apistemplate

Facing accusations of maintaining a “ghost network” of doctors to intentionally confuse and deprive patients of needed healthcare, Anthem Blue Cross Blue Shield of New York said last week the case is a matter of federal jurisdiction and not the state court where the case is filed.

In a 32-page memorandum filed with its motion to dismiss the lawsuit, which was brought by several Anthem policyholders, attorneys for Anthem Blue Cross said the plaintiffs are enrollees in the Service Benefit Plan, a health insurance plan for federal employees, retirees, and their families, which is governed by the Federal Employees Health Benefits Act.

“Plaintiffs’ claims—all brought under state law—must be dismissed with prejudice because they are fundamentally inconsistent with FEHBA and the regulations and contracts thereunder,” the memo contends.

The lawsuit, filed in October of last year in the Southern District of New York, said the inaccurate doctor network led patients to pursue expensive out-of-network care that led to delays and unnecessary costs.

The law firms representing the plaintiffs completed a secret shopper survey in which they called the first 100 doctors on Anthem’s network directory and found only seven out of the 100 actually accepted insurance and would take new patients. Most did not accept the insurance, were not mental health providers, or did not accept new patients.

The lawsuit claims that there were 4,300 providers listed on a downloadable directory of psychiatrists, but many of those listings were duplicates with different phone numbers and addresses.

‘We had no idea it was this bad’

“We knew ghost networks were a problem, but we had no idea it was this bad,” said Steve Cohen of Pollock Cohen.

The lawsuit said ghost networks cause significant financial harm to patients because going out of network for their care incurs inflated expenses, as well as delays in finding essential care. Often, patients give up because they can’t find in-network doctors who accept their insurance.

The plaintiff, Anthem said, “could have informed Anthem of her difficulty in finding an in-network provider and requested an accommodation such as a single-case agreement that would have allowed her to see an out-of-network provider at in-network rates.”

Anthem argues for dismissal

In its response filed last week, Anthem attorneys did not address the validity of the accusations and only made the case that the lawsuit should be dismissed.

“They are saying it doesn’t even belong in court,” said Cohen. “And that the only remedy is for people to complain to the Office of Personnel Management. We obviously disagree and will be filing our opposition within the next few weeks.”

Accusations of healthcare insurers maintaining “ghost networks” are becoming common and have become a concern in both public discourse and regulatory oversight. Investigations and audits (including those by government agencies like the GAO and HHS) have found that many insurance provider directories are routinely inaccurate, with error rates in some cases exceeding 40%-50%.

The issue spans across Medicare Advantage, Medicaid managed care, and ACA marketplace plans. Medicare Advantage, in particular, has been heavily scrutinized for this. The Centers for Medicare & Medicaid Services (CMS) and several state insurance departments have cited numerous insurers for failing to maintain accurate provider directories.

Critics say the ghost networks give the illusion of network adequacy, helping insurers meet regulatory requirements without providing real access.

Legislation introduced

State and federal legislation is being introduced or expanded to mandate more frequent directory updates, stronger penalties, and clearer consumer protections.

In a December report, the New York State Attorney General’s Office outlined rampant evidence of “ghost networks. The report found that 86% of the listed mental health providers who staffers had called were “unreachable, not in-network, or not accepting new patients.” Though regulations require insurers to publish accurate directories, New York Attorney General Letitia James’ office did not find evidence that the state’s own insurance regulators had fined any insurers for their errors.

The Requiring Enhanced & Accurate Lists of Health Providers Act, or the “REAL Health Providers Act was introduced in Congress by Sen. Michael F. Bennet (D-CO). The bill aims to prevent ghost networks by mandating more stringent provider director accuracy requirements for Medicare Advantage plans.

Another proposed federal bill, the Behavioral Health Network and Directory Improvement Act, introduced by Sen. Tina Smith [D-MN], aims to address the issue of ghost networks in behavioral health care for individuals enrolled in private health insurance plans. The act proposes stricter requirements for provider directory accuracy, including mandatory independent audits of health plan networks by both the federal government and the health plans themselves.

Audit results would be published online for public transparency, with civil monetary penalties for non-compliance. Additionally, the bill calls for higher network adequacy standards, parity standards to keep behavioral health reimbursements on par with physical health, and for behavioral health providers to regularly update the information they submit to health plans, including timely information on whether they can accept new patients. Both bills are awaiting action in committees.

Several states, including Illinois, Oklahoma, New Mexico, and Massachusetts, have implemented measures to reduce ghost providers.

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South Carolina regulators are still deliberating how to respond more than six weeks after an administrative law judge reversed an order that had banned Atlantic Coast Life Insurance Co. from writing new premiums.

In the meantime, Utah regulators are in court asking a judge to allow them to “take possession” of Sentinel Security Life Insurance Co. and a pair of reinsurers.

Atlantic Coast and Sentinel Security, along with several reinsurers, are owned by Advantage Capital, an investment firm known as A-Cap. Utah and South Carolina regulators jointly investigated the financial backing of the insurers throughout 2024 and found the assets lacking.

A spokesperson for the South Carolina Department of Insurance said they are aware of the Utah petition for control.

