< PreviousCHAPTER 3: LIFE 28 Life Insurers Chasing Wider Range of Opportunities AM Best’s annual Review & Preview report details a range of key trends shaping the future for life/annuity insurers. ,QWHQVHFRPSHWLWLRQLQWKH¿[HGDQQXLW\VSDFHKDVDOVRIRUFHGLQVXUHUVWRVHDUFKIRUQHZ GLVWULEXWLRQFKDQQHOVRUWRVHHNRWKHUDYHQXHVIRUJURZWK7KHLQÀX[LQWRWKHPDUNHWRI GLUHFWDQQXLW\ZULWHUVEDFNHGE\SULYDWHHTXLW\R൵HULQJJHQHURXVFUHGLWLQJUDWHVKDVSXW VRPHSUHVVXUHRQPRUHHVWDEOLVKHGFRPSDQLHV,QDGGLWLRQ¿[HGLQGH[HGDQQXLWLHVWKDW R൵HUJXDUDQWHHGOLYLQJEHQH¿WULGHUVKDGLQUHFHQW\HDUVEHFRPHQHFHVVDU\IRU¿[HG annuity writers to remain competitive. Well-established insurers have focused more on growing the bank and broker/dealer channel, as they require a high rating, which many of the new entrants have not obtained. $FFRUGLQJWRWKH6HFXUH5HWLUHPHQW,QVWLWXWHEDQNVDOHVDFFRXQWHGIRURI¿[HG UDWHGHIHUUHGDQQXLW\VDOHVLQWKHWKLUGTXDUWHUXSIURPSULRU\HDUSHULRG6RPH LQVXUHUVWKDWKDYHHVWDEOLVKHGGLUHFWWRFRQVXPHU'7&GLVWULEXWLRQFDSDELOLWLHVKDYH experienced a noticeable increase in sales, although from a relatively low base, as the VKDUHRIQHZEXVLQHVVLQWKH'7&FKDQQHOKDVKLVWRULFDOO\DFFRXQWHGIRUDPRGHVW amount of overall sales. 7KHLQFUHDVHG'7&VDOHVZHUHDOVRSULPDULO\IRUPRUHVLPSOL¿HGSURGXFWV²FRQVXPHUV ZRXOGVWLOOUDWKHUVSHDNZLWKDOLYH¿QDQFLDOUHSUHVHQWDWLYHIRUPRUHFRPSOH[UHWLUHPHQW type products. *LYHQWKHVWL൵FRPSHWLWLRQLQWKHLQGLYLGXDODQQXLW\VHJPHQWDJURZLQJQXPEHURI LQVXUHUVKDYHLGHQWL¿HGWKHSHQVLRQULVNWUDQVIHU357PDUNHWDVDQDUHDIRUSRWHQWLDO growth. Although interest rates remain low and U.S. single-premium buyout sales GHFOLQHGLQWKH¿UVWQLQHPRQWKVRIIURPSULRU\HDUSHULRGDFFRUGLQJWRWKH Secure Retirement Institute), many medium-sized players feel that this product is a good ¿WIRUWKHPDVLWFDQDOVRSURYLGHDSDUWLDOKHGJHWRWKHLUPRUWDOLW\ERRNVRIEXVLQHVV 357KDVKLVWRULFDOO\EHHQGRPLQDWHGE\DKDQGIXORIODUJHLQVXUHUVZLWKWKH8.WKH most mature market, but many medium-sized U.S. companies are eyeing this growing PDUNHW7KH\EHOLHYHWKH\KDYHWKHFDSDFLW\RQWKHLUEDODQFHVKHHWVWRKDQGOHVPDOOHUWR medium-sized transactions, perhaps partnering with a reinsurer on larger deals. Company Business Profiles Being Reshaped by Low Interest Rates Given the prolonged low-interest-rate environment, pressure continues to mount as LQVXUHUVNQRZWKHOHYHUVWKH\FDQSXOOZLWKRXWZRUVHQLQJWKHLUFRPSDQ\ULVNSUR¿OHV Spread compression and declining investment yields have been a concern for some time, and market volatility and uncertainty suggest the problem will only get worse, as guaranteed rates on many older blocks of business remain a burden for many insurers. CHAPTER 3: LIFE www.ambest.com29 Insurers are under intense pressure to continue to cut expenses while investing in digital capabilities. Historically, insurers have been able to mitigate this pressure through new product pricing on the liability side of the balance sheet, including lowering cap rates IRULQGH[HGSURGXFWVVFDOLQJEDFNSULFLQJRQYDULDEOHDQQXLW\OLYLQJEHQH¿WULGHUVDQG lowering crediting rates and dividend scales. For over a decade now, life/annuity insurers have been transitioning away from more volatile lines of business and have cut