Agile methodology has a long history with deep roots. It evolved across decades from an array of research and writing by individuals with diverse backgrounds. One thing they all shared was the desire to quicken the pace of development – whether it be for a product, a manufacturing line or software. When you think about insurance, project methodologies may not be the first thing that come to mind. Yet, as business and IT professionals find themselves increasingly working together toward the shared goal of digital transformation, the topic has gained importance in the boardroom. And with good reason. Many projects have cost much more and taken much longer than expected. Scientists, product managers and engineers have been investigating what determines a successful project ever since Walter Shewart of Bell Labs began using Plan-Do-Study-Act (PDSA) cycles to improve products and processes in the 1930s. Shewart taught his young apprentice W. Edwards Deming the iterative development methodology that he used to create the famous Toyota Production System, the seed of today’s “lean” mentality. See also: Emerging Technology in Personal Lines   In 1986, Hirotaka Takeuchi and Ikujiro Nonaka published an article called “The New New Product Development Game” in Harvard Business Review. They examined manufacturers like Fuji-Xerox, Honda and Canon that were releasing innovative technologies faster and more successfully than their competitors. These companies were not using the traditional “relay race” or “waterfall” method of development where individuals or teams hand off products after completing each phase. Instead, the companies were using what Takeuchi and Nonaka coined a “rugby” approach, “where the entire team tries to go the whole way as one unit, passing the ball back and forth.” As personal computers and then the internet became mainstream in the late ‘80s and ‘90s, it was crucial that developers find a way to quickly implement their innovations, obtain feedback and launch their technologies to stay competitive. This was referred to as “the application development crisis” or “application delivery lag,” where the estimated time between a validated business need and solution could be as much as three years. In some cases, it was much longer, which meant that projects were often canceled or no longer met the original business need when finally completed. In 1993, agile co-founder Jeff Sutherland found himself with an incredible challenge working for Easel: develop a product to replace a legacy system in six months. Sutherland was well-versed in rapid application development, object-oriented design, PDSA and skunkworks methodologies. He set out to foster this kind of culture and began learning everything he could about optimizing productivity when he came across Takeuchi and Nonaka’s rugby approach. Sutherland embraced many of their ideas and established a novel way to develop software based on the rugby metaphor, calling his approach “scrum.” This method allowed him to complete seemingly impossible projects on time and with fewer bugs. He then joined forces with colleague Ken Schwaber to structure the approach, which they presented to the public in 1995. In 2001, a group of 17 developers, including Sutherland, met in Snowbird, Utah, to discuss their views. Sutherland was a proponent of scrum. There also were advocates for a number of approaches such as extreme programming (XP), adaptive software development (ASD), crystal, feature-driven development and the dynamic-systems-development method (DSDM). See also: How to Partner With Insurtechs   The group finally agreed on a new name for the movement – agile – suggested by a member who was reading the book “Agile Competitors and Virtual Organizations: Strategies for Enriching the Customer.” The “Manifesto for Agile Development” was born and hinged on 12 key principles that are being applied across industries worldwide, including insurance. Agile development has proven to be a major advance. In my next post, I’ll discuss the top challenges and key success factors for agile development in insurance.

We kick off 2019 by discussing 20 issues the workers’ compensation community should be monitoring. Our list includes both employee benefits and workers’ compensation issues, as these two areas inevitably overlap. Later in the year, several of these topics will be developed into individual “Out Front Ideas with Kimberly and Mark” webinars. Just because an issue is not on our list does not mean it’s not important. Our goal is to highlight issues that we feel need more attention. Thus, while opioids are an important issue, we do not discuss them here because they are already receiving tremendous national attention. Healthcare 2020 Two years into this administration, the Affordable Care Act remains the law, although lawmakers and the administration have reshaped parts of it through legislative, regulatory, budgetary and legal actions. Healthcare was a leading campaign conversation during the midterm elections in 2018, and expect it to top the list in the 2020 presidential election.. As of Jan. 4, all but 14 states have adopted Medicaid expansion. This is something we expect to continue into 2019. Addressing the cost of prescription drugs will be a priority in 2019. While we are a long way from bipartisan consensus on how to address the pricing challenges, big pharma is bracing for smaller, but significant, regulatory changes. Finally, physician-led accountable care organizations (ACOs), have continued to do well and are likely to increase in 2019. ACOs reward providers for desirable patient outcomes. Legislative Watch The 2018 elections may have a big impact on the workers’ compensation landscape in 2019. There were eight states where the party of the governor changed in the November 2018 elections. Many do not fully appreciate the impact this can have on workers’ compensation, however, these governors appoint the workers’ compensation regulators and administrative law judges. These positions have a very significant influence on the practice of workers’ compensation in their respective states. In 2018, there were over 100 national bills introduced to expand presumptions for first responders. Many of these bills pertained to post-traumatic stress disorder. We expect a similar trend this year. One newer area of emphasis that we expect to see is a push to continue death benefits for surviving spouses of first responders after remarriage. In terms of specific states, we are closely monitoring the following for potential workers’ compensation legislative activity in 2019. California Bills to erode costs savings provisions in the workers’ compensation statutes pass the California legislature every year. The question is: Will incoming Governor Newsom veto those bills like the past two governors did? Governor Newsom is also very focused on creating universal healthcare for California residents, which could have a significant impact on workers’ compensation. Illinois The Democratic Illinois legislature and Republican Gov. Rauner battled for his entire term over workers’ compensation. What will happen when Democratic Gov. Pritzker takes office? Alabama In May 2017, a circuit judge ruled that Alabama’s workers’ compensation statutes were unconstitutional because of the caps on weekly benefit and attorney fees. Since then, a bipartisan task force has been working to develop reforms to workers’ compensation statutes that would address the areas that the judge felt were unconstitutional while, at the same time, preventing significant cost increases for employers. It remains to be seen whether legislative action on the task force recommendations will happen in 2019. Federal With the solvency of Social Security being a significant concern for the federal government, we have been waiting for Social Security to start looking into potential shifting from state workers’ compensation programs to their program. This appears to be happening now. There are currently 15 states that have a “reverse offset” allowing workers’ compensation benefits to be reduced if the person is receiving both Social Security Disability (SSDI) and workers’ comp. In all other states, SSDI gets the offset. Legislation could quite possibly take away this reverse offset. See also: Why So Soft on Workers Comp Fraud? Psychology of Pain Treating pain is much more complicated than prescription medication and physical therapy. Pain has biological, psychological and emotional factors -- often approached through what we refer to as the biopsychosocial approach to pain or the biopsychosocial model. When patients focus on pain, pain worsens. Anxiety, fear and a sense of loss of control contribute to pain. Research shows treating anxiety and psychological support reduces pain and the use of pain medication. And while we know that the psyche has a tremendous role in pain, few patients receive treatment for the emotional and psychological aspects of pain. Worldwide, the need for more effective pain treatment has led the pain treatment community to promote comprehensive treatment of pain and multidisciplinary pain care. Unfortunately, access to skilled providers and comprehensive pain care is a challenge in many parts of America. In addition, receiving payer approval for care is equally challenging. Understanding a patient’s response to pain earlier in the claim offers an opportunity to create a meaningful, holistic treatment plan. If the initial pain assessment reveals the patient has a high level of subjective pain complaints with limited objective findings, there is a likelihood the patient will end up in chronic pain in the future. Here are a few suggestions to consider regarding the psychology of pain and workers’ compensation:

1. Create a pain philosophy as part of your claims program. Engage the entire cross-functional claims team in the development of the program, including claims, clinical, legal, employer, occupational and orthopedic providers. The pain philosophy and associated documents become part of the client service instructions.
2. Implement pain assessment tool(s); initial and continuing assessments are available
3. Outline care pathways for holistic pain treatment
4. Because patient-centered care is key to success, communicate clearly and often with the injured worker, Transparency and empathy are important.
5. Identify a pain psychologist or clinical pain expert to consult, as needed, on pain cases and help guide the more complex cases
6. Create a feedback loop or grand rounds approach to bring stakeholders together on a regular basis and assess the pain philosophy, outcomes and opportunities for improvement.

Politics of Permanent Impairment When the AMA 6th Edition Impairment Guidelines were issued, experts hailed them as a significant improvement in the evaluation of physical impairment. But they have also led to litigation around the country as plaintiff attorneys challenge the constitutionality of the guidelines because they can produce lower impairment ratings. This leads to the question that states need to be asking: What is the purpose of the impairment guidelines in their state? If the purpose is to provide a measurement of objective physical impairment, then the AMA 6th Edition is the best tool for this. But, if the purpose of the impairment rating is to provide a PPD award that considers more than just objective impairment, then the AMA Guidelines alone are not the proper tool. The AMA Guidelines measure physical impairment, not loss of access to the labor market, potential loss of earning capacity or other subjective elements that have nothing to do with recovery from the physical injury. Social Determinants of Health In patient care, addressing social determinants of health is as important as the quality of the care that a patient receives. Social determinants of health are the conditions in which people are born, live, work, play, worship and age that factor into overall health. Social determinants of health include socioeconomic status, education and literacy, access to healthy foods and health services and social and physical environments. Increasingly, payers and health care providers are interested in more holistic care, with the goal of improving health outcomes. Economy’s Impact on Workers’ Compensation We are at record low levels of unemployment, and wages are climbing. Higher employment and wages mean higher payroll. Higher payroll leads to higher workers’ compensation premiums. Higher employment rates also mean we have more workers in the workforce who are not adequately trained and may not be in good physical condition. Because of this, some carriers are starting to notice a slight uptick in accident frequency rates. It will be interesting to see the data presented at the 2019 NCCI Annual Issues Symposium to see if we are, indeed, starting to see an increase in frequency rates. Twenty states increased their minimum wage as of Jan. 1. Higher wages could lead to more payroll and associated premiums. In addition, in states with a wage loss benefit, a higher minimum wage means decreased wage loss awards. Employee Health Models Benefits continue to be a talent attraction and retention tool for employers. Chief human resources officers understand that the health of an employee is directly related to productivity. The health and wellbeing of the employee population lead to productivity and, in turn, directly correlate to top- and bottom-line performance of the organization. Employee health models are evolving with employer-purchased care. This is happening because health insurers are not negotiating and managing costs in a way that employers can manage models directly. Direct primary care (DPC) is a small, but fast-growing, movement of doctors who do not accept insurance and, instead, charge a monthly membership fee. Employers engaging direct primary care believe in the primary care health model from a treatment perspective and care coordination. Doctors have the incentive to prioritize prevention and provide high-quality, coordinated care. It is a cost-effective, value-based care model that avoids the fee-for-service traditional pricing model. The National Business Group on Health estimates that over 50% of employers report having some form of value-based care in their health insurance program. Although we are hearing more about value-based care in workers’ compensation, be mindful of the difference between bundled pricing and value-based programs. “Value-based” care should have a quality care component and cost factor. “Bundled pricing” is a cost savings model. Telemedicine is common in employee health benefits today. Over 95% of large employers offer telemedicine solutions. While adoption varies, consumers who use telemedicine typically report a high level of confidence and satisfaction in their care. Mega Claims and Rates Industry data reports that the number of claims over $5 million incurred is increasing, and the size of individual claims is also increasing. It was not that long ago that a $5 million claim was a rarity, and catastrophic injury claims tended to top off around $10 million to $15 million. However, a combination of factors are leading to the increase in these numbers, including accident survivability, an increase in auto accident frequency and advancement in medical treatment. Carriers are now seeing individual claims as high as $40 million, and these long-tail costs have a significant impact on premium rates. In terms of forecasting workers’ compensation premium rates for 2019, overall the outlook is that rates will remain fairly flat, with some states seeing slight rate decreases. However, both A.M. Best and Fitch have cautioned that increasing medical and litigation costs are eroding workers’ compensation carrier combined ratios and that 2019 will likely be closer to a break-even combined ratio than the last three years. If the data, ultimately, shows that accident frequency is increasing, that would be another factor that would affect the marketplace. Leave of Absence State and local laws, the talent war and employee expectations are leading more employers to implement leave-of-absence programs. Employers offering paid leave report that the benefit helps with employee retention and reduces costs related to turnover and employee training. Another contributing factor to leave policies is the federal Tax Cuts and Jobs Act of 2017, which contains a tax credit for employers that provide qualifying types of paid leave to full- and part-time employees. As more leave programs exist, the coordination of leave administration with job accommodations and workers’ compensation continues to be an issue to watch. Impaired Workforce As we enter 2019, legal marijuana is more available than ever. In October 2018, recreational marijuana became legal in Canada. After the November elections, there are now 10 states and the District of Columbia with legal recreational marijuana. In 2019, state legislatures in Connecticut, Illinois, Minnesota, New Hampshire, New Jersey, New Mexico, New York, and Rhode Island are all expected to consider legalizing recreational marijuana. What does all this mean for employers? Some percentage of your workforce is possibly impaired at work. The challenge for both employers and law enforcement right now is that the science of marijuana has