“We are reviewing that petition and considering what, if any, additional measures are necessary to protect South Carolina consumers and policyholders,” the spokesperson said. “This Department will continue to take any action allowable by South Carolina law to protect its citizens.”

In December, both Utah and South Carolina banned the insurance companies from writing new premium as of Jan. 1, 2025. A-Cap appealed to the administrative law court in both states.

On Feb. 13, South Carolina Judge Ralph King Anderson III rejected the department’s conclusion that Atlantic Coast is in financial distress.

“The evidence shows that ACL maintains a positive cash flow and has not experienced any difficulty paying amounts owed to either its policyholders or creditors,” he wrote.

Judge: Insurers have been damaged

In a 24-page decision, Anderson ripped the department’s process for moving ahead with its directive despite Atlantic Coast’s good faith efforts. The judge wrote that the results financially damaged the insurance companies.

The directive “has tarnished Petitioners’ credibility in the market, resulting in a loss of employees, and damaged relations with its brokerage distribution and amongst local funeral homes,” Anderson wrote.

In Utah, the department’s ban on Sentinel Security writing new premiums is stayed until a May 12 hearing. But last week regulators went a step further, asking a judge to order rehabilitation for Sentinel Security and a pair of reinsurers.

“This Petition results from a years-long history of self-dealing, conflicts of interest, and obfuscation by the ultimate controlling party of the Utah Insurers, Kenneth King,” the petition states.

King is the chairman and CEO of A-Cap. The Utah reinsurers are Haymarket Re and Jazz Re.

The petition asks the court to allow regulators to “take possession, control, and title to all assets of Sentinel, Haymarket, and Jazz Re, and to administer those assets pursuant to the laws of the State of Utah, as directed by the Court, staying all actions and proceedings relating to the Utah Insurers, in Utah and elsewhere.”

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State insurance regulators say life insurers are “undermining” efforts to bring illustrations in line with reality.

The Life and Annuity Illustration Subgroup aims to stop the latest illustration abuses with changes to Actuarial Guideline 49-A. Subgroup members discussed the problems March 22 during the opening day of the National Association of Insurance Commissioners’ spring meeting.

The illustration abuses were uncovered after an informal multi-state review group was formed and selected 10 companies to review in 2024, explained Ben Slutsker, director of life actuarial valuation at the Minnesota Department of Commerce.

Regulators found very high compliance with various AG 49 rules, Slutsker said, with one exception with disclosures under AG 49-A.

Approved in 2020, AG-49-A limits the maximum illustrated rate that insurers can use in policy projections to prevent unrealistic growth assumptions. It includes restrictions on exaggerated benefits from indexed loans, a strategy that previously allowed aggressive return assumptions.

The review group found “multiple insurers” showing a second illustrated table in defiance of the regulation, Slutsker said.

“And it would be like a side-by-side comparison, which we thought, not even implicitly, but almost explicitly, just trying to say, ‘Yeah, that’s the maximum we can do. But actually, it’s higher, and it probably will be higher for you,’” Slutsker said. “We felt like it was kind of undermining some of the requirements because of that.”

Longtime illustration concerns

Consumer advocates have long had IUL illustrations in their sights. Illustrations showing double-digit returns are often unrealistic and harm retirement savers, critics say. Approved in 2015, AG 49 sought to tamp down illustrations with caps and other restrictions.

Insurers almost immediately got around AG 49 by offering IUL bonuses and multipliers. That led to AG 49-A and AG 49-B in 2023.

The proposed amendments include language banning the comparison of historical returns with the maximum illustrated rates allowed by AG 49-A. Other language tightens up how historical returns can be presented and increases the historical data period from 20 to 25 years.

“For any Index Account where an index or indices have existed for fewer than 25 years, the historical period shall be limited to the length of its existence, or the date of inception of the index,” one key language addition reads.

The growth of proprietary indices is bothersome to many in the industry. At one time, the S&P 500 was used in almost all index products but came with limited ability to design product features. So, carriers created their own indexes and haven’t looked back.

Since then, more than 160 indexes have been created. Unlike the S&P 500, few of them have any solid history to draw from.

With no history to draw from to support illustrations, insurers created “backtested” hypothetical performance from proprietary index components. But critics say this results in misleading illustrations untethered from reality.

Tomasz Serbinowski, an actuary with the Utah Insurance Department, said regulators “need to get away from” allowing any illustrations based on past performance. It “incentivizes” the company to pursue creative historical results, he argued.

The Life and Annuity Illustration Subgroup plans to begin meetings on the illustration issue in the coming weeks, Slutsker said.

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Medicare Advantage plans increasingly rely on middlemen for marketing, a move that is hiking costs and making it more difficult for the government to oversee and regulate health plans that millions of older Americans rely on.

That was among the findings of a report released last week by Sen. Ron Wyden, D-Ore., the ranking member of the Senate Finance Committee. Among the many recommendations made within the report is that agents and brokers be required to act as fiduciaries for Medicare Advantage enrollees.

In the report, the committee found using middlemen to market MA plans is a cost that is passed along to Medicare enrollees and taxpayers. The Centers for Medicare and Medicaid Services has capped reimbursements for broker enrollment services; meanwhile, reimbursements for marketing and administrative services are not capped.