back or discontinued sales of universal life products with secondary guarantees, divested in-force legacy annuity blocks, and completely ceased sales of new variable annuities (VA) with OLYLQJEHQH¿WV7KHVHDFWLRQVKDYHEHHQIXUWKHUVXSSRUWHGE\RQJRLQJH[SHQVHVVDYLQJV through automation and the elimination of redundant processes. As a result, insurers have generally been able to maintain target return ratios while unlocking some capital from insurance operations, which they have either returned to shareholders or used to support growing operations. However, many of those actions have also made these de-risked SURGXFWVOHVVDWWUDFWLYHWRFRQVXPHUVDQGPRUHGL൶FXOWIRULQVXUDQFHDJHQWVDQG¿QDQFLDO representatives to sell. AM Best observed a recalibration of priorities by innovation teams during 2020, which often included pausing major initiatives that weren’t deemed essential to manage regulatory hurdles, direct competition, or general business continuity. Many innovative products have apparently been put on the back burner until macro-economic conditions improve or at least return to some VHPEODQFHRIWKHSUH&29,'ZRUOG Because of companies’ temporary halt to ventures deemed to be higher risk, AM Best innovation scores are slightly lower than initial productions, prior to the release of the criteria. Life/annuity organizations have made H൵RUWVWREHWWHUDQDO\]HGLVWULEXWLRQ channels down to the individual level, to determine where the best-quality business is being sourced from. Finally, those entities with capital substantial enough to GRVRFRQWLQXHWRR൵HUUHVRXUFHVWRVWDUWXSV DQGRWKHUJURZLQJLQVXUWHFK¿UPVLQWKH hope that these third-party initiatives can be later integrated into their own operations. Growth has been a challenge for some time—particularly in the middle market for individual life insurance products—but there may be a silver lining to what has otherwise been a long and drawn-out catastrophic event. In responding to the needs of ERWKHPSOR\HHVDQGGLVWULEXWRUVWRZRUNUHPRWHO\PDQ\FRPSDQLHVKDYHH൵HFWLYHO\ accelerated certain aspects of their planned technology initiatives. In doing so, they may be better positioning themselves to grow and to take advantage of what appears Top U.S. Life Reinsurers by Individual Life Insurance in Force, 2020 Company Name Total Individual Amount in Force ($000) SCOR Life US Group1,786,143,253 RGA Reinsurance Company1,768,965,426 Swiss Re Life & Health America Inc.1,481,914,440 Hannover Life Reassurance Co of America1,245,679,229 Munich American Reassurance Company1,105,635,553 Canada Life Assurance Company USB264,441,103 General Re Life Corporation229,470,124 Optimum Re Insurance Company81,793,286 Wilton Reassurance Company79,188,588 Employers Reassurance Corporation78,786,178 PartnerRe Life Reinsurance Co of America72,930,289 M Life Insurance Company56,224,059 Source: AM Best data and researchCHAPTER 3: LIFE 30 WREHKHLJKWHQHGLQWHUHVWRQWKHSDUWRIFRQVXPHUVLQOLIHLQVXUDQFHDQGRWKHU¿QDQFLDO security products. Important Lines of Life Business and Products Life insurers market a variety of life products that range from simple to complex. Total