Download

How to Link Heart Health to Insurance

Life and critical illness products protect policyholders from financial loss but until now have helped little on safeguarding customers’ health.

Cardiorespiratory fitness (CRF) is a measure of the body’s ability to supply oxygen to muscles, including the heart, during sustained levels of exercise. Whether you believe the hype that just sitting around poses a significant health risk, the truth is that most people could do with exercising more. An inverse association between CRF and mortality is well-established. A recent study of the long-term mortality of physically active adults found the benefit of increased CRF is independent of age, sex, race/ethnicity and comorbidities. Exercise provides numerous health benefits, including reduction in coronary artery disease, hypertension, diabetes, stroke and cancer. The same study confirms that the greatest chance for survival is associated with the highest aerobic fitness, debunking the notion that exercise benefits plateau quickly or even result in harm. So there really is no excuse for running a bath instead of a mile, or indeed for avoiding any exercise you fancy that increases resting heart rate. This is good news. But as everyone’s level of cardio-fitness is different, the correct dose of exercise needed to confer any real benefit is less obvious. That gap in accessible knowledge is why it’s also good news that there has been such progress with Personalized Activity Intelligence (PAI), a health score that measures cardiorespiratory fitness (CRF). PAI helps add years of healthy life through personalized activity engagement and has been scientifically proven to reduce the risk of cardiovascular disease and early death. PAI provides individual guidance on the most beneficial exercise dose by measuring heart beat data and translating it to a PAI Score. See also: New Efficiencies in Life Insurance   PAI takes account of resting and maximum heart rates adjusted for exercise intensity and collected over a seven-day rolling period to encourage consistent exercise behavior. Any activity that increases the heart rate above a threshold and into the CRF training zone may generate points, meaning people of all fitness levels can score points from activities they enjoy; whether that’s kayaking down rapids, mowing the lawn or running after the grandkids. Physical activity can be measured simplistically but without much insight into the physical workload achieved. PAI, however, measures heart rate and uses an algorithm that calibrates to an individual’s heart effort and is helpful in creating personalized programs for sustained physical activity. PAI has shown the positive impact that sustained physical activity has on heart health and represents a more effective and realistic approach than setting daily step or exercise targets. The guidance indicates when the intensity of exercise does not contribute to increased levels of CRF or when fitter people with higher heart rate reserve (the difference between resting heart rate and maximum heart rate, which is used to calculate the optimal cardiorespiratory fitness level in aerobic exercise) need to challenge themselves more. Life and critical illness products do an amazing job protecting policyholders from financial loss but until now have provided little practical help in safeguarding customers’ health. We believe PAI has the potential to motivate behavioral change, helping policyholders to become more physically active and stick to it, while reducing their risk of disease and premature death. As insurance seeks to shift its emphasis from protection to prevention, this winning formula is possibly some of the best news yet. See also: Intersection of Tech and Holistic Health   Hear more about the science behind PAI from inventor Ulrik Wisløff, professor at NTNU and head of the Cardiac Exercise Research Group, in this short interview: To find out more, contact Ross Campbell.

Why Not to Make Opening Statements

Typically, opening statements are so inflammatory that a meeting aimed at resolution starts with animosity. Sometimes, one side walks out.

|
Times have changed. In the past, mediators would open a mediation by asking for opening statements from lawyers for each party. Problem was, though, these were typically so inflammatory that a meeting that was supposed to be about resolution started with animosity. Sometimes, one side walked out right then, before the real mediation even started. That’s why I have never invited opening statements at the start of a mediation. Lawyers no longer want opening statements, either. I have even had lawyers ask that there be no opening joint session with all parties present. Rather, they wanted to work with me only in caucus, one side meeting with the mediator,  keeping every communication confidential. The lawyers wanted to avoid the hostility that previously permeated the parties’ dealings. Unless there is strong objection, I start mediations in a joint session. I introduce myself and go over logistics: important stuff such as where the bathrooms are and how we will handle meal breaks. See also: How Mediation Should Progress   I also assure everyone that nothing bad can happen. The parties control the outcome, and there can be no result they did not agree to. Everything that happens in mediation is confidential and cannot be used against anyone in a different civil forum. To emphasize that rule, while we are still in the opening joint session every person present signs a confidentiality agreement. Then we typically break up into caucus. The only person who has made an opening statement is me, the mediator.

Teddy Snyder

Profile picture for user TeddySnyder

Teddy Snyder

Teddy Snyder mediates workers' compensation cases throughout California through WCMediator.com. An attorney since 1977, she has concentrated on claim settlement for more than 19 years. Her motto is, "Stop fooling around and just settle the case."

Second Step to a New, Successful Program

The right approach to collecting and analyzing market data will help avoid the potential pitfalls in launching an insurance program.

Editor’s Note: This is the third in a series of posts in which CJ Lotter, a 15-year industry veteran, shares lessons learned in the form of guidance to MGAs on the steps required to build a successful program. The first two articles are here and here. 