Payments for marketing and administrative services have outpaced MA enrollment growth, the committee found, and payments for those enrolled in dual-eligible special needs plans can be 5 to 10 times greater than those for general enrollments.

Among the key findings in the report:

1. Medicare Advantage plans engage in marketing practices that increasingly rely on third-party marketing organizations and lead generators, inflating costs for enrollees and taxpayers. These practices result in a complex ecosystem of middlemen that evade oversight and regulation. Seniors and people with disabilities may be misled by aggressive marketing practices and steered by third parties into MA plans that do not meet their needs.
2. State and federal regulators have limited oversight of marketing practices. Because of the way insurers are able to contract for marketing activities, state and federal governments have limited oversight and regulatory access. TPMOs nominally oversee their contracted lead generators and downstream contractors through contract terms that require compliance with regulation and consumer protections, but which do not always require TPMOs to proactively audit or otherwise ensure middlemen are in compliance with the law.
3. The MA marketing boom creates financial and other incentives for companies to limit which MA plans a broker presents to a client. This may result in brokers offering enrollees MA plans that do not meet their health needs in order to access commissions or administrative payments. As lead generation proliferates the MA marketing space, lead generators and brokers regularly use aggressive or misleading tactics, likewise steering enrollment. Uncapped spending drives aggressive lead generation tactics, including persistent calling and advertisements that create a sense of urgency.

Recommendations to Medicare Advantage providers

The report made several recommendations to protect consumers and taxpayers.

1. Ban out-of-whack marketing and other service fees that influence agents and brokers to recommend certain MA plans and drive up taxpayer costs. Congress should instruct CMS to ban MA plans from paying more to TPMOs or other related entities for any enrollment-related administrative or service for dually eligible beneficiaries or other enrollees. The committee investigation found substantial disparities in administrative service fees from $0 to more than $1,000. These administrative service fees may influence what insurer a TPMO contracts with as well as what MA plans are presented to customers.
2. Prohibit MA plan payments for any technology that limits or hides what MA plans an agent or broker sees when supporting an enrollee. The committee contended current technology solutions paid for by MA plans for agents and brokers can be manipulated by the technology platforms to suppress some MA plans – essentially to discourage agents and brokers from presenting these MA plans.
3. Regulate marketing organizations and lead generators. The web of TPMO enrollment and marketing has created opportunities for some bad actors to take advantage of vulnerable seniors, the committee said. Congress must give CMS the authority to directly regulate marketing organizations and lead generators to ensure that these companies are not using deceptive or high-pressure sales tactics.
4. CMS should implement and enforce policies designed to hold brokers, lead generators, marketers and insurers accountable. Any individual or company involved in the chain of enrollment who systematically violates or ignores CMS requirements should face appropriate penalties.
5. A fixed fee should be established for all MA plan enrollments. This fee should be indexed to inflation, not Medicare program enrollment growth and determined through a CMS-led study to examine the fair market value for MA plan commissions and related administration and service fees. This fee should be provided for all MA plan enrollments to compensate agents and brokers for their time.
6. Agents and brokers should be required to act as a fiduciary for MA enrollees.
7. CMS should standardize the language and definitions used to describe the chain of enrollment. Most notably, CMS does not define “TPMO” or “lead generator.”
8. Support unbiased sources of information for beneficiaries, including State Health Insurance Assistance Programs, Senior Medicare Patrol, 1-800-MEDICARE and ombudsman programs.

NABIP responds

In a statement, the National Association of Benefits and Insurance Professionals applauded the committee’s efforts to crack down on deceptive MA marketing practices.

“The use of misleading terms in advertising—like ‘new Medicare benefits,’ flex cards, and Part B givebacks—creates confusion and often leads seniors to enroll in plans that may not meet their health needs. NABIP strongly supports and recommends CMS enforcement of existing regulations on television marketing of Medicare Advantage plans and increased partnership with the Federal Communications Commission to address complaints,” said NABIP CEO Jessica Brooks-Woods.

“We are glad the committee has heard our concerns about third-party marketing organizations and is beginning to differentiate between these unregulated entities and the licensed professionals who serve beneficiaries with integrity. However, the current TPMO designation still wrongly lumps together offshore call centers, lead generators, licensed agents, and FMOs. NABIP urges CMS to eliminate this blanket categorization and instead focus regulatory efforts on deceptive lead generation, the source of many of the issues we are seeing in the market.”

In its statement, NABIP said it wants to clarify some parts of the report.

