KEY TAKEAWAYS:

--Custom health plans allow employers to choose the vendors that build up their health plans, such as the administrator, claims manager, pharmacy benefit manager and reinsurer. By contrast, in the retail model, all of these vendors are prepackaged.

--When these components of a health plan are shopped competitively, premiums can be reduced substantially, and employees can share in these savings in the form of reduced deductibles, copays and out-of-pocket costs.

--With a custom plan, businesses only pay for the healthcare services that their employees actually use, meaning there is often money left at the end of the year that can be delegated to other business needs.

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The national uninsured rate for health in the U.S. reached an all-time low of 8% in 2022, according to the Congressional Research Service. People have put greater focus on their health since the COVID-19 pandemic, resulting in more employees participating in employer-sponsored health insurance plans.

Unfortunately, some employees who receive health insurance through an employer-sponsored plan may still be underinsured. A 2022 Commonwealth Fund Biennial Health Insurance Survey revealed that 23% of working-age adults were underinsured in 2022, meaning their coverage did not deliver affordable access to healthcare.

An economic downturn caused by the pandemic has restored attention to health insurance coverage as millions of people struggle to pay their bills. As a result of these economic stressors, more employers are shifting toward custom health plan solutions to reduce costs while improving benefits for employees.

Turbulent Times With Rising Premiums and Stagnant Wages

There are several reasons why so many working Americans remain underinsured, such as rising healthcare costs, public program cutbacks and erosion of employer-based insurance, as well as recessionary conditions.

Today, nearly half of all Americans receive their health coverage through employer-sponsored insurance. However, premiums for health insurance coverage are rising faster than many workers’ wages, causing employees concern about affordability.

A recent survey conducted by the Kaiser Family Foundation found that two in five adults who were enrolled in an employer-sponsored health insurance plan had difficulty affording healthcare or health insurance.

Rising healthcare costs are a primary driver in the increased cost of commercial health insurance. High-cost healthcare services, coupled with stagnant wages across many companies, have left many workers with concerning amounts of medical bills and debt.

Millions of Americans Struggle With Medical Bills or Debt

An estimated 41%, or around 100 million adults, currently have healthcare debt, ranging from $500 (16%) to $10,000 or more (12%), according to a Kaiser Family Foundation report.

Adults who are underinsured face some of the highest medical bill problems. A Commonwealth Fund survey found that 51% of underinsured adults have difficulty paying their medical bills or reported that they are currently paying off medical debt.

The survey also found that adults who were paying off their medical bills over time and had high deductibles or were underinsured had the largest debt loads.

See also: Employee Wellness Plans' Code of Conduct

Fearing Debt, More Americans Work Through Illness or Health Issues

Research has proven time and time again that there is a direct link between employee health and productivity. Employees who are mentally, physically, financially and socially healthy are more likely to do their best work compared with employees who are struggling in one or more of these areas.

According to the Centers for Disease Control and Prevention (CDC), the indirect costs of poor health, such as absenteeism, reduced work and disability, are often several times higher than direct medical costs. In addition, productivity losses due to family or personal health issues cost employers in the U.S. approximately $1,685 per employee each year, or about $225.8 billion annually.

Many employees are also concerned about accumulating more debt. To prevent more financial struggles, many Americans choose to continue working, even while experiencing illnesses or other health problems. In turn, employees feel unhappy, unmotivated and unable to perform at a satisfactory level in the workplace.

Design an Employee Benefits Package That Protects Your Employees

Designing a comprehensive and affordable benefits package can help employers meet the unique needs of their employees, while also using their budget effectively and creating a competitive offering that appeals to job candidates.

As costs on the retail health insurance market continue to rise, employers are looking for opportunities to lower their healthcare costs while making sure that no employees are underinsured. One alternative arrangement that is quickly gaining popularity across the nation is custom health plans.

Custom health plans allow employers to choose the vendors that build up their health plans, such as the administrator, claims manager, pharmacy benefit manager and reinsurer. By contrast, in the retail model, all of these vendors are prepackaged. When these components of a health plan are shopped competitively, premiums can be reduced substantially, and employees can share in these savings in the form of reduced deductibles, copays, and out-of-pocket costs.

How Custom Health Plans Make Coverage More Affordable

Businesses are always on the lookout for new ways to make healthcare coverage more affordable without hurting the health of their workforce. A custom health plan is one strategy that can save companies money without sacrificing employee health.

Custom health insurance plans tend to be more flexible than retail plans. They provide companies with the opportunity to more effectively tailor their healthcare plans to meet the unique needs of their employees and the business.

With a custom plan, businesses only pay for the healthcare services that their employees actually use, meaning there is often money left at the end of the year that can be delegated to other business needs.

Custom health insurance plans allow employees to still get the benefit of a wide network of healthcare providers, including hospitals, doctors and specialists. In fact, custom health plans are often built on the nation’s largest networks, like the Blues, United, Cigna, Aetna and Humana.

See also: Huge Opportunity in Disability Insurance

Make Sure Your Employees Are Covered With a Comprehensive Benefits Plan

Designing an employee benefits plan to retain employees and increase productivity can be complicated. However, creating a benefits plan that allows employees to gain access to affordable and comprehensive medical insurance is essential to stay competitive and give back to your hardworking workforce.

As the problem of underinsurance continues, it’s important for employers to develop plans that not only insure their employees but also sufficiently cover them in terms of out-of-pocket costs.

As insurers complain that younger people aren't buying enough insurance and wonder how to reach them, I observed an object lesson last week in what not to do. 

My daughter Shannon was offered a position that paid enough and was interesting enough that she was considering taking it even though it doesn't come with health benefits. As we discussed the pros and cons on the phone, she did a quick search to see what health insurance would cost her, and... look out below. 

The calls started pouring in — five, six seven, eight... even before we wound up our brief call. More than 150 calls hit her phone in the 24 hours after her tentative inquiry. 

When she answered a few calls, to see if she could politely tell companies to shove off, she mostly got a rude, hard sell. One rep told her he'd leave her alone as soon as she signed a contract. 

