consumers and their family and productivity. Insurers should also members are aware of all eligibility observe developments in the retail 3. Develop their own Medicaid requirements and understand how to expansion through waivers health space and consider partnership navigate the system. Assuming all states opportunities with providers. participate in the Medicaid expansion, Connecticut quickly chose the first about 38% of individuals will move option, becoming the first state in With the Supreme Court giving the in and out of Medicaid and exchange the nation to permanently add low- green light to ACA, insurers need eligibility four or more times between income adults to its Medicaid program to assess their readiness to comply 2014 and 2018. Only 19% are expected under the new Affordable Care Act. with federal and state regulations, to be continuously eligible. This Prior to passage of healthcare reform, medical loss ratio (MLR), and rate constant shift, known as churn, could states could only cover childless adults review. They should also take the drive up costs and disrupt continuity by applying for a waiver of Medicaid time to understand and manage risk of care. States can prepare for this. For rules. These waivers were temporary under the new Connecticut insurance example, Virginia passed Medicaid and states had to meet strict criteria exchange and Medicaid expansion, reforms that include care coordination for approval and renewal. The including how to best use technology expansion, program integrity efforts, Affordable Care Act requires states to participate. Finally, insurers should electronic health records systems and to cover all low-income individuals assess payment structures and other eligibility system improvements. financial arrangements with providers to support movement away from fee- for-service contracting.38
51 PwC | 2012 Connecticut Insurance Market Report Economic development This outreach program has identified “Insurance is one of the most The Connecticut Department several common issues across significant economic drivers of our of Economic and Community industries, including: cost of doing state and there is no place better to Development (DECD) is responsible business (including the cost of grow the industry than the Insurance for retaining and expanding business health, workers compensation and Capital,” Governor Malloy said. “The in the state. In their Annual Report unemployment insurance); increasing much-needed changes we made to for Fiscal Year 2010-2011, the taxes (both business and personal outdated laws have done exactly what DECD explains how their Office of property); aging workforce; high we intended—encourage and attract Business and Industry Development utility rates; lack of mass transit; and more business and revenue. I am proud has a retention and expansion a cumbersome regulatory process. to welcome TRRMI, and I am confident plan that is organized to work with Numerous programs and initiatives that because of the environment we Connecticut businesses. DECD staff are in progress to address these issues. have established in Connecticut, more are assigned to outreach to targeted captive insurance companies will put industries including, but not limited One recent success story is that in down roots here.” to, insurance and financial services, October 2011, Governor Malloy bioscience, advanced manufacturing convened a special legislative “The Governor has made it clear and aerospace, digital media, green Jobs Session aimed at creating from the start that Connecticut is technologies and more. The purpose jobs and strengthening the state’s serious about growing the industry,” of this outreach is to: competitiveness. The result was a Insurance Department Commissioner major jobs bill that included revisions Thomas B. Leonardi said. “Through • Promote Connecticut as a great to the state’s 2008 captive insurance professional and consistent regulation, place to do business. law. The revisions expanded the types the Insurance Department will make • Inform companies of the many of insurance captives can transact in certain that Connecticut-based programs, services and business the state and established a special captives will be noted for their incentives the state offers. regulatory unit at the Insurance quality and financial stability.” Department to focus on captives. This • Develop relationships with paved the way for an August 2012 “We’re very pleased to have formed Connecticut’s businesses and announcement by Governor Malloy that the first Connecticut captive insurance provide for an early warning/ international media and information company,” said Kevan Parekh, Treasurer intervention system in order to company Thomson Reuters has of Thomson Reuters. “Connecticut is assure that businesses remain relocated its US insurance subsidiary a logical place for our captive as we and grow in Connecticut. from Delaware to Connecticut. The have a significant corporate presence • Identify issues affecting the subsidiary, Thomson Reuters Risk in Stamford.” competitiveness of Connecticut Management Inc. (TRRMI), is the businesses. state’s first captive insurance company, taking advantage of key changes in the Governor’s sweeping jobs reform legislation of 2011.
“Insurance is one of the most significant economic drivers of our state and there is no place better to grow the industry than the Insurance Capital.” Governor Dannel P. Malloy
52 PwC | 2012 Connecticut Insurance Market Report Executive perspectives
Connecticut economic development Catherine H. Smith Commissioner, State Department of Economic Development
Catherine Smith, Commissioner of the Connecticut attracts head quarter locations Are there other plans to attract Connecticut Department of Economic and with its strong business service sector, more insurance business to Community Development (DECD), was convenient location and high quality of life. the state? interviewed by Paul V. Veronneau, Hartford It is definitely one of our targeted areas. Advisory Leader, PwC, and Susan Winkler, How successful has the state been Insurance and financial services are the Executive Director, CT IFS. with your efforts to attract captive biggest industry sector in the state in terms insurers to Connecticut? of employment. While we have not seen Prior to joining DECD, Commissioner So far, Connecticut has attracted two new much growth in insurance businesses in Smith had a distinguished career in the firms, with more on the way. The word is the state over the last several of years, we insurance and financial services industry. getting out. We didn’t expect that we’d see are now actively engaged in reaching out She began her career at Aetna in 1983 lots of new companies apply instantly but to companies to talk about the benefits of and held various management positions, there’s lots of dialogue and I am optimistic locating in Connecticut. including chief financial officer for Aetna based on the long list of companies that Financial Services. Later at ING she recently attended the Captive Insurance Over the years, some of our local served in numerous leadership positions Education Symposium on October 5, 2012. headquarter companies have been including chief operating officer for ING bought by firms in other states or even US Financial Services, and CEO of both There are a number of reasons these from offshore, and that really changes the US Insurance businesses. companies are interested in our state. the dynamic of how Hartford feels as an The Connecticut Insurance Department insurance capital. I am pleased to say that What are the big economic has an unbelievably good reputation. I a renewed sense of leadership is emerging development issues in Connecticut? can attest to this, since I was a user of as we see many of the local insurance With nearly twenty years of stagnant job the system for many years. I knew the CEOs now very actively engaged in our growth in the state, our biggest challenge insurance departments in many different city and state. The Governor meets with is to get the economy moving through states and the difference in the quality all these CEOs on a regular basis and economic stimulus and job creation. In of people, the turn-around time, the together they are mapping out a growth addition, on our jobs tour, we learned consistency of the way they approached strategy for the industry in Connecticut. what business owners believed was problems, even in their innovative spirit I am very confident that we are moving getting in the way of their growth: to come up new product designs, their in the right direction. perceived high cost of doing business. flexibility and willingness to work with you—these all stood out favorably But many sectors, in particular insurance, compared to other states. Talent, cost love the workforce here because of the high of doing business and location are productivity, knowledge base and choice. also key considerations. Many have said that finding equivalent talent in New York or Boston would be much harder and more expensive.
53 PwC | 2012 Connecticut Insurance Market Report Any specific strategies or tactics More globally, we need insurance that you can mention? companies to grow as many jobs here as The Capital Region Development Authority possible. We also have a major opportunity (CRDA) is really important. [Established by exporting our insurance knowledge and the legislature last June, CRDA is engaged innovation. For example, I just returned in a multi-pronged effort to attract business from China and they are very interested and bolster economic growth in the Capital in doing business with us. Our insurance area.] This organization is focused on commissioner, Tom Leonardi, is a leader revitalizing the Hartford downtown and across the world on insurance issues. It’s will bring housing, retail and cultural really important that we keep Connecticut initiatives to our capital. insurers in a competitive position globally.
Is there more that the insurance What can the CT IFS do better? companies could be doing to help I think it’s really a model cluster in with economic development? the state. It provides great networking Absolutely. In the old days, insurance opportunities and is really changing companies were part of every aspect the way people are thinking about the of downtown Hartford. An insurance industry, re-establishing our state as company, for example, built the Hartford the insurance capital of the nation. Civic Center. While economic pressures limit what companies can do from a financial perspective, real engagement by the businesses, such as serving on boards, using local vendors and keeping their employees downtown can help.
54 PwC | 2012 Connecticut Insurance Market Report “The Governor’s vision for restoring Another recent success story is New Insurance companies are taxed in our state’s economy through greater Britain’s hand-and-power tool maker, Connecticut on the total net direct opportunities for Connecticut’s hard Stanley Black & Decker (SBD), who premiums received from policies working businesses is now a reality, announced the relocation of their written on property or risks within one that will be repeated time and captive insurer from Vermont to the State. Additionally, total net direct again as more captive insurance Connecticut in September 2012. SBD subscriber charges received on any companies call Connecticut home,” Insurance Inc. also retained Marsh new or renewal contract or policy said Thomas Hodson, President of Captive Solutions of Norwalk to be by a healthcare center is also taxed. the Connecticut Captive Insurance its captive manager. Anyone who purchases insurance Association, the state trade from unauthorized insurers is also organization for captive insurers. Revenue/taxes subject to tax. Unauthorized insurers According to the FY 2012-FY 2013 are defined as an insurer who has not Captives are becoming fast-growing Governor’s Budget Summary, published been granted a certificate of authority alternatives to the traditional insurance every two years by the Connecticut by the Commissioner to transact the market. While captive insurance Office of Policy and Management, business of insurance in Connecticut, companies themselves typically do not Connecticut’s total budget for the fiscal or an insurer transacting business not employ significant numbers of people, year ending June 30, 2012 was just authorized by a valid certificate. There they require a larger service industry under $20 billion. are also several tax credits available that that employs captive managers, may be applied against the insurance actuaries, auditors, attorneys and Tax revenue for the fiscal year ending premiums tax subject to an annual financial analysts who specifically June 30, 2012 is not yet available, but in limitation. The chart on the following tailor their business for captives. The the fiscal year ending in 2011 just under page indicates the annual insurance host state benefits economically from $14 billion of the budget was funded premium tax by fiscal year, which is increased premium tax revenue and through tax revenue. The chart below included in the “Other Tax Types” a potential boost of tourism dollars breaks out tax revenue by tax type. section of the chart below. because captive insurance companies must hold their annual meetings in the state in which they are based.39 “In light of Connecticut’s broad insurance-based intellectual capital, its robust service Connecticut revenue by tax type (in billions) sector, convenient location at the crossroads of the Northeast and now $0.75 billion with its new law, the state is poised to become a critical a world-class captive domicile,” Hodson said. $2.34 billion
Corporation business tax $3.35 billion $7.25 billion Personal income tax Sales and use taxes Other tax types
Source: Connecticut Department of Revenue Services fiscal year 2010-2011 Annual Report.
55 PwC | 2012 Connecticut Insurance Market Report Connecticut first imposed a personal The Corporation Business Tax is services used by businesses, such as income tax in 1991 at a rate of 4%. imposed at a rate of 7.5%. In recent information technology services (taxed The highest marginal rate has now years a surcharge of between 10% at 1%), business consulting services increased to 6.7%. The tax rate is and 20% has been imposed on large and personnel (temporary labor) graduated, but the lower tax brackets businesses and combined return services. The result is that the cost of are phased out at specific income filers, bringing the rate to as much as doing business in Connecticut is higher levels. For example, taxpayers filing 9%. Connecticut offers a number of than it would be in surrounding states, jointly with taxable income over business tax credits, including credits especially for companies that rely $700,000 will pay at the rate of 6.7% for research and development activities heavily on technology or other outside on all taxable income. and fixed capital investment in the state. service providers. Companies are typically permitted to Unlike most states, including New offset 70% of their tax liability with Opportunity for action: A York and Massachusetts, Connecticut’s tax credits. Many Connecticut based comprehensive tax strategy personal income tax is based on businesses are able to substantially The current administration has federal adjusted gross income without reduce their Connecticut liability recognized that Connecticut’s tax policy the typical itemized deductions. through the use of credits. was developed through decisions that The deductions permitted by other were designed to address the state’s states often significantly reduce the Connecticut imposes a tax of 6.35% on revenue needs without significant income subject to personal income tax. sales of goods and certain enumerated regard to the impact on Connecticut’s Therefore, while Connecticut’s rate is services. Most states, including New business environment. Shortly after lower than some neighboring states, York and Massachusetts, do not Governor Malloy took office in 2011, he the net Connecticut tax liability may impose a sales tax on services or tax laid out his platform for improving the be higher for some taxpayers due to a very limited number of services. In Connecticut economy. He addressed the the difference in the tax base. contrast, Connecticut taxes a broad need to improve the state’s reputation range of services, including many with the business community.
Connecticut insurance premiums tax by fiscal year (in millions)
FY 2008-2009
FY 2009-2010
FY 2010-2011
175 180 185 190 195 200 205 210 215 220
Source: Connecticut Department of Revenue Services fiscal year 2010-2011 Annual Report.