In our last post, we tackled the first key ingredient required for program creation: distress. In a perfect world, insurers would spot distress, respond with a product and sell it to huge success. This is not a perfect world. It takes time and diligence to carve out a new program. In this post, the third of our series, we’ll explain how to collect and analyze the data that will help you avoid the typical pitfalls and create a successful and profitable program. 

Carving Out a Profitable Program 

If a program should target a distressed or underserved class, how do you find one? You could conduct market research to identify an underserved industry and hire the underwriting expertise to go after it. But a better approach would be to start with the expertise you already have in-house. 

Underwriters with experience in a specific risk class are your best source of new program ideas. For example, let’s say you have been writing general commercial auto and transportation business for a long time. Your underwriters have gained experience over the years on the nuances of this market. Your book analysis shows that you write a high number of tow truck operators quite successfully. Additionally, one of your underwriters is intimately familiar with tow truck businesses and can tell a good risk from a bad one. With some quick research, you find there are a limited number of carriers in this market, with limited coverages. You also know, from our last post, that tow truck operations check the box for a distressed class.

 You now believe you have enough of an underwriting advantage to offer a specialized program for this market, but you need to validate the opportunity with good research. 

See also: The Evil Genius of a Wellness Program   

Gathering Data 

Good data is the backbone of a good program, and no expense should be spared to find the most accurate version of the truth. The more data collected in the early stages, the more likely you are to have a successful program or avoid a bad one. In our example, you want as much data on tow truck operators as possible. That means raw numbers and reports on the industry. 

Work with companies like Dun & Bradstreet to source the market data you need. Drill down at least four digits on SIC codes to find a target class as specific as possible. Filter and sort your findings by the attributes that matter most to your company. For example, if you are targeting large tow truck companies in New York, sort by number of employees, revenue and location. 

Preparing the Data 

Your initial data should provide an accurate sizing of the market for your potential program. Now you can pursue some qualitative and quantitative research to further evaluate the opportunity. Here are three to consider:

  1. Map the Data. Quadrant analysis is one of the most effective ways to visually analyze a diverse set of data. Map the companies from your target list onto a two-by-two grid to reveal patterns that will help narrow your focus. In our example, you may start with a grid that measures company revenue on one axis and claims on the other. You may also want to place the companies on a U.S. map to visualize where your target market is most concentrated.
  2. Form a Focus Group. From your list of target tow truck companies, build a focus group to validate the program opportunity. Call on 20 or so companies and ask them to discuss their needs and relevant details about their current insurance coverage. Supplement your focus groups with surveys to your full list. Keep survey questions to a minimum to maximize response rate, focusing on the most critical information, such as policy size.
  3. Narrow Your Target. Whittle your data down to a specific target niche. Say there are 10,000 potential customers in the tow truck market. Your research shows the average commercial auto policy is $10,000. If your goal is $1 million in commercial auto in the first year, you will need to write 100 policies. That’s 1% of your target universe. Is that feasible? If your sold to submitted ratio is 1:3, you will need to engage with 300 businesses. Do you have a marketing program that will generate that kind of volume?

Long-Term Planning 

Once you determine your initial opportunity, forecast the first three to five years. Make sure your chosen market is large enough to sustain rapid growth in the early years. The rule of thumb is to double your premiums in the first three years and drive to $10 million in premium as soon as possible. Just one limits loss can sink your program if you don’t have enough critical mass. 

See also: Innovation: ‘Where Do We Start?’   

Tying It All Together 

Thorough market research on the minute details is critical to evaluating a new program’s viability. Gut feelings are nice, but numbers give you real proof. Invest in research and analysis, and you will greatly improve your chances of a successful program. 

Excerpted with permission from Instec. A complete collection of Instec’s insurance industry insights can be found here.

CJ Lotter

Profile picture for user CjLotter

CJ Lotter

CJ Lotter is the director of engagement management at Instec. He spent nine years as chief research and business development officer at the U.S. programs division of Willis Towers Watson.

Understanding the Big Picture in Work Comp

Trends over the past few years have been pointing to declining rates in most states, but the retention market is a completely different animal.