I'm sure there's plenty of data about how the first person to respond to an inquiry is the one mostly likely to make a sale, but I'm guessing that there has been less thinking about the effect on a millennial when scores of companies try so hard to be first that they shock a young prospect with an onslaught of calls. I'll bet there's data, too, on how well hard sells can work on people contacted by phone, but, again, there's a cumulative effect, especially on those experiencing insurance for the first time. 

Shannon isn't just ready to tell health insurers to shove off. She's ready to tell the whole industry to take a hike.

I'll let her explain. Here's Shannon:

I have a deep-seated fear of not answering my phone when it rings.  I get notified on my Apple Watch when a call comes in. I make sure I can hear my phone when I’m in another room. If — heaven forbid — I’m not going to be able to answer, I text the people most likely to call to give them a head’s up. I am Ms. Always Attached To Her Phone.

But last week, I did the almost unthinkable: I put my phone on "do not disturb" and refused to even look at it or answer it. 

Why?

Because I *tried* to get some basic information about health insurance. And instead, I got bombarded with calls. And then more calls. Then even more calls. I got calls while I was talking on the phone on the other line. I got calls while I was walking my dog and while I was running, which interrupted my music — a complete and total no no. I got calls while I was awaiting other important calls, which caused me to miss the calls I actually wanted to take. I got calls while I was working, while I was cooking, while I was binging TV, while I was sleeping. 

My phone would not shut up.

In all, I received more than 183 calls. I say "more than," because my call log won’t go back far enough for me to count all the calls. There would have been even more calls if I hadn’t realized I could just indiscriminately start to block numbers I didn’t have in my contacts. That may mean I blocked some friends — in which case, I am so, so sorry, but we’re never going to talk again.

Eventually, I started answering some of the calls, because I was so annoyed. I told some of the callers I was on the National Do Not Call registry — they hung up. I told others I wanted them to leave me alone, and they proceeded to try to sell me harder. "Oh, you’re not interested? What changed your mind?" "Ah, yes, I can make the calls stop… once you sign up for a plan with me." "Well, you were interested at one point, so let’s chat."

When I summarily told the insurance agents to stop calling me, the same numbers kept calling me! One called me back six times in a row. Some guy was trying to sell me life insurance (which I hadn’t even looked into).  

All I wanted was some simple info.  

Before I recently moved to the East Coast, I had a car. Which means I had car insurance. Want to know how purchasing that insurance went? I put my info into a couple of different sites, and they gave me competing quotes. I picked one, gave the company money and was sent insurance cards. The same kind of process happened when I was recently looking at renter’s insurance. I wasn’t called 900 times. I didn’t contemplate dropping my phone from the third-story balcony. The process was easy — and more importantly, it was online. 

Look, I’m 29 years old. And as much as I’m attached to my phone and as much as I never want to miss something important, I don’t actually like talking on the phone. And that’s not just a me thing! My generation would rather text or email than have to have a fully fledged phone call. We’d rather send 20-minute voice notes than actually be chatting on the phone for 20 minutes. I make all my important appointments from behind my computer screen. I only really like to talk to people in my (extensive) contacts list. Calling me, nay, BOMBARDING me isn’t the way to get me to sign up for your insurance plan. Instead, you’ve turned me off on your company completely. 

Here’s how I would have liked my health insurance search to happen: I’d have made myself a cup of green tea and sat down at my desk. I’d have poked around on the internet for a bit (where else would I connect with fellow fans of the K-pop group BTS?) before pulling up a few insurance-related websites. I’d have read about some different plans. I’d have put in my basic health details and would then have been directed to a site showing plan options. I’d have compared options and selected the one I liked the best. I would have given that company my money. And then I would have shut my computer and gone off to watch my English Premier League team, Arsenal, lose. 

It would have taken less than 20 minutes. And I wouldn’t have gotten one phone call, let alone 183-plus. 

This was such a negative experience that I’m dreading having to follow all the way through with this process. Do I actually want health insurance? Do I definitely need it? I’m aware the answer to both questions is "yes," but I don’t want it to be. I don’t want to have to hide from my phone. I don’t want to have to screen every call I get. I don’t want to have to block numbers just to get my phone to shut up for 0.2 second. I don’t want to be harassed. And I want to be able to make it up the hill at the end of my run without the song “Not Today” getting interrupted by insurance agents who feel entitled to harass and plague me.  

I guess it turns out that I'm Ms. Always Attached To Her Phone — Except When It Comes to Health Insurance.

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You see why I try to stay on Shannon's good side.

I hope you do, too -- and not just with Shannon but with all the other millennials and Gen Z's coming along who are trying to figure out how to buy the insurance they need. 

Cheers,

Paul

The insurance industry has been slow to change. But going by the optimism and excitement at insurance conferences — among industry giants, insurtechs, thought-leaders, and decision-makers — over all the latest developments in the industry, we can safely say technology is driving change.

Across the industry, companies are trying to make up lost ground and accelerate digital transformation. They’re integrating emerging technologies into their operations while others are partnering with insurtechs to launch entirely new business models.

Carriers and insurers are asking: how can we harness innovation to meet business needs across the enterprise, including within customer experience?

Here are some insights into what industry leaders believe will shape the future of insurance.
 

AI Is the New Frontier for Insurance Innovation

AI is not coming for insurance — it is already here. Insurtechs, carriers (and brokers) are scaling their AI initiatives to solve business challenges — from unstructured data digitization and claims processing to fraud detection — and stay competitive.

The question on everyone’s mind is: how can we capitalize on AI and technology to reach the modern consumer?

Maximize all your data sources from agents to IoT to funnel into AI. Build volume and ensure quality that allows you to be predictive. Develop agile ecosystems through strategic adoption that support personalized, AI-powered customer experience from quote to claim. Balance artificial intelligence with human insight to seize opportunities from personalization to refined risk and streamlined claims. 

While AI is a game-changer for the insurance industry, we all agree it must be deployed responsibly.