Life, In Force & Issued: 7KHVL]HRIDOLIHFRPSDQ\FDQEHPHDVXUHGE\WKH face amount of its portfolio—that is, the amount of life insurance it has issued as well as the amount in force. In force is the total face amount of insurance outstanding at a point in time. Issued measures the face amount of policies an insurer has sold within a given time period. Permanent Life: 3HUPDQHQWOLIHSURYLGHVGHDWKEHQH¿WVDQGFDVKYDOXHLQUHWXUQIRU periodic payments. Cash surrender value, or nonforfeiture value, is the sum of money an insurance company will pay a policyholder who decides to cancel the policy before its expiration or before the policyholder’s death. Over the long term, these products XVXDOO\SURGXFHVROLGVXVWDLQDEOHSUR¿WDELOLW\WKDWLVGHULYHGIURPDGHTXDWHSULFLQJ underwriting and investment returns. Permanent life products include whole life, universal life and variable universal life. Whole Life: :KROHOLIHSD\VDGHDWKEHQH¿WDQGDOVRDFFXPXODWHVDFDVKYDOXH7KHVH KDYHDKLJKLQLWLDOH[SHQVHVWUDLQIRUWKHLVVXLQJFRPSDQ\GXHWRODUJH¿UVW\HDU commissions to agents as a percentage of premiums. Over time, whole life provides DQLQFRPHVWUHDPWRWKHFRPSDQ\DQGWKHDJHQW,WFDUULHVSUHPLXPGHDWKEHQH¿WDQG cash value guarantees that other products don’t provide. Universal Life: 7KHVHDUHÀH[LEOHSUHPLXPSROLFLHVWKDWLQFRUSRUDWHDVDYLQJV HOHPHQW7KHFDVKYDOXHVWKDWDUHDFFXPXODWHGDUHSXWLQWRLQYHVWPHQWVZLWKWKH LQWHQWLRQRIHDUQLQJPRUHLQLQWHUHVW7KRVHDFFXPXODWLRQVFDQEHXVHGWRUHGXFH ODWHUSUHPLXPVRUWREXLOGXSWKHFDVKYDOXH)RUFRPSDQLHVR൵HULQJWKLVSURGXFW WKHSUHPLXPSD\PHQWÀH[LELOLW\DGGVDQHOHPHQWRIXQFHUWDLQW\DVGRHVWKHSRWHQWLDO IRUFKDQJLQJPDUNHWFRQGLWLRQVWKDWFDQD൵HFWLQWHUHVWUDWHV7KHQH[WJHQHUDWLRQRI WKLVSURGXFWOLQHXQLYHUVDOOLIHZLWKVHFRQGDU\JXDUDQWHHVR൵HUVFRPSHWLWLYHUDWHV ZKLOHSURYLGLQJORQJWHUPSUHPLXPDQGGHDWKEHQH¿WJXDUDQWHHVUHJDUGOHVVRIDFWXDO SHUIRUPDQFH7KHWLJKWSULFLQJDQGKLJKUHVHUYHUHTXLUHPHQWVFDQOLPLWSUR¿WDELOLW\ Indexed universal life is now the most popular iteration of universal life. Variable Universal Life: 7KHVHÀH[LEOHSUHPLXPSROLFLHVDOORZIRULQYHVWPHQWVRI the cash value into mutual fund-like accounts the insurance carrier holds in separate accounts rather than in its general account. Because policy values will vary based on the performance of investments, these policies present an investment risk to the CHAPTER 3: LIFE www.ambest.com31 policyholder. Rather than having a monthly addition to the cash value based on a declared interest-crediting rate, the accumulated cash value of the variable policy is DGMXVWHGGDLO\WRUHÀHFWWKHLQYHVWPHQWH[SHULHQFHRIWKHIXQGVVHOHFWHG,QVXUHUVFDQ EHVXVFHSWLEOHWRSUR¿WÀXFWXDWLRQVEHFDXVHRIWKHHTXLW\PDUNHW¶VH൵HFWRQPXWXDO fund fees. In addition, the insurer lacks control over separate account assets, and SROLF\KROGHUEHKDYLRUPD\LPSDFWSUR¿WDELOLW\ Term Life: 7HUPOLIHSURYLGHVSURWHFWLRQIRUDVSHFL¿HGSHULRGRIWLPH,WSD\V DEHQH¿WRQO\LIWKHLQVXUHG¶VGHDWKRFFXUVGXULQJWKHFRYHUDJHSHULRG,WFDQEH considered a pure protection product and a consumer’s entry-level life insurance SURGXFW7HUPSHULRGVW\SLFDOO\UDQJHIURPRQH\HDUWR\HDUVDOWKRXJKWKHUHDUH DQQXDOO\UHQHZDEOHSROLFLHVZKLFKDUHGHVLJQHGIRUORQJHUGXUDWLRQV7HUPOLIHZKLFK is a highly