In workers’ compensation, the trends over the past few years have been pointing to declining rates in most states. At the 2019 NCCI Annual Issues Symposium (NCCI-AIS), NCCI indicated the 2018 industry private carrier calendar year combined ratio was a record low of 83%. I heard comments from many carriers attending the NCCI-AIS that they were very surprised by this figure as it did not reflect what they were seeing on their book of business. To fully understand the workers’ compensation marketplace, it is very important to understand what information is included in NCCI and the independent bureau analysis in addition to the different ways they look at data. It is also important to understand the drivers that ultimately affect the costs of workers’ compensation. The calendar year combined ratio is not necessarily the most-reliable or accurate measure of rate adequacy or the profitability of a book of business. Instead, calendar year combined ratio is essentially an accounting measure that may be materially affected by things like carrier reserve strengthening or releasing of reserves for all prior accident years. A carrier could be writing unprofitable business yet still show a calendar year combined ratio below 100% if it is releasing prior-year reserves. A better measure to understand industry profitability is the accident year combined ratio. For 2018, NCCI indicated that this figure for private carriers was 89%. It is also important to understand what bureau data may NOT include. In general, it does not include any data from self-insured employers. That exclusion omits most data from municipalities, states and school districts. It also misses a significant amount of data from other industries, such as higher education, retail and healthcare. Bureau data may also exclude information from deductible policies (read those footnotes). It is estimated that the “retention” marketplace, defined as employers that retain risk through self-insurance or high deductibles, covers close to half of the payroll in the U.S. If the database does not include information from the retention market, it is missing a very big piece of the overall picture. You also need to check to see if the data set includes just “private carrier” information. If it does, it is likely excluding data from state funds, which tend to operate at much higher combined ratios. Also, keep in mind that there is no single source for workers’ compensation industry data. There are 15 states that have independent bureaus or are monopolistic. These states are not included in NCCI’s analysis. Three independent bureau states (CA, NY and WI) have more workers’ compensation payroll than the combined NCCI states. To further illustrate this point, the National Association of Insurance Commissioners (NAIC) indicated that the 2018 accident year combined ratio was 97%. In theory, the NAIC data set includes information from the bureaus around the nation, so it is likely closer to the actual industry figure in the guaranteed cost marketplace for private carriers. This explains why many carriers may not fully embrace the 83% combined ratio figure that was cited at the NCCI-AIS conference. NCCI data is accurate for what they analyze. But, because they only see a piece of the entire picture, their data may not be a true reflection of what is really going on in the entire workers’ compensation landscape, and it may not reflect what individual carriers are seeing on their book of business. It is a piece of the puzzle, but not the complete picture. See also: The State of Workers’ Compensation   According to data reported at the 2019 NCCI-AIS, over the last 20 years, the cumulative change in indemnity claim cost severity was 100%. This was about 20% higher than wage inflation. The cumulative change in medical lost time claim cost severity was 150%, which was 89% higher than medical inflation. During the same time period, carriers’ loss adjustment expenses (LAE) also increased steadily. LAE includes the costs of claims handling, including payroll, benefits and facility costs, as well as claim-specific expenses such as litigation costs. Data from the other bureaus shows similar trends, although California claim costs did drop after some significant reform legislation. Given the upward trend in costs over the last 20 years, why have we seen a decrease in rates the last few years? The answer is simple: frequency. NCCI data shows that, during the last 20 years, the average annual decrease in frequency was 3.9%. That is a significant decrease in the number of claims due to factors such as automation of certain tasks and an increased emphasis on safety and loss prevention. During the last few years, the decreases in frequency more than offset the increases in the average workers’ compensation claim costs, leading to declining rates in the guaranteed cost marketplace. The impact of frequency is a very important distinction between the performance of the guaranteed cost market and the retention marketplace. Thousands of small employers in the guaranteed cost market will have no claims. However, in the retention market, all large employers will have claims. Ultimately, it is claims severity (costs), not frequency, that determines the rates and profitability of the retention marketplace. There has been very little study of the retention marketplace, especially of the larger claims, as those cases tend to be outside the analysis of the bureaus. In September, the New York Compensation Insurance Rating Bureau (NYCIRB) published a study on loss development patterns for claims with incurred losses over $250,000. According to this study, “Large claims can take several years to emerge above the $250,000 threshold. Typically, only a small share of large claims are recognized as such at first report, and that share will grow considerably over the subsequent three or four reports.” The NYCIRB study noted that large claims only accounted for 4% of the claim count, but over 50% of the ultimate claim incurred losses. The study also illustrated how these larger claims tend to develop over time. The guaranteed cost industry standard is to use seven to 10 years of data to determine an experience rating. Thus, those carriers generally stop looking at loss data past 10 years post-accident. In the retention marketplace, things are very different. According to one large national retention market insurance company, at 10 years post-accident, only 70% of the claims that will ultimately breach the retention will have been reported to the carrier. This is because the most severe catastrophic claims that will exceed the retention are reported quickly, usually in the first 12 months. But the majority of remaining claims that will eventually breach the deductible/self-insured retention are not catastrophic injury claims at all, but instead are slow-developing claims that take years to reach required reporting thresholds. Because of this slow development of retention claims, at 10 years post-accident, actual claim case incurred is approximately 40% of the expected ultimate claim costs. So, when the first-dollar marketplace stops looking at the data, the retention marketplace is still actively seeing new claims, and significant additional incurred development is expected. As an example, consider a 30-year-old claim involving a now 62-year-old worker that recently necessitated a $1 million incurred increase. The claim had been reserved appropriately based on then-known information, but the exposure worsened, as the injured workers’ condition now requires 24/7 attendant care. The cost of 24/7 institutional attendant care can run $300,000 or more a year. The bureaus and the guaranteed-cost marketplace are not looking at development like that because it is occurring long after they stop monitoring such things. This is only one example of the extremely long claims tail in the retention marketplace. Because of this long tail, carriers in the retention market are affected more by increasing claims costs as they handle and pay out such long-duration claims for 60 years or more. There has been much publicity around the “shock losses” being seen in the general liability, auto and property marketplaces, with carriers seeing claims creep higher than ever. Factors such as excessive jury awards and runaway wildfires are contributing to carriers having to redefine what their worst-case exposures may be in these lines. The significant cost increases currently being seen in liability and property coverage are also being seen on catastrophic workers’ compensation injuries. Although catastrophic injury claims are only a tiny percentage of the total claims count, these injuries are a significant percentage of total workers’ compensation claim costs. Catastrophic injuries include spinal cord injuries, brain injuries, severe burns, major amputations and other severe traumatic injuries. There are several reasons for these rapidly increasing costs. First, consider that, unlike with group health insurance or Medicare, there is no policy limit or excluded treatments in workers’ compensation. The carrier is responsible for any treatment deemed reasonable to “cure or relieve” the injury without limitation. On workers’ compensation catastrophic injuries, it is common for the carrier to have to pay for things like attendant care, prosthetics, home and auto modifications, skin grafts or new housing, transportation and even experimental treatments. Standards of care for seriously injured individuals are constantly evolving. What was the norm five to 10 years ago is not the standard today, and in five years that standard will be even different. Think of all the medical innovation you see in the news regarding spinal cord injury recovery. The medical technology is evolving at a pace never seen before. Consider Christopher Reeve, the actor who suffered a spinal cord injury in 1995 that left him a quadriplegic. He was 43 years old at the time of the accident. Reeve received the best care money could buy from experts around the world. He lived less than 10 years after the accident. Fifteen years after his death, medical science has advanced to the point that a quadriplegic can live a near-normal life expectancy because physicians are able to prevent the complications that lead to shortened lifespans. Accident survivability is another factor affecting the increasing costs of catastrophic injury cases. Due to advances in emergency medicine, both on the scene of accidents and at Level 1 trauma centers, many patients who died shortly after their injuries will now live. According to the American College of Surgeons, from 2004-2016, the fatality rate for the most severe traumas declined over 18%. Every one of those cases likely results in millions of dollars in medical care. For example, I saw a severe burn claim that would have likely resulted in death within days 10 years ago. That person survived for three months, and, during that time, that individual received over $10 million in medical treatment. See also: 25 Axioms Of Medical Care In The Workers Compensation System   These rapid advances in treatment for catastrophic injuries are saving lives and significantly increasing the function and life expectancies of seriously injured patients. But they have also resulted in costs that have never been seen before by the workers’ compensation industry. When I started handling claims 29 years ago, $5 million individual claims were rare. Today, the workers’ compensation industry has seen numerous individual claims with incurred exposures over $5 million  and losses in excess of $10 million and even higher are becoming more frequent. These claims are likely to get even more costly as increasingly expensive medical advances come along. To understand the big picture in workers’ compensation, it is important to take a close look at the data you are relying on. Pay careful attention to understand what this data includes and what it does not. It is also important to distinguish between the guaranteed cost market and the retention market. Because the retention market has an extremely different developmental tail, rate trends are very different than in the guaranteed cost market. Claim frequency trends in the guaranteed cost market are fairly predictable and significantly influence rates. However, in the retention marketplace, rates are driven by severity, which is evolving to levels never seen before in a world of rapid medical advances.