The Age of Pilots and Trials Is Over

Companies — even those slow to implement digital technologies — are now implementing solutions at breakneck speed. They are embracing customer experience (CX) and employee experience and moving from experimenting with “newer” technologies to integrating them into their solutions. Digital transformation has become a burning priority — many organizations are fully down the path to successful (and long-term) transformation journeys — and the momentum will likely continue. However, getting back to basics around data, process, and customer experience is potentially where a large portion of the industry will still see a “big bang,” as those may be areas many companies may still have to focus on. 

Not All Automation Is Created Equal

Not every automation project succeeds: there are four common mistakes companies make.  

The first mistake is automating without completely understanding the process you're trying to automate. Making room for all variations in a process is critical. That’s why processes may need to be redesigned first before automating them. Because "Automating a poorly designed process just makes bad things happen faster." 

Secondly, only some have a quantifiable business case. Building an automation business case involves quantifying the impact automation will have on critical metrics than merely identifying areas for automation.

Instead of treating automation "as a hammer in search of a nail," where you go after as many automation opportunities as you can find, focus first on optimizing key processes as best as possible.

And finally, quantifying results and ROI is essential in the early days of implementation as this helps build a future business case for more resources.

While process metrics such as efficiency, throughput, and cost/effort are standard methods for measuring the impact of automation, business metrics such as customer satisfaction and revenue also need to be considered.

There’s a Hidden Opportunity in What You Already Know About Your Customers

On average, most insurance companies have few touchpoints with their customers. But through data and analytics, insurers can focus their efforts on driving growth through better customer experiences. With the right tools and data, they can improve this improved customer experience through analytics and make that experience stellar.  

Data can help you unlock the full customer story and offer coverage that adds the most value to your business. When you look closely at every stage of your customer acquisition process, you get a better understanding of why they convert — and why they don't. 
When you know why your prospects say "no," you can make improvements and convert them to "yes." 

It’s well known that insurance companies make minimal investments in customer experience after they've acquired the customer. But if you must grow, you must acquire and retain, and continue to ask – "what else can we do?" Here’s where you can lean on data to guide you.

Murray, I've included your additional point as another key takeaway. I just streamlined the thought a little. Please let me know if it works. Thank you. 

Author Bio

Murray Izenwasser, Senior Vice President, Digital Strategy At OZ, Murray plays a pivotal role in understanding our clients’ businesses and then determining the best strategies and customer experiences to drive their business forward using all of the real-world digital, marketing, and technology tools. Prior to OZ, Murray held senior positions at some of the world’s largest digital agencies, including Razorfish and Sapient, and co-founded a successful digital engagement and technology agency for 7 years.

Sponsored by ITL Partner: OZ Digital Consulting

ITL:

Let’s start off with your basic thesis on where insurance distribution is headed, then get into some of the details. Does that sound like a plan?

Adam Chadroff:

Sounds good.

There was a consensus view from, call it, 10 years ago until two years ago, at least among non-insurance folks, that technology was coming for agents. Digitization and digital leverage would make relationships meaningfully less important. The role of an agent would be superfluous over time.

That didn’t happen. People want agents when they shop for insurance. It’s not the same as shopping for other items on the internet. The stakes involved if you get insurance wrong are really high, and the complexity of the transaction is much higher, even for some personal lines products.

In fact, I saw a survey that said that many people don’t just want an agent; they want one who is co-located, so they might be able to meet at some point.

But I think there’s a second point: that digital leverage also matters. The fact that agents are enduring doesn't mean digital technology is a passing fad.

The way you interact with your agent will become tech-enabled, and the agents and agencies that succeed in the near and medium term will be the ones that really learn how to use that digital leverage effectively.

I was recently looking at some stats about how agencies and brokerages started leveraging technology more during COVID -- the virtualization of meetings, messaging capabilities, self-service portals and so on. But usage of some of these fairly basic tools is still quite low.

In my view, succeeding as a distributor will mean leveraging more technology to meet customer demand for a simpler process and to reduce your operating expenses because you’re more efficient. Another way I’ve seen that operating leverage framed is as a way to let agents focus on the things that matter, like actually selling insurance, taking more time to provide advice and perhaps expanding into products that haven’t been in your wheelhouse. That efficiency is also a retention tool.

ITL:

It sounds like a lot of progress can be made just by doing better with the technology that's available now. It's sort of, in the land of the blind, the one-eyed man is king.

Chadroff:

There’s a ton of different opportunities to embed technology to create a better customer experience, to sell more coverage, to sell coverage that better meets the needs of your customers and, thus, to retain your customer. I think all parts of that process can be digitally enabled.

That could look like better CRM [customer relationship management]. That could look like better analytics at the point of sale to recommend products. That could look like better integration between the different counterparties, such as brokers and agents and carriers, for providing coverage, for obtaining documentation, for making policy changes on demand. Those technologies can create a much better customer experience and can accelerate processes. There's innovation on licensing and training, on payments and so on across the value chain.

The challenge is getting the tools into the hands of agents, because the brokerage landscape is heavily fragmented and there’s not always openness to trying or paying for new software. Historically, there's just not been exceptional technology. And today, while there's a lot of emerging products, it's still largely point solutions, which often don’t fit well into your AMS [agency management system]. It’s challenging to find the right products and to integrate them in a way that is effective and doesn't seem complicated.

Agents are already grappling with a wide array of disjointed systems and workflows. So if a new product or technology is perceived as yet another complexity being added to the process, I think there can be less willingness to adopt it.

ITL:

I've seen people argue that the increasing reliance on technology suggests scale matters, because the bigger agencies are more likely to be able to adopt the technology than smaller agencies. Do you agree with that or not?

Chadroff:

To an extent, scale is important. You’ve certainly seen lots of acquisitions aimed at gaining scale. I do think, though, that there are ways for independents and smaller organizations to recreate some of the benefits of scale.

For example, if it's increasingly important for agents to be able to deliver advice that's not just monoline, but across a wide array of products and tailored to a customer's needs, then one solution is to have scale and be part of a larger organization. Another approach is to have the technology that makes it seamless to deliver recommendations and placement and products across a much wider array of product categories and lines of business.

It can be more challenging for smaller agencies to adopt technology, but when deployed, that technology can also reduce the gap between scale and sub-scale.