competitive product, is marketed through many traditional distribution FKDQQHOVDVZHOODVWKURXJK¿QDQFLDOLQVWLWXWLRQVEDQNVDQGYDULRXVGLUHFW GLVWULEXWLRQFKDQQHOVLQFOXGLQJWKHLQWHUQHW0RUHUHFHQWSURGXFWVR൵HUORQJWHUP premium guarantees, where the premium is guaranteed to be the same for a given period of years. Return of premium (ROP) term products have also become popular of ODWHR൵HULQJSROLF\RZQHUVDUHIXQGRIDOOSUHPLXPVSDLGLIWKHLQVXUHGLVVWLOODOLYHDW the end of the term period. Concerns to insurers include high lapse rates, compressed margins and high reserve requirements. Group Life: Generally in the form of term life, group life is marketed to employers RUDVVRFLDWLRQJURXSV7KHFRVWDOVRPD\EHVKDUHGE\WKHSDUWLFLSDQWDQGWKHPDVWHU SROLF\KROGHUXVXDOO\WKHHPSOR\HHDQGHPSOR\HUUHVSHFWLYHO\7\SLFDOO\DQLQLWLDO EHQH¿WOHYHOPD\EHSDLGE\WKHHPSOR\HUDQGLQVRPHFDVHVHPSOR\HHVPD\HOHFWWR pay for additional coverage. As with term life, competition is intense. Annuity Products Insurance companies provide annuities, which, at their most basic, are contracts that ensure an income stream. A payment or series of payments is made to an LQVXUDQFHFRPSDQ\DQGLQUHWXUQWKHLQVXUHUDJUHHVWRSD\DQLQFRPHIRUDVSHFL¿HG time period. Annuities can take many forms but have a couple of basic properties: DQLPPHGLDWHRUGHIHUUHGSD\RXWZLWK¿[HGJXDUDQWHHGRUYDULDEOHUHWXUQV &RQVHTXHQWO\GL൵HUHQWDQQXLW\W\SHVFDQUHVHPEOHFHUWL¿FDWHVRIGHSRVLWSHQVLRQVRU even investment portfolios. Challenges to the Annuity Industry /LIHLQVXUDQFHFRPSDQLHVPXVWPLQLPL]HWKHULVNRIGLVLQWHUPHGLDWLRQ7KLVKDSSHQV when deferred annuity holders seeking higher-yielding alternatives withdraw funds prematurely (often during periods of increasing interest rates), and force companies to pay these surrenders by liquidating investments that may be in an unrealized loss position. Insurers can mitigate this risk by matching the duration of its interest- sensitive liability portfolio with the duration of its asset portfolio, and by selling a 32 GLYHUVL¿HGSRUWIROLRRISURGXFWV,QVXUHUVDOVRPLWLJDWHULVNE\GHVLJQLQJGHIHUUHG annuities with market-value adjustments on surrender values. Immediate Annuities: 7KHVHDQQXLWLHVDUHGHVLJQHGWRJXDUDQWHHRZQHUVDSUH determined income stream on a monthly, quarterly, semiannual or annual basis in exchange for a lump sum. Options are limited from the annuity holder’s perspective, VRSUR¿WVDUHJHQHUDOO\OHVVYRODWLOHLQWKHVKRUWWHUP+RZHYHUWKHORQJWHUPQDWXUH of these products exposes the insurer to reinvestment risk and longevity risk. Group Annuities: 7KHVHGL൵HUVOLJKWO\IURPLQGLYLGXDODQQXLWLHVLQWKDWWKHSD\RXW is dependent on the life expectancy of all the members of the group rather than on the LQGLYLGXDO0DQ\FRPSDQ\UHWLUHPHQWSODQVVXFKDVNSODQVDUHDQQXLWLHVWKDW ZLOOSD\DUHJXODULQFRPHWRWKHUHWLUHH7D[GHIHUUHGDQQXLW\SODQV²EDQG plans—utilize group annuities as the investment vehicle for participant contributions. Deferred Annuities: Deferred annuities are a type of long-term savings product that DOORZVDVVHWVWRJURZWD[GHIHUUHGXQWLODQQXLWL]DWLRQ7KLVSURGXFWFDWHJRU\LQFOXGHV Fixed-Deferred Annuities: 7KHVHSURGXFWVJXDUDQWHHDPLQLPXPUDWHRILQWHUHVW