The False Dichotomy That Holds Us Back

sixthings

Our chief innovation officer, Guy Fraker, told me the other day of being in an innovation strategy meeting where the CFO of a workers comp carrier talked of needing to "protect our losses."

The pushback was fast and strong: Insurers increasingly can help clients predict and prevent losses and must do so, even though lower premiums will eventually result. But we can empathize with the CFO, right? His job is to squeeze the last drop of profit out of the business, and that gets harder if premiums shrink because clients' losses are declining.

His comment points to a false dichotomy that is accepted throughout the insurance industry even in these modernizing times and that we need to move past. Left unaddressed, a belief in the dichotomy could both lead us away from our mission of protecting clients and cause strategic blindness that could endanger our businesses in the long term.

The issue is that we want to help clients, including by preventing losses, but we also need to generate as much profit as possible. Trying to maximize both goals simultaneously can seem to be somewhere between hard and impossible, depending on your role in the industry.

If we just bounce between the two goals (what might be called a thesis and an antithesis, if you’ll allow me to dip back into my vague memories from college of the Hegelian dialectic), you miss the chance for a novel solution (what Hegel called synthesis). And one is available—but only if we take a new view of what clients want and of what our sources of profits should be.

New ways of thinking have always been hard, no matter the industry. Businesses begin with some sort of novel approach, but, as they grow, become much more about developing that approach to the fullest and optimizing the business built around it rather than about developing new insights. Even worse, over time, executives often come to think that customers are as wedded to the industry structure as the executives are.

Kodak's fundamental failure was that it thought customers loved physical prints as much as Kodak loved selling the film, paper and chemicals used to produce prints. Executives, since about 1980, saw clearly how digital technology would develop but simply couldn't imagine a world where images were shared solely digitally and was slow to react to that new world.

