Financial planning for those with disability needs has often been viewed as an "advanced sales support" capability for carriers, useful for when an advisor runs into a client with more sophisticated needs than traditional sales training provides. This commonly occurs in situations where families have children with disabilities, whether that is physical, cognitive, or mental. As a whole, the insurance industry is immature, often referring to this as "special needs planning," terminology that is not in line with disability advocacy best practices. Many carriers have no formalized special considerations planning capabilities, while less immature models may have trusts specialists who may be able to assist as a part of a sales desk. Leaders will have formalized home office support in the form of a dedicated disability considerations team. This may include needs calculators, marketing materials, or even a dedicated sales representative that is a Chartered Special Needs Consultant (ChSNC) in the home office.

But most specific needs planning capabilities are based on the assumption that disability needs planning is a secondary consideration to broader estate planning through an advisor. These assumptions are simply no longer accurate. First, disability needs planning is no longer a niche market reserved only for ultra-high-net-worth individuals. Mental health and broader disability consideration services affect all markets, many of which may not traditionally have advisors. Second, specific needs services and mental health providers represent significant spend on their own. While the average child is estimated to cost $13,000 a year to raise, a child with disability needs is estimated to cost $30,000 a year to raise. And unlike other children, children with specific needs typically need support well beyond the age of 18. Mental health spend may be less (~$1,100 a year) but affects a significantly larger number of individuals. Third, needs are not quite as simple as effective estate planning. Consumers need products and advisors that can reasonably understand disability needs scenarios to ensure that coverage is accurate. For example, simply identifying an individual as bipolar is not sufficient – the long-term care for that individual must include medication, plans/treatment, and monitoring.

Growth In Specific Needs and Mental Health Markets

The number of individuals who qualify as specific needs has significantly grown over the last 20 years. From 2017 – 2023, the number of individuals three-21 years who qualified as disability needs under the Individuals With Disabilities Education Act (IDEA) grew 7%, with overall growth from 2013-2023 showing 14-15% growth.

In addition to the growth in the disabilities market, there has been an increase in both frequency and severity of mental illness . Not only are coming generations experiencing mental illness at a significantly greater rate than older generations, they are experiencing more severe diagnoses, as well.

This population is not just receiving diagnoses – they are receiving mental health treatment, defined as having received inpatient treatment/counseling or outpatient treatment/counseling or having used prescription medication to help with mental health challenges. In 2022, among the 15.4 million adults with a significant mental illness (SMI), 10.2 million (67%) received mental health treatment in the past year .

Most projections show significant growth in the mental health space. A combination of destigmatization, proliferation of mental health and behavioral resources, and technology to assist in serving historically underserved communities is likely to drive growth in this space. Some estimates put behavioral and mental health service growth at 18% over the next decade.

Opportunity for Carriers

The significant growth in the number of individuals with disabilities and mental health presents a growth opportunity for insurance carriers. Existing products simply do not meet the needs of families attempting to ensure care of their dependents when they are no longer able to care for them themselves.

1. Government Benefits Are Uncertain – Historically, the bedrock of benefits for individuals with disabilities were government programs, such as SNAP or housing benefits. But budget concerns affecting discretionary spending, both at the federal and state levels, put these programs in jeopardy. Parents who need long-term planning cannot reasonably rely on these programs to remain.
2. Trusts Are Complex – Third-party trusts are often complex, costly, and not easily administered. Consider that the trustee must have strong understanding of legalities of specific needs programs, particularly government benefits, to avoid jeopardizing them in the long run. A trust is also expensive to set up and an incorrect legal structure can ruin the beneficiary's benefit eligibility. There is also the practical administration – smaller families and weakened familial ties often mean there is no obvious individual to serve as a trustee.
3. Insurance Products Are Not Fit For Purpose – While it is possible to leverage life insurance and other financial products to fund a trust, this again requires significant planning and expense to properly set up the trust and administer it long-term. While long-term care can support dependents with disability needs, the policies are often expensive and may not actually cover what you need (e.g., supporting speech therapy versus mental health sessions).
4. Group Benefits Only Work For Employees – While there has been an expansion of mental health benefits in the group and voluntary benefit space, many dependents will be unable to have traditional jobs to qualify for the benefits.

Customer-centric product design suggests a simple solution – creating products specifically for dependents with specific needs and developing distribution and operational support necessary to enable the products. A growing market, limited alternatives, and a consistent need for the services all support further research and expansion into this market.

For carriers to succeed, they will need to address five critical challenges:

1. Underwriting Operational Support – Most critical of these challenges is the development of underwriting processes and risk management necessary to accurately price the product. This will require the mental health equivalent of a chief medical officer, comprehensive training, and trial and error to ensure proper pricing discipline.
2. Sales and Distribution Enhancement – Product sales can be driven through direct channels or through advisor-led channels, each with significant advantages and disadvantages. Designing the right distribution channel strategy will be critical – one key consideration will be the carrier's ability to successfully market and educate consumers on the product. Strong marketing capabilities could favor a direct model that reduces commission costs and helps ensure profitable growth.
3. Technology Enablement – This relatively new insurance space has one other upside – it is not bound by legacy systems or processes. The best carriers will leverage AI and automation to streamline product development, new business processing, and servicing. Because the dependent population may or may not be able to advocate for themselves, this presents an opportunity for carriers to heavily invest in technology so that the process does not require heavy intervention from the beneficiary, who may have limited decision-making capacity.
4. Advisor and Consumer Awareness – Advisors are typically ill-equipped to advise families in these areas. The sales scenario is not usually practiced in formal training programs, and advisors typically have little knowledge of mental health or disabilities to truly understand risks and client needs. Consumers are often not much more aware. Carriers will have a significant awareness challenge, but can develop this capability in conjunction with mental health and disability institutions to drive broader education efforts.
5. Regulatory and Compliance Frameworks – Insurance carriers can provide consumers the ability to administer trusts and handle the legal complexity associated with them. While this would likely involve third-party administrators, the challenge will be the legal standard applied to value-based care and the liability limits associated with them. For example, will there be a simple suitability standard applied to providing mental health care or will there be a heightened best interest standard? How is this standard monitored and enforced?

