Background

In 2018 the State of Hawaii Legislature passed a bill, Session Law Act 109, directing the Legislative Reference Bureau (LRB) to conduct an analysis to determine the impacts of establishing a state paid family leave (PFL) program. Stakeholders considered in the impact analysis included industry, consumers, employees, employers, and caregivers. The goal of Act 109 was to create a potential framework for the development of a PFL program that would offer paid leave for workers who need to care for a family member. The bill allowed the LRB to contract with a consultant for completion of the impact study, and after a formal Request for Proposal (RFP) process, Spring was selected to partner with the State of Hawaii on this initiative.

The Challenge

The objectives of the impact study were to:

At the time, six states plus D.C. had a paid leave program for family and/or medical reasons in place, and part of our evaluation was not only a cross-model comparison of existing plans, but also a provision of the PFML landscape overall, including states with pending or rejected legislation. Both qualitative and qualitative factors needed to be assessed, including required operational activities, outreach and education approaches, state administration models, headcount modeling, IT infrastructure development, and projected startup costs. Integration with Hawaii’s existing State Temporary Disability Insurance (TDI) program was also explored.

Spring’s Work

Through Spring’s three-phased approach, the impact study covered a wide range of areas in detail that were critical in deciding on the development of a PFL plan in Hawaii. Starting with a deep dive into existing state PFL programs which included California, Massachusetts, New Jersey, New York, Rhode Island, Washington D.C., and Washington as seen below.

Plan Structure:

Funding:

Administration:

Implementation Timeline

Within this evaluation, factors like gender equity, hiring practices, speed of benefit payments, ease of making applications or claims, financial sustainability, data collection capabilities, and compliance monitoring capabilities were also assessed. To arrive at these impact answers, Spring’s actuaries developed an actuarial impact model that utilizes actual PFL claim and other industry data to project claim incidence rates, duration of benefits, average benefit payments, expected costs and funding rates under existing state models and Hawaii’s current TDI structure.

The Results

Spring’s comprehensive impact study for the State of Hawaii’s Legislative Reference Bureau is available for public viewing here. Our team presented it in person to various legislators. While the State has not moved forward with a PFL program to date, we continue to keep the dialogue open and all parties are pleased with the framework set out in this project, as it was an imperative piece of due diligence on behalf of the State.

Our Senior Vice President, Prabal Lakahpal, and Senior Consulting Actuary, Nick Frongillo have been listed in Captive International’s Forty under 40. The list is comprised of up-in-coming talent that is helping shape the future of captive insurance. You can access the complete list here.

Title:

Senior Consulting Actuary

Joined Spring:

I joined Spring in April 2019, around a year before the pandemic.

Hometown:

I was born in Maryland and grew up in both Maryland and California.

At Work Responsibilities:

As a Senior Consulting Actuary at Spring, I provide employers with customized solutions that manage costs and improve performance of employee benefit programs. Some of the most common programs I am involved with include retirement, life, and disability plans.

Outside of Work Hobbies/Interests:

Lately, I am enjoying running, hiking, and yoga.

Fun Fact:

I am a multi-state backgammon champion (Massachusetts and Connecticut)!

Favorite Part of Spring:

I genuinely enjoy the work we do. Every day, I get to work with bright professionals and industry pioneers to make a difference for our clients.

Favorite Food:

Sushi.

Favorite Place Visited:

Anywhere with a lighthouse, but especially the North Carolina coastline. I have seen about 200 lighthouses, and I look forward to seeing more!

Spring Consulting Group has announced they have hired three new actuaries to support their Employee Benefits and Property & Casualty (P&C) Actuarial offerings.

As Spring’s Senior Vice President & Chief Actuary, Steven Keshner, is set to retire soon, the organization has appointed Ron Williams as Chief Actuary. In this role, Ron will lead Spring’s Employee Benefits Actuarial team, including providing strategic oversight and contributing to new business development.

Ron brings over 30 years of insurance experience across financial solutions, capital and risk management, and employee benefits. Prior to joining Spring, Ron was a Managing Director leading the Health and Benefits Risk Analytics Practice at KPMG and also held leadership roles at Willis Towers Watson, Lincoln Financial Group, and The Hartford.