ITL:

What about everybody’s favorite topic these days: ChatGPT?

Chadroff:

What I would be thinking about is, how could I leverage this sort of technology to be more efficient or to deliver better advice faster to my customers? That could mean the promptness with which I can answer their questions or how I can retrieve data from the multitude of different sources to recommend products or assess the gaps in their coverage.

ITL:

If I had to summarize, I'd say it sounds like, three or five years out, we're going to have pretty much the same model we have now, but more efficient and effective for both agents and customers. Does that sound right?

Chadroff:

I think that efficiency and effectiveness will just accelerate both because of the availability of the technology and because of increasing openness to it. I believe agents will increasingly recognize that technology is an enabler, and it’s their friend.

And that's why I'm very excited about platforms that help agents reduce friction in their workflows and deliver a better end-to-end experience for insurance shoppers and insureds.

As we’ve seen in other complex, fragmented industries, things move slowly until they move fast.

ITL:

Thanks, Adam.

About Adam Chadroff

Adam Chadroff is an investor at Equal Ventures, where he focuses primarily on insurance and benefits. Prior to Equal, Adam held roles at venture-backed fintech companies, most recently as head of operations at Counterpart, a commercial insurance startup, and previously as an early member of the product team at Policygenius. Previously, Adam worked in institutional equities and global capital markets at Morgan Stanley. Adam holds an MBA from the Wharton School, and a BA in international relations from Stanford University.

When you talk with a venture capitalist, you expect to hear about disruption and transformation, maybe about finding a "ten-bagger" (an investment that returns 10 times the original investment). But that wasn't the message from this month's interview with Adam Chadroff of Equal Ventures. I'd summarize his take on the future of agencies and brokerages as "the same, but different."

"The same," because all the talk of disintermediation is well and truly gone. Agents and brokers turned back all the insurtech challengers that tried to sell directly to consumers. The role of agents and brokers is now valued more than at any time in recent memory.

"But different" because technology keeps improving, so agents and brokers have to, as well. They need to keep making the buying and servicing process easier for customers and need to stay focused on operating more efficiently, to keep costs down. 

Some good news: In the same way that customers have learned they can be more demanding of their agents and brokers, agents and brokers can now be more demanding of their technology suppliers. What's good for the goose is good for the gander. 

Technology offerings thus far have been mostly point solutions -- digital payment software, a chatbot, and so on -- rather than a fully integrated, next-generation platform. But the trend in almost every industry these days is for impatient customers to insist that suppliers do the integration rather than providing piece parts and wishing customers good success. And the various offerings for agencies and brokerages have now matured enough that they can, and should, start demanding that suppliers do more of the integration for them.

I'll let Adam take it from here, in the interview.

P.S. Here are the six articles I'd like to highlight this month for agents and brokers:

STRATEGIES FOR INDEPENDENT AGENTS

Strategic targeting of commercial sectors with consistent hit ratios can lead to more efficient prospecting and, ultimately, higher conversion rates.

INSURANCE IS NOT A COMMODITY

But, with carriers running so many ads focused on price, agents need to work hard to get consumers to focus on the differences between policies.

THE NEXT GENERATION OF TALENT

With those born at the peak of the Baby Boom having reached 65 years old, here are five ways to attract the next generation of agents and brokers. 

APIS: THE KEY TO INSURANCE ECOSYSTEMS

Application programming interfaces offer health insurance brokers an efficient and modern way to manage data and processes.

SAY GOODBYE TO CYBER'S 'DATING PROFILE'

It's time to move past vague questions that try to determine companies' resilience to cyber attacks and move to precise, data-based ratings.

HOW MY VIEW OF CHATGPT CHANGED

The tone of articles about ChatGPT has rapidly shifted from "amazing but not always accurate or high-quality" to "this is significant progress."

KEY TAKEAWAYS:

--There are multiple considerations when choosing a fertility clinic, such as pricing, success rate and what the percentages are for singletons vs. multiple births.

--Another important consideration is whether a vendor’s performance claims have been vetted by an independent third party, like the Validation Institute. If not, why not?

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Does your company’s health plan offer fertility benefits? What’s the case for making these services available, and what issues should you consider in choosing a vendor?

A recent World Health Organization (WHO) report found that one in six people worldwide experiences infertility during their lifetimes and one in eight experiences it at any one time. Infertility is “a disease of the male or female reproductive system defined by the failure to achieve a pregnancy after 12 months or more of regular, unprotected sexual intercourse.” The report clarifies that infertility is a common condition worldwide. Any employees and their partners, both women and men, including singles and those in the LGBTQ+ communities, can need help in forming a family. For employers, workers with infertility issues are likely to have physical and emotional burdens -- e.g., anxiety, depression and financial stress -- that corrode employee engagement and productivity.

Infertility care can be expensive. A single in vitro fertilization (IVF) cycle -- ovarian stimulation, egg retrieval and embryo transfer -- can range from $15,000 to $30,000. Many patients require multiple IVF cycles before getting pregnant or taking a different path.

While 12 states have mandated coverage of fertility services, its cost has led many employer benefits managers and consultants to consider it a “premium” benefit, meaning that they’re most popular with employers in high-margin industries. The result has been limited coverage, with only one in four people getting the treatment they need. 

Even so, 97% of employers offering infertility coverage say that adding it did not significantly increase medical plan costs. They appreciate that these services are prized by many employees and can often be a deciding factor in the competition for top talent. 90% of employees with infertility concerns say they would change jobs for fertility benefits. 61% claim that receiving benefits increased their loyalty. 58% think it is discriminatory not to provide fertility benefits. 

A number of fertility companies have come into the market in recent years, and it can be difficult to compare them. Here are some key issues to consider:

• What are the recruitment criteria for the fertility companies’ physicians and clinics networks? Do they rely on objective data related to health outcomes and cost?
• What are their rates of singletons vs. multiple births? Singletons are likely to have a higher gestational age than multiple gestation births, so they typically have lower morbidity and mortality rates, as well, with better health outcomes and lower costs. It’s critical to know what each vendor’s numbers are and what they’ll guarantee.
• What is their pricing and what is it based on? 
• Is the employer-paid portion fixed or flexible/discretionary? Does the fertility vendor offer employers a range of subsidy options?
• Is the vendor backed by private equity or venture capital investments? If so, it’s almost certainly paying a 20% to 30% annual interest rate on those investments that must be built into the vendor’s pricing structure. Organizations that have bootstrapped their operations, with lower-cost capital typically have a competitive pricing advantage.