GXULQJWKHWLPHWKHDFFRXQWLVJURZLQJDQGW\SLFDOO\JXDUDQWHHDPLQLPXPEHQH¿W upon annuitization. )RUWKHLVVXHU¿[HGDQQXLWLHVDUHVXEMHFWWRVLJQL¿FDQWDVVHWOLDELOLW\PLVPDWFKULVNV DVGHVFULEHGDERYH$OVRZKHQLQWHUHVWUDWHVIDOOVSUHDGHDUQLQJV²RUWKHGL൵HUHQFH between the yield on investments and credited rates—can decrease, and asset cash ÀRZVPXVWEHUHLQYHVWHGDWORZHUUDWHV Fixed-Indexed Annuities: 7KHVHSURGXFWVDUHFUHGLWHGZLWKDUHWXUQWKDWLVEDVHGRQ FKDQJHVLQDQHTXLW\LQGH[7KHLQVXUDQFHFRPSDQ\W\SLFDOO\JXDUDQWHHVDPLQLPXP UHWXUQ3D\RXWVPD\EHSHULRGLFRULQDOXPSVXP7KHSRWHQWLDOIRUJDLQVLVDQ attractive feature during favorable market conditions; however, gains may not be as favorable as those available from variable annuities or straight equity investments. Sales of these products may decline if equity markets go through a prolonged downturn or a prolonged upturn. Variable Annuities: 7KHSDUWLFLSDQWLVJLYHQDUDQJHRILQYHVWPHQWRSWLRQVW\SLFDOO\ PXWXDOIXQGVIURPZKLFKWRFKRRVH7KHUDWHRIUHWXUQRQWKHSXUFKDVHSD\PHQWDQG the amount of the periodic payments, will vary depending on the performance of the selected investments and the level of expense charges in the product. Variable annuity sales tend to slump during unfavorable equity market conditions. In addition, the primary sources of revenue for these products are account value-based fees, which also decline when market conditions deteriorate. Relatively thin margins, LQFUHDVLQJSURGXFWFRPSOH[LW\HJJXDUDQWHHGOLYLQJEHQH¿WVDQGYRODWLOHFDSLWDOwww.ambest.com33 requirements put variable annuities at the riskier end of the product continuum, from the standpoint of the issuing insurer. %HFDXVHYDULDEOHDQQXLWLHVDOORZIRULQYHVWPHQWVLQHTXLW\DQG¿[HGLQFRPH securities, they are regulated by the U.S. Securities and Exchange Commission. Fixed DQQXLWLHVDQG¿[HGLQGH[HGDQQXLWLHVDUHQRWVHFXULWLHVDQGDVVXFKDUHQRWUHJXODWHG by the SEC. Registered Index-Linked Annuities: A hybrid between a variable annuity and D¿[HGLQGH[HGDQQXLW\WKHVHSURGXFWVR൵HUVRPHZKDWPRUHRIDQXSVLGHJURZWK SRWHQWLDOWKDQWUDGLWLRQDO¿[HGLQGH[HGDQQXLWLHVLQH[FKDQJHIRUDFHUWDLQOHYHO of downside risk, although less than traditional variable annuities. As registered products, they can only be sold by FINRA-registered representatives. Accident & Health Products Credit Accident & Health: 7KLVLQVXUDQFHFRYHUVDERUURZHUIRUDFFLGHQWDOLQMXU\ GLVDELOLW\DQGUHODWHGKHDOWKH[SHQVHV,WLVGHVLJQHGVSHFL¿FDOO\WRPDNHPRQWKO\ payments until the insured can recover and resume earning income. If an individual is totally disabled for the life of the loan, the policy would pay the remaining balance, in most cases, but only one month at a time. Group Accident & Health: 7KHVHSODQVDUHGHVLJQHGIRUDQDWXUDOJURXSVXFKDV employees of a single employer, or union members, and their dependents. Insurance is SURYLGHGXQGHUDVLQJOHSROLF\ZLWKLQGLYLGXDOFHUWL¿FDWHVLVVXHGWRHDFKSDUWLFLSDQW Other Accident & Health: Products that fall into this category could be policies for individuals that cover major medical, disability insurance, long-term care, dental, dread disease or auxiliary coverages such as Medicare supplement.34 CHAPTER 3: LIFE 34 Cryptocurrency: Insurance Industry Tests the