Artificial Intelligence (AI), machine learning, the Internet of Things (IoT), blockchain, robotics, quantum computing — the terminology of technology is staggering enough, let alone understanding what it is and how to use it. While some of the advances in technology are more noise than anything useful, many of these developments can be quite valuable for our industry — especially in claims management and risk control. Fortunately, there are experts with a good understanding of insurtech and how we can make it meaningful for our companies and our injured workers. Three of them helped us break down the latest technological developments and provided insights into how they can benefit the workers’ compensation system during our most recent Out Front Ideas webinar:

• Guy Fraker, chief innovation officer for Insurance Thought Leadership
• Jason Landrum, global chief information officer for Sedgwick Claims Management Services
• Peter Miller, CPCU, president and CEO of The Institutes/Risk and Insurance Knowledge Group.

What Is Insurtech? Simply put, insurtech is using technology to improve efficiencies and provide a better customer experience in the insurance industry. Many startup companies have entered this space in the last few years, although the majority are not as helpful as they may first appear. Companies come out with apps or, as our speakers said, shiny new toys that drive user experience and seem really cool but do not add value. One speaker said many companies offer solutions to problems that do not exist. The more mature, robust companies — those with an actual product that covers the life cycle of the value chain or a significant gap in it — are in the minority but have the most potential to make a difference. They offer strategic and comprehensive solutions. There are not too many organizations with this capability, so there are tremendous opportunities. The right technology, when properly deployed, has the capability of making a significant impact. Two of the most meaningful advancements for our industry are machine learning and AI. So what are these terms and how do they differ? Machine learning is actually an application of AI. Where AI is basically computer-based logic, machine learning uses statistical techniques to allow computer systems to learn from data without being explicitly programmed. From the data, it defines a formula to predict an outcome, thereby making it meaningful. See also: Insurtech Ecosystem: Who Will Eat Whom?   Some TPAs and carriers are using this technology to quickly flag claims that could be in danger of adverse development. The computer takes a claim, runs it against data on other claims and can determine if it is likely to become severe. As soon as the machine learning model detects something different about a claim — something a human would not be able to identify as a potentially huge loss — it alerts the claims manager to intervene and manage it more carefully. The effect is to drive the outcomes of claims in a more positive way. For injured workers, technology is being leveraged to provide apps that provide easy access to claim information. Injured workers can find out where they are in each step of the process without having to call the adjuster. In the consumer market, AI and machine learning are being used to apply natural language processing and determine what the person is actually saying or asking a computer. Think Alexa or Google Home. Our speakers predict it will soon become commonplace for humans to interact easily with machines. Implementing this technology may seem overwhelming to organizations, especially if they try to adopt it on a large-scale basis. Instead, companies should have a narrowly defined plan and seek real solutions. Industry Initiative and Blockchain One of the exciting potential uses of newer technology in our industry is something called the RiskBlock Alliance. This not-for-profit industry consortium is meant to provide a framework that the industry owns: a standardized way of looking at data. It is based on three technologies:

1. The Internet of Things
2. Blockchain
3. Data analytics

The confluence of these technologies is profound. In a nutshell, the IoT is the network of electronic devices that can digitally capture and exchange data. Blockchain enables the storage of this data along with rule sets. It can execute automated instructions based on the data and the rules applied to it. It also allows for data sharing among organizations in a secure way. A couple of examples demonstrate the significant savings and benefits to the industry:

1. Proof of coverage. For example, a short-haul trucking company must provide proof of insurance for every load each driver takes; approximately eight hauls per day, per driver. It adds up to about 200,000 times each day that proof of coverage must be executed. There are different insurers involved with each load. It takes the company about 30 minutes to get a proof of insurance for each load. However, using the sharable platform of blockchain means the proof of insurance per load can be available in a matter of milliseconds.
2. Sharing policy information when subrogation comes into the equation. Say there is an auto accident between two vehicles, each with a different insurance carrier. Initially, both insurers start paying the insureds while they sort through the details to see who is at fault. Once fault is established, payment between the two carriers must be settled. Right now, this is done manually at an estimated annual cost of $300 million to the industry. Using blockchain, the policy information could be housed in a secure environment and the settlement done instantly. Putting policy information in an automated process on an aggregate basis could save tremendous amounts of money and time.

