Pwc Ct Insurance Market Report 2012

2012 Connecticut insurance market report

Ideas, strategies and perspectives from the Connecticut insurance industry

www.pwc.com

November 9, 2012

About PwCAlthough 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.

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 Governor Malloy

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

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 Executive Director CT IFS

James Bedard Chair, CT IFS

Chief Financial Officer/ Chief Operating Officer, Northeast Region, UnitedHealthcare

Oz Griebel President and Chief Executive Officer, MetroHartford Alliance

Introduction by CT IFS

PwC | 2012 Connecticut Insurance Market Report

Executive summary 1

A rich history 3

A vital sector of Connecticut’s economy Connecticut by the numbers Insurance in Connecticut Top insurance issues for 2012 Employment Wages Gross State Product

13 13 16 17 18 22 25

Insurance connectivity Customers The Connecticut Insurance and Financial Services Cluster Asset management Education Community Government Other partners/suppliers Competing globally

27 28 32 33 36 39 42 59 59

Looking ahead—Insurance 2020 Strategic opportunities Strategic drivers and factors Social Technological Environmental Economic Political Implications for the future of your business

6565 66 69 73 78 79 81 83

Connecticut Insurance and Financial Services Cluster Members 89

Acknowledgments 99

Supporting thought leadership 104

Table of contents

PwC | 2012 Connecticut Insurance Market Report

Making healthcare simpler, more personal for consumers, Gail Boudreaux, Chief Executive Officer, UnitedHealthcare

31

Asset management in insurance: Increasing complexity is changing the rules of the game, Woody Bradford, Chief Executive Officer, Conning

34

The impact of the Travelers Championship in Connecticut, Brian MacLean, President and Chief Operating Officer, The Travelers Companies

41

Connecticut insurance regulatory environment, Thomas Leonardi, Commissioner, Connecticut Insurance Department

43

Connecticut economic development, Catherine H. Smith, Commissioner, State Department of Economic Development

53

ConnectiCare’s Provider Partnerships reflect collaborative approach to healthcare, Michael R. Wise, President, ConnectiCare, Inc. & Affiliates

58

Pioneering innovative customer-centric global health services, Matt Manders, President, Regional and Operations, Cigna Corporation

63

Making the P&C industry more relevant, Mike McGavick, Chief Executive Officer, XL Group plc

64

Lincoln Financial Group empowers an aging society to sustain financial independence, Mark Konen, President, Insurance and Retirement Solutions, Lincoln Financial Group

68

Saving for retirement, Christine Marcks, President, Prudential Retirement 70

Technology, communication and the “personalization” of retirement saving, Maliz Beams, Chief Executive Officer, ING US Retirement

72

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

74

Tapping a neglected supply of energy, Greg Barats, President and Chief Executive Officer, Hartford Steam Boiler Inspection and Insurance Company

77

The Terrorism Risk Insurance Act, Doug Elliot, President, Commercial Markets, The Hartford Financial Services Group

82

Creating the new healthcare marketplace, Mark Bertolini, Chairman, Chief Executive Officer and President, Aetna

84

Perspectives

1 PwC | 2012 Connecticut Insurance Market Report

Connecticut’s rich history in insurance dates back to more than 200 years ago when industry pioneers founded some of the country’s first insurance companies. With an enduring success story of leadership, innovation, growth, new entrants, mergers, acquisitions and divestitures; Connecticut’s insurance sector continues to prosper.

Insurance is a vital sector of Connecticut’s economy, representing 3.1% of the workforce, 5.7% of the payroll and nearly 9% of the gross state product. Connecticut ranks first nationally in insurance employment as a percentage of total state employment and insurance payroll as a percentage of total payroll. And insurance impacts other sectors of the state’s economy as well. According to Moody’s Analytics as calculated by the Connecticut Economic Resource Center (CERC), one new job in the insurance industry adds an additional 1.46 jobs to the Connecticut economy; an increase of $1 in insurance labor income puts an additional $0.78 into state commerce; and every year the insurance industry purchases an average of $2 billion in goods and services from other industries in Connecticut.

Executive summary

Like most of the world, Connecticut is being impacted by the economic downturn. The state’s seasonally adjusted unemployment rate remains high. Population is declining and taxes are rising. Insurance industry challenges include risk and capital management, persistently low interest rates; financial reporting; strategy and execution; and regulatory compliance.

In spite of this, Connecticut is holding its own. The overall gross state product has increased over the past 10 years and is forecasted to continue along this trajectory. Median household income ranks Connecticut the third highest in the nation.

However, Connecticut insurers must compete on a global basis. The insurance market extends far beyond Connecticut’s borders, to a global network of customers, partners and suppliers. Government, community and education are integral to its success. Although the US economy continues to expand, the industry’s best opportunities for growth and product innovation may exist in emerging markets. Many Connecticut insurers have already, or are planning to grow their business globally. Conversely, foreign-based insurers have expanded their presence in Connecticut.

Connecticut by the numbers

Population 3,580,709

Population growth rate 3.5%

Median household income

$65,415

Labor force 1,897,800

Unemployment 8.9%

Insurance carriers in Connecticut

Carrier full-time employment

50,242

Employment as % CT employment

3.1%, #1 Nationally

Payroll as % CT payroll

5.7%, #1 Nationally

Average wage $117,101

GSP as % CT GSP

8.9%, #1 Nationally

Note: Above statistics are footnoted later in this document.


Like most sectors, insurers rely upon a distributed workforce of employees and vendors in Connecticut, other states and around the world to deliver cost-competitive products and services. With globalization, technology and an increasingly mobile workforce, it is important for Connecticut to produce a highly educated population with skills that are relevant to the industry’s future. Fortunately, there are several educational programs in Connecticut that are already working to feed the insurance sector’s need for top talent. And additional help is on the way with much-needed educational reform.

Government plays a key role. The cost of doing business in the region is high. New regulatory legislation such as the healthcare Affordable Care Act(ACA) and the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) add significant federal oversight to already formidable state regulations. Government-led economic development initiatives have the power to attract and retain jobs in the short-term, but to be sustainable, they must also be accompanied by long-term efforts to reduce costs and improve responsiveness. The current administration recognizes this and has launched several programs. Governor Malloy has declared that the state is open for business and that “Connecticut is home to a reinvigorated insurance industry.” 1

Connecticut’s insurance companies and their employees recognize their responsibility to give back to the community in meaningful ways. There are countless examples of their commitment to Connecticut communities through charitable giving, volunteerism and support programs including diversity, healthcare, education, arts and culture, community development and the environment.

So the question must be asked: Can Connecticut compete on a global scale? The short answer is a resounding “yes.” The path forward for Connecticut is clear—compete in the global arena by developing and retaining talent for the highest value and/or highest proximity jobs (jobs that must be local). High value is not just about high pay, but also includes leadership, innovation, knowledge and quality that justify high pay. High value jobs align well with the Connecticut insurance sector’s strengths and high-proximity jobs will stay in the state by default. Jobs that are neither high value nor high proximity will increasingly be threatened by information technology advances and/or lower cost geographies. Human capital is Connecticut’s greatest asset.

Looking forward, Connecticut’s insurance executives must address an incredible variety of challenges and strategic drivers. Although no one can predict exactly what changes will occur in the next decade, we believe five key megatrends will influence the world’s insurance industry:

• Social: The balance of power is shifting toward customers

• Technological: Advances in software and hardware that transform ‘big data’ into actionable insights

• Environmental: The rise of more sophisticated risk models and risk transfer to address the increasing severity and frequency of catastrophic events

• Economic: The rise of economic and political power in emerging markets

• Political: Harmonization, standardization, and globalization the insurance market

This report highlights the implications of these megatrends and ideas for embracing them. Armed with the right mix of strong customer demand, insurance industry leadership, and progressive government and educational reforms, Connecticut will be well-positioned to remain an insurance capital for the next 200 years.


A rich historyConnecticut’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

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.

1732 The first insurance company in the US underwrote fire insurance and was formed in Charles Town (modern-day Charleston), South Carolina.


19th century

1850 Aetna Insurance Company organized an Annuity Fund to sell life insurance.

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.

1851

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.

1810 Hartford-area merchants pooled their money to create the Hartford Fire Insurance Company.

“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


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.


20th century

1931 Aetna constructed its new headquarters building in Hartford, which remains a historic and architectural gem.

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.

1905 A group of Fort Wayne, IN, bankers, attorneys, wholesalers, hoteliers, manufacturers, physicians and brokers founded the Lincoln National Life Insurance Company.


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.

1942 Savings Bank Life Insurance Fund established by Special Act of the Connecticut Legislature (predecessor to Vantis Life).

1936 Led by Harry B. Kennedy, the “Hospital Service Fund” was established in New Haven, Connecticut (predecessor to Connecticut Blue Cross).

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.

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.”

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.


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.

20th century

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.

1966 Aetna paid the first Medicare claim in the country; the payment was made to Hartford Hospital.


20th century

1992

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).

Phoenix and Home Life merged into Phoenix Home Life Mutual Insurance Company.


21st century

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.

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.


21st century

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

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.

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).

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.


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.

21st century

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.


A vital sector of Connecticut’s economy

Connecticut by the numbersAccording to the US Census Bureau, Connecticut’s population in 2011 was estimated at 3,580,709, representing just under 1% of the national total.2 Connecticut’s population grew 3.5% from 2002 through 2011, less than half the national average population growth of 8.3%.3

Connecticut was swayed by the global economic downturn, but has retained its strong center. Overall gross state product dropped slightly from 2007 to 2009.4 The state’s economy has otherwise steadily increased over the past 10 years and is forecasted by Moody’s Analytics to continue along this trajectory. Median household 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

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 202220032002 2004 2005

400

Bill

ions

350

300

250

200

150

100

50

0

Total

Insurance carriers

Source: CERC calculation of Moody’s Analytics, actual 2002-2011; projected 2012-2022.


As of September 2012, Connecticut’s seasonally adjusted unemployment rate as was 8.9% (or 169,500 people), exceeding the national rate of 7.8%. Unadjusted, Connecticut’s unemployment rate stood at 8.2% overall, ranging from 4.0% in Scotland to 15.4% in Hartford, compared to the national average of 7.6%. Connecticut’s labor force in September was 1,897,800, down .95% since January 2012.6

In developing its 2012-2013 state budget, Connecticut closed an expected budget shortfall by adding $1.5 billion in taxes to individuals and businesses; saving $1 million from state employees; and reducing spending by $758 million.7

At the crossroads of the Northeast, Connecticut is conveniently situated among some of the most populous metropolitan areas in the nation. There are 28 million people within a 100 mile radius of Hartford and over 100 million people within a 500 mile radius; roughly equal to one-third of the United States population and two-thirds of the Canadian population.8

Despite being a relatively small state dealing with tough economic times, Connecticut has many desirable attributes, making it an attractive place to do business.

State of Connecticut vs. United States unemployment (seasonally adjusted)

2006 2007 2008 2009 2010 2011 201220032002 2004 2005

2%

4%

6%

8%

10%

12%

0%

United States unemployment rate

State of Connecticut unemployment rate

Source: Connecticut Department of Labor, September 2012.

Despite being a relatively small state dealing with tough economic times, Connecticut has many desirable attributes, making it an attractive place to do business.


Several different insurance sectors are discussed in this report and it is important to note that any single insurance company, although assigned to a single sector for reporting purposes, may compete in multiple sectors. A general description of each sector follows:

Property & Casualty (P&C) Insurance

P&C insurers underwrite insurance policies covering various property, casualty, legal and other general risks. P&C insurance provides protection against damage or loss caused by a variety of events, from car accidents to medical malpractice to earthquakes. P&C insurance includes both Personal Lines such as auto, homeowners, farmowners, title and umbrella coverages, and Commercial Lines products including commercial auto, multi-peril, medical malpractice, workers compensation, business interruption, directors and officers liability, inland marine, fidelity and surety, mortgage guaranty, product liability, aircraft and crop. Outside the US, P&C insurance is referred to as non-life or general insurance.

Life Insurance, Retirement & Annuities (LR&A)

LR&A companies underwrite individual and group insurance policies covering life, health and medical risks. They include term life, ordinary life, credit life, industrial life, individual life, disability, critical illness, accidental death and dismemberment and long-term care coverages. LR&A companies also offer various retirement products and benefits that support the long-term financial objectives of individuals and businesses, including deferred and immediate annuity products, mutual funds, IRAs and other income producing products to help individuals avoid outliving their assets. The LR&A industry includes publicly traded insurers, privately held insurers, fraternal organizations, and mutual insurance companies. According to the Federal Reserve Bank of Chicago, “life insurance companies make up a substantial share of the US financial sector. At the end of 2011, they held $5.3 trillion in assets, which is about one-third the size of the $14.6 trillion banking sector.” 9 Life insurance companies play an important role in financing corporations, holding 18% of all outstanding corporate and foreign bonds in the US.10

Health Insurance

The health insurance industry underwrites group and individual health and medical insurance policies, including hospital and medical, prescription drug, dental, vision, and Medicare/Medicaid coverages. Companies also provide administrative services for self-funded insurance plans (where an employer funds health benefits to its employees). More than 200 million Americans receive coverage from private health plans from an employer, from the individual market or through government sponsored programs. Health insurers continue to focus on innovation and quality to manage costs and improve patient care by providing extensive wellness and health management programs for chronic conditions such as asthma, diabetes and many others.

Reinsurance

Reinsurance companies specialize in assuming all or part of the risk associated with existing insurance policies underwritten by primary insurance carriers. The fundamental business of reinsurance is insuring insurance companies. A reinsurer typically assumes part of the risk and part of the premium charged by the primary insurer. Reinsurance effectively increases an insurer’s capital and therefore its capacity to sell more business. Reinsurers don’t pay policyholder claims; rather, they reimburse insurers for claims paid. While the increasing globalization of reinsurance has slowed domestic industry growth, it has improved the industry’s ability to handle major catastrophes because US losses are spread globally over a larger and more diversified capital base.

Captive Insurance

Captives are becoming fast-growing alternatives to the traditional insurance market and Connecticut has recently approved legislation enabling the legal formation of captives in the state. A captive insurance company is wholly owned and controlled by a parent company or association, and operates to insure the parent’s own risks. By self-insuring, companies have greater control over their costs and can customize their insurance needs to specific risks. Captives are managed by specialty firms that provide a range of financial 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.

Insurance sectors


Insurance in ConnecticutAlthough Connecticut is a relatively small state in terms of geography and population, it is an insurance powerhouse. The numbers are impressive. According to PwC analysis of Connecticut’s 2011 Annual Report of the Insurance Commissioner (Business of 2010), there are approximately 110

domestic and 1,294 non-domestic insurance entities doing business in the state, each developing, selling and administering a variety of products and services. Some of the world’s largest insurance companies call Connecticut home and even more compete for Connecticut business. Connecticut businesses are generating over $30 billion in direct written premiums.

Did you know?

Connecticut’s insurance industry ranks #2 in the US for total direct written premium.11

Major insurance carriers in Connecticut

NAICS Sector

524113 Life insurance

524114 Health insurance

524126 Property/casualty insurance

524130 Reinsurance

LitchfieldTolland

MiddlesexNew Haven

Fairfield

Windham

New London

Hartford

Source: CERC calculation of D&B Sales and Marketing Solutions, 2012.

Domestic Non-Domestic Total

Line of business Number of entities

Direct written premiums

Number of entities


Number of entities


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.

Additionally, for each major insurance company in the state there are several smaller insurers and many more insurance-related businesses dotting the Connecticut landscape. As we will explore throughout this report, Connecticut is both a major consumer and exporter of insurance products and services and all players, large and small, are competing on a global scale.


Top insurance issues for 2012 Connecticut’s insurance industry must contend with a myriad of local and global issues. As highlighted in PwC’s Top Issues—The Insurance Industry in 2012, challenges include:

• Risk and capital management: Interest rates are at historic lows and there is every indication that they will remain there. Significant changes in insurance regulation around the globe are underway, including Solvency II and the National Association of Insurance Commissioners (NAIC) Solvency Modernization Initiative (SMI). There are also concerted efforts to move towards a consistent approach to cross-territory supervision in the US, including enterprise strategic risk management and Own Risk and Solvency Assessment (ORSA).

• Financial reporting: For many years, industry stakeholders have expressed their desire for more credible and relevant financial reporting metrics. Although most annual reports and investor presentations contain a great deal of data, they fail to clearly link strategy, performance and shareholder value. While insurers have justified concerns about performance data confidentiality and information disclosure, this must be balanced with the need to provide investors and analysts the information they want.

• Strategy and execution: From a merger and acquisition perspective, many insurance companies continue to search for opportunities to effectively deploy their excess capital. Health insurers in particular have expanded through acquisition. Insurers are increasingly interested in emerging markets, where the population is younger, the middle class is growing and governments are investing. Other strategies include customer-oriented operating models, “Big data” analytics and the implementation of new policy administration systems.

• Regulatory compliance: As covered later in this report, Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) and the healthcare Affordable Care Act (ACA) represent significant challenges. New tax technical and tax accounting guidance includes the NAIC’s SSAP 101 and the US government’s Foreign Account Tax Compliance Act (FATCA).Notably, 72% of insurance industry respondents to PwC’s 15th Annual Global CEO Survey said they were “extremely” or “somewhat” concerned about over-regulation and 68% said that changes in regulation were influencing their anticipated need to change strategy.

Connecticut’s insurance companies have enormous strength and are well positioned to address these challenges in a way that provides leadership to the national and global markets.

Did you know?

Connecticut’s insurance industry ranks #2 for written life insurance.12


EmploymentThe insurance industry is vital to Connecticut’s employment status. In fact, Connecticut ranks first nationally in insurance employment as a percentage of total employment. At 3.1%, Connecticut’s insurance employment as a percentage of total employment is approximately three times the national average.13

Of insurance-based employment in Connecticut, P&C insurers employ the greatest number of people, followed by health, life and reinsurance. From a geographic perspective, Hartford County is the leader with insurance jobs at slightly over 8% of total employment, followed by Fairfield, New Haven and Middlesex counties.

Many companies are attracted to Connecticut because of its strong insurance sector and workforce. For example, Magellan Health Services moved its corporate headquarters to Connecticut in 2004, and has doubled the number of its employees in the state since 2010. “We are proud to be based in Connecticut,” said René Lerer, M.D., Chairman and Chief Executive Officer. “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.”

Did you know?

Connecticut ranks #1 nationally in insurance employment as a percentage of total employment.13

“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


Connecticut’s insurance industry has seen employment declines over the past decade, but according to CERC calculation of Moody’s Analytics, is projected to grow 9.7% by 2022. As of 2011, the state ranks ninth nationally in absolute insurance carrier employment with 50,242 full-time insurance employees. An additional 11,341 people are employed full-time by agencies, brokerages and other insurance businesses for a total of 61,583 full-time insurance employees.

Connecticut is also losing residents. According to the US Census, Connecticut’s population fell by 13,493 from 2010 to 2011, ranking the state 45th in the nation in net domestic migration.15

Did you know?

Connecticut has the highest concentration of actuaries in the US.14

Population and employment in a particular state are driven by a variety of complex factors (e.g., supply, demand, strategic, economic, demographic, political, etc.) at both the business and personal level. We will address several of these factors throughout this report. With negative population and employment growth, other states could easily threaten Connecticut’s insurance ranking.

Connecticut is only as strong as its human capital. Despite Connecticut’s historical pre-eminence in insurance, complacency is not an option if the state is to retain its global leadership position into the future. Keeping a skilled workforce is important for all 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).


Employment by detailed insurance sector for Connecticut from 2001 to 2011

2006 2007 2008 2009 2010 2011

15,000

10,000

5,000

20,000

2001 2002 2003 2004 2005

0

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.

Insurance carrier employment as percent of total employment from 1992 to 2012

2006 2009 20121994 1997 2000 20030%

1%

2%

3%

4%

United States

Connecticut

Source: CERC calculation of Moody’s Analytics, Actual through 2011 and estimated for 2012. Employment for NAICS 5241.


After bottoming out in 2009, high performer turnover in the insurance industry has grown at a compound annual growth rate of more than 5% since 2009. Results from PwC Saratoga’s US Human Capital Effectiveness survey show that more than 5.5% of high performers changed employers in 2011. This is a relatively high percentage when compared with other industries. For example, high performer turnover is only 3.1% for

utilities and 3.6% for manufacturing. High performers typically stay within their industry, reinforcing the benefit of a strong insurance cluster in Connecticut, enabling high performers to switch jobs without leaving the state.

A bigger threat, perhaps, is that many insurance jobs can be performed remotely due to the nature of the work and significant improvements in telecommunications and information technology. Working remotely is a significant trend in the insurance industry. Some jobs follow the trajectory from working in the office, to working remotely in Connecticut, to then working remotely from anywhere. Many insurance workers can be productive from anywhere, so it is imperative to encourage them to remain in Connecticut.

