NAIFA Trustee Barbara A. Pietrangelo, an accomplished Financial Planner and a loyal member of NAIFA since 1992, stands out as a beacon of expertise and commitment. Her career began in 1991 at the Prudential Insurance Company of America, where she has since ascended to become the Wealth Solutions Report Financial Planner of the Year as One of the Top Women Industry Leaders for 2024. 

We were honored to have Barbara speak at the 2024 NAIFA-Texas Annual State Conference that was held in February, at the Hilton NASA Clear Lake hotel in Houston, Texas.

On March 28, the Departments of Labor (DOL), Health and Human Services’ (HHS’) Centers for Medicare and Medicaid Services (CMS), and Treasury released a final short-term limited-duration (STLD) health insurance rule. It retains the proposed rule’s new limits of three months duration, with a four-month renewal option for this kind of insurance.

The new final regulation also requires new disclosure rules—generally language making clear to prospective purchasers that STLD is not the full coverage that they would get from an ACA-compliant policy.

April is National Financial Literacy Month, an annual observation NAIFA wholeheartedly agrees with. But why is financial literacy important and what are we doing about it?

FINRA surveys consistently show that around two-thirds of Americans lack basic financial understanding, and their lack of knowledge is significant. Those who score higher on FINRA’s financial literacy quiz show a greater tendency to earn more than they spend, have an emergency fund of three-months’ salary or more, contribute to retirement accounts, and accurately estimate their retirement savings needs.

In addition, consumers who are more financially literate are better equipped to manage their debt and avoid high-interest loans, more likely to save and invest effectively, and more likely to manage financial risks and cope well with unexpected financial challenges and emergencies.

NAIFA Supports Financial Literacy

During April and throughout the year, NAIFA promotes financial literacy. Life Happens, NAIFA’s consumer outreach arm, created and coordinates important consumer outreach campaigns, like Insure Your Love Month, Disability Insurance Awareness Month, and Life Insurance Awareness Month. Life Happens provides financial professionals with tools and resources to educate consumers. During National Financial Awareness Month, Life Happens is creating a social media toolkit of posts and graphics that will soon be available to NAIFA members.

Financial professionals play an important role in improving financial literacy among their clients and in their communities. They often go well beyond providing products, services, and guidance, and empower those they work with to understand things like budgeting, saving, investing, borrowing, debt management, retirement planning, and risk protection. Many NAIFA members volunteer in their broader communities, working with schools, churches, libraries, local governments, civic groups, or business organizations to provide financial literacy education. Understanding among consumers leads to better decision making and improved financial security. We highlight NAIFA members’ good work in the Advisor Today blog, on our social media accounts, and in the Advisor Today Podcast series.

Advocating for Financial Literacy

NAIFA chapters have leveraged their political grassroots influence to encourage state laws adding personal finance courses to high school graduation requirements. Students are required to have basic proficiencies in math, English, science, and other subjects. Doesn’t it make sense that they should graduate with some understanding of financial matters? Not only does this provide them a base of knowledge as they face the prospects of making their own personal finance decisions, but it also could build enthusiasm and encourage some to pursue insurance and financial services as a career.

In 2023, Alabama, Connecticut, Idaho, Indiana, Louisiana, Minnesota, Montana, Oregon, West Virginia, and Wisconsin passed measures to require public high school students to take a one-credit course in financial literacy before graduating. To date, 25 states have passed similar measures.

At the federal level, NAIFA members continue urging lawmakers to join the Congressional Financial Literacy and Wealth Creation Caucus co-chaired by Reps. Young Kim (R-CA) and Joyce Beatty (D-OH). The Financial Literacy and Wealth Creation Caucus aims to equip Americans with the skills and resources they need for economic stability, wealth-building, and prosperity.

Educated consumers are more financially secure, promote the robustness of the U.S. economy, and provide a market for important insurance and financial products and services. It’s hard to overstate the importance of financial literacy this month and every month.

With over three decades of expertise in the Life Insurance sector, I've come to realize there's nothing more vital for safeguarding your business than cybersecurity. Whether you're a financial advisor, an insurance agent, a broker-dealer, or a principal of a brokerage agency, a single cyberattack could devastate your business. Adopting a Zero Trust approach is essential. Moreover, cybersecurity is crucial for meeting regulatory and compliance obligations. I urge you to conduct audits on your network and website. I'm here to assist you in securing a complimentary audit. Now, let's delve into some key insights on cyber insurance, compliance, and security.

The global cyber insurance market tripled in volume in the last five years, expanding to gross direct premiums of around $13 billion in 2022, according to the Swiss Re Institute (SRI). In two years, the market has seen rate increases and re-underwriting to restore profitability. Swiss Re Institute expects premiums to grow to $23 billion by 2025.  

There has been a surge in submissions. Over the last half-decade, there has been notable maturity in this sector. With access to comprehensive data and accumulated experience, insurers now have a more refined framework for assessing and pricing cyber risks.

However, recent industry reports highlight some concerning areas. Loss ratios are on the rise, cyber insurance limits are shrinking, and coverage terms are becoming more restrictive, all impacting insurers' efforts to manage their risk exposure effectively.