1. Marketing costs and taxpayer impact: Marketing costs do not increase Medicare spending beyond the per-member-per-month payment established by CMS. Medicare Advantage plans must operate within this fixed budget. These costs do not raise premiums for beneficiaries or increase taxpayer contributions.
2. Marketing rules: Medicare Advantage marketing is subject to more restrictive federal regulations than Medicare Supplement products, particularly regarding outbound solicitation. The current system relies on carriers to oversee the agents and entities they contract with. We would welcome additional uniform standards across all Medicare products and better enforcement tools to address bad actors without penalizing the majority of agents who are compliant and consumer-focused.
3. Plan selection and commission incentives: Brokers represent the beneficiary, not the carrier. Carriers are steering beneficiaries to or away from plans that carriers prefer through compensation changes and which plans are displayed on agent quoting systems. We agree that all quoting systems should represent all carriers and plans that are available. With regards to enrolling beneficiaries in national vs. regional carrier plans, national networks are often chosen because they best meet the needs of beneficiaries who travel, relocate, or live seasonally in multiple locations—not because of higher commissions. A 2023 NABIP survey demonstrated that the majority of agents enroll beneficiaries into both national and regional plans, depending on beneficiary need.
4. Role of SHIP counselors: SHIP counselors play a role in serving as one of the many actors who can educate beneficiaries. However, licensed independent agents serve as year-round caseworkers—resolving billing errors, assisting with prior authorizations, helping with appeals, and guiding clients through coverage changes.
5. Proposed limits on generic ads: We are concerned that proposed regulations limiting “generic” advertisements may go too far. Seniors need a clear path to certified, contracted agents—those best equipped to help them make informed enrollment decisions. At minimum, agents should be allowed to say they specialize in helping Medicare beneficiaries compare coverage options.

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Artificial intelligence is developing fast, maybe too fast for state insurance regulators.

The difficulty in trying to write rules for the quick-moving AI, amid the slow pace preferred by regulators, was the main topic for discussion Tuesday during a meeting of the Big Data and Artificial Intelligence Working Group.

The group met during the spring meeting of the National Association of Insurance Commissioners.

In 2020, The NAIC adopted the Principles on Artificial Intelligence, establishing foundational guidelines for the ethical and responsible use of AI in the insurance industry. ​Three years later, the NAIC approved the Model Bulletin on the Use of Artificial Intelligence Systems by Insurers.

But not enough is happening for some who follow the AI issue.

“Are insurance consumers better informed and better protected, specifically in this area now, than they were [in 2020]?” asked Peter Kochenburger, a visiting professor of law at Southern University Law Center. “I would much prefer it’s not a rhetorical question, but I think it is because there has yet to be a single, specific right or guideline that consumers have.”

Working group co-chairs Doug Ommen, Iowa insurance commissioners, and Michael Humphreys, Pennsylvania insurance commissioner, outlined a four-step process they are halfway through.

Humphreys pointed out that there is active dialogue to remind consumers that they have rights under existing insurance coverage. Likewise, 23 states and the District of Columbia have adopted the model bulletin on AI.

But Humphreys also agreed that action must come sooner rather than later.

“Where I do agree with you is we must go faster,” he said. “We’re starting to see AI legislation in our states, and it can be very different across different states. So. I mean when we’re going to continue to make the argument that there shouldn’t be a federal floor, that there shouldn’t be a federal ceiling, we had better start doing something.”

A handful of states are not waiting for NAIC model laws on AI and related areas such as consumer protection, data privacy, and accountability.

In particular, Colorado became the first state to pass comprehensive legislation to regulate AI. The Colorado AI Act, which takes effect on Feb. 1, 2026, requires developers and deployers of AI high-risk systems to use care to protect consumers from any known or reasonably foreseeable risks of algorithmic discrimination or bias.

Health insurers love AI

The working group shared the latest survey data from the health insurance industry. The survey was conducted in 16 states and completed by active insurers that either: Wrote business in one or more of the participating states and had at least $250 million in earned premiums in 2023; or held a significant market share in one or more of the participating states.

Ninety-three health insurers met the criteria and responded to the survey, Humphreys said. It marks the fourth insurance segment surveyed by the working group, with each survey returning a greater enthusiasm for AI. Ninety-two percent of health insurers said they “use, plan to use or explore” the use of AI.

Humphreys acknowledged the length of time between the initial survey to the most recent results is surely skewing the numbers.

“As we all know, I think the development of AI, the implementation of AI, has been moving pretty quickly,” he said.

The group is not quite finished with its full report on health insurers and AI, Humphreys said, but the more-than-200-page report should be available in April.

Of the companies that participated, 83% said they are “actively” using AI. Health insurers are facing a number of lawsuits over the use of AI to handle claims. One such lawsuit followed an in-depth investigation by STAT, which covers health and science news. STAT detailed how UnitedHealth allegedly used a computer algorithm to cut off care to older patients.

The STAT report claimed that internal documents show UnitedHealth managers set a goal for clinical employees to keep patients’ rehab stays within 1% of the days projected by the algorithm.

Some obstacles remain to AI

Just 9% of respondents said they are “planning or exploring” the use of AI in their operations, Humphreys said.

“While it’s surprising that there are companies that are still not using AI, some of those companies that we have talked to are still facing some obstacles implementing AI,” he explained.

Brian Bayerle, chief actuary for the American Council of Life Insurers, urged the working group to “focus on its charge to monitor and promote the model bulletin implementation. This focus should include assessment of the effectiveness of the bulletin by collecting lessons learned from both industry and regulators.

“This analysis is really necessary before contemplating what tools may be necessary, and in particular, any additional requirements.”

Humphreys disagreed with the last part and said that regulators will pursue action as it is deemed to be needed.