Representative sample of Connecticut insurance company employees

Company Number of employees

Aetna Inc. 6,700

AIX Group, a member of Hanover Insurance Group 185

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


Insurance carrier employment as a percent of total employment by state in 2011US overall and top 10 states

Connecticut

Rhode Island

New Hampshire

Ohio

Minnesota

Iowa

Wisconsin

Nebraska

New Jersey

Maine

0% 1% 2% 3%

United States

Source: CERC calculation of Moody’s Analytics, 2011. NAICS 5241.

Opportunity for action: Developing and retaining skilled workers

Government officials are actively collaborating with corporations in an effort to attract more businesses to the state. Hopefully, these actions will provide the environment to attract new business. However, short-term economic development incentives will not address the root causes of residents moving out. High cost of living, increasing taxes, high utility 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.

WagesThe insurance industry is even more important to Connecticut from a wage perspective. At 5.7%, the state ranks first nationally in insurance payroll as a percentage of total payroll. This can be attributed to the industry’s average wage of $117,101 resulting from the need for a workforce of relatively high-paying occupations such as management, legal, business and finance and computer and math.16


Insurance carrier employment as a percent of total employment in Connecticut for 2011

Hartford 8.5%

Tolland .2%

New London .1%

New Haven .9%

Middlesex .8%

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.


Insurance carrier payroll as a percent of total payroll by state in 2011US overall and top 10 states

Connecticut

New Jersey

Maine

New Hampshire

Nebraska

Wisconsin

Minnesota

Iowa

Massachusetts

Pennsylvania

0% 2% 4% 6%

United States


Connecticut occupational employment and wages in the insurance carriers sector Q1 2012

Occupation category Employment Average wage

Management 8,290 $127,553

Business and financial operations 17,000 $75,731

Computer and mathematical 8,040 $86,461

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.

Did you know?

Connecticut ranks #1 nationally in insurance payroll as a percentage of total payroll.17


Gross State ProductThe most dramatic financial impact the insurance industry has on Connecticut is its contribution to the gross state product (GSP). With only 3.1% of the workforce and 5.7% of the payroll, the insurance industry contributes nearly 9% of Connecticut’s GSP, making insurance one of the state’s top sectors from a GSP perspective.19

Did you know?

Connecticut’s insurance industry contributes nearly 9% of the state’s gross product.18

Insurance and financial services combined comprise 20% of Connecticut’s GSP, highlighting the importance of the CT IFS. Additionally, Connecticut defines “super sectors” for reporting purposes and the Financial Activities super sector includes insurance, financial services and real estate. The Financial Activities super sector is the state’s 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 2011US overall and top 10 states

Connecticut

Rhode Island

New Hampshire

Minnesota

Nebraska

Wisconsin

Iowa

Delaware

Ohio

Illinois

0% 2% 4% 6% 8% 10%

United States



Insurance carrier Gross State Product as percent of total Gross State Product from 1992 to 2012

2006 2009 20121994 1997 2000 2003

9%

0%

1%

2%

3%

4%

5%

6%

7%

8%

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

14%

13.4%

12.8%

11%

11%

10.3%

9.3%

9.4%

8.8%

Other

Financial activities: Real estate

Financial activities: Finance

Financial activities: Insurance

Trade, transportation, and utilities

Professional and business services

Manufacturing

Education and health services

Government

Source: CERC calculation of Moody’s Analytics, 2011. GSP Aggregated to NAICS Super-sectors.


Insurance connectivity

Connecticut insurance ecosystem

GlobalUSConnecticut

Insurance Financial services

Other partners and suppliers

Education

Community Customers Government


Insurers’ primary focus is on serving their customers, as they strive to protect groups and individuals from a myriad of risks with an ever-growing variety of products and services.

The impact of this sector extends far beyond the customer-insurer relationship. As the insurance workforce grows, so does the state. According to IMPLAN as calculated by CERC, one new job in the insurance carrier industry adds 1.46 jobs to the Connecticut economy. An increase of $1 in insurance labor income puts an additional $0.78 into state commerce. And every year the insurance industry purchases an average of $2 billion in goods and services from other industries in Connecticut.

This section of the report explores how the insurance sector collaborates with numerous other sectors and highlights some of the issues that are critical to sustaining Connecticut’s vital insurance system from a local, US and global perspective.

CustomersThe insurance industry serves businesses, governments, groups and individuals, developing and administering products and services to protect those customers against a wide range of potential risks.

Product and service innovation

Innovative products and services are augmenting the more traditional products. Insurers must meet the needs of an ever-changing and uncertain world by developing innovative new products and services that embrace the concept of shared risk and enable it with leading-edge technology. Relatively recent product innovations range from insuring pets to terrorism insurance. Service innovations embrace mobile computing and social media.

Insurers, dependent on information technology for productivity gains, have developed and/or acquired leading-edge capabilities so advanced 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


modeling, rapid in-field assessments and highly personalized self-service programs. The end result is a better and more cost-effective customer experience, precisely when customers need their insurer most.

US and global markets

The US economy continues to expand, with Swiss Re Economic Research and Consulting predicting real GDP growth of 2.2% for the remainder of 2012 and 2.7% in 2013.21

Emerging markets are expected to sustain annual growth of 8% to 10% over the next 10 years. With rising disposable household income, low deposit interest rates and improving investment sentiment, insurance companies could witness an increased demand for life insurance, health insurance, non-life insurance and investment-linked insurance products.22

We believe that the industry’s best opportunities for growth and innovation exist in emerging markets. Since the financial crisis of 2007-2009, the insurance industry in developed countries has experienced low

investment yields, regulatory tightening and slow overall growth. Established global insurers, meanwhile, are facing increased competitive pressures through industry consolidation, as well as international expansion by regional and global players.

The increasing wealth of the expanding middle class—especially in the rapidly growing emerging markets of Africa, Asia, Eastern Europe and Latin America—has created a growing demand for a broad range P&C and life insurance products. Each of these regions also includes a segment of consumers who have not yet ascended to the middle class. This is an opportunity for innovative micro-insurance products that can function as entrees into more traditional products.

From a healthcare perspective, government-run healthcare programs around the globe are seeking opportunities to better manage rising healthcare costs. This is creating opportunities for insurers to work with governments on health and cost management programs.


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 innovateTo what degree are you changing the emphasis fo your company’s overall innovation portfolio in the following areas? Responses of ‘significantly increase’.

50

40

30

20

10

001 02 03 04 0

1

2

4

5

6

712

1415

16 1718

20

19

313

11910

8

Cos

t re

duc

tions

to

exis

ting

pro

cess

es

New business models

Global average

1

2

3

4

5

Banking and capital markets

Business and professional services

Healthcare

Automotive

Transportation and logistics

6

7

8

9

10

Metals

Industrial manufacturing

Retail

Consumer Goods

Hospitality and leisure

11

12

13

14

15

Chemicals

Forestry, paper, and packaging

Global

Construction/engineering

Asset management

16

17

18

19

20

Pharma and life

Insurance

Technology

Communications

Entertainment and media

INSURANCEAsset management

Technology Entertainment and media

Communications

Banking and capital markets

Base: All respondents Source: PwC 15th Annual Global CEO Survey 2012


Executive perspectives

As individuals today assume more personal and financial responsibility for their healthcare, they’re demanding more affordable products, greater transparency on cost and quality and personalized help to navigate a complex health system. They want more value, more choice and more control.

At the same time, millions of new consumers will soon enter the health system, putting additional stress on existing resources and contributing to a growing gap in the quality and accessibility of care, particularly as greater numbers of Americans suffer from preventable chronic diseases that drive medical costs higher. What is the solution to promoting higher-quality care for more people at a more affordable cost? Empower and engage individuals, and incentivize healthier lifestyles.

UnitedHealthcare has firsthand experience advancing programs that give consumers the tools and information to help them engage in healthier behaviors, make smarter choices and become more financially savvy. Working together, care providers, payers, and individuals can make a difference.

Promote healthy lifestyles early in life. With a startling 32% of children between the ages of three to nine being overweight, childhood obesity has become a true epidemic. A new program called JOIN for ME engages parents and their children to actively participate in a series of group sessions to achieve a healthier weight by reducing calories and increasing physical

Harness technology to provide greater transparency and easier access to health services. According to a new survey UnitedHealthcare released in September, approximately 14% of US consumers now use online tools to comparison shop for healthcare treatments and procedures. While this figure might seem small compared with the 66% of survey respondents who use the Internet to comparison shop for cars, electronics, airline tickets, auto insurance, and other consumer goods, it highlights a clear trend: more individuals and families are turning to online tools to compare healthcare costs and better understand their specific conditions and treatments. Online tools that make “comparison shopping” for healthcare easier are becoming even more important as health reforms encourage greater transparency and flow of information to consumers.

Consumer engagement is a powerful tool that enables individuals, young and old, to improve their quality of life, optimize health resources and transform the personal healthcare experience.

activity. An expert panel of researchers, local pediatricians, school nurses, YMCA officials and UnitedHealth Group leaders guide the program. On average, 84% of the original 155 participants in the JOIN study achieved a 3.5% reduction in excess weight.

Encourage healthier behaviors by offering financial discounts. Incentives need to go beyond rewarding simple enrollment in a program. Individuals should be rewarded for changing their behavior and achieving better health. UnitedHealthcare has found that individuals are more likely to participate in wellness classes and connect with a health coach when tangible financial incentives are tied to their taking action. For example, today nearly 1 million people are enrolled in our Personal Rewards for Health program. Program participants are able to earn up to $1,000 off their annual health insurance premiums. The impact is real: 45% of plan participants have lost an average of more than nine pounds each.

Partner with care providers to keep patients healthy. The shift toward increased collaboration with care providers is transforming how healthcare is delivered to millions of consumers. New incentive-based payment models are utilizing integrated care solutions that are designed to align incentives between care providers and health plans and reward physicians and hospitals for quality outcomes and for keeping patients healthy. Ultimately, that is how we will embed greater quality and affordability across the healthcare continuum.

Making healthcare simpler, more personal for consumersGail Boudreaux Chief Executive Officer, UnitedHealthcare


The Connecticut Insurance and Financial Services ClusterInsurance has perhaps its closest affinity with financial services, with many insurers having significant financial service capabilities within their own organizations to manage their large capital reserves. So it is natural for insurance and financial service organizations to be one in the same and/or collaborate very closely.

The physical clustering of major insurance and financial services firms within Connecticut generates tremendous benefits for the industry, neighboring industries, and for residents who share in the prosperity. As an insurance mecca for centuries, Connecticut underscores the verity of the contemporary push for regional industry clusters—synergistic regional concentrations of industry and related activity in particular fields. Such clusters, argue economists and urban planners, can reignite innovation, entrepreneurship, and job creation.

Bruce Katz and Mark Muro at the Brookings Institution propose that clusters matter because these geographic concentrations of companies, suppliers, coordinating entities, and institutions like universities or community colleges can “unleash powerful synergies and efficiencies among member firms that have the power to markedly boost the performance of the state economy.”23

Connecticut’s industry cluster initiative began in 1997, with business, government, education and civic sections collaborating to accelerate the cluster development process.24 In 2003, CT IFS became one of nine formal clusters and is considered a model for cluster development.

Today, the mission of the CT IFS remains the same, to advance and strengthen the industry. The strategic goals of the organization are routed in workforce development, public advocacy and business/economic development. Nowhere does the 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


workforce planning and development. Both industries share similar needs for actuaries, underwriters, accountants, and business analysts and universal skill sets such as analytical, underwriting, verbal and written communication.

The CT IFS companies, both insurance and financial services, agree that cultivating the workforce of the future is paramount to their economic prosperity. The CT IFS supports workforce programs such as the Actuarial Boot Camp for high school seniors, Get Hired—an annual, state-wide insurance and financial services career fair; and High School Inc., Hartford’s public high school dedicated to the study of insurance and finance.

Asset managementInsurance companies must actively 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 asset management functions to achieve optimal risk-adjusted returns while adhering to capital requirements and, most importantly, supporting their businesses. Each company has

a unique approach to defining its asset management function, but by and large, this function encompasses a significant portion of the overall business cost —from resources and operations functions, to IT hardware and software costs, support and third party relationship costs (e.g., asset servicers, broker/dealers, pricing services, etc.). Many insurers are considering various actions to transform their asset management function, particularly the middle and back offices. In the front office, many insurers outsource a large portion of investment decisions to specialized insurance asset managers; others take the opposite approach and lend their investment expertise to outside parties, earning significant management fee income to supplement core revenue streams.

“Working with the Connecticut IFS Cluster, Webster Bank is committed to preparing tomorrow’s workforce today. With Hartford, CT, being known as the ‘Insurance Capital of the World’ and Webster 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

With yields on traditional core fixed income portfolios at generational lows and sovereign credit risk a real concern in certain geographies, insurers are looking at other strategies to enhance returns and diversification while maintaining liquidity to meet liabilities. Alternative investments, including hedge funds, remain a small but growing proportion of insurers’ portfolios and sourcing and monitoring these investments requires specialized skill sets. Pressures on insurance companies continue to squeeze profitability and long-term sustainability—a low-interest return environment, regulatory pressures, tax and compliance changes—which all continue to present significant challenges to all asset managers. Investors, regulators and policyholders continue to demand a higher level of trust and transparency.



Asset management is an important facet of the insurance sector, and one that has become more complex and taken on more risk, even as investment yields have plummeted. Combined invested assets for the US insurance industry segments (Life, Property-Casualty, and Health) amounted to $7.0 trillion as of year-end 2011, up from $2.6 trillion in 1995. Invested assets support the promise of insurers to pay claims, sometimes many years from when a policy is issued. Investment income also is an important part of total income in the insurance industry, representing (on average over the past eight years) 103% of property-casualty income, 24% of health insurance income and 402% of life insurance income, exclusive of realized capital gains and losses. For some insurance companies, asset management also is a source of direct sales, providing investment services and products to consumers, corporate customers, and even other insurance companies.

Today, and for the next several years, the insurance industry is being challenged by changes taking place in the investment world. In many ways, these challenges match or exceed those in core operating areas. At the same time, these challenges present opportunities for the creative, and for those ahead of the curve.

Among these challenges, one of the most pronounced and widely discussed is the fact that extremely low interest rates are changing the short-term and long-term profit equation. Investment yields are roughly half of what they were just a short five years ago, putting pressure on income, risk, and expenses. The challenge isn’t

Over the longer term, the insurance industry and its investment operations will likely be challenged by demographic forces that will continue to act on both assets and liabilities. As people live longer and the average age of the population increases, insurance companies face changing risk profiles and product needs across all segments of the insurance industry. An increase in long-dated liabilities will contend with increasing demand and competition for quality long-dated assets—demand not only within the insurance industry but also across the pension world, banking and financial services, and consumer retirement markets.

Under these conditions, insurers may find that solely relying on traditional fixed income securities can be less effective as solutions to liability matching and risk management needs. Replicating portfolios and baskets of securities that meet the needs of liquidity, inflation protection, and duration management are emerging in the marketplace, but successful employment of these solutions requires additional expertise, infrastructure and heightened risk management capabilities.

New economic realities are leading to many changes in the role played by insurance company asset management. Opportunities are expanding and leading to the development of new products and services, new technology and risk management applications, and broader integration with the products and financial performance characteristics across the full insurance enterprise. Leading firms will take a holistic perspective, encourage collaboration across their firm, and take advantage of best practices to optimize their risk-adjusted return on capital.

limited to low returns on investments. It is further complicated by the interaction of low interest rates and liabilities, leading to a surprising build-up of risks arising from a number of factors including, but not limited to, policyholder arbitrage, inflation risks, and asset-liability duration mismatches.

Companies wishing to moderate some of this low yield environment by expanding into broader classes of investments are facing an increasingly complex range of investment choices. At the same time, they must address increasing regulatory demands for risk management and disclosure. The question has moved beyond “how do I get more yield?” to “what risks am I prepared to take and how do I get paid for taking those risks?”

Companies rising to these challenges are adopting a more holistic approach to their investment and risk management strategy, focusing on generating superior risk-adjusted returns on capital across the enterprise. This requires understanding the interaction of risk and reward between operations and investments and across changing economic and competitive environments. It also requires a deeper appreciation of risk and capital within economic, accounting, and regulatory regimes that also are undergoing change and evolution. The most successful organizations are breaking down the silos across their organizations, forcing collaboration and innovation. Additionally, many insurers are increasingly leveraging outside expertise and experience to assist them in identifying options and best practices as well as implementing them to more successfully navigate the current investment environment.

Asset management in insurance: Increasing complexity is changing the rules of the gameWoody Bradford President and Chief Executive Officer, Conning


Top 10 hedge funds by equity assets under management in Connecticut

CT rank

Hedge fund name Equity assets (millions)

Location

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.

And Connecticut’s hedge fund industry is well positioned to support the insurance industry’s alternative investment needs. As Bruce McGuire, President, Connecticut Hedge Fund Association puts it: “Connecticut is one of the top global centers of the hedge fund industry, and is home to many of the largest and best performing alternative investment management firms. The lines between traditional asset management such as mutual funds and “alternative investment management”, such as hedge funds and private equity

funds are blurring every day, with mutual fund companies creating or buying alternative investment capabilities, and hedge funds adopting registered investment company and even full mutual fund structures. Connecticut is uniquely positioned to be a leader in this industry transformation. It is imperative that our leaders recognize the opportunity that exists and continue to do everything in their power to encourage the growth of the industry and help to ensure that Connecticut emerges as a leading global center of the asset management industry.”


EducationConnecticut’s educational status fares well by some standards but is not without its challenges. From a positive perspective, Connecticut has a highly educated population, ranks well in terms of education quality and invests heavily in public education.

However, like many states, Connecticut also has a well-documented achievement gap between the rich and poor. This combination of high investment and mixed results was deemed unacceptable, prompting Governor Malloy, with near unanimous support from the House and Senate, to sign an education reform bill in May 2012. The law authorizes nearly $100 million in new funding for the state’s troubled schools, which will be used to create 1,000 more pre-school slots for students, 10 family resource centers and 20 school-based health clinics. It also provides for grants to help low-performing schools recruit teachers and a new evaluation process for administrators and teachers.

Why is public education so important to Connecticut, the nation, and the insurance sector?

With globalization, technology and an increasingly mobile workforce, it is more important than ever to produce a highly educated population with skills that are relevant to our future.

Globalization and technology enable a significant amount of work to be done anywhere and many insurance jobs do not require proximity or significant infrastructure. For these jobs, the most important employee sourcing factors are cost and quality. With Connecticut being a high-cost environment relative

to many other locations, employers will increasingly think of Connecticut as a location for high-paying positions with lower paying positions being performed elsewhere (refer to the “Competing globally” section of this report). Therefore, the quality of Connecticut’s educational system needs to be high enough to enable our citizens to compete for these highly skilled positions. Otherwise, these jobs may leave the state.

Help wanted

The insurance sector is comprised of a diverse set of jobs requiring a wide range of educational and skill requirements. As highlighted earlier in this report, important insurance industry skills include management, business and finance operations, computer and math and sales. Based on an informal survey of select insurance company human resource executives as reported in the IFS Occupational Outlook Report (October 2012), on the corporate side, there is a demand for actuaries, underwriters, product managers, attorneys and accountants. Demand for information technology professionals includes architects and software engineers. Future needs are expected to be similar, but also include sales professionals, project managers, business analysts, financial analysts, claims examiners and customer service representatives.

Fortunately, there are several educational programs in Connecticut that are working to feed the insurance sector’s need for talent.

Programs like these will play a key role in enabling Connecticut to retain and grow its greatest asset, human capital, to meet the insurances sector’s future talent needs.

With globalization, technology and an increasingly mobile workforce, it is more important than ever to produce a highly educated population with skills that are relevant to our future.


High School, Inc.

Beginning at the high school level, there are schools such as Hartford’s High School, Inc., which is a college preparatory school for 400 high school students, grades 9-12, who are interested in pursuing careers in the insurance and financial services industries. In effort to help build the workforce of the future, High School, Inc. is supported by the CT IFS and its member companies. The students are afforded an opportunity to participate in corporate field experiences, such as job shadowing and internships, and make a real-world connection to daily corporate life, especially as it relates to curriculum and classroom lessons.25

The school is closely affiliated with the National Academy Foundation (NAF), which fosters partnerships between the business and education communities to provide opportunities to underserved students. High School, Inc. is among about 500 schools across the country that follows the NAF curriculum.

The school also teaches softer skills, such as the fine art of networking with industry executives. “These kids are getting connections that enable them to get internships and move on to college,” said Terrell Hill, the school’s principal. Giving inner city students exposure to real world experiences

Fortunately, there are several educational programs in Connecticut that are working to feed the insurance sector’s need for talent.

is a life changer. As Hill explains, they get to see the relevance of what they’re learning much earlier than students in schools not connected to industry professionals. For example, 12 companies opened their doors recently for a job-shadowing day that allowed 116 students and five parents to participate. One of the goals of High School, Inc. is to change the lives of the students and their families. As Hill puts it: “Changing student’s mentality can change the community.”