See also: 20 Issues to Watch in 2023

Another important consideration is whether a vendor’s performance claims -- fertility or other --  have been vetted by an independent third party, like the Validation Institute (VI), and if not, why not. (Disclosure: I serve unpaid on the VI’s Advisory Board.)

The VI stands behind its validation process, offering customers of validated solution providers up to a $25,000 guarantee for claims-based validations and up to $50,000 for program validations. They offer four validation levels, with 4 representing the highest. 

1. Contractual Integrity, meaning that a vendor “is willing to put part of their fees 'at risk,' as a performance guarantee.”
2. Metrics, meaning that “credible sources and valid assumptions create a reasonable estimate of the program’s impact.”
3. Outcomes, meaning that “the product/solution has measurably improved an outcome of importance.”
4. Savings, meaning that “the vendor can reduce healthcare spending per case/participant or for the plan/purchaser overall.”

As I wrote this article, I pulled up the VI home page, clicked on Validation Reports and searched using the keyword “fertility.” Up popped the names of 11 fertility companies, including Carrot Fertility and ARC Fertility, which had sought validation. Nine others were marked “Not Validated.” The VI’s listing does not include all U.S. fertility vendors.

Carrot achieved a Level 2 validation (Metrics) for their savings calculator. The report reads, “For each component in [Carrot’s] logic model, Validation Institute verified each assumption, data source and calculation. The model gives an evidence-based estimate of the program’s impact.”

ARC Fertility achieved Level 3 (Outcomes) and 4 (Savings) validations on two different performance claims. The Level 3 claim was “ARC Fertility clinics’ patients have a lower rate of multiple births (twins, triplets and higher) than all other U.S. clinics' average. Multiple births impact the health and the medical costs for mothers and babies.” The Level 4 claim was, ”By reducing the frequency of twins and higher multiple births, ARC Fertility reduces employers’ cost for offering fertility benefits.”

In ARC Fertility’s validation report, VI accessed a data repository maintained by The Society for Assisted Reproductive Technology (SART), which 86% of U.S. fertility clinics participate in. Members contribute specified data on each fertility patient's treatment and outcomes. VI used this resource to compare ARC’s health outcomes and savings with the average performance of other fertility firms. Other member firms can perform a similar analysis.

Which is to say that objective information is available to judge the relative performance of fertility services firms, making it straightforward to identify a vendor that is likely to deliver the highest value care.

(I have no financial relationship with any of the companies named in this article.)

KEY TAKEAWAYS:

--There are opportunities within the volatility. For instance, insurers with ample liquidity to meet near-term needs could diversify their holdings into less liquid securities that could generate greater return.

--Many primary carriers are maintaining more insurance risk and paying more for the percentage of their books they do reinsure but should remain open to pursuing new opportunities. 

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Insurers in the fall of 2022 were expecting to increase their risk tolerance in the year ahead, according to a Conning survey of insurance industry professionals. However, the start of 2023 has proven to be a far more challenging environment than expected: Layoffs are on the rise in the financial and tech sectors, the banking system and regional lenders in particular are stressed and the U.S. Federal Reserve has continued interest rate increases to fight inflation. With these headwinds, do insurers still have a growing appetite for risk?

Conning’s discussions with clients suggest they are more focused on managing the risks they currently have on their balance sheets and focus on operational pressures. We also believe that insurers should consider opportunities the current market dislocation is generating – including those with greater investment risk – provided the risks fit within their longer-term strategic needs to manage their companies and portfolios.

Opportunities Within the Volatility

The findings of the Conning Risk Assessment Survey of U.S. Insurers, which received responses from 303 insurance industry professionals, suggest that risk management and sustainability will continue growing in importance but that they are also becoming more complex. The survey adds that insurers would not blindly add risk but would judiciously seek to invest in systems to better understand the risks they are pursuing.

Since the tumultuous start of 2023, Conning has been talking with clients and learning more about their tolerance for risk as a result of recent events. The discussions are unique to each insurer, as they must holistically assess their enterprise's financial health, liquidity position and projected operating performance. They must also look at addressing near-term portfolio stress points while not losing sight of long-term objectives. 

In this assessment, Conning often sees some tradeoffs insurers should consider, or at least be ready to consider, that could potentially lead to improvements in their investment position in areas of interest rate risk, credit risk profile and prospective volatility of certain assets within their balance sheet.

As an example, consider liquidity risk. Given the recent banking industry stresses, liquidity is a hot topic. It’s an ever-present concern for an insurer: assessing the ability to fund future expenses and benefit or claim costs is of paramount importance. But upon a careful examination of business expectations over specific timelines and stress-testing liquidity, a number of insurers may find their portfolios have ample liquidity to meet near-term needs and therefore could further diversify a portion of their holdings into less liquid securities that can potentially generate greater yield or return -- esoteric asset-backed securities, private placements and real estate debt and equity, for example. Insurers should still focus on navigating these shorter-term challenges in this period of volatility but also pursue meaningful income gains over the longer term to help improve their business. 

See also: Adding ESG to Investment Practices

Adhering to Learned Lessons

Conning’s discussions with clients also suggest that, even as they navigate the challenges posed by the current volatility, insurers are unlikely to revert to the less diversified portfolios they had even a few years ago.

One of the outcomes of the persistent low-interest-rate environment since the financial crisis of 2008-9 is that many insurers, desperate for greater income, discovered the diversification and yield opportunities in allocating beyond the traditional fixed-income assets – such as treasuries and high-quality corporate debt – upon which they had relied for many years. It’s a lesson many plan to keep following regardless of market conditions.