The good news for insurers is that they do not have to rush into this market. A macrotrend in insurance is the move toward hyper-personalization. The more tailored a product is to a need, the easier it is to underwrite the risk and meet the consumer's needs. This market is so broad that carriers can begin by offering adapted versions of existing products before eventually developing net new products. The important aspects are having the right individuals that understand both mental health/disability needs (e.g., therapists, caretakers) and those who understand insurance to marry the two to create a viable model that can serve a significantly growing population.

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 Outdated safety tools like paper checklists and spreadsheets are no longer effective. To better protect workers and make smarter decisions, organizations need a proactive, data-driven approach to risk assessment. 

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• Why digitizing risk assessments is now essential
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Sponsored by: Origami Risk

The 2025 Canadian Reinsurance Conference featured a panel discussion with representatives from an insurer (Manulife), a reinsurer (RGA), and a leading industry organization (LIMRA/LOMA) on the topic of bridging the life insurance coverage gap in Canada. This article summarizes that discussion – outlining the current situation, describing factors, and offering potential solutions. 

The positive side of emerging challenges is they generally bring opportunities. That certainly holds true for today's Canadian life insurance industry. 

The challenge: Canada is facing a significant life insurance coverage gap, with insurance ownership declining across the nation.

The opportunity: By identifying underlying issues, developing and prioritizing strategies to address them, and working together across all parts of the insurance value chain, the industry can build a more secure future for all Canadians.

A growing gap

First, a quick look at the numbers.

Figure 1: Life insurance gap in Canada 

The gap spans all income levels but is most pronounced in households earning below $50,000 annually. Accordingly, the decline in insurance coverage is particularly evident in term policies, which dropped from 397,000 in 2019 to 340,000 in 2024. Meanwhile, 56% of 2024 premium sales were participating (whole life) policies, indicating a shift toward higher-end products. The result: While the current market generates relatively positive financial results, underlying declines in policy ownership suggest significant growth opportunities have yet to be realized 

Underinsured rates are especially prevalent among younger generations, with Gen Z showing a 44% need gap, more than double that of Baby Boomers. Gender analysis reveals clear, though less prominent, disparities, with women having a 32% insurance need gap compared to 28% for men.

As insurance ownership drops, the need for financial protection only grows. Increasing housing costs and associated mortgage debt, for example, amplify the protective benefits of insurance coverage, especially for younger people taking on new loans. On the other end of the age spectrum, Canadian seniors already at risk of outliving their own retirement savings also risk leaving loved ones unprotected. 

Consider this: The crowdsourced fundraising site GoFundMe, a popular source of support for individuals in need, recorded its highest annual payout total in 2024, reflecting the critical need for financial protection despite declining insurance ownership.

Contributing factors

Several connected factors contribute to the growing coverage gap. 

Within the industry itself, a shift in focus toward high net worth clients has led to an emphasis on larger and more sophisticated policies. This trend, coupled with a decline in the number of insurance advisors, has resulted in reduced attention to the mass market and term policies. A lack of young advisors is particularly troubling as many industry veterans near retirement age. 

Changing demographics and consumer attitudes also play a crucial role. Immigration, including an estimated 395,000 people coming to Canada in 2025, has increased the number of households who may need insurance coverage. 

Post-pandemic shifts in consumer priorities and financial strains have further exacerbated the issue, with higher cost of living fueling competing priorities for after-tax dollars and making insurance seem less urgent. Younger generations are delaying life events – home ownership, marriage, children – that typically trigger insurance purchases. In addition, fallout from the pandemic-triggered "Great Resignation" and accompanying expansion of the gig economy, which saw a 44% surge in the number of digital gig workers in Canada in 2024, has left many without employer-sponsored plans.

Misperceptions about insurance remain prevalent. Only 32% of Canadians trust their insurer, according to Statistica Canada. Additionally, a general lack of awareness about life insurance benefits and costs reduces perceived value. Complex product offerings and jargon-filled communication can magnify this issue and create added barriers to insurance adoption.

Five keys to future growth

Addressing the life insurance coverage gap in Canada requires a multi-faceted approach. 

1. Education and awareness. This tactic should be at the forefront, with efforts to simplify insurance language, highlight affordable premiums (see Figure 2), and emphasize the universal benefits of life insurance – such as income replacement, debt protection, and legacy planning.

Figure 2: How much does life insurance really cost? 

In a recent study, Canadians overestimate the cost of insurance by more than 300%. Actual premiums for $250,000 of life insurance coverage for 30-year-old nonsmokers in Canada (represents 5X income coverage for someone making $50,000 – a commonly recommended ratio):

2. Digital engagement. Expanding marketing efforts to platforms like TikTok, Instagram, and YouTube; developing user-friendly interfaces for needs analysis and applications; and implementing hybrid advice channels that combine online tools with advisor support can make insurance more accessible and appealing, especially for younger people. In LIMRA's Insurance Barometer Study, 46% of respondents indicated, "I would research life insurance online, but ultimately buy in person." Companies embedding immediate contact support with online tools are having success, and accelerated underwriting processes can remove additional barriers to entry. 

3. Targeted strategies. Innovation in products and services tailored to changing life stages and demographics can make insurance more relevant and attractive to a broader range of Canadians. This includes developing "bite-sized" entry-level products for underserved markets, such as new Canadians and gig economy workers. 

4. Advisor recruitment. The industry must focus on advisor recruitment and training, particularly from underserved communities. Promoting insurance advisor as a viable career path and conducting outreach through job fairs and community events can help address the shortage of advisors serving the mass market.

5. Industry collaboration. Partnerships with financial planners to include insurance in overall financial literacy efforts, collaborations with "finfluencers" in investment and banking sectors, and industry-wide initiatives to improve accessibility and trust, can create a more robust and inclusive insurance ecosystem.

