Blog

As insurers move away from their legacy systems and onto more flexible platforms such as Guidewire and Duck Creek, the days appear numbered for portal solutions. Real-time data exchange is now front and center as a priority for the Insurance Broker Association of Canada (IBAC), the national broker association announced Tuesday. The current work towards real-time data exchange is possible because insurance companies have spent a lot of time and “hundreds of millions” of dollars updating their legacy systems, says Michael Loeters, co-chair of IBAC’s technology committee. “What [the insurers’ platform updates] have allowed us to do is move away from portals, which insurance companies have spent a lot of time and money building over last number of years,” Loeters said. “The reason why they were limited to portals was because they didn’t have the technology platforms behind those portals that could easily or cost-effectively with a broker management system. “As those legacy systems move away, and as you replace the back of those portals with modern, flexible platforms, now you have created the enablement for real-time integration with brokers.” Portals were a necessary bridge to real-time data exchange, Loeters pointed out. He likened the evolution of broker tech to the evolution of GPS technology since the 1990s. “There are a lot of technologies out there that people talked about for a long time before they became a reality,” Loeters said, referring to broker discussions about real-time data exchange. “For example, if you bought a GPS unit in the early 2000s, it didn’t work well. A lot of times, it took you to the wrong place. It took a lot of time to evolve to the point where it was ready for prime time.” Now upon us is the era of real-time data exchange, which features heavily in IBAC’s three tech priorities moving forward. IBAC’s three major tech priorities are: First, IBAC has launched its “IBAC D/X Action Plan” to ensure the national adoption of its Data Exchange (D/X) Model as the method for real-time technology integration between insurance brokers, insurance carriers and partners. This will include plans to develop an assessment of the readiness of insurers and broker management system (BMS) vendors across Canada, and the creation of a D/X Certification process. Second, IBAC is urging identification of “off-the-shelf” technologies that can be adopted by the industry to enable faster and easier real-time technology integration between brokers and industry partners using the D/X Model. Examples might include Duck Creek’s ‘Agent Connect,’ essentially a translator that allows Canada’s major broker management systems to connect with the Duck Creek platform. Similar, translator-style offerings are available from Brovada and Willis Towers Watson. “As brokers we need to strongly encourage insurers to make those kinds of investments [in off-the-shelf technologies] to move away from portals top real-time integration, and then we both win,” said Loeters. Third, IBAC will be conducting a National Broker Technology Survey. https://insurtechnews.com/aggregator/portals-are-dead-brokers-have-moved-on-to-realtime

Peabody’s use of third-party surety bonds aims to to help liberate the cash it has tied up in bank guarantees. Big insurance companies will provide Australian governments with financial guarantees linked to the rehabilitation of coal mines run by Peabody Energy, under a third-party surety bond issuance that Peabody believes is a first for the Australian mining industry. Read more … http://www.afr.com/business/mining/peabodys-mine-rehab-bonds-an-australian-first-20180213-h0w0tp

LDWICK, N.J.–(Business Wire)–In this A.M.BestTV episode, A.M. Best’s Senior Financial Analyst Robert Valenta and Senior Research Analyst David Blades review a new report that examines the growth of the U.S. surety insurance segment and the forces shaping it. Click on http://www.ambest.com/v.asp?v=surety218 to view the entire program. Bolstered by strong construction activity, surety underwriters continue to benefit from consistent premium growth and strong levels of underwriting income. “Underwriters of surety coverage have been producing favorable results over the past decade,” said Blades. “Not only has premium growth been achieved, but despite pretty heavy market competition, underwriting income also has consistently been produced during the same time frame. The post-recession economic recovery, which has positively impacted the construction industry, has been a driver of the premium growth for the surety market in that the construction industry is the main source of business for surety writers,” continued Blades. The report states that the 2017 premium level is on track to surpass the $6 billion mark for the first time this decade. Valenta believes that competition has played a role in creating this premium level. “Profitability within the sector has added a lot of new entrants, which has really increased the capacity as well as heightened the level of competitiveness and created a continuation of soft market conditions. Generally, profitability within the top carriers is better than the entire industry, and this is mainly due to increased scale, niche market expertise and strong relationships with agents and brokers,” said Valenta. http://www.digitaljournal.com/pr/3648359