Given the evolving cyber landscape, insurers continuously recalibrate strategies. They maintain rigorous underwriting practices, emphasizing the importance of advanced cyber hygiene. Consequently, coverage terms are closely aligned with an organization's level of preparedness. Establishing a strong Cybersecurity Program is one of the first steps towards meeting insurance and regulatory demands. A Cyber Program Management System like Buckler can fast-track policy management and compliance. While there was a decline in claims and ransomware incidents in 2022, there was a resurgence in 2023. In the United States alone, ransomware events spiked by 75% within the first six months of the year, according to a report by Malwarebytes Inc. Even with this as a driver, enterprises and agencies often wait to see fines and enforcement from regulators before taking action themselves. Swift changes are happening with the SEC’s new cyber rules, coverage restrictions for systemic risk and privacy violations and increased expectations for cybersecurity. 

Certain industries, such as financial services, professional services, technology, and healthcare are particularly susceptible to cyber threats with high volumes of private data. These sectors, along with their associated supply chains, face high, or extremely high, levels of risk. Consequently, many organizations in these sectors are turning to specialized solutions offered by insurance brokers, carriers, and solution providers to better manage and mitigate risks effectively.

Three Significant Trends Shaping the Cyber Insurance Industry

1. Increased Security Requirements

As cyber threats become more sophisticated, insurers take a more proactive approach to risk management by implementing stringent security standards for their clients. This trend is evident in the growing prevalence of detailed security questionnaires that insurers require businesses to complete as part of the insurance application process.

Businesses seeking cyber insurance must be prepared to provide comprehensive information about their cybersecurity posture and demonstrate adherence to industry best practices and cyber regulations.

HIGHLIGHT: In regions where rates rose, the trend was for a slower pace of increase. Insurers continued to focus on cybersecurity controls, typically looking for year-over-year improvements. (March 2024 Global Insurance Market Index)

2. Increased Scrutiny During the Claims Process

In the event of a cyber breach, insurers will often conduct thorough investigations to determine whether the insured party complied with the security requirements outlined in their insurance policy. Insurers may deploy teams of experts to assess the insured party's cybersecurity practices and verify their compliance with the terms of the policy.

If the insured party is found to be non-compliant with the security requirements, the insurer may deny the claim, leaving the business responsible for covering the costs of the cyber breach. This trend underscores the importance of maintaining robust cybersecurity measures and regularly reviewing and updating security protocols to ensure compliance with insurance requirements.

HIGHLIGHT: It’s also not unusual for cyber insurance claims to get rejected. This is usually either on account of exclusions or poor cybersecurity hygiene on the part of the insured. Estimates from Marsh’s Global Insurance Market Index suggest that around 27% of cyber insurance claims were not honored or were partially paid due to exclusions within the cyber cover.

3. Rising Premiums

As cyber threats continue to evolve and breaches become more frequent and costly, insurers are adjusting their pricing models to reflect the heightened risk environment. This trend is particularly pronounced for businesses in high-risk industries or those with a history of cyber breaches, like the financial services industry.

Businesses should be prepared for the possibility of higher cyber insurance premiums and factor these costs into their overall risk management strategy. Investing in proactive cybersecurity measures and demonstrating a commitment to risk mitigation may help businesses negotiate more favorable premium rates with insurers.

HIGHLIGHT: The cost of Cyber Insurance in the 2nd quarter of 2022 rose to 79% in the US. Marsh’s Global Insurance Market Index. While premium costs fell by 6% in the third quarter of 2023 compared with the same quarter in 2022, ransomware- and privacy-related claims had already skyrocketed from the previous year, according to risk management consultancy Marsh. (Dark Reading)

The cyber insurance landscape is evolving rapidly. Insurers are implementing stricter security requirements, increasing scrutiny during the claims process, and raising premiums to reflect the growing cyber risk landscape. To effectively navigate these trends, businesses must prioritize cybersecurity investments, maintain compliance with insurer requirements, and proactively manage cyber risks. By staying informed about emerging trends and working closely with experienced solution providers, businesses can protect themselves against the financial impact of cyber incidents to ensure their long-term resilience in an increasingly digital world.

Sample industry solutions that can remove or mitigate risk for stronger cyber insurance alignment are:

• Buckler: A cyber program management system with built-in regulatory compliance and evidence proof for easier program management and communication across teams, leadership, and boards.

• Open VRM: A (zero-cost) vendor risk management (VRM) platform that can be leveraged by clients and their vendors to save time and resources managing vendor risk.

• FCI: An MSSP delivering zero-trust integrated, automated cybersecurity solutions that fill control gaps across endpoints, networks, applications, and users.

The Congressional Conference is a NAIFA members' best opportunity to experience the power of grassroots advocacy first-hand in our nation's capital. Attendees really do make a difference on behalf of their businesses, clients, and communities. Networking allows them to be inspired and share ideas with politically involved colleagues. Training, policy briefings, and expert speakers give them the knowledge and guidance they need to be effective advocates. Meetings with lawmakers allow NAIFA members to speak with a unified voice and forge meaningful relationships with people whose decisions impact the financial security of every American.

If you, as a NAIFA leader, are not registered to attend the Congressional Conference May 20-21, please sign up today. Also, be sure to spread the word. The more people who attend, the louder and more influential our voice. Let's represent NAIFA, NAIFA-Texas and our clients!