56 PwC | 2012 Connecticut Insurance Market Report “We need to make sure people know our citizens, and ensure that the The department also includes a special Connecticut is open for business… rights of our most vulnerable citizens Healthcare Advocacy Unit (HCAU) to We will make Connecticut more are safeguarded.” 40 The Attorney assist patient and their doctors resolve employer-friendly by lowering the cost General’s office works closely with health insurance disputes, including of doing business with cheaper energy, the Department of Insurance. benefit coverage and payment disputes. rational regulation and turning state The HCAU is also involved in health government into a partner the business During the past year, the Attorney insurance company rate hearings. community can rely on—instead of the General conducted investigations, impediment it’s too often been,” said commenced legal action and obtained While the insurance industry is Governor Malloy. settlements in the insurance and re- sometimes the subject of the Attorney insurance industries. Much of the effort General’s investigations, the overall Legal is currently centered on investigating detection and prosecution of fraud is a The mission of the Connecticut and prosecuting anticompetitive and shared mission. Combating fraud and Attorney General’s office is to illegal practices by insurance and abuse within the industry protects the “represent and vigorously advocate re-insurance carriers and brokers, industry and reputable consumers/ for the interests of the state and whose practices included bid rigging, businesses by maintaining confidence its citizens, to ensure that state price fixing, steering of business to in the integrity of the industry and government acts within the letter preferred insurers. keeping costs/premiums down. and spirit of the law, to protect public resources for present and future generations, to preserve and enhance the quality of life of all “Compliance with the law is a necessary cost of doing business. As long as regulations are applied fairly and uniformly, no business should be unduly burdened. However, too much regulation, outdated regulations, or the unfair application of regulations stifles creativity, opportunity and growth. So we need a thoughtful, balanced approach. Government leaders must encourage a respectful debate about the need for certain regulations and, when appropriate, seek changes to a regulatory scheme. As Attorney General, my job is to ensure a level playing field for all companies operating in Connecticut, while at the same time protecting consumers from unfair or illegal practices from businesses. I will not shy away from a robust debate about how best to strike that balance.” George Jepsen, Attorney General
57 PwC | 2012 Connecticut Insurance Market Report Executive perspectives
ConnectiCare’s Provider Partnerships reflect collaborative approach to healthcare Michael R. Wise President, ConnectiCare, Inc. and Affiliates
While the elections and the economy have from 18% to 12% in a single year. This is with us to design and implement taken center stage recently, few national just one of many positive outcomes we programs that promote healthy lifestyles issues generate more ongoing debate have seen from our partnerships with the and active patient engagement across their than healthcare. Many of the nation’s best provider community—partnerships that workforces. For example, our programs minds are focused on reducing cost while we continue to improve and expand. address Connecticut’s obesity rate, which is improving patient experience and quality currently tied for the seventh lowest in the of care, but views on how to accomplish Central to our shared success is an nation. Each year more employees enroll these goals vary widely because the issues understanding of Connecticut, a unique in ConnectiCare health plans designed to are so complex. quilt of 169 towns and municipalities encourage informed healthcare decision- that have strong local identities. The making. Today, Connecticut consumers Despite these issues, I believe there is physicians and hospitals of the state have increasingly expect, and are using, online reason to be optimistic. At ConnectiCare, deep relationships and histories serving tools to become more knowledgeable we see a common thread in almost every their communities. They know that the about wellness, cost and quality. Every interaction we have with leaders in the best solutions in healthcare in Connecticut day we see the can-do, Yankee spirit in industry, whether they represent business will build on the strong foundation they Connecticut in full force as consumers of all purchasers, consumers, physicians, have created. At ConnectiCare, we share ages take greater personal accountability hospitals, research and development their perspective and highly value our close for their own health and for the health of centers, regulators or health plans. There relationship with Connecticut’s physician their families. is a recognition and heartfelt belief that, and hospital community. to make sustainable improvements in the At ConnectiCare, we believe that these healthcare system, all parties will have to Working together with physicians and are unprecedented times in the history collaborate in ways they have never had to hospitals, the people at ConnectiCare of healthcare. Business-as-usual will not before. Solutions will require the best ideas infuse shared values and a shared sustain our healthcare system, and only and efforts that each party has to offer. understanding of the local environment those who foresee and adapt to change early into four critical, integrated program will succeed in driving progress forward. It’s with this spirit that in 2010 components: clinical transformation, We also believe that willingness exists in ConnectiCare forged patient-centered patient engagement, enabling informatics Connecticut for all parties to come together Provider Partnerships across the state of and aligned incentives. We at ConnectiCare and think about healthcare differently. As Connecticut. By means of these Provider are very optimistic about the future of representatives of the state’s local, caring Partnerships, we are creating improved healthcare in Connecticut. and personal plan, ConnectiCare employees care coordination for patients across a are proud to live and work in Connecticut. wide range of care settings, including Our collaborative approach toward At ConnectiCare, we are excited to be doctors’ offices, hospitals and long-term healthcare also involves—as it must— uniquely positioned to help our home state care facilities. Better communication, employers and consumers. Connecticut of Connecticut move toward a sustainable information reporting and exchange, business leaders, recognizing that healthy healthcare future. and workflows have aided in reducing employees are essential to healthy unnecessary hospital readmission rates businesses, are very active in working
58 PwC | 2012 Connecticut Insurance Market Report Other partners/suppliers Competing globally Connecticut insurers are pivotal in a Changing economic factors have made vast network of partners and suppliers. competing on a worldwide basis a Distribution networks include agents, necessity for insurers in Connecticut, brokers and consultants. Health the US and globally. Insurers need to insurers have traditionally, and are now compete and grow on a national and mandated by the Affordable Care Act international playing field with a highly to spend 80-85% of premiums directly distributed network of agents, brokers, on providers of medical products and employees, suppliers, governments and services. The relationship between regulators to continue to be successful payers and providers and their shared in today’s global economy. responsibility in managing healthcare access, quality and cost is creating some Connecticut’s insurance landscape innovative partnerships as highlighted expands far beyond our local and by ConnectiCare’s perspective on payer/ national borders. Many Connecticut provider collaboration. insurers have already grown, or are planning to grow, their business LR&A companies partner with globally to gain a competitive affinity channels, including pension advantage and increase market share. plans, associations and banks. P&C They are establishing international partners range from proactive services operations or obtaining licenses in like inspection and monitoring to various countries such as China and firms involved in claims such as Singapore to sell insurance and/ case managers, attorneys, healthcare or acquiring existing insurers in providers and auto body repair shops. foreign markets to gain entry to new Reinsurers partner with primary geographic markets. Some are building insurers to spread risk. All insurers strategic alliances and/or forming joint team with banks and asset managers ventures to increase market reach and to provide optimal returns on adapt quickly to the rapidly evolving their investments. business environment. The chart on the following page illustrates how a Suppliers deliver everything from office typical Connecticut insurer may serve supplies to computer systems from its customers with a global network of a product perspective. And services partners, suppliers and service centers. ranging from catering to printing, legal, consulting, telecommunications and Conversely, foreign-based insurers information technology support. have expanded their presence in the US and Connecticut. For example, ING These partners and suppliers, whether acquired Aetna Financial Services in they are located locally or around the 2000 and Munich Re acquired The world, play a key role in Connecticut’s Hartford Steam Boiler Inspection insurance ecosystem. and Insurance Company in 2009.
59 PwC | 2012 Connecticut Insurance Market Report Headquarters Subsidiaries/sites Vendors/suppliers Shared service centers Interaction between headquarters and subsidies/sites and shared service centers Interaction between headquarters and vendor/suppliers
48% Percent of insurance industry respondents to PwC’s 15th Annual Global CEO Survey “agree” or “strongly agree” that emerging markets are more important to their companies’ future than developed ones.
60 PwC | 2012 Connecticut Insurance Market Report Regardless of headquarters location, Opportunity for action: Connecticut insurers must compete Competing globally on a global scale, from both a top The question is often asked: Can and bottom line perspective. Connecticut compete on a global scale? The short answer is “yes” but not in Like most sectors, insurers rely upon all areas. In many cases, labor is the a distributed workforce of employees largest expense for a service delivery and vendors in Connecticut, other organization, often constituting 50%+ states (on-shore) or around the of the budget. Connecticut is vulnerable world (off-shore) to deliver cost- from a labor cost perspective. For competitive products and services. Regardless of example, the fully-loaded average Business functions such as finance hourly cost of a mid-level clerk is headquarters location, and accounting; human resources; roughly $60 in Hartford, Connecticut, Connecticut insurers application, enrollment and claims $55 in San Antonio, Texas, and $15 processing; call centers and software must compete on a in Hyderabad, India. Competing with development have been consolidated San Antonio is possible, but competing global scale, from into shared service centers for many with Hyberabad may be a stretch. That both a top and bottom years and in many cases outsourced is of course, unless there is a value to on- and off-shore vendors. line perspective. proposition that outweighs pure labor cost. When quality, performance, An estimated 80% of global top 2,000 governance, logistics, transition costs, organizations have deployed some education and risks are factored into level of shared services or outsourcing. the value equation, Connecticut is The expectation is that these efforts still an attractive location. will reduce costs by 20% to 40% over a three to five year period through labor arbitrage, standardization, process improvement, economies of scale and performance management. However, consolidation and especially outsourcing does not come without risks. Labor arbitrage savings are constantly changing, governance and execution is often mismanaged and geopolitical factors can undermine the best laid plans.
61 PwC | 2012 Connecticut Insurance Market Report The path forward for Connecticut is norms. Therefore, it is imperative clear—compete in the global arena by for Connecticut’s government, developing and retaining talent for the academia and businesses to collaborate highest value and/or highest proximity on improving Connecticut’s macro- jobs. The high value jobs align well competitiveness drivers, such as with the Connecticut insurance sector’s cost of living, infrastructure and leadership, innovation and knowledge education. And it is equally important strengths and the high proximity jobs for Connecticut’s businesses to remain are tethered to the state by default. focused on building and maintaining world-class operations that deliver the However, even well-paying jobs (e.g., highest value; the best quality and best When quality, lawyers, accountants, actuaries) performance at a competitive cost. performance, are increasingly sent off-shore. governance, logistics, And ever-improving information technology developments will transition costs, continue to threaten proximity education and risks are factored into the value equation,
Connecticut is still an Competing in a global economy attractive location. High
Connecticut’s competitiveness zone • Leadership • Innovation • Knowledge • Proximity Proximity On-shore (e.g., Texas)
Off-shore (e.g., India) Growing competition Growing
Growing competition Low
Low Value High (Pay for quality, performance, etc.)
62 PwC | 2012 Connecticut Insurance Market Report Executive perspectives
Pioneering innovative customer-centric global health services Matt Manders President, Regional and Operations, Cigna Corporation
Connecticut leaders hail from the state • Helping families more easily navigate Another of Cigna’s collaborative nicknamed the ‘land of steady habits’, how to design and proactively use their initiatives with physicians and accordingly, we are at the forefront of own health care benefits consumers is our accelerated creation instilling new habits that will improve of accountable care organizations. • Building preferred relationships with consumer driven health plans for the public These health care delivery teams use even more physicians and hospitals and the private sector. Since Cigna41 was evidence-based standards to provide founded more than 200 years ago, we have • Coaching services to help individuals a better customer experience with strived to provide health care plans that meet their goals for behavior change improved health outcomes at reduced meet the varied needs of diverse consumers. costs. Early results demonstrate that • Participating in selected networks of successful groups have included health care professionals, dentists, and Today, we face global health care implementation of an embedded community resources management challenges including: aging care coordinator role. Embedded care populations with longer life expectancies; • Empowering consumers and employers coordinators get in touch with customers unsustainable increase in system-wide with financial options for their desired Cigna identifies as possibly being at health care costs; and a rapidly growing health plan risk at time of hospital discharge or number of people with chronic diseases. having potential gaps in care. Higher Simultaneously, we are also experiencing While there is much innovation ahead risk customers are afforded expanded a trend that makes us optimistic for health of us, working with diverse consumers access to care with more urgent care improvement of future generations. More around the world we have taken the lead appointments and weekend and after- than ever, consumers are holding service in designing and using online tools that hours care which lowers ER visits, and providers accountable for delivering easy to offer actionable solutions for customers are preferentially referred to specialists access, high-quality and tailored customer to use on a daily basis—tools that have identified by Cigna as higher quality experiences that motivate them to sustain earned us InformationWeek Top Innovator and lower cost. their well-being at an affordable cost. Award designation. Our “Find Doctors and Services” search engine enables With Connecticut leadership know-how, Cigna is dedicated to helping the people customers to assess medical costs for 200 global input, and innovative resources, we serve improve their health, well-being, common medical procedures. This unique we strive to continue living up to our and sense of security. Our global forecast tool offers estimated pricing for specialist, home state’s nickname ‘the land of includes: facility and related fees, according to the steady habits’ by continuing to improve • Making health care more accessible to real-time status of individuals’ health plan the health, well-being and sense of more individuals at affordable rates deductibles and co-insurance, as well as security of those we serve. their available health spending account • Building on consumer insights to funds balance—all before choosing their produce more tailored and culturally physicians. Our forecast incorporates new sensitive solutions options, such as these tools, to give our customers the information they need, pre- purchase, to be the best consumers they can be for their own health care.
63 PwC | 2012 Connecticut Insurance Market Report Executive perspectives
Making the P&C industry more relevant Mike McGavick Chief Executive Officer, XL Group plc
The economy is changing at lightning speed. complex companies, we need insight and news that there are significant supply chain Is insurance keeping up? How can we increase innovation. And the opportunity here is linkages in the global economy. The risks the relevance of the P&C industry to the not only to manage the risks of traditional have long been there. But what are we doing companies and lives of our clients? energy providers but also to unleash to address these risks? The reaction from the human progress by accelerating the industry so far has been to exclude coverage The macro numbers aren’t our friend. adoption of cleaner, alternative sources. while we figure things out. When we do Over the past decade, despite the Great that, we provoke our clients to figure out the Recession, global GDP has risen at an Technology risks on their own, and we’re further pushed average of about 3.8% a year. During the Technology is changing entire categories to the side. same period, P&C global premiums grew of activity. In 2010, there were 1.15 billion at about 2.5% a year. Great news. Except smartphone subscribers globally. By 2020 So what do we do? First, we need the best when you look at our contribution to global there will be 4.3 billion. But insurance is minds on our toughest problems. We have GDP. This has dropped from 3.4% in 2002 largely not present in this dynamic. While to challenge our tendency to put talent to 2.8% in 2011. On a purely economic we’re fantastic at insuring physical things— towards the most reliable businesses. level, we aren’t keeping pace, and the value atoms—we’re not yet great at insuring Second, we need to stop clinging to long we add to the economy is declining. bytes. But we are making progress. And data sets. In the time it used to take us to the recent expansion of XL’s cyber teams get comfortable with a product, whole Now, you could assign a lot of causes to demonstrates that we are thinking about industries now will come and go. We must this decline. But for me, the overriding this correctly. Yet, it’s estimated that only push ourselves to take appropriate risks. concern is our industry’s failure to innovate 28% of companies purchase such insurance. as fast as the clients we serve. This becomes What about the other 72%? They don’t And third, we need to let go of traditional particularly clear when looking at the think they need it? They’re willing to run methods. We must search for the parallels— great drivers of business and social change: the risk? Maybe. Or maybe as an industry the adjacencies—and use the data available the continuing need for reliable sources we haven’t made our products responsive to us. We must use analytics in new and of energy, the explosion in technology— enough to their needs. powerful ways to understand risk. especially mobile technology—and the dramatic and increasing global economic Supply Chain All in, I am supremely optimistic that the interconnectedness. industry will overcome these challenges and Recent events like the Japanese tsunami and that XL will lead the way. The opportunities Energy Thailand floods showed what happens when are too great to ignore, and we’ve risen to global economic chains and links break At the end of 2011, the largest US-listed the challenge in the past. XL’s own founding down. The disruption of the production of is a testament to our ability to innovate. P&C companies had shareholder equity a small automotive part in Japan, which of $176 billion. The largest US energy We’re tangible evidence of a determination retails for $90, caused manufacturers to to move forward. companies had shareholder equity roughly cut production and halt assembly lines five times that—at $821 billion. So, crudely around the globe. The floods in Thailand put: “Why do they need us?” If we seek led to a worldwide increase of at least 10% to be relevant to energy and other large, in the price of computer hard drives. It’s not
64 PwC | 2012 Connecticut Insurance Market Report Looking ahead— insurance 2020
Strategic opportunities Insurers who can anticipate and plan for change can create their own future. Although the future may be hard Others who are ‘fast followers’ will need to predict, insurers in Connecticut to be agile enough to recognize the can prepare for the tough new leaders and adopt similar strategies. business, investment and regulatory The ‘survivors’ will strike a balance environments emerging from the between short-term performance and financial crisis. long-term innovation /adaptation. The industry, however, also faces far How will Connecticut insurers fair? broader challenges. Demographic It depends upon their ability to shifts, the rise in power of the navigate the strategic drivers outlined emerging markets and changing below. Based on the executive customer behavior will all help perspectives included throughout shape the sector in the long-term. this report, however, we are sure you will agree that they are well on their way to success.
Insurers who can anticipate and plan for change can create their own future. Others who are ‘fast followers’ will need to be agile enough to recognize the leaders and adopt similar strategies. The ‘survivors’ will strike a balance between short-term performance and long-term innovation /adaptation.
65 PwC | 2012 Connecticut Insurance Market Report Strategic drivers Although no one can predict exactly and factors what changes will occur in the next decade, we believe five key We have explored the global social, megatrends will influence the technological, environmental, state’s insurance sector: economic and political factors to identify 32 factors that we believe • Social: The balance of power is will impact the Connecticut insurance shifting toward customers industry (see Figure 1). Not all STEEP • Technological: Advances in software factors will affect insurers positively. and hardware that transform ‘big Economic growth, for example, in data’ into actionable insights the short-to-medium term will be stronger in emerging economies. • Environmental: The rise of Forward-looking insurers in developed more sophisticated risk models countries, however, can still grow and risk transfer to address the in their local markets by exploiting increasing severity and frequency socio-demographic and technological of catastrophic events trends, while at the same time targeting • Economic: The rise of economic emerging markets for growth. Similarly, and political power in emerging insurers from emerging economies have markets an opportunity to reshape insurance • Political: Harmonization, products for their local markets while standardization and globalization expanding on the global stage to build of the insurance market their technical expertise.