Operational pressures for many insurers continue to increase with persistent inflation and reduced portfolio flexibility, given the unrealized losses in their bond portfolios as interest rates rise. Inflation has not just affected investment portfolios but continues to increase expenses and claims costs. Many primary carriers are maintaining more insurance risk and paying more for the percentage of their books they do reinsure. However, these firms remain resilient, and Conning suspects they will have the wherewithal to operate in a more volatile environment, similar to 2022, when they learned to manage through higher interest rates. We expect many insurers will remain open to pursuing new opportunities while stress-testing future operations and managing the risks on their balance sheet. 

U.S. insurance companies remain focused on addressing a number of concerns that are driven by market needs and escalating regulatory demands. As they identify the types of strategies that will best help them respond to these challenges, they often need help in identifying the appropriate resources and tools to help them meet their goals. We remind insurers that they may find valuable resources and expertise in asset managers with deep roots in the insurance industry who can help them face the tough questions in an increasingly challenging and unpredictable investment and operating environment.

KEY TAKEAWAYS:

--It's crucial to establish a common vision and help, encourage and trust your teammates.

--Value diversity. You'll be surprised what a different perspective can do for you.

--Acknowledge members who deliver on core values. Be flexible and keep it fun (and stay warm).

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Navy SEALs are the ultimate team. They accomplish almost impossible feats through precision teamwork. While each SEAL is a formidable fighting machine, it's the team that does fantastic things.

While working in the insurance industry isn't hazardous to life and limb, it does require a team endeavor. Success depends on a well-honed team of underwriters, actuaries, agents, marketers, IT experts and others.

No one succeeds without good teammates. This is what we're taught during team-building activities and something I was reminded of at an industry conference a few years ago.

After attending a Blue Cross Blue Shield conference in San Diego, 32 of us attended a Navy SEAL boot camp on Coronado Island. This "light" boot camp was a great experience, giving us a small insight into what our servicemen and -women go through during initiation -- and the importance of teamwork in the military and business.

We were paired into two teams of 16. Teams were then divided into four boat crews of people of similar heights

There was the usual physical training (PT), during which we were told we were too hot (cool off and get into the ocean), then too clean (roll in the sand) and then too dirty (get back into the sea). Then, there were team obstacle races, memory games, log drills, runs, cold ocean work and more, starting at 5:30 a.m.

So why wasn't I in my comfortable hotel bed at that early hour? Because it was fun, and once I started I didn't want to let my team or myself down.

Finishing the boot camp was something I couldn't have done alone, but having teammates didn't give me an automatic pass. I still had to learn to work with those teammates.

Here are five lessons I learned while at the boot camp:

1. Help, encourage and trust your teammates

It was much easier to reach a consensus and align our goals with our four-person boat crew first. Then, while racing and carrying a log overhead, we first tried to assess how we could best help each other carry the weight.

We knew we needed to step in time so we would not trip on each other. Walter, an ex-Marine, would call out the steps from the rear. During the race, another teammate's shoulder became very sore due to a recent operation. I moved forward to take his weight. We stayed positive, encouraged each other and beat the young guys.

2. Communicate and establish a shared vision

It was a little hard at first to communicate, as none of us knew each other, but we knew that the sooner we could communicate, the sooner we'd have an advantage. So, together, we decided what the core mission was and everyone's role so the team could succeed.

This might seem obvious, but it's easy to lose sight of goals when faced with challenges or obstacles. Whether your objective is supporting your team by linking arms and sitting in the ocean while being pounded by waves -- or implementing software or obtaining market share -- a shared vision will keep the team focused and on track.

See also: There Is No 'I' in 'TEAM'

3. Value Diversity

Some teammates had plenty of boot camp experience, and others had very little. However, their opinions were valued equally because they brought different perspectives and ideas. Unfortunately, many businesses can fail to recognize this.

In business, a healthy exercise is to ask someone in a lower-level position, such as an administrative position, what they think about a problem in the company and how they would solve it. Then, mention their solution at the next C-suite executive meeting. You'll be shocked at how valuable listening to your people can be.

4. Acknowledge members who deliver on values

As a company, you need core values and standards that reinforce those values. As leaders, we tend to recognize performance, which is important. But we also need to recognize when team members deliver on those core values with their behavior. That's how we communicate what's important to us.

One way the SEALs acknowledge values is to simply call out individuals to the front of formations and tell everyone how they are doing a great job. In business, let's say one of your core values is supporting one another (a core value at my company). Openly call out the people at your weekly meetings when they meet that standard with their actions.

5. Be flexible, keep it fun and stay warm

You might have a plan, but be ready to make adjustments at any time. When we thought we understood a drill, our instructors would make it a little more interesting. Todd, the teammate with the sore shoulder, got our boat crew singing during our runs. I encouraged our crew to hug to stay warm when many began to shiver from the cold-water drills. Together, as a team, we finished the boot camp.

Some gave up or got hurt. They grabbed a doughnut and a coffee, rang the bell and left. But we hung in there, breaking the boot camp activities down into one task at a time -- and we got through each of those "one tasks" together.

We will inevitably have our own oceans to cross and missions to accomplish. Yet regardless of the landscape, we will require the help of others to reach our destination. Through positive teamwork, we can harness skills beyond our own and achieve success we might not otherwise see.

KEY TAKEAWAYS:

--As aviation tries to get to net zero, innovations such as sustainable aviation fuels (SAFs) can reduce emissions by 80%, or even more.

--Insurers can play a key role in helping their clients de-risk the transition, such as by insuring the construction of SAF manufacturing facilities or the installation of SAF refueling infrastructure at airports.

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The aviation sector has pledged, like most, to reach net zero by 2050. From the International Air Transport Association (IATA) commitment to "Fly Net Zero" to the declaration from the International Aviation Climate Ambition Coalition at COP 26, the air transport industry is not short of promises to dramatically reduce its carbon footprint.

Compared with some other sectors, aviation is a relatively small contributor to global greenhouse emissions – in 2019, it was estimated to account for around 2.5% of the world’s CO2 emissions. However, it is also one of the fastest-growing, and there is little doubt that every major airline and aerospace manufacturer in the world now has its environmental impact front and center, a topic that is vertiginously ascending the corporate priority ladder. But what does the flight path to a more sustainable future look like for the industry? And how realistic are the lofty goals that have been set?