In insurance, we have the inertia problem in spades. We think of ourselves as selling policies. Even our language locks us into thinking of ourselves as being in the product business—I've heard some talk of setting up "factories" and "manufacturing" policies. But customers don't long for policies, and they are becoming increasingly stern about letting us know their preferences.

Customers want peace of mind, and they want help managing and reducing their losses. They’ll tolerate insurance policies if that's the only way to achieve their goals—and detailed legal contracts are certainly required in many, even most, instances—but customers aren't wedded to traditional policies like we are.  

We fit the description of the classic Harvard Business School article that said companies often think they're in the business of selling quarter-inch drills, when what customers want are quarter-inch holes.

If we can free ourselves from the historic emphasis on pushing product, we can see our way to providing an array of services that provide customers with the insurance equivalent of quarter-inch holes. That workers comp CFO, for instance, could sell services that would help clients identify potential problems and head off workplace injuries, based on the growing capabilities of sensors, better data analytics and other developments that the insurtech movement is providing.

The shift to services does require, of course, a willingness to look beyond today's profit streams and will require creativity. Even Kodak, belatedly, looked to digital cameras and printers (remember executives' belief about the absolute need for prints) as new revenue streams, but there just wasn't enough there to replace the billions of dollars of revenue that film, paper and chemicals had generated. The new revenue streams turned out to be rather far afield, in facilitating digital sharing of images and helping customers build stories around images, so all the value from digital photography went to Facebook, Instagram and other such platforms.

It's always tempting to think that customers don't have a choice, and inertia certainly provides some protection here for insurers. But commercial buyers' willingness to self-insure and broker dominance in captive management services sends a strong message that clients are going to get what they want, with or without insurers. And just because an insurer doesn't want to switch from a product to a service focus, lest profits be endangered, doesn't mean someone won't offer that quarter-inch-hole service. (We know a thing or two about this approach because our IE Advisory team has helped companies innovate into services.)

So, let's get beyond the false dichotomy of either helping clients OR maximizing products. Let’s turn thesis-antithesis into synthesis. Let's get beyond policies and premium, addressing customers' actual needs and finding ways to make them happy about paying us for our assistance. Hegel would be proud, and the industry will thrive.

Cheers,

Paul Carroll
Editor-in-Chief

Paul Carroll

Profile picture for user PaulCarroll

Paul Carroll

Paul Carroll is the editor-in-chief of Insurance Thought Leadership.

He is also co-author of A Brief History of a Perfect Future: Inventing the Future We Can Proudly Leave Our Kids by 2050 and Billion Dollar Lessons: What You Can Learn From the Most Inexcusable Business Failures of the Last 25 Years and the author of a best-seller on IBM, published in 1993.

Carroll spent 17 years at the Wall Street Journal as an editor and reporter; he was nominated twice for the Pulitzer Prize. He later was a finalist for a National Magazine Award.

Why Cyber Must Be a Focus for SMEs

The days of hackers focusing on major businesses have given way to a new era for cybersecurity. Small businesses are the new target.