STEEP drivers and factors
Social Economic Customer behaviors Demographics shifts • Urbanization • Social networking • Dynamics of the middle class • New growth opportunities • Customer expectations • New family structure • Fiscal pressure • Risk awareness • Dependency ratio • Inflation/deflation • Health • Aging • Risks sharing & transfer Talent drain • Social security & benefits Stakeholder trust • Distributor shift Corporate social responsibility • Partnerships
Political Technological Environmental • Regulatory reform • Geopolitical risk • Information & analysis • Climate change & catastrophes • Rise of state-directed capitalism • Devices & sensors • Sustainability • Terrorism • Software & applications • Pollution • Tax treatment • Medical advances • Sharia compliance (Takaful)
Source: PwC analysis
66 PwC | 2012 Connecticut Insurance Market Report In the table below, we outline a spectrum of possible implications for the insurance industry, ranging from regressive to progressive, for each STEEP driver.
Regressive Combination of factors Progressive 1 2 3 4 5 Social Customers Distribution disruption Distribution disruption Distribution Distribution predominantly in which multiple where integrated destruction, where destruction, where seeking face-to- channels compete for multichannel customers buy directly self-forming groups of face interactions customer interaction. interaction is the norm. from carriers. customers negotiate with intermediaries. bulk purchases from carriers. Technological Insurers face Insurers continue to Sophisticated Sophisticated Sophisticated increased data manage information information analytics information analytics, information analytics overload, quality and overload and becomes the new sources of progresses to a point privacy issues, and ever-increasing key determinant information (from where no more useful cyber threats, resulting sophistication of of competitive mobile sensors), information can be in a regression to analytical techniques differentiation, and underwriting extracted and all key ‘gut-driven’ that require ongoing which underwriting talent become the decision-making has decision-making. investment to keep talent magnifies. key determinant been automated; pace with competitors. of competitive competition shifts differentiation. to prevention and productivity gains. Environmental With catastrophic Insurers will continue Insurers will continue Catastrophe Advanced early events on the rise to rely on catastrophe to rely on catastrophe modelling gets more warning technologies and insufficient data models, but regulatory models and sell sophisticated and and new risk transfer/ to accurately predict restrictions will prevent innovative catastrophe uses advanced, early sharing mechanisms them, insurers will exit them from restructuring insurance products warning technologies with public and private unprofitable areas. innovative risk transfer/ through securitization to underwrite in enterprises reduce sharing deals. and reinsurance. specific, catastrophe- human and properly prone areas. loss from catastrophic events. Economic The world moves Emerging market As developed New emerging Truly global markets from globalization insurers grow in scale market insurers enter market insurers with products that to regionalization and importance, and emerging markets, move into developed are able to integrate and insurers operate limit opportunities for margins in theses markets and become multiple parts of the in and create developed market markets decline. global businesses. value chain, regardless products specific to insurers. of location. narrow boundaries. Political Governments in Emerging markets Majority of regulations Emerging markets The regulatory both developed erect more onerous focused on banks, and and developed climate improves with and emerging regulations than insurers in developed markets enact greater harmonization markets enforce developed markets’ and emerging markets less burdensome across countries (and equally burdensome decreasing profitability are able to get regulations and within states in large regulations on insurers and limiting control away with minimal emerging markets countries). Regulatory decreasing their of developed regulatory changes relax their regulations harmonization leads profitability. market insurers. to pricing, coverage, to ease the entry and to standardization rates and reserves. control of developed across products market insurers into and practices. emerging markets. Source: PwC analysis
67 PwC | 2012 Connecticut Insurance Market Report Executive perspectives
Lincoln Financial Group empowers an aging society to sustain financial independence Mark Konen President, Insurance and Retirement Solutions, Lincoln Financial Group
Over the next 17 years, 10,000 Boomers At Lincoln, one way we help consumers is Lincoln offers options to help individuals a day will turn age 65.42 At the same by offering a diverse portfolio of annuities. combat the costs of long-term care time, people are living longer. Today, a These tax-deferred, long-term savings including universal life insurance policies 65-year-old man can expect to reach 82, vehicles are designed to grow and protect with optional long-term care benefit and a woman 85.43 In many ways, this is money leading up to retirement, and then riders. These hybrid solutions provide an welcomed news. It can mean more time to turn that money into an income stream alternative to self-insuring, and can help enjoy retirement or to spend with family that is guaranteed to last for the rest of an policy holders protect their portfolio or and friends. individual’s life, regardless of the age they retirement income, by creating a pool of reach. Lincoln has maintained a consistent dollars available to reimburse qualified However, the aging and increasing market leadership position in the annuity long term care expenses such as nursing longevity of our population can also mean space, and with only 8% of America’s home care, home healthcare, or assisted various financial risks for individuals. investable assets currently in this product living. If long-term care is never needed, Lincoln Financial Group, a member of class, we believe there is tremendous a tax-free death benefit can be passed the Connecticut Insurance and Financial opportunity for annuities to help meet the onto beneficiaries. Or, if the policy holder Services Cluster, helps consumers sustain demand for lifetime income solutions.45 changes their mind, some options offer a their financial independence so they may money back guarantee. This flexibility and embrace the future with more confidence. Another significant financial risk presented asset control make these products potential by the aging and longevity of our population options for addressing the long term care One of the prime areas to watch as the is long-term care needs. About 70 percent expenses so many of us will face. population ages is retirement savings. A of people over age 65 require some type recent study by the Center for Retirement of long-term care services during their The Boomer phenomenon and increasing Research at Boston College projects that lifetime.46 While long-term care may come longevity create tremendous opportunity at age 66, Social Security’s current full in different forms, the high costs are nearly for the Insurance and Financial Services retirement age, only 55 percent of house- inescapable. As an example, the average industry as clients seek more security in holds will be prepared for retirement.44 cost for a private room in a nursing home is their financial products. Lincoln’s annuity When taking into account aging and approximately $92,000 per year. Someone and hybrid long term care options cited longevity, retirees are faced with stretching who chooses a home health aide pays an above are just some examples of the these same assets over a longer period average of $20 per hour. Clearly these costs types of solutions we provide to serve the of time, and keeping pace with inflation have the potential to diminish personal evolving age demographics of our society. longer. Compounding this is the scarcity savings of the affected individual or family In addition, we offer life insurance, group of traditional defined benefit pension members who often assume the expenses. benefits, 401(k) and 403(b) plans; and plans today, and an uncertain future for comprehensive financial planning and Social Security—two vehicles that people advisory services, helping individuals have historically relied on as sources of take charge of their financial future.47 predictable income throughout retirement.
68 PwC | 2012 Connecticut Insurance Market Report Social the online world is also becoming increasingly mobile as smartphone Balance shifts toward customers and tablet use increases and fuels the New and ongoing social trends will demand for localized information, shake up traditional business patterns available anytime, anywhere. By 2014, in the insurance industry, increasing for example, the number of mobile consumer power: Internet users is expected to overtake 49 Customer expectations: Customers desktop internet users. (consumers and businesses) are increasingly demanding simplicity, These changes will substantially impact the insurance sector: New and ongoing transparency and speed in their transactions with businesses, including • More and more insurance will social trends will insurance agents/advisers and carriers. be ‘bought’ by customers as shake up traditional The relentless march of online and opposed to being ‘sold’ by agents, business patterns mobile technology is continuing to fuel destroying the age-old wisdom of this change in customer expectations. ‘insurance is sold and not bought.’ in the insurance This fundamental shift will force industry—increasing In a recent survey of US consumers, insurers and agents to re-examine consumer power. more than 32% of all respondents— their roles in the insurance value and 50% of those aged 18 to 25— chain and become more relevant said they prefer to work directly with to the consumer or business. insurance carriers.48 This ‘push’ toward direct interaction will continue across • Customer expectations of simplicity both personal lines and individual and transparency will foster life insurance sectors. In addition, innovations in product/service design and delivery. Leading insurers should become proficient at targeting The evolving model of advice, sales and service customers and customizing product and service attributes to meet their specific needs. Call center • Customers demand for mobility and Aggregators/ speed of service will require firms online Partner/white to invest in mobile and interactive label website intermediaries technologies for multimedia content creation and distribution as well as develop more capabilities across multiple digital platforms. Broker Website Customer
Customer Mobile apps
Social Mobile media website
Source: PwC.
69 PwC | 2012 Connecticut Insurance Market Report Executive perspectives
Saving for retirement Christine Marcks President, Prudential Retirement
Many older workers have no pension or People want a check every month with the As an industry, there have been have very little saved for retirement. What security and a guarantee of income. That positive changes. can we do—as an industry—to make sure behavior may never change. Pension plans • Fiduciary safe harbors have provided that the Baby Boomers still working, and guaranteed security. Employees didn’t think the impetus for more plan sponsors to every generation afterward, can achieve a of pensions as part of their compensation as take more steps to put their participants secure retirement? much as they just assumed financial security on the path to retirement security would be granted at their retirement. Only 14% of Americans are very confident Employees also didn’t need to think about • Adoption of the auto-enrollment and they will have enough money to live the underlying investments and the costs auto escalation features are on the rise comfortably in retirement, according to associated with managing a defined benefit among the thousands of plans the Employee Benefit Research Institute. (DB) plan. The transition toward DC • The increasing adoption of in-plan As an industry, we spend $1 billion every plans, which put the onus on employees guaranteed retirement income year on communication and education over to make contributions, asks workers to features—a fairly new concept in the lifetime of a participant, but we can make decisions they never made before. the marketplace only attribute a 2% uptick in savings rates As companies opted for DC plans over because of this and still only a 70% average DB plans, workers had to change their • The benefits of asset allocation solutions participant rate. behaviors, to be investment savvy and in terms of diversifying risk choose to enroll in these plans. There are many reasons for this: There’s much more we can do. There’s no doubt it will take the entire system— • People don’t understand the value of We can’t wait any longer to change what’s providers, advisors, government and plan saving early. Let’s face it, despite the not working. We need make sure every sponsors—to enact the amount of change anxiety Americans have felt since the worker gets a steady paycheck, based on that must occur. economic decline, we still live in a their hard-earned income, during their “spend and debt” society rather than retirement. We have to stop waiting for a “save and invest” society. someone else, and maybe even someone who doesn’t fully understand the • Many people don’t understand what it all implications of their edicts, to make means. Financial planning, investing and the decision to make positive change. the myriad of choices are complicated. • Those who have elected their defined DC plans remain an important savings and contribution (DC) plans have seen investment vehicle for employees, a strong their balances come and go as the foundation for a future solution. In the past market continues to fluctuate. Some 10 years, we have seen a more intense focus of those people are running scared at on improving retirement saving through the worst time and exiting their plans employer-sponsored plans. or investments at the low point.
70 PwC | 2012 Connecticut Insurance Market Report Social networks: Evolving social goals. “Building connections among • Eventually, online social networks networks will continue to empower people with similar health challenges pool consumers and enable self- both consumers and businesses to gives us a much better shot at helping insurance, changing the role communicate more transparently and them achieve their goals,” said Meg of insurers at a primary level to harness the buying power of virtual McCabe, Aetna’s head of consumer from product manufacturers to communities. Social networking will solutions.50 administration service providers.51 also help shift the balance of power toward customers. In just six years since As consumers become even more Historically, the insurance sector has its launch, for example, Facebook has comfortable with social networks, been dominated by intermediaries attracted over 800 million users. several scenarios are likely to develop: who could match and tailor insurance products to consumer and business • People exchange more personal According to PwC’s consumer survey needs. Internet, mobility and social information and start building of 1,060 US adults, about one-third are networking have changed the game networks of trusted friends, family using the social media/networks as a over the past decade, creating a new and acquaintances, shifting the natural habitat for health discussions. generation of customers who demand balance of trust from insurance The survey conducted by PwC’s Health simplicity, speed and convenience agents and advisers to online Research Institute found social media in their interactions. These trends communities. converts among major health insurers, will accelerate, leading to a situation including Aetna. For example, last year • Online social networks wielding where customers will be more willing Aetna partnered with a social media substantial purchasing power to buy ‘direct’ using their online and company to offer members Life Game, become new group insurance offline ‘trust’ network of friends and an online social game to help people channels, benefiting from family to guide their choice. This will achieve personal health and wellness information-driven online redefine the role of advice and impact intermediaries. distributors as a sales channel.
Historically, the insurance sector has been dominated by intermediaries who could match and tailor insurance products to consumer and business needs. Internet, mobility and social networking have changed the game over the past decade, creating a new generation of customers who demand simplicity, speed and convenience in their interactions. These trends will accelerate, leading to a situation where customers will be more willing to buy ‘direct’ using their online and offline ‘trust’ network of friends and family to guide their choice. This will redefine the role of advice and impact distributors as a sales channel.
71 PwC | 2012 Connecticut Insurance Market Report Executive perspectives
Technology, communication and the “personalization” of retirement saving Maliz Beams Chief Executive Officer, ING US Retirement
The rapid pace of change in technology Within the past year, ING US Retirement And finally, games have become and mobile communications continues to launched a program that promotes easy, the most popular apps—they are transform the way in which consumers immediate participation in workplace the #1 Smartphone download among spend their time—working, purchasing, retirement plans using tablets and mobile all age groups and continue to grow. entertaining themselves and making devices during employee enrollment We’ve recognized how games can help decisions. Like other sectors, the meetings. By providing instant access to an advance financial literacy, and we Retirement industry has been tapping online enrollment center, employees have recently launched a free game app that into this change to better connect with the convenience to join their employer’s teaches players about fundamental customers and remove the barriers plan when they’re at their highest point of financial concepts and terms in a way that have been historically preventing engagement. This is helping to overcome that may more effectively engage them. them from saving enough. As one of the one of the biggest hurdles they face with nation’s leading retirement providers in saving—human inertia. These are just a few of the ways both the institutional and retail markets, in which we are leveraging the ING US understands that comprehensive For many of our large corporate plan clients, power of technology and translating retirement planning can be complicated we’ve been creating micro-websites with it into personalized tools that can for most people. The responsibility that personalized URL messages, or “PURLs.” inform, engage and inspire positive Americans have today to finance their own This technology delivers personal data savings action. retirement keeps growing, yet the average directly to an employee that illustrates a person has little time or attention to spend future outcome of an action they could take on this very important undertaking. today—such as enrolling in their plan or increasing their savings rate. Our research In order to inspire successful saving, has shown us that when you can provide the industry has to change its approach. this level of personalized communication, For example, many people value choice, positive action increases. yet too many options can be overwhelming. They also value control, yet often need To support the rapid pace of technology and want help understanding what and Smartphone adoption, we also recently to do. Through new technology and introduced a new mobile retirement plan communication strategies, the goal is to account application for mobile devices. The educate and motivate people by reaching app allows an individual plan investor to them when and where they want to talk, quickly check their retirement balance and learn and act. This concept has lead to relevant account information, such as their developing “personalized” methods personal rate of return. of communication, researching and applying behavioral finance concepts, and harnessing the power of Smartphones and mobile devices.
72 PwC | 2012 Connecticut Insurance Market Report Technological Big data: The growth of Internet- Advances in Artificial Intelligence connected devices and sensors, which techniques, such as machine learning, ‘Big data’ offers competitive edge are projected to reach 50 billion by 2020 natural language understanding As the insurance industry becomes will have a significant impact on the and intelligent decision-making will more productive through automation, availability of real-time information—a allow insurers to advance from using new technologies are significantly trend known as ‘big data.’ Insurers technology for transaction processing enhancing operational efficiencies, who can exploit this information for to decision-making. Today, analytical increasing revenue opportunities and better pricing, underwriting and loss techniques are used for making ad improving the customer experience. control will have a distinct competitive hoc decisions using structured data. Important new technological advantage over their peers. developments include: By 2020, the use of unstructured data • Growth in smartphones and tablets, To harness the ‘big data’ trend, (e.g., social media, devices, video and coupled with cloud computing, global investment in advanced audio) will complement structured provides consumers with constant analytical techniques is seeding data, allowing insurers to make access to the Internet the capabilities to process large strategic forward-looking decisions. volumes of unstructured and • Explosion of computing power and multimedia data, such as continuous From a reactive to a preventative storage, enabling the accumulation real-time video, life blogging and business model: Commercial insurers and analysis of extremely large social chatter. These advances will have paved the way for using connected amounts of data lead to software—and eventually devices and sensors to develop risk • Progression of active sensors and hardware—that can translate ‘big and loss management and improve devices connected to the Internet data’ into actionable insights. productivity, a path we also envision for life and health insurers.