Actuarial Boot Camp

Also at the high school level, CT IFS and Prudential Retirement sponsor an Actuarial Boot Camp, an intensive and interactive one-week program that teaches high school students about the actuarial profession and prepares them for their first actuarial exam. Sessions focus on writing skills, negotiation strategies and professional ethics. The program also provides networking opportunities with actuaries working in insurance, finance, government, risk assessment and consulting. Guest speakers from companies like Cigna, Hartford Life, Phoenix, Travelers and UnitedHealthcare participate and provide students with guidance on internships, employment and career advancement.

“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


This year, 41 students applied and 24 were accepted. In the words of some student participants:

• “My experience at Actuarial Boot Camp definitely reinforced my desire to want to be an actuary and got me excited about my future.”

• “I had an awesome experience. If I could go again I would!”

• “I am 100% certain that I want to be actuary.”

• “I learned a lot and am now excited to pursue a career in actuarial sciences!”

• “I will recommend this to anyone interested in being an actuary.”

Higher education

Within higher education, a number of programs produce a steady stream of workers to support the insurance sector. While most colleges and universities have broad based curriculums (e.g., business, finance, math, information systems, etc.), some have programs that are keenly focused on the insurance sector. A few examples include:

• The University of Connecticut’s (UConn) Graduate Business Learning Center in Hartford is home to the Janet and Mark L. Goldenson Center for Actuarial Research. It offers students the opportunity to participate in academically rigorous research projects on real-world problems. The center partners top actuarial students and faculty at UConn with actuarial professionals in the insurance and financial services industries from firms in Hartford and the region. Additionally, the University of Connecticut is recognized as a

Center of Actuarial Excellence, as one of only 14 schools in the country (and one of only 23 in the world) to be so recognized by the Society of Actuaries.26

• The University of Connecticut School of Law is home to The Insurance Law Center, which was founded in 1998 with a generous endowment from the insurance community. Located in downtown Hartford, the Center is recognized around the world for the study of law, insurance and risk. It boasts an insurance law collection unmatched by any other US university, and publishes the Connecticut Insurance Law Journal.27

• The University of Hartford’s Barney School of Business has an Actuarial Science Minor program as part of its Career Ready Business Education Program. Actuaries from area firms have been deeply involved in the design of the actuarial science program and their guidance helps to refine the curriculum and place students in actuarial internships. The University of Hartford is also home to the RC Knox Center for Insurance and Risk Management Studies, which has been in place since the 1980s and supports undergraduate and graduate study in Insurance, Risk Management and Employee Benefits.28

• Central Connecticut University’s School of Business created an Insurance, Banking and Financial Sector (IBFS) Initiative in 2010. A workgroup of Business School faculty and IBFS businesses was formed to drive this initiative with the goal to create a workforce development initiative that aids

students in their post-graduation job search. This industry-led and focused program enables students to develop and document competencies which the IBFS seeks in high value new hires.29

• Connecticut’s community colleges offer a variety of courses, lectures and associate degree programs geared towards helping students prepare for a career in the insurance industry. Gateway Community College in New Haven teaches leadership, customer service, medical billing, insurance pre-licensing, healthcare reform, computers and web design.30 Capital Community College in Hartford has insurance and finance programs that teach commercial underwriting principles, property and liability insurance principles, risk assessment and business law for insurance professionals.31

Opportunity for action

Connecticut has built strong connections between academia and the insurance sector and must continue to do so, especially with respect to well-compensated and emerging skill requirements. To gain more of an advantage, employers and educators should continue to work together to develop industry-specific programs targeted directly at future insurance workforce needs. Doing so will help to ensure that the state’s academic institutions continue to provide education that is relevant to the needs of the cluster and that Connecticut workers are a top priority for insurance company recruiters. And in return, Connecticut’s insurance companies and employees will continue to fund the educational sector.


CommunityConnecticut insurance companies and their employees recognize their responsibility to give back to the community in meaningful ways. There are countless examples of their commitment to communities through charitable giving, volunteerism and support of programs including diversity, healthcare, education, arts and culture, community development and the environment. A few examples include:

• Grants and scholarships: Aetna has given more than $413 million in grants and sponsorships to non-profit organizations since 1980. OdysseyRe employees vote on charities they want to support, including after-school and summer education programs for low-income children, food and homeless shelters, domestic violence, medical aid and research, support for wounded warriors and their families to animal welfare. The foundation of Anthem’s parent company has granted more than $130 million to organizations that support their Healthy Generations program and their commitment to the health and well-being of the individuals and the communities they serve. Since 2005, MetLife Foundation has donated more than $7.5 million to nonprofit organizations serving community needs throughout Connecticut. The MetLife Foundation also supports United Way organizations, provides volunteer grants to employees, matches employee gifts to Connecticut colleges and universities; and has partnered with KaBOOM! to provide hundreds of volunteers to help build safe, fun playgrounds for kids, families and communities in Hartford, New Haven and Bridgeport.

• Volunteerism: The Hartford employees donate more than 100,000 volunteer hours nationally each year. UnitedHealth Group employees contributed 29,000 hours of volunteer service in Connecticut in 2011. Vantis Life employees participate in the United Way campaign and “Day of Caring” and received two “Best Of Awards” for outstanding participation. Prudential helps to improve the Hartford area by investing over $1 million of financial resources annually, providing business expertise and associate volunteer skills in programs that increase human potential and individual self-sufficiency. Catlin donates to charities, works on community projects and supports individual fundraising activities. Catlin is also the title sponsor of the Catlin Seaview Survey, a scientific exploration of the impact of environmental change in our oceans. Prudential helps to improve the Hartford area by investing over $1 million of financial resources annually, providing business expertise and associate volunteer skills in programs that increase human potential and individual self-sufficiency.

• Community service and development: Lincoln Financial Group has donated $9 million to Hartford non-profits since 2006 through its Lincoln Foundation. XL Group plc holds an annual Global Day of Giving to support the communities in which they operate. In 2012, XL Group’s projects included assembling information packages and course materials for Hartford middle school students enrolling in an educational enrichment program, introducing young people from

disadvantaged areas of Hartford to the business world and providing an overview of the insurance sector. An estimated 200,000 people attended the Travelers Championship in 2012 and generated $1 million for charity and an estimated $28 million in economic impact. Each year, MassMutual employees collect hundreds of pounds of food for the Enfield Food Shelf, and donate hundreds of winter coats and thousands of toys to the Salvation Army’s annual Coats for Kids and the US Marine Corps’ Toys for Tots drives. ING US has supported local communities through multi-year title running sponsorships such as the ING New York City Marathon, ING Miami Marathon and ING Hartford Marathon, as well as through its ING Run For Something Better youth fitness initiative which has committed over $4 million to fund grants and school-based running programs in Connecticut and across the country.

• Environment: Catlin assesses their carbon footprint annually and makes an effort to reduce it by purchasing credits to offset 100% of global air travel. These credits are used to finance a variety of projects with environmental benefits. Since 2007, ING has realized a 23% reduction in energy use, 50% reduction in paper use and has reduced by 57% the company’s generated landfill waste. They received both the Green Power Leadership Award and the Connecticut Climate Change Leadership Award in 2008. Several other insurers have implemented sustainability programs that include environmentally friendly policies and


initiatives, such as the installation of solar panels and electric vehicle charging stations at their facilities. Insurers are also helping to influence customers with products that include “green” incentives.

• Healthcare: ConnectiCare supports health-based organizations that center on wellness, prevention and strengthening the delivery system in the greater Hartford area. UnitedHealth Group, in partnership with Youth Service America (YSA), created UnitedHealth HEROES— a program that awards grants to schools and youth-focused community organizations for projects that children develop for their peers to combat obesity. Cigna introduced a new element for its sixth year as sponsor of the Calhoun Cancer Challenge—gamification. Cigna provided fifty participants with devices showing calories burned during the Hartford event, and the Cigna Foundation contributed fifty cents per calorie to fight cancer.

• Education: Employees at The Phoenix Companies mentor and tutor students from Fred D. Wish Elementary School in Hartford at their offices each week. Now in its 27th year, the program is the longest continuously operated corporate tutoring partnership in the Hartford school system.

• Arts and culture: Connecticut insurers and their employees play prominent roles in numerous art and cultural programs and events across the state. Board positions, sponsorships and active participation abound. Just a few examples of mutually beneficial relationships between insurance and the arts include: The Bushnell Center for the Performing Arts, the Mark Twain House and Museum, Wadsworth Atheneum and the Greater Hartford Arts Council. In addition to sponsoring these and other arts and cultural organizations directly, The Hartford Steam Boiler Inspection and Insurance Company and its employees have been the No. 1 workplace supporter of the United Arts Campaign in their category for the past 15 years.

• Ethics: The Ethisphere Institute, a leading international think-tank dedicated to the creation, advancement and sharing of best practices in business ethics, has recognized The Hartford as one of the “World’s Most Ethical Companies” for the last five years.

• Mentoring and employment: Magellan Health Services founded the Hero Health Hire initiative in 2011, which is a coalition of 38 healthcare companies and organizations 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.

Connecticut insurance companies and their employees recognize their responsibility to give back to the community in meaningful ways.



Travelers is proud to be the official property casualty insurance provider of the PGA TOUR and title sponsor of the Travelers Championship at TPC River Highlands in Cromwell, Connecticut.

The success of our community is vitally important, and this is a key reason that Travelers supports the Travelers Championship, which donates 100 percent of its net proceeds to charity. Since Travelers became title sponsor in 2007, the Travelers Championship has generated approximately $6 million for more than 100 deserving nonprofit organizations across the state and has generated more than $30 million for charity since its inception in 1952. One of the major beneficiaries is The Hole in the Wall Gang Camp, which provides a summer camp experience for seriously ill children. Camp programs serve more than 17,500 children and their families free of charge each year.

As title sponsor, Travelers is committed to working closely with the tournament staff to identify ways to make the tournament bigger and better each year. In addition to the event’s focus on military appreciation, providing free admission to all active, reserve and retired military service members and their dependents, the Travelers Championship partners with Operation Shower to provide a baby shower for expectant military wives. Other fan activities include a 5K race for charity, the Celebrity Pro-Am featuring sports and entertainment stars like Bill Murray, Chris Berman and Andre Tippett, a concert series with music legends like Huey Lewis and KC & the Sunshine Band, and Women’s Day, which was created to broaden the audience of the Travelers Championship by offering a range of activities that give women the opportunity to connect with one another while supporting our local community. The PGA TOUR has recognized the combined efforts of Travelers and the tournament staff with the award for “Best Sponsor Integration” in 2009 and 2010 and “Best Marketing Plan” in 2011.

“Travelers has been a part of this tournament from the beginning in 1952,” said Andy Bessette, Travelers Executive Vice President and Chief Administrative Officer. “We’re a hometown company supporting a hometown event benefiting hometown charities. It doesn’t get any better than that, and we are so honored to have tremendous support from the players, sponsors and the community.”

“The Travelers Championship is so special not only because of the generous support provided by every sponsor and participant, but also because of the broad public awareness that it generates for our mission,” said James Canton, Chief Executive Officer of The Hole in the Wall Gang Camp. “We extend our heartfelt appreciation to the Travelers Championship and lead sponsor Travelers for their devoted generosity and belief in our mission, which has allowed us to serve more seriously ill children and their families than ever before.”

The tournament also benefits the community through the economic activity it brings to the region. According to a December 2011 economic impact study by the Connecticut Economic Resource Center, Inc., in the first five years of Travelers’ title sponsorship of the tournament, the event had produced an estimated $135 million economic impact on the state of Connecticut. The tournament sustains 250 jobs and generates roughly $28 million in economic activity each year. Of that $28 million, $13.5 million of the economic activity comes from the rental of hotel rooms and cars, transportation expenses, restaurant meals, purchases of special merchandise, and other goods and services. In addition to having a positive economic impact on Connecticut, the Travelers Championship brings a sense of pride and enthusiasm to the region as a top professional sporting event in New England.

The impact of the Travelers Championship in ConnecticutBrian MacLean President and Chief Operating Officer, The Travelers Companies


GovernmentRegulation

Historically, the legislation and regulation of insurance has been within state purview. The Connecticut Insurance Department (CID), led by Commissioner Thomas Leonardi, is responsible for licensing insurance companies, producers and others. The CID regulates insurance policy forms, rates and programs, and regularly examines insurance companies’ financial condition and market conduct. The department also handles insurance complaints.32

While regulatory authority today remains in the hands of state insurance regulators, following the financial crisis of 2007-2009, the federal government entered the business of regulating insurance with two landmark pieces of legislation.

In July 2010 President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) to avert the “systemic” risk that had marked housing and mortgage markets and helped to trigger the sharp global economic downturn. Should large insurers be deemed systemic, the new law would subject insurers to many new restrictions. Dodd-Frank also establishes the Federal Insurance Office (FIO) within the US Treasury Department to report to federal officials on the insurance marketplace. It is also hoped that the FIO becomes a singular voice for the US industry in the international arena.

Federal healthcare reform, known as the Affordable Care Act (ACA) of 2010, upheld by the Supreme Court in June 2012, gives the federal government greater oversight of the health insurance market (a more complete overview follows in the next section). At the core of the law, the

individual mandate requires all citizens to purchase insurance or face a new tax penalty. The ACA establishes new marketplace reforms regarding what specific coverage must be offered. It grants the Department of Health and Human Services (HHS) the authority to review health insurance premium increases and insurers must justify rate hikes of over 10%. And the Act’s medical loss ratio (MLR) provisions require insurers to balance benefit administration and management costs with the pay out of claims.

Despite new federal powers, state regulators still wield great control over the insurance industry. In Connecticut, Title 38a of the Connecticut General Statutes gives the state’s Insurance Department the authority “to see that all laws regarding insurance are complied with and that the public interest is protected by the enforcement of the insurance laws and all implementing regulations.”

Insurance laws are enacted by each state and the federal government has only limited authority in the supervision. With the 50 states and US territories offering different laws, uniformity in regulating the business of insurance is sometimes challenging for national and global companies.

The National Association of Insurance Commissioners (NAIC) acts as a standard setting body and regulatory support organization that establishes best practices and conducts peer reviews. States are able to coordinate activities through membership in NAIC.

However, given the diversity of state approaches and the importance of insurance to Connecticut’s economy, Connecticut is often considered the insurance leader among the states, nationally and internationally.

Despite new federal powers, state regulators still wield great control over the insurance industry.



Connecticut Insurance Commissioner Thomas B. Leonardi was interviewed by the state’s former Insurance Commissioner Thomas R. Sullivan, now a Principal in PwC’s Financial Services Regulatory Practice and Paul V. Veronneau, Hartford Advisory Leader, PwC. Commissioner Leonardi is a member of the NAIC Executive Committee.

He was chosen by the US Department of the Treasury to serve on FIO’s Federal Advisory Committee on Insurance. He also serves on the Financial Stability Committee of the IAIS and is an active participant in a number of supervisory colleges for large internationally active insurance and reinsurance groups in the US and Europe.

For 22 years prior to his appointment as Commissioner, he was chairman and CEO of Northington Partners, Inc., an insurance specialty venture capital and investment banking firm. Prior to founding Northington, he was the head of M&A and Venture Capital at Conning & Company. Prior to that, he was the president and vice chairman of the Beneficial Corporation’s insurance subsidiaries.

Veronneau: Why did you take this job?

Commissioner: We are the “Insurance Capital” and this is a very dynamic time for insurance regulation in all arenas—state, national and abroad. The incoming

If companies have an issue, we are going to be willing to sit down and discuss the problem—whether it is legislation that they would like to propose, changes in regulations or simply a different way of doing business. Increasing the speed in which we review filings and forms are some of the key examples. We have numerous meetings with the industry and industry trade groups. Consumer groups and the industry should view us as a partner so that they both feel comfortable that they have a voice and will be heard. That doesn’t mean we will always agree, but it does mean we will always listen and consider all sides to an issue.

There is that fine line between being the market policeman and regulator but you can do it in a way that allows companies and consumers to feel that they are being heard and that you are reasonable. But giving someone an inch doesn’t mean that they can take a yard. I’m finding that, with almost no exceptions, companies are very respectful of the Department and appreciate what we do. I think that fosters good corporate citizenship. By and large, companies want to do the right thing.

(Malloy) administration signaled a strong commitment to support and grow the industry and create jobs, getting Connecticut back to business after one of the most serious recessions of our time. On the federal level, the Dodd-Frank Act, created in the wake of the financial crisis, established a Federal Insurance Office (FIO) to monitor all aspects of the US industry and coordinate policy on international issues. Globally, there were ongoing regulatory conversations that could directly impact our domestic carriers and, ultimately, consumers. Health insurance was undergoing dramatic changes with the Patient Protection and Affordable Care Act. All of this—much of it unprecedented and potentially very challenging—was tremendously intriguing to me.

Sullivan: How do you strike that balance between your number one mission protecting the consumers, while at the same time creating a pro growth atmosphere for insurers?

Commissioner: The key elements are collaboration, cooperation and communication—the “Three Cs”. As Commissioner, if you are open and frank you set the tone for the Department and your staff as to how you will treat your constituents. The Department’s constituents include both carriers and consumers.

Connecticut insurance regulatory environmentThomas Leonardi Commissioner, Connecticut Insurance Department


Veronneau: What are your top three to five issues?

Commissioner: The top issues:

1. The implementation of healthcare reform. I’m blessed with an amazing deputy commissioner, Ann Melissa Dowling, who has taken on all of the healthcare and health insurance related issues. She sits as my representative on the Board of the Connecticut Health Insurance Exchange (the Exchange) as an ex officio member. We have a memorandum of understanding with the Exchange whereby we will provide support, whether it’s actuarial guidance or product design. However, we did not want to be a voting member in order to remain independent and effectively carry out our role as regulator.

2. Public transparency is another key priority. We’ve enhanced transparency and public accessibility through technology and greater use of social media. We have posted all rate requests online so an individual can read them and post comments. People want to be heard and this is a great way for people to participate in the process and be heard without having to show up at a particular place and time and feel intimidated by having to get up in front of a large audience, potentially with TV cameras and other media present. Now they can weigh in from the privacy of their home or office.

3. National and international regulatory issues are extremely important. We have a very large number of internationally active insurance groups in Connecticut. The issues being developed, negotiated and enacted globally will have an enormous impact on our companies, their employees, and ultimately on consumers everywhere. There is only a very small group of US regulators that are engaged in these issues and I felt it was imperative that I have a seat at the table to help shape these significant issues. As a result, since early June of 2011 I have traveled extensively and have now been out of the state in excess of 200 days, including more than 100 days out of the country. Obviously, this type of schedule is not very conducive to maintaining a quality life outside of work, but in addition to the incredibly significant policy and regulatory advantages to being so highly engaged, I know it has dramatically raised Connecticut’s profile as the Insurance Capital on a global scale. And I would be remiss if I didn’t also mention that none of the expenses associated with these travels—not a cent—is paid for out of taxpayer funds.

Veronneau: Can you explain to our readers why national and international leadership is so important?

Commissioner: There are two major initiatives that the IAIS (International Association of Insurance Supervisors) has been working on for more than two years: the G-SII’s designation (Global Systemically Important Insurer) process, which includes how to devise a methodology to allow regulators to identify G-SIIs and, if any are

so designated, what measures should those companies be subject to. The Connecticut Insurance Department played a critical leadership role in working with industry, other regulators, the NAIC and the IAIS to devise a way to allow for the confidential transfer of non-public data, without which the G-SII data collection would not have been successful.

The second major IAIS initiative is ComFrame (Common Framework for the Supervision of Internationally Active Insurance Groups). ComFrame is intended to improve the quality of supervision of large cross-border insurance groups by enhancing cooperation, collaboration and communication among regulators in order to prevent gaps in supervision which led, in part, to the financial crisis of 2008. US regulators and industry are wary of ComFrame’s best intentions being hijacked by certain countries’ desires to impose a global capital standard. The question of global capital standards and the role and final form of ComFrame are also significant industry concerns. On a related matter, Governor Malloy recently signed into law the revisions to the NAIC’s Model Holding Company Act (MHCA) which gives the Commissioner significantly enhanced powers to regulate large companies, including specifically, the use of supervisory colleges and the ability to demand data from any entity that is part of the insurance holding company, no matter where that entity is located or incorporated, and whether the business is insurance or non-insurance. This gives us an incredibly new and important tool above and beyond anything contained in ComFrame’s latest draft.



Veronneau: So international leadership is good for Connecticut companies and good for Connecticut consumers.

Sullivan: If there is more harmonization around the globe, the better it is for us.