The first, and most obvious, conclusion is that there is no silver bullet. Potential solutions abound, but there is no answer likely to single-handedly push aviation to net zero. The second is that, pressure groups and activists aside, intermediate decarbonization goals are linked to commercial aims – stating the obvious, the more efficiently an aircraft burns fuel the better for all concerned. Longer term, however, the aviation industry may need assistance from both its insurance and other financial, partners in de-risking the transition, as the costs associated with change are a significant, but not insurmountable, barrier to progress.

Clearing the Runway for Sustainable Aviation Fuels

The sector certainly abounds with initiatives to aid the transition. The first likely to have a tangible effect is sustainable aviation fuels (SAFs), with many airlines looking to increase their usage (10% is a commonly selected target). As part of the "Fit for 55" package, which sets out an initial target of  a reduction in emissions by 55% in 2030 (compared with the level of 1990), the EU will require every flight leaving its airports to carry a minimum amount of SAF (2% in 2025 and 5% by 2030).  Meanwhile, the U.S. wants to increase the production of SAFs to three billion gallons per year by 2030. While these commitments are welcome, the production of these alternative fuels remains small.

SAFs can be split into three buckets – those recycled from waste products (for example, from used cooking oil), those created directly from crops and synthetic fuels (created by processing recovered carbon dioxide with green electricity). With the commercial aviation world requiring approximately 95 billion gallons of traditional kerosene aviation fuel in 2019, according to IATA, the recycled or grown SAFs suffer from a lack of available resources (short of diverting all global agriculture toward the endeavor) while large-scale production of synthetic fuels will require cheap, high-volume green electricity. 

The price of SAFs is double that of fossil fuels price today, so the dramatic ramp up of SAF production will require significant capital expenditure and initially government incentives are likely to be required to offset the price premium. It will be worth the time, cost and effort. SAFs can result in an 80% reduction of lifecycle emissions (as the only true emissions come from processing steps). The technology is proven and certified (having already been used on over 200,000 flights), and no changes are required to existing aircraft – SAFs can be used interchangeably with kerosene. 

There is also a key role for insurers to play in helping their clients de-risk the transition to SAFs – supporting the construction of new infrastructure and the adoption of different fuels. For example, insuring the construction of SAF manufacturing facilities, or the installation of SAF refueling infrastructure at airports. Insurers may even be able to assist their clients with hedging to allow airlines to protect themselves against SAF price fluctuations.

Ready for Take-off? Electric and Hybrid Aircraft

While SAFs will be the short- to medium-term workhorse, perhaps the more exciting future developments are the new air travel technologies that remain nascent but capture the imagination more than a simple fuel switch. The electric aircraft revolution is firmly underway, with more than 200 global companies developing concepts. Several have even completed test flights, and the appeal is obvious: Electric aircraft have no climate impact during operations. They are a thrilling proposition. 

However, the biggest issue remains technological maturity – in particular, battery density and the associated range. Batteries will need to be at least five times denser than current lithium-ion batteries, and it is not currently thought that true electric aircraft will ever have a range greater than 500 to 1,000km – although it is estimated that half of all global flights are shorter than 500 miles. Electric aircraft also remain relatively far off, with 2040 probably a realistic date for entry into service. There will also be an arduous process of certification of such new types of aircraft, with regulators (quite rightly) needing to know that the new technology is safe before allowing consumer usage.

So what for long haul? The answer may rest with hybrid aircraft. A concept familiar with road vehicles, but likely to be a blend of electric technology and hydrogen propulsion rather than involving traditional fossil fuels. This is certainly the approach being taken by Airbus, which hopes to develop the world’s first zero emission aircraft by 2035, with its three ZEROe concepts. The aircraft are powered by hydrogen combustion through modified gas turbine engines. In addition, hydrogen fuel cells create electrical power that complements the gas turbine, resulting in a highly efficient hybrid-electric propulsion system. While not as efficient as pure electric aircraft, hybrid aircraft will be able to provide a range out of reach of electric alone. They will also be able to carry greater number of passengers and offer a realistic alternative to kerosene-powered long-haul routes.

Such hybrid aircraft may seem like the nirvana, but they are not without drawbacks. Hydrogen storage and usage, of course, brings safety concerns. While hydrogen processing has been used for years in oil refineries and the fertilizer industry, aviation represents a new road to travel. Happily for its passengers, the aviation world is safety-obsessed. All parts of the industry (transport, storage, usage, etc.) must pass rigorous safety tests. Current aviation protocol is based on the fossil fuel-powered jet engine – a technology that has been around for decades. There will need to be a wholesale shift from regulators and companies to embrace a new safety environment.

Insurers can, of course, help by providing cover for new and test products and assisting their clients in de-risking the evolution to new technology. This could include insuring electric and hybrid aircraft types through their testing phases and as they move into service, or creating an insurance safety net for a company’s R&D operations. Such a technological leap is not without risk, and companies (both manufacturers and end users) will hugely benefit from the support of their trusted partners as they adapt for the future.

See also: Aviation Risk Trends Post-COVID

Don’t Forget About Marginal Gains and Design Efficiencies

While they are the future, both electric and hybrid technologies will not be available tomorrow, and, along with SAFs, there are shorter-term, more mundane gains to be made from the aviation industry. One of the key areas for such gains is operational efficiency, and there is nothing to stop all aircraft operators looking at this side of their business and making changes now.

A combination of operational levers can drive emission reductions at scale. Examples can include pre-flight via mission tailoring and fuel planning (i.e. ensuring the right aircraft is being used for the right flight); on the ground via traffic management (to reduce the time engines are on in traffic); during approach and descent via better air traffic management (to reduce holding time) and adapting climb and descent procedures (to spend longer at optimal cruise altitude); during cruise via dynamic routing (responding to changing weather patterns); and after flight via preventative maintenance and cleaning.