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More than half of financial advisors find acquiring new clients a challenge, according to the latest Cerulli Edge—U.S. Advisor Edition. While the majority (80%) of clients are satisfied with their primary advisor, most unadvised investors do not believe they will receive enough value for a relationship to be worthwhile, Cerulli Associates said.

Unadvised investors often view advisor-client relationships as lacking transparency, and they perceive the associated costs as excessively high. Transparency is crucial, not only for maintaining good relationships with existing clients but also for attracting new ones, Cerulli added. “It’s an essential aspect of service for advisors,” said Noah Serianni, analyst at Cerulli.

“Consistency in communication, being upfront about any substantial changes to a client’s portfolio and being explicit about costs are important discussion points. For affluent investors, transparency is the most important factor when choosing an advisor, even more so than demographic or performance-based considerations.”

Challenges faced by advisors growing a practice

Acquiring new clients has long been a significant challenge for advisors. Competition, practice limitations, and trouble in offering services to scale all contribute to the struggle to attract clients, said Serianni. Also, many advisors are preoccupied with their current clients’ needs and cannot prospect as much as they should, he added.

In addition, many investors avoid financial advisors due to their confidence in their own financial decisions and a perceived lack of transparency in advisor relationships, which limits the pool of prospects.

According to Cerulli, many unadvised advisors are unsure about the price of hiring an advisor and often perceive them as too expensive. There is also confusion among those who use advisors about how they are compensated; one in four advised clients do not understand their fee structure, and one in five believe they do not pay their advisor.

Acquiring and retaining clients

“Despite these concerns, most are willing to pay for advice,” said Serianni. “According to Cerulli, 59% of affluent respondents are willing to pay for financial advice, up from 45% in 2015. Increasing cost transparency will help advisors retain existing clients who value openness and honesty from their advisors while attracting new clients seeking someone they can trust.” Advisors who can address the trust and transparency disconnect will improve the likelihood of onboarding new clients.

In addition, developing a marketing strategy that articulates a firm’s value and fee options can help. “Increasing visibility helps drive unsolicited clients to contact firms directly, which is how nearly one in five clients begin their relationship with their primary advisor,” said Serianni. “Integrity and openness go a long way in the minds of hesitant investors, and advisors who prioritize and effectively market these aspects of their service will find success attracting and retaining clients.”

Also, advisors can gain new clients by increasing the time spent prospecting and expanding their marketing, Serianni added. “Advisors who improve their practice efficiency by upgrading their technology stack and automating or outsourcing their investment management functions can free up more time to focus on the organic growth of their book,” he said. “They can also lean on their broker/dealers for potential client referral programs, as referrals are the top source for advisors’ new clients.”

6 steps to obtain referrals from satisfied clients

Referrals are the top source for new clients and growing an advisor’s practice. Approaching a satisfied client for referrals is as much about timing and confidence as it is about the words that are chosen, said Bill Cates, president of Referral Coach International. Cates then shared the following “Approach Strategy,” which advisors can consider:

1. Set the scene: Start by acknowledging the positive experience your client has had with you, Cates said. “This reinforces their satisfaction and sets a positive tone for what’s to come.”
2. Emphasize value: Remind them of the specific value you’ve provided, saying something like: “George, I’m so glad you’re seeing great results from our work together.”
3. Mission statement: Express your mission to help others in similar ways, stating: “I’m on a mission to ensure that others can benefit from this same level of financial clarity and security.”
4. Ask openly and confidently: Use language that treats this request with importance but remains pressure-free: “George, I have an important question. “Who do you know that might also appreciate having someone like me in their corner?”
5. Suggest specifics: If appropriate, remind them of past conversations when they mentioned friends or family who might benefit from your services.
6. End on collaboration: Ensure that it’s comfortable for clients by suggesting collaboration on how best to introduce you, Cates said.

“By structuring your conversation around these components, you’re not only fostering trust but aligning your ask with genuine care and commitment,” he said.

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It’s only March and already there have been 7,112 wildfires in the U.S., a 37% increase over the 10-year average for the same period and a further sign that the frequency and intensity of the fires has become the “new normal” that imperils lives, communities, ecosystems, and insurers.

Wildfires are breaking out beyond the traditional fire season, driven by climate change and evolving weather patterns. Higher temperatures cause snow to melt earlier, and delay Fall precipitation, resulting in extended drought periods that elevate the risk of wildfires.

The fire season, which used to last four months, now often extends to between six and eight months, with winter wildfires becoming more common in states such as the Carolinas, New Jersey, New York, California, Arizona, Colorado, New Mexico, Texas and Tennessee.

Wildfires worsening in new areas

The increasing wildfire activity in the Carolinas and other parts of the U.S. underscores the need for comprehensive risk preparedness efforts that extend beyond traditionally fire-prone regions, says Firas Saleh, director of wildfire models North America at Moody’s.

“Wildfire is maybe one of the perils that can be mitigated,” said Saleh. “It’s not similar to hurricanes. This is a peril that we can mitigate right now.”

Despite the rise in wildfires and the threat of more to come, Saleh says fire awareness is still lacking in many areas of the country, even in places prone to dangerous conditions.

“The increasing wildfire activity in the Carolinas and other parts of the U.S. underscores the need for comprehensive risk preparedness efforts that extend beyond traditionally fire-prone regions,” he said.