Commissioner: There are points where too much harmonization can become an issue. For example, some in Europe prefer to have a global capital standard. However, in the US, we look at capital as one of many tools in the tool box that US regulators use to monitor and oversee companies. We know you cannot just rely on capital.

Veronneau: So those are your three major issues: Healthcare, Increased Transparency and International?

Commissioner: You also have to pay attention to your markets. For example the Governor and I were very appreciative last summer that all but one of the major insurers agreed to waive the hurricane deductible in the aftermath of Tropical Storm Irene because the storm was not a hurricane when it reached Connecticut. We have subsequently changed our regulations so that now, in order for companies to apply the high deductible, there has to be a named storm with a hurricane warning, and that storm needs to make landfall in Connecticut with hurricane force winds (74 mph or greater). In working with the Legislature and the Governor’s office, we can react to these types of issues to make sure that we maintain viable healthy markets for all.

Veronneau: We understand your role as regulator and consumer focus. How about efforts to enable the industry? Attracting business to Connecticut.

Commissioner: It is essential to be a fair and honest regulator, be responsive and not create unnecessary hurdles. We are trying to be effective without being difficult or distant. We are trying to work as a partner and work collaboratively with the industry because we think it ultimately benefits them and all their employees who are citizens of our state and pay taxes here. It also provides a healthy market with good products and services to our consumers.

Veronneau: Is there anything that the industry is particularly critical of?

Commissioner: You’ll have to ask them. I am sure there are issues, but I suspect that they are minor ones. I don’t think there are any major issues out there where industry is saying ‘we’re pulling our hair out and they just won’t listen to us.’ And if there is I’d love to know about it. We meet with the companies and trade associations about two weeks prior to the three NAIC meetings each year and spend time going through their agendas. Many policy issues are debated at these NAIC meetings and we want to make sure we fully understand the industry’s concerns in advance. We have done the same with consumer groups.

Veronneau: What can Connecticut insurance companies do to work better with you?

Commissioner: I think that they are doing a really good job. They are very proactive in communicating with us whenever something on the horizon may have an impact. Whether it is a proposed merger, a sale or any other piece of news, I usually get a call or an email before it is publicly announced. I don’t want to be blindsided by reading about a major announcement for the first time in the paper or on the web. So I think that they are very good about that, particularly the large companies, the newsmakers so to speak.

Sullivan: What about the federal government increasing its role in insurance regulation? Where does the federal government play in terms of how insurance companies are regulated? Give us your perspective on where the federal government can be a facilitator or an enabler to help things. And where do you think limitations around federal government’s role should be?

Commissioner: That is a great question and is one of the biggest issues I’m dealing with. The Federal Reserve has assumed the Office of Thrift Supervision’s role as thrift holding company regulator, so while that federal presence is a transfer of power that already existed I think it’s fair to say that the Fed will be more assertive in exercising its consolidated supervisory authority. We’re going to have work closely together but this new authority doesn’t change our role as the prudential regulators of the insurance entities. There are also some areas where insurance intersects with housing and banking that could be influenced by other federal agencies, such as the Consumer Financial Protection Bureau (CFPB), but those are indirect impacts and not direct regulation. There is also the Federal Insurance Office, which is a small department within the US Treasury and was created by the Dodd-Frank Act in the wake of the financial crisis. Its key roles are to monitor the industry, look for gaps in supervision and provide an international voice for the United States government on insurance matters. What it most decidedly is not, however, is a regulator, and this point has been stated repeatedly by the FIO Director and the Deputy Secretary of the Treasury. What I’m troubled by is that FIO has a very different view of what powers Congress has granted to it, one that I and many others believe is overly expansive. And I


also believe the office has and continues to overstep its authority, fails to coordinate effectively with the states before expressing views, some of which are inconsistent with what we, as the prudential regulators view as being in the best interests of US consumers and industry. FIO’s positions on global capital, solvency, ComFrame and supervisory colleges are among the most glaring and alarming examples. FIO also defends its inappropriately expansive view of its role by simply dismissing arguments to the contrary. To repeatedly say “the law is the law” as though that justifies actions that are clearly not authorized under the law is disingenuous at best. FIO also claims it is not impacted by political influence since the director is a civil servant who can only be fired for cause, (as opposed to a political appointee who serves at the pleasure of the Administration). But what FIO fails to point out is that nearly every employee at Treasury is a civil servant, that “cause” can mean a lot of things, and that the opening sentence in the section in DFA that establishes FIO specifically states that the FIO director will carry out its limited powers “ ...at the direction of the Secretary of the Treasury.” Don’t get me wrong, the FIO can and should play a meaningful role, but in my view the current track record is one of building an empire, inappropriately encroaching on the role and responsibility of the state regulator and communicating and siding more often with European regulators than with US regulators, consumers and industry.

Sullivan: Do you worry the authority of Dodd-Frank will broaden incrementally, if you will, that bit by bit, meeting by meeting, interaction by interaction, the federal government’s role will grow?

Commissioner: It is not incremental and some folks are letting it happen. My concern is the lack of coordination with the state regulators. If you are going to try to carry something out from the federal government standpoint with foreign regulators at the IAIS for example and you haven’t coordinated with state regulators, you are doomed to fail. Nothing the FIO agrees to internationally (other than “Covered Agreements”) will have any effect if US regulators and ultimately state legislatures are unwilling to adopt those measures. More importantly, what kind of signal does this send to the world at large? The US is the largest insurance market in the world with a very successful track record of an effective, national-state based regulatory system. Our Number One priority is and always has been protecting our policyholders. Obviously there’s a FIO report coming out at some point that will identify perceived gaps or problems with insurance regulation. Our system has been subject to federal scrutiny before so we’re used to this kind of attention and we think it can be a good thing, but I also think that Congress and others should be skeptical of any calls for the FIO to expand federal authority. The financial crisis demonstrates that simply shifting regulation to the federal level doesn’t necessarily provide stability or improvement, and our track record and our system compared to other regulators during the crisis speaks for itself. The burden of proof for any shifting of power, incremental or otherwise, should be on FIO to demonstrate what real problems it intends to solve in what is already a competitive and stable pillar of the financial system.

Veronneau: How important is the Connecticut insurance cluster concept?

Commissioner: I think it helps. Look at the Route 128 corridor in Massachusetts or Silicon Valley. I think there is a tipping point for economic development and we may very well be there on insurance here in Connecticut. Having a proactive Governor being accessible to the industry and saying we want this industry to grow, we value it is an important driver to our economy, is immeasurable. The industry employs thousands of people directly and indirectly in CT. There are resources here, a concentration of skilled professionals that you don’t find in many other places in the world. For example, Hartford, Connecticut has the highest per capita number of actuaries of any city in the world. You’ve got folks like yourselves who are consultants providing advice at the highest levels to our nation’s largest companies. There are law firms, systems consultants, accountants to go along with a top flight and highly professional regulatory authority. We have long been known as “The Insurance Capital,” and I think that the cluster is all about the critical mass that comes with being that. And we are trying to make it bigger and better all the time.


Federal healthcare reform

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.

The Supreme Court ruled that a core provision of the Affordable Care Act (ACA)—the requirement that every American carry health insurance—is a tax and as such, is constitutional. The ruling also permits the federal government to pursue a broad expansion of the Medicaid health program for the poor, but gives states maximum flexibility on whether to do so.

As a result, incentives for collaboration are quickening the convergence of hospitals, insurers, drugmakers, physicians and technology companies. Creation of new state and private insurance exchanges, greater pricing transparency, mobile technology and nontraditional competitors are turning the health business into a retail operation.

At the same time, we are entering an era of megapayers—the federal government, large employers and state exchanges empowered to direct business based on health outcomes. Economic uncertainty and federal budget reductions add muscle to efforts to improve efficiency, eliminate waste and constrain overall cost growth. Coordinated, integrated care, powered by richer data, continues its spread across the healthcare landscape.

The ACA could still be repealed, revised or defunded by Congress or a new administration. Despite the political uncertainty, private-sector initiatives—accentuated and accelerated by the law—are moving forward. The crucial question now is: Will health reform define your organization, or will your organization define the post reform landscape? The 2010 law accelerated changes already underway in the US health system by expanding and enforcing payment models that revolve around performance quality. Under the ACA, about 30 million more Americans are projected to secure insurance coverage by 2021, while insurers are obligated to operate under tighter controls and constraints.

The law aims to refashion core elements of the health insurance business. Prior to the ACA, insurers mitigated risk by underwriting policies at the individual and the small group market levels. Under the law, risk mitigation becomes a population-level exercise. At the core of the law, the individual subsidies and individual mandate mitigate the risk of adverse selection by encouraging a mix of healthy and less-healthy populations to enroll in the individual market and state exchanges.

When state insurance exchanges open enrollment in 2013, along with private exchanges, payers must decide whether they will compete in all or only certain exchanges and, if so, with what plan offerings. Insurers with plans in place and ready to go by 2014 will be in the best position to compete and gain market share early on. The market for individual policies is expected to explode with customers who could determine how health insurance is sold in the future. By 2021, the individual and small business exchange market is projected to grow to about $205 billion in premiums and $148 billion in exchange subsidies and related spending. Insurance companies, especially those focused on the wholesale market of employer-sponsored coverage, will have to devote considerable resources to individual policies sold on the exchanges.


With the medical loss ratio (MLR) provisions still in place, payers must continue balancing benefit administration and management costs with the payout of claims. When MLRs are too low, consumers benefit through rebates. Approximately $1.3 billion in rebates were expected to be paid out in August 2012, with $541 million going to the large group market, $377 million to the small group market, and $426 million to the direct purchase market. Since individual market membership is expected to increase under the new law, insurers should quickly adjust practices to manage MLRs, including accrual, reporting and distribution of rebates.

The growth of high-deductible health plans underscores consumers’ cost sensitivity and puts increased pressure on insurers for the most cost-effective healthcare options, such as retail clinics, e-visits and mobile health, which provide convenient primary care services. Expanded coverage will continue to reinforce trend. With physician services already constrained, physician extenders, telehealth, retail clinics and Federally Qualified Health Centers can play an important role in helping the US healthcare system meet the needs of the newly insured.

Employer market remains dominant

Insurance companies should be prepared for strategic conversations with their clients. Small companies may find the Small Employer Health Options Plan (SHOP) business exchanges an attractive option for introducing or continuing to offer insurance to their workforces. Four million people are expected to receive employer coverage through the SHOP business exchanges by 2021. Additionally, companies not currently offering health insurance may face pressure to do so since their workers must comply with the individual mandate or make a payment.

Conversely, some businesses may consider the individual exchanges an attractive alternative for their workers. Estimates vary, but small employers and firms with high concentrations of low wage workers will be the most likely to consider dropping coverage. Overall disruptions to the traditional employer market should be minimal. The nonpartisan Congressional Budget Office (CBO) projects that in 2021, about four million fewer people are expected to have employer-sponsored insurance, a 3% reduction.

While many have experience with direct-to-consumer sales in the retail market through Medicare Advantage plans, PwC’s Health Research Institute (HRI) research shows that the exchanges create huge consumer education challenges regarding eligibility for subsidies, access, benefits and pricing. Some insurance companies have already partnered with retailers and mass-market wholesalers to establish and market outreach programs for new healthcare consumers.

Government review impacts the business model

The ACA grants the US Department of Health and Human Services (HHS) the authority to review health insurance premium increases, and insurers must justify rate hikes of over 10%. HHS publicly announced that premium increases in nine states were unreasonable. The Department reports that the review program has led to a drop in proposed double-digit premium increases. With the ACA upheld, health plans must be prepared to justify increases in premiums.

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.


States

Two central elements of health reform strongly affect states: health insurance exchanges and Medicaid expansion. The Supreme Court’s decision that states cannot be penalized for not participating in Medicaid will put more decisions in the states’ hands. To date, more than $1 billion in grants has been allocated to support state exchange readiness, and the Medicaid expansion is expected to increase the federal deficit by $642 billion from 2012-2022. With 25 million individuals anticipated to buy insurance from the exchanges and 11 million people enrolling in Medicaid by 2021, the two provisions are heightening activity in states. New enrollment in exchanges

and Medicaid will generate increased need for insurance market regulation to protect against adverse selection, provide consumers with greater access, and ensure that premium dollars are spent on healthcare.

HRI analysis shows that so far, 31% of states (15 states plus Washington, DC) have made significant progress toward reform, while 37% (19 states) have made moderate progress. The remaining 31% (16 states) have done less to implement the law. HRI has identified three types of states based on their progress under the ACA: high progress, moderate progress and low progress. Progress was measured by three factors: health insurance exchange establishment, Medicaid

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.

coverage of non-disabled childless adults, and early market reform activity. State exchange establishment determined the progress level, while Medicaid/waiver coverage and early market reform activity served as differentiators within each level.

Another benefit that Connecticut may reap from the presence of the health insurance industry is better insurance coverage. In 2010, 58% of Connecticut residents had employer sponsored health insurance compared to the US average of 49%. Similarly, only 11% of Connecticut residents were uninsured compared to a US average of 16%.33 The ACA is expected to reduce the percent of residents who are uninsured to 7% in 2021.34


What will the newly insured look like?The newly insured compared to the currently insured are...

Race

...less likely to be white

Health status

...less likely to rank self excellent/very good/good

Marital status

...more likely to be single

Language

...less likely to speak English

Educational attainment

...less likely to have a college degree

Employment status

...less likely to have full-time employment

Median age Median income

Newly insured 33 166% FPL

Currently insured 31 333% FPL

White

75%

79%

Excellent/very good/good

88%

92%

English

69%

88%

Single

52%

29%

College degree or higher

14%

37%

Employed full-time

42%

59%

Sources: PwC HRI analysis for year 2021. Current Population Survey, Medical Expenditure Panel Survey and CBO.

Connecticut Health Insurance Exchange

The Connecticut Health Insurance Exchange (the Exchange) was established as a quasi-public agency to satisfy the ACA requirement described on the prior page.35 Nancy Wyman, Lieutenant Governor, is the chairman of its board of directors and Kevin Counihan, who played a pivotal role in Massachusetts healthcare exchange, is its Chief Executive Officer. The Exchange is funded by the State and federal grants. In August 2012, the Connecticut exchange was awarded a $107 million Federal Level-Two Establishment Grant from the Center

for Medicare and Medicaid Services (CMS). In September, the exchange selected its system integrator for ACA administration and its “shop and compare” portal.

Scheduled to launch in October 2013, the exchange will be a marketplace where Connecticut consumers and small businesses can buy health insurance. Its goal is to increase the number of insured Connecticut residents, improve healthcare quality, lower costs and reduce health disparities while providing an exceptional consumer experience. Federal tax credits will help individuals

and families with incomes up to 400% of the federal poverty level ($92,200 for a family of four) pay for their premiums on the Exchange.36

“Our vision for the exchange is to reduce the mystery and complexity of purchasing health insurance by providing an easier, simpler and more transparent shopping experience,” said Counihan.

Connecticut’s health insurers are busily preparing products to offer on the exchange as well as the operational and information technology infrastructure that is required to sell and administer them.


Connecticut Medicaid

Connecticut’s Medicaid program is the responsibility of the Department of Social Services. The Medicaid program provides for remedial, preventive and long-term medical care for income eligible aged, blind or disabled individuals and families with children. Payment is made directly to healthcare providers, by the department, for services delivered to eligible individuals. The program complies with federal Medicaid law (Title XIX of the Social Security Act) and regulations in order to receive 50% reimbursement from the federal government.37

Under ACA, states have three main paths to take on Medicaid:

1. Choose to expand Medicaid eligibility to 133% of FPL and receive federal matching dollars to cover new lives

2. Forgo expansion without penalty

3. Develop their own Medicaid expansion through waivers

Connecticut quickly chose the first option, becoming the first state in the nation to permanently add low-income adults to its Medicaid program under the new Affordable Care Act. Prior to passage of healthcare reform, states could only cover childless adults by applying for a waiver of Medicaid rules. These waivers were temporary and states had to meet strict criteria for approval and renewal. The Affordable Care Act requires states to cover all low-income individuals

in Medicaid starting in 2014, but also allows states to get federal funding for immediate enrollment. The Centers for Medicare & Medicaid Services (CMS) approved Connecticut’s state plan amendment on June 21, 2010. At the time, Connecticut estimated that approximately 45,000 adults would become eligible for Medicaid under this health reform expansion and it would save the State at least $53 million by July 2011. Under provisions of the Affordable Care Act, beginning January 1, 2014, the federal government will pay 100 percent of the costs related to this new eligibility group for three years. Beginning in 2017, the federal matching rate will decline gradually until it reaches 90% of allowable costs, where it will remain indefinitely.

In addition to meeting infrastructure requirements for Medicaid enrollees, states need to create environments in which consumers and their family members are aware of all eligibility requirements and understand how to navigate the system. Assuming all states participate in the Medicaid expansion, about 38% of individuals will move in and out of Medicaid and exchange eligibility four or more times between 2014 and 2018. Only 19% are expected to be continuously eligible. This constant shift, known as churn, could drive up costs and disrupt continuity of care. States can prepare for this. For example, Virginia passed Medicaid reforms that include care coordination expansion, program integrity efforts, electronic health records systems and eligibility system improvements.

Opportunity for action: adapting to healthcare reform

Health insurers are already making decisions about which markets they will pursue, how they will engage and educate new consumers, and how they will operationalize, scale and manage risk. Business as usual will pivot toward satisfying a broader scope of consumers who are faced with more choices.

Insurers need to differentiate products, services and their consumer experience. Membership retention and growth through the state insurance exchanges should be driving decision-making now. Developing a social media strategy to reach consumers could be a key differentiator and provide better understanding of consumers’ needs and behaviors. By collaborating with employers, insurers can reinforce the value proposition of employer-provided coverage related to health and productivity. Insurers should also observe developments in the retail health space and consider partnership opportunities with providers.

With the Supreme Court giving the green light to ACA, insurers need to assess their readiness to comply with federal and state regulations, medical loss ratio (MLR), and rate review. They should also take the time to understand and manage risk under the new Connecticut insurance exchange and Medicaid expansion, including how to best use technology to participate. Finally, insurers should assess payment structures and other financial arrangements with providers to support movement away from fee-for-service contracting.38


This outreach program has identified several common issues across industries, including: cost of doing business (including the cost of health, workers compensation and unemployment insurance); increasing taxes (both business and personal property); aging workforce; high utility rates; lack of mass transit; and a cumbersome regulatory process. Numerous programs and initiatives are in progress to address these issues.

One recent success story is that in October 2011, Governor Malloy convened a special legislative Jobs Session aimed at creating jobs and strengthening the state’s competitiveness. The result was a major jobs bill that included revisions to the state’s 2008 captive insurance law. The revisions expanded the types of insurance captives can transact in the state and established a special regulatory unit at the Insurance Department to focus on captives. This paved the way for an August 2012 announcement by Governor Malloy that international media and information company Thomson Reuters has relocated its US insurance subsidiary from Delaware to Connecticut. The subsidiary, Thomson Reuters Risk Management Inc. (TRRMI), is the 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 Malloy said. “The much-needed changes we made to outdated laws have done exactly what we intended—encourage and attract more business and revenue. I am proud to welcome TRRMI, and I am confident that because of the environment we have established in Connecticut, more captive insurance companies will put down roots here.”

“The Governor has made it clear from the start that Connecticut is serious about growing the industry,” Insurance Department Commissioner Thomas B. Leonardi said. “Through professional and consistent regulation, the Insurance Department will make certain that Connecticut-based captives will be noted for their quality and financial stability.”

“We’re very pleased to have formed the first Connecticut captive insurance company,” said Kevan Parekh, Treasurer of Thomson Reuters. “Connecticut is a logical place for our captive as we have a significant corporate presence in Stamford.”

“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

Economic development

The Connecticut Department of Economic and Community Development (DECD) is responsible for retaining and expanding business in the state. In their Annual Report for Fiscal Year 2010-2011, the DECD explains how their Office of Business and Industry Development has a retention and expansion plan that is organized to work with Connecticut businesses. DECD staff are assigned to outreach to targeted industries including, but not limited to, insurance and financial services, bioscience, advanced manufacturing and aerospace, digital media, green technologies and more. The purpose of this outreach is to:

• Promote Connecticut as a great place to do business.

• Inform companies of the many programs, services and business incentives the state offers.

• Develop relationships with Connecticut’s businesses and provide for an early warning/intervention system in order to assure that businesses remain and grow in Connecticut.

• Identify issues affecting the competitiveness of Connecticut businesses.



Catherine Smith, Commissioner of the Connecticut Department of Economic and Community Development (DECD), was interviewed by Paul V. Veronneau, Hartford Advisory Leader, PwC, and Susan Winkler, Executive Director, CT IFS.

Prior to joining DECD, Commissioner Smith had a distinguished career in the insurance and financial services industry. She began her career at Aetna in 1983 and held various management positions, including chief financial officer for Aetna Financial Services. Later at ING she served in numerous leadership positions including chief operating officer for ING US Financial Services, and CEO of both the US Insurance businesses.