A call to action

The opportunities are there – but only if we take collective action as an industry to seize them.

As the insurance landscape evolves, we must ensure we are meeting the needs of all customers. And the time to act is now. For example, protection for a mortgage is a common reason people acquire term insurance, and more than 1.2 million mortgages are renewing in 2025. This significant opportunity is just one of many.

Despite the urgent need for sufficient coverage and the continued advances in direct digital sales, insurance remains primarily a sold-not-bought product. Awareness of need without advice does not result in action; awareness with advice does result in action. To serve a broader population, the industry must reimagine distribution models and design innovative products that bridge the gap between awareness and action.

By diversifying the customer base and making financial protection accessible to all Canadians, the industry can fulfill its social responsibility while enhancing its resilience. Together, we can bridge the gap and create a more financially secure Canada for generations to come.

The traditional two-dimensional method of plotting portfolio risk and return, easy to illustrate and comprehend, remains a starting point for building most investment portfolios. For insurers, however, this method may not be sufficient.

An investment portfolio should be designed to serve an insurer's unique needs: asset-liability management, liquidity needs, regulatory constraints among others. Adding these factors to a risk-return analysis would likely add complexity, but expanding beyond the two-dimensional risk-return graphic may provide valuable insight to help insurers develop a more appropriate and efficient custom strategy.

As an example, consider risk-based capital (RBC) charges. A variety of investment strategies may offer similar or even equal risk-reward profiles, but they can vary significantly in RBC charges (see Figure 1). Though they share similar risk-return profiles, Portfolio 1's higher allocation to highly-rated structured securities results in a lower overall capital charge, while Portfolio 2's higher charge is primarily due to its greater equity allocation. Higher RBC charges can lead to higher hurdle rates and inefficient use of capital. A strategy with a lower RBC charge would enable insurers to free capital that can be used either for business expansion or returning to shareholders or policyholders. The added perspective on RBC charges can be a significant benefit.

Insurers face a growing array of challenges in all aspects of their business, and their investment portfolios are not immune. As interest rates in the past few years climbed back from an extended period of historic lows, insurers have an even broader menu of options worth considering in developing portfolio strategies. Given the other factors that can affect an insurer's investment choices – each firm's distinct book of business, risk tolerance, preferences, etc. – the more extensive the review of potential outcomes, the better an insurer's decision-making is served.

Modeling for Insurers: A Higher Standard

Investors typically view portfolio optimization through a framework known as the Markowitz Efficient Frontier. It helps balance risk and reward, often represented by standard deviation and the average of historical returns, respectively, although there are a variety of metrics to measure both. Insurers, however, require a broader set of considerations.

Markowitz's mean-variance optimization assumes that asset returns follow a normal distribution, but that is often not the case. This can lead to inaccurate risk assessments, especially during extreme market conditions.

A more sophisticated level of modeling risk and return includes the use of a stochastic economic scenario generator to project multiple scenarios for asset returns, volatilities, and correlations based on historical data and probabilistic models, capturing the non-normal behavior of asset returns. In this approach, risk and reward are defined as the average and standard deviation of portfolio returns across scenarios at a long-term steady state.

Figure 2 shows optimization results when applying the Markowitz framework. Each dot represents a portfolio with unique asset compositions, leading to different risks and rewards. However, this classic focus on two variables (risk and reward) does not capture all the specific nuances that insurers must consider when making asset allocation decisions.

If we add in the risk-based capital aspect – one of many other metrics that might be important to portfolio construction, but hardly the only one – we immediately add greater complexity. While the relationship between risk (expected volatility) and capital charge has a positive correlation, it is not linear.

To build upon Figure 2 and adding a third component – the aforementioned RBC metric – we would need to plot a three-dimensional graph which covers risk, reward and capital charge (see Figures 3 and 4).

Figures 3 and 4 show the same underlying data as Figure 2 – each point represents a portfolio - except these illustrations includes a third aspect: RBC charges. Rather than a smooth surface, we observe hills and valleys indicating nonlinear relationships among risk, reward and RBC charge, precisely the type of information that is lost in using the traditional Markowitz framework. What concerns us is no longer an efficient frontier line, but rather an efficient surface.

One way to generate capital-efficient portfolios is to solve for efficient surface portfolios, in our example that being the efficient frontier portfolios for the desired capital charge. This is shown in figure 5, where efficient portfolios for a given capital charge are marked by 'x'. The figure also highlights the inadequacy of considering only risk and reward where two very similar portfolios can be vastly different in terms of capital efficiency as shown in the back rectangle above at Figure 5.

Tailored Solutions for Unique Challenges

Of course, not all insurers are alike. Two different insurance companies holding identical asset portfolios will have different RBC ratios because of differences in other components of the RBC formula, namely insurance risks, interest rate risk and business risk. And of course, RBC is just one consideration among many. As such, we cannot have a one-size-fits-all portfolio for insurers.

Our narrative thus far has ignored the liability side of the puzzle. In practice, insurers need to consider the interplay between the assets and liabilities; indeed, a portfolio that appears appropriate from an asset-only perspective can be completely inappropriate from an enterprise perspective. A Strategic Asset Allocation (SAA) exercise then should consider cash flows generated by both assets and liabilities under different economic scenarios, in addition to the considerations discussed previously. This requires sophisticated dynamic financial modeling systems that can incorporate assets and liabilities as well as regulatory capital requirement. Last but not least, the model should be able to capture the impact of selling assets from an existing portfolio and buying into a new one.

To summarize, insurers are different from the "average" investor type because of the myriad of considerations insurance asset management demands, which can be better served by sophisticated insurance-focused modeling capabilities. Given the demands of the competitive environment, insurers may wish to work with an asset manager with deep knowledge of the insurance and investment environments, as well as the experience and tools to help them develop more sophisticated approaches to asset allocation, to assess the risks and rewards of optimizing their investment strategies.