Challenges and Opportunities While there are some challenges in implementing new technologies, there are also many opportunities. Many of the more rote tasks of handling claims can be done faster by technology, freeing claims managers to provide the human touch that is so necessary in so many workers’ compensation claims. Spending more time with injured workers, showing them concern and empathy, results in better outcomes for them and lower costs for payers. One challenge is the need for data standardization, something RiskBlock is targeting. This could level the playing field and provide opportunities for smaller insurers to grow more quickly. Incorporating aspects of insurtech into the daily workflow can be challenging, especially because there are so many innovations and ideas at play. It is important to try to harness that enthusiasm and apply it to a framework that captures the best ideas and develops them into solutions. Another potential challenge is that our industry is so heavily regulated, and regulated differently in each jurisdiction. That means that some insurtech solutions may work in one area but not another. Caution is required before jumping on something that may not be workable. One challenge that can be easily overcome is changing the mindset that implementing new technology requires many people. It does not. Moving into the insurtech space is best done in a constrained way, with just two or three people involved. As one speaker said, “It’s not about thinking outside the box. It’s about building the box.” Every game-changing organization like Microsoft and Facebook started with a team of just three or four people. See also: Key Challenges on AI, Machine Learning   From a healthcare standpoint, one of the best opportunities from insurtech is the ability to get in front of pain, which can also be referred to as pre-pain or pre-hab. As healthcare technology advances, we will be able to help workers and their families understand what to expect in terms of pain before they undergo surgery, for example. We can help them be better prepared, facilitating better and shorter recoveries. The Future With the maturation of insurtech companies, our experts expect the number of startups will slow in the next couple of years. Instead, existing companies will return with innovations. The tremendous amount of data available in the future will help level the playing field between larger and smaller carriers. This is because the smaller carriers will be able to participate in data sharing initiatives to have access to analytics way beyond what their own data could provide. Data aggregation insurtech companies are going directly to the source for data, such as partnering with auto manufacturers to access data from their onboard computer systems. Insurtech will also allow pharmacists to match DNA to prescriptions to determine if they are feasible. Also, robotics can be used to handle riskier or repetitive tasks. Rather than replacing workers, the technology allows them to engage in more meaningful responsibilities. Using AI to process routine, medical-only claims may even result in eliminating some steps. We may find straight-through processing can be done quickly and efficiently. One of the most exciting uses of new technology is to eliminate losses by removing risks. Insurtech can be used to detect when and how certain actions will likely lead to injuries, allowing humans to set up systems to prevent those conditions. The ability to avoid losses would truly transform our industry.

As a reporter at the Wall Street Journal, I was taught to watch for news that companies would try to bury by releasing it over holiday weekends and to make sure that the news got all the coverage it deserved – maybe even a bit more, just to teach the company a lesson.

In that spirit, I’d like to tee up a discussion on the report on climate change that the U.S. government released on Friday, as so many of us were lounging on a couch, semi-comatose after the friendly gluttony from Thanksgiving support the night before. The report is getting plenty of coverage – somehow, the news media seems vigilant about not letting the Trump administration bury inconvenient news – but is missing what I think is a key element: the role that the insurance industry can play in adjudicating the debates that have already begun about the accuracy of the gloomy climate forecast.

The report has the potential of a Nixon-goes-to-China moment, even though so many conservative commentators went on the Sunday interview shows to say the equivalent of, “No, Nixon didn’t go to China,” or even, “China, what’s China?” in reacting to the new report. (I’m thinking mostly of those who argued that the legions of U.S. government scientists in the 13 agencies that produced the massive report were somehow paid by outside interests to manufacture claims of climate change. I’m not sure how that would even work.)

The staying power could come because this report wasn’t issued by a Democratic administration but by an aggressively anti-regulation administration that has trashed the idea of man-made climate change – yet produced a report that said there could be a 9-degree Fahrenheit rise in temperatures by the end of the century and that 10% of the U.S. economy could disappear, unless drastic changes are made.