New climate models produced

Moody’s has produced newly comprehensive climate models to assist stakeholders in addressing wildfire risk, including insurers, utilities, policymakers, and asset managers. The models cover insurance pricing, loan underwriting, portfolio management, community and investment planning for adaptation, and regulatory workflows.

“The models include numerous scenarios of extreme urban conflagration,” Saleh said. “By capturing the risk profile comprehensively, our models provide unparalleled insights to help the market understand and prepare for these catastrophic events.”

While wildfires are natural phenomena, the real risk is urban conflagrations, he said, where fires spread from structure to structure, causing significant impacts, as seen in Los Angeles County wildfires. High winds, dry vegetation, flammable building materials, and proximity to vegetation all contribute to this heightened risk.

LA firestorm ‘most destructive’

“This firestorm is the most destructive and multifaceted wildfire event in U.S. history, with unprecedented levels of urban conflagration,” he said. “However, this was not a ‘black swan’ event given the escalating wildfire risk in recent years.”

Sometimes there are simple approaches to mitigation, Saleh said, such as having a mesh above vents that prevent burning embers from flying in. “And then, of course, you have mitigation on a community level, or even neighborhood level,” he said. “I think we’re seeing more of a systematic approach to mitigation that includes everything from vegetation management to hardening structures.”

Saleh said Moody’s surveyed around 30,000 properties or structures in the Los Angeles area and more than 50% were fully destroyed. Others had minor or moderate damage or were fully intact.

“So, what we do within Moody’s is we study that, and we try to understand why specific structures survived versus other structures that were fully destroyed,” he said. “We look at the year built, we look at the construction material and we look at the roof type, we look at the windows – so all this highly granular information is gathered to understand the behavior of the wildfire.”

The January wildfires in Los Angeles resulted in unprecedented insured losses, with estimates varying among experts, from $25 billion to $45 billion in insured losses, and total property and capital losses between $76 billion and $131 billion.

Severe impact on insurance industry

These losses underscore the severe financial impact of wildfires on the insurance industry and highlight the challenges in accurately assessing damages from such large-scale disasters. The losses also exacerbated the insurance crisis in the state with some insurers refusing to write or cover for fire insurance until extreme mitigation measures are taken.

Moody’s has partnered with the Insurance Institute for Business and Home Safety and conducts experiments to help better understand the nature and risks of wildfires. They include building entire structures and setting them on fire for research.

“They have a huge wind tunnel that generates wind at 30, 40 or 50 miles per hour speed and they ignite the property to study the behavior,” Saleh said.

Despite the growing threat, Saleh said he is optimistic that mitigation strategies will improve, spread, and succeed.

“We are seeing an increase in the frequency and severity of wildfires, but at the same time, I think it’s important to note that technology is on our side,” he said.

“We’re seeing huge advances in computational power. We’re seeing advances in the way we look into how we can better capture attributes that we were not able to capture before. We can model at a resolution and accuracy that we were not able to 10 to 15 years ago.”

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Fears of how inflation will impact their portfolios once again topped the list of concerns among insurers, according to a major new survey that was taken even before the Trump administration tariffs were imposed.

More than half of the 405 respondents to Goldman Sachs Asset Management’s 14th annual global insurance survey cited inflation as a top concern, up from 42% in 2024.

According to the survey, the top five macroeconomic issues that pose the greatest risk to
insurers’ investment portfolios are:

• Inflation (52%)
• Economic slowdown/recession in the U.S (48%)
• Credit and equity market volatility (47%)
• Geopolitical tensions (43%)
• Tariffs/trade disputes (32%)

“We closed the survey six weeks ago,” said Michael Siegel, global head of the Insurance Asset Management and Liquidity Solutions for Goldman Sachs. “I think if we surveyed right now, you would see tariffs and trade disputes would be significantly higher.”

Nevertheless, the survey showed an overwhelming belief that inflation will decelerate in all markets: Americas, Europe, and Asia.

“The view that inflation will decelerate is off the table,” Siegel said. “So, it’s either inflation is going to remain stable, or inflation may accelerate. And this is a bit of a shift here. Last year it was more a view that inflation was coming down.”

Private asset demand is strong

Despite the implications rising inflation and slowing economic growth could have on markets,
demand for private assets remains strong, as 58% of insurers report planning to increase
allocations to private credit during the next 12 months.

Moreover, fears of recession have abated. Last year’s survey found 44% respondents expecting a recession in the current year, with fewer than 1% thought so this year.

“That has fallen off a cliff,” Siegel said. “Can we see a recession in years one through three or three through five, the answer is yes. But, a surprising number of respondents, around 20%, don’t think we’re going to see a recession at all in the U.S. markets”

Top asset classes

When asked which asset classes will provide the highest total return during the next 12 months,
insurers were bullish on private assets – private credit (61%) topped the list for the second
consecutive year.

The top five was rounded out by:

• U.S. equities (57%)
• Private equity (55%)
• Private equity secondaries (30%)
• High-yield debt (28%)

“The private credit market has experienced a significant transformation during the past decade,”
said Matt Armas, Global Head of Insurance for Goldman Sachs Asset Management. “We
expect it will continue to expand in 2025. Through this growth, insurance companies will have
ample opportunities to diversify their direct lending portfolios while pursuing attractive risk-
adjusted returns.”