Small business cybersecurity must be taken seriously. The days of hackers focusing on major businesses have given way to a new era. Small businesses are the new target. The Verizon 2019 Data Breach Investigations Report found that 43% of data breaches hit small businesses. The next most common industry for breaches - the public sector - was hit by just 16% of security events. Small businesses are a high-priority target for attackers, and a Ponemon Institute study found that 67% of small businesses were hit by a cyber attack in the year prior to its study, which was released in late 2018. These are tough statistics for small business owners. The problem doesn't stop here. Small businesses aren't just targets; they are also less likely to be able to handle the costs of a data breach. A study from IBM Security and the Ponemon Institute found the average total cost of a data breach was $3.9 million in 2018. That figure has been rising over the past few years. Small business cybersecurity is a mission-critical situation. It's something that poses real challenges for small business owners who lack the resources to invest in robust IT systems. Understanding the Scope of the Cybersecurity Threat The high costs of a data breach are influenced by major security incidents affecting large corporations. You may not think you have almost $4 million to lose in a cyberattack because you simply don't have that kind of money in the first place. But that's the problem. You may not be hit by a hacker trying to steal highly regulated data, leading to the kinds of fines that cause huge costs. But how much cash do you have lying around? If you're hit by a ransomware attack - a security event in which a hacker uses malware to encrypt your data so you can't access it and demands a ransom - do you have the funds to respond? Even a $50,000 ransom can have a huge impact on a small business. See also: Hidden Dangers for Cybersecurity   Dealing with the Costs of Attacks The costs that come with a data breach stem from a variety of sources. If you're lucky, you won't lose any information, or have it stolen. For example, two types of common attacks don't steal data; they just kill productivity. The first of those is ransomware. The cost here comes from lost productivity while data is inaccessible, and the price of paying the ransom to recover your data. The second is distributed denial of service (DDoS), an attack in which servers are overloaded by constant attempts to access your website. This makes it impossible for legitimate customers to interact with you. When data is stolen, the costs escalate, particularly if customer information is lost. In this case, you often have to:
  • Cover the costs of credit tracking for those affected by the breach.
  • Deal with regulatory fines if it's found that you weren't in compliance with an industry standard.
  • Face lost trust from customers, something that often hurts the bottom line.
  • Scramble to deal with the source of the attack and fix any IT problems that existed.
Whether you're hit by something like ransomware or face a full data breach, the costs can escalate quickly, to the point that a single security event can put you out of business. Investing in small business cybersecurity is critical in dealing with these situations. Looking at Common Attack Types Cyber criminals are constantly shifting their methods as they identify vulnerabilities. They're also aware that many small business cybersecurity efforts are lacking. This has made small businesses targets for a wide range of attack types, including:
  • Phishing schemes that use legit-looking emails to trick users into downloading malware.
  • Account takeovers in which criminals use stolen login details to access user accounts and steal private data.
  • Social engineering efforts that allow hackers to pose as an account-holder to gain access to sensitive data.
None of these attack types is technically demanding. They are cheap for hackers to act on. As such, criminals can easily attack small businesses in multiple ways. The hackers just sit back hoping that one method will get through. The Verizon study found that almost 40% of all cyber attacks stemmed from organized crime groups. Hackers are working in smarter, more efficient ways. Small business cybersecurity tactics need to shift as a result. Exploring Why Small Businesses Are Targets Imagine you're a hacker. You're looking for a target that will give you valuable data you can sell to third parties. Just about every business today is based heavily on digital resources. Why would you target highly defended large corporations when small businesses often have valuable data, but fewer defenses? See also: 4 Ways to Boost Cybersecurity   This logic is shaping the modern small business cybersecurity sector. Small businesses typically lack strong security measures to identify threats and safeguard data from intruders. Hackers can send phishing emails to thousands of business email addresses at minimal cost. All they need is to have a few people fall for the scam, and hackers have access to company data and systems. Overcoming the Resource Crunch  With hackers today, a single data breach could be expensive enough to put you out of business. With this in mind, think about making some IT updates, training staff and using similar strategies to bolster your defenses. Whether you tweak your budget to create space for cybersecurity spending or seek funding to boost your capabilities, it's time to start rethinking your defenses. Take action before your business becomes the next target.

Ben Gold

Profile picture for user BenGold

Ben Gold

Ben Gold is president of QuickBridge, a privately held financial services firm providing “small business loans” and short-term working capital funding solutions for small to medium-sized businesses nationwide.

Avoiding the Pitfalls in Catastrophe Claims

Managing catastrophe reinsurance claims is a big challenge for carriers. In particular, dealing with the “hours clause” can be baffling.

Managing catastrophe reinsurance claims is a big challenge for carriers. In particular, dealing with the “hours clause” can be baffling. But taking the best strategy can make a big difference in how much reinsurance a carrier will collect. As climate change accelerates and the weather becomes more violent, catastrophe reinsurance has become increasingly complex, making modern technology a necessity for carriers to get the most value from their premiums. Ceded reinsurance has been one of the industry’s most technology-resistant areas, but that has begun to change over the last several years. Tracking reinsurance claims in general is challenging; managing catastrophe claims is especially challenging. One problem is claims leakage. This occurs when the insurer fails to file a claim with the reinsurer because no one at the company realizes that a claim should have been filed. That might seem unlikely, but it’s not an uncommon occurrence. Unfortunately, many insurers still use a spreadsheet to track policies and claims instead of a dedicated ceded system. Insurers that use spreadsheets must rely on staff combing through multiple spreadsheets to identify claims. Legitimate claims can fall between the cracks. See also: Reinsurance: Dying… or in a Golden Age?   Dealing with the “hours clause” in catastrophe claims is another complex challenge. With catastrophe reinsurance, defining the event, or catastrophe, is crucial. Under the “hours clause,” the duration of any one loss occurrence is usually limited to 72 hours. If a catastrophe’s duration exceeds the hours limit, the insurer may divide the catastrophe into two or more loss occurrences. Consider a catastrophe that lasts 290 hours. Because it’s possible to have up to four loss occurrences for such a catastrophe, grouping individual claims becomes a complex exercise. For instance, you can have four 72-hour losses that start at hour 1 and omit all claims for hours 289 and 290. Or you can start with hour 2 and skip claims for hour 1 and hour 290. That only hints at the complexity of the challenge facing insurance companies needing to optimize reinsurance recoverables. A ceded reinsurance system with an algorithm designed to optimize for such claims can remove much of the guesswork. How can you achieve the best solution? Reinsurance software is not a core system, but its usefulness largely depends on how tightly it is integrated with core policy administration (PAS) and claims systems. To ensure that, you’ll need to make a preliminary study before installing the software. The study should include a detailed description of the company’s reinsurance management processes and identify potential gaps between those processes and the proposed solution. The study should also identify the contracts and financial data needed, establish interface specifications, define the data-conversion and migration strategy and gather all reporting requirements. See also: Catastrophe Bonds: Crucial Liquidity   Besides connecting the data in the upstream PAS to the reinsurance management system, you will need to integrate ceded reinsurance data to other applications such as the general ledger, the claims system and business-intelligence tools. These are important details. But always remember the ultimate goal: giving the people who manage reinsurance the technology they need to do the job efficiently and effectively, especially when managing high-stakes catastrophe claims.