While insurance pricing doesn’t have much to say about what will happen 80 years from now, it does have a lot to say about what will happen in the short to medium term. We won’t stop the debates about the science in the report. Debates will also rage about how much burden the U.S. should shoulder in stopping or reversing climate change. (What if China and India don’t do their part? What about the jobs that could be lost between now and the end of the century because of efforts to halt climate change? Etc.) But there’s a dollars-and-cents issue that comes into play now as insurance underwriters diligently assess risk.

I say we let our voice be heard, pointing out where risks associated with climate change are rising, leading to more frequent and severe claims--as well as where they aren’t. So, I’d appreciate any feedback on what’s actually happening with property rates and claims. Does loss experience for homeowners in hurricane zones suggest an increase in danger? If so, do today's rates reflect that increased exposure? How much? What about rates for homeowners near drought-ravaged forests? Or for those homes along the coast who would be vulnerable to rises in sea levels?

In other words, are underwriters already factoring increased exposure into their models and rates, or does the industry regard climate change fears as overblown? And what do reinsurers, as the aggregators of all this real or perceived risk, say?

Responding in a comment at the bottom of this post is probably the best way to share, so everyone can see what you have to say. But you can also respond just to those of us at ITL by replying to this email. You can be sure I’ll follow up as soon as I have anything smart to say.

Have a great week.

Paul Carroll
Editor-in-Chief 

It’s not news that today’s consumer has high expectations when it comes to the buying experience and customer support – and this certainly includes the purchase of insurance. As the industry landscape grows more competitive and new players enter the field, insurers need to set themselves apart now more than ever. A better experience for the customer throughout the process can help insurers grow business volume and lead to increased customer satisfaction and loyalty. While digital innovation within insurance distribution offers the opportunity for insurers to meet the rising bar of customer expectations, as an industry insurance is late to the game when it comes to digital marketing. To gain an understanding of the level of education and capabilities in digital marketing within the insurance space, RGAX fielded a survey among small-to-medium-sized U.S. insurers. A summary report, “Digital Distribution: 2018 Pulse of the Industry,” features key findings that provide a snapshot of both the current digital marketing environment and future investments planned among insurers. See also: Digital Innovation in Life Insurance   How far have we progressed? If you’re facing challenges when it comes to implementing a digital marketing program, you are not alone:

• 43% of respondents stated that their level of education on digital marketing capabilities was “some/little”; 11% reported having no education.
• 64% of survey respondents reported that they have “some/little” overall capabilities for digital marketing; 11% said capabilities were “non-existent.”

What’s standing in the way? According to respondents, top challenges to incorporate digital marketing to improve customer experience include: lack of resources, lack of expertise, organizational challenges and lack of strategy.

• 29% of respondents think it is too expensive to introduce or expand digital marketing efforts.

Where do we go from here? The majority of respondents are currently testing direct-to-consumer digital strategies to determine the best path forward:

• 64% reported they are currently testing digital advertising.
• 50% are testing an online e-application journey.
• 43% plan to begin testing digital lead generation soon (one to two years), but 32% have no such plans.

How do we get to where we want to be? Lacking sufficient expertise or resources to build a digital marketing program alone, insurers are looking outside to bridge the gap:

• 21% of respondents have partnerships in place with startups or external vendors to enable digital selling strategies, and an additional 43% are planning to do so.
• 52% of companies reported partnering or using vendors to advise them on their digital marketing strategy (partners or vendors include advertising agencies, marketing firms, consultants, reinsurers, lead generation partners and tech vendors).
• Survey results indicate that using data to enhance insurance sales strategies is an area for growth. Currently, up-selling and cross-selling was the most-used application of customer data, with 39% reporting use of this strategy; customer segmentation overall and by product was next at 36% utilization.

Find a need and fill it No matter where your company fits within these survey results, the opportunity to catch up to or even lead the industry remains open to all. Untapped digital possibilities in insurance abound, creating space for innovators to grow. See also: In Age of Disruption, What Is Insurance?   Strategies to leverage data represent a clear area for improvement, with less than half of respondents using customer data for up-selling and cross-selling, models for accelerated underwriting or customer segmentation. Another area in need of development is administration capabilities, including policy e-delivery, do-it-yourself service processing and online policy transactions completed by a policyholder. And although some insurers have already adopted or are planning to adopt life and legacy planning, identity protection or wellness programs, such engagement and loyalty programs represent yet another growth opportunity. A streamlined, tailored experience based on a true understanding of the customer journey is no longer a nice-to-have – it is a must. With help from companies like RGAX to provide guidance and support around digital marketing, insurers can define and implement their own digital marketing strategies to better reach their target customers.