not caught up to the social reality of legal marijuana. There are no widely accepted standards or standardized tests to determine if someone is impaired from marijuana. Talent Training and Development As an industry, we are experiencing an unprecedented amount of turnover due to the aging workforce. With turnover comes the need to train and prepare the next generation of claims handlers. It is important that we carefully examine training programs to ensure that they are adequately preparing people with the necessary skill sets to handle claims. Not only are statutes and rules important to learn, but soft skills are more important than ever. Rules and regulations are trained consistently, and system training is extensive, but soft skills training is lacking and, often, absent. Workplace Violence Workplace violence continues to get worse. We are not talking about mass shootings, which are rare. Instead, our focus is the day-to-day threat of violence faced by many workers. Physical assaults on the job are a growing problem in many industries – especially healthcare, K-12 schools and retailers. Most are not aware of how bad the problem is becoming because it is not widely reported. Some workers feel the violence is part of the job, so they don’t report the incidents. In addition, businesses and schools don’t want customers and the community to think they are unsafe, so they don’t talk about the problem. We cannot begin to fix the problem of workplace violence until we acknowledge the extent to which it is happening and talk about the societal causes of the behavior. This is a very complex problem for employers. Unconscious Bias In recent years, the discussion of diversity and inclusion has become mainstream. Conferences and conference sessions on the topic flood our inboxes, and many of our organizations have hired diversity officers. While the discussions are important and meaningful, we also must spend time digging into ways that we can train our staff to be more inclusive. One such way is to tackle the topic of unconscious bias. Unconscious biases are learned stereotypes that are automatic, unintentional and deeply engrained in each of us. Because many of these prejudices exist beyond the conscious level and are a result of being brought up in a culture that harbors biases, we must first acknowledge that they, in fact, exist. Simply learning about our hidden biases is not enough. We must train colleagues to identify these biases and build skills to overcome them. Employee Classification The determination of whether a worker is an employee or an independent contractor is a challenge that has been around since the start of workers’ compensation. This issue is getting more attention now because of the gig economy. States and the U.S. Department of Labor are very focused on this issue. This is a very complicated problem for employers. The rules regarding what constitutes an independent contractor not only vary by state, but “independent contractor” can also be defined differently under a state’s workers’ compensation than under wage and hour rules. In addition, IRS definitions of independent contractor are often different than the state regulations. The Sharing Economy When we speak of the sharing economy, organizations like Uber, Lyft and AirBnB come to mind. However, the biggest potential impact of the sharing economy in workers’ compensation comes in the form of data. Larger companies used to have a tremendous competitive advantage because they had access to so much more data, which enabled them to make more informed decisions. However, many insurtech companies are data aggregators, gathering information from multiple sources and compiling it into something useful that can be analyzed and acted on. The wide availability of data is a benefit to startup and smaller companies because it can help to level the information playing field. More data enables better analytics and better decision-making. Globalization of Risk Management We live in a global economy and, as a result, risk management is becoming more globalized. Employers with operations in multiple countries are well aware of the challenges associated with globalization, including complying with a growing number of laws and regulations. However, even businesses that do not have physical operations in other countries can be subject to international laws and regulations if they have an online presence or work cowith vendors in other countries. See also: How Should Workers’ Compensation Evolve?   The Consumer Experience Organizations placing a high priority on consumer experience and engagement are changing the way they create and design products, address customer service issues and measure experience and engagement across stakeholders. These organizations often discuss design thinking as a strategy for innovation. “Design thinking” involves internal and external stakeholders, satisfaction and engagement levels and efficacy and quality. How often do you find injured workers at a conference sharing their experience with the system and claims process? Do injured workers have a voice at the table regarding processes and communications in which they are involved? Would turnover and employee satisfaction improve for claims organizations if the claims adjuster had a central role in workflow and product design? As we consider the future of work, talent attraction and retention, evolving from process to an empathetic engaging industry, we believe emphasis on the consumer experience is paramount to success. Measuring Success The adage, “what gets measured gets done,” is also true in the workers’ compensation industry. But the question becomes, are we measuring the right things? We are excited to once again be moderating the opening panel at the WCI conference in Orlando in August. This session will be a discussion among employers, industry leaders and regulators on measuring success. What metrics are important, and what is obsolete? How can we drive the desired outcomes by adjusting the way we measure success? We hope you will join us in Orlando this August at the WCI conference for this session to hear what stakeholders think about this issue. Future of Work The future of work is an important conversation for all of us to consider in 2019. When you think of the future of work, what comes to mind? Machine learning, automation, technology, digital? How are our work cultures changing? Employees today want to feel connected – connected to each other, connected to their community and connected to passions. Employees also want to perform purposeful work and to feel valued. As workplaces evolve, our industry will also need to evolve to attract and maintain the workforce of the future. Natural Disasters Without question, we are experiencing more frequent and more catastrophic natural disasters than ever. Last year, we saw a record hurricane hit the Florida panhandle and wildfires in California destroy entire towns. Disaster planning and response are an essential part of a risk manager’s job. However, the significant and devastating nature of the natural disasters requires evaluation of current risk management programs. Risk managers need to build in contingencies for contingent plans and need to factor in what would happen if there was a significant and lengthy disruption in your supply chain. We need to be thinking of the unthinkable and preparing for it before it happens. To listen to the complete Out Front Ideas with Kimberly and Mark “Issues to Watch” webinar, which was broadcast on Jan. 8, please visit: http://www.outfrontideas.com/archives/