The stop-loss market is growing, fast. According to new data from the Employee Benefit Research Institute (EBRI), the share of employers using stop-loss coverage jumped from 65% to 74% in just one year. That's a major shift and for good reason. Catastrophic claims are no longer rare. They are becoming more common and more expensive.

While stop-loss coverage remains essential to protecting self-insured employers from financial shocks, it's not a silver bullet. As claim sizes increase and medical billing grows more complex, relying on stop-loss insurance alone can mean you're protecting the plan's ceiling but ignoring its floor, where real savings can happen.

For benefits brokers, this creates a new imperative: the need to pair stop-loss protection with smarter claim management strategies. That means aligning stop-loss with robust negotiation, review and pricing tactics that control spend before a claim ever hits the deductible and certainly before it triggers catastrophic thresholds.

Let's break down why that combination matters more now than ever.

Catastrophic Claims Are Becoming the Norm

High-cost claims are no longer anomalies. They are steadily rising across all segments, driven by new specialty drug therapies, hospital consolidations and more frequent out-of-network care. Conditions like cancer, cardiovascular events and end-stage renal disease continue to top the charts in terms of frequency and financial impact.

The introduction of expensive new drugs, such as GLP-1s for diabetes and obesity, has only intensified the cost curve. In fact, specialty drugs now account for more than half of all prescription drug spending, despite being a fraction of total prescriptions filled.

This reality puts immense pressure on self-funded plans and their stop-loss layers. A single claim can push an employer over their specific deductible. Worse, clusters of mid-size claims may fly under the stop-loss radar but still chip away at the plan's financial sustainability.

Can Stop-Loss Keep Up With Rising Costs?

The growing reliance on stop-loss insurance, particularly among larger employers, is understandable. It helps manage volatility and caps exposure. However, as adoption increases, so does the risk of false security. Just because a plan is protected at the top end doesn't mean it's managing waste, overbilling or pricing discrepancies at the claim level.

Stop-loss carriers are also under pressure. They face mounting loss ratios due to the increasing frequency and severity of claims. In response, many are adjusting premiums, tightening underwriting and reassessing risk layers. This means brokers must prepare clients for potentially higher costs, unless they can show real cost containment downstream.

That's where smarter claims management can shift the equation.

Three Strategic Levers to Reinforce Stop-Loss Protection

To move from reactive coverage to proactive protection, benefits brokers should encourage plan sponsors to focus on three key areas:

1. Claim Negotiation — Before and After the Bill Lands

Negotiation is no longer reserved for a narrow slice of out-of-network claims. Today, effective cost containment often starts with prospective negotiation, working with providers before treatment occurs to agree on fair rates for high-cost services. This is especially valuable for scheduled surgeries, specialty infusions and inpatient care.

Post-service negotiations continue to play an important role, especially for unexpected out-of-network claims. In practice, such negotiations often deliver double-digit percentage reductions and can meaningfully reduce financial exposure even when a claim is nearing stop-loss thresholds.

In-network negotiation, though less common, is also gaining ground, especially when large claims land in gray areas of existing network agreements. When permitted, strategic renegotiation can create space for savings without disrupting member access.

2. Claim Review and Auditing — Detecting Errors and Excess

Inaccurate billing remains a widespread issue. Duplicate charges, improper modifiers, unbundling and inflated line items all contribute to unnecessary spending. These errors often go unnoticed without a rigorous bill review process.

Comprehensive line-item audits, particularly for high-dollar claims, are essential for validating services rendered and charges applied. Some employers are also investing in prepayment review protocols, which catch issues before payment is made, eliminating the need for downstream corrections or claw backs.

In some cases, claims may also be subject to DRG (Diagnosis-Related Group) validation or claims editing, ensuring that billed services match clinical documentation and industry coding standards. These steps not only save money but reinforce defensible payments, a growing concern as billing disputes become more frequent.

3. Data-Driven Pricing Strategies

Traditional fee schedules or billed charges often don't reflect the true market value of services. That's where reference-based pricing (RBP) enters the conversation. By anchoring reimbursement to a transparent benchmark, such as a multiple of Medicare, RBP models introduce consistency and predictability into pricing.

RBP isn't the right fit for every plan but it's a compelling option for claims categories known for wide pricing variance, such as dialysis, infusion therapy and outpatient surgery. When used strategically, it complements stop-loss by preventing excessive charges before they accumulate into catastrophic territory.

In parallel, some organizations are using flat-rate repricing for recurring services, such as dialysis. These approaches help stabilize costs and reduce volatility over time, two outcomes every stop-loss carrier favors.

Smarter Claims Management Protects Everyone

It's not just about saving money. These strategies help protect the financial integrity of the plan, improve predictability for underwriters and reduce the administrative strain caused by claim disputes and appeals.

They also provide brokers with a stronger negotiating position when it comes time to market stop-loss coverage. Plans that show evidence of proactive cost containment are typically viewed more favorably by carriers, which can result in more competitive rates and terms.

Demonstrating turnaround times on complex claims or showing a low rate of reconsideration or appeals can signal operational excellence. That's valuable not just for stop-loss renewals but for maintaining employer trust.

The Broker's Role: Moving From Plan Designer to Risk Strategist

Benefits brokers are no longer just designing plans, they're helping clients manage volatility and protect long-term financial health. That means engaging in more strategic conversations around how claims are handled, priced and reviewed, not just covered.

When stop-loss is layered with smart negotiation, review, and pricing strategies, the result is a stronger, more resilient plan. It's not just about transferring risk, it's about controlling it.

In today's healthcare economy, that's not just smart, it's essential.

Culture is often cited to explain why innovation does not work in insurance. We start by defining what culture is before delving into how a culture is born, why it matters and finally how to create a culture of innovation.

Culture: A Definition

Alfred Kroeber, together with Clyde Kluckhohn, conducted a comprehensive review of the concept of culture in their influential 1952 work, Culture: A Critical Review of Concepts and Definitions (Exhibit 1). In this opus, they identified and analyzed 164 different definitions of culture from various academic sources up to that time.