Radical Prediction on Future Tech Leaders

In five years, the premier insurance technology providers will be Aon, Marsh, Munich Re, Swiss Re and Allianz.

In five years, the premier insurance technology providers will be Aon, Marsh, Munich Re, Swiss Re and Allianz. This is a fairly radical statement to make, but it is not made without evidence and support. The following five announcements lead me to this conclusion:
  • Aon announced it has agreed to acquire insurtech startup CoverWallet in a bid to boost its presence in the growing digital insurance market for small and medium-sized business customers.
  • Marsh launched workers' comp analytics platform Blue[i] Claims, which leverages advanced, anonymized benchmarking capabilities to allow clients to do such things as craft targeted safety programs, identify complex claims early, expedite the closeout of legacy claims to reduce balance sheet liabilities and improve collaboration with claims administrators.
  • Munich Re’s data analytics initiative Aqualytix combines an insurer’s portfolio data with external sources to analyze water-main damage. Using machine learning, experts can identify the risk drivers for individual buildings and predict the losses for the coming year.
  • Swiss Re Corporate Solutions’ Innovative Risk Solutions team has launched a digital parametric natural catastrophe platform in the U.S. for the small and medium-sized enterprise (SME) market, called Parametric Online Platform (POP) Storm.
  • Allianz SE and its subsidiary Syncier partnered with Microsoft to offer ABS Enterprise Edition to insurance providers as a service. This insurance platform will benefit customers by reducing costs and centralizing their insurance portfolio management.
Obviously, one announcement does not make these companies into premier technology solution providers. But a quick web search of the organizations will reveal other announcements and offerings, so this is not a one-time thing. What makes a premier insurance technology provider? It includes a focus on delivering business value, a keen understanding of what customers will need over the coming years and a quick time to decision to deliver solutions. So, the above companies appear to have the makings! See also: 5 Emerging Trends for Insurance in 2020   This past July, I wrote a blog titled The Reinsurers Are Coming – And It Might Not Be How You Expected. The blog cautioned primary insurers against being complacent about who their competitors are. This blog is taking the same stance with traditional technology providers that have kept their eyes focused on the same set of competitors they have had for eons, believing that, once you have established a beachhead, your customers will always keep you there. So, tech providers, be alert! The future may not be what you expected, either! Isn’t this a wondrous time to be in the insurance industry? It has been said that, in the digital age, every company is a technology company. These insurance leaders are taking that notion to the next level by becoming providers of technology solutions to others in the industry. Bold organizations are not letting traditional definitions of where they fit into the insurance ecosystem hold them back from delivering business value in new ways. Insurers and technology providers that are holding onto traditional roles are putting themselves at risk of falling far behind in a market looking for differentiation.

Karen Pauli

Profile picture for user KarenPauli

Karen Pauli

Karen Pauli is a former principal at SMA. She has comprehensive knowledge about how technology can drive improved results, innovation and transformation. She has worked with insurers and technology providers to reimagine processes and procedures to change business outcomes and support evolving business models.

Advice for Aspiring Leaders in Insurtech

Leaders must fearlessly create and live by tenable, actionable values--then talk about them to recruits, in interviews and in All Hands meetings.