2018 was the year that insurance embraced open innovation. From medium-sized insurers to Fortune 50 incumbents, everyone seemed to be launching a challenge, accelerator or incubator -- to the point where we now have too much of a good thing. This has led to a certain ennui in the startup and VC ecosystem. Every insurtech startup, the good, the bad and the ugly, seems to have been part of one or more programs. It is hardly surprising that new programs are greeted with a collective shrug. In such a context, how can you create a compelling and differentiated program? Simply put, a compelling program creates immediate business value for both the program sponsor and the program participant. The keyword is "immediate" -- which means the program focus should be on core business processes and customer experience. In other words, ROI should mean return on investment, not reservoir of ideas! Programs to scout for new business models (like accelerators and incubators) have their place in an innovation portfolio but do not add immediate value -- certainly not to the sponsor (and rarely to the participant). In general, it is better to have a narrower focus on digitization and differentiation, before trying to tackle disruption. See also: Era of Insurance Innovation Is Upon Us   For the program to be more than PR spin, it should fulfill the following conditions:

1. The program should tackle well-defined, real business problems. As a rule of thumb, the problem should be costing the incumbent north of $1 million per year. This size of problem ensures that there is scope for a long-term relationship and a significant opportunity for the startup partner. The problem should also be well-defined -- the improvement metric should be clear. The Netflix prize, which required a 10% improvement to Netflix’s own recommendation engine, is a good example.
2. The pilot should be with real data and real customers. The end stage of the program has to be more than a demo day, with abstract promises of next steps. A differentiated program will guarantee a pilot that interfaces with the business and is implemented in a live environment. By definition, this will require certain maturity on the startup partner side, which is a good thing.
3. The pilot should have a real budget. No more "toy prizes" of $20,000 to $50,000. A pilot should have a budget of at least $100,000 to create meaningingful skin in the game, so that both sides are serious about making the pilot a success.

Finally, we need a new brand for programs that meet these conditions. I suggest "implementation challenges" to make clear that the program is about creating value in the here and now. See also: With Innovation, Keep It Simple, Stupid   A well-run implementation challenge can add significant value to both the sponsor and the participant: For the participant:

1. A "lighthouse" customer -- an actual implementation at a Fortune 500 company makes it easier for the startup to attract both investments and other customers.
2. Revenue leverage -- depending on the type of product, investors attach a multiple of 8X to 10X. Hence, a $100,000 contract can create a $1 million increase in valuation

For the sponsor:

1. Access to world-class talent and technology
2. Kickstarting the digital transformation process

I hope to see more implementation challenges in 2019.