Culture proves to be an elusive concept if it takes 164 definitions to delineate it.

My favorite, a 165th one: Culture is what is left once we have forgotten everything else. It is the way we are hardwired, our values, the way we behave, how we define right from wrong without even thinking about it.

In Japanese, Atarimae (obvious, evident) would be the closest to that notion of culture. Atarimae explains why we can see Japanese fans cleaning up after themselves (and helping others) in a sporting arena, without being invited, asked, provided incentives or coerced (Exhibit 2). It is just a habit, what they do.

Exhibit 1: 164 definitions of Culture

Exhibit 2: Atarimae in action

How a Culture is Born

Culture comes from the agency we have in deciding how we adapt to our environment.

For instance, the Inuit, living north of the Arctic Circle, adapted to polar living conditions by building igloos (ice houses), have multiple words to describe snow based on its different qualities, and hunt and eat food in a way suitable to surviving and thriving in subzero temperatures. In a word, they developed a culture. They could have chosen to move south and would have developed a different culture.

In a corporate environment, culture is the agency we have in the way we choose to adapt to our environment. And our environment is the sum of processes, behaviors, rules, and values we see in action. It is not what we say. It is only what we do. And what we witness others doing. That makes the culture, the norm. Therefore, a culture is born from a structure and the way we choose and see others adapt to it.

Culture is not to be found in a mission statement, and the best proof of that is most mission statements of most corporations look alike and promise a wonderful world where we all respect each other, our customers and of course the planet. If so, why global warming? Why is insurance not more innovative despite all insurance companies professing they are?

Culture is what we do, not what we say.

Doing innovation therefore is not a matter of culture; it is only a matter of structure, until it becomes second nature, atarimae, then it becomes culture. To create a culture of innovation, we simply need to focus on the structure, on how we work and how we get things done.

Why Culture Matters

As inferred in our favorite definition of culture, it underpins what we do, how we do it, why we do it without thinking—in short, a habit. Culture is the single most powerful way to get a group of people to behave, pursue a common goal and succeed in the process. Exhibit 3 underlines how important culture is. It may not "eat" strategy as they both cohere. Technology is the enabler.

Then why does innovation matter?

Research demonstrated a correlation between the highest numbers of accepted ideas and profit and growth (Exhibit 4).

And looking at the percentage of revenue invested in innovation, insurance comes among the last compared to other industries. Of course, selling a product versus a service does not entail the same magnitude of budget. The point is some industries are built and judged by the market based on their future products and therefore their innovation as a sign for future earnings. Innovation makes tomorrow's profit.

To be noted, MAPFRE made a public commitment to dedicate 1 percent of its revenue to innovation in 2018.

Exhibit 3: Why culture matters

Exhibit 4: Profit & Growth is correlated with more accepted ideas

Exhibit 5: Insurance among the last industry in percent of revenue dedicated to innovation

How to Create a Culture/Structure of Innovation

First, innovation may be the job of a few (innovation team), but it is the work of every employee.

What good does it do to give an innovation team innovation objectives if everyone else in the company does not have the same objective? To be innovative, everyone in the company must be innovative.

It means everyone must be held accountable for innovation objectives. How is that usually done in a corporate environment? Through performance reviews, constant feedback, coaching enforced through rewards and correction, carrot and stick.

Absolutely everyone. Not just underwriters, sales, claims, operations. But also legal, compliance, governance. Gatekeepers must be held accountable for innovation; otherwise, every endeavor will end at their door. We would have only pushed the buck from innovation teams to business teams if we do not include governance. Now the job of governance is also to innovate, to balance profit and loss, risk and opportunity.

Balance is the key word in regulated industries. The more we sell, the more risk we take. It needs to be balanced. But it is not putting innovators against gatekeepers. Everyone is an innovator and a gatekeeper.

Start small. What have you done this year to be more efficient (transformation) and improve our relevance in the market (innovation)? Count initiatives first, then count their impact in dollars as innovative measures mature. Just that for everyone would promote innovation when rewarded and corrected. There are no rules without enforcing them.

Second, how to actually create something new or work better. This is where the innovation team would help connect goals and pain points with solutions from an ecosystem of innovative partners.

There is no build, partner or buy in open innovation. It is partner first, buy or build next. Only partnering ensures quick development, cheaper cost and provides a benchmark to emulate to build later on or buy.

Business teams are transactional in nature, whereas innovation would require total commitment from vision to execution, working in an agile fashion with a deadline. As a result, business teams have a hard time building and dedicating resources to innovating. But they can eventually take on a dynamic partner to help them achieve their goals, rather than accruing IT legacy debt. For instance, as a chief underwriting officer, I wanted to pilot my portfolio of business effectively across 50 countries. IT suggested launching a 250-page RFP. I opted instead to work with a nimbler company then, QlikView, to design the portfolio features I needed without having to change the IT infrastructure. In less than a year I could make portfolio decisions at the click of a button that would have otherwise required three days of manual work. Quick, cheap, no legacy debt to amortize and effective (one click vs. three days per request).

Partnering is still work, but instead of building from scratch what already exists, teams can focus on the personalization layer with a partner, truly making a solution their own.

Third, any initiative needs to be aligned with strategy and with a senior sponsor signing off on it. Commitment from the business is required. Therefore, an innovation budget shall never fully fund any initiatives, only 30 percent at the most. The rest comes from the business.

Fourth, innovation is unprecedented change. Change is hard. Unprecedented change is harder. Innovation is also iterative. Thomas Edison indicated that he found 10,000 ways that did not work to create the light bulb. So failure at launching an innovation is still learning if we keep going and learn from it.

The point is quick learning matters, and the lines between success and failure have to be redrawn for innovative endeavors. The assessment therefore is on the learning and next steps more than on the failure to launch. The failure is on not starting and on not finishing.