Insurers’ S&P expectations tempered

Most insurers expect positive returns for the S&P 500 Index in 2025 (83%). However, after posting gains of 25% in 2024 and 26% in 2023, this year’s forecasts are tempered: 50% expect the S&P 500 to return between 5-10% and just 15% forecast returns between 10-20%.

A bullish private asset outlook has many insurance companies planning to raise allocations, according to the survey:

• 58% to private credit
• 40% to investment-grade private debt
• 36% to asset-based finance
• 32% to infrastructure debt
• 29% to private equity

Meanwhile, only 17% of insurers plan to increase allocations to U.S. equities, and even fewer
(10%) to European equities.

Operational synergies and economies of scale were identified by 68% as the primary drivers of
increased merger and acquisition (M&A) activity across the insurance industry.

The increasing adoption of Artificial Intelligence (AI) to improve efficiencies could prove to be a catalyst for further consolidation: 90% report currently using, or are considering utilizing, AI; this is up from 80% in 2024. Of those planning to adopt AI, 81% cited reducing operational costs as its primary benefit.

“These are very, operationally intensive businesses:  issuing bills, receiving premiums, investing premiums, receive claims, make claims payments,” Siegel said. “Therefore, the use of AI is seen as a way to reduce operating costs. Secondly, evaluating a risk. With tremendous amounts of data, AI is able to sift through that data and improve underwriting standards.”

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While more than 4 in 10 Americans surveyed named inflation as a major economic concern, the U.S. political environment topped inflation as their top financial worry.

These were the findings according to a new market intelligence report by Hearts& Wallets, Advice, Technology & Actions: Engagement with Human and Digital Influences and the Connection to Outcomes.

Top financial worries, in order, were:

• U.S. political environment: 47%
• Inflation: 44%
• Future of Social Security: 39%
• U.S. economy: 39%
• Future of healthcare in the U.S.: 35%
• U.S. deficit/future tax increases: 34%
• Conflict and strife around the world: 33%

Financial worry spurs more saving

As a result of these economic concerns, Americans are cutting spending and increasing savings. Nationally, 8 in 10 U.S. households have taken a saving/investing action in the past year, and saving more, an area overlooked by many current financial advisors, explained Laura Varas, CEO and founder of Hearts & Wallets. And two thirds of households plan to take a saving/investing action,she added.

“These top concerns indicate consumers may have several reasons to boost saving, especially if they perceive economic and government instability, worry about the future of Social Security, and how to pay for healthcare,” added Varas.

Top household saving and investing goals of consumers also point to consumers’ motivation to save and invest, according to Varas. Top goals are:

• Build up my emergency fund: 52%.
• Take a vacation: 44%.
• Have enough money to be able to work less/spend time as I want when older: 41%.
• Stop work/retire when I am older: 35%.
• Generate current income from my investments: 28%.

Goals that increased year over year (2023 to 2024) include having enough money to work less when older, stop work/retire when older, and take a vacation.

Support from financial advisors

Despite the actions of consumers to cut spending and increase savings, financial services firms aren’t delivering the desired support to help them, according to the survey.

So, what are some of the steps that financial services firms can take to provide this support and help their clients?

Hearts & Wallets Inside Advice Benchmarking reveals that advice on how to allocate savings is rare from financial advice experiences, said Varas. Most (67%) advice experiences do not even address allocation of new saving across account types.

Hearts & Wallets finds that advice experiences in more robust advice categories are linked to higher action-taking, Varas said. “The highest level goes beyond advice on investing and retirement to include advice on multiple goals (in addition to retirement), buy/sell investment recommendations, how to optimize taxes, detailed retirement planning, insurance and estate planning,” Varas said

“So more comprehensive advice really helps with positive outcomes,” she said, adding, “Of course, firms and advisors must be compensated for more robust advice. And the industry must work to ensure more households have some level of service and advice.”

In light of these financial worries, aAccording to Varas, firms and advisors can enhance support to help consumers act to cut spending or increase saving/investing by:

• Tailoring solutions to facilitate interaction with human advisors while harnessing the economies and efficiencies of digital.
• Offering a range of advice experiences to allow more households to achieve healthier financial outcomes by receiving at least some advice and service.
• Identifying competitive opportunities to align with consumer demand for help with budgeting and saving.

Financial advice linked to better outcomes

“Healthier actions and better outcomes are linked to advice in more robust advice categories but not more online activities. Younger households and more affluent households are more likely to take many actions,” Varas said.

Another takeaway is that U.S. households cut back on sources of information and advice year over year. Consumers are favoring themselves and advisors over other sources, including online and employers, said Varas. Reliance on online as a source of investment information and advice has remained stagnant for 3 years, hovering at about 60% of households. “This suggests digital advice may have reached saturation with current technology,” she added.

Today, the average household conducts four to five online activities related to investment information and advice, up from two activities in 2012, Varas said. 22% of households engage in 10+ online activities. Top activities are “track or check accounts” and “use planning tools.”