Waters With New Initiatives Across the insurance industry—from life insurance to property/casualty, auto insurers to brokers—companies are WDNLQJWKHLU¿UVWVWHSVLQWRWKHUHDOP of cryptocurrencies as they gain wider acceptance among both private and institutional investors. In some cases, that takes the form of letting customers pay premiums with digital coins, or it can mean paying claims with the currency when a driver gets in an accident. It may also take the shape of investments and new business lines— as in institutions themselves putting money into the cryptocurrency market and insurers protecting so-called digital wallets against hacking or theft. $QGWKHUH¶VWKHWHFKQRORJ\LWVHOI7KH currencies are based on blockchains, which embed information at every VWHSDQGR൵HUQHZOHYHOVRIFODLPV SURFHVVLQJDQGH൶FLHQF\ As digital currencies such as Bitcoin and Ethereum enter the mainstream, those in the industry like Benjamin Peach, who helps oversee digital assets for mega-brokerage Aon plc, want to try and get in on the action. In the case of Aon, the professional service organization focused on risk, retirement and health has partnered with Nayms to build extra capacity DQGSURGXFWR൵HULQJVLQWKHLQVXUDQFH market for digital asset risks. Peach, associate director and digital assets specialist with the Global Broking Centre at Aon, said the end-goal is creating a platform in which crypto risks can be priced and underwritten in the digital currencies being insured. ³$VPRUHDQGPRUH¿QDQFLDOLQVWLWXWLRQV are starting to adopt crypto as a payment service or even trading these currencies, then there is more of an onus for large players such as Aon within this space to FDWHUWRWKDWGHPDQG´KHVDLG³:HQHHG to make certain that we are servicing our clients to the best of our ability and part of that is developing and looking at QHZRSSRUWXQLWLHVIRUWUDQVIHURIULVN´ At their root, cryptos are digital-based units of currency either used in lieu RIWUDGLWLRQDOJRYHUQPHQWEDFNHG¿DW currencies like the U.S. dollar, or held as Benjamin PeachSPOTLIGHT www.ambest.com35www.ambest.com35 an investment like any foreign exchange currency. 7KHUHDUHVHYHUDOOHGE\WKHOLNHVRI Bitcoin and Ethereum, and culling that to a front-runner is seen as one impediment to adoption. $NH\GL൵HUHQFHIURP¿DWFXUUHQFLHV is that cryptos—a class of currencies VRPHWLPHVUHIHUUHGWRDV³GHFHQWUDOL]HG ¿QDQFH´GXHWRODFNRIDFHQWUDOEDQN² exist in a purely digital realm. And there can be volatility: A Bitcoin’s value GURSSHGDVPXFKDVLQ-XQH from its high of $60,000. 3HDFKVDLG¿QDQFLDOOLQHVDQGWKHPDUNHW IRUF\EHULQVXUDQFHDUHQDWXUDO¿UVW¿WV for a test run of crypto-based insurance. ³7KH\¶UHQHZOLQHVRIEXVLQHVVZKHQ\RX look at the history of insurance products, which continuously need to innovate to NHHSXSZLWKLQGXVWU\GHPDQGV´3HDFK VDLG³%RWKOLQHVRIEXVLQHVVHVFDQR൵HU comprehensive risk mitigation for a digital asset company.’’ According to Gemini, a crypto exchange, an estimated PLOOLRQ86DGXOWVRUURXJKO\ own some form of crypto, and there is demand for more. Taking Steps Metromile Inc., the pay-per-mile auto insurer whose entrance into the industry promised to meld technology and insurance, said it would begin a pilot program of allowing its customers to pay premiums and receive claims SD\RXWVLQFU\SWRFXUUHQF\7KHFRPSDQ\ also bought $10 million in Bitcoin for its general accounts. As more mature insurers look to work cryptocurrency into existing business models, Evertas—known as BlockRe until a February 2021 rebranding— is one example of a new company looking to build operations from the ground up. 7KH¿UPZLOOFRYHULQVWLWXWLRQDOKROGHUV of crypto assets and plans to focus initially on covering the theft of the private keys that underline ownership of a crypto asset. It has raised almost $5.8 million in seed funding. J.Gdanski, founder and chief executive of Evertas, said the company partners with incumbent insurers and provides D³EULGJH´WRDEXUJHRQLQJSDUWRIWKH ¿QDQFLDOVHFWRUWKDW¶VRQO\JRLQJWR grow in terms of assets and importance. 7KH¿UPFLWHVDODFNRIFDSDFLW\DVWKH biggest issue holding back the wider adoption of crypto. ³:HDUHVROYLQJWKHODVWPDMRU infrastructure problem for the crypto industry which is a lack of insurance, and simultaneously we’re pioneering WKH¿UVWQHZULVNVLQFHF\EHUIRUWKH WUDGLWLRQDOLQVXUDQFHLQGXVWU\´*GDQVNL VDLG³<RXKDYHLQFXPEHQWVZKRDUH ignoring something because they think it’s too niche or too risky or not ready for prime time—none of which is correct at this point—and by the time they realize they want or need to address WKLVPDUNHWLW¶VWRRODWH´ Rick Chen, a Metromile spokesman, VDLGWKHFRPSDQ\¶VÀDJVKLSR൵HULQJZDV based around the idea of giving drivers more choice in the manner in which they secure coverage. Using Bitcoin and other cryptos is a response to 36 SPOTLIGHT 36 consumer demand and is an extension of that, he said. While the company’s pilot program had yet to begin taking any payments, he said initial indicators looked good and demand was growing. As a way to prove just how mainstream the once-fringe currency has become, he points to the inclusion of coins on U.S. tax forms. Insurance companies have so far used blockchain technology to handle claims and operations, but the adoption of the actual currency is still a new frontier. ³:HVHHRXUVHOYHVDVDGLJLWDO LQVXUDQFHSODWIRUP´KHVDLG³:H believe that supporting Bitcoin, or any cryptocurrency in this decentralized ¿QDQFHPRYHPHQWLVDQH[WHQVLRQRI WKDW²PRUHFKRLFH7KDW¶VWKHSULPDU\ UHDVRQZHZDQWHGWRDGRSWWKLV´ 7KHXQGHUO\LQJWHFKQRORJ\DOVRR൵HUV insurers promise through things like potentially enabling smart contracts and claims handling on the Ethereum EORFNFKDLQWKDWZLOOLPSURYHEDFNR൶FH functions, Chen said. Metromile, unlike other insurers who have announced plans to accept payment in Bitcoin and then have it immediately FRQYHUWHGWR¿DWFXUUHQFLHVZLOOGHDO in crypto on its own book. Because the program is new, Chen said results aren’t yet available. ³:HSODQWRWDNH\RXU%LWFRLQRQHIRU RQH´&KHQVDLG³(YHQWXDOO\ZHKDYH it in a part of our store on our book and we can also then use that to make these claims payments in Bitcoin or, even in WKHIXWXUHRWKHUFU\SWRFXUUHQF\´ For all of the volatility inherent in the class, there have also been many investors who have made a lot of money LQGHFHQWUDOL]HG¿QDQFHWKURXJKHDUO\ investments that have paid multiples. 