There are plenty of airlines already embracing these marginal gains. Over 40 airlines have partnered with Sky Breathe – technology that uses artificial intelligence (AI) to analyze billions of data records from all types of sources, including flight data recorders, operational flight plans and Aircraft Communications Addressing and Reporting Systems (ACARS), before combining them with environmental data from actual flight conditions (such as payload, weather conditions, Air Traffic Control (ATC) constraints, etc.). It then identifies the most relevant saving opportunities and provides a series of recommended actions that it claims can reduce total fuel consumption by up to 5%. 

There are also improvements that can be made to existing aircraft design to drive fleet efficiencies. This mostly comes through the incremental introduction of enhancements (for example, wingtip, blended winglets or increased wingspan) and improvements to engine efficiency. None of these improvements will drive the industry to net zero, but they will all play a vital role in reducing emissions intensity of the aircraft and inch aviation further on its journey toward a more environmentally friendly future. 

This is the broader picture in a nutshell. There are many exciting developments, each with a part to play. Some will grab the headlines and appear to be futuristic leaps; others will go unremarked but are just as important. No one development can help the industry singlehandedly. Instead aviation will look at multiple solutions and there is risk and barriers to each.

Given the uncertainty, there has never been a more important time for insurers and other financial partners to support their clients as they take the steps necessary for a net zero future.

KEY TAKEAWAYS:

--Seven factors are highly predictive of vulnerability to a breach.

--They can be measured precisely, using questions that go far deeper than the standard Yes/No questions like, "Do you have a software patching cadence in place?"

--The seven factors can be monitored continuously, providing an up-to-date understanding both to the insurer and to the client.

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Cyber insurance policy application forms are the equivalent of a dating profile. You don’t really know if the person’s picture is up to date, or if what they’re saying about how much they drink and what they do for a living is true. And the cyber applicant isn't necessarily even being deceptive. The person who filled out the profile may not have an accurate understanding of themselves, so how could they give you the complete picture? 

For cyber insurance companies to provide optimal quotes and manage their risk exposure, they need a comprehensive and predictive view of risk -- and it needs to be the same view that policyholders have. 

Questionnaires about insureds’ cyber hygiene and honor system-based notice of circumstance declarations are insufficient. Enter security ratings. As attack surfaces grow, as the number of connected devices increases and as breaches become more prevalent, this continuous, external scanning provides an always-updated view of risk—both of an organization and of its third and fourth parties.

By mapping out digital assets, observing events and settings on these assets and correlating them to cyber incidents, SecurityScorecard assigns an A-F rating and a score of 1-100. Ratings are entirely evidence-based, scored on an underlying and transparent observation from scans of the entire IPv4 space. 

Win-win cyber risk management for insurance providers and policyholders

Together, Marsh McLennan Global Cyber Risk Analytics Center and SecurityScorecard studied how cybersecurity ratings can help insurance companies provide quotes and manage their risk exposure while also offering customers the opportunity to improve their security posture.

We found seven factors that are most predictive of a breach. They are:  

1. Endpoint Security: Looks at the security of an organization’s operating systems, web browsers and related active plugins
2. Patching Cadence: Analyzes how quickly an organization installs security updates
3. Ransomware Score: Measures how susceptible the organization is to a ransomware attack
4. Network Security: Checks public datasets for evidence of high-risk or insecure open ports within the organization’s network
5. DNS Health: Measures the health and configuration of an organization’s DNS settings. 
6. IP Reputation: Uses the SecurityScorecard data, open-source malware information and third-party cyber threat intelligence data-sharing partnerships to assess the reputation of an organization’s IP addresses
7. Cubit Score: Measures a variety of security issues that an organization might have to identify whether it is adhering to best practices

Taking the steps to mitigate risk associated with these factors will significantly strengthen an organization’s security. 

See also: Why Cyber Strategies Need Personalization

How predictive are the seven factors of cyber risk? 

Let’s get nerdy. To discover which factors are statistically significant, we combined incident data from Marsh McLennan with SecurityScorecard’s ratings data, dating back to 2018. We enriched the incident data with firmographic data including North American Industry Classification System (NAICS) industry codes and company revenue. The joint data sets gave us approximately 12,000 unique, globally distributed entities covering a range of revenues and industries. 

The chart below shows the 95% “confidence interval”—meaning that there’s a 95% probability that the results will fall within these parameters—of the “correlation coefficient,” the statistical relationship between two variables, for all of the entities in the study. 

Keeping in mind that a correlation of -1 indicates perfect correlation, these results suggest that the seven factors have strong predictive power. 

As you can see, endpoint security is the strongest predictor of a cyber incident overall. [The Cybersecurity Infrastructure and Security Agency (CISA) recognizes the importance of endpoint security, as well. They issued an alert that identified common exploitation vectors and recommendations for mitigation.]

See also: Cybersecurity Trends in 2023

Security ratings boost cyber resilience

The need for cyber insurance is growing, yet only 55% of organizations have policies. And even though enterprises spend a mean of $2.4 million to find and recover from a breach, only 20% have coverage of more than $600,000. 

It behooves both cyber insurers and their policyholders to take the steps necessary to improve cyber resilience. 

In addition to providing a way to quantify and assess risk, security ratings allow providers to stop asking simple questions that require complex answers. Rather than asking a binary "Yes or No" question like, “Do you have a software patching cadence in place,” they’re able to answer complex questions like, “Do you have any high-severity CVEs in your environment, and if so, how long have they remained unpatched?” This is the level of detail required to underwrite cyber risk in the 21st century, and it’s why security ratings are becoming a bigger part of insurers’ profitable growth strategies.

Security ratings and data offer a transparent, two-sided view that reduces information asymmetry so that all interested parties can better understand and measure cyber risk. 

And being aware of the seven factors most predictive of breaches can inform underwriting strategies and help the industry move toward a more sustainable future. A historical view over at least a year is also important, because most cyber policies are written on a claims-made basis. A data breach or other cyber compromise can take many months to come to light, and it’s smart to avoid underwriting an organization in the midst of one. 

Using ratings in underwriting strategies supports insurance companies to more accurately evaluate cyber risk exposure and inform risk selection decisions. Knowing which way to swipe, as it were, drives an efficient risk transfer market with all interested parties on the same page. This helps make all of us—and the world—safer.