On July 6, 1988, the Piper Alpha oil platform exploded. 167 people died. Much of the insurance was with what became known as the London Market Excess of Loss (LMX) Spiral, a tightly knit and badly managed web of insurance policies. Losses cascaded up and around the market. The same insurers were hit again and again. After 14 years, all claims had finally been settled. The cost exceeded $16 billion, more than 10 times the initial estimate. The late 1980s were a bad time to be in insurance. Piper Alpha added to losses hitting the market from asbestos, storms in Europe and an earthquake in San Francisco. During this time, over 34,000 underwriters and Lloyd’s names paid out between £100,000 and £5 million. Many were ruined. Never the same again In the last 30 years, regulation has tightened, and analytics have improved significantly. Since 1970, 19 of the largest 20 catastrophes were caused by natural hazards. Only one, the World Trade Center attack in 2001, was man-made. No insurance companies failed as a result of any of these events. Earnings may have been depressed and capital taken a hit, but reinsurance protections behaved as expected. But this recent ability to absorb the losses from physically destructive events doesn’t mean that catastrophes will never again be potentially fatal for insurers. New threats are emerging. The modeling tools of the last couple of decades are no longer sufficient. Lumpy losses Insurance losses are not evenly distributed across the market. Every year, one or more companies still suffer losses out of all proportion to their market share. They experience a “private catastrophe.” The company may survive, but the leaders of the business frequently experience unexpected and unwanted career changes. See also: Data Prefill: Now You See It, Now You Don’t   In the 1980s, companies suffered massive losses because the insurance market failed to appreciate the increasing connectivity of its own exposures and lacked the data and the tools to track this growing risk. Today, all companies have the ability to control their exposures to loss from the physical assets they insure. Managing the impact of losses to intangible assets is much harder. A new class of modelers The ability to analyze and manage natural catastrophe risk led to the emergence of a handful of successful natural catastrophe modeling companies over the last 20 years. A similar opportunity now exists for a new class of companies to emerge that can build the models to assess the new “man-made” risks. Risk exposure is increasingly moving toward the intangible values. According to CB Insights, only 20% of the value of the S&P 500 companies today is made up of physical assets. It was 80% 40 years ago. The non-physical assets are more ephemeral, such as reputation, supply networks, IP and cyber. Major improvements in safety procedures, risk assessment and the awareness of the destructive potential of insurance spirals makes a repeat of the type of loss seen after Piper Alpha extremely unlikely. The next major catastrophic losses for the insurance market are unlikely to be physical. They will occur because of a lack of understanding of the full reach, and contagion, of intangible losses. The most successful new analytic companies of the next two decades will include those that are key to helping insurers measure and manage their own exposures to these new classes of risk. The big data deception Vast amounts of data are becoming available to insurers. Both free open data and tightly held, transactional data. Smart use of data is expected to radically change how insurers operate and create opportunities for new entrants into the market. Thousands of companies have already emerged in the last few years offering products to help insurers make better decisions about risk selection, price more accurately, service clients better, settle claims faster and reduce fraud. But too much data, poorly managed, blurs critical signals. It increases the risk of loss. In less than 20 years, the industry has moved from being blinded by lack of data to being dazzled by the glare of too much. The introduction of data governance processes and compliance officers became widespread in banks after the 2008 credit crunch. Most major insurance companies have risk committees and all are required to maintain a risk register. Yet ensuring that data management processes are of the highest quality is not always a board-level priority. Looking at the new companies attracting attention and funding, very few appear to be offering solutions to help insurers solve this problem. Some, such as CyberCube, offer specific solutions to manage exposure to cyber risk across a portfolio. Others, such as Atticus DQPro, are quietly deploying tools across London and the U.S. to help insurers keep on top of their own evolving risks. Providing excellent data compliance and management solutions may not be as attention-grabbing as artificial intelligence or blockchain, but they offer a higher probability of being successful with innovations in an otherwise crowded space. Past performance is no guide to the future, but, as Mark Twain noted, even if history doesn’t repeat itself, it often rhymes. Piper Alpha wasn’t the only nasty surprise in the last 30 years. Many events had a disproportional impact on one or more companies. The signs of impending disaster may have been blurred, but not invisible. Some companies suffered more than others. Jobs were lost. Each event spawned new regulation. But these events also created opportunities to build companies and products to prevent a future repeat. Looking for a problem to solve? Read on. 1. Enron Collapse (2001) Enron, one of the most powerful and largest companies in the world, collapsed once shareholders realized the company's success had been dramatically (and fraudulently) overstated. Insurers lost $3.5 billion from collapsed securities and insurance claims. Chubb and Swiss Re each reported losses of over $700 million. Jeff Skilling, CEO, spent 14 years in prison. One of the reasons for poor internal controls was that bonuses for the risk management team were influenced by appraisals from the people they were meant to be policing. 2. Hurricane Katrina and the Floating Casinos (2005) At $83 billion, Hurricane Katrina is still the largest insured loss ever. No one anticipated the scale of the storm surge, the failure of the levies and the subsequent flooding. There were a lot of surprises. One of the large contributors to loss, from property damage and business interruption, were the floating casinos, ripped from their moorings and torn apart. Many underwriters had assumed the casinos were land-based, unaware that Mississippi's 1990 law legalizing casinos had required all gambling to take place offshore. 3. Thai Flood Losses (2011) After heavy rainfall lasting from June to October 2011, seven major industrial zones in Thailand were flooded to depths of up to 3 meters. The resulting insurance loss is the 13th-largest global insured loss ever ($16 billion in today’s value). Before 2011, many insurers didn’t record exposures in Thailand because the country was never considered a catastrophe-prone area. Data on the location and value of the large facilities of global manufacturers wasn’t offered or requested. The first time insurers realized that so many of their clients had facilities so close together was when the claims started coming in. French reinsurer CCR, set up primarily to reinsure French insurers, was hit with 10% of the total losses. Munich Re, along with Swiss Re, paid claims in excess of $500 million and called the floods a “wake-up call." See also: The Problems With Blockchain, Big Data   4. Tianjin Explosion (2015) With an insured loss of $3.5 billion, the explosions at the Tianjin port in China are the largest man-made insurance loss in Asia. The property, infrastructure, marine, motor vehicle and injury claims hit many insurers. Zurich alone suffered close to $300 million in losses, well in excess of its market share. The company admitted later that the accumulation was not detected because different information systems did not pick up exposures that crossed multiple lines of business. Martin Senn, the CEO, left shortly afterward. 5. Financial Conduct Authority Fines (2017 and onward) Insurers now also face the risk of being fined by regulators and not just from GDPR-related issues. FCA, the U.K. regulator, levied fines of £230 million in 2017. Liberty Mutual Insurance was charged £5 million (failure in claims handling by a third party) and broker Blue Fin £4 million (not reporting a conflict of interest). Deutsche Bank received the largest fine of £163 million for failing to impose adequate anti-money laundering processes in the U.K., topped up later by a further fine of $425 million from the New York Department of Financial Services. Looking ahead “We’re more fooled by noise than ever before,” Nicholas Taleb writes in his book Antifragile. We will see more data disasters and career-limiting catastrophes in the next 20 years. Figuring out how to keep insurers one step ahead looks like a great opportunity for anyone looking to stand out from the crowd in 2019.

While every carrier manages claims operations in a slightly different way, there are three consistent technology setups currently in practice: Green Screen, Home-Grown and Modern. The back-end operational workflows for each of these practices are generally the same: The adjuster manually enters notes, manually sends emails or makes calls and manually ties documents from the document management systems to the claim systems. The challenge here is that the adjuster is the centrally intelligent component. Relying on an adjuster to connect various systems mires the adjuster in overly manual steps, leaving claims processing vulnerable to reduced speed, mistakes and inefficiencies – all of which lessen customer satisfaction. Green Screen While more common overseas and in smaller markets, green screen systems are still found in many claims operations today. The green screen is a simple claim database that only accepts user inputs from a text-based screen with minimal capabilities to integrate into any other systems. Adjusters are forced to use a separate document management system to store files and photos and use a separate email system for outward communications. Carriers relying on green screen systems see inefficiency with data transfer. Adjusters have to hunt for documents that are not tied to a claim number, annotate the decisions they have made in the green screen system and communicate in a separate system to the customer. Most of the mindshare of the organization is spent on teaching the humans the rules of the claim and how to document their thoughts in the system. See also: Visual Technology Is Changing Claims   Home-Grown Some organizations have managed to build their own systems internally over the years. In these systems, various IT projects over the years have been spliced together with complicated business rules that aim to reduce the human error and ensure legal compliance. Carriers with a home-grown system face significant IT spending to maintain their complex infrastructure. Even with a large IT staff, it is nearly impossible to launch new technology initiatives because change affects rules buried deep in the system. The result is a system that is expensive, inflexible, complex and generally oblivious to the customer experience. Modern Recently, carriers have consolidated their legacy systems into one modern platform. These setups require a large engagement with a third-party system integrator and many years of thoughtful planning and data migration. However, the output is rarely a truly consolidated system. Carriers with modern systems are bound to long-term, third-party support contracts and face many of the issues that home-grown carriers face. Complicated business logic is embedded in the software to try to avoid human errors, but it leads to complexity and rigidity that ensure internal compliance while ignoring the customer experience. Carriers and Customers As customer needs are changing, carriers’ technology should be changing, too. Today’s customers expect a seamless tech experience with clear communication, automation and the ability to input via apps, photos, phones and inboxes. There are several new tech solutions that aim to ease a challenge of current carrier tech configurations. At Snapsheet, we have already built software that eases nearly all of these customer expectations. Here are the capabilities that are critical to advanced claims technology – all of which will help meet customer needs:

• Cloud-Based Architecture: This feature is important for a flexible design, which eases the implementation. There is no data migration, no system integration and no multi-year project plan. Claims software is launched stand-alone around existing systems or as a full-on replacement. It enables carriers to track, with real-time precision, all of the customer interactions, how the customer engages with the claims process and how the adjuster is engaging with the customer. Immediate insights are gained and can be operationalized.
• Intelligent Claims Files: Instead of relying on the adjuster to tie systems together and shepherd the customer through the claims process, the Snapsheet platform has advanced capabilities that understand the expectations of each step in the claims process and guide the customer through the appropriate actions. An intelligent engine coordinates the communications and documentation needs for each file and advises the adjuster when to take action. If all of the requested information is provided, the engine may choose to automatically move the work to the next stage.
• Real-time metrics and operational transparency: It enables the carriers to track, with real-time precision, all of the customer interactions, how the customer engages with the claims process, and how the adjuster is engaging with the customer. Immediate insights are gained and can be operationalized. The result is an enhanced customer claims experience, led by automation and real-time customer engagement to provide a tailored journey through any claim in any language in any country.
• Customized roll-out: Customization is key. Even with a single consistent platform, such as Snapsheet’s, it is important to customize implementation for whatever legacy IT configuration exists. This adds flexibility and ease-of-use to each project. Snapsheet’s recent strategic collaboration with Zurich is an example of taking a new software approach by putting the customer experience first. Various county entities in Zurich use each of the three software setups mentioned above. Snapsheet software can be leveraged across any configuration, activating software modules that smooth or plug efficiency gaps in the current process, or completely replace existing claims systems.

See also: How to Use AI in Claims Management   As we kick off 2019 and insurtech continues to expand, the industry will see even greater advancement in the technology space for carriers and claims processes. Automated systems are important to guide the customer through the correct claims journey and ultimately allow carriers more time to innovate.

The insurance industry has operated with great consistency and clear processes for many years. People may not always like or agree with how things work, but nearly everyone from the consumer to the provider essentially goes with it — no uprisings to drive change, no big shakeups. That is until recently.

Seemingly all of a sudden, artificial intelligence (AI) is infiltrating the insurance industry, which may be a bit scary to those devoted to long-established practices. In reality, we are witnessing relatively quick developments and sparks of innovation, considering the overall life cycle of the insurance industry. And what AI offers — now and promises to in the future — is anything but scary. It’s actually quite exciting as the industry enters a truly transformative period that will result in greater efficiency, significant cost savings, and far better service and care.

What Constitutes AI

AI has become one of the biggest buzzwords in the tech landscape, so I want to define what it really means, particularly as it pertains to the insurance industry. AI is a computerized system that exhibits behavior that is commonly thought of as requiring human intelligence. Taking this a step further, it essentially translates to machines acquiring a certain level of “human-ness” so that interactions with software become more like interactions with real people. It also mandates that a system has the ability to learn and improve on its own.

Advances in AI come because of a number of factors, but, undoubtedly, consumer-based technologies have led the charge. Voice, machine learning, computer vision and deep learning have been refined in consumer products, services and platforms, but they are now being combined to create really powerful automated solutions for some of the biggest issues organizations face.

See also: 4 Ways Machine Learning Can Help  

Specific to the insurance industry, novel AI-based applications can shift the workforce and advance what companies are able to assess and offer as well as how quickly they can do it. And this is just over the short term. McKinsey predicts that AI “has the potential to live up to its promise of mimicking the perception, reasoning, learning and problem solving of the human mind. In this evolution, insurance will shift from its current state of ‘detect and repair’ to ‘predict and prevent,’ transforming every aspect of the industry in the process.”

The Rise of Insurtech

This may sound a bit abstract and futuristic, but AI advances have already led to a whole new market segment: insurtech. A slew of new companies have popped up, showcasing strong growth by bringing AI and machine learning to market with the industry’s very specific and nuanced needs in mind.

For example, Cyence, which was acquired by Guidewire Software, developed a platform to ascertain the financial impact of cyber risk and management of risk portfolios; and Cape Analytics provides a service to property insurers that combines AI and geospatial imagery to analyze property and streamline the underwriting process — and these are just two examples. Other AI-based companies have emerged to reduce costs in claims operations, identify various insurance protection options, and transform mobile and social media marketing for insurance companies.

The insurtech segment is not defined by new players alone. Several incumbents have also dipped their toes into the AI waters to develop innovative applications. State Farm developed Distracted Driver Detection that uses dashboard camera images. Allstate has ABIE, a virtual assistant to help agents with information regarding Allstate’s commercial products, and Progressive now applies machine learning on top of data collected from client drivers through the “Snapshot” mobile app.

What Does It All Mean?

First and foremost, the rise of insurtech indicates that the insurance industry is changing profoundly as it modernizes. The ability to analyze countless data points in mere seconds opens ways to assess and predict that humans simply cannot hope to accomplish. This does not mean that humans are no longer needed in the industry. Quite the contrary. People still possess higher-level thinking skills that machines are not equipped to gain. The capacity to factor in intangibles, to make judgment calls, to see and interpret what lies beyond the screen — these are human skills that will always be in demand.

See also: Key Challenges on AI, Machine Learning 

In this light, AI and machine learning applications should be leveraged to streamline and better inform the decisions that humans must make. When this happens, workers are freed to focus on the facets of their jobs that matter the most. In addition to benefits to workers, organizations experience multiples of improvement in cost savings by increased efficiency, accuracy and better predictions generally. Simultaneously, customer service and patient care improve by providing answers and resources tailored to their specific case in a fraction of the time.

Perhaps the most exciting impact of insurtech, however, will be the new business models that arise. The notion of how we administer care will change, as will the way we construct policies for individuals and companies. Essentially, what has never been possible before is suddenly on the table. The options may appear overwhelming or even threatening to the existing way of life, but AI and insurtech have arrived. The advancements that will occur over the next decade will be extraordinary for all constituents. Pay attention and embrace the innovation long needed in the insurance industry.