7KHPRYHVLQWRWKHVSDFHDUHLQPDQ\ ways a chance for insurers to tap into that growth and let people spend a bit of WKRVHSUR¿WV And in coming years, Peach said, individuals and consumers will have a choice: Either pay for goods and services through government-backed currencies that may well be on blockchain and cash free, or in a decentralized currency. ³/HW¶VVD\\RXERXJKW(WKHUHXPLQ ,W¶VDFWXDOO\ZD\PRUHFRVWH൵HFWLYHIRU you to part with a small amount of that in 20 years when it’s at a much higher SULFH´KHVDLG³7KDW¶VDQLFHSUREOHPWR KDYH´ ²7HUUHQFH'RSSCHAPTER 4: HEALTH www.ambest.com37www.ambest.com37 Health Market at a Glance Health insurers focus principally on providing health care coverage and related SURWHFWLRQSURGXFWV$0%HVW¶VGDWDEDVHFRQWDLQVDQQXDO¿OLQJLQIRUPDWLRQIRUPRUH than 1,300 single health insurance companies in the United States. Health insurers typically have shorter investment horizons than life insurers or property/ casualty insurers that focus on liability coverage. Health insurers are measured by SUHPLXPVDQGPHPEHUVKLSLQWKHLUSURJUDPVVRPHWLPHVNQRZQDV³FRYHUHGOLYHV´ 7KHPRVWUHFHQWUHSRUWE\WKH.DLVHU)DPLO\)RXQGDWLRQHVWLPDWHVWKDWDERXWRI WKH86SRSXODWLRQZDVFRYHUHGE\HPSOR\HUVSRQVRUHGKHDOWKLQVXUDQFH$QRWKHU ZDVFRYHUHGE\0HGLFDLGDMRLQWIHGHUDODQGVWDWHSURJUDPIRUWKRVHRIOLPLWHG¿QDQFLDO PHDQV$QRWKHURIWKHSRSXODWLRQZDVFRYHUHGE\0HGLFDUHZKLFKLVGHVLJQHGIRU VHQLRUV$ERXWRIWKH86SRSXODWLRQKDVQRLQVXUDQFH,QGLYLGXDOVZKRSXUFKDVH KHDOWKLQVXUDQFHRQWKHLURZQDFFRXQWIRUDQGRIWKHSRSXODWLRQLVFRYHUHGXQGHU the military. &RPSUHKHQVLYHKHDOWKLQVXUDQFHSROLFLHVSD\EHQH¿WVIRULQVXUHGVIRUSUHYHQWDWLYH care and when they become ill or injured. Managed care is the most common form of coverage. In managed care, insurance companies establish fee agreements with doctors and hospitals who provide health care services. If health insurance is provided through employment, the employer typically pays the LQVXUHUDVHWDPRXQWRIPRQH\LQDGYDQFHIRUDOOKHDOWKFDUHFRVWV7KHHPSOR\HHPD\ KDYHWRFRQWULEXWHDSRUWLRQRIWKHSUHPLXPWRWKHHPSOR\HUYLDDSD\UROOGHGXFWLRQ7KH HPSOR\HHWKHQSD\VDÀDWDPRXQWIRUWKHVHUYLFHVDVHLWKHUDFRSD\PHQWRUDSHUFHQWDJH of the cost of covered services provided. In most managed care plans, doctors or hospitals are chosen from a network of providers. Some managed care plans allow for visits to doctors outside the network, at a greater cost to the employee. Some of the largest carriers of health insurance are Blue Cross Blue Shield plans and publicly traded companies. Blue Cross Blue Shield companies operate independently as part of an association. Blue Cross companies originally focused on hospitalization FRYHUDJH%OXH6KLHOGFRPSDQLHVRULJLQDOO\IRFXVHGRQFRYHUDJHIRUGRFWRUYLVLWV7KH two associations merged and its independent licensees now provide health insurance coverage options for employer groups and individuals. Developing Issues for Health Insurers According to AM Best’s annual Review & Preview report on the U.S. health insurance sector, various segments of the health insurance sector face a range of issues: Next >