Fifth, people can be trained on innovation. Many tools exist to uncover ideas: job to get done, extreme user analysis, ethnography, persona, user journey, assumption checker, value proposition canvas, etc. Lack of skills can be remediated. Lack of will and commitment may not, unless innovation is enforced through the structure. Freedom to explore tends to be a challenge for business teams that innovation teams can answer.

Sixth, innovation is a portfolio to articulate between horizon one, two, three. If horizon one and two require a good connection between innovation and business teams, horizon three can be the prerogative of innovation teams, projecting future activity in new business models, distribution and new ways to define the corporation. In a life environment, I call that the "meaning of life" or how to be a life player rather than a mere life insurer. After all, Daiichi is called the Daiichi Life Group, not Life Insurance Group. And a life, as defined by policyholders, has multiple dimensions not addressed by a life insurance policy: caregiving to ascendants, descendants and pets, grief management including of pets, prevention, early detection, longevity as a service, wealth building as a service in a tax-efficient manner. It is also our digital lives—we all have one with its cyber risks, cyberbullying, disinformation and misinformation.

Horizon three is often connected to development in adjacent industries, notably biotech, digital health, cybersecurity, fintech, consumer services, climate and nature.

Seventh, a portfolio of innovation can be articulated two ways: through partnership and/or investment.

Eighth, champions. Any innovation requires a network of believers, champions. Individuals empowered to go above and beyond to think and execute on innovation. They are typically younger people, not yet disillusioned. They can be paired with a senior sponsor to get support and guidance.

Ninth, influence is the alternative to authority, to structure that makes the culture. It eventually leads to the same result. But it takes much, much, much longer as it relies on the goodwill of a few good people with no incentive.

Tenth, innovation is akin to a grieving process. Denial first. Innovators need to work the problem and do it in a quantified way since the second step of a grieving process is minimization (I may have a problem, but it is not that important). The third step of a grieving process is negotiation (if I had resources, I could). So that needs to be sorted through strategic alignment ahead of time. Fourth step, depression. Innovation is hard, as aforementioned. Made easier through partnership rather than in-house building. Fifth step, finally getting one thing done with acceptance/deployment, which gets us to define the level of readiness of an insurance company toward innovation through another five-step process (Exhibit 6).

Exhibit 6: Corporate innovation journey

Artificial intelligence (AI) has quickly become the productivity tool employees can't live without. From drafting emails to analyzing documents to using AI coding assistants, workers are bringing AI into their daily workflows.

There is a growing problem, however. Most companies struggle to understand and address the associated security risks of an expanding ecosystem of AI tools, so they outright ban most (if not all) tools and only approve use of a few (if any) that they deem secure and compliant. Unfortunately, not all employees adhere to their company's policies, with many opting to use tools that are unapproved and unsanctioned – referred to as "shadow AI."

Similar to shadow IT, shadow AI is when employees use external AI tools – generative AI, coding assistants, or analytics tools, for example – of which the IT team has no knowledge or oversight. Shadow AI is far riskier than shadow IT, because tools like ChatGPT and Claude, and open-source large language models (LLMs) like Llama, are easily accessible, easy to use, and not easily visible. This creates an unseen, rapidly expanding risk surface that only expands as unapproved AI usage grows.

Recent research underscores the dangers of shadow AI: 84% of AI tools have already experienced data breaches, and over half (51%) of tools have been the victims of credential theft. Additionally, a late 2024 survey of 7,000 employed workers by CybSafe and the National Cybersecurity Alliance (NCA) shows that about 38% of employees share confidential data with AI platforms without approval.

Imagine that each unsanctioned query or prompt gives rise to the potential to leak sensitive corporate data to malicious or unauthorized users, and you can understand how severe the risks of shadow AI are.

The Dangers Posed by Shadow AI

As companies put the brakes on use of AI tools – unless they have built-in security mechanisms and are proven to adhere to data protection laws and regulations like HIPAA and GDPR – there is a broad ecosystem of unsanctioned tools available in the wild, the use of which can introduce risks and consequences:

• Data leakage → confidential queries and context sent to insecure AI tools.
• Intellectual property loss → sensitive product or strategy details exposed.
• Compliance failures → regulated data (health, financial, personal) used in unapproved tools.
• Credential theft → as half of AI tools have shown, even access controls aren't guaranteed.

Simply put: Shadow AI is not just a nuisance – it's an open door for attackers and a compliance nightmare waiting to happen.

Despite the risks, many employees use AI for a few reasons:

• Productivity pressure is real → workers want faster, smarter ways to get tasks done. AI feels like the only way to keep up.
• Corporate tools often lag behind → slow approvals or outdated platforms drive workers to "bring their own AI."
• They're unaware of the risks → employees may know they're using unsanctioned tools, but they may not understand the level of risk this introduces.
• AI feels intuitive and indispensable → once employees experience the value, they rarely go back.

Out of the Shadows

The way to mitigate shadow AI is not to ban use of AI tools. Not only is banning AI ineffective, it can actually introduce more risks because employees' use hides in the shadows, beyond the scope of IT. And the truth is, employees won't stop using AI. But enterprises can do more to provide secure, sanctioned channels and safe AI tools that actually meet employee needs.

Doing so requires a few elements:

• Confidentiality built in → continuous encryption so neither the model nor the data ever appears in plaintext
• Enterprise-grade controls → visibility into how AI is used without stifling innovation
• Performance at scale → tools that are as fast and intuitive as the consumer alternatives employees are drawn to

The CISO's Opportunity: Safe, Compliant AI Adoption

Shadow AI may cause headaches and sleepless nights for CISOs, but there are tools they can leverage to allow their companies to embrace the power of AI by ensuring end-to-end protection of data and LLMs.

Organizations need safe, secure AI adoption for securing both sides of the story:

• Models are encrypted → protecting IP, weights, and parameters from theft or tampering.
• Data is encrypted → ensuring training sets, queries, and outputs are never leaked in plaintext.