A drug-free workplace is a safer place to work, provided the drug testers themselves have passed the test; provided they have done the coursework; provided they have taken the right courses to do their jobs with accuracy and ease; provided the provider of the coursework is himself an expert—a professional who seeks to train like-minded individuals, whose commitment to the collection and testing process is supreme. Finding that person, and taking his courses, is critical not only as a matter of compliance or as an issue of law but as an example of integrity: so that employers can trust the results—and employees need not mistrust the collectors—because excellence governs the process. For insurers, it is not enough for clients to follow the rules or to obey the letter of the law. Not if companies ignore the spirit of the law. Not if doing the minimum the law requires enforces the law of unintended consequences in which the quality of the coursework differs—and too many testers take mediocre courses—making it difficult if not impossible to have faith in the process. According to Andrew Easler of DrugTestingCourses.com: “States that discount the cost of workers’ compensation insurance in exchange for voluntary drug-free workplace policies: There is a reason these states mandate the methods of sample collection and the procedures testers must follow. Quality training creates standards for chain of custody—and chain of custody all but eliminates the risk of specimen adulteration or substitution.” See also: Wellness Industry’s No-Good, Very Bad Year   I agree with that analysis, as it speaks to the economic and educational values of this subject. I agree because we can neither afford nor accept uncertainty to cloud the drug testing process. If we have no confidence in the training men and women receive, if the sole measure of consistency is the frequent inconsistency of how and when someone gathers samples, if the absence of quality makes the process moot—if any or all of these things persist, businesses cannot survive, and workers cannot succeed. Statistics prove this point, while attempts by employees to cheat the system highlight the dangers too many companies face. That these attempts exist is not an indictment against workers, whose addictions are an expression of personal pain and private suffering. It is, however, a statement of failure about the quality, or lack thereof, regarding the online courses of some drug testing instructors. The monetary effects of this system manifest themselves in increased sick days, lost productivity and lower morale, among many other things. The moral effects are a separate challenge altogether, because they are a threat to the very nature of trust. How can a company do business, after all, if it cannot earn the trust of insurers or enjoy the loyalty of consumers? How can insurers issue policies and collect premiums if they have no faith in the drug testing process? See also: A Test Case on Sanity of Drug Prices   Restoring that faith—no longer having to rely on faith alone—starts with quality coursework, which is a test case in how to train individuals to do quality drug testing, free of haphazard decisions and hazardous decision makers. The right coursework is the right course to follow, period.

Point 1 – Realize that the claims process is a customer experience. Have you ever gone through the claims process for a life insurance policy? As a former adviser, I have helped people navigate the claims process for many companies, and none was a great customer experience. Most of the time, we were having to send in documents multiple times and hold multiple phone conversations to get clarification of what is needed. There seemed to be a constant “ping pong” approach to the entire communication process. For beneficiaries, this is frustrating, to say the least. Confidence in the carrier decreases, and the adviser in many cases is stuck in the middle, apologizing for the terrible process while trying to save or increase the confidence level about the carrier. Have you ever tried to offer that same carrier’s products and services to the beneficiary as part of a new financial plan? That’s a whole different discussion. However, I can say the lousy process puts the adviser in a tough spot. The beneficiary will ask, “Why are you offering me a product for my plan from a carrier that has a terrible process? I don’t want my beneficiary to go through a process like that.” This is a fair question…. Point 2 – Put yourself in the claimant’s shoes. Think about it. The claimant is going through your process during a time of grief, hardship and huge loss. Your process should not add to the stress. Your process should be easy. It should work to deliver a little happiness for them during this time. You want your beneficiaries to tell stories to their friends, family or other loved ones about how seamless your process was. Ask your marketing folks how valuable that is for your brand…. See also: 3 Techs to Personalize Claims Processing   Point 3 – Ask a group of newer employees for feedback on your process. We get the opportunity to speak at events across the country about innovation and digital transformation within the insurance industry and about how our company, Benekiva, has accomplished this. We often get asked, “How can a carrier be more innovative?” My response is usually a question: Who is on your innovative team today? Having an employee work at a company for many years is a double-edged sword. Don’t get me wrong, these long-term employees offer extreme value to your organization. However, some get stuck in the “that’s the way we have always done it” mentality. I would challenge companies to have some of their newer employees be part of the company’s innovation initiatives. Better yet, allow some folks on this team that don’t have any experience in your industry! You might be amazed at the innovation that can occur when people from outside the industry are allowed to give constructive feedback. Point 3.5 – Meet your customers where they are. This is an easy one. You need to have a claims process that can be completed from a person’s smart phone, tablet or computer. And give customers all of the options, not just the ones YOU like… There shouldn’t be anything within your process that requires a person to have the thought, “really, why can’t I do this process from my phone?” See also: How IOT Will Change Claims Process   Here is a challenge – Have you ever experienced your company's claims process? This would be a great exercise for many executives. The trick is to NOT stage this experience. Be completely anonymous, and go through your company's process. Go through the process on multiple devices. Have a millennial go through the process. Be completely honest with yourself and ask those you send through this exercise to ask themselves – does this process suck? If the answer is yes at any point in your process, you need a better process….