Starting a company has been likened to jumping off a cliff and building an airplane as you fall through the air. Risky stuff. I mean, really risky stuff. Living in Silicon Valley and around people who do this all the time as though it were normal, you can begin to think it is. Or maybe my brain has always been wired that way. At least four times now, I have boldly proclaimed to my wife of 21 years, “I have this idea, and I am going to do X.” And “Oh, by the way, we probably won’t be getting paid for a couple of years. And…well, there’s a high degree of risk involved, which means it is highly likely we won’t get paid...at...all.” In starting our current company, Limelight Health, four of us had an idea, iterated, worked hard and took no salary for over two years. We now now employ 120 people all over the globe and have raised roughly $44 million in venture capital. The journey from a chief executive of four founders haggling over how to get started and what to do, to CEO of a venture-backed company with lots of employees, has been nothing short of amazing. It has required me to do one thing, placing it above all else: exercise the willingness to let go of who I am and embrace constant change. Not in a theoretical way, but in a real, difficult, deep down-in-the-gut and character-changing, emotionally taxing way. At any company, you have to spend a lot of time talking about values. Who are you as a company? How are you going to treat employees, each other, customers and partners? It’s fun to talk about, yet much more difficult to execute. To that end, the best advice for an aspiring leader in the insurtech space would be to fearlessly create and live by tenable, actionable values. Talk about them with new recruits, talk about them in interviews, talk about them in All Hands meetings. Be sure to recognize employees who espouse them and call each other out when you’re not living up to the values. Below are some values that hold strong when leading a new company in this industry. See also: Key Difference in Leaders vs. Managers   Humility and Awareness. Leading a startup, it's easy to think you are right or that your way is the best way. Typically, leaders don’t enjoy being wrong. It’s easy to become angry when someone doesn’t behave in a way that is consistent with your view of how the work environment should be. You want to surround yourself with people and direct reports who will point out problems. When you are challenged and coached, you become humbled. From there, you can grow. All that is required is the humility to listen and the awareness that sometimes things need to change to set the tone for and build a great culture. If you aspire to lead in the insurtech space, find some humility. One way or another, when you innovate and disrupt, humility will meet you at your doorstep. Kaizen. A Japanese word for “continual improvement,” kaizen refers in business to activities that continually improve all functions and involve all employees from the CEO to the “assembly line workers.” Sometimes you have to climb into a cocoon, die and come out something altogether different. When you make a mistake, it’s important to jointly work hard to focus not on blame or how badly someone performed, rather, conduct a retrospective to discover how you can improve. If you are aspiring to lead, you have to do just that, and I can guarantee that you will be the one who changes more than anyone else. Grit. “Grit is passion and perseverance for long-term and meaningful goals. It is the ability to persist in something you feel passionate about and persevere when you face obstacles.” You will invariably face obstacles: Everything will take longer, cost more and be more difficult than you can possibly imagine. Simply put, you will need some grit to push through. See also: Setting Goals for Analytics Leaders   It is an incredibly exciting time to be in the insurtech space. There are innumerable problems, but with those problems come rich opportunities.

Jason Andrew

Profile picture for user JasonAndrew

Jason Andrew

Jason Andrew co-founded Limelight Health in 2013 to deliver better data integration and sales efficiency for insurance carriers, PEOs, brokers and others in the employee benefits sales ecosystem.

Breakthroughs Finally Appearing in Claims

Many claims folks have been stuck because of regulatory constraints, inflexible legacy systems and a perpetual cycle of reduced budgets. Until now.

According to the Grammarist.com, the phrase “caught between a rock and a hard place” came about in the early 1900s in Bisbee, AZ, where miners who were seeking better working conditions pushed the mine owners for improvements. The owners were totally against making any changes – leaving the miners with a very hard decision. Either work in deplorable conditions or be unemployed: a rock and a hard place. So, what does this have to do with insurance? Over my insurance career, I have had several assignments in claims operations. A number of times, the “rock and a hard place” phrase has struck me as appropriate. I have met only a handful of claims people who lacked the fundamental desire to help people – it is usually part of the DNA of claims workers. Without it, claims is an almost impossible job to do! But, despite the desire to help, many claims folks have been stuck between the rocks and hard places of regulatory constraints, inflexible legacy systems, compliance requirements, and a seemingly perpetual cycle of reduced budgets. Until now. Technology can soften up both the rock and the hard place. That is an easy sentence to write, but a hard one to implement. In a recently released SMA research report, AI and Customer Experience: New Lenses for Claims Transformation, one of the key takeaways is to flip the lens so that claims procedures and business outcomes are viewed, not discretely from the internal, operational perspective, but rather from the outside/in perspective, which is the customer view. Opportunities to reduce cycle time, create transparency and personalization, and generate a better over-all claims experience can then emerge. Technology is here today that can be part of customer-driven claims transformation. Not only are there solutions in the market from incumbent technology providers, but some insurtechs have targeted claims processes to deliver AI-driven capabilities such as:
  • Automated damage assessment: These can be anything from photos and videos supplied by the claimant to images taken by drones. Applying AI then drives the assessment.
  • Claimant interactions: Utilizing chatbots, FNOL/FROI can speed along, and routine questions can be answered.
  • CAT planning and response: Aerial images, both pre- and post-catastrophe, can assist CAT teams with resource allocation and customer communications.
  • Fraud detection: On the surface, this may appear to be an internal response. But from a customer experience perspective, identifying potential fraudsters lets those not in that category go more quickly through the settlement process, perhaps even with straight through processing, while the “bad guys” get the special treatment.
These are but a few of the solution areas where claims organizations can utilize AI-powered technology to improve customer experience, as identified in the SMA claims research report. The important thing to recognize is that all of these applications also improve internal operations, not the least of which is taking routine tasks off claims personnel desks so they can focus on using their skills on complex claims, and situations where the customer wants – and needs – a human to help them. See also: Future of Claims Intake for Insurance?   Claims organizations are innovating and using technology to change business processes and outcomes. But keeping the dual lens of outside/in and inside/out in alignment is critical. For me, this conjures up an image of rocks of decreasing sizes, interlaced with paths and roadways that customers can intuitively travel. Even in Bisbee, AZ.

Karen Pauli

Profile picture for user KarenPauli

Karen Pauli

Karen Pauli is a former principal at SMA. She has comprehensive knowledge about how technology can drive improved results, innovation and transformation. She has worked with insurers and technology providers to reimagine processes and procedures to change business outcomes and support evolving business models.