Tapping into rich new sources of data
Conversations and images that improve customer experience through captured attitudes and beliefs Multimedia Patterns generated by phones, appliances Everyday Business and other devices that Communication intelligence Data captured through can provide insight into business operations events and habits waiting to be enhanced with unstructured data from the outside world Sentiment , relationships and Social Operational preferences that media data consumers broadcast daily
News and Economic trends and global Untapped business knowledge Text markets events that impact investments hidden in documents and emails and buying habits
Source: PwC.
73 PwC | 2012 Connecticut Insurance Market Report Executive perspectives
The importance of data, analytics and models to the current and future success of property and casualty insurers Michael Klein Senior Vice President, The Travelers Companies
Strategic and tactical decision-making virtualization, internal and external In addition to leveraging company-owned has always been a core competency clouds and grid computing. The data, the availability of, and opportunity for the most successful companies in consequence is a vast amount of to leverage, third-party data have also the insurance industry. The ability to new data sources, or “Big data.” increased in recent years. A few examples thoughtfully leverage data, information of utilizing this data within the insurance and analytics is becoming increasingly Big data presents a big opportunity, industry include: critical to effective decision making. This especially given increased capacity • Geospatial data helps an underwriter trend is driven by three key influences: for storing and managing it. Just as identify an insured’s location on a improvements in computing power and Moore’s Law predicted that the growth map, in relation to certain hazards. technology, increased data availability and of computing power will double every Compared to other data sources, this advancements in analytical capabilities. two years, the research company IDC information enables a more refined believes that between now and the year concentration of risk analysis. In Those companies that can gather and 2020, the amount of data available in the addition, geospatial and weather analyze the massive amounts of data digital universe will grow by 35 trillion data can help streamline catastrophe available from both internal and external gigabytes. In 2011 alone, the amount of management resource deployment to sources—and use it to efficiently address digital information created and replicated reach customers as quickly as possible opportunities in the market—will be surpassed 1.8 trillion gigabytes—growing well-positioned to respond to the hyper- by a factor of nine in just five years, • Automobile and home telematics competitive marketplace. According to according to IDC. That’s on par with the systems are now commonplace, Celent’s Data Mastery Spectrum Overview number of stars in the physical universe. leading to increasingly sophisticated, 2012, “Data analytics is evolving, and automated underwriting and insurers that can best leverage both To put another perspective on this, in pricing applications their internal and external data will 2015 global mobile data traffic flow over • Supplemental external data based on be the leaders by 2020.” A company’s the Internet is expected to reach 6.30 the current economy, such as medical competitive advantage lies in leveraging exabytes per month, according to a Cisco cost trend or used-car prices, can help data as a strategic asset to move first or estimate. One exabyte is the equivalent increase understanding of economic move smarter. of 10 billion copies of a regular printed impact on insurer results weekly news magazine. Improvements in computing • Information collected from power and technology Increased data availability social media channels and digital commerce, while vast and The fast evolution of technology has given Advancements in computing power and unstructured, can provide predictive us more cost-effective data storage options technology noted above help position insight and added intelligence to and increased computing capacity, resulting companies to better capture, store and traditional business transactions and in great availability of data, rapid access manage their own data. This can lead them consumer, business and social trends. to information and powerful analytical to discover insights and information that Frameworks and tools to collect and tools, employed through concepts including were previously unavailable. analyze this unstructured data are being quickly adapted and adopted across all industries due the large amounts of data generated from these online sources.
74 PwC | 2012 Connecticut Insurance Market Report Executive perspectives
Advancements in Perspectives analytical capabilities Analysts perceive the ability to leverage Quantification tools built on massive data and information as an advantage. In amounts of historical information have a Travelers second quarter 2012 earnings gained popularity among underwriters, as post call, an analyst commented on the these tools allow them to easily organize, importance of granularity stating, “To manipulate and analyze data to gain the extent that [a company] can precisely greater insight and understanding. More target its least profitable accounts for the advanced insurers are also accessing real- biggest rate increases, it’s in a win-win time data for dashboards and analytics to position. If the account stays with [the have a more immediate positive impact company], it’s priced more appropriately, on business performance. According to and even if the business moves, the the SAS Corporation’s Harness the Power underwriting margin benefit to [the of Data Visualization to Transform Your carrier] is compelling.” Business 2011 Executive Report, “Savvy insurers are moving beyond static graphs, Industry observers agree. According spreadsheets and reports by harnessing to MWD Advisors’ Unlocking Business the power of business visualization to Intelligence with Collaboration May transform how they see, discover and 2012 Report, “The ability to make good share insights hidden in their data.” business decisions fast is central to every organization’s success, and continuous Data, analytics and advancements in learning about what works and what modeling are the “secret sauce” that doesn’t is key to keeping ahead as the can change the competitive position for business world gets ever more complex.” an insurance company. The insurance company that can best harness the power The ultimate goal in data analytics for of new developments in analytical and the insurance industry is to get those statistical techniques, combined with insights to the right people, at the right effectively collecting and organizing time, to support the most effective data will reap the benefits of better- business decisions. The companies that informed decisions. can most effectively process and apply data, information and analytics will win the race.
75 PwC | 2012 Connecticut Insurance Market Report By 2020, many nano-scale Commercial insurers have always to estimate the losses, etc. However, biotechnologies will be available focused on loss control and risk in the next decade the industry will to embed devices and sensors management, but that trend will increasingly use large amounts of real- unobtrusively within the human body. deepen and expand into other lines of time sensor data, unstructured data The nanotechnology drug delivery insurance. Personal and life carriers from social networks, and multimedia market is expected to grow at a CAGR will be able to move from passively data such as text, voice and video. As of 21.7% between 2009 and 2014, and identifying and pricing risk and sophisticated artificial intelligence reach almost $16 billion by 2014. Such reactively paying claims to proactively techniques evolve, insurers will start nanotechnologies have the potential to using ‘big data’ and actionable insights using this unstructured data for dramatically improve health outcomes to reduce losses and better manage forward-looking strategic decisions through enhanced monitoring and risk. For life and health insurers as such as which product or solution is preventive control of chronic disease. well as annuity and retirement income most suited for a client given their providers, monitoring devices could current and future situation, which As the medical service and treatment significantly extend life expectancies emerging countries to enter as well as model evolves toward the customization and increase the number of years of when and how proactively to manage of healthcare, the resultant decrease active retirement life.52 customer experience to enhance in morbidity and mortality will have retention of the most profitable a profound impact on life and health Strategic decisions—from structured customers. Insurers who are able to insurers. Consumers will eventually use to unstructured data models: use real-time ‘big data’ and advanced personalized medicine to create highly Historically, the insurance sector forward-looking simulation techniques customized healthcare solutions that primarily used internal data in a will establish a significant competitive actively change the body’s biochemistry structured format to make tactical and advantage. In a recent survey, 49% in response to risks and conditions operational decisions on customers expect new sources and techniques unique to each person. We anticipate to target, how to price the risk, how in the use of data analytics to be the that these medical advances will key competitive differentiator.53 flatten the cost curve as mortality and morbidity rates dramatically improve. Some of these advances can also reduce litigation costs as medical product manufacturers can provide detailed evidence on the efficacy of their drugs. “At MassMutual, we base many of our business and IT decisions on such factors as value, cost, complexity and risk, and leveraging Big Data is a key part of that process. We have a wealth of information at our fingertips and when brought together with powerful analytics, it creates tremendous opportunity. Big Data plays a significant role in helping MassMutual accelerate innovation, bring new products to market faster and create greater value for our policyholders.” Bob Casale, Chief Information Officer, MassMutual Financial Group
76 PwC | 2012 Connecticut Insurance Market Report Executive perspectives
Tapping a neglected supply of energy Greg Barats President and Chief Executive Officer, Hartford Steam Boiler Inspection and Insurance Company
Would it surprise you to know that there Property-casualty insurers are in a McKinsey estimates this could save is a vast and virtually untapped source of position to help their policyholders homeowners as much as $65 billion. energy available for business, industry and achieve greater energy efficiency and Other savings, which would require some homeowners? Energy conservation and savings. For instance, while performing investment but require no technological more efficient equipment could save billions more than 500,000 inspections at over breakthroughs, include weather of dollars, reduce greenhouse emissions, 250,000 locations in the United States proofing, additional insulation and and improve energy independence. The each year, Hartford Steam Boiler makes stronger efficiency standards in building challenge is specifically how to reduce recommendations to help our commercial codes for new construction. Yet, while energy consumption. customers improve energy efficiency. homeowners want to reduce their energy costs they don’t know how to achieve it. Money invested in conservation and Many of our recommendations are simple, In response HSB developed a web-based efficiency brings big rewards. That’s require minimal or no expense, yet can service platform that is designed to help particularly true in the United States, provide immediate and sustainable savings, homeowners calculate their home’s since the economy is built on cheap such as improving equipment selection, efficiency, understand how to operate energy, driving historically less efficient operation and maintenance, or switching their homes more efficiently, reduce their use of fuel. Improving equipment fuels or electric power providers. When the utility bills and cut their energy costs. efficiency in the home and workplace typical business spends four to five times is critical as we develop new and as much on energy as it does on insurance, HSB’s efforts to improve energy efficiency sustainable energy sources. even a modest reduction in energy expense and lower costs are one example of goes a long way toward delivering value on how the insurance industry is helping The potential for savings is enormous. In their insurance spend. to change the energy landscape. Our its study, “Unlocking Energy Efficiency in parent company, Munich Re, which was the US Economy,” McKinsey & Company As for families, every dollar counts. ranked the world’s “greenest” company by estimates that by 2020, $1.2 trillion in McKinsey calculated that the 129 million Newsweek magazine, is recognized for its energy savings could be realized for a US homes could save a collective $395 efforts to combat climate change through net cost of $520 billion, reducing energy billion through improved energy efficiency innovative projects, climate research, and consumption by 23 percent. This is an and lowered energy consumption. Some insurance coverage that promotes climate immense economic opportunity that can of these savings are easy to achieve: protection technology. Together, Hartford enable American businesses to become turning off appliances or devices not Steam Boiler and Munich Re are working more competitive and profitable and help in use or making full use of the energy toward a more sustainable energy future. households and families save for other saving features of modern home systems. priorities. However, to achieve those savings, nearly 100 million buildings and billions of machines and powered devices would need to be touched.
77 PwC | 2012 Connecticut Insurance Market Report Environmental Insurers must also consider man- Environmental measures will made degradation of the environment. help mitigate the most serious Catastrophic events Increasing energy consumption and consequences. Renewable energy heighten risk factors associated atmospheric pollution sources are projected to account for The severity and frequency of will directly impact carriers’ risk 23% of electricity by 2035.57 Increased catastrophic events, both natural exposure. The US Energy Information consumer investment in sustainable and man-made, have been increasing Administration, for example, predicts solutions (e.g., solar panels) will over the past 20 years. Between world energy consumption will grow gradually create new modeling and 1990 and 2009, hurricanes and by 49% between 2007 and 2035.56 pricing risks for P&C insurers. tropical storms accounted for 45.2% With continued fossil fuel use, of total catastrophe losses.54 The pollution will remain a significant Managing these types of risks rate and intensity of these storms health issue, threatening the well- will require insurers to be more is predicted to increase with global being of populations in both developed sophisticated in their risk modeling climate change. A large portion of and developing countries. Life and and innovative in structuring risk- claims payouts result from business health insurers will need to closely sharing and risk-transfer deals. interruption coverage losses—in the monitor trends in atmospheric Catastrophe modeling will become Chilean earthquake, for example, over pollution to accurately assess risk more sophisticated and use advanced, 50% of claims were filed for business in different regions. early warning technologies to interruptions and extra expenses.55 underwrite in specific, catastrophe prone areas. Insurers who fail to keep pace with this increasing sophistication might be forced to Increased severity and frequency of exit markets in certain coverage catastrophic events overwhelming insurers vs areas, such as those prone to flooding or forest fire. technology and risk transfer easing the pain Historically, the insurance sector has been good at developing catastrophic models that capture known high-severity/low-frequency events (e.g., earthquakes, tsunamis, etc). However, most of these models perform poorly when it comes to unknown ‘Black Swan’ events. Over the next decade the insurance sector could be overwhelmed with uncorrelated catastrophic events that reduce capacity and raise prices. Taking advantage of new sensing and monitoring technology, together with risk transfer mechanisms, could cushion insurers and reinsurers against abnormal losses.
78 PwC | 2012 Connecticut Insurance Market Report Economic economies far more than emerging • The rise of the middle class in ones. It is estimated that the E6 will emerging markets is fueling Emerging markets contribute 47% of Global GDP growth increased consumption, which change dynamics between 2006 and 2020, while the G6 is leading to impressive small The increasing attractiveness of will contribute less than 24% during business growth. the emerging markets, combined the same period (see Figure 3). with uncertain growth in the • Government infrastructure investment, population growth, developed world and stricter Several factors are contributing to the new businesses and wealth creation regulatory guidelines, will make ongoing shift from a world dominated are driving growth in construction, insurers re-evaluate their strategic by developed markets to a world in land development, energy and goals toward developing countries. which the majority of growth is in transportation sectors, all of emerging markets: The E6 countries’ (China, India, which are creating a greater Brazil, Russia, Indonesia and Mexico) • In the developed world, the need for insurance. proportion of global GDP has been old outnumber the young. In increasing over the past 20 years, emerging markets (except China) and the liquidity and debt crunch the working-age population precipitated by the financial crisis of will continue to outnumber the 2008 continues to affect developed dependent population, leading to more productive growth.