What are the big economic development issues in Connecticut?

With nearly twenty years of stagnant job growth in the state, our biggest challenge is to get the economy moving through economic stimulus and job creation. In addition, on our jobs tour, we learned what business owners believed was getting in the way of their growth: perceived high cost of doing business.

But many sectors, in particular insurance, love the workforce here because of the high productivity, knowledge base and choice. Many have said that finding equivalent talent in New York or Boston would be much harder and more expensive.

Are there other plans to attract more insurance business to the state?

It is definitely one of our targeted areas. Insurance and financial services are the biggest industry sector in the state in terms of employment. While we have not seen much growth in insurance businesses in the state over the last several of years, we are now actively engaged in reaching out to companies to talk about the benefits of locating in Connecticut.

Over the years, some of our local headquarter companies have been bought by firms in other states or even from offshore, and that really changes the dynamic of how Hartford feels as an insurance capital. I am pleased to say that a renewed sense of leadership is emerging as we see many of the local insurance CEOs now very actively engaged in our city and state. The Governor meets with all these CEOs on a regular basis and together they are mapping out a growth strategy for the industry in Connecticut. I am very confident that we are moving in the right direction.

Connecticut attracts head quarter locations with its strong business service sector, convenient location and high quality of life.

How successful has the state been with your efforts to attract captive insurers to Connecticut?

So far, Connecticut has attracted two new firms, with more on the way. The word is getting out. We didn’t expect that we’d see lots of new companies apply instantly but there’s lots of dialogue and I am optimistic based on the long list of companies that recently attended the Captive Insurance Education Symposium on October 5, 2012.

There are a number of reasons these companies are interested in our state. The Connecticut Insurance Department has an unbelievably good reputation. I can attest to this, since I was a user of the system for many years. I knew the insurance departments in many different states and the difference in the quality of people, the turn-around time, the consistency of the way they approached problems, even in their innovative spirit to come up new product designs, their flexibility and willingness to work with you—these all stood out favorably compared to other states. Talent, cost of doing business and location are also key considerations.

Connecticut economic developmentCatherine H. Smith Commissioner, State Department of Economic Development


Any specific strategies or tactics that you can mention?

The Capital Region Development Authority (CRDA) is really important. [Established by the legislature last June, CRDA is engaged in a multi-pronged effort to attract business and bolster economic growth in the Capital area.] This organization is focused on revitalizing the Hartford downtown and will bring housing, retail and cultural initiatives to our capital.

Is there more that the insurance companies could be doing to help with economic development?

Absolutely. In the old days, insurance companies were part of every aspect of downtown Hartford. An insurance company, for example, built the Hartford 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.

More globally, we need insurance companies to grow as many jobs here as possible. We also have a major opportunity exporting our insurance knowledge and innovation. For example, I just returned from China and they are very interested in doing business with us. Our insurance commissioner, Tom Leonardi, is a leader across the world on insurance issues. It’s really important that we keep Connecticut insurers in a competitive position globally.

What can the CT IFS do better?

I think it’s really a model cluster in the state. It provides great networking opportunities and is really changing the way people are thinking about the industry, re-establishing our state as the insurance capital of the nation.


“The Governor’s vision for restoring our state’s economy through greater opportunities for Connecticut’s hard working businesses is now a reality, one that will be repeated time and again as more captive insurance companies call Connecticut home,” said Thomas Hodson, President of the Connecticut Captive Insurance Association, the state trade organization for captive insurers.

Captives are becoming fast-growing alternatives to the traditional insurance market. While captive insurance companies themselves typically do not employ significant numbers of people, they require a larger service industry that employs captive managers, actuaries, auditors, attorneys and financial analysts who specifically tailor their business for captives. The host state benefits economically from increased premium tax revenue and a potential boost of tourism dollars 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 sector, convenient location at the crossroads of the Northeast and now with its new law, the state is poised to become a critical a world-class captive domicile,” Hodson said.

Another recent success story is New Britain’s hand-and-power tool maker, Stanley Black & Decker (SBD), who announced the relocation of their captive insurer from Vermont to Connecticut in September 2012. SBD Insurance Inc. also retained Marsh Captive Solutions of Norwalk to be its captive manager.

Revenue/taxes

According to the FY 2012-FY 2013 Governor’s Budget Summary, published every two years by the Connecticut Office of Policy and Management, Connecticut’s total budget for the fiscal year ending June 30, 2012 was just under $20 billion.

Tax revenue for the fiscal year ending June 30, 2012 is not yet available, but in the fiscal year ending in 2011 just under $14 billion of the budget was funded through tax revenue. The chart below breaks out tax revenue by tax type.

Connecticut revenue by tax type (in billions)

$7.25 billion$3.35 billion

$2.34 billion

$0.75 billion

Corporation business tax

Personal income tax

Sales and use taxes

Other tax types

Source: Connecticut Department of Revenue Services fiscal year 2010-2011 Annual Report.

Insurance companies are taxed in Connecticut on the total net direct premiums received from policies written on property or risks within the State. Additionally, total net direct subscriber charges received on any new or renewal contract or policy by a healthcare center is also taxed. Anyone who purchases insurance from unauthorized insurers is also subject to tax. Unauthorized insurers are defined as an insurer who has not been granted a certificate of authority by the Commissioner to transact the business of insurance in Connecticut, or an insurer transacting business not authorized by a valid certificate. There are also several tax credits available that may be applied against the insurance premiums tax subject to an annual limitation. The chart on the following page indicates the annual insurance premium tax by fiscal year, which is included in the “Other Tax Types” section of the chart below.


Connecticut first imposed a personal income tax in 1991 at a rate of 4%. The highest marginal rate has now increased to 6.7%. The tax rate is graduated, but the lower tax brackets are phased out at specific income levels. For example, taxpayers filing jointly with taxable income over $700,000 will pay at the rate of 6.7% on all taxable income.

Unlike most states, including New York and Massachusetts, Connecticut’s personal income tax is based on federal adjusted gross income without the typical itemized deductions. The deductions permitted by other states often significantly reduce the income subject to personal income tax. Therefore, while Connecticut’s rate is lower than some neighboring states, the net Connecticut tax liability may be higher for some taxpayers due to the difference in the tax base.

The Corporation Business Tax is imposed at a rate of 7.5%. In recent years a surcharge of between 10% and 20% has been imposed on large businesses and combined return filers, bringing the rate to as much as 9%. Connecticut offers a number of business tax credits, including credits for research and development activities and fixed capital investment in the state. Companies are typically permitted to offset 70% of their tax liability with tax credits. Many Connecticut based businesses are able to substantially reduce their Connecticut liability through the use of credits.

Connecticut imposes a tax of 6.35% on sales of goods and certain enumerated services. Most states, including New York and Massachusetts, do not impose a sales tax on services or tax a very limited number of services. In contrast, Connecticut taxes a broad range of services, including many

services used by businesses, such as information technology services (taxed at 1%), business consulting services and personnel (temporary labor) services. The result is that the cost of doing business in Connecticut is higher than it would be in surrounding states, especially for companies that rely heavily on technology or other outside service providers.

Opportunity for action: A comprehensive tax strategy

The current administration has recognized that Connecticut’s tax policy was developed through decisions that were designed to address the state’s revenue needs without significant regard to the impact on Connecticut’s business environment. Shortly after Governor Malloy took office in 2011, he laid out his platform for improving the Connecticut economy. He addressed the need to improve the state’s reputation with the business community.

Connecticut insurance premiums tax by fiscal year (in millions)

FY 2008-2009

FY 2009-2010

FY 2010-2011

175 180 185 190 195 205 210 215 220200

Source: Connecticut Department of Revenue Services fiscal year 2010-2011 Annual Report.


“We need to make sure people know Connecticut is open for business… We will make Connecticut more employer-friendly by lowering the cost of doing business with cheaper energy, rational regulation and turning state government into a partner the business community can rely on—instead of the impediment it’s too often been,” said Governor Malloy.

Legal

The mission of the Connecticut Attorney General’s office is to “represent and vigorously advocate for the interests of the state and its citizens, to ensure that state government acts within the letter 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

our citizens, and ensure that the rights of our most vulnerable citizens are safeguarded.” 40 The Attorney General’s office works closely with the Department of Insurance.

During the past year, the Attorney General conducted investigations, commenced legal action and obtained settlements in the insurance and re-insurance industries. Much of the effort is currently centered on investigating and prosecuting anticompetitive and illegal practices by insurance and re-insurance carriers and brokers, whose practices included bid rigging, price fixing, steering of business to preferred insurers.

The department also includes a special Healthcare Advocacy Unit (HCAU) to assist patient and their doctors resolve health insurance disputes, including benefit coverage and payment disputes. The HCAU is also involved in health insurance company rate hearings.

While the insurance industry is sometimes the subject of the Attorney General’s investigations, the overall detection and prosecution of fraud is a shared mission. Combating fraud and abuse within the industry protects the industry and reputable consumers/businesses by maintaining confidence in the integrity of the industry and keeping costs/premiums down.



While the elections and the economy have taken center stage recently, few national issues generate more ongoing debate than healthcare. Many of the nation’s best minds are focused on reducing cost while improving patient experience and quality of care, but views on how to accomplish these goals vary widely because the issues are so complex.

Despite these issues, I believe there is reason to be optimistic. At ConnectiCare, we see a common thread in almost every interaction we have with leaders in the industry, whether they represent business purchasers, consumers, physicians, hospitals, research and development centers, regulators or health plans. There is a recognition and heartfelt belief that, to make sustainable improvements in the healthcare system, all parties will have to collaborate in ways they have never had to before. Solutions will require the best ideas and efforts that each party has to offer.

It’s with this spirit that in 2010 ConnectiCare forged patient-centered Provider Partnerships across the state of Connecticut. By means of these Provider Partnerships, we are creating improved care coordination for patients across a wide range of care settings, including doctors’ offices, hospitals and long-term care facilities. Better communication, information reporting and exchange, and workflows have aided in reducing unnecessary hospital readmission rates

with us to design and implement programs that promote healthy lifestyles and active patient engagement across their workforces. For example, our programs address Connecticut’s obesity rate, which is currently tied for the seventh lowest in the nation. Each year more employees enroll in ConnectiCare health plans designed to encourage informed healthcare decision-making. Today, Connecticut consumers increasingly expect, and are using, online tools to become more knowledgeable about wellness, cost and quality. Every day we see the can-do, Yankee spirit in Connecticut in full force as consumers of all ages take greater personal accountability for their own health and for the health of their families.

At ConnectiCare, we believe that these are unprecedented times in the history of healthcare. Business-as-usual will not sustain our healthcare system, and only those who foresee and adapt to change early will succeed in driving progress forward. We also believe that willingness exists in Connecticut for all parties to come together and think about healthcare differently. As representatives of the state’s local, caring and personal plan, ConnectiCare employees are proud to live and work in Connecticut. At ConnectiCare, we are excited to be uniquely positioned to help our home state of Connecticut move toward a sustainable healthcare future.

from 18% to 12% in a single year. This is just one of many positive outcomes we have seen from our partnerships with the provider community—partnerships that we continue to improve and expand.

Central to our shared success is an understanding of Connecticut, a unique quilt of 169 towns and municipalities that have strong local identities. The physicians and hospitals of the state have deep relationships and histories serving their communities. They know that the best solutions in healthcare in Connecticut will build on the strong foundation they have created. At ConnectiCare, we share their perspective and highly value our close relationship with Connecticut’s physician and hospital community.

Working together with physicians and hospitals, the people at ConnectiCare infuse shared values and a shared understanding of the local environment into four critical, integrated program components: clinical transformation, patient engagement, enabling informatics and aligned incentives. We at ConnectiCare are very optimistic about the future of healthcare in Connecticut.

Our collaborative approach toward healthcare also involves—as it must—employers and consumers. Connecticut business leaders, recognizing that healthy employees are essential to healthy businesses, are very active in working

ConnectiCare’s Provider Partnerships reflect collaborative approach to healthcareMichael R. Wise President, ConnectiCare, Inc. and Affiliates


Other partners/suppliersConnecticut insurers are pivotal in a vast network of partners and suppliers. Distribution networks include agents, brokers and consultants. Health insurers have traditionally, and are now mandated by the Affordable Care Act to spend 80-85% of premiums directly on providers of medical products and services. The relationship between payers and providers and their shared responsibility in managing healthcare access, quality and cost is creating some innovative partnerships as highlighted by ConnectiCare’s perspective on payer/provider collaboration.

LR&A companies partner with affinity channels, including pension plans, associations and banks. P&C partners range from proactive services like inspection and monitoring to firms involved in claims such as case managers, attorneys, healthcare providers and auto body repair shops. Reinsurers partner with primary insurers to spread risk. All insurers team with banks and asset managers to provide optimal returns on their investments.

Suppliers deliver everything from office supplies to computer systems from a product perspective. And services ranging from catering to printing, legal, consulting, telecommunications and information technology support.

These partners and suppliers, whether they are located locally or around the world, play a key role in Connecticut’s insurance ecosystem.

Competing globallyChanging economic factors have made competing on a worldwide basis a necessity for insurers in Connecticut, the US and globally. Insurers need to compete and grow on a national and international playing field with a highly distributed network of agents, brokers, employees, suppliers, governments and regulators to continue to be successful in today’s global economy.

Connecticut’s insurance landscape expands far beyond our local and national borders. Many Connecticut insurers have already grown, or are planning to grow, their business globally to gain a competitive advantage and increase market share. They are establishing international operations or obtaining licenses in various countries such as China and Singapore to sell insurance and/or acquiring existing insurers in foreign markets to gain entry to new geographic markets. Some are building strategic alliances and/or forming joint ventures to increase market reach and adapt quickly to the rapidly evolving business environment. The chart on the following page illustrates how a typical Connecticut insurer may serve its customers with a global network of partners, suppliers and service centers.

Conversely, foreign-based insurers have expanded their presence in the US and Connecticut. For example, ING acquired Aetna Financial Services in 2000 and Munich Re acquired The Hartford Steam Boiler Inspection and Insurance Company in 2009.


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.


Regardless of headquarters location, Connecticut insurers must compete on a global scale, from both a top and bottom line perspective.

Like most sectors, insurers rely upon a distributed workforce of employees and vendors in Connecticut, other states (on-shore) or around the world (off-shore) to deliver cost-competitive products and services. Business functions such as finance and accounting; human resources; application, enrollment and claims processing; call centers and software development have been consolidated into shared service centers for many years and in many cases outsourced to on- and off-shore vendors.

An estimated 80% of global top 2,000 organizations have deployed some level of shared services or outsourcing. The expectation is that these efforts 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.

Opportunity for action: Competing globally

The question is often asked: Can Connecticut compete on a global scale? The short answer is “yes” but not in all areas. In many cases, labor is the largest expense for a service delivery organization, often constituting 50%+ of the budget. Connecticut is vulnerable from a labor cost perspective. For example, the fully-loaded average hourly cost of a mid-level clerk is roughly $60 in Hartford, Connecticut, $55 in San Antonio, Texas, and $15 in Hyderabad, India. Competing with San Antonio is possible, but competing with Hyberabad may be a stretch. That is of course, unless there is a value proposition that outweighs pure labor cost. When quality, performance, governance, logistics, transition costs, education and risks are factored into the value equation, Connecticut is still an attractive location.

Regardless of headquarters location, Connecticut insurers must compete on a global scale, from both a top and bottom line perspective.


The path forward for Connecticut is clear—compete in the global arena by developing and retaining talent for the highest value and/or highest proximity jobs. The high value jobs align well with the Connecticut insurance sector’s leadership, innovation and knowledge strengths and the high proximity jobs are tethered to the state by default.

However, even well-paying jobs (e.g., lawyers, accountants, actuaries) are increasingly sent off-shore. And ever-improving information technology developments will continue to threaten proximity

norms. Therefore, it is imperative for Connecticut’s government, academia and businesses to collaborate on improving Connecticut’s macro-competitiveness drivers, such as cost of living, infrastructure and education. And it is equally important for Connecticut’s businesses to remain focused on building and maintaining world-class operations that deliver the highest value; the best quality and best performance at a competitive cost.When quality,

performance, governance, logistics, transition costs, education and risks are factored into the value equation, Connecticut is still an attractive location.

Competing in a global economy

Off-shore (e.g., India)

On-shore (e.g., Texas)

Connecticut’s competitiveness zone

•Leadership• Innovation•Knowledge•Proximity

Value (Pay for quality, performance, etc.)

Low High

Low

Pro

xim

ity

Hig

h

Growing competition

Gro

win

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Connecticut leaders hail from the state nicknamed the ‘land of steady habits’, accordingly, we are at the forefront of instilling new habits that will improve consumer driven health plans for the public and the private sector. Since Cigna41 was founded more than 200 years ago, we have strived to provide health care plans that meet the varied needs of diverse consumers.

Today, we face global health care management challenges including: aging populations with longer life expectancies; unsustainable increase in system-wide health care costs; and a rapidly growing number of people with chronic diseases. Simultaneously, we are also experiencing a trend that makes us optimistic for health improvement of future generations. More than ever, consumers are holding service providers accountable for delivering easy to access, high-quality and tailored customer experiences that motivate them to sustain their well-being at an affordable cost.

Cigna is dedicated to helping the people we serve improve their health, well-being, and sense of security. Our global forecast includes:

• Making health care more accessible to more individuals at affordable rates

• Building on consumer insights to produce more tailored and culturally sensitive solutions

Another of Cigna’s collaborative initiatives with physicians and consumers is our accelerated creation of accountable care organizations. These health care delivery teams use evidence-based standards to provide a better customer experience with improved health outcomes at reduced costs. Early results demonstrate that successful groups have included implementation of an embedded care coordinator role. Embedded care coordinators get in touch with customers Cigna identifies as possibly being at risk at time of hospital discharge or having potential gaps in care. Higher risk customers are afforded expanded access to care with more urgent care appointments and weekend and after-hours care which lowers ER visits, and are preferentially referred to specialists identified by Cigna as higher quality and lower cost.

With Connecticut leadership know-how, global input, and innovative resources, we strive to continue living up to our home state’s nickname ‘the land of steady habits’ by continuing to improve the health, well-being and sense of security of those we serve.

• Helping families more easily navigate how to design and proactively use their own health care benefits

• Building preferred relationships with even more physicians and hospitals

• Coaching services to help individuals meet their goals for behavior change

• Participating in selected networks of health care professionals, dentists, and community resources

• Empowering consumers and employers with financial options for their desired health plan

While there is much innovation ahead of us, working with diverse consumers around the world we have taken the lead in designing and using online tools that offer actionable solutions for customers to use on a daily basis—tools that have earned us InformationWeek Top Innovator Award designation. Our “Find Doctors and Services” search engine enables customers to assess medical costs for 200 common medical procedures. This unique tool offers estimated pricing for specialist, facility and related fees, according to the real-time status of individuals’ health plan deductibles and co-insurance, as well as their available health spending account funds balance—all before choosing their physicians. Our forecast incorporates new 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.

Pioneering innovative customer-centric global health services Matt Manders President, Regional and Operations, Cigna Corporation



The economy is changing at lightning speed. Is insurance keeping up? How can we increase the relevance of the P&C industry to the companies and lives of our clients?

The macro numbers aren’t our friend. Over the past decade, despite the Great Recession, global GDP has risen at an average of about 3.8% a year. During the same period, P&C global premiums grew at about 2.5% a year. Great news. Except when you look at our contribution to global GDP. This has dropped from 3.4% in 2002 to 2.8% in 2011. On a purely economic level, we aren’t keeping pace, and the value we add to the economy is declining.

Now, you could assign a lot of causes to this decline. But for me, the overriding concern is our industry’s failure to innovate as fast as the clients we serve. This becomes particularly clear when looking at the great drivers of business and social change: the continuing need for reliable sources of energy, the explosion in technology—especially mobile technology—and the dramatic and increasing global economic interconnectedness.

Energy

At the end of 2011, the largest US-listed P&C companies had shareholder equity of $176 billion. The largest US energy companies had shareholder equity roughly five times that—at $821 billion. So, crudely put: “Why do they need us?” If we seek to be relevant to energy and other large,

news that there are significant supply chain linkages in the global economy. The risks have long been there. But what are we doing to address these risks? The reaction from the industry so far has been to exclude coverage while we figure things out. When we do that, we provoke our clients to figure out the risks on their own, and we’re further pushed to the side.

So what do we do? First, we need the best minds on our toughest problems. We have to challenge our tendency to put talent towards the most reliable businesses. Second, we need to stop clinging to long data sets. In the time it used to take us to get comfortable with a product, whole industries now will come and go. We must push ourselves to take appropriate risks.

And third, we need to let go of traditional methods. We must search for the parallels—the adjacencies—and use the data available to us. We must use analytics in new and powerful ways to understand risk.