In the State of the Union address, President Donald Trump called for $1.5 trillion in infrastructure spending from a combination of federal, state, and local government sources working along with the private sector. The funds are much-needed: America’s crumbling roads and threadbare broadband coverage have been well documented—as has the impact of this lack of investment on economic development and urbanization. A unique part of the framework of the U.S. infrastructure plan is that it will likely encourage increased use of the public-private partnerships (PPP or P3) model—a formal arrangement between a government body and private-sector organization to design, finance, build, and operate projects. PPPs have been used in the past, especially in privately operated toll roads, but they have also been responsible for some high-profile US infrastructure projects such as the $4 billion renovation of LaGuardia International Airport and the $852 million Presidio Parkway in California. The U.S. lags behind Canada and Europe when it comes to the use of PPPs to rehabilitate and upgrade its infrastructure. This is due to a number of factors, including: a lack of enabling legislation in certain states, a shortfall in government expertise in managing PPPs, and the prolific use of municipal bonds to fund local infrastructure. What’s more, there are big disagreements over the benefits and drawbacks of PPPs. Depending on whom you talk to, PPPs are either a miracle cure for the country’s ailing infrastructure or a potentially thorny arrangement that can leave governments and taxpayers on the hook for decades. As governments look to mobilize their resources to repair existing infrastructure or take on new projects, they need to understand how PPPs have been used in the past, and how they could be beneficial in the future. We’ll take a look at five considerations government officials and other stakeholders should keep in mind as they weigh whether or not to use PPPs for that next big infrastructure project. To date, PPPs have accounted for a small portion of all infrastructure projects executed in the U.S. This arrangement has been used more frequently for toll roads, but, according to the Congressional Budget Office, PPPs made up just 1 percent of total spending in this category from 1989 to 2011. And while 37 states had passed PPP-enabling legislation as of January 2017, to date, the entire U.S. has a total of only 42 surface transportation projects procured as PPPs. Indeed, 35 states have never undertaken a single public-private transportation project. o benefit from the increased spending in the proposed federal infrastructure plan, state and local governments must become more familiar with how to use PPPs and manage their complexities. Tariq Taherbhai, Chief Operating Officer, Global Construction and Infrastructure, Aon, offers five considerations to keep in mind when evaluating PPPs as an option. Clearly define the immediate and long-term risks and rewards of PPPs While PPPs are often praised for the way they mobilize resources to undertake ambitious projects that would otherwise have remained on the drawing board, determining their total costs and benefits can be difficult. Complicating factors include: Duration of contracts Financing terms Responsibility for construction and maintenance Usage volumes Guaranteed margins For example, in the $1.4 billion Goethals Bridge replacement, the Port Authority of New York and New Jersey will collect toll revenues, but has committed to pay the private developers more than $56 million a year for 40 years, contingent on the performance of the bridge. Such arrangements, in which local governments promise substantial payments, are common, but they run the risk of diverting much-needed funds from public coffers. Governments can structure PPPs to shift the risk for construction, maintenance, and even revenue to private entities. For example, in Indiana, a private consortium in 2006 purchased a 75-year lease on a 157-mile toll road for a $3.8 billion upfront payment. When the global financial crisis and low traffic volumes pushed the consortium into bankruptcy, Indiana got to keep the money from the purchase while the toll road continued operations. Build PPP management capabilities One of the reasons that relatively few PPP deals have closed is that many government entities do not have the capacity or capabilities to negotiate and manage them. Taherbhai explains: these agreements can be complex and include terms for everything from maintenance standards, fee setting, and other risk sharing elements. Further, negotiations can often stretch on for months, putting significant burden on agencies whose staff is already stretched thin. Some government agencies have formed dedicated units tasked with procuring, negotiating, and managing PPPs. Such teams can handle quality control, policy formulation and coordination, and selection and negotiation with the private entities interested in entering into PPPs. For example, the state of Virginia, an early adopter of PPPs, has governmental units dedicated to managing these projects. Look beyond just financing Low interest rates and the robust U.S. municipal bond market mean that public financing of infrastructure projects can be cheaper up front than private sources, meaning PPPs are often promoted as a key funding source for infrastructure projects if public capital is not readily available for that project. However, Taherbhai advises that viewing these arrangements purely through a monetary lens can overlook other potential benefits. Instead, government officials should also be aware of the other benefits PPPs can offer, namely expertise in sourcing, procurement and project delivery. For example, many public infrastructure projects suffer from delays and cost overruns—issues that the private sector, with its focus on efficiencies and cost-savings, can help mitigate. Factor in total cost of ownership Governments should be taking into account the total cost of ownership of the infrastructure project through the entire life of the asset, rather than focusing purely on the initial cost of construction. “PPPs can be used to build new infrastructure, but one of the key benefits is bringing certainty to the public sector of the cost and quality of infrastructure throughout its life,” explains Taherbhai. For example, Pennsylvania’s recent decision to use a PPP to replace over 550 structurally deficient bridges means the state will only pay