Figure 3: E6 vs. G6 contribution to global growth (2006–2020)
G6 contribution to global growth (%) E6 contribution to global growth (%) E6 vs. G6 contribution to global growth (%)
US China 29.1%
UK India
Germany Brazil 23.6%
France Russia 47.3%
Canada Indonesia
Japan Mexico
0 5 10 15 20 0 5 10 15 20 25 30 E6 G6 Other countries
Source: Economic Intelligence Unit, Foresight 2020
79 PwC | 2012 Connecticut Insurance Market Report The uneven distribution of economic • Conversely, twin-track growth growth between the developed and and the loss of the developed emerging markets creates different world’s authority in the wake of scenarios for insurance industry the financial crisis could result in competitive dynamics: greater protectionism by countries or regions. • The insurance industry as a whole could become more globalized as • In-between these two extremes, countries harmonize regulations, developed market insurers could standardize practices and distribute increase their attempts to find products across borders. This growth in emerging markets, and The developed could lead to greater market share or emerging market players could for global insurers, as well as expand into developed markets market slowdown, economies of scale and scope for know-how and talent. due to the financial that drive the globalization of crisis, will accelerate the insurance value chain. this shift in power towards emerging market economies The rise of economic influence and power and emerging of emerging market countries and emerging market insurers. market insurers Over the past couple of decades the world’s economies have become more interdependent and this trend is likely to continue. However, the power and influence of the US, Europe and other OECD nations will wane as the emerging markets continue to grow as well as become the engine for global growth. As consumption in these countries increases, the insurance market will grow, resulting in big opportunities for emerging market insurers. The developed market slowdown, due to the financial crisis, will accelerate this shift in power toward emerging market economies and emerging market insurers. In a recent survey conducted by PwC:58
believe new emerging market insurers will move 30% into the developed world to become global insurers 28% foresee truly global markets
80 PwC | 2012 Connecticut Insurance Market Report Political The backdrop to developing Terrorism. Over the past 30 years, global insurance regulations offers terrorist attacks have broken out Regulating amid unsettling considerable obstacles for the around the world. Terrorists currently global trends industry to consider: attack global supply chains once We see a range of potential outcomes every four days on average.61 Carriers Pressure on the solvency of social from a regulatory perspective. will have increased exposure as the security and welfare programs The financial crisis has enhanced frequency of major attacks increases. In throughout the world will increase communication and dialogue addition, terrorist attacks often impact because of rising dependency ratios. between and among the US, EU multiple product lines (e.g., commercial Dependency ratios (defined as the ratio and emerging market regulators: property, business interruption, workers of the number of persons aged under compensation, life and benefits), which • If regulators are successful at 18 or over 64 to the number of persons are often modeled independently. As a negotiating and harmonizing global between these ages) are expected to consequence, the potential losses from insurance regulations, this could increase by an average of 14% in the so-called ‘uncorrelated’ risk factors lead to greater standardization of G6 between 2000 and 2025.59 Using could be large, requiring substantial products and policies, and promote current projections, the US Social industry-wide or state-provided capital more globalization of the insurance Security Trust Fund will be depleted to insure losses beyond a certain level. value chain. in 2037 and Social Security will be able Further detailed modeling is required to to pay only 78 cents on the dollar.60 • On the other hand, regulators understand the capacity requirements could continue to develop new but for terrorism coverage. different (and potentially onerous) Consumers lacking faith in the solvency of social security programs will begin regulations in each market. Geopolitical instability. Resource to focus on providing their own savings scarcity around the world is magnifying • In-between these two extremes, for retirement, as governments pare the risks of geopolitical instability, it is possible that emerging markets back benefits. This will create new as evidenced by the current political will prevent developed market opportunities for life and annuity upheaval in the oil-producing nations players from entering their markets insurers, although governments under of the Middle East and North Africa, or put limits on their activities. financial pressure are likely to seek ways or the ‘Arab Spring’. This has caused (An alternative intermediate to reduce spending while increasing tax resource-consuming nations to reassess scenario is that emerging markets revenue. The preferential tax treatment their energy policies. We anticipate that encourage developed market of life, annuity and retirement policies the potential for fewer despotic regimes entry by removing restrictions may be viewed as an easy target for in the Middle East and technological and easing regulatory burdens.) revenue generation. Insurers will solutions to resource scarcity will lower need to adapt nimbly to weather geopolitical risk over the next ten years. these changes.
81 PwC | 2012 Connecticut Insurance Market Report Executive perspectives
The Terrorism Risk Insurance Act Doug Elliot President, Commercial Markets, The Hartford Financial Services Group
This year marked the 11th anniversary Given the concentration of people and In the event of a future terrorist attack, TRIA of the tragic attack on September 11, property values in business centers, the risk ensures that private insurance payments 2001. Those events forced all Americans of wide-area terrorism attacks poses a real flow to those affected businesses that have to directly confront the previously solvency threat to insurers—a threat that purchased coverage, as well as to their unforeseen realities associated with a can easily eclipse that of natural disasters employees, which in turn helps businesses catastrophic terrorist attack on US. soil. given the stated intention of a terrorist and the economy recover. These payments Insurers responded to September 11 claims to exact maximal economic disruption. will be crucial to minimizing the economic, with unwavering resolve, demonstrating Insurers lack any basis for assessing psychological, and social fallout from an the value and importance of adequate the likelihood or probability of a major attack. TRIA and its successor programs insurance for terrorism. However, the terrorist attack, especially given the limited have been very successful and continue to devastating economic consequences of information that is publicly available. make terrorism coverage widely available. It the attack also forced insurers and other is essential that the program is maintained businesses to re-examine the nature of From an insurance perspective, terrorism so that the United States can enjoy national terrorism-related risks. does not meet the core characteristics of a economic security for years to come. privately insurable peril. The Terrorism Risk In today’s dollars, the September 11 attack Insurance Act (TRIA) provides a federal is estimated to have resulted in more than backstop to insurance companies for large $23 billion in insured property losses and certified terrorism events (above a $100 $40 billion in total insured losses. While million loss) while requiring insurers to the reinsurance industry honored its offer terrorism insurance to commercial obligations, unfortunately, reinsurance policyholders on the same terms and markets withdrew new capacity and the conditions as other covered perils, such reinsurance market for terrorism evaporated as damage from fire or explosion. Under in the aftermath of the attack. Lacking both the current program, each insurer has to the ability to spread and diversify these absorb a huge individual deductible (equal risks globally through reinsurance and to 20% of its applicable earned premium) adequate tools to price the risk of terrorism, before the federal government begins to insurance, companies were unable to share in losses. TRIA allows insurance provide adequate terrorism coverage to companies to understand and manage their commercial policyholders. The effects potential exposure to losses attributable of this chain of events trickled down to to terrorism attacks while providing a cap lenders and the construction industry, on the potential loss to capital from such which posed the risk of significant adverse an attack. As a result, insurers are able to impact on the economy. offer terrorism coverage to commercial policyholders while TRIA provides all- important market stability.
82 PwC | 2012 Connecticut Insurance Market Report Implications for the future The health insurance market will of your business change in significant ways over the next decade: We have analyzed the STEEP (Social, Technological, Environmental, • The election outcome and other Economic, Political) factors and political factors may alter the drivers for each of the three insurance path forward. industry sectors, discussed in turn • By 2021, the individual and small on the following pages. While some business exchange market is drivers, such as direct purchase, projected to grow to 29 million are common, their impact could be members—nearly $205 billion greater in one sector (e.g., personal in premiums and $148 billion in lines) than in others (e.g., commercial subsidies and premium credits. lines). Also, some sectors will have additional drivers, such as health • The market for individual policies, advances and their impact on life estimated at 25 million, is expected and disability insurance. to explode with customers who could determine how health Health insurance is sold in the future. We believe that the 2010 Affordable • When the state insurance exchanges Care Act (ACA), as upheld by the open enrollment in 2013, insurers US Supreme Court in June, could will have many decisions to make on add approximately 30 million more where they will compete and with Americans to the insurance market by what products. HRI’s research shows 2021, assuming all states participate that the exchanges create consumer in the Medicaid expansion.62 However, education challenges on eligibility insurers are obligated to operate for subsidies, access, benefits, under tighter controls and constraints. and pricing. Insurers should be making decisions • Private health insurance exchanges about which markets they will pursue, are also beginning to emerge how they will engage and educate on a local and national level. new consumers, and how they will These exchanges, whether run operationalize, scale and manage risk by insurers, retail companies or under the new ACA rules. Businesses benefits companies, may serve will shift toward satisfying a broader as innovative models in the new scope of consumers who are faced purchasing environment. with more options.
83 PwC | 2012 Connecticut Insurance Market Report Executive perspectives
Creating the new healthcare marketplace Mark Bertolini Chairman, Chief Executive Officer and President, Aetna
Forecasting the weather can be a tricky I’m proud to say that we are playing The health care solutions we are business in Connecticut. But the perfect a leadership role in driving toward a developing will help physicians, and storm in which the health care system consumer-centric approach to health consumers use the health care system now finds itself was both predictable care. Starting with our expertise in health in smarter and simpler ways that will and devastating. benefits solutions and health information improve choice and affordability. The technology, Aetna in recent years added new consumer will be in charge to a greater Our enormously complex and costly health relationships, new technology solutions, and extent than ever before. care system is often disconnected and new capabilities that are helping us chart sometimes frightening to patients. People a path that we believe will lead to a better We are uniquely positioned to help change are getting needed care less than half the health care system. health care and make the world a healthier time. Estimates suggest that more than $800 place. That puts Connecticut at the center billion in health care services delivered We are connecting consumers, physicians not just of our perfect storm but of the each year is unnecessary. Chillingly, adverse and the health care system as never before. future of health care. events or medical errors happen in one-third Our technology solutions are helping of all hospital admissions. If we add to this to create a true health care system that equation a struggling economy, the obesity enables patients, caregivers and health care epidemic, physician shortages, and the professionals to share timely information uncertainty of health care reform, we have and drive improved health care decisions a perfect storm driving profound change and actions. across our health care landscape. We also are leading the way to new With the adoption of the Affordable payment models that better align incentives Care act in 2010, everyone knows health for quality care. We believe Accountable care in America is changing rapidly. The Care Organizations, through which health health reform law, though, is but a small care providers are incented to help people piece of the overall picture. Spurred on by get and stay healthy, are the future of the that perfect storm, we are in the midst of provider and health plan relationship. In developing and building a new health care 2011, we built our own Accountable Care model empowered by new technologies that Solutions business to bring the full power ultimately will give health care consumers of our technology and intellectual property higher value and quality for their health to forming and maintaining market-leading care dollar. Accountable Care Organizations. Each new Accountable Care Organization we launch moves us closer to health care system transformation.
84 PwC | 2012 Connecticut Insurance Market Report Overall disruptions to the traditional According to analysis by PwC’s HRI, employer market should be minimal. insurers have an opportunity to be the The Congressional Budget Office market leader through differentiated projects only a 3% reduction in people products, services, and consumer with employer-sponsored insurance in experience. Insurers should: 2021. Four million people are expected • Understand the nuances of the to receive employer coverage through newly insured and the health the Small Employer Health Options insurance exchange population to Plan (SHOP) business exchanges. develop membership retention and growth through the exchanges. • Risk mitigation will become a population-level exercise. Prior to • Develop robust segmentation tools, the ACA, insurers mitigated risk translate the changing needs of the by underwriting policies at the population into quality product individual and small group market and services delivered in the most level. At the core of the law, the convenient way to consumers. individual subsidies and individual • Incorporate social media into an mandate mitigate the risk of adverse overall digital strategy to open up selection by encouraging a mix of new access points for consumers healthy and less-healthy populations for administrative and healthcare to enroll in the individual market related transactions. and state exchanges. • Collaborate with employers to • Health plans must be prepared reinforce the value proposition to justify increases in premiums. of employer-provided coverage. The ACA grants the US Department of Health and Human Resources • Assess their readiness to comply the authority to review proposed with federal and state regulations, rate hikes of over 10%; nine states MLR and rate review. have already been turned down. • Re-evaluate pricing strategy and Also, with the medical loss ratio prepare for price transparency. (MLR) provisions, payers must balance benefit administration and management costs with the payout of claims. • The growth of high-deductible health plans underscores consumer’s cost sensitivity and will put increased pressure on insurers to develop the most cost-effective healthcare options, such as retails clinics, e-visits, and mobile health.
85 PwC | 2012 Connecticut Insurance Market Report Personal lines • Automated underwriting. We believe personal lines insurance As personal lines insurers expand will change in four fundamental ways: globally, ageing underwriting resources in the developed world • Greater commoditization. Price and lack of underwriting skills in transparency, disintermediated emerging markets will lead to severe direct purchase and virtual social talent shortage. However, insurers community-led bulk purchase will who are able to recruit or retain all lead to greater commoditization top underwriters and use their of personal lines insurance. In the knowledge to build sophisticated immediate term, insurers in some predictive modeling should be emerging and underdeveloped able to gain greater market share. markets will be able to generate good Automated underwriting, more margins. As personal lines insurance standard in the developed world, becomes more global over time, will be increasingly adopted in however, these margins may vanish the emerging markets as the in a price-based, competitive world. globalization of the personal • Decreasing profitability. The lines sector continues. increased number of megacities • Greater loss control. In the being built in areas prone to natural immediate term, insurers will use disaster could result in catastrophic advances in telematics primarily losses. With no opportunities for to price mileage-based insurance. diversification, this could result But, in the medium term, they in highly volatile earnings and will use telematics to proactively decreasing profitability for insurers. control losses and manage risk, which should substantially enhance operating profitability. Over time, this competitive advantage will disappear as automotive safety features and advanced analytics become commonplace.
86 PwC | 2012 Connecticut Insurance Market Report Commercial lines Individual life, annuities • Better risk management. Greater We expect commercial lines to and retirement availability of medical and behavioral experience the following significant Environmental factors, urbanization data, along with personalized changes over the next decade: and changing customer behaviors will medicine, will continue to drive all greatly affect the life, annuities and greater sophistication in, and • Virtual business affinity groups. retirement sectors. These sectors will automation of, underwriting and Social networking among small also experience significant changes in provide the opportunity to better business owners will create virtual response to global demographic shifts manage risk and to expand the business affinity groups that pool over the next decade: boundaries of insurability. their risks and retain greater • Tailored products. For group predictable layers of risk. Greater • New products for seniors. benefits, the responsibility for availability of information and An aging population in most protection and retirement savings increased price transparency developed countries will result will continue to shift towards will facilitate this trend. in new growth opportunities in the individual. This will result drawdown or retirement income • Automated underwriting. in increasing voluntary coverage, products, long-term care products Current trends in automation as well as worksite marketing. and longevity insurance. While the of quoting and underwriting growth opportunities for managing functions for commercial insurance Some changes affect everyone retirement portfolios before and will continue as insurers try to In addition to these sector specific after retirement is huge, insurers match underwriting capacity with factors, all insurers will be affected will face intense competition from the complexity of application by the shift towards a global other financial service providers, inflow. The talent premium, interconnected model, automated including banks, wealth managers especially underwriting talent, and assisted decision making, based and asset managers. will have a much greater impact on data and insights and changes on commercial insurance than • Insurers step onto government in the industry cost structure: on personal insurance. turf. The increasing dependency ratio in most developed countries Globalization and interconnectivity • Business model transformation. (and China) will increasingly strain of risks. Apart from reinsurers and Real-time data from sensors and government support for the elderly some commercial line insurers, most devices will continue to transform and sick, leading to prolonged others have typically operated at the commercial insurance business employment and/or a reduction in the local or national level, and have model. Commercial insurance will the standard of living. This could been primarily involved in measuring increasingly focus on providing open up the opportunity for insurers risk exposures and determining the standardized products and value to form public and/or private premium that they need to charge added services that involve working partnerships to offer value- customers to insure their risk. with the clients to proactively avoid added solutions in response However, given the scale of change or reduce losses and manage risks. to a political challenge. implied by the STEEP trends, we In addition, risks are becoming more believe that more insurers will be complex, offering the opportunity to forced to think globally. In the future, harness improved data analytics to insurers will be more involved in develop new risk transfer markets. deciding which geographies, products, customer segments and channels will offer their desired level of growth, profitability and risk appetite.