If an AI model is stolen, it will be useless, as it can only function within the trusted execution environment (TEE). The encryption key, which only exists within the TEE, protects data by ensuring that only users with the key can view the results generated by each query.

A dual-layer approach (Fully Homomorphic Encryption (FHE) and TEE), ensures AI providers cannot reconstruct raw user inputs/outputs, even during sensitive transformations. The TEE briefly manages plaintext operations within its secure memory space and then immediately re-encrypts the results, while FHE guarantees data remains encrypted during all operations.

FHE can be deployed to protect any number of AI tools, enabling companies to embrace AI tools with confidence that data leakage will not occur and regulatory compliance will not be jeopardized.

The result: enterprises regain control. Employees gain productivity. AI adoption is embraced with confidence and peace of mind.

Confidential AI Makes Shadow Usage a Thing of the Past

Shadow AI exists because employees are desperate for better tools. The only sustainable way to combat it is to offer safe, powerful alternatives that protect both corporate data and AI models.

Despite decades of progress in the construction industry, falls, electrocutions, struck-by incidents, and equipment accidents remain persistent threats.

Recent rule changes and proposed revisions by the Occupational Safety and Health Administration (OSHA) signal a new chapter in how construction risk is managed, with important implications for insurers, project owners, and risk managers.

A Changing Regulatory Landscape

In 2025, OSHA rolled out several important changes while also proposing revisions that could reshape construction safety oversight. Some updates expand employer responsibilities, while others reflect a deregulatory push that may limit the agency's scope.

One key update is OSHA's clarification that personal protective equipment (PPE) must properly fit each worker in construction. While this requirement already applied to general industry, extending it to construction closes a gap. For risk managers, this elevates the importance of properly sized and regularly inspected PPE, along with training programs to ensure correct use. A poorly fitted harness or gloves that compromise grip are not just inconveniences—they can contribute to serious accidents.

At the same time, OSHA has floated proposals to narrow the agency's ability to cite employers under the general duty clause for hazards considered "inherent and inseparable" from the work. If finalized, this proposal could reduce citation exposure while leaving liability questions to civil litigation and insurers.

Compliance vs. Liability

For construction firms, OSHA standards provide the compliance baseline. But the combination of stricter requirements in some areas and deregulation in others complicates how that baseline is applied.

The PPE rule requires more effort—auditing fit, keeping records, and replacing gear as needed. Yet rollbacks in other areas may reduce citation risks without lessening exposure to lawsuits, reputational harm, or higher insurance costs. Simply meeting OSHA minimums is no longer enough.

This is especially true when negotiating with project owners or lenders. Many financing agreements now include provisions requiring strict adherence to safety best practices, regardless of federal minimums. A contractor that cannot demonstrate robust safety protocols may find it harder to secure financing, bonding, or competitive insurance premiums. Insurers in particular are becoming more data-driven, reviewing near-miss logs, audit frequency, and worker participation rates in training before underwriting coverage.

Documentation as Defense

In this environment, documentation becomes a critical defense. Showing that hazards were assessed, PPE was fitted and issued, and workers were trained can be decisive during inspections, audits, or litigation.

Firms should adopt systems that track:

• Equipment inspections and replacements
• Worker training attendance
• Near-miss reporting and corrective actions
• Site-specific hazard assessments

These measures reduce incidents and provide evidence of due diligence when an accident occurs. In disputes, the ability to produce consistent, timestamped records often makes the difference between a manageable claim and a costly judgment.

Contracts and Insurance Implications

As OSHA standards shift, construction contracts and insurance terms will need updating. Prime contractors may strengthen indemnification clauses, requiring subcontractors to assume more responsibility for compliance. General liability and workers' compensation carriers may also revise underwriting criteria, placing more emphasis on leading safety indicators than on lagging ones such as past injury rates.

Risk managers should also prepare for state-level variation. While federal rules may loosen, states can add stricter requirements of their own. For multi-state contractors, this patchwork creates added complexity, making tailored strategies essential.

The Human and Legal Costs

While rule changes shift compliance obligations, the risks on construction sites remain the same. Beyond OSHA fines or project delays, a serious accident can devastate workers and families. A fatal incident may also lead to wrongful death claims, which carry enormous financial and reputational costs. Even in a deregulated environment, courts remain unforgiving when safety failures cause preventable loss of life.

For risk managers, this reality underscores why safety investments are not just about regulatory compliance but about protecting human lives and organizational sustainability.

Strategic Takeaways for Risk Managers

1. Don't Rely Solely on OSHA Minimums. With some standards loosening, firms should adopt best practices that go further to protect construction workers and reduce liability.
2. Prioritize PPE Programs. Review procurement policies, inventory, and training to ensure every worker has properly fitted equipment.
3. Invest in Safety Culture. Toolbox talks, safety meetings, and open reporting systems help identify risks before they escalate.
4. Revisit Contracts and Insurance. Make sure indemnity provisions, audit rights, and bonding requirements reflect today's regulatory landscape.
5. Plan for the Worst-Case Scenario. Every firm should have a fatality response protocol, including rapid OSHA reporting, communication strategies, and legal coordination.

Conclusion

The construction industry is entering a period of regulatory flux, with OSHA tightening requirements in some areas while easing them in others. For risk managers, this makes it essential to look beyond compliance thresholds and focus on building resilient safety systems. Proper PPE fit, robust documentation, contractual safeguards, and a strong safety culture will define effective risk management strategies in the years ahead.

Ultimately, the cost of non-compliance—or worse, a fatal accident—is far greater than any penalty. Firms that treat OSHA updates as opportunities to strengthen safety practices will not only reduce liability but also protect their most valuable asset: their workforce.

Private market investments in retirement plans are the talk of the retirement planning community, especially now that President Trump has signed an executive order that eases the path for private assets in 401(k) plans. 

