Life insurance industry trade groups said in a strong statement today that they will urge the Obama administration to withdraw proposals contained in the president’s budget that would impose new taxes on life insurers.
The statement was released by the American Council of Life Insurers, the Association for Advanced Life Underwriting, the National Association of Insurance and Financial Advisors, the National Association of Independent Life Brokerage Agencies and GAMA International.
See: Obama Calls for Tax on Life Insurers
Trade groups also voiced particular concern about provisions that would impose new taxes on contributions to retirement plans and Individual Retirement Accounts.
In a statement, the industry said that the proposed budget for 2013 “reasserts two provisions—one on corporate-owned life insurance (COLI) and one on life insurers’ dividends-received deduction (DRD)—that were initially proposed in the 2010 budget but rejected by Congress.”
The groups added that the COLI proposal would impose new taxes on life insurance used by businesses small and large.
“Many businesses use COLI to protect against financial or job loss stemming from the death of owners or key employees,” the statement said.
It added that COLI is also used to ensure business continuation. “In addition, COLI is a widely-used funding mechanism for employee and retiree benefits,” the statement said, adding that “Congress affirmed the benefits and tax treatment of COLI and assured its responsible use in bi-partisan legislation enacted in 2006.”
The statement added that, “Wisely, Congress has rejected similar proposals in past years. We urge the administration to withdraw its proposals on COLI and DRD.”
At the same time, the Insured Retirement Institute issued its own statement regarding the DRD proposal.
IRI president and CEO Cathy Weatherford said the trade group’s research has shown that “the tax-deferred status of annuities has been pivotal in helping middle-income Americans utilize lifetime income strategies as part of their retirement savings plan.”
She said that removing this incentive would not necessarily increase tax revenue, but certainly would add a new barrier that would prevent Americans from attaining lifetime income coverage.
“With today’s unprecedented retirement challenges, now more than ever, we need to protect the incentives available to help Americans attain a financially secure retirement,” Weatherford added.
The new limitations on deductions for retirement contributions would extend to any tax-exempt state and local bond interest, employer-sponsored health insurance paid for by employers or with before-tax employee dollars, health insurance costs of self-employed individuals, employee contributions to defined contribution retirement plans and individual retirement arrangements.
It also calls for the deduction for income attributable to domestic production activities, certain trade and business deductions of employees, moving expenses, contributions to health savings accounts and Archer MSAs, interest on education loans, and certain higher education expenses.
However, Martin Sullivan, a contributory editor for Tax Analysts, an independent organization, cautioned that the proposals are unlikely to see the light of day.
He said he found the budget proposal makes little movement toward reform and more ‘politics as usual’ in tax provisions.
President Obama’s proposed budget for 2013 would impose sweeping tax hikes on the insurance industry, including a restoration of 2009 estate tax rules, and sustaining the portability between the estate and gift taxes as contained in current law, but at a maximum lower level. Obama’s proposed budget would also call for an increase in the SEC’s budget level in 2013 to $1.566 billion, which is a 18.5% increase over the SEC’s 2012 appropriation.
The one nugget is another proposal from the past, this one aimed at providing an incentive for small employers to establish retirement plans for their employers.
Under current law, small employers (those that have no more than 100 employees) that adopt a new qualified retirement plan (or SIMPLE plan) are entitled to a temporary business tax credit equal to 50% of the employer’s expenses of establishing or administering the plan, including expenses of retirement-related employee education with respect to the plan. The credit is limited to a maximum of $500 per year for three years.
The administration said in conjunction with the automatic IRA proposal, to encourage small employers not currently sponsoring a qualified retirement or SIMPLE plan to do so, it wants to double this tax credit to a maximum of $1,000 per year for three years (effective for taxable years beginning after December 31, 2013) and to extend it to four years (rather than three).
Other provisions of the proposed budget include:
•Estate tax would be turned back to the level that existed in 2009 of a $3.5 million exemption and a maximum tax of 45%. Currently, the exemption is $5 million and the maximum tax rate 35%.
•Similarly, generation-skipping transfers (or GSTs) made after Dec. 31, 2012, would be taxed at a maximum tax rate of 45% with a life-time exclusion of $3.5 million. Gifts made after Dec. 31, 2012, would be taxed at a maximum tax rate of 45 percent with a life-time exclusion of $1 million.
•As reflected in the adjusted baseline, the portability of unused estate and gift exclusion amounts between spouses would be made permanent and would apply to anyone dying after December 31, 2012.
•Establishing a minimum term of 10 years for grantor retained annuity trusts.
•A special tax on financial institutions with assets of more than $50 billion. It is designed to raise approximately $60 billion over 10 years. The tax was proposed earlier in order to pay for losses associated with the Troubled Asset Relief Program, but opponents point out that the program is nearing solvency, and that for that reason is unlikely to be supported by Congress.
Despite such sweeping ambitions, however, analysts point out that the budget, as proposed, has virtually no chance of being enacted in law.
Property/casualty insurers are facing a difficult environment in 2012, according to a forecast from analysts at a Hartford insurance consulting firm.
The difficult environment will include volatility in the economy, the underwriting cycle, and catastrophe management, combined with low investment yields, said the quarterly Property/Casualty Forecast & Analysis from Conning Research & Consulting.
Conning said it sees premium growth at between three to four percent.
Clint Harris, analyst at Conning, said the expected industry combined ratio of 104 percent for 2012 should improve slightly in 2013 “as the commercial lines rate environment improves and overall inflation remains modest.”
But the overall environment is uncertain and challenging.
“The weak and changing economic recovery and the industry’s response in terms of pricing and reserving will combine to create an uncertain operating environment for management,” said Stephan Christiansen, director of research at Conning. “We forecast modest increase in both exposure and premium rate growth for both 2012 and 2013, but rate firming still fall short of what should be interpreted as a broad turn in the underwriting cycle.”
However, Christansen said, the decline in expected investment yields for the next couple of years is becoming an even more significant factor, and ROE performance is forecast in the low five percent range, similar to levels that preceded the last hard market.
Coverage for data-breach risk has become the key insurance coverage for the digtial age.
The reason. of course, is that the digital storage and transfer of data is a critical part of doing business today for a huge-and constantly growing- swath of industry sectors. Insurance companies and agencies, banks, asset managers, retailers, doctors offices and any type of business that maintains client files with private financial data are at risk. The security breach at Sony in the spring of 2011 reminds us that anyone is susceptible.
And it’s no just hackers, viruses and phishing emails that put data at risk. Security breaches can just as easily be caused by loss of misplace files or even mishandled waste. A breach that results in a client’s data being stolen and used in a damaging way can lead to substantial third-party liability claims-and government penalties.
A report for Lloyd’s of London and technology company HP earlier this year warned that businesses becoming more reliant on techonolgy will face more complex and damaging digial attacks as sophisticated criminals quickly adapt their methods to steal from, disrupt and spy on businesses.
Larger companies have been attuned to the risks for some time now and have started to buy policies. It is the small and midsize businesses that need to start purchasing this type of coverage for they may find it difficult to recover from a data breach which can easily approach $100,000 for defense and mitigation.
Premiums for this coverage are still relatively inexpensive considering the potential exposure. Mountain Insurance Brokers represents several carriers that offer this coverage at a very affordable coverage. Do not continue to put your business and yourself at risk. Contact Kevin Krupka at (720)974-1702 to determine if you business is a risk.
Young U.S. residents could expect to live a tiny bit longer in 2010 than in 2009, but older U.S. residents probably had no such luck.
Overall life expectancy increased to 78.7 years in 2010, from 78.6 years in 2009, and the overall age-adjusted death rate fell to 746.2 deaths per 100,000 people, from 749.6 deaths per 100,000 people.
For U.S. residents ages 50 and older, life expectancy was almost exactly the same in 2010 as it was in 2009.
Although the life expectancy for older adults stayed the same, the actual death rate for people ages 85 and older increased 1.9%, to 13,918 deaths per 100,000.
Sherry Murphy and other researchers at the federal Centers for Disease Control and Prevention (CDC) have published those figures in a preliminary 2010 mortality report based on state death reports processed by the CDC as of Nov. 8, 2011.
Long-term care insurance (LTCI carriers cannot assume the experience of their insureds will be the same as the experience for the country as a whole.
The people covered by private LTCI policies typically have gone through some kind of selection process. They tend to be healthier and wealthier than the population as a whole, and they may have access to better health care.
But the preliminary 2010 U.S. death data may reflect that trends that affected LTCI insureds as well as the general population.
The CDC researchers found, for example, that the major causes of death stayed about the same in 2010, but the age-adjusted death rate for influenza and pneumonia fell sharply, to 15.1, from 16.5.
The overall death rates for heart disease, cancer, chronic lung disease and stroke were also down. But the age-adjusted death rate for two conditions associated with old age — Alzheimer’s disease and pneumonitis, or inhalation of solids and liquids, — increased.
The Alzheimer’s death rate increased 3.3%, to 25, and the death rate for pneumonitis increased 4.1%, to 5.1. The death rate for Parkinson’s disease jumped 4.6%, to 6.8.
.S. health care spending increased 3.9% in 2010 following record slow growth of 3.8% in 2009; the two slowest rates of growth in the 51-year history of the National Health Expenditure Accounts, the official estimates of total health care spending in the United States issued by the Centers for Medicare & Medicaid Services (CMS).
Total health expenditures reached $2.6 trillion.
That is 17.9% of the nation’s Gross Domestic Product, unchanged from the previous year.
Hospital spending increased 4.9% to $814 billion in 2010, compared to 6.4% growth in 2009. Although hospital spending is growing, it is not accelerating as fast as it did between 2003 and 2006, when spending increased an average of 7.4%, according to the report. The report noted that growth in private health insurance spending for hospital services, which in 2010 accounted for 35% of all hospital care, slowed considerably in 2010.
Median in-patient hospital admissions declined and emergency department and outpatient hospital visits grew more slowly than in 2009, according to the report. It is not clear if these services were less because they were underutilized or unneeded.
Two categories that increased more than the overall growth rate were so-called “other health, residential, and personal care services and home health care.” Spending for these other health services grew 5.3% in 2010 to $128.5 billion. However, this was still a deceleration from the higher growth of 7.7% in 2009. This category includes expenditures for medical services delivered in non-traditional settings (such as schools or community centers), ambulance providers, and residential mental health and substance abuse facilities.
Spending growth for freestanding home health care services slowed in 2010, but still increasing 6.2% to $70.2 billion following growth of 7.5% in 2009, as Medicare and Medicaid spending growth slowed in 2010, according to CMS.
Spending on physician and clinical services increased 2.5% in 2010 to $515.5 billion. The 2010 deceleration from the previous year “reflects a decline in utilization, driven by a drop in total physician visits between 2009 and 2010 and a less severe flu season than in 2009.”
The Republican-dominated House Energy & Commerce Committee took a dimmer view, noting taxpayers are bearing the brunt of the increase, because, in 2010, the federal government’s share increased to 29% under health care reform implementations.
This represents “a substantial increase from its share of 23% in 2007.” However, the shares of the total health care bill financed by state and local governments (16%), private businesses (21%) and households (28%) declined during the same time period, according to the report.
“This means the American taxpayer will bear the brunt of this rapidly rising health care spending,” stated the Committee, in reference to the federal government increase. In fact, in 2014 as the health care law’s Medicaid expansion and cost sharing subsidies take effect, “taxpayer funding of health care is expected to rise even further,” stated the Energy & Commerce Committee, chaired by Fred Upton, R-Michigan.
Despite more than $100 billion in disaster losses around the world this year, insurers are not yet experiencing a broad and sustained increase in pricing power, defying predictions from a year ago that even half those losses would be enough to turn the industry around.
For investors, that means picking winners in 2012 will be harder than expected. Analysts say the key is companies with healthy capital levels and reserve strength; those that have already shown some pricing leverage; and the brokers, who are usually first to benefit in a cycle turn.
Among the names that have been highlighted by some analysts are insurers like Travelers Companies Inc., reinsurers like Allied World and Axis Capital and brokers like Marsh and McLennan and Aon Corp.
“Winners will be those with reserve and capital strength, who strategically are well positioned for a quickly evolving market,” KBW analyst Cliff Gallant said in his annual sector preview. “We expect rate improvement to be modest, not uniform and not in any way a traditional hard market.”
While 2011 will go down as a record-breaking disaster year, the hurricanes and earthquakes were in many ways not what the industry would typically expect when it thinks about large catastrophes.
There was a heavy concentration in the Asia-Pacific region, and the one hurricane that made a U.S. landfall did relatively less damage than forecast.
“Those were some really big numbers through the year catastrophic loss-wise but they were sort of fringe losses; they didn’t hit the big pockets of capacity,” said Michael Korn of Integro Insurance Brokers in San Francisco. “Maybe the other shoe has lifted and not dropped yet.”
$150 BILLION?
That means that while prices have already risen substantially in some markets for some kinds of coverage, there is not the sector-wide hard market many had hoped for, where all insurers have pricing power over their customers.
“Some have said $100 billion is the number, some have said $150 billion is the number that has to be drained from the market to cause the turn,” said Chris Schaper, president of the Montpelier Re Holdings Ltd unit Montpelier Reinsurance Ltd.
“The industry is still in its assessment phase, if you will,” said Schaper, a chartered underwriter with more than 25 years’ insurance experience. “There’s no doubt that price movement is taking place,” he said, adding it could be another year before price rises fully work through the market.
One of the problems, ironically enough, is that insurers are still making money, particularly because most of the disasters that have occurred have been in places where the risk is spread broadly among insurers. When they are profitable, they can afford to be somewhat more flexible on price to retain business.
“Notwithstanding the fact that the property and casualty insurers’ aggregate results have certainly declined … it is still a profitable industry,” said Integro’s Nick Conca, who runs the firm’s risk management practice. “There’s still an abundance of capacity in the P&C marketplace, there’s still a good amount of competition for what I’ll call garden variety risks.”
To be sure, in some places rates are up sharply. Where there have been disasters, for instance in Japan and New Zealand, rate hikes in excess of 50 percent are common.
Prices are also on the rise in Thailand, as the insured toll from devastating floods there passes $10 billion. Some experts believe the toll there could eventually hit $20 billion, making the 2011 flooding in Thailand one of the worst natural disasters in human history by insurance standards.
MODEST RISES
But in markets where catastrophes did not strike, rate rises are more modest or in some cases nonexistent.
Insurance brokerage Marsh, in a report earlier this month, said only half of its U.S. property clients saw increases in the last six months.
“While most of those rate increases were applied to programs with catastrophe exposure, accounts with little or no such exposure or losses were often able to secure rate decreases during the second half of the year,” the Marsh and McLennan unit said.
There are regions of strength, though, in reinsurance, the markets for insurers to backstop their risks with insurance coverage of their own.
JMP Securities said prices in the Bermuda market looked to be at least 7 to 10 percent higher at the key Jan. 1 renewals deadline, as capacity tightens and the full impact of the Thai floods makes it way through the system.
Even so, the firm also said Europe was “disappointing,” with rates flat to up 5 percent as reinsurers sought to maintain market share.
“As far as the sector goes, improvements are under way, they’re specific right now relative to certain lines of business,” Montpelier’s Schaper said of the reinsurers. “For all the lines to escalate, it’ll take well into 2012 and you’re kind of looking more at January 2013.”
Cyber breaches are on the rise and taking longer to resolve. For businesses that experience a cyber breach, it takes an average of 14 days to resolve the attack and costs an average of $17,696 per day.¹ In spite of this, you may be finding that your customers don’t realize just how important cyber liability protection can be. You may even be noticing that there’s a general lack of awareness about the exposure; how cyber policies work; or perhaps even assumptions that existing policies will provide coverage for this type of risk.
We’ve created a short video that you can share with your customers to help address some of the common misconceptions about cyber risk. The video will help your customers develop a basic understanding of cyber risk, the types of companies that are commonly exposed, what happens when a company faces a breach and the importance of having cyber liability coverage to protect their business.
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The disasters that plagued the globe this year will send 2011 into the record books as the most costly year for catastrophes on record.
Japan’s powerful tsnuami, earthquakes in New Zealand, floods in Thailand and a series of severe tornadoes in the U.S. all contributed to $350 billion in disaster losses, according to a new estimate from reinsurance company Swiss Re AG.
This will lead to increased property insurance rates in the upcoming years.
A mounting U.S. deficit could pose a much greater threat to the survival of President Barack Obama’s healthcare reforms than either the Supreme Court or 2012 elections.
Many health experts say innovations in delivering medical care and the creation of state health insurance exchanges for extending coverage to the uninsured are likely to continue in some form even if Obama’s 2010 Patient Protection and Affordable Care Act is struck down or repealed.
But former top healthcare policymakers from Democratic and Republican administrations warn that some of the most promising measures for controlling costs, while improving quality and access to care, could run aground as early as 2013 if a new Congress and administration respond to the fiscal pressures with arbitrary spending cuts.
“If the plan is what’s on the table now, which is cut, cut, cut — shift the burden to poor people and taxpayers, take away benefits, take away Medicaid coverage — things will get worse,” said Dr. Don Berwick, who left his temporary post as Obama’s head of Medicare and Medicaid this month after Republicans blocked his Senate confirmation.
The Affordable Care Act is designed mainly to extend healthcare coverage to more than 30 million uninsured Americans by expanding Medicaid for the poor and establishing state exchanges where people with low incomes who do not qualify for Medicaid can buy subsidized private insurance.
It also calls for innovations that could guide America’s $2.6 trillion healthcare system, the world’s most expensive, toward incentives to contain costs.
The law faces fierce Republican opposition and is heading into a period of unprecedented turmoil.
Next spring the Supreme Court is expected to rule on the constitutionality of the individual mandate, the law’s lynchpin provision that requires all Americans to buy insurance. Months later, voters will deliver another verdict by deciding whether Republicans or Democrats control the White House and Congress.
Current and former healthcare officials have great hopes for changes that reward doctors and other providers for how well patients progress rather than compensating them according to the number of tests and procedures they perform.
For a panel discussion on the subject moderated by Reuters at Harvard School of Public Health, go to: www.ForumHSPH.org
“These reforms really have the potential for a longer term impact on healthcare costs,” said Dr. Mark McClellan, who oversaw Medicare, Medicaid and the Food and Drug Administration under President George Bush.
Gaining Momentum
Some innovations, like “bundled payments,” set cost targets for specific conditions that teams of doctors must meet. Others reward healthcare providers for keeping patients healthy or for delivering successful outcomes while saving money.
The innovations were already taking hold in the private market before Obama signed the healthcare bill into law in March 2010.
Their momentum has gained pace sharply across the United States as a result of the law’s efforts to apply them to Medicare and Medicaid, which combined spend about $900 billion annually to provide care to 100 million beneficiaries.
The year-old Center for Medicare and Medicaid Innovation has about two dozen innovation models that it intends to develop with private partners over the next few years.
Experts say innovations in delivering care are durable because they offer providers a way to cope with growing cost pressure from employers who sponsor health insurance and from government agencies forced to cut spending.
“This is a response to market realities, not just reformist interests,” said Don Moran, a Washington-based healthcare consultant who served in President Ronald Reagan’s Office of Management and Budget.
The climate for innovation could change dramatically after Election Day in November if Washington responds to deficits with across-the-board cuts to Medicare and Medicaid that reinforce the traditional fee-for-service approach to healthcare.
Innovations are vulnerable because they have yet to established a cost-cutting track record to which the bipartisan Congressional Budget Office can assign tangible dollar values for deficit reduction.
Gail Wilensky, who headed Medicare and Medicaid under President George H.W. Bush, worries that Congress will opt for the standard practice of cutting payments to doctors and other healthcare providers, who may react by dropping Medicare patients.
“That’s the only thing Congress will get credit for and so that’s what they’ll do. We know this is not our future if we want to do well by our seniors,” she said at the Harvard School of Public Health forum Friday.
Some analysts say deficit pressures could encourage the Obama administration to delay segments of the healthcare law, including state health insurance exchanges and the requirement for each individual citizen to have health insurance.
Such a move could save tens of billions of dollars in government spending, while giving state and federal officials more time to set up exchanges that have taken shape slowly amid uncertainties posed by the Supreme Court case and the election.
An administration official said there are no plans to delay the law’s implementation. “That idea has never been discussed and is not under consideration,” the official said.
The election also is unlikely to decide the law’s fate unless Obama loses re-election, according to analysts who say Congress is unlikely to overcome partisan gridlock even if Republicans eke out a slim majority in the Senate.
McClellan said sections of the law including state insurance exchanges could go forward even if the individual mandate were overturned in court, repealed after the election or weakened by political and budgetary pressures.
Instead of a legal requirement for purchasing insurance, McClellan said the government could design effective voluntary rules that encourage people to participate in exchanges .
He said an obvious model would be Medicare Part D, the prescription drug benefit that offers rewards for people who enroll early and penalties for those who show up late.
McClellan acknowledged that state exchanges would not be as robust without the individual mandate but said that fact could result in deficit savings.
The administration official said there are currently no plans or conversations taking place about using Part D enrollment restrictions in place of the individual mandate.
