The world could end this year—on Dec. 21, to be precise. Doomsday theorists have hyped 2012 as the year of Armageddon, citing the predictions of ancient texts from the Egyptians and Mayans as supporting evidence. Others say Nostradamus may have predicted that a significant cataclysmic event, such as a comet impact, will devastate the earth in 2012.
News reports have highlighted people who are stocking up on supplies in preparation for humankind’s grand finale, and we have seen “end-of-the-world shelter” companies selling public bunker space. Although this may seem a bit kooky, insurance company risk professionals may benefit in 2012 from the strategy of “hope for the best, plan for the worst.”
An ORSA Guidance Manual finalized by the NAIC in November of 2011 is now moving toward review and implementation by the Financial Condition E Committee. The Manual highlights principles to consider in drafting the annual ORSA Summary Report, and documenting company risk policies and procedures. As a first step, feedback will be collected in the coming months from five to 10 insurance groups, in order to develop further company guidance, as well as educational materials for regulators. The NAIC is also coordinating heavily with international regulators to improve consistency with international frameworks. The mechanics of how the NAIC will collect the ORSA Summary Reports, and how exactly regulators will provide any feedback, will likely be solidified this year.
Once the ORSA details become clearer, a ripple effect may also occur through smaller carriers not expressly subject to any statutory requirement. Several major rating agencies have also expressed their expectations that rated insurers develop a proper ERM framework, and establish capital funding protocols to assess the company’s assets in light of their key risks and strategic risk appetite.
Reeling from Health Care Reform
Responding to both state and federal initiatives, companies will continue to struggle with health care reform issues, as the Patient Protection and Affordable Care Act continues to reshape America's health care system. While the initiatives promulgated to date aspire to lay the groundwork for a more efficient and sustainable health care system, the “devil is in the details.”
On the related regulatory front, Congress recently extended the authority of the National Flood Insurance Program (NFIP) through May 31, 2012. This latest extension was a stop-gap funding measure, while Congress completes work on a five-year NFIP re-authorization bill to provide more clarity, certainty and avoid further disruption to real estate and insurance markets. The legislation (HR 1309) approved by the House Financial Services Committee authorizes the program until 2016, and phases out the program’s rate subsidies. Over time, companies expect that premiums will be allowed to rise to reflect actual costs. Insurers will also be paying close attention to modifications of flood maps to improve their accuracy, which may significantly impact property carrier risk profiles.