Friday, August 17, 2007

Fed cuts discount rate by 50 basis points

In reaction to the current liquidity crisis, the Federal Reserve has cut the discount rate, the interest rate that the Fed charges to make direct loans to banks, to 5.75 percent, down from 6.25 percent. The target for the Federal Funds rate remains unchanged at 5.25%.

In a statement explaining the board's action, Federal Reserve Chairman Ben Bernanke and his colleagues said that while incoming data suggest the economy is continuing to expand at a moderate pace, "the downside risks to growth have increased appreciably."

This is a mixed bag for insurance companies. We've already seen Lincoln Financial sell 50% of their GMWB rider business to Swiss Re via a reinsurance agreement to raise cash. Obviously, global financial crisis is no fun for anyone, but the insurance industry really doesn't need another stretch of historic-low interest rates pressuring surplus. Neither do the vendors who serve.

Stay tuned.

Thursday, August 16, 2007

I'm just askin'

So, when a policy administration vendor tells you that the neat thing about their system is that your non-technical people can build everything they need without vendor involvement, and then tell you that they've grown by 5 times in the last 5 years... doesn't that make you wonder what all those new people were doing?

I'm just askin'.

Tuesday, August 14, 2007

Aegon to buy Merrill Insurance for $1.3B

KPMG Insiders is reporting that Aegon will buy Merrill Insurance Units for $1.3B.

Friday, August 10, 2007

ACORD, after the honeymoon

There's a Dilbert cartoon in which the pointy-haired manager announces that the team is to use only open-source development tools, because "they're free". One of the realities about technology today is that once you've lost Scott Adams, you've lost the free marketing ride.

In our industry, the ACORD standards got a free ride for a long time. For several years, most decision makers at most carriers were watching, exploring, studying, contemplating, and analyzing the ACORD standards, and feeling just a little bit guilty about not actually USING them.

In many cases the entire discussion about interfaces just went away. All you had to do was say 'ACORD' and suddenly nobody was worried about integration. For the application vendor, this was always a huge relief, because any world-class enterprise system that is backed by a professional services organization can integrate with any other world-class enterprise system that is backed by a professional services organization. In other words, it got the conversation focused back upon what the system does, rather than how to connect the system with a bunch of stuff that needs to be replaced. That was good.

The trouble is that to many carriers, ACORD promised all of the integration flexibility without the expense of the professional services, and this caused the carriers to actually try to use the standard. First they had to join, and pay, and then they got what some (but not all) vendors had cautioned was a messaging format that was becoming useful, but that was by no means complete.

At some carriers, the inability to instantly integrate everything quickly translated into 'ACORD doesn't work'. That's a drastic oversimplification; the truth is that ACORD was simply expected to be a silver bullet, and as we learn, time and time again, there are no silver bullets.

The lesson here is that there will never be a substitute for seasoned technical professionals who understand your business. Also, these professionals will never be free or cheap. The insurance technology industry processes the most complex financial products ever conceived, often in astronomical volumes. No technology - rules engines, industry standards designed by a committee of competitors, or whatever silver bullet comes along next - is going to replace professional software development in our industry in the near future. Bet on it.

The ACORD standards provide the best industry-standard messaging today. They can be very useful. They are not magical.