All in, I am supremely optimistic that the industry will overcome these challenges and that XL will lead the way. The opportunities are too great to ignore, and we’ve risen to the challenge in the past. XL’s own founding is a testament to our ability to innovate. We’re tangible evidence of a determination to move forward.

complex companies, we need insight and innovation. And the opportunity here is not only to manage the risks of traditional energy providers but also to unleash human progress by accelerating the adoption of cleaner, alternative sources.

Technology

Technology is changing entire categories of activity. In 2010, there were 1.15 billion smartphone subscribers globally. By 2020 there will be 4.3 billion. But insurance is largely not present in this dynamic. While we’re fantastic at insuring physical things—atoms—we’re not yet great at insuring bytes. But we are making progress. And the recent expansion of XL’s cyber teams demonstrates that we are thinking about this correctly. Yet, it’s estimated that only 28% of companies purchase such insurance. What about the other 72%? They don’t think they need it? They’re willing to run the risk? Maybe. Or maybe as an industry we haven’t made our products responsive enough to their needs.

Supply Chain

Recent events like the Japanese tsunami and Thailand floods showed what happens when global economic chains and links break down. The disruption of the production of a small automotive part in Japan, which retails for $90, caused manufacturers to cut production and halt assembly lines around the globe. The floods in Thailand led to a worldwide increase of at least 10% in the price of computer hard drives. It’s not

Making the P&C industry more relevantMike McGavick Chief Executive Officer, XL Group plc


Looking ahead—insurance 2020

Strategic opportunitiesAlthough the future may be hard to predict, insurers in Connecticut can prepare for the tough new business, investment and regulatory environments emerging from the financial crisis.

The industry, however, also faces far broader challenges. Demographic shifts, the rise in power of the emerging markets and changing customer behavior will all help shape the sector in the long-term.

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.

How will Connecticut insurers fair? It depends upon their ability to navigate the strategic drivers outlined below. Based on the executive perspectives included throughout 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.


Strategic drivers and factorsWe have explored the global social, technological, environmental, economic and political factors to identify 32 factors that we believe will impact the Connecticut insurance industry (see Figure 1). Not all STEEP factors will affect insurers positively. Economic growth, for example, in the short-to-medium term will be stronger in emerging economies. Forward-looking insurers in developed countries, however, can still grow in their local markets by exploiting socio-demographic and technological trends, while at the same time targeting emerging markets for growth. Similarly, insurers from emerging economies have an opportunity to reshape insurance products for their local markets while expanding on the global stage to build their technical expertise.

Although no one can predict exactly what changes will occur in the next decade, we believe five key megatrends will influence the state’s insurance sector:

• Social: The balance of power is shifting toward customers

• Technological: Advances in software and hardware that transform ‘big data’ into actionable insights

• Environmental: The rise of more sophisticated risk models and risk transfer to address the increasing severity and frequency of catastrophic events

• Economic: The rise of economic and political power in emerging markets

• Political: Harmonization, standardization and globalization of the insurance market

STEEP drivers and factors

SocialCustomer behaviors•Social networking •Customer expectations •Risk awareness•HealthTalent drainStakeholder trustCorporate social responsibility

Demographics shifts•Dynamics of the middle class • New family structure• Dependency ratio •Aging

Technological• Information & analysis•Devices & sensors•Software & applications•Medical advances

Environmental•Climate change & catastrophes•Sustainability•Pollution

Political•Regulatory reform•Geopolitical risk•Rise of state-directed capitalism•Terrorism•Tax treatment•Sharia compliance (Takaful)

Economic•Urbanization •New growth opportunities •Fiscal pressure • Inflation/deflation •Risks sharing & transfer• Social security & benefits•Distributor shift•Partnerships

Source: PwC analysis


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 predominantly seeking face-to-face interactions with intermediaries.

Distribution disruption in which multiple channels compete for customer interaction.

Distribution disruption where integrated multichannel interaction is the norm.

Distribution destruction, where customers buy directly from carriers.

Distribution destruction, where self-forming groups of customers negotiate bulk purchases from carriers.

Technological Insurers face increased data overload, quality and privacy issues, and cyber threats, resulting in a regression to ‘gut-driven’ decision-making.

Insurers continue to manage information overload and ever-increasing sophistication of analytical techniques that require ongoing investment to keep pace with competitors.

Sophisticated information analytics becomes the key determinant of competitive differentiation, which underwriting talent magnifies.

Sophisticated information analytics, new sources of information (from mobile sensors), and underwriting talent become the key determinant of competitive differentiation.

Sophisticated information analytics progresses to a point where no more useful information can be extracted and all key decision-making has been automated; competition shifts to prevention and productivity gains.

Environmental With catastrophic events on the rise and insufficient data to accurately predict them, insurers will exit unprofitable areas.

Insurers will continue to rely on catastrophe models, but regulatory restrictions will prevent them from restructuring innovative risk transfer/sharing deals.

Insurers will continue to rely on catastrophe models and sell innovative catastrophe insurance products through securitization and reinsurance.

Catastrophe modelling gets more sophisticated and uses advanced, early warning technologies to underwrite in specific, catastrophe-prone areas.

Advanced early warning technologies and new risk transfer/sharing mechanisms with public and private enterprises reduce human and properly loss from catastrophic events.

Economic The world moves from globalization to regionalization and insurers operate in and create products specific to narrow boundaries.

Emerging market insurers grow in scale and importance, and limit opportunities for developed market insurers.

As developed market insurers enter emerging markets, margins in theses markets decline.

New emerging market insurers move into developed markets and become global businesses.

Truly global markets with products that are able to integrate multiple parts of the value chain, regardless of location.

Political Governments in both developed and emerging markets enforce equally burdensome regulations on insurers decreasing their profitability.

Emerging markets erect more onerous regulations than developed markets’ decreasing profitability and limiting control of developed market insurers.

Majority of regulations focused on banks, and insurers in developed and emerging markets are able to get away with minimal regulatory changes to pricing, coverage, rates and reserves.

Emerging markets and developed markets enact less burdensome regulations and emerging markets relax their regulations to ease the entry and control of developed market insurers into emerging markets.

The regulatory climate improves with greater harmonization across countries (and within states in large countries). Regulatory harmonization leads to standardization across products and practices.

Source: PwC analysis



Over the next 17 years, 10,000 Boomers a day will turn age 65.42 At the same time, people are living longer. Today, a 65-year-old man can expect to reach 82, and a woman 85.43 In many ways, this is welcomed news. It can mean more time to enjoy retirement or to spend with family and friends.

However, the aging and increasing longevity of our population can also mean various financial risks for individuals. Lincoln Financial Group, a member of the Connecticut Insurance and Financial Services Cluster, helps consumers sustain their financial independence so they may embrace the future with more confidence.

One of the prime areas to watch as the population ages is retirement savings. A recent study by the Center for Retirement Research at Boston College projects that at age 66, Social Security’s current full retirement age, only 55 percent of house-holds will be prepared for retirement.44 When taking into account aging and longevity, retirees are faced with stretching these same assets over a longer period of time, and keeping pace with inflation longer. Compounding this is the scarcity of traditional defined benefit pension plans today, and an uncertain future for Social Security—two vehicles that people have historically relied on as sources of predictable income throughout retirement.

Lincoln offers options to help individuals combat the costs of long-term care including universal life insurance policies with optional long-term care benefit riders. These hybrid solutions provide an alternative to self-insuring, and can help policy holders protect their portfolio or retirement income, by creating a pool of dollars available to reimburse qualified long term care expenses such as nursing home care, home healthcare, or assisted living. If long-term care is never needed, a tax-free death benefit can be passed onto beneficiaries. Or, if the policy holder changes their mind, some options offer a money back guarantee. This flexibility and asset control make these products potential options for addressing the long term care expenses so many of us will face.

The Boomer phenomenon and increasing longevity create tremendous opportunity for the Insurance and Financial Services industry as clients seek more security in their financial products. Lincoln’s annuity and hybrid long term care options cited above are just some examples of the types of solutions we provide to serve the evolving age demographics of our society. In addition, we offer life insurance, group benefits, 401(k) and 403(b) plans; and comprehensive financial planning and advisory services, helping individuals take charge of their financial future.47

At Lincoln, one way we help consumers is by offering a diverse portfolio of annuities. These tax-deferred, long-term savings vehicles are designed to grow and protect money leading up to retirement, and then turn that money into an income stream that is guaranteed to last for the rest of an individual’s life, regardless of the age they reach. Lincoln has maintained a consistent market leadership position in the annuity space, and with only 8% of America’s investable assets currently in this product class, we believe there is tremendous opportunity for annuities to help meet the demand for lifetime income solutions.45

Another significant financial risk presented by the aging and longevity of our population is long-term care needs. About 70 percent of people over age 65 require some type of long-term care services during their lifetime.46 While long-term care may come in different forms, the high costs are nearly inescapable. As an example, the average cost for a private room in a nursing home is approximately $92,000 per year. Someone who chooses a home health aide pays an average of $20 per hour. Clearly these costs have the potential to diminish personal savings of the affected individual or family members who often assume the expenses.

Lincoln Financial Group empowers an aging society to sustain financial independence Mark Konen President, Insurance and Retirement Solutions, Lincoln Financial Group


SocialBalance shifts toward customers

New and ongoing social trends will shake up traditional business patterns in the insurance industry, increasing consumer power:

Customer expectations: Customers (consumers and businesses) are increasingly demanding simplicity, transparency and speed in their transactions with businesses, including insurance agents/advisers and carriers. The relentless march of online and mobile technology is continuing to fuel this change in customer expectations.

In a recent survey of US consumers, more than 32% of all respondents—and 50% of those aged 18 to 25— said they prefer to work directly with insurance carriers.48 This ‘push’ toward direct interaction will continue across both personal lines and individual life insurance sectors. In addition,

the online world is also becoming increasingly mobile as smartphone and tablet use increases and fuels the demand for localized information, available anytime, anywhere. By 2014, for example, the number of mobile Internet users is expected to overtake desktop internet users.49

These changes will substantially impact the insurance sector:

• More and more insurance will be ‘bought’ by customers as opposed to being ‘sold’ by agents, destroying the age-old wisdom of ‘insurance is sold and not bought.’ This fundamental shift will force insurers and agents to re-examine their roles in the insurance value chain and become more relevant to the consumer or business.

• Customer expectations of simplicity and transparency will foster innovations in product/service design and delivery. Leading insurers should become proficient at targeting customers and customizing product and service attributes to meet their specific needs.

• Customers demand for mobility and speed of service will require firms to invest in mobile and interactive technologies for multimedia content creation and distribution as well as develop more capabilities across multiple digital platforms.

New and ongoing social trends will shake up traditional business patterns in the insurance industry—increasing consumer power.

The evolving model of advice, sales and service

Customer

Call center

Partner/whitelabel website

Website

Mobile apps

Mobilewebsite

Socialmedia

Customer

Broker

Aggregators/online

intermediaries

Source: PwC.



Many older workers have no pension or have very little saved for retirement. What can we do—as an industry—to make sure that the Baby Boomers still working, and every generation afterward, can achieve a secure retirement?

Only 14% of Americans are very confident they will have enough money to live comfortably in retirement, according to the Employee Benefit Research Institute. As an industry, we spend $1 billion every year on communication and education over the lifetime of a participant, but we can only attribute a 2% uptick in savings rates because of this and still only a 70% average participant rate.

There are many reasons for this:

• People don’t understand the value of saving early. Let’s face it, despite the anxiety Americans have felt since the economic decline, we still live in a “spend and debt” society rather than a “save and invest” society.

• Many people don’t understand what it all means. Financial planning, investing and the myriad of choices are complicated.

• Those who have elected their defined contribution (DC) plans have seen their balances come and go as the market continues to fluctuate. Some of those people are running scared at the worst time and exiting their plans or investments at the low point.

As an industry, there have been positive changes.

• Fiduciary safe harbors have provided the impetus for more plan sponsors to take more steps to put their participants on the path to retirement security

• Adoption of the auto-enrollment and auto escalation features are on the rise among the thousands of plans

• The increasing adoption of in-plan guaranteed retirement income features—a fairly new concept in the marketplace

• The benefits of asset allocation solutions in terms of diversifying risk

There’s much more we can do. There’s no doubt it will take the entire system—providers, advisors, government and plan sponsors—to enact the amount of change that must occur.

People want a check every month with the security and a guarantee of income. That behavior may never change. Pension plans guaranteed security. Employees didn’t think of pensions as part of their compensation as much as they just assumed financial security would be granted at their retirement. Employees also didn’t need to think about the underlying investments and the costs associated with managing a defined benefit (DB) plan. The transition toward DC plans, which put the onus on employees to make contributions, asks workers to make decisions they never made before. As companies opted for DC plans over DB plans, workers had to change their behaviors, to be investment savvy and choose to enroll in these plans.

We can’t wait any longer to change what’s not working. We need make sure every worker gets a steady paycheck, based on their hard-earned income, during their retirement. We have to stop waiting for someone else, and maybe even someone who doesn’t fully understand the implications of their edicts, to make the decision to make positive change.

DC plans remain an important savings and investment vehicle for employees, a strong foundation for a future solution. In the past 10 years, we have seen a more intense focus on improving retirement saving through employer-sponsored plans.

Saving for retirement Christine Marcks President, Prudential Retirement


goals. “Building connections among people with similar health challenges gives us a much better shot at helping them achieve their goals,” said Meg McCabe, Aetna’s head of consumer solutions.50

As consumers become even more comfortable with social networks, several scenarios are likely to develop:

• People exchange more personal information and start building networks of trusted friends, family and acquaintances, shifting the balance of trust from insurance agents and advisers to online communities.

• Online social networks wielding substantial purchasing power become new group insurance channels, benefiting from information-driven online intermediaries.

• Eventually, online social networks pool consumers and enable self-insurance, changing the role of insurers at a primary level from product manufacturers to administration service providers.51

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.

Social networks: Evolving social networks will continue to empower both consumers and businesses to communicate more transparently and to harness the buying power of virtual communities. Social networking will also help shift the balance of power toward customers. In just six years since its launch, for example, Facebook has attracted over 800 million users.

According to PwC’s consumer survey of 1,060 US adults, about one-third are using the social media/networks as a natural habitat for health discussions. The survey conducted by PwC’s Health Research Institute found social media converts among major health insurers, including Aetna. For example, last year Aetna partnered with a social media company to offer members Life Game, an online social game to help people achieve personal health and wellness

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.



The rapid pace of change in technology and mobile communications continues to transform the way in which consumers spend their time—working, purchasing, entertaining themselves and making decisions. Like other sectors, the Retirement industry has been tapping into this change to better connect with customers and remove the barriers that have been historically preventing them from saving enough. As one of the nation’s leading retirement providers in both the institutional and retail markets, ING US understands that comprehensive retirement planning can be complicated for most people. The responsibility that Americans have today to finance their own retirement keeps growing, yet the average person has little time or attention to spend on this very important undertaking.

In order to inspire successful saving, the industry has to change its approach. For example, many people value choice, yet too many options can be overwhelming. They also value control, yet often need and want help understanding what to do. Through new technology and communication strategies, the goal is to educate and motivate people by reaching them when and where they want to talk, learn and act. This concept has lead to developing “personalized” methods of communication, researching and applying behavioral finance concepts, and harnessing the power of Smartphones and mobile devices.

And finally, games have become the most popular apps—they are the #1 Smartphone download among all age groups and continue to grow. We’ve recognized how games can help advance financial literacy, and we recently launched a free game app that teaches players about fundamental financial concepts and terms in a way that may more effectively engage them.

These are just a few of the ways in which we are leveraging the power of technology and translating it into personalized tools that can inform, engage and inspire positive savings action.

Within the past year, ING US Retirement launched a program that promotes easy, immediate participation in workplace retirement plans using tablets and mobile devices during employee enrollment meetings. By providing instant access to an online enrollment center, employees have the convenience to join their employer’s plan when they’re at their highest point of engagement. This is helping to overcome one of the biggest hurdles they face with saving—human inertia.

For many of our large corporate plan clients, we’ve been creating micro-websites with personalized URL messages, or “PURLs.” This technology delivers personal data directly to an employee that illustrates a future outcome of an action they could take today—such as enrolling in their plan or increasing their savings rate. Our research has shown us that when you can provide this level of personalized communication, positive action increases.

To support the rapid pace of technology and Smartphone adoption, we also recently introduced a new mobile retirement plan account application for mobile devices. The app allows an individual plan investor to quickly check their retirement balance and relevant account information, such as their personal rate of return.

Technology, communication and the “personalization” of retirement saving Maliz Beams Chief Executive Officer, ING US Retirement


Technological‘Big data’ offers competitive edge

As the insurance industry becomes more productive through automation, new technologies are significantly enhancing operational efficiencies, increasing revenue opportunities and improving the customer experience. Important new technological developments include:

• Growth in smartphones and tablets, coupled with cloud computing, provides consumers with constant access to the Internet

• Explosion of computing power and storage, enabling the accumulation and analysis of extremely large amounts of data

• Progression of active sensors and devices connected to the Internet

Big data: The growth of Internet-connected devices and sensors, which are projected to reach 50 billion by 2020 will have a significant impact on the availability of real-time information—a trend known as ‘big data.’ Insurers who can exploit this information for better pricing, underwriting and loss control will have a distinct competitive advantage over their peers.

To harness the ‘big data’ trend, global investment in advanced analytical techniques is seeding the capabilities to process large volumes of unstructured and multimedia data, such as continuous real-time video, life blogging and social chatter. These advances will lead to software—and eventually hardware—that can translate ‘big data’ into actionable insights.

Advances in Artificial Intelligence techniques, such as machine learning, natural language understanding and intelligent decision-making will allow insurers to advance from using technology for transaction processing to decision-making. Today, analytical techniques are used for making ad hoc decisions using structured data.

By 2020, the use of unstructured data (e.g., social media, devices, video and audio) will complement structured data, allowing insurers to make strategic forward-looking decisions.

From a reactive to a preventative business model: Commercial insurers have paved the way for using connected devices and sensors to develop risk and loss management and improve productivity, a path we also envision for life and health insurers.

Tapping into rich new sources of data

Multimedia

Business intelligence

Operational data

News and marketsText

Social media

EverydayCommunication

Patterns generated by phones, appliances

and other devices that can provide insight into

events and habits

Conversations and images that improve customer experience through captured attitudes and beliefs

Economic trends and global events that impact investments and buying habits

Data captured through business operations waiting to be enhanced with unstructured data from the outside world

Sentiment , relationships and preferences that

consumers broadcast daily

Untapped business knowledge hidden in documents and emails

Source: PwC.



Strategic and tactical decision-making has always been a core competency for the most successful companies in the insurance industry. The ability to thoughtfully leverage data, information and analytics is becoming increasingly critical to effective decision making. This trend is driven by three key influences: improvements in computing power and technology, increased data availability and advancements in analytical capabilities.

Those companies that can gather and analyze the massive amounts of data available from both internal and external sources—and use it to efficiently address opportunities in the market—will be well-positioned to respond to the hyper-competitive marketplace. According to Celent’s Data Mastery Spectrum Overview 2012, “Data analytics is evolving, and insurers that can best leverage both their internal and external data will be the leaders by 2020.” A company’s competitive advantage lies in leveraging data as a strategic asset to move first or move smarter.

Improvements in computing power and technology

The fast evolution of technology has given us more cost-effective data storage options and increased computing capacity, resulting in great availability of data, rapid access to information and powerful analytical tools, employed through concepts including

In addition to leveraging company-owned data, the availability of, and opportunity to leverage, third-party data have also increased in recent years. A few examples of utilizing this data within the insurance industry include:

• Geospatial data helps an underwriter identify an insured’s location on a map, in relation to certain hazards. Compared to other data sources, this information enables a more refined concentration of risk analysis. In addition, geospatial and weather data can help streamline catastrophe management resource deployment to reach customers as quickly as possible

• Automobile and home telematics systems are now commonplace, leading to increasingly sophisticated, automated underwriting and pricing applications

• Supplemental external data based on the current economy, such as medical cost trend or used-car prices, can help increase understanding of economic impact on insurer results

• Information collected from social media channels and digital commerce, while vast and unstructured, can provide predictive insight and added intelligence to traditional business transactions and consumer, business and social trends. Frameworks and tools to collect and analyze this unstructured data are being quickly adapted and adopted across all industries due the large amounts of data generated from these online sources.

virtualization, internal and external clouds and grid computing. The consequence is a vast amount of new data sources, or “Big data.”

Big data presents a big opportunity, especially given increased capacity for storing and managing it. Just as Moore’s Law predicted that the growth of computing power will double every two years, the research company IDC believes that between now and the year 2020, the amount of data available in the digital universe will grow by 35 trillion gigabytes. In 2011 alone, the amount of digital information created and replicated surpassed 1.8 trillion gigabytes—growing by a factor of nine in just five years, according to IDC. That’s on par with the number of stars in the physical universe.

To put another perspective on this, in 2015 global mobile data traffic flow over the Internet is expected to reach 6.30 exabytes per month, according to a Cisco estimate. One exabyte is the equivalent of 10 billion copies of a regular printed weekly news magazine.

Increased data availability

Advancements in computing power and technology noted above help position companies to better capture, store and manage their own data. This can lead them to discover insights and information that were previously unavailable.

The importance of data, analytics and models to the current and future success of property and casualty insurersMichael Klein Senior Vice President, The Travelers Companies



Advancements in analytical capabilities

Quantification tools built on massive amounts of historical information have gained popularity among underwriters, as these tools allow them to easily organize, manipulate and analyze data to gain greater insight and understanding. More advanced insurers are also accessing real-time data for dashboards and analytics to have a more immediate positive impact on business performance. According to the SAS Corporation’s Harness the Power of Data Visualization to Transform Your Business 2011 Executive Report, “Savvy insurers are moving beyond static graphs, spreadsheets and reports by harnessing the power of business visualization to transform how they see, discover and share insights hidden in their data.”

Data, analytics and advancements in modeling are the “secret sauce” that can change the competitive position for an insurance company. The insurance company that can best harness the power of new developments in analytical and statistical techniques, combined with effectively collecting and organizing data will reap the benefits of better-informed decisions.

Perspectives

Analysts perceive the ability to leverage data and information as an advantage. In a Travelers second quarter 2012 earnings post call, an analyst commented on the importance of granularity stating, “To the extent that [a company] can precisely target its least profitable accounts for the biggest rate increases, it’s in a win-win position. If the account stays with [the company], it’s priced more appropriately, and even if the business moves, the underwriting margin benefit to [the carrier] is compelling.”

Industry observers agree. According to MWD Advisors’ Unlocking Business Intelligence with Collaboration May 2012 Report, “The ability to make good business decisions fast is central to every organization’s success, and continuous learning about what works and what doesn’t is key to keeping ahead as the business world gets ever more complex.”

The ultimate goal in data analytics for the insurance industry is to get those insights to the right people, at the right time, to support the most effective business decisions. The companies that can most effectively process and apply data, information and analytics will win the race.


Commercial insurers have always focused on loss control and risk management, but that trend will deepen and expand into other lines of insurance. Personal and life carriers will be able to move from passively identifying and pricing risk and reactively paying claims to proactively using ‘big data’ and actionable insights to reduce losses and better manage risk. For life and health insurers as well as annuity and retirement income providers, monitoring devices could significantly extend life expectancies and increase the number of years of active retirement life.52

Strategic decisions—from structured to unstructured data models: Historically, the insurance sector primarily used internal data in a structured format to make tactical and operational decisions on customers to target, how to price the risk, how

to estimate the losses, etc. However, in the next decade the industry will increasingly use large amounts of real-time sensor data, unstructured data from social networks, and multimedia data such as text, voice and video. As sophisticated artificial intelligence techniques evolve, insurers will start using this unstructured data for forward-looking strategic decisions such as which product or solution is most suited for a client given their current and future situation, which emerging countries to enter as well as when and how proactively to manage customer experience to enhance retention of the most profitable customers. Insurers who are able to use real-time ‘big data’ and advanced forward-looking simulation techniques will establish a significant competitive advantage. In a recent survey, 49% expect new sources and techniques in the use of data analytics to be the key competitive differentiator.53

“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

By 2020, many nano-scale biotechnologies will be available to embed devices and sensors unobtrusively within the human body. The nanotechnology drug delivery market is expected to grow at a CAGR of 21.7% between 2009 and 2014, and reach almost $16 billion by 2014. Such nanotechnologies have the potential to dramatically improve health outcomes through enhanced monitoring and preventive control of chronic disease.

As the medical service and treatment model evolves toward the customization of healthcare, the resultant decrease in morbidity and mortality will have a profound impact on life and health insurers. Consumers will eventually use personalized medicine to create highly customized healthcare solutions that actively change the body’s biochemistry in response to risks and conditions unique to each person. We anticipate that these medical advances will 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.



Would it surprise you to know that there is a vast and virtually untapped source of energy available for business, industry and homeowners? Energy conservation and more efficient equipment could save billions of dollars, reduce greenhouse emissions, and improve energy independence. The challenge is specifically how to reduce energy consumption.

Money invested in conservation and efficiency brings big rewards. That’s particularly true in the United States, since the economy is built on cheap energy, driving historically less efficient use of fuel. Improving equipment efficiency in the home and workplace is critical as we develop new and sustainable energy sources.

The potential for savings is enormous. In its study, “Unlocking Energy Efficiency in the US Economy,” McKinsey & Company estimates that by 2020, $1.2 trillion in energy savings could be realized for a net cost of $520 billion, reducing energy consumption by 23 percent. This is an immense economic opportunity that can enable American businesses to become more competitive and profitable and help households and families save for other priorities. However, to achieve those savings, nearly 100 million buildings and billions of machines and powered devices would need to be touched.

McKinsey estimates this could save homeowners as much as $65 billion. Other savings, which would require some investment but require no technological breakthroughs, include weather proofing, additional insulation and stronger efficiency standards in building codes for new construction. Yet, while homeowners want to reduce their energy costs they don’t know how to achieve it. In response HSB developed a web-based service platform that is designed to help homeowners calculate their home’s efficiency, understand how to operate their homes more efficiently, reduce their utility bills and cut their energy costs.

HSB’s efforts to improve energy efficiency and lower costs are one example of how the insurance industry is helping to change the energy landscape. Our parent company, Munich Re, which was ranked the world’s “greenest” company by Newsweek magazine, is recognized for its efforts to combat climate change through innovative projects, climate research, and insurance coverage that promotes climate protection technology. Together, Hartford Steam Boiler and Munich Re are working toward a more sustainable energy future.

Property-casualty insurers are in a position to help their policyholders achieve greater energy efficiency and savings. For instance, while performing more than 500,000 inspections at over 250,000 locations in the United States each year, Hartford Steam Boiler makes recommendations to help our commercial customers improve energy efficiency.

Many of our recommendations are simple, require minimal or no expense, yet can provide immediate and sustainable savings, such as improving equipment selection, operation and maintenance, or switching fuels or electric power providers. When the typical business spends four to five times as much on energy as it does on insurance, even a modest reduction in energy expense goes a long way toward delivering value on their insurance spend.

As for families, every dollar counts. McKinsey calculated that the 129 million US homes could save a collective $395 billion through improved energy efficiency and lowered energy consumption. Some of these savings are easy to achieve: turning off appliances or devices not in use or making full use of the energy saving features of modern home systems.

Tapping a neglected supply of energy Greg Barats President and Chief Executive Officer, Hartford Steam Boiler Inspection and Insurance Company


Increased severity and frequency of catastrophic events overwhelming insurers vs 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.

Insurers must also consider man- made degradation of the environment. Increasing energy consumption and associated atmospheric pollution will directly impact carriers’ risk exposure. The US Energy Information Administration, for example, predicts world energy consumption will grow by 49% between 2007 and 2035.56 With continued fossil fuel use, pollution will remain a significant health issue, threatening the well-being of populations in both developed and developing countries. Life and health insurers will need to closely monitor trends in atmospheric pollution to accurately assess risk in different regions.

Environmental measures will help mitigate the most serious consequences. Renewable energy sources are projected to account for 23% of electricity by 2035.57 Increased consumer investment in sustainable solutions (e.g., solar panels) will gradually create new modeling and pricing risks for P&C insurers.

Managing these types of risks will require insurers to be more sophisticated in their risk modeling and innovative in structuring risk-sharing and risk-transfer deals. Catastrophe modeling will become more sophisticated and use advanced, early warning technologies to underwrite in specific, catastrophe prone areas. Insurers who fail to keep pace with this increasing sophistication might be forced to exit markets in certain coverage areas, such as those prone to flooding or forest fire.

EnvironmentalCatastrophic events heighten risk factors

The severity and frequency of catastrophic events, both natural and man-made, have been increasing over the past 20 years. Between 1990 and 2009, hurricanes and tropical storms accounted for 45.2% of total catastrophe losses.54 The rate and intensity of these storms is predicted to increase with global climate change. A large portion of claims payouts result from business interruption coverage losses—in the Chilean earthquake, for example, over 50% of claims were filed for business interruptions and extra expenses.55


EconomicEmerging markets change dynamics

The increasing attractiveness of the emerging markets, combined with uncertain growth in the developed world and stricter regulatory guidelines, will make insurers re-evaluate their strategic goals toward developing countries.

The E6 countries’ (China, India, Brazil, Russia, Indonesia and Mexico) proportion of global GDP has been increasing over the past 20 years, and the liquidity and debt crunch precipitated by the financial crisis of 2008 continues to affect developed

economies far more than emerging ones. It is estimated that the E6 will contribute 47% of Global GDP growth between 2006 and 2020, while the G6 will contribute less than 24% during the same period (see Figure 3).

Several factors are contributing to the ongoing shift from a world dominated by developed markets to a world in which the majority of growth is in emerging markets:

• In the developed world, the old outnumber the young. In emerging markets (except China) the working-age population will continue to outnumber the 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

UK

Germany

France

Canada

Japan

0 5 10 15 20

China

India

Brazil

Russia

Indonesia

Mexico

0 5 10 15 20 25 30 E6 G6 Other countries

23.6%

29.1%

47.3%

Source: Economic Intelligence Unit, Foresight 2020

• The rise of the middle class in emerging markets is fueling increased consumption, which is leading to impressive small business growth.

• Government infrastructure investment, population growth, new businesses and wealth creation are driving growth in construction, land development, energy and transportation sectors, all of which are creating a greater need for insurance.


The uneven distribution of economic growth between the developed and emerging markets creates different scenarios for insurance industry competitive dynamics:

• The insurance industry as a whole could become more globalized as countries harmonize regulations, standardize practices and distribute products across borders. This could lead to greater market share for global insurers, as well as economies of scale and scope that drive the globalization of the insurance value chain.

The developed market slowdown, due to the financial crisis, will accelerate this shift in power towards emerging market economies and emerging market insurers.

The rise of economic influence and power of emerging market countries and emerging 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

30% believe new emerging market insurers will move into the developed world to become global insurers

28% foresee truly global markets

• Conversely, twin-track growth and the loss of the developed world’s authority in the wake of the financial crisis could result in greater protectionism by countries or regions.

• In-between these two extremes, developed market insurers could increase their attempts to find growth in emerging markets, and or emerging market players could expand into developed markets for know-how and talent.


PoliticalRegulating amid unsettling global trends

We see a range of potential outcomes from a regulatory perspective. The financial crisis has enhanced communication and dialogue between and among the US, EU and emerging market regulators:

• If regulators are successful at negotiating and harmonizing global insurance regulations, this could lead to greater standardization of products and policies, and promote more globalization of the insurance value chain.

• On the other hand, regulators could continue to develop new but different (and potentially onerous) regulations in each market.

• In-between these two extremes, it is possible that emerging markets will prevent developed market players from entering their markets or put limits on their activities. (An alternative intermediate scenario is that emerging markets encourage developed market entry by removing restrictions and easing regulatory burdens.)

The backdrop to developing global insurance regulations offers considerable obstacles for the industry to consider:

Pressure on the solvency of social security and welfare programs throughout the world will increase because of rising dependency ratios. Dependency ratios (defined as the ratio of the number of persons aged under 18 or over 64 to the number of persons between these ages) are expected to increase by an average of 14% in the G6 between 2000 and 2025.59 Using current projections, the US Social Security Trust Fund will be depleted in 2037 and Social Security will be able to pay only 78 cents on the dollar.60

Consumers lacking faith in the solvency of social security programs will begin to focus on providing their own savings for retirement, as governments pare back benefits. This will create new opportunities for life and annuity insurers, although governments under financial pressure are likely to seek ways to reduce spending while increasing tax revenue. The preferential tax treatment of life, annuity and retirement policies may be viewed as an easy target for revenue generation. Insurers will need to adapt nimbly to weather these changes.

Terrorism. Over the past 30 years, terrorist attacks have broken out around the world. Terrorists currently attack global supply chains once every four days on average.61 Carriers will have increased exposure as the frequency of major attacks increases. In addition, terrorist attacks often impact multiple product lines (e.g., commercial property, business interruption, workers compensation, life and benefits), which are often modeled independently. As a consequence, the potential losses from so-called ‘uncorrelated’ risk factors could be large, requiring substantial industry-wide or state-provided capital to insure losses beyond a certain level. Further detailed modeling is required to understand the capacity requirements for terrorism coverage.

Geopolitical instability. Resource scarcity around the world is magnifying the risks of geopolitical instability, as evidenced by the current political upheaval in the oil-producing nations of the Middle East and North Africa, or the ‘Arab Spring’. This has caused resource-consuming nations to reassess their energy policies. We anticipate that the potential for fewer despotic regimes in the Middle East and technological solutions to resource scarcity will lower geopolitical risk over the next ten years.



This year marked the 11th anniversary of the tragic attack on September 11, 2001. Those events forced all Americans to directly confront the previously unforeseen realities associated with a catastrophic terrorist attack on US. soil. Insurers responded to September 11 claims with unwavering resolve, demonstrating the value and importance of adequate insurance for terrorism. However, the devastating economic consequences of the attack also forced insurers and other businesses to re-examine the nature of terrorism-related risks.

In today’s dollars, the September 11 attack is estimated to have resulted in more than $23 billion in insured property losses and $40 billion in total insured losses. While the reinsurance industry honored its obligations, unfortunately, reinsurance markets withdrew new capacity and the reinsurance market for terrorism evaporated in the aftermath of the attack. Lacking both the ability to spread and diversify these risks globally through reinsurance and adequate tools to price the risk of terrorism, insurance, companies were unable to provide adequate terrorism coverage to commercial policyholders. The effects of this chain of events trickled down to lenders and the construction industry, which posed the risk of significant adverse impact on the economy.

In the event of a future terrorist attack, TRIA ensures that private insurance payments flow to those affected businesses that have purchased coverage, as well as to their employees, which in turn helps businesses and the economy recover. These payments will be crucial to minimizing the economic, psychological, and social fallout from an attack. TRIA and its successor programs have been very successful and continue to make terrorism coverage widely available. It is essential that the program is maintained so that the United States can enjoy national economic security for years to come.

Given the concentration of people and property values in business centers, the risk of wide-area terrorism attacks poses a real solvency threat to insurers—a threat that can easily eclipse that of natural disasters given the stated intention of a terrorist to exact maximal economic disruption. Insurers lack any basis for assessing the likelihood or probability of a major terrorist attack, especially given the limited information that is publicly available.

From an insurance perspective, terrorism does not meet the core characteristics of a privately insurable peril. The Terrorism Risk Insurance Act (TRIA) provides a federal backstop to insurance companies for large certified terrorism events (above a $100 million loss) while requiring insurers to offer terrorism insurance to commercial policyholders on the same terms and conditions as other covered perils, such as damage from fire or explosion. Under the current program, each insurer has to absorb a huge individual deductible (equal to 20% of its applicable earned premium) before the federal government begins to share in losses. TRIA allows insurance companies to understand and manage their potential exposure to losses attributable to terrorism attacks while providing a cap on the potential loss to capital from such an attack. As a result, insurers are able to offer terrorism coverage to commercial policyholders while TRIA provides all-important market stability.

The Terrorism Risk Insurance Act Doug Elliot President, Commercial Markets, The Hartford Financial Services Group


Implications for the future of your businessWe have analyzed the STEEP (Social, Technological, Environmental, Economic, Political) factors and drivers for each of the three insurance industry sectors, discussed in turn on the following pages. While some drivers, such as direct purchase, are common, their impact could be greater in one sector (e.g., personal lines) than in others (e.g., commercial lines). Also, some sectors will have additional drivers, such as health advances and their impact on life and disability insurance.

Health

We believe that the 2010 Affordable Care Act (ACA), as upheld by the US Supreme Court in June, could add approximately 30 million more Americans to the insurance market by 2021, assuming all states participate in the Medicaid expansion.62 However, insurers are obligated to operate under tighter controls and constraints. Insurers should be making decisions about which markets they will pursue, how they will engage and educate new consumers, and how they will operationalize, scale and manage risk under the new ACA rules. Businesses will shift toward satisfying a broader scope of consumers who are faced with more options.

The health insurance market will change in significant ways over the next decade:

• The election outcome and other political factors may alter the path forward.

• By 2021, the individual and small business exchange market is projected to grow to 29 million members—nearly $205 billion in premiums and $148 billion in subsidies and premium credits.

• The market for individual policies, estimated at 25 million, is expected to explode with customers who could determine how health insurance is sold in the future.

• When the state insurance exchanges open enrollment in 2013, insurers will have many decisions to make on where they will compete and with what products. HRI’s research shows that the exchanges create consumer education challenges on eligibility for subsidies, access, benefits, and pricing.

• Private health insurance exchanges are also beginning to emerge on a local and national level. These exchanges, whether run by insurers, retail companies or benefits companies, may serve as innovative models in the new purchasing environment.



Forecasting the weather can be a tricky business in Connecticut. But the perfect storm in which the health care system now finds itself was both predictable and devastating.

Our enormously complex and costly health care system is often disconnected and sometimes frightening to patients. People are getting needed care less than half the time. Estimates suggest that more than $800 billion in health care services delivered each year is unnecessary. Chillingly, adverse events or medical errors happen in one-third of all hospital admissions. If we add to this equation a struggling economy, the obesity epidemic, physician shortages, and the uncertainty of health care reform, we have a perfect storm driving profound change across our health care landscape.

With the adoption of the Affordable Care act in 2010, everyone knows health care in America is changing rapidly. The health reform law, though, is but a small piece of the overall picture. Spurred on by that perfect storm, we are in the midst of developing and building a new health care model empowered by new technologies that ultimately will give health care consumers higher value and quality for their health care dollar.

The health care solutions we are developing will help physicians, and consumers use the health care system in smarter and simpler ways that will improve choice and affordability. The consumer will be in charge to a greater extent than ever before.

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.

I’m proud to say that we are playing a leadership role in driving toward a consumer-centric approach to health care. Starting with our expertise in health benefits solutions and health information technology, Aetna in recent years added new relationships, new technology solutions, and new capabilities that are helping us chart a path that we believe will lead to a better health care system.

We are connecting consumers, physicians and the health care system as never before. Our technology solutions are helping to create a true health care system that enables patients, caregivers and health care professionals to share timely information and drive improved health care decisions and actions.

We also are leading the way to new payment models that better align incentives for quality care. We believe Accountable Care Organizations, through which health care providers are incented to help people get and stay healthy, are the future of the provider and health plan relationship. In 2011, we built our own Accountable Care Solutions business to bring the full power of our technology and intellectual property to forming and maintaining market-leading Accountable Care Organizations. Each new Accountable Care Organization we launch moves us closer to health care system transformation.

Creating the new healthcare marketplaceMark Bertolini Chairman, Chief Executive Officer and President, Aetna


Overall disruptions to the traditional employer market should be minimal. The Congressional Budget Office projects only a 3% reduction in people with employer-sponsored insurance in 2021. Four million people are expected to receive employer coverage through the Small Employer Health Options Plan (SHOP) business exchanges.

• Risk mitigation will become a population-level exercise. Prior to the ACA, insurers mitigated risk by underwriting policies at the individual and small group market level. At the core of the law, the individual subsidies and individual mandate mitigate the risk of adverse selection by encouraging a mix of healthy and less-healthy populations to enroll in the individual market and state exchanges.

• Health plans must be prepared to justify increases in premiums. The ACA grants the US Department of Health and Human Resources the authority to review proposed rate hikes of over 10%; nine states have already been turned down. Also, with the medical loss ratio (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.

According to analysis by PwC’s HRI, insurers have an opportunity to be the market leader through differentiated products, services, and consumer experience. Insurers should:

• Understand the nuances of the newly insured and the health insurance exchange population to develop membership retention and growth through the exchanges.

• Develop robust segmentation tools, translate the changing needs of the population into quality product and services delivered in the most convenient way to consumers.

• Incorporate social media into an overall digital strategy to open up new access points for consumers for administrative and healthcare related transactions.

• Collaborate with employers to reinforce the value proposition of employer-provided coverage.

• Assess their readiness to comply with federal and state regulations, MLR and rate review.

• Re-evaluate pricing strategy and prepare for price transparency.


Personal lines

We believe personal lines insurance will change in four fundamental ways:

• Greater commoditization. Price transparency, disintermediated direct purchase and virtual social community-led bulk purchase will all lead to greater commoditization of personal lines insurance. In the immediate term, insurers in some emerging and underdeveloped markets will be able to generate good margins. As personal lines insurance becomes more global over time, however, these margins may vanish in a price-based, competitive world.