Summary: This Expert Insight looks at the case of Ziggurat (Claremont Place) v HCC International Insurance Company PLC [2017] and considers the implications of the case for the surety industry generally, particularly in the context of construction insolvency. I read the decision in Ziggurat with some incredulity. Overall I’d agree with the conclusion of Karen Spencer of Gateley that the amendments made to the ABI form seem to have confused rather than clarified matters. I’d also agree that more radical surgery is needed if the employer wishes to secure earlier payment following the contractor’s insolvency. But I did want to offer some thoughts on what the decision tells us about wider issues in the surety bonding market. The Perar issue: debt and breach Most commentaries on the case (including Karen’s) have focussed on the Perar point. This is the point that, under the JCT forms insolvency is not in itself a breach and will not therefore trigger a call on the bond. That is why many employers (and their advisers) seek to amend the ABI form to include insolvency as a ground on which a call may be made. All well and good. But in this case, as Coulson J makes clear, the point had become a non-issue by the time the call was made, since the contract administrator had issued a certificate under JCT clause 8.7.4 stating a balance due from the contractor to the employer. That created a debt, and the contractor’s failure to pay constituted a breach to which (as Peter Gibson LJ noted in Perar) the ABI bond would respond. In short, an open and shut case. So why did the matter come to court at all? Even accepting (as Coulson J noted) that it was open to the surety to challenge the amount of the debt, why did it not accept liability and pursue its case on quantum only? That, to me, is the real question raised by this decision. Sureties: teeth and nails Try as I may, I can’t avoid the conclusion that the surety was desperate to try and avoid liability, at (almost) any cost. We have seen this many times before, the Hackney Empire saga being a recent precedent that springs to mind. But Ziggurat does seem to be a particularly egregious example. accept that it is entirely appropriate for sureties to resist spurious claims, and that they do not wish to set an unwelcome precedent by paying out too easily. But (I’d suggest) that is very far from the position in this case. Putting the claimant to proof is one thing; defending the indefensible is quite another. Put another way, is the surety’s premium income better spent on settling obviously meritorious claims, or in fighting a hopeless cause tooth and nail? As most readers will know, to mount a TCC action does not come cheap, especially if you lose. Is the surety industry really so stressed that it needs to conduct itself in this way? Is this case a one-off, or an indication of a hardening in attitude among sureties generally? Only time will tell, but the signs are not promising. We are seeing sureties push back on terms that have become market standard in recent years; for example, refusing to accept an adjudicator’s decision as the basis for a call, even where the bond includes a reconciliation mechanism should the decision later be overturned in court or arbitration proceedings. Of course, it is up to them. But, assuming they wish to continue providing bonds for construction projects at all, I’d suggest that sureties should think very carefully before biting the hand that feeds them. Employers are increasingly aware of the tactics that sureties commonly use to avoid payment, and many are already unwilling to incur costs on an instrument that in reality offers little value. The “Carillion effect” is only likely to focus minds, on both sides of the debate. Final thoughts/b> In summary, I think the right question is not whether (and, if so, how) to amend the ABI form, but whether a surety bond is really worth having at all. My closing advice? By all means ask for a bond at tender stage, if only as an informal credit check. But, assuming an on demand bond is not available (and, in the UK at least, it rarely will be), clients may be well advised to look elsewhere for the security they need. https://www.lexology.com/library/detail.aspx?g=839a1b1c-d190-4d32-a6f4-3b6af2591dfd