Large organizations have long understood the intrinsic value of customer data. Using it to formulate and execute on key business decisions, enterprises can better meet customer demand, anticipate a buyer’s propensity to purchase and stay ahead of savvy competitors. Because of the substantial amounts of resources required to successfully leverage customer data, and considering its highly confidential nature, large companies have also traditionally led the pack in implementing cyber insurance to protect this crucial business asset. Despite having fewer human and monetary resources, small and medium-sized businesses (SMBs) have started joining in on the data-driven movement, leveraging their existing customer data to deliver superior customer experiences and, in some cases, successfully compete with large organizations. Protecting that invaluable intelligence, however, has historically been overlooked. Many SMBs assume they aren’t as much of a target as large companies are, or they simply aren’t aware that cybersecurity tools are available to them. Plus, complex buying processes and exorbitant pricing often prohibit even the most knowledgeable SMBs from adequately protecting their assets. New and Improved SMB Habits Thankfully, times are changing. As SMBs continue to take advantage of the business benefits that leveraging customer data can provide, they’ve caught on to the merits of defending their customer data with cybersecurity measures such as cyber insurance. In fact, it’s fair to say SMBs will drive the next wave of cyber insurance adoption. See also: Cyber: Black Hole or Huge Opportunity?   According to recent research conducted by my company, demand for cyber insurance has skyrocketed among the SMB market as of late, with the highest quarterly growth being 150% and averaging approximately 69% per quarter. In Q2 of 2018 alone, 30% of our commercial insurance shoppers purchased cyber coverage, up from 12% a year ago. First-time cyber insurance shoppers are also on the rise among SMBs, having experienced a quarterly growth of 34% over the last year. Key Factors Contributing to Cyber Insurance Growth There are a variety of reasons for SMBs’ increasing enthusiasm for cyber insurance, such as a rise in SMB-targeted cyberattacks and widespread, difficult-to-detect network vulnerabilities. However, after analyzing our digital proprietary data collected from Q1 2017 to Q3 2018, we found the following three factors equally critical in driving SMB cyber insurance adoption: 1. Compliance Requirements Compliance requirements such as HIPAA, PCI and DCI have contributed significantly to the growth of the SMB cyber insurance marketplace. Recent data privacy regulation rulings such as GDPR and the California Consumer Privacy Act may also be pushing adoption, as the percentage of our shoppers who stated compliance requirements as a motivating factor increased 39% quarter-over-quarter. 2. Contractual Components In the past, mandating cyber insurance for SMBs was difficult, due to the lack of affordability and accessibility. Today, digital-first insurance providers have drastically reduced distribution costs, allowing organizations to enforce cyber insurance as an essential component of third-party vendor contracts. According to our data, nearly half (46%) of SMBs buying cyber insurance are purchasing due to contractual requirements. 3. Affordable Policies The price of SMB cyber insurance has declined substantially over the past year, primarily due to carriers’ ability to provide tailored policies designed to meet SMB-specific needs. In April 2017, our data shows the average monthly premium cost for a $1 million cyber insurance policy was $270. By June 2018, however, the average monthly premium cost for a