Looking back on the recent push for innovation in the insurance industry, I'd say that 2017 was the first year that insurtech truly piqued the curiosity of a lot of executives and companies. At the beginning of 2018, I predicted the industry would shift from talking to doing. So, where do we stand a year later? And where should we be going in 2019?

 We're not as far along as I had hoped we would be. Companies talked a lot about innovation during 2018, but most were content if they could check a box marked "innovation" and haven't yet forced themselves to do the hard work that comes with the task. More companies designated an innovation leader, joined an incubator, provided some money to update legacy systems to prepare for innovation somewhere down the road, took an executive group to Silicon Valley to see what radical innovation looked like, etc. There was less actual innovation, however, than I expected and more of what I'd call "innovation by press release." 

These more limited actions in 2018 likely satisfied senior management and the board—which was the principal, if unstated, goal, I suspect—but the day of reckoning is still coming, and it's now a year closer. There are some, including people I respect deeply, who don't think the day of reckoning for insurance will be that severe. They think the industry is too tightly regulated, requires too much capital and has too much legacy infrastructure and knowledge to be upended through a technological transformation. Change has certainly been evolutionary, not revolutionary, to this point. Insurtechs are mostly trying to work with incumbents, not replace them.  

But I keep thinking back to conversations I had in the late 1990s and early 2000s with a friend who had a C-suite job at a Fortune 500 company. I kept telling him that the company faced an existential threat, to which he replied that the company was changing as fast as it could and that the day of reckoning was off in the distance. I argued that the market was going to change at its own pace, whether his company could keep up or not. It didn't. It filed for bankruptcy protection. 

I also keep thinking about all the tech giants, including Amazon and Google, that are sniffing around insurance. Yes, Silicon Valley companies like asset-light businesses, not businesses that require as much capital as insurance, but they'll go where they see opportunity, and the operational inefficiencies and poor customer experience in the insurance business reek of opportunity. When I suggested to a brother-in-law, who runs a programming group at Amazon, that something like health insurance might be prohibitively complex, he just smiled and said, "We do complex." 

So, I suggest we step up the pace in 2019. We may be going as fast as we can—but still not be innovating fast enough. 

The will to innovate is clearly there. I see it all around. I also understand the regulatory and legacy factors that seem to require a measured pace. For added complexity, a wave of mergers and acquisitions may well arise and consume a great deal of management attention. 

But we need to get innovation past the press releases and into the market. Consumers are demanding change, and we either have to deliver, or we'll get pushed out of the way so that someone else can. We'll wind up with a bevy of patents for buggy whips just as some guy we've never heard of rolls out the Model T. 

Have a great week. 

Paul Carroll
Editor-in-Chief

The world of insurance is changing rapidly. From transformational advancements driven by insurtech, artificial intelligence, robotics process automation, blockchain and wearables, to changes in the way insurance companies design and implement new products (e.g., design thinking, minimum viable product and behavioral economics), innovation is happening all around us. As Karen A. Morris said in her article "Innovation Lessons From the Flock," “The feather in every innovator’s cap is the ability to question, relentlessly and with energetic humility.” There is no doubt that insurance companies across the country are questioning the impact of changes on their ability to compete. However, the insurance industry may need to spend a little more time thinking about how their customers are purchasing insurance and how the point of sale is potentially changing. This article will share some examples of areas where insurance companies may need to rethink how they attract and retain insurance customers in the very near future as purchasing habits evolve. The Rise of Subscription Models In the CNBC article titled "The ‘Netflix’ Model of Car Ownership Is on the Rise for Drivers Who Need Wheels – Without the Debt," the author discusses the growing trend of automakers, dealers and startups that are offering subscriptions as an alternative way to get into a vehicle. By subscribing to a vehicle, a person can avoid the traditional leasing of a vehicle or financing the vehicle through the auto manufacturer, used car dealer or bank. For insurance companies, perhaps the most important feature to note about a subscription model is that the automaker, dealer or startup will charge a flat monthly fee packaging together all the expenses associated with owning or leasing a vehicle. Included in that fee, you guessed it, is personal automobile insurance. The article mentions a number of companies offering subscription options. A visit to the news sections of these companies shows how fast dealership partnerships and car subscriptions are growing. See also: Digitalization – the Great Disappointment   Professional Employer Organizations (PEOs) For the workers’ compensation line of business, insurance companies will need to monitor the impact of PEOs and aggregators of services that offer to own the insurance risk for multiple clients across multiple states. Through the law of large numbers, mobile claim reporting apps, strategic partnerships with pharmacy benefit managers, third party administrators and insurance companies, PEOs are able to sell the fact that they are better equipped to handle the workers’ compensation claim life cycle. As you can tell from reading the financial results of a number of the largest PEOs, they are growing rapidly… translating into more and more companies where somebody other than the insurance companies competing in the open market are owning the insurance relationship directly through a relationship with the PEO. Why the Point of Sale Matters For insurance companies that are relying on their traditional sales channels of agents and direct sales to renew their current customers or attract new business, they may be in for a surprise some day soon. As subscription models and PEOs continue to attract and rapidly grow their customer base, traditional insurers will lose customers who are shifting to these new low-hassle business models. A good analogy in this case would be the boiling frog in a pot. If you place a frog in a pot of boiling water, it will jump out immediately. If you put a frog in a warm pot and slowly raise the temperature, the frog will continue with business as usual. In a similar manner, if insurance companies don’t recognize that these new models are slowly but surely taking away business, an insurance company could some day wake up and find that a lot of customers have disappeared from the market. Researching Who Owns the Relationships There is no doubt that some companies have gotten out ahead of the curve when it comes to recognizing that the point of sale for insurance has started to change for auto liability, workers’ compensation and a few other lines of business. Although we won’t name the insurance partners of subscription companies and PEOs, there are some easy ways one can find out the information. For publicly traded companies, searching for insurance keywords in the company’s 10-K/10-Q is a fine place to start. For both public and private companies, searching their website and visiting areas that address frequently asked questions related to accidents and filing a claim can also be helpful. For one subscription company, the authors identified the startup’s insurance partner by downloading the app and visiting the FAQ section. By looking for answers related to questions about accidents and insurance, we found the number for the insurance provider, dialed it and heard the name of the insurance partner. For one PEO, we were able to visit the insurance resources section of the website and learn everything about the workers’ compensation program (e.g., certificate of insurance form, claim reporting form, pharmacy benefits provider, etc.). See also: Reinventing Sales: Shifting Channels   Conclusion As Larry Keeley said in his book, "Ten Types of Innovation – The Discipline of Building Breakthroughs," “Successful innovators analyze the patterns of their industry. Then they make conscious, considered choices to innovate in different ways.” Based on the trends and patterns we have described, it will be important for insurance companies to rethink where they should focus their energy when it comes to the point of sale for certain lines of business. As the competitive landscape continues to evolve, those who adapt first and recognize shifting points of sale will likely have a first mover advantage from a data analysis, relationship and diversification perspective.