Traditionally, private markets have been leveraged and offered only to institutions and ultra-high net-worth individuals, but that is now evolving, and retirement savers are enthusiastic about the concept of reaping the benefits of this investment class. According to recent research, "more than seven in 10 American workers want access to private assets in their retirement plans." With the market volatility stocks have experienced and the lack of IPOs, private markets offer a new investment vehicle outside of public markets. For retail investors, it is about accessing investments that have otherwise been limited to a group or sector and finding new ways to build wealth. This is echoed in the recent research, with 72% of respondents "agreeing that having professionally managed private investments in retirement plans helps level the playing field for everyday investors."

While private equity (PE) investments in 401(k)s can bring benefits and a new wealth stream for retail investors, they come with risks due to their illiquid nature, higher fees, and lack of regulations and reporting requirements. The risks do not only pertain to retirement savers; the danger also falls heavily on the shoulders of employers offering and managing retirement plans.

Planning is a must

Employers that manage 401(k) and other retirement plans, often referred to as plan sponsors, have a significant responsibility to assist participants in managing their investments in 401(k) plans. Under Employee Retirement Income Security Act (ERISA), plan sponsors are obligated to act in the best interests of plan participants. To safeguard plan assets, the U.S. Department of Labor requires an ERISA fidelity bond, which only protects the plan against losses due to theft or fraud. Now, with the complexity of private assets, the ERISA bond is not enough. The inherent lack of transparency in private markets can pose challenges for plan sponsors.

Additionally, PE investments add a layer of administrative burden – from record keeping, educating plan participants effectively and communicating, navigating and monitoring investments that often lack transparency, to ensuring investment options fit with plan needs. Private market investments can further complicate an already complicated role. To add pressure, plan sponsors and employers have to toe the line of their work, as there has been a recent boom in ERISA-based litigations. Records indicate that in 2024, there were 136 cases of ERISA-related lawsuits.

For employers looking to ensure they are equipped with the best processes and operations as private markets interest persists, risk management mitigation should be a top priority. Oftentimes, this only looks at internal processes from education and communication efforts to educating participants to streamlining administrative tasks. Still, to truly have a robust plan in place, fiduciary liability insurance should be considered.

What fiduciary liability brings to the table

With plan sponsors responsible for monitoring and managing investment options, controlling costs, and ensuring participants have the education needed to make informed decisions, their role carries significant complexity and responsibility. One small oversight or error can snowball and have a substantial impact on participant plans and consequently put the organization in danger of a fiduciary breach. Fiduciary liability insurance protects plan sponsors and their companies in the event of an actual or alleged breach of duty. It covers the legal defense costs and a plan sponsors personal liability for actual or alleged breaches of fiduciary duties in connection with employee benefit plans. With the prevalence of ERISA lawsuits and with staggering defense costs required to defend those suits, fiduciary liability insurance is necessary because while the ERISA bond covers the plan for any loss by theft, it does not cover fiduciaries for lawsuits brought by third parties.

Looking at the needs of today to plan for the changes of tomorrow

As market turmoil continues, retail investors are seeking new avenues for longer-term financial growth. The impact? Retirement plans will continue to change. Plan sponsors that revisit the structure of their plans to support plan participants better and implement enhanced processes to mitigate risks will be in a better position to be agile with the incoming retirement changes. It is essential for plan sponsors to have a solid protection plan in place, which should include two insurance products, fiduciary liability insurance and ERISA fidelity insurance. Without these protections in place, the consequence can be grave - from personal exposure, damage to organizational finances, and beyond.

I'll be quick this week because I'm headed to the airport to fly to InsureTech Connect in Las Vegas (where I hope to see many of you). But I wanted to share a major report on AI that, to my mind, should erase any sense of complacency about the need to quickly figure out the possibilities of AI for your organization.

The report says researchers found that generative AI is already better than humans at half of a host of real-world business tasks assigned to it, including many related to insurance. 

As baseball legend Satchel Paige once said, "Don't look back. Something may be gaining on you."

The recent MIT study that found that 95% of AI projects haven't delivered a return on investment, as well as a report about the "workslop" supposedly produced by gen AI, have led to a sense that the bloom may be off the rose. I think both used flawed methodologies. In any case, they are both thoroughly rebutted by a recent research paper from OpenAI.

A thorough article in Fortune says of the paper:

"Many AI benchmarks do not reflect real world use cases. Which is why a new gauge published by OpenAI... is so important. Called GDPval, the benchmark evaluates leading AI models on real-world tasks, curated by experts from across 44 different professions, representing nine different sectors of the economy. The experts had an average of 14 years experience in their fields, which ranged from law and finance to retail and manufacturing, as well as government and healthcare. 

"Whereas a traditional AI benchmark might test a model’s capability to answer a multiple choice bar exam question about contract law, for example, the GDPval assessment asks the AI model to craft an entire 3,500 word legal memo assessing the standard of review under Delaware law that a public company founder and CEO, with majority control, would face if he wanted this public company to acquire a private company that he also owned."

Results varied based on task and on which AI model was being used but often were startlingly better. As the Fortune article says, while researchers have talked about artificial general intelligence (AGI) as the Holy Grail, it may be better to think in terms of AJI (artificial jagged intelligence)--in other words, for some tasks, the AI is incredible; for others, not so much. 

Plenty of caveats still apply. I always wonder about the rigor of a report produced by a vendor (even though this seems plenty sound). I also continue to believe that the relevant test isn't humans vs. AI. I believe that AI will take over tasks, not full jobs, so the real test needs to be humans using AI vs. whatever the process is now--a la the "centaur" teams of humans and AI that compete against other teams of humans and AI in chess.

But I still think the OpenAI research paper is important and commend it to your attention.

Cheers,

Paul

P.S. If you're looking for arguments in favor of AI use in your organization, you might also check out a recent report from Air Street Press. It says that capability per dollar spent by a user on AI "is doubling every few months. Google’s rate: 3.4 months. OpenAI’s: 5.8 months." The report also cites a study that found that "44% of U.S. businesses now pay for AI, up from 5% in 2023." There are loads of other interesting tidbits in there, too.