• Decreasing profitability. The increased number of megacities being built in areas prone to natural disaster could result in catastrophic losses. With no opportunities for diversification, this could result in highly volatile earnings and decreasing profitability for insurers.

• Automated underwriting. As personal lines insurers expand globally, ageing underwriting resources in the developed world and lack of underwriting skills in emerging markets will lead to severe talent shortage. However, insurers who are able to recruit or retain top underwriters and use their knowledge to build sophisticated predictive modeling should be able to gain greater market share. Automated underwriting, more standard in the developed world, will be increasingly adopted in the emerging markets as the globalization of the personal lines sector continues.

• Greater loss control. In the immediate term, insurers will use advances in telematics primarily to price mileage-based insurance. But, in the medium term, they will use telematics to proactively 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.


Commercial lines

We expect commercial lines to experience the following significant changes over the next decade:

• Virtual business affinity groups. Social networking among small business owners will create virtual business affinity groups that pool their risks and retain greater predictable layers of risk. Greater availability of information and increased price transparency will facilitate this trend.

• Automated underwriting. Current trends in automation of quoting and underwriting functions for commercial insurance will continue as insurers try to match underwriting capacity with the complexity of application inflow. The talent premium, especially underwriting talent, will have a much greater impact on commercial insurance than on personal insurance.

• Business model transformation. Real-time data from sensors and devices will continue to transform the commercial insurance business model. Commercial insurance will increasingly focus on providing standardized products and value added services that involve working with the clients to proactively avoid or reduce losses and manage risks. In addition, risks are becoming more complex, offering the opportunity to harness improved data analytics to develop new risk transfer markets.

Individual life, annuities and retirement

Environmental factors, urbanization and changing customer behaviors will all greatly affect the life, annuities and retirement sectors. These sectors will also experience significant changes in response to global demographic shifts over the next decade:

• New products for seniors. An aging population in most developed countries will result in new growth opportunities in drawdown or retirement income products, long-term care products and longevity insurance. While the growth opportunities for managing retirement portfolios before and after retirement is huge, insurers will face intense competition from other financial service providers, including banks, wealth managers and asset managers.

• Insurers step onto government turf. The increasing dependency ratio in most developed countries (and China) will increasingly strain government support for the elderly and sick, leading to prolonged employment and/or a reduction in the standard of living. This could open up the opportunity for insurers to form public and/or private partnerships to offer value- added solutions in response to a political challenge.

• Better risk management. Greater availability of medical and behavioral data, along with personalized medicine, will continue to drive greater sophistication in, and automation of, underwriting and provide the opportunity to better manage risk and to expand the boundaries of insurability.

• Tailored products. For group benefits, the responsibility for protection and retirement savings will continue to shift towards the individual. This will result in increasing voluntary coverage, as well as worksite marketing.

Some changes affect everyone

In addition to these sector specific factors, all insurers will be affected by the shift towards a global interconnected model, automated and assisted decision making, based on data and insights and changes in the industry cost structure:

Globalization and interconnectivity of risks. Apart from reinsurers and some commercial line insurers, most others have typically operated at the local or national level, and have been primarily involved in measuring risk exposures and determining the premium that they need to charge customers to insure their risk. However, given the scale of change implied by the STEEP trends, we believe that more insurers will be forced to think globally. In the future, insurers will be more involved in deciding which geographies, products, customer segments and channels will offer their desired level of growth, profitability and risk appetite.


Automated and assisted decision making. Following the automation of transactional systems and the automation of interactions with customers, we are entering a new era of automating decision-making. Extensive internal and external data, as well as new artificial intelligence-based techniques will expand the scope of assisted and automated decision-making of insurers across a variety of functions. These include identification of markets/segments to enter or grow, customer segmentation, risk selection, advice engines that assist agents/advisers or end-consumers, claims triaging and proactive preventive loss prevention and management.

Changing cost structures. Insurers who fully exploit the potential offered by the Internet to transform their cost structures will be able to scale themselves exponentially and leverage their people, operations and 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).

• Over the past two decades, insurers have invested heavily in operations and technology, incurring largely fixed costs to build IT infrastructures capable of dealing with their estimated customer base. Now, as more and more applications migrate to the ‘cloud’, information is available anywhere, anytime and at very little cost. If you have more standardized and streamlined processes you can use the cloud to move to a low variable transaction cost model that scales exponentially.

• With the right talent and proper use of information and analytics in underwriting, a greater number of transactions can be automated. This will allow the application of superior underwriting insight to a greater number of transactions, helping overcome the looming talent gap as the current generation of underwriters approach retirement age.

Current trends in automation of quoting and underwriting functions for commercial insurance will continue as insurers try to match underwriting capacity with the complexity of application inflow.


Connecticut Insurance and Financial Services Cluster membersA 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.


Chief Executive Frederick H. Eppinger, The Hanover Insurance Group

Connecticut Chief Executive Bob Schultz (AIX Group) Kelly Stacy (The Hanover)

Headquarter location Worcester, MA Primary location Windsor, CT Glastonbury, CT

Number of employees 5,000 Number of employees 185


Website www.hanover.com


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.


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.


Chief Executive Stephen Catlin (Catlin Group) Connecticut Chief Executive Nicholas Greggains (Catlin US)

Headquarter location London, UK (Catlin Group Limited)

Primary location Hartford, CT (Catlin US)



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.


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


Website www.connecticare.com


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.


Chief Executive Woody Bradford Connecticut Chief Executive Woody Bradford



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.


Chief Executive John R. Koelmel Connecticut Chief Executive David V. Ring

Headquarter location Buffalo, NY Primary location New Haven, CT



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.


Chief Executive Liam E. McGee Connecticut Chief Executive Liam E. McGee


Number of employees 24,400 (as of 12/31/2011) Number of employees 10,300 (as of 12/31/2011)


Website www.thehartford.com


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).


Chief Executive Greg M. Barats Connecticut Chief Executive Greg M. Barats




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.


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


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.


Chief Executive Jeffrey Glazer Connecticut Chief Executive Jeffrey Glazer


Number of employees 394 Number of employees 250+

Website www.insurity.com


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.


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.


Chief Executive Dennis Glass Connecticut Chief Executive Laura Dambier

Headquarter location Radnor, PA Primary location Hartford, CT



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.


Chief Executive Roger W. Crandall Primary location Enfield, CT

Headquarter location Springfield, MA Number of employees 1,400

Number of employees 5,400


Website www.massmutual.com


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.


Chief Executive John D. Holt Connecticut Chief Executive John D. Holt

Headquarter location Rocky Hill, CT Primary location Rocky Hill, CT


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.


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.


Chief Executive James D. Wehr Connecticut Chief Executive James D. Wehr




Website www.phoenixwm.com


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.


Chief Executive Robert Moritz Connecticut Chief Executive Keith Hubert (Hartford) Laurie Schupmann (Stamford)

Headquarter location New York, NY Primary location Stamford, CT


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.


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


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.


Chief Executive John Lynch, Managing Partner Connecticut Chief Executive John Lynch, Managing Partner



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.


Chief Executive Jay Fishman Connecticut Chief Executive Brian MacLean

Headquarter location New York, NY Primary location Hartford, CT



Website www.travelers.com


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.


Chief Executive Stephen Hemsley Connecticut Chief Executive Mike Matteo

Headquarter location Minnetonka, MN Primary location Hartford, CT



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.


Chief Executive Peter L. Tedone Connecticut Chief Executive Peter L. Tedone

Headquarter location Windsor, CT Primary location Windsor, CT



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.


Chief Executive Kris Canekeratne Connecticut Chief Executive Steve Lowry, Insurance business Unit Head

Headquarter location Westborough, MA Primary location Windsor, CT


2011 total revenues $277.8 million (Apr.2011-Mar.2012)

Website www.virtusa.com


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.


Chief Executive James C. Smith Connecticut Chief Executive James C. Smith

Headquarter location Waterbury, CT Primary location Waterbury, CT



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.


Headquarter location Dublin, Ireland Primary location Harbor Point in Stamford, CT

Number of employees Approximately 4,000 Number of employees Approximately 650


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.


Report authors PwC core teamPaul VeronneauLead Author and Hartford Advisory LeaderOffice: (860) 241-7568Mobile: (860) [email protected]

Praveen AkellaAdvisory ManagerOffice: (860) 241-7289Mobile: (860) [email protected]

Meghan BoudreauNortheast Marketing LeaderOffice: (617) 530-5782Mobile: (617) [email protected]

Cinthia BurnettGraphic DesignOffice: (860) 241-7196Mobile: (860) [email protected]

Jon BurtonPwC Saratoga ManagerOffice: (312) 298-5259Mobile: (408) [email protected]

Patricia CapannaNortheast Marketing & Sales Senior ManagerOffice: (860) 241-7116Mobile: (860) [email protected]

Marc FerzanAdvisory Managing Director Office: (646) 471-7687Mobile: (609) [email protected]

Serena FoongHealth Research InstituteOffice: (617) 530-6209Mobile: (626) [email protected]

James GagnonAsset Management Assurance Senior ManagerOffice: (860) 241-7316Mobile: (860) [email protected]

Josh GoldfarbAdvisory DirectorOffice: (860) 241-7297Mobile: (860) [email protected]

Stephen Larosa State and Local Tax Managing DirectorOffice: (860) 241-7053Mobile: (860) [email protected]

Sue ManaskieInsurance Knowledge Management ManagerOffice: (860) 241-7391Mobile: (860) [email protected]

Jack RodgersTax Managing DirectorOffice: (202) 414-1646Mobile: (301) [email protected]

Bruce SpoonerAdvisory DirectorOffice: (860) 241-7142Mobile: (203) [email protected]

Thomas SullivanAdvisory PrincipalOffice: (860) 241-7209Mobile: (860) [email protected]

Jennifer WhalleyState and Local Tax ManagerOffice: (860) 241-7398Mobile: (860) [email protected]

Acknowledgements


Report authors Connecticut Insurance and Financial Services ClusterSusan C. Winkler Executive Director Office: (860) 728-2271 Mobile: (860) 906-7511 [email protected]

Connecticut Economic Resource Center, Inc.Alissa K. DeJonge Director of Research Office: (860) 571-6206 [email protected]

Matthew B. Ross Research Associate Office: (860) 258-1687 [email protected]


PwC Contributors Looking Forward Insurance 2020Jamie YoderUS Insurance Advisory Co-leaderPrincipal, PwC (US)(773) 255-2138 [email protected]

Anand RaoPrincipal, PwC (US) (617) [email protected]

Mansoor BajowalaDirector, PwC (US)(312) [email protected]

GlobalDavid LawGlobal Insurance LeaderPartner, PwC (UK)+44 7710 173 [email protected]

John WynnGlobal Insurance Advisory LeaderPartner, PwC (Hungary)+36 30 546 9862 [email protected]

AmericasAllan BuitendagNational Insurance Consulting LeaderPartner, PwC (Canada) (416) [email protected]

Paul McDonnellUS Insurance Advisory Co-leaderPrincipal, PwC (US)(646) [email protected]

Jonathan SimmonsCanada Insurance LeaderPartner, PwC (Canada)(416) [email protected]

EuropeAchim BauerUK Insurance StrategyConsulting leaderPartner, PwC (UK)+44 (0) 20 7212 [email protected]

AsiaPeter WhalleyHong Kong Insurance LeaderPartner, PwC (Hong Kong)+852 2289 [email protected]

Afzal TararPartner, PwC (China)+86 (21) 2323 [email protected]


PwC Editorial BoardJeff AukerAdvisory Director Office: (860) 241-7462Mobile: (860) 597-2206 [email protected]

Rick BartoInsurance Advisory PrincipalOffice: (860) 241-7035Mobile: (603) [email protected]

Joseph CalandroAdvisory Managing Director Office: (646) 471-3572 Mobile: (203) [email protected]

Vincent ColmanAssurance PartnerOffice: (646) 471-5158Mobile: (973) [email protected]

Denise CutroneAssurance PartnerOffice: (678) 419-1990Mobile: (646) [email protected]

John FarinaNortheast Insurance Tax LeaderOffice: (617) 530-7391Mobile: (617) [email protected]

Greg GaleazInsurance Advisory PartnerOffice: (617) 530-6203Mobile: (774) [email protected]

Michael GalperPayer Advisory Co-LeaderOffice: (213) 217-3301Mobile: (213) [email protected]

Jeff GitlinAdvisory Principal (860) 241-7056 (860) 559-6511 [email protected]

Julie GoosmanTax PartnerOffice: (617) 530-5645Mobile: (678) [email protected]

Daniel GradyAssurance PartnerOffice: (617) 530-7819Mobile: (617) [email protected]

John GriffinAssurance PartnerOffice: (617) 530-7308Mobile: (617) [email protected]

Brian HannanAssurance PartnerOffice: (646) 471-5537Mobile: (215) [email protected]

Jason HeiderPayer ResearchOffice: (720) 931-7770Mobile: (813) [email protected]

Keith HubertNortheast Insurance Leader and Managing Partner—HartfordOffice: (860) 241-7404Mobile: (860) [email protected]

Ben IsgurHealth Research InstituteOffice: (214) 754-5091Mobile: (817) [email protected]

Vaughn KauffmanPayer Advisory Co-LeaderOffice: (216) 363-5817Mobile: (440) [email protected]

Susan KellamProfessional WriterOffice: (207) 790-1077www.wordsharpener.com


PwC Editorial BoardNadia LeatherHealth Industries Marketing LeaderOffice: (646) 471-7536Mobile: (718) [email protected]

Mark LittmannActuarial PrincipalOffice: (860) 241-7334Mobile: (860) [email protected]

Louis LombardiActuarial PrincipalOffice: (860) 241-7400Mobile: (860) [email protected]

Larry LynchAssurance PartnerOffice: (646) 471-4147Mobile: (609) [email protected]

Paul McDonnellInsurance Advisor Sector Co-LeaderOffice: (646) 471-2072Mobile: (203) [email protected]

Jeff MuzioAssurance PartnerOffice: (860) 241-7061Mobile: (860) [email protected]

Barry NearhosNortheast Market Managing Partner & Northeast Market CouncilOffice: (617) 530-5177Mobile: (617) [email protected]

James ScanlanUS Insurance Industry LeaderOffice: (267) 330-2110Mobile: (215) [email protected]

Dave ScheinermanActuarial PrincipalOffice: (860) 241-7129Mobile: (860) [email protected]

Robert SullivanAssurance PartnerOffice: (646) 471-8388Mobile: (203) [email protected]

Eric TrowbridgeInsurance Sector Marketing LeaderOffice: (410) 659-3489Mobile: (410) [email protected]

Paul Veronneau Hartford Advisory LeaderOffice: (860) 241-7568Mobile: (860) [email protected]

Nicole WaiksnorisHartford AdvisoryOffice: (860) [email protected]

Jamie YoderInsurance Advisory Sector Co-LeaderOffice: (312) 298-3462Mobile: (773) 255 2138 [email protected]


Supporting thought leadershipWe 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.


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.


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.


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.


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.


1. Governor Dannel Malloy, “Building an Economic Revival.” Presented at Fiscal Year 2013 Midterm Budget Address, February 8, 2012.

2. “State and Country Quick Facts,” US Census Bureau, accessed September 29, 2012, http://quickfacts.census.gov/qfd/states.html.

3. Stats America, accessed September 29, 2012, www.statsamerica.org.

4. CERC calculation of Moody’s Analytics, Actual for 2011; projected to 2022.

5. State Median Income, US Census Bureau, accessed September 29, 2012, http://www.census.gov/hhes/www/income/data/statemedian.

6. Connecticut Job & Career ConneCTion, Connecticut Department of Labor, accessed September 29, 2012, www1.state.ctdol.ct.us.

7. Governor Malloy’s FY 2012-2013 Budget, accessed September 29, 2012, http://www.governor.ct.gov/malloy/cwp/view.asp?a=11&Q=474002&PM=1

8. US Census, DataFinder, American FactFinder

9. Based on data from the Board of Governors of the Federal Reserve System, 2012, Flow of Funds Accounts of the United States, statistical release, June 7

10. Based on data from the Board of Governors of the Federal Reserve System, 2012.

11. Connecticut Insurance Department, 2011

12. Connecticut Insurance Department, 2011

13. CERC calculation of Moody’s Analytics, 2011. NAICS 5241.

14. CERC calculation of Moody’s Analytics, 2011. NAICS 5241 (Carriers) and NAICS 524 (Total).

15. Stats America, accessed September 29, 2012, www.statsamerica.org.




19. Ibid

20. Ibid

21. Swiss Re Economic Research and Consulting, “Global Economic Outlook and Scenarios,” August 2012.

22. Swiss Re Economic Research and Consulting, “Global insurance industry led by double-digit growth emerging Asia,” January 2011.

23. Mark Muro and Kenan Fikra, “Job Creation on a Budget: How Regional Industry Clusters Can Add Jobs, Bolster Entrepreneurship, and Spark Innovation,” Project on State and Metropolitan Innovation, Brookings Institution, 2011.

24. Connecticut Economic Strategic Plan 2009, Department of Economic and Community Development.

25. http://www.highschoolinc.net/

26. http://www.business.uconn.edu/gblc/

27. http://www.law.uconn.edu/

28. http://www.hartford.edu/barney/

29. http://www.ccsu.edu/page.cfm?p=456

30. http://www.gwcc.commnet.edu/

31. http://www.ccc.commnet.edu/

32. Connecticut Insurance Department website, accessed September 29, 2012, http://www.ct.gov/cid/site/default.asp

33. 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.

34. PwC estimates of Connecticut based on Congressional Budget Office estimates of the national impact of the Affordable Care and Patient Protection Act.

35. Office of Health Reform and Innovation website, accessed September 29, 2012, www.ct.gov/ohri.

36. The Connecticut Health Insurance Exchange website, accessed September 29, 2012, www.ct.gov/hix.

37. Connecticut Department of Social Services website, accessed September 29, 2012, www.ct.gov/dss.

38. PwC Health Research Institute, “Implications of the US Supreme Court ruling on healthcare,” June 2012 (Updated August 2012).

39. Excerpts from Governor’s press release on Aug 2, 2012. For information on forming a captive insurance company Connecticut, visit www.ConnCaptives.org.

40. Office of the Attorney General Annual Report Fiscal Year 2010-2011.

41. “Cigna” refers to the operating subsidiaries of Cigna Corporation.

42. A. Barry Rand, “Facing the Challenge of Turning 65: Increased life expectancy, decreased pensions and Social Security benefits add to challenge, AARP Bulletin, January 1, 2011.

43. Centers for Disease Control, “Life expectancy at birth, at 65 and 75 years of age by race and sex,”,accessed September 19, 2012, http://www.cdc.gov/nchs/fastats/lifexpec.htm

44. A. Munnell, A. Webb, L. Delorme, and F. Golub-Sass; Center for Retirement Research at Boston College; National Retirement Risk Index: How Much Longer Do we Need to Work; June 2012, Number 12-12.

Footnotes


45. LIMRA, based on 2007 Survey of Consumer Finances, Federal Reserve Board, 2009

46. National Clearing House for Long Term Care Information, accessed September 19, 2012, http://www.longtermcare.gov/LTC/Main_Site/Index.aspx

47. Lincoln life insurance policies are issued by The Lincoln National Life Insurance Company, Fort Wayne, IN, and distributed by Lincoln Financial Distributors, Inc., a broker/dealer. The Lincoln National Life Insurance Company does not solicit business in the state of New York, nor is it authorized to do so. Policies sold in New York are issued by Lincoln Life & Annuity Company of New York, Syracuse, NY, and distributed by Lincoln Financial Distributors, Inc., a broker/dealer.

All guarantees and benefits of the insurance policy are backed by the claims-paying ability of the issuing insurance company. They are not backed by the broker/dealer and/or insurance agency selling the policy, or any affiliates of those entities other than the issuing company affiliates, and none makes any representations or guarantees regarding the claims-paying ability of the issuer. Products and features are subject to state availability. Limitations and exclusions may apply.

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

56. US Energy Information Administration, World energy use projected to grow 49 percent between 2007 and 2035; Rapid growth projected for renewables, but fossil fuels continue to provide most of the world’s energy under current policies, Press Release May 2010

57. US Energy Information Administration, International Energy Outlook, September 2011

58. 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.

59. Alliance for Health & the Future, The Dependency Ratio, Issue Brief Vol 2, Number 1

60. Center for Retirement Research at Boston College, The Social Security Fix-it Book, accessed September 19, 2012, http://crr.bc.edu/special-projects/books/the-social-security-fix-it-book/

61. “Terrorists attack global supply chains every four days,” SupplyChain Digital, April 2011

62. CBO, “Estimates for the Insurance Coverage Provisions of the Affordable Care Act Updated for the Recent Supreme Court Decision,” July 2012

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To have a deeper conversation about how the topics addressed in this report may affect your business, please contact:

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Pwc Ct Insurance Market Report 2012

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