A new form of online abuse and exploitation of young people is growing rapidly. It’s called “sextortion,” and it’s defined as the threatened dissemination of explicit, intimate or embarrassing images of a sexual nature without consent, usually for the purpose of procuring additional images, sexual acts, money or something else. New research from the Cyberbullying Research Center indicates that sextortion is more prevalent among adolescents than first realized, and youth are often involved as both victims and perpetrators. The disturbing results from surveying more than 5,500 middle and high school students from across the country showed:

• 5% of 12- to 17-year-olds had been the victim of sextortion
• 3% admitted to sextorting others
• Most were victimized by a boyfriend or girlfriend (32%) or other friend in real life (22%)
• Only about 5% said the extorter was someone they didn’t know very well
• Many victims didn’t tell anyone about the incident; girls were more likely than boys to have told a parent

Sextortion hasn’t received the extensive study or media coverage that other types of online crimes have, but two detailed studies have shown that perpetrators tend to have multiple victims, generally ranging from 10 to more than 100 (Brookings Institution study). Another concern, raised in research by the University of New Hampshire, is that about 70% of victims provided compromising images of themselves voluntarily or were tricked into providing them. This factor seems to contribute to the reluctance of many sextortion victims to report the crime. See also: Time to Talk About Sex Abuse in Schools   The impact of sextortion on victims has been as serious as other forms of bullying and cyberbullying. In too many cases, the outcome is suicide. Many manifest the same mental and physiological symptoms of those who have suffered face-to-face sexual assault, including depression, anxiety, eating disorders and distrust of others. Some whose pictures were distributed in their schools and communities faced further harassment and even physical abuse. Increasing awareness and education of young people and their families about the dangers of sextortion is the first step in protecting children. Parents and friends who are sympathetic and supportive help alleviate the isolation that victims often experience. Several best practices for cyber safety and online behavior can help prevent sextortion in the first place:

• Teach children that sharing any kind of inappropriate images – of themselves or others – through their computer or phones puts them at risk of serious trouble, from being embarrassed, coerced by others or possible criminal charges.
• Be sure to keep webcams, including those built into laptops, secure. Cover the lens or close the lid of the laptop when you don’t intend to use the camera.
• Ensure antivirus protection and privacy settings are in place to reduce the risk of cyber intrusion, distribution of personal information or “remote control” by perpetrators.
• Parents, let your children know that it is safe for them to come to you for help if they receive any kind of threat online, and that you will assist them supportively if they make mistakes in judgment.
• Watch for unusual signs of social withdrawal, anxiety, anger or rage, as well as any suspicious attempt to conceal what a child is doing online. These could be indications that the child could be threatened or could be involved in threatening someone else. If this happens, talk to the child frankly, show your concern and seek help from a professional, if necessary.

See also: 5 Tips for Success in Cyber Litigation   As technology becomes more sophisticated and our personal lives are increasingly connected to cyber space, the online hazards that young people are likely to encounter will require all of us to be more vigilant. We encourage you to learn more about bullying, cyber bullying and sextortion so you are better prepared to protect children from abuse.

Numbers may numb the senses, but that does not mean insurers should forsake the chance to achieve something that, in contrast to their current approach to marketing, can be numinous, relatively speaking, because neither a lack of communication nor communication that lacks style can yield anything of substance. Insurers need not go back to the drawing board, when they should go to the photography studio instead: a place for photographers, artists, designers, writers, and directors—all of them working in a studio spacious enough for them to realize their vision, which itself is a study in the transformation of space. It is the conversion of space into living space—the way a studio lends itself to interpretation by way of a camera lens—that can allow insurers to further their message through the medium of video or photography. Achieving this goal starts with finding a studio in which a room has plenty of space for invention, and reinvention. To have such a studio is to have the solution to a challenge that is otherwise a logistical mess and a financial disaster. Enter FD Photo Studio, literally or virtually, because this is where insurers can begin to turn their message into effective marketing. I mention this disruption in how photographers do business, or how businesses can leverage a series of photography studios that have low hourly rates and a suite of equipment and services, because the biggest barrier to a shift in marketing is the refusal of most studios to change their prices—to change, period—in the face of changing needs and demands. See also: 10 Essential Actions for Digital Success  With the solution now available, insurers have no reason not to banish the banal, to erase the execrable, to delete the detestable. They do, however, have every reason to express themselves visually—to have a vision that verbalizes a specific set of values—so their marketing speaks for itself. They have to articulate what they believe. They have to believe what they say—they have to know what they believe—so what they say is not only believable but true, so what consumers see is a picture of what insurance is, so what appears on paper or develops on-screen is the summation of a collection of ideals like honor and integrity and hope and opportunity. That honesty is the best policy, for insurers, is both a matter of justice and a measure of goodness. To have a marketing campaign that blurs what should be clear, or to perpetuate a message that fails to clarify what is right, is neither good for business nor a good to possess. It is bad optics, as pundits are wont to say, because it is just plain bad. See also: Engaging Employees: Key to Success Let insurers, therefore, resolve to make excellence a priority and professionalism a promise to keep. Let them produce an actual snapshot of their industry, which says a lot without having to say a word; unless words are necessary; unless the words condense a thousand words into a memorable sentence; unless the sentence implies what consumers will likely infer: that insurers are great marketers.