Ron is also an adjunct professor of Corporate Finance within the Actuarial Science Program at the University of Connecticut, a Fellow of the Society of Actuaries, and a Member of the American Academy of Actuaries

Spring also hired MIT graduate, Andrew Stuntz as an Actuarial Analyst on the P&C team to support projects related to pricing, reserving, and captive feasibility studies. Prior to Spring, Stuntz worked on transit pricing and fare technology projects for the Massachusetts Bay Transportation Authority (MBTA) and on analysis of environmental regulations for NERA Economic Consulting. Stuntz will work on the P&C actuarial team led by Peter Johnson, Chief P&C Actuary.

Spring also recently welcomed Aaron Houtari as an Actuarial Analyst. Houtari holds two bachelor’s degrees in economics and applied Mathematics, and was Co-President of the Actuarial Club at Hillsdale College.

Houtari has held multiple finance and actuarial positions at AXA Advisors, JPMorgan, and Allen Bailey & Associates.

Commenting on these developments, Spring’s Managing Partner, Karin Landry, stated “I am thrilled about all the new additions to Spring. I know this will enhance the breadth of our actuarial services and ensure our clients continue receiving the same excellence, attention to detail, and consultative knowledge that our actuaries are known for!”

Landry also announced plans to continue expanding Spring’s actuarial resources this year in both the employee benefits and P&C space.

In a recent article published by Captive Intelligence, our Chief Property and Casualty (P&C) Actuary, Peter Johnson, reviews current trends in the P&C industry and how risk optimization can help cut costs and increase coverages. Check out the full article here.

Like many other industries, inflation has been top of mind for risk managers, insurers, and P&C professionals. McKinsey & Company estimated that inflation increased the cost of P&C claims by $30 billion in 2021,1 and it continues to be a primary concern across P&C lines. Property insurance is being hit hard this year. Hurricane Ian alone is expected to cost insurance companies over $60 billion.2 In combination with other recent catastrophic events (CATs) and construction cost inflation, this is driving substantial rate increases and higher underwriting standards for property policies. Inflation in auto costs and increased driving are also forcing insurers to respond with higher auto rates this year. So, cost-control practices will continue to be a main focus throughout 2023, both for insurers and businesses.

What impact is inflation having on the P&C market? Where is it hitting the hardest?

In the current hard market, we are expecting to see price increases across all lines of business, with an overall average increase of 9.3% in rates.1 Some of the top business lines being impacted include cyber, commercial property and personal lines/private risk (including private auto).

Following Hurricane Ian, we saw drastic increases in property insurance rates, with properties with poor risk quality seeing increases of 25% all the way up to 150% at the start of 2023.3 The number of natural disasters and level of exposure have been trending up over time, and costs are compounded by the need to rebuild with inflated prices and strained supply chains. According to NOAA National Center for Environmental Information, natural disasters cost the U.S. over $165 billion in 2022.4

When it comes to cyber, one of the toughest lines of business to write, we expect rates to increase as much as 50% for more complicated risks and 15% for simpler risks.1 This is less a result of inflation and more like growing pains for a newer market. As new risks continue to emerge and underwriting practices strengthen in cyber, it is difficult to predict how significantly inflation will influence costs.

Personal lines/private risk (including auto and homeowners insurance) rates are expected to increase almost 13% on average this year, with automobile rates seeing increases of 8-10% across the nation.1  Although Hurricane Ian and CATs dominated headlines in 2022, of the 15.5% increase in net losses across all business lines, private auto liability represented the largest sector in net incurred losses.5 Supply chain issues that drove up the prices for vehicle repairs and replacement had a direct impact on auto insurance claim severity and created a rate increase need for auto insurers to cover the cost increases. For many companies these rate increases are coming in conjunction with increased underwriting scrutiny, forced up retentions, and coverage reductions.

Workers’ Compensation is an exception to the norm this year. In spite of continued inflation, rates are expected to remain unchanged or slightly drop in 2023, with stable coverage options and underwriting practices. Employment Practices Liability is also looking favorable for buyers in 2023, with modest rate increases of 7% on average. Finally, Surety is also expected to see average increases just above 7%,1 but will face increased underwriting scrutiny with potential for larger rate changes on a case-by-case basis.

Geography is an important factor as well, and not just related to climate. For example, medical professional liability severity trends have increased, but this varies significantly by region. Some states are seeing double digit severity trends and rate increases while others are experiencing very modest increases. Differences in litigiousness and jury awards drive much of these state-by-state differences.

While most buyers are seeing rate increases and some reductions in coverage, high-risk clients are affected the most by continued inflation and other cost increases. This includes businesses with adverse loss histories, located in CAT-prone areas, or with frame construction buildings. Unfortunately, we are not seeing an influx of new players or investment to mitigate rising rates.