Among investment decision-making preferences, self-directed (DIY) investment decision-making is at its lowest level since Hearts & Wallets tracking began in 2010. “General contracting” is at a peak. Varas said that Hearts & Wallets coined the term “general contracting,” defined as “seeking input from various sources as well as making some decisions on my own.” Delegation to financial professionals, which has been in decline since 2018, ticked up year over year, she said.

Advice, Technology & Actions: Engagement with Human and Digital Influences and the Connection to Outcomes examines sources of financial information and advice, online financial activities, and financial actions taken and planned. The report is based on the Hearts & Wallets Investor Quantitative Database, with over 120 million data points on saving, investing and advice behaviors from 80,000 U.S. households the past 15 years. The latest wave was fielded from July 17-Aug. 9, 2024, with 5,989 U.S. households.

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From an advisor’s perspective, the lifetime relationship with a 55-year-old client can be highly valuable. But what is the average worth to an advisor in dollars and cents?

In its first in a series of consumer-focused profiles, SmartAsset has released an analysis of what the average 55-year-old prospect is worth to an advisor. SmartAsset also has unveiled a model that assesses the value to the client of working with a financial advisor.

The following table shows how the numbers break down from an advisor’s perspective of the value of a lifetime relationship with a 55-year-old client:

These percentages illustrate that while the advisor earns a healthy fee, the proportion that is relative to the extra savings delivered varies with the client’s retirement horizon, according to SmartAsset. A shorter time horizon (such as a consumer retiring at 67) might result in a higher fee percentage because the window for accumulating surplus is smaller, and risk management is more pronounced.

Lifetime value

With fee revenues ranging from roughly $150,000 to $200,000 over the relationship, the average 55 -year-old client is a substantial asset to an advisor’s practice, SmartAsset said. This lifetime value not only reflects the advisor’s compensation for managing risk and orchestrating a long term financial plan but also underscores the mutual benefits of a well structured, client–planner relationship.

In essence, while the client enjoys increased net worth and higher retirement income, the advisor benefits from a lucrative fee stream that can amount to nearly $200,000 over the course of the relationship. This dual benefit reinforces the value of comprehensive financial planning, not just for the client’s bottom line, but also as a cornerstone of an advisor’s business success.

Working with clients

So how does this research help an advisor enhance his client-marketing efforts and ultimately gain more clients? Advisors can use this research to help clients understand their full value proposition, said DeJohn. Many consumers may feel pressured by sales tactics and prefer to take the time to digest information on their own and from a third party without stakes in the potential relationship.

The research can help put an advisor’s expertise into context and dispel misconceptions about the associated costs, DeJohn said. Potential clients often don’t have a full understanding of the financial pitfalls they face, whether from internal factors like emotional and cognitive biases or external factors like changing legislation and financial products. “Therefore, the model can also help potential clients develop a clearer understanding of the potential for maximizing their finances through offensive and defensive strategies implemented with the help of an expert over time,” she said.

Reasons for developing the model

SmartAsset developed a model to assess the value of working with a financial advisor to help bridge the gap between the uncertainty that potential clients may feel about what a financial advisor can potentially do for them, as well as to help financial advisors understand, facilitate and market their value proposition by putting it in a new, measurable context based on data-backed assumptions, said Jaclyn DeJohn, CFP, and director of economic analysis at SmartAsset.

“Some common frustrations we see among consumers are that they think a financial advisor collects fees just to put their money into an index, which they can do themselves,” said DeJohn. “They often do not have an understanding of the full breadth of how an advisor’s guidance can potentially translate to their own benefit. On the advisor side, the model can be used as a helpful tool to demonstrate to potential clients the value they may be able to offer.”

Advisor vs. no advisor results

One of the biggest findings of the study was that even after accounting for all money flowing out – including inflation, retirement withdrawals and advisor fees – financial advisors can potentially help clients earn an additional average annual net yield of 2.39% to 2.78% to their clients’ bottom lines versus those who do not employ an advisor, said DeJohn.

And perhaps just as important, DeJohn said, the client is still likely to take away the lion’s share of the dollar surplus generated by their relationship with a financial advisor. “The model estimates that roughly one-third of the extra money generated by the relationship goes to the advisor, while roughly two-thirds go to the client,” she said.

Additionally, the model suggests that several factors can potentially help improve the client’s ROI on the client-advisor relationship, including a higher starting net worth and starting the client-advisor relationship at a younger age to allow more time for the benefits to compound.

Financial advisor impact on a client’s net worth

Financial advisors can help contribute to growing a client’s nest egg in many ways. SmartAsset’s estimates on the net benefit to this investment pot at age 77, not including any additional retirement income gained from the relationship, is as follows:Beyond the balance sheet, the annual retirement withdrawals (excluding Social Security or other potential sources of income) also highlight the value added by financial planning.

The improved annual withdrawal amounts demonstrate how professional planning can boost spending power in retirement, as well as the remaining nest egg, ensuring a better lifestyle even after fees are paid.

In summary, by age 77, the average 55-year-old stands to gain between $129,000 to nearly $291,000 in net worth, compared to a scenario without professional guidance, plus up to $763 more per month in retirement withdrawals, SmartAsset said.

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