87 PwC | 2012 Connecticut Insurance Market Report Automated and assisted decision • Over the past two decades, insurers making. Following the automation have invested heavily in operations of transactional systems and the and technology, incurring largely automation of interactions with fixed costs to build IT infrastructures customers, we are entering a new capable of dealing with their era of automating decision-making. estimated customer base. Now, as Extensive internal and external data, more and more applications migrate as well as new artificial intelligence- to the ‘cloud’, information is available based techniques will expand the scope anywhere, anytime and at very little of assisted and automated decision- cost. If you have more standardized making of insurers across a variety of and streamlined processes you Current trends functions. These include identification can use the cloud to move to a low in automation of markets/segments to enter or grow, variable transaction cost model of quoting and customer segmentation, risk selection, that scales exponentially. advice engines that assist agents/ • With the right talent and proper underwriting functions advisers or end-consumers, claims use of information and analytics triaging and proactive preventive for commercial in underwriting, a greater number loss prevention and management. insurance will continue of transactions can be automated. This will allow the application of as insurers try to match Changing cost structures. Insurers superior underwriting insight to who fully exploit the potential underwriting capacity a greater number of transactions, offered by the Internet to transform with the complexity of helping overcome the looming their cost structures will be able to talent gap as the current generation application inflow. scale themselves exponentially and of underwriters approach leverage their people, operations and retirement age. technology infrastructure globally: • Insurance distribution has traditionally relied on a commission based variable cost model for sales; the route to increased sales was to ‘put more feet on the street’. With increasing investment in direct online channels, cost structures are moving towards a larger upfront fixed cost, but a lower ongoing variable cost (provided you achieve the desired scale).
88 PwC | 2012 Connecticut Insurance Market Report Connecticut Insurance and Financial Services Cluster members
A snapshot of each of the IFS Cluster corporate sponsors is provided on the following pages. Aetna
Aetna is one of the nation’s leading diversified healthcare benefits companies, serving approximately 36.7 million people with information and resources to help them make better informed decisions about their healthcare. Aetna offers a broad range of traditional, voluntary and consumer-directed health insurance products and related services, including medical, pharmacy, dental, behavioral health, group life and disability plans, and medical management capabilities, Medicaid healthcare management services and health information technology services. Aetna’s customers include employer groups, individuals, college students, part-time and hourly workers, health plans, healthcare providers, governmental units, government-sponsored plans, labor groups and expatriates.
National/Worldwide Connecticut Chief Executive Mark T. Bertolini Connecticut Chief Executive Mark T. Bertolini Headquarter location Hartford, CT Primary location Hartford, CT Number of employees 34,800 Number of employees 6,700 2011 total revenues $33.779 billion Website www.aetna.com
AIX Group, a member of Hanover Insurance Group
AIX is a company of The Hanover Insurance Group, Inc. (NYSE: THG), a leading provider of property and casualty insurance. With a broad appetite for program business, AIX Group is one of the leading specialty insurers in the United States. AIX has decades of successful experience writing program business, with a diversified portfolio that continues to expand. Rated A “Excellent” (A XIV) by A.M. Best Company, AIX offers a financially secure and broadly capable platform for the best managing general agents and program administrators.
National/Worldwide Connecticut Chief Executive Frederick H. Eppinger, The Hanover Connecticut Chief Executive Bob Schultz (AIX Group) Insurance Group Kelly Stacy (The Hanover) Headquarter location Worcester, MA Primary location Windsor, CT Glastonbury, CT Number of employees 5,000 Number of employees 185 2011 total revenues $3.9 billion Website www.hanover.com
89 PwC | 2012 Connecticut Insurance Market Report Bank of America
Bank of America is one of the world’s largest financial institutions, serving individual consumers, small- and middle-market businesses and large corporations with a full range of banking, investing, asset management and other financial and risk management products and services. The company provides unmatched convenience in the US, serving approximately 56 million consumer and small business relationships with approximately 5,600 retail banking offices and approximately 16,200 ATMs and award-winning online banking with 30 million active users. Bank of America serves clients through operations in more than 40 countries.
National/Worldwide Connecticut Chief Executive Brian Moynihan Connecticut Chief Executive Kevin Cunningham Headquarter location Charlotte, NC Primary location Hartford, CT Number of employees 275,000 Number of employees Approximately 4,000 2011 total revenues $115 billion Website www.bankofamerica.com
Catlin US (Catlin Group Limited)
Catlin Group Limited is a global specialty property casualty insurer and reinsurer with operations in the UK, the United States, Asia Pacific, Bermuda, Europe, and Canada. Catlin US, the US-based underwriting operations of Catlin Group Limited, was formed in 2006 with approximately $30 million of gross written premium volume. Catlin US is now a nearly $1 billion operation with 18 offices throughout the United States.
National/Worldwide Connecticut Chief Executive Stephen Catlin (Catlin Group) Connecticut Chief Executive Nicholas Greggains (Catlin US) Headquarter location London, UK Primary location Hartford, CT (Catlin US) (Catlin Group Limited) Number of employees 1,800 Number of employees 30 2011 total revenues $4.5 billion Website www.CatlinUS.com
ConnectiCare
ConnectiCare offers a wide range of health plans optimized for businesses, individuals and retirees. Known for its caring and personal service, ConnectiCare also take pride in its close-knit relationships with physicians and hospitals.
National/Worldwide Connecticut Chief Executive Michael Wise Connecticut Chief Executive Michael Wise Headquarter location Farmington, CT Primary location Farmington, CT Number of employees 550 Number of employees 550 2011 total revenues $1.1 billion Website www.connecticare.com
90 PwC | 2012 Connecticut Insurance Market Report Conning
Conning is a leading investment manager for the global insurance industry, with almost $91 billion under management as of September 30, 2012 through its global investment centers, Cathay Conning Asset Management, and its Goodwin Capital Advisers subsidiary. Conning’s unique combination of asset management, risk and capital management solutions and insurance research helps clients achieve financial goals through customized strategies. Celebrating its 100th anniversary this year, Conning focuses on the future, providing clients with innovative solutions by leveraging its global capabilities, investment experience and proprietary research. Company headquarters are in Hartford, Connecticut, with additional offices in New York, London, Dublin, Cologne, and Hong Kong.
National/Worldwide Connecticut Chief Executive Woody Bradford Connecticut Chief Executive Woody Bradford Headquarter location Hartford, CT Primary location Hartford, CT Number of employees 289 Number of employees 234 Website www.conning.com
First Niagara Financial Group
First Niagara Financial Group, through its wholly owned subsidiary, First Niagara Bank, is a multi-state community oriented bank with approximately 430 branches, $35 billion in assets, $28 billion in deposits and nearly 6,000 employees providing financial services to businesses, families and individuals across Connecticut, Massachusetts, New York and Pennsylvania.
National/Worldwide Connecticut Chief Executive John R. Koelmel Connecticut Chief Executive David V. Ring Headquarter location Buffalo, NY Primary location New Haven, CT Number of employees 6,000 Number of employees 1,000 2011 total revenues $1.3 billion Website www.firstniagara.com
The Hartford Financial Services Group
The Hartford is a leading property and casualty insurer that has been serving businesses and consumers with trust and integrity for more than 200 years. The Hartford helps businesses grow with confidence by protecting them with a full suite of insurance products and by providing group life insurance and disability benefits for their employees. Consumers can access The Hartford’s automobile and homeowner’s insurance products through 8,000 independent agents and the company’s relationship with AARP. The company’s Hartford Mutual Funds business helps consumers build a diversified portfolio to save for the future.
National/Worldwide Connecticut Chief Executive Liam E. McGee Connecticut Chief Executive Liam E. McGee Headquarter location Hartford, CT Primary location Hartford, CT Number of employees 24,400 (as of 12/31/2011) Number of employees 10,300 (as of 12/31/2011) 2011 total revenues $21.9 billion Website www.thehartford.com
91 PwC | 2012 Connecticut Insurance Market Report The Hartford Steam Boiler Inspection and Insurance Company
Hartford Steam Boiler (HSB), a part of Munich Re, is a leading engineering and technical risk insurer providing equipment breakdown and other specialty coverages, inspection services and engineering consulting. One of the world’s leading equipment insurers, HSB helps clients prevent loss and optimize the energy efficiency and reliability of their equipment and operations. Headquartered in Hartford, Connecticut, HSB services over five million businesses in the US Through affiliates in Canada and the United Kingdom, HSB insures businesses, industries and institutions worldwide. A.M. Best Company awarded the Hartford Steam Boiler group of companies its highest financial rating, A++ (Superior).
National/Worldwide Connecticut Chief Executive Greg M. Barats Connecticut Chief Executive Greg M. Barats Headquarter location Hartford, CT Primary location Hartford, CT Number of employees 2,400 Number of employees 425 2011 total revenues $1.02 billion Website www.hsb.com
ING US
ING US constitutes the US-based retirement, investment and insurance operations of Netherlands-based ING Groep N.V. (NYSE: ING). In the US, the ING family of companies offers a comprehensive array of financial products and services to retail and institutional clients, including retirement plans, IRA rollovers and transfers, stable value, institutional investment management, mutual funds, alternative investments, life insurance, employee benefits, fixed and indexed annuities and financial planning. ING US holds top-tier rankings in key US markets and serves approximately 13 million customers across the nation.
National/Worldwide Connecticut Chief Executive Rod Martin Connecticut Chief Executive Maliz Beams—ING US Retirement Solutions Jeff Becker—ING US Investment Management Headquarter location New York, NY Primary location Windsor, CT Number of employees 7,200 Number of employees 1,800 2011 total revenues $4,968.8 million Website ING.US
Insurity, Inc.
Insurity, Inc. is a market leader in providing core processing software and services to the property and casualty insurance market. Insurity’s solutions process billions of premium dollars each month which enable its customers to accelerate growth and stay ahead of the competition. Insurity’s solutions offer the features, functionality and flexibility that insurers need to be responsive to an ever- changing insurance market.
National/Worldwide Connecticut Chief Executive Jeffrey Glazer Connecticut Chief Executive Jeffrey Glazer Headquarter location Hartford, CT Primary location Hartford, CT Number of employees 394 Number of employees 250+ Website www.insurity.com
92 PwC | 2012 Connecticut Insurance Market Report KPMG LLP
KPMG LLP is the US member firm of KPMG International, the audit, tax and advisory services firm. KPMG operates from 87 offices with more than 23,000 employees and partners throughout the US KPMG’s purpose is to turn knowledge into value for the benefit of its clients, its people, and the capital markets. KPMG delivers a globally consistent set of multidisciplinary services based on deep industry knowledge. Its industry focus helps KPMG professionals develop a rich understanding of clients’ businesses and the insight, skills, and resources required to address industry-specific issues and opportunities.
National/Worldwide Connecticut Chief Executive John B. Veihmeyer Connecticut Chief Executive Richard P. Caporaso Headquarter location New York, NY Primary location Hartford, CT Stamford, CT Website www.kpmg.com Number of employees Approximately 425
Lincoln Financial Group
Lincoln Financial Group is a Fortune 500 company offering a diverse range of financial services and solutions. With a strong focus on four core business areas—life insurance, annuities, retirement plan services, and group protection—Lincoln Financial’s business is built around supporting, preserving, and enhancing its customer’s lifestyles and providing better retirement outcomes.
National/Worldwide Connecticut Chief Executive Dennis Glass Connecticut Chief Executive Laura Dambier Headquarter location Radnor, PA Primary location Hartford, CT Number of employees 8,600 Number of employees 550 2011 total revenues $11 billion Website www.lincolnfinancial.com
MassMutual Financial Group
Founded in 1851, MassMutual is a leading mutual life insurance company that is run for the benefit of its members and participating policyholders. The company has a long history of financial strength and strong performance, and although dividends are not guaranteed, MassMutual has paid dividends to eligible participating policyholders consistently since the 1860s. With whole life insurance as its foundation, MassMutual provides products to help meet the financial needs of clients, such as life insurance, disability income insurance, long-term care insurance, retirement/401(k) plan services, and annuities. In addition, the company’s strong and growing network of financial professionals helps clients make good financial decisions for the long-term.
National/Worldwide Connecticut Chief Executive Roger W. Crandall Primary location Enfield, CT Headquarter location Springfield, MA Number of employees 1,400 Number of employees 5,400 2011 total revenues $19.68 billion Website www.massmutual.com
93 PwC | 2012 Connecticut Insurance Market Report Nutmeg State Federal Credit Union
Nutmeg State Federal Credit Union (NSFCU) is the sixth largest credit union in Connecticut with eight locations including a fully functional “virtual” electronic branch that can be accessed through NSFCU’s website. NSFCU is a full service financial institution that provides itself on impeccable service. NSFCU offers everything from mortgages, auto loans, investments, and IRAs to free checking and much, much more. NSFCU stand outs from its competition because they focus on technology. In the near future, NSFCU will be adding several branches to better service their communities. With little to no fees, lower rates on loans, and higher rates on deposits, NSFCU is confident that the Connecticut market will continue to look to them as their primary financial institution.
National/Worldwide Connecticut Chief Executive John D. Holt Connecticut Chief Executive John D. Holt Headquarter location Rocky Hill, CT Primary location Rocky Hill, CT Number of employees 75 Number of employees 75 2011 total revenues $350 million Website www.nutmegstatefcu.org
People’s United Bank
People’s United Bank is a subsidiary of People’s United Financial, Inc., a diversified financial services company with $28 billion in assets. People’s United Bank, founded in 1842, is a premier, community-based, regional bank in the Northeast offering commercial and retail banking, as well as wealth management services through a network of 416 retail locations in Connecticut, New York, Massachusetts, Vermont, New Hampshire and Maine.
National/Worldwide Connecticut Chief Executive Jack Barnes Connecticut Chief Executive Michael Casparino Headquarter location Bridgeport, CT Primary location 166 Connecticut branches Number of employees Approximately 5,500 Number of employees Approximately 2,700 2011 assets Approximately $28 billion Website www.peoples.com
The Phoenix Companies, Inc.
The Phoenix Companies, Inc. is a boutique life insurance and annuity company serving customers’ retirement and protection needs. Founded in Hartford in 1851, Phoenix has a long history of keeping its promises. Phoenix is committed to excellence in everything it does—from protecting people and their loved ones and businesses, to helping secure their retirement dreams. The Company’s products are available through select independent distributors, supported by its distribution company, Saybrus Partners, Inc. Phoenix is publicly traded on the NYSE under the symbol PNX. Its principal insurance subsidiaries are Phoenix Life Insurance Company and PHL Variable Insurance Company.
National/Worldwide Connecticut Chief Executive James D. Wehr Connecticut Chief Executive James D. Wehr Headquarter location Hartford, CT Primary location Hartford, CT Number of employees 600 Number of employees 350 2011 total revenues $1.8 billion Website www.phoenixwm.com
94 PwC | 2012 Connecticut Insurance Market Report PricewaterhouseCoopers LLP
PwC firms help organizations and individuals create the value they’re looking for. PwC is a network of firms in 158 countries with close to 169,000 people who are committed to delivering quality in assurance, tax and advisory services.
National/Worldwide Connecticut Chief Executive Robert Moritz Connecticut Chief Executive Keith Hubert (Hartford) Laurie Schupmann (Stamford) Headquarter location New York, NY Primary location Stamford, CT Number of employees 169,000 Number of employees 777 2011 total revenues $10,157 million Website www.pwc.com
Prudential Financial, Inc.
Prudential Financial, Inc. (NYSE: PRU), a financial services leader with approximately $901 billion of assets under management as of December 31, 2011, has operations in the United States, Asia, Europe, and Latin America. Prudential’s diverse and talented employees are committed to helping individual and institutional customers grow and protect their wealth through a variety of products and services, including life insurance, annuities, retirement-related services, mutual funds and investment management. In the US, Prudential’s iconic Rock symbol has stood for strength, stability, expertise and innovation for more than a century. Prudential Retirement is a leader in managing risk and helping American organizations—and their employees and members—overcome their retirement challenges. By leveraging a full range of insurance and investment expertise, they are able to bring, DB predictability to DC plans, help boost the appreciation of DB plans and deploy expert NQ plan solutions that ensure all plans address the needs of key management and executive talent. This is part of how Prudential Retirement is shifting the idea of retirement from complexity to simplicity...volatility to security...and uncertainty to confidence on the way to restoring a core promise of the American dream—the ability to retire securely.
National/Worldwide Connecticut Chief Executive John Strangfeld Connecticut Chief Executive Christine Marcks, President, Prudential Retirement Robert O’Donnell, President, Prudential Annuities Headquarter location Newark, NJ Primary location Hartford, CT (Retirement) Shelton, CT (Annuities) Number of employees 51,000 Number of employees 1839 (CT) 681 (Retirement) 2011 total revenues $49 billion, Prudential Financial $4.87 billion, Prudential Retirement Website www.prudential.com www.retire.prudential.com
95 PwC | 2012 Connecticut Insurance Market Report Robinson & Cole LLP
Robinson & Cole is a commercial law firm featuring approximately 225 attorneys in nine offices throughout the Northeast and Florida. The firm serves national and international clients from Fortune 500 to start-up companies, as well as nonprofit and governmental organizations. Robinson & Cole’s Insurance and Reinsurance Practice Group represents insurers throughout the nation in complex coverage and claims litigation involving property, casualty, professional liability, directors and officers, excess and surplus lines, life, health, disability, and reinsurance. Robinson & Cole also has extensive experience litigating class action and market conduct disputes on behalf of insurance and financial services clients, as well as large loss property subrogation and extracontractual liability litigation. Additionally, lawyers in Robinson & Cole’s Business Section routinely handle administrative matters involving state insurance and tax departments, investment and real estate transactions, agency relationships, compliance, and employment matters.
National/Worldwide Connecticut Chief Executive John Lynch, Managing Partner Connecticut Chief Executive John Lynch, Managing Partner Headquarter location Hartford, CT Primary location Hartford, CT Number of employees 436 Number of employees 323 2011 total revenues $105.7 million Website www.rc.com
The Travelers Companies, Inc.
The Travelers Companies, Inc. is a leading provider of property and casualty insurance for auto, home and business. A component of the Dow Jones Industrial Average, Travelers is organized into three business segments. Business Insurance offers property and casualty insurance products and services to clients ranging from small “Main Street” businesses to mid-sized and specialty companies to Fortune 100TM corporations. Financial, Professional & International Insurance provides surety, management liability, professional liability and crime coverages in the United States and selected international markets. Personal Insurance offers property and casualty insurance products for individuals including automobile, homeowners, umbrella, identity theft and boat and yacht.
National/Worldwide Connecticut Chief Executive Jay Fishman Connecticut Chief Executive Brian MacLean Headquarter location New York, NY Primary location Hartford, CT Number of employees 30,000 Number of employees 7,000 2011 total revenues $25.45 billion Website www.travelers.com
96 PwC | 2012 Connecticut Insurance Market Report UnitedHealthcare
UnitedHealthcare is dedicated to helping people nationwide live healthier lives by simplifying the health care experience, meeting consumer health and wellness needs, and sustaining trusted relationships with care providers. The company offers the full spectrum of health benefit programs for individuals, employers and Medicare and Medicaid beneficiaries, and contracts directly with more than 650,000 physicians and care professionals and 5,000 hospitals nationwide. UnitedHealthcare serves more than 38 million people and is one of the businesses of UnitedHealth Group (NYSE: UNH), a diversified Fortune 50 health and well-being company.
National/Worldwide Connecticut Chief Executive Stephen Hemsley Connecticut Chief Executive Mike Matteo Headquarter location Minnetonka, MN Primary location Hartford, CT Number of employees 100,000 Number of employees 4,200 2011 total revenues $102 billion Website www.uhc.com
Vantis Life Insurance Company
Vantis Life Insurance Company helps financial institutions earn fee income by offering competitively priced life insurance products to their customers. The Company’s marketing, policy services, underwriting, claims and other key support areas have been built to support this channel. Vantis Life is fee income-focused—they understand your motivation for selling life insurance; service-driven—they aggressively support your licensed agents and field managers; and technology-savvy—they provide the technology to make life insurance sales faster, easier and error free.
National/Worldwide Connecticut Chief Executive Peter L. Tedone Connecticut Chief Executive Peter L. Tedone Headquarter location Windsor, CT Primary location Windsor, CT Number of employees 95 Number of employees 88 2011 total revenues $81.0 million Website www.vantislife.com
Virtusa Corporation
Virtusa Corporation (NASDAQ: VRTU) is a global information technology (IT) services company providing IT consulting, technology, and outsourcing services. Using its enhanced global delivery model, innovative software platforming approach and insurance industry expertise, Virtusa provides cost-effective services that enables their clients to use IT to enhance business performance, accelerate time- to-market, increase productivity and improve customer experience. Its insurance business includes some of the top companies in the life, property casualty, and wealth management industries.
National/Worldwide Connecticut Chief Executive Kris Canekeratne Connecticut Chief Executive Steve Lowry, Insurance business Unit Head Headquarter location Westborough, MA Primary location Windsor, CT Number of employees 6,000 Number of employees 110 2011 total revenues $277.8 million (Apr.2011-Mar.2012) Website www.virtusa.com
97 PwC | 2012 Connecticut Insurance Market Report Webster Financial Corporation
Webster Financial Corporation is the holding company for Webster Bank, National Association. With $19 billion in assets, Webster provides business and consumer banking, mortgage, financial planning, trust and investment services through 167 banking offices, 464 ATMs, 290 of which are owned by Webster and 174 of which are branded; telephone banking; mobile banking; and the Internet. Webster Bank owns the asset based lending firm Webster Business Credit Corporation; the equipment finance firm Webster Capital Finance Corporation; and provides health savings account trustee and administrative services through HSA Bank, a division of Webster Bank. Member FDIC and equal housing lender.
National/Worldwide Connecticut Chief Executive James C. Smith Connecticut Chief Executive James C. Smith Headquarter location Waterbury, CT Primary location Waterbury, CT Number of employees 2,970 Number of employees 2,400 2011 total revenues $740.7 million Website Websterbank.com
XL Group plc
XL Group plc, through its subsidiaries, is a global insurance and reinsurance company providing property, casualty and specialty products to industrial, commercial and professional firms, insurance companies and other enterprises throughout the world. XL is the company clients look to for answers to their most complex risks and to help move their world forward.
National/Worldwide Connecticut Headquarter location Dublin, Ireland Primary location Harbor Point in Stamford, CT Number of employees Approximately 4,000 Number of employees Approximately 650 2011 total revenues $6.7 billion Website www.xlgroup.com
Note: First Investors Corporation and TD Bank are also corporate sponsors of the CT IFS and opted not to provide a profile.
Special recognition In addition to the companies above, United Illuminating and Connecticut Light & Power/Yankee Gas have been long-standing partners with the CT IFS in business recruitment for the insurance and financial services industry.
98 PwC | 2012 Connecticut Insurance Market Report Acknowledgements
Report authors PwC core team
Paul Veronneau Praveen Akella Meghan Boudreau Lead Author and Advisory Manager Northeast Marketing Leader Hartford Advisory Leader Office: (860) 241-7289 Office: (617) 530-5782 Office: (860) 241-7568 Mobile: (860) 212-3379 Mobile: (617) 513-7802 Mobile: (860) 214-7172 [email protected] [email protected] [email protected]
Cinthia Burnett Jon Burton Patricia Capanna Graphic Design PwC Saratoga Manager Northeast Marketing & Office: (860) 241-7196 Office: (312) 298-5259 Sales Senior Manager Mobile: (860) 944-7506 Mobile: (408) 314-0198 Office: (860) 241-7116 [email protected] [email protected] Mobile: (860) 302-1955 [email protected]
Marc Ferzan Serena Foong James Gagnon Advisory Managing Director Health Research Institute Asset Management Assurance Office: (646) 471-7687 Office: (617) 530-6209 Senior Manager Mobile: (609) 751-3867 Mobile: (626) 818-5757 Office: (860) 241-7316 [email protected] [email protected] Mobile: (860) 305-2449 [email protected]
Josh Goldfarb Stephen Larosa Sue Manaskie Advisory Director State and Local Tax Managing Director Insurance Knowledge Office: (860) 241-7297 Office: (860) 241-7053 Management Manager Mobile: (860) 836-7470 Mobile: (860) 794-8876 Office: (860) 241-7391 [email protected] [email protected] Mobile: (860) 377-2845 [email protected]
Jack Rodgers Bruce Spooner Thomas Sullivan Tax Managing Director Advisory Director Advisory Principal Office: (202) 414-1646 Office: (860) 241-7142 Office: (860) 241-7209 Mobile: (301) 325-5209 Mobile: (203) 856-2288 Mobile: (860) 324-3215 [email protected] [email protected] [email protected]
Jennifer Whalley State and Local Tax Manager Office: (860) 241-7398 Mobile: (860) 204-7788 [email protected]
99 PwC | 2012 Connecticut Insurance Market Report Report authors Connecticut Insurance and Financial Services Cluster
Susan C. Winkler Executive Director Office: (860) 728-2271 Mobile: (860) 906-7511 [email protected]
Connecticut Economic Resource Center, Inc.
Alissa K. DeJonge Matthew B. Ross Director of Research Research Associate Office: (860) 571-6206 Office: (860) 258-1687 [email protected] [email protected]
100 PwC | 2012 Connecticut Insurance Market Report PwC Contributors Looking Forward Insurance 2020
Jamie Yoder Anand Rao Mansoor Bajowala US Insurance Advisory Co-leader Principal, PwC (US) Director, PwC (US) Principal, PwC (US) (617) 633-8354 (312) 298-3817 (773) 255-2138 [email protected] [email protected] [email protected]
Global David Law John Wynn Global Insurance Leader Global Insurance Advisory Leader Partner, PwC (UK) Partner, PwC (Hungary) +44 7710 173 556 +36 30 546 9862 [email protected] [email protected]
Americas Allan Buitendag Paul McDonnell Jonathan Simmons National Insurance Consulting Leader US Insurance Advisory Co-leader Canada Insurance Leader Partner, PwC (Canada) Principal, PwC (US) Partner, PwC (Canada) (416) 815-5239 (646) 471-2072 (416) 869-2460 [email protected] [email protected] [email protected]
Europe Achim Bauer UK Insurance Strategy Consulting leader Partner, PwC (UK) +44 (0) 20 7212 1405 [email protected]
Asia Peter Whalley Afzal Tarar Hong Kong Insurance Leader Partner, PwC (China) Partner, PwC (Hong Kong) +86 (21) 2323 3666 +852 2289 1192 [email protected] [email protected]
101 PwC | 2012 Connecticut Insurance Market Report PwC Editorial Board
Jeff Auker Rick Barto Joseph Calandro Advisory Director Insurance Advisory Principal Advisory Managing Director Office: (860) 241-7462 Office: (860) 241-7035 Office: (646) 471-3572 Mobile: (860) 597-2206 Mobile: (603) 320-0119 Mobile: (203) 906-6595 [email protected] [email protected] [email protected]
Vincent Colman Denise Cutrone John Farina Assurance Partner Assurance Partner Northeast Insurance Tax Leader Office: (646) 471-5158 Office: (678) 419-1990 Office: (617) 530-7391 Mobile: (973) 896-0843 Mobile: (646) 678-9845 Mobile: (617) 460-2995 [email protected] [email protected] [email protected]
Greg Galeaz Michael Galper Jeff Gitlin Insurance Advisory Partner Payer Advisory Co-Leader Advisory Principal Office: (617) 530-6203 Office: (213) 217-3301 (860) 241-7056 Mobile: (774) 573-0220 Mobile: (213) 500-0284 (860) 559-6511 [email protected] [email protected] [email protected]
Julie Goosman Daniel Grady John Griffin Tax Partner Assurance Partner Assurance Partner Office: (617) 530-5645 Office: (617) 530-7819 Office: (617) 530-7308 Mobile: (678) 478-5778 Mobile: (617) 763-1228 Mobile: (617) 970-8774 [email protected] [email protected] [email protected]
Brian Hannan Jason Heider Keith Hubert Assurance Partner Payer Research Northeast Insurance Leader and Office: (646) 471-5537 Office: (720) 931-7770 Managing Partner—Hartford Mobile: (215) 817-8537 Mobile: (813) 766-5891 Office: (860) 241-7404 [email protected] [email protected] Mobile: (860) 305-6793 [email protected]
Ben Isgur Vaughn Kauffman Susan Kellam Health Research Institute Payer Advisory Co-Leader Professional Writer Office: (214) 754-5091 Office: (216) 363-5817 Office: (207) 790-1077 Mobile: (817) 821-5158 Mobile: (440) 258-2729 www.wordsharpener.com [email protected] [email protected]
102 PwC | 2012 Connecticut Insurance Market Report PwC Editorial Board
Nadia Leather Mark Littmann Louis Lombardi Health Industries Marketing Leader Actuarial Principal Actuarial Principal Office: (646) 471-7536 Office: (860) 241-7334 Office: (860) 241-7400 Mobile: (718) 839-4253 Mobile: (860) 614-6673 Mobile: (860) 918-4123 [email protected] [email protected] [email protected]
Larry Lynch Paul McDonnell Jeff Muzio Assurance Partner Insurance Advisor Sector Co-Leader Assurance Partner Office: (646) 471-4147 Office: (646) 471-2072 Office: (860) 241-7061 Mobile: (609) 306-9860 Mobile: (203) 470-1772 Mobile: (860) 913-6628 [email protected] [email protected] [email protected]
Barry Nearhos James Scanlan Dave Scheinerman Northeast Market Managing Partner US Insurance Industry Leader Actuarial Principal & Northeast Market Council Office: (267) 330-2110 Office: (860) 241-7129 Office: (617) 530-5177 Mobile: (215) 870-3255 Mobile: (860) 508-6417 Mobile: (617) 548-9317 [email protected] [email protected] [email protected]
Robert Sullivan Eric Trowbridge Paul Veronneau Assurance Partner Insurance Sector Marketing Leader Hartford Advisory Leader Office: (646) 471-8388 Office: (410) 659-3489 Office: (860) 241-7568 Mobile: (203) 722-0458 Mobile: (410) 375-6110 Mobile: (860) 214-7172 [email protected] [email protected] [email protected]
Nicole Waiksnoris Jamie Yoder Hartford Advisory Insurance Advisory Sector Co-Leader Office: (860) 241-7070 Office: (312) 298-3462 [email protected] Mobile: (773) 255 2138 [email protected]
103 PwC | 2012 Connecticut Insurance Market Report Supporting thought leadership We invite you to visit our website www.pwc.com to learn more about our firm and to download our thought leadership. Here is a small sampling of insurance and healthcare payer publications that you will find:
Life insurance 2020: Competing for a future The forces shaping change have big implications for the competitive environment. This paper explores the forces that are set to transform the life and pensions sector, what the new market place is going to look like and how insurers can come out on top.
Is Your Finance Function Delivering the Value You Expect? Optimize Your Operating and Sourcing Model Many insurance companies are taking a closer look at their business strategy, and many of them have made or are contemplating structural changes to their operating models. This has led many companies to look at creative sourcing alternatives for their operations. Notably, CFOs are examining the finance value chain to identify existing or additional areas for performance enhancements and cost savings.
Using an ORSA to Improve Risk to Reward Decision-making This paper describes how insurers can leverage the ORSA to significantly improve risk-to-reward decision-making in general and insurance business planning in particular. Insurers that seize the opportunity to design or re-design their risk management functions and processes will promote effective regulatory relations and help position their companies to better navigate market uncertainty.
A Brief Introduction to Underwriting & Information Advantage This paper describes how insurers can more effectively use information to improve their underwriting results.
Can Your Reporting Strategy Meet New Challenges? This paper offers suggestions on the viability of insurers’ reporting strategies as they reflect on the challenges resulting from changes in the accounting and regulatory environment.
104 PwC | 2012 Connecticut Insurance Market Report The Enormity of Uniformity This publication describes in the compliance-related challenges related to regulatory change in an environment that is seeing an increasing amount of global convergence.
Top Insurance Industry Issues in 2012 This publication highlights key issues for insurance companies including SSAP 101, regulatory compliance, Dodd-Frank, international expansion, risk and capital management, the low interest rate environment, policy administration, the impact of FATCA, and more.
Continuing Developments in the Taxation of Insurance Companies: 2011 the year in review The latest edition reviews developments affecting the taxation of insurance companies with a special focus on legislation, tax accounting, and Federal, international, and multi-state taxation developments.
Strategic risk management: Facilitating risk-based insurance decisions This paper describes how insurers need a strategic risk management (SRM) solution that identifies, assesses, and economically manages potentially enterprise-threatening risks over time before they spiral out of control.
How do the proposed FATCA regulations impact insurers? This bulletin discusses the potential effects on insurers of the Foreign Account Tax Compliance Act (FATCA).
Getting more from your property & casualty actuarial analysis Many companies retain P&C insurance risks, and typically retain the services of a credentialed actuary to assist with various financial analyses of the retained risk. This paper contains questions that a company risk manager should discuss with their actuary.
Have insurance pool expectations exceeded solvency measures? This paper explores various solvency measures pools use to establish and assess funding level, and also discuss the context in which the specific measures developed. In addition, it addresses alternative strategies and approaches to establish and assess funding levels.
Adoption of SSAP 101 This paper discusses the important changes to income tax accounting under statutory accounting principles (SAP), including accounting for uncertain tax positions.
105 PwC | 2012 Connecticut Insurance Market Report The sprint for the global footprint: How insurers can build a profitable growth strategy through international expansion Projected slower growth in developed economies is creating a mandate for insurers to expand internationally. However, no one strategy fits all in terms of where, how, and when to expand. In fact, as this publication shows, leading insurers have learned that uniform approaches fall short, and that the key to success is making available information actionable.
Fire, ready, aim: Don’t miss the point of a policy administration (PAS) transformation Another in an ongoing series of FS Viewpoints, this publication addresses how a modern and flexible PAS platform is necessary for desired growth and profitability, and notes that companies which do not adapt risk losing market share while experiencing continually escalating costs.
Getting set for the US ORSA This whitepaper explores the NAIC’s ORSA Guidance Manual and its implications for insurers as they prepare for the US ORSA requirement.
The direct distribution dilemma At a time when technology-driven innovations are giving consumers more insights into and control over their purchases, insurers cannot afford to be left behind. This paper describes some of the ways insurers can match their direct channel value strategy and value propositions to customer expectations.
Demystifying group supervision As a result of international scrutiny, there will be significant changes to group supervision in the years to come. This paper illustrates how understanding the key points of the current debate will help groups both influence and prepare for what may be the biggest change to their future supervision.
Redefining the customer experience: Mobile telematics and the future of the insurance industry This paper describes the latest developments in mobile telematics, their relevance to the insurance industry, and how insurers can take advantage of this potentially game-changing technology.
IASB/FASB Insurance Contracts Project Meeting Notes Notes and summary matrices come out immediately after joint IASB/FASB Insurance Contracts Project meetings and FASB education sessions.
106 PwC | 2012 Connecticut Insurance Market Report NAIC Meeting Notes A newsletter that comes out soon after quarterly National Association of Insurance Commissioners (NAIC) meetings and summarizes key developments at them.
mHealth Insights mHealth Insights is a series of newsletters that delve deeper into the issues presented in Emerging mHealth: Paths for growth, a PwC-commissioned global survey conducted by the Economist Intelligence Unit. Six newsletters, published every every two months starting in September 2012, will examine our analysis of trends, opportunities and barriers in mHealth.
Advancing healthcare informatics: The power of partnerships Health insurers, assuming the role of data aggregator and leveraging their technology and analytics capabilities, offer significant value to all healthcare stakeholders. Early experiments in the formation of Accountable Care Organizations, as well as the mobilization of Health Insurance Exchanges, offer a window into how even adversaries can team up to produce better results for patients and the bottom line.
Customer experience in healthcare: The moment of truth A better understanding of what customers want, need and value gives organizations a competitive advantage. PwC’s customer experience and radar report shares insights into the minds of real consumers.
Implications of the US Supreme Court ruling on healthcare The US Supreme Court ruling upholding the Affordable Care Act reinjects a sense of urgency into the transformation of an industry that represents nearly one-fifth US economy.
Emerging mHealth: Paths for growth In this PwC-commissioned report from the Economist Intelligence Unit (EIU), patients, doctors and payers share their views on mHealth. Find out what they told us, and learn more about the potential of mobile health in developed and emerging markets, the challenges, and the impact on stakeholders.
Medical cost trend: Behind the numbers 2013 This report looks at the projected increase in the cost of medical services for 2013. Medical cost trend is the primary factor in setting health insurance premiums. Commercial insurers and large employers use this information to estimate what the same health plan would cost in the following year.
107 PwC | 2012 Connecticut Insurance Market Report Health Insurance Exchange Final Rules: Moving ahead to 2014 PwC’s Health Research Institute has created a brief that provides an overview and implications of the Health Insurance Exchange final rules released by the Department of Health and Human Services on March 12 and 16, 2012.
Needles in a haystack: Seeking knowledge with clinical informatics Incorporating clinical informatics across a healthcare organization will be essential as the reimbursement landscape evolves to a more outcomes- based approach.
Social media “likes” healthcare: From marketing to social business Social media is changing the nature and speed of healthcare interaction between consumers and health organizations. This in-depth HRI report dives into what some of the largest healthcare companies are doing in and with social media. The report’s findings are based on a survey of more than 1,000 consumers and 124 healthcare executives.
Medicare ACOs and shared savings models This brief provides a financial analysis of the ACO opportunity, including a breakdown of return on investment and cash flow possibilities. ACO participation will require deep integration of providers in order to maximize financial results. The brief also shares a review of the infrastructure needs for ACO participation, the necessary information and analytics stages for an ACO, and FAQ.
Top health industry issues of 2012 In 2012, health industry organizations will connect in new ways with each other and their consumers as they wade through economic, regulatory, and political uncertainty. Some are stepping forward in cooperation; others are rewriting the rules of competition. Among the key issues, we’ll see value move from theory to reality, investments ramp up in informatics, the effects of drug shortages, insurers gear up to compete in a new insurance exchange marketplace, pharma companies slim down and healthcare increasing its social media presence.
108 PwC | 2012 Connecticut Insurance Market Report Footnotes
1. Governor Dannel Malloy, “Building an Economic Revival.” Presented 24. Connecticut Economic Strategic Plan 2009, Department of Economic at Fiscal Year 2013 Midterm Budget Address, February 8, 2012. and Community Development. 2. “State and Country Quick Facts,” US Census Bureau, accessed 25. http://www.highschoolinc.net/ September 29, 2012, http://quickfacts.census.gov/qfd/states.html. 26. http://www.business.uconn.edu/gblc/ 3. Stats America, accessed September 29, 2012, www.statsamerica.org. 27. http://www.law.uconn.edu/ 4. CERC calculation of Moody’s Analytics, Actual for 2011; projected to 28. http://www.hartford.edu/barney/ 2022. 29. http://www.ccsu.edu/page.cfm?p=456 5. State Median Income, US Census Bureau, accessed September 30. http://www.gwcc.commnet.edu/ 29, 2012, http://www.census.gov/hhes/www/income/data/ statemedian. 31. http://www.ccc.commnet.edu/ 6. Connecticut Job & Career ConneCTion, Connecticut Department of 32. Connecticut Insurance Department website, accessed September 29, Labor, accessed September 29, 2012, www1.state.ctdol.ct.us. 2012, http://www.ct.gov/cid/site/default.asp 7. Governor Malloy’s FY 2012-2013 Budget, accessed September 33. PwC Analysis; US Census Bureau, Current Population Survey, March 29, 2012, http://www.governor.ct.gov/malloy/cwp/view. 2011 Supplement; CBO, “Estimates for the Insurance Coverage asp?a=11&Q=474002&PM=1 Provisions of the Affordable Care Act Updated for the Recent Supreme Court Decision,” July 2012. 8. US Census, DataFinder, American FactFinder 34. PwC estimates of Connecticut based on Congressional Budget Office 9. Based on data from the Board of Governors of the Federal Reserve estimates of the national impact of the Affordable Care and Patient System, 2012, Flow of Funds Accounts of the United States, statistical Protection Act. release, June 7 35. Office of Health Reform and Innovation website, accessed September 10. Based on data from the Board of Governors of the Federal Reserve 29, 2012, www.ct.gov/ohri. System, 2012. 36. The Connecticut Health Insurance Exchange website, accessed 11. Connecticut Insurance Department, 2011 September 29, 2012, www.ct.gov/hix. 12. Connecticut Insurance Department, 2011 37. Connecticut Department of Social Services website, accessed 13. CERC calculation of Moody’s Analytics, 2011. NAICS 5241. September 29, 2012, www.ct.gov/dss. 14. CERC calculation of Moody’s Analytics, 2011. NAICS 5241 (Carriers) 38. PwC Health Research Institute, “Implications of the US Supreme and NAICS 524 (Total). Court ruling on healthcare,” June 2012 (Updated August 2012). 15. Stats America, accessed September 29, 2012, www.statsamerica.org. 39. Excerpts from Governor’s press release on Aug 2, 2012. For 16. CERC calculation of Moody’s Analytics, 2011. NAICS 5241. information on forming a captive insurance company Connecticut, 17. CERC calculation of Moody’s Analytics, 2011. NAICS 5241. visit www.ConnCaptives.org. 18. CERC calculation of Moody’s Analytics, 2011. NAICS 5241. 40. Office of the Attorney General Annual Report Fiscal Year 2010-2011. 19. Ibid 41. “Cigna” refers to the operating subsidiaries of Cigna Corporation. 20. Ibid 42. A. Barry Rand, “Facing the Challenge of Turning 65: Increased life expectancy, decreased pensions and Social Security benefits add to 21. Swiss Re Economic Research and Consulting, “Global Economic challenge, AARP Bulletin, January 1, 2011. Outlook and Scenarios,” August 2012. 43. Centers for Disease Control, “Life expectancy at birth, at 65 and 75 22. Swiss Re Economic Research and Consulting, “Global insurance years of age by race and sex,”,accessed September 19, 2012, http:// industry led by double-digit growth emerging Asia,” January 2011. www.cdc.gov/nchs/fastats/lifexpec.htm 23. Mark Muro and Kenan Fikra, “Job Creation on a Budget: How 44. A. Munnell, A. Webb, L. Delorme, and F. Golub-Sass; Center for Regional Industry Clusters Can Add Jobs, Bolster Entrepreneurship, Retirement Research at Boston College; National Retirement Risk and Spark Innovation,” Project on State and Metropolitan Innovation, Index: How Much Longer Do we Need to Work; June 2012, Number Brookings Institution, 2011. 12-12.
109 PwC | 2012 Connecticut Insurance Market Report 45. LIMRA, based on 2007 Survey of Consumer Finances, Federal 56. US Energy Information Administration, World energy use projected Reserve Board, 2009 to grow 49 percent between 2007 and 2035; Rapid growth projected 46. National Clearing House for Long Term Care Information, accessed for renewables, but fossil fuels continue to provide most of the September 19, 2012, http://www.longtermcare.gov/LTC/Main_Site/ world’s energy under current policies, Press Release May 2010 Index.aspx 57. US Energy Information Administration, International Energy 47. Lincoln life insurance policies are issued by The Lincoln National Outlook, September 2011 Life Insurance Company, Fort Wayne, IN, and distributed by Lincoln 58. PwC Research from more than 150 C-suite executives polled at a Financial Distributors, Inc., a broker/dealer. The Lincoln National presentation of the Future of Insurance to the International Insurance Life Insurance Company does not solicit business in the state of New Society (IIS), June 2011. York, nor is it authorized to do so. Policies sold in New York are issued 59. Alliance for Health & the Future, The Dependency Ratio, Issue Brief by Lincoln Life & Annuity Company of New York, Syracuse, NY, and Vol 2, Number 1 distributed by Lincoln Financial Distributors, Inc., a broker/dealer. 60. Center for Retirement Research at Boston College, The Social All guarantees and benefits of the insurance policy are backed by Security Fix-it Book, accessed September 19, 2012, http://crr.bc.edu/ the claims-paying ability of the issuing insurance company. They special-projects/books/the-social-security-fix-it-book/ are not backed by the broker/dealer and/or insurance agency 61. “Terrorists attack global supply chains every four days,” SupplyChain selling the policy, or any affiliates of those entities other than the Digital, April 2011 issuing company affiliates, and none makes any representations or guarantees regarding the claims-paying ability of the issuer. 62. CBO, “Estimates for the Insurance Coverage Provisions of the Products and features are subject to state availability. Limitations and Affordable Care Act Updated for the Recent Supreme Court exclusions may apply. Decision,” July 2012 Lincoln Financial Group is the marketing name for Lincoln National Corporation and its affiliates. Affiliates are separately responsible for their own financial and contractual obligations. 48. “Car Insurance shoppers still prefer to deal with local agents over direct carriers,” Coverhound, January 2011, accessed September 29, 2012, http://coverhound.com/insurance-learning-center/car- insurance-shoppers-still-prefer-to-deal-with-local-agents-over-direct- carriers. 49. “Mobile by the Number’s,” Mashable, March 2011, accessed September 19, 2012, http://mashable.com/2011/03/23/mobile-by- the-numbers-infographic/ 50. Health Research Institute, “Social media “likes” healthcare: from marketing to social business.” PwC, April 2012 51. Facebook statistics, November 2011 52. CISCO, The internet of things: How the next evolution of the internet is changing everything, April 2011 53. PwC Research from more than 150 C-suite executives polled at a presentation of the Future of Insurance to the International Insurance Society (IIS), June 2011. 54. Insurance Matters: Information for policymakers, Catastrophes:Insurance Issues, June 2011 55. Insuring Florida, Catastrophes: Insurance issues, October 2011
110 PwC | 2012 Connecticut Insurance Market Report 111 PwC | 2012 Connecticut Insurance Market Report © 2012 PricewaterhouseCoopers LLP. All rights reserved. PwC refers to the United States member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/ structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. The comments and opinions provided in the quotes and perspectives in this report are the opinions of the attributing organizations and do not represent the views of PwC. The information contained in this document is shared as a matter of courtesy and for information or interest only. PwC has exercised reasonable professional care and diligence in the collection, processing, and reporting of this information. However, data used may be from third-party sources and PwC has not independently verified, validated, or audited such data. PwC does not warrant or assume any legal liability or responsibility for the accuracy, adequacy, completeness, availability and/or usefulness of any data, information, product, or process disclosed in this document; and is not responsible for any errors or omissions or for the results obtained from the use of such information. PwC gives no express or implied warranties, including, but not limited to, warranties or merchantability or fitness for a particular purpose or use. In no event shall PwC be liable for any indirect, special, or consequential damages in connection with use of this document or its content. Information presented herein by a third party is not authored, edited or reviewed by PwC and PwC is not endorsing third parties or their views. Reproduction of this document or recording of its presentation, in whole or in part, in any form, is prohibited except with the prior written permission of PwC. Before making any decision or taking any action, you should consult a competent professional adviser.
FSC certification and number to be placed here by printer.
This publication is printed on recycled paper. www.pwc.com
To have a deeper conversation about how the topics addressed in this report may affect your business, please contact:
Paul Veronneau, PwC (860) 241-7568 [email protected]
Susan Winkler, CT IFS (860) 278-2271 [email protected]