When looking at the industry level, Alera Group reports that the two sectors with the most unfavorable market situations are nonprofit organizations and the hospitality and gaming sector. Although nonprofits don’t make up a large portion of organizations in the U.S., they often require specialty insurers which can be costly and hard to find. Nonprofits are also often targets for cyberattacks and face unique underwriting processes that differ from other industries. The industry most impacted by inflation and unfavorable market conditions is the hospitality and casino industry where we expect to see increases in rates, reduced insurer options, and stricter underwriting processes across cyber, employment practices, general liability, property and umbrella.

In wake of recent natural disasters, what’s the outlook for property insurance underwriting and rates? On a practical level, what should buyers expect?

Property rates remain high and are expected to remain high for a while. Hurricane Ian caused big disruptions for property reinsurers, who in turn are pushing carriers for better valuation and stricter underwriting — especially in catastrophe-prone areas. As for how this will realistically play out, buyers may see fewer coverage options and new requirements like recent appraisals, insurance-to-value increases, engineering reports and complete applications. More underwriting processes will also focus on fire suppression systems, difficult-to-place risks and limits on high-rise structures.

According to Alera Group’s P&C Market Outlook, cyber liability pricing is expected to increase by 15% in 2023. What do you think this says about the market and what can organizations do to control their spend?

The cyber market is still relatively young and new risks can emerge quickly. Although rates are expected to increase by 15% on average for the simpler risks in 2023, more complicated cyber risks will see increases as much as 50%, often with difficult underwriting processes. Terms and conditions are changing to better clarify challenging coverages, resulting in longer underwriting processes. Employers and buyers of cyber insurance should ensure they are working with experienced underwriters and that they properly understand the specific cyber risks associated with their business so they can prioritize coverage selections.

Are there any emerging P&C lines that will take the spotlight in the years to come? What about in the captive space?

I cannot say for certain we will see completely new lines of business emerge in the next few years in the P&C market. But I do expect to see changes in coverage within different lines of business, particularly as our economy evolves and new technologies and products are utilized by both individuals and commercial industry. Artificial intelligence and other product innovations are expected to have an impact on both frequency and severity of loss outcome and will influence actuarial pricing indications for various insurance products.

I think captives will continue to emerge as a critical part of the ecosystem. As coverage capacity in lines like commercial property goes down or as new risks emerge in lines like cyber, captives offer organizations new options for layering the coverage they need at a price that truly reflects their own loss history and level of exposure. Captives are able to fill in the coverage gaps in cases where the commercial market has yet to come up with a competitive solution. This happened for cyber risks about a decade ago.

How are actuaries poised to help organizations and risk managers tackle some of the challenges mentioned?

Actuaries specialize in quantifying risks using statistics, whether for a business or an insurer or an entire industry and using that information to manage risks in a cost-effective way. This runs the gamut from reviewing a company’s loss history and current insurance policies to informing better choices in the commercial insurance market, all the way to setting up a captive insurance company tailored to the needs and experience of a specific business. In an environment like today with rising premiums and reductions in capacity and coverage options happening for many P&C lines, actuaries can provide organizations with tools and a higher level of confidence around managing their risks and their costs effectively. As an example, actuarial proforma financial models can be leveraged in a captive solution and aid a company’s decision-making around the appropriate balance between retaining risk and utilizing available market options to transfer risk in a cost-effective way.

The pandemic had certain influences on insurance underwriting. Have we transitioned past these pandemic issues yet?

Court room closures, significant reductions in vehicles on the road, delayed healthcare surgeries and procedures and other changes at the onset of the pandemic had a big impact on the underwriting experience of insurance companies for most property and casualty lines of business. As one would expect, when our economic engine slows the frequency of claims also does. As we are now well past these issues and our economy is mostly back up and running, we are now working through other, likely temporary issues that are currently impacting the underwriting experience within the commercial market and driving the need for rate increases. We are certainly seeing this in the auto insurance market. After over a decade of low treasury yields and a low inflationary environment, we are now in a high inflationary environment for personal lines auto. Supply chain issues during the pandemic resulted in significant increases in vehicle costs and have resulted in rising auto claim severities and the need for auto rate increases in the market.

Any final thoughts on the P&C landscape?

It’s a difficult year for property and auto costs, and cyber risks continue increasing. Some of the bottom-line impacts of these changes are unavoidable, but rate and coverage changes in the commercial insurance market are also driven by broad industry patterns that might not apply to a specific organization. I expect to see more businesses taking a close look at their own risk profile and exploring all of their options to close coverage gaps and take advantage of alternative risk funding structures when appropriate.

1 Alera Group’s 2023 P&C Market Outlook
2 https://wusfnews.wusf.usf.edu/economy-business/2022-12-01/hurricane-ian-is-expected-to-drive-more-property-insurers-out-of-business
3 https://www.businessinsurance.com/article/20230104/NEWS06/912354660/Some-rates-will-stabilize-less-optimal-risk-profiles-will-see-hikes-
4 https://www.climate.gov/news-features/blogs/2022-us-billion-dollar-weather-and-climate-disasters-historical-context
5 S&P Global Market Intelligence, March 2023

When it comes to Actuarial Services, many people are unclear what it entails. The video below breaks down how actuaries can help cut costs and optimize benefits plans.

Spring Consulting Group provides a wide range of Captive Services when it comes to the Employee Benefits and Property & Casualty (P&C) industries. In this Whitepaper, you can learn more about our captive services and how we approach captive implementation/optimization.

the International Foundation of Employee Benefit Plans recently wrapped-up their 32nd Annual Health Benefits + Conference Expo (HBCE) in Clearwater Beach, Florida. The conference brought together healthcare and benefits professionals from a range of industries to discuss leading topics and share expectations for the future. Having heard such positive feedback about the event, Spring was glad to attend, exhibit, and speak at the conference. Below are some of our biggest takeaways.

Spring Booth HBCE

1) Pharmacy Cost Containment

This year there was a lot of talk surrounding the price of prescription drugs and tactics employers can adopt to help control costs without cutting benefits. There are many factors influencing the high costs of pharmacy drugs, some of which include chronic disease prevalence, the aging population and the growing volume of specialty medications. Below are some of the top sessions focused on controlling Rx costs.

– Representatives from Express Scripts explained the upsides to working with a Pharmacy Benefit Manger (PBM) and how they can help address pharmacy policies in their session titled, “How to Work With Your Pharmacy Benefit Manager.”

– The CEO and Co-Founder of TruDataRx, Cataline Gorla, discussed how comparative effectiveness research (CER) is being used by other countries to decide which drugs work best for specific medical conditions, and how self-insured employers can save money with said data.

2) Addressing Chronic Conditions

According to the Center for Disease Control (CDC), 90% of the nation’s healthcare spending goes towards people with chronic and mental health conditions1. As chronic diseases are very common among the American workforce, employers have started implementing specific benefits and policies to address common conditions, such as diabetes and obesity. Some of the sessions around this topic that we found most interesting include:

– Speakers representing the Nashville Public School System explained how they were able to introduce free resources such as telenutrition and fitness center access to help combat obesity and other health disparities.

– Dr. Mudita Upadhyaya from St. Jude Children’s Research Hospital presented on prevention strategies to address mental health and obesity in a pre- and post-COVID world; and why a mixed approach may be best.

– The Diabetes Leadership Council’s CEO, George J. Huntley spoke on diabetes and chronic disease risk management strategies, including medicines and technology that can help patients manage and prevent the disease.

3) The Future of Healthcare & Benefits

In recent years we have seen a great shift in the healthcare and benefits industry; we saw a great increase in telehealth, mental health resources, new/alternative types of paid leave, including sick leave and more. As we transition to a post-COVID world, we expect the evolution to continue. Below are some of the top trends professionals believe we will face in the coming years.

– Our Senior Vice President, Teri Weber, presented on market forces employers can utilize to meet future absence management challenges. Her session listed techniques employers can adopt to improve day-to-day administration of disability, absence and accommodations.

– In a session titled “Innovative Health Care Models—The Future of Direct Primary Care,” the presenter explained how many employers are changing to value-driving healthcare models to boost access and reduce costs.

– A session titled “Breaking the PTO Mold, Without Breaking the Bank,” reviewed how typical Paid Time Off (PTO) programs can be altered to better support employees’ well-being and financial health.

– The final session of the conference spotlighted how the pandemic has led to an increase in personal, economic and other stressors and has had a drastic impact on mental health, substance misuse and addiction. Attendees were informed on how they can implement workplace solutions that address these issues as well as identify warning signs.

The warmer weather was certainly a bonus, but the insights we gleaned and connections we made were what will keep us coming back to the HBCE conference. We want to thank IFEBP and our fellow colleagues who took the time to share their experience, stop by our booth, and make the energy so positive.

1https://www.cdc.gov/chronicdisease/about/costs/index.htm