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.

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.

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.

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.

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.”

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.

Click The Link Below To View The Hartford’s Cyber Liability Video

Understanding Cyber Liability

The Hartford’s Cyber Liability Solutions

The Hartford has cyber liability solutions for business of all sizes. To learn more about our offerings, check out our other marketing tools on cyber coverage for technology and life science companies as well as non-technology companies.

For Technology and Life Science Companies

• Cyber Risk Podcast – Listen to The Hartford’s Joe Coray, Vice President of Marine, Technology & Life Science, as he discusses The Hartford’s cyber coverage solutions for technology and life science companies.
• FailSafe^TM Coverage Analyzer - The Hartford’s FailSafe suite of technology professional liability products offers flexible coverage solutions for your clients’ errors and omissions exposures. Use this coverage analyzer to compare the benefits of addressing your clients’ cyber risk with our FailSafe suite of products.
• Cyber Risk Questions to ask Technology Clients – Asking the right questions is important to help evaluate your client’s exposure. These questions can help you identify a potential cyber exposure and open a discussion with your client.

For additional information, contact your Technology & Life Science Practice underwriter directly or email us at techpracticegroup@thehartford.com.

For Non-Technology Companies

• CyberChoice Overview Guides – The Hartford’s CyberChoice suite of professional liability products is designed for non-technology companies across a broad spectrum of industry classes. The CyberChoice suite offers coverage options for a broad range of common third party and first party risks of small, medium and large companies. Learn more with the CyberChoice 1.0^SM Overview flyer and CyberChoice 2.09^SM Overview flyer.

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.

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.

The total for 2011 far outpaces 2010, which saw $48 billion in insured catastrophe losses.

Of the $108 billion in 2011, Swiss Re says $103 billion resulted from natural catastrophes, compared to $43 billion in 2010.

Swiss Re says this year will set a record for economic losses, with an estimated figure of $350 billion. In 2010, economic losses were $226 billion.

Two earthquakes led the way for costliest insured disasters in 2011, with the March 11 earthquake and tsunami in Japan causing an estimated $35 billion in insured losses, and the Feb. 22 earthquake in New Zealand causing around $12 billion in losses.

Swiss Re notes that the insured losses in Japan were “only a fraction of the total losses.” The sigma study notes that total economic losses are estimated to be at least $210 billion; perhaps much higher once damage to nuclear facilities and disruption to worldwide supply chains are included.

Swiss Re contrasts the difference in insured and economic losses in Japan with those in New Zealand, where earthquake-insurance penetration is high. In New Zealand, economic losses are estimated at $15 billion, just $3 billion higher than insured losses.

Severe storms in the U.S. account for half of the year’s top-10 costliest insured disasters. April 22 storms that mostly affected Alabama placed highest on the list with $7.3 billion in estimated insured losses, good for the fourth-costliest catastrophe. The storms beginning on May 20 that spawned the Joplin tornado days later placed fifth on the list with $6.7 billion in estimated losses.

Three other storm systems in April accounted for the 8-10 spots on the list.

Floods in Thailand stemming from heavy rain that began in July and continued to November placed third on the list, with estimated losses ranging from $8 billion to $11 billion.

Hurricane Irene, with estimated losses of $4.9 billion, also made the list at sixth-costliest for the year.

January flooding in Australia placed seventh on the list, with estimated insured losses of $2.3 billion.

Embezzlement and forged checks, as well as fraudulent bank accounts, expense reports and vendor invoices, impact companies of all sizes but in the case of midsize and smaller companies, the criminal act can shut the doors forever.

Despite this threat, small and mid-size companies confronting a challenging business environment are often pressed to pare expenses. Funds that previously were invested in security measures or in the various types of insurance policies that absorb employee-related fraud exposures are invested elsewhere or simply conserved.

However, it is at this time when companies should work even more closely with insurance brokers and carriers to transfer the risk of employee fraud rather than seeing insurance as an unnecessary expense. \Brokers and carriers can provide invaluable advice on how to reduce fraud threats, identify losses early and limit them once they occur. In this difficult economy, partnering with such experts can help keep the doors open.

A Growing Menace

Anyone picking up the newspaper these days is bound to come upon an article reporting on a local company that endured an unexpected financial loss because of a trusted employee’s criminal mischief. The following three examples come from the blog www.fraudtalk.com. Recently in a single day, 10 news articles on employee fraud were reported across the country. Here are the three with the highest cost:

•The arrest of a California woman for allegedly embezzling more than $785,000 from a construction company, where she had worked as an accountant;
•The sentencing of a Wisconsin man to six months in prison for embezzling more than $140,000 from a church, where he had served as its treasurer;
•The indictment of a woman in Alaska for embezzling nearly $500,000 from the Alaska Whaling Commission, where she was an executive director.
All these crimes share something in common — employees entrusted with duties that were used as an avenue to perpetrate crimes against their employers, in the belief they would never be caught, and employers that lacked process controls to inhibit the fraud.

Preventing Fraud

Fraud affects small-sized companies like these because there’s often a high level of trust among management and staff, which elevates the confidence of the would-be perpetrators because they don’t believe anyone would ever suspect them of fraud. Familiarity breeds a level of complacency that results in a higher susceptibility to fraud.

The following bullet points describe some best practices that companies can use to minimize fraud exposures:

•Segregate job duties so different employees reconcile bank accounts, write checks, and deposit money;
•Mandate finance staff to take paid vacations — often an employee perpetrating a fraud will forego time away from the office to ensure the scheme is not uncovered in his or her absence;
•Regularly scrutinize the veracity of the vendor list, and seek bids every three years from existing and new vendors;
•Conduct background checks of potential hires, and extensive examinations of individuals recruited for sensitive finance positions;
•Conduct regularly scheduled audits of protocols and processes, and spot audits that are unannounced until they occur;
•Work with insurance professionals to beef up anti-fraud measures and transfer remaining criminal risks to an insurance company.
These anti-fraud measures will also work well in combatting other factors raising the threat of employee criminal acts. For instance, cash-conscious companies and non-profit organizations often are less apt to conduct extensive background checks on job prospects in their recruitment and hiring processes. Only after a crime has been committed do they learn that the employee had applied for the position under an assumed identity or had a criminal history of forging checks.

Midsize enterprises also tend to have weaker or limited process controls than larger companies, given the expense and impact on productivity. For example, they may not segregate employee duties because of a slim workforce. A single person may control an entire process, such as accounts payables and receivables, and only one person’s signature may be required on company checks.

Smaller companies also are more likely to have blurred job responsibilities and few if any, checks and balances. Reporting responsibilities are confined to perhaps one person up the chain of command, and no one else is delegated the task of reviewing and evaluating the authenticity of financial transactions.

How It Happens

Fortunately, there are proven processes to decrease the risk of fraud by reducing the opportunity to commit it. The first step is becoming aware of some of the common areas at risk for fraud.

•Forged checks. Instead of depositing a customer’s check in the company’s bank account, the check is forged with the bookkeeper’s name and then deposited in his or her account.
•Fictitious vendor. Employees can set up a fake vendor that provides “invoices” to the company. The employee will then mail a check off to the fictitious company or deposit the funds in the fake vendor’s bank account.
•Forged invoices. Legitimate vendors can also be a vehicle to fraud with employees altering amount on the invoice so that it is higher than the true amount, with the employee pocketing the difference.
•Fabricate a fictitious or “ghost” employee. This is most often committed by a payroll clerk who sends a salary check every week to the “employee,” and then deposits the check in a bank account he or she controls.
•Fraudulent expense reports. An employee creates fictitious expenses that appear to be legitimate, but aren’t. The problem is the report is rubber-stamped by a superior, who gives it cursory examination at best. Company credit cards are a comparable example, used for personal and not business expenses.
Other white-collar crimes are less sophisticated but equally expensive, ranging from skimming money out of cash registers to the theft of expensive equipment like laptop computers and high-end furnishings or clothing, which are then sold on the black market. Even routine pilfering of company supplies can add up over time to big dollars.

Reducing a company’s risk requires a mix of internal procedural changes, regular and ad hoc audits, clear policies forbidding fraudulent activities, and stringent penalties for employees caught in the act, including job termination and prosecution.

Getting Help

Working with insurance professionals can be of particular help to smaller enterprises, given their capital constraints and personnel resources. Specialized brokers and carriers are valuable partners in the fight against crime. They will ask the right questions and prescribe preventative measures to help companies reduce fraud.

Best of all, they can help these organizations purchase the insurance policies that are right for their risk profile, with terms, conditions and financial limits that come into play. In these difficult economic times, prudence — not cynicism — is paramount. Thankfully, most employees are honest and trustworthy. It is for their welfare that employers must remain vigilant and secure.

Schwartz is vice president, management liability/fidelity, at Liberty International Underwriters in New York. Email: melissa.schwartz@libertyiu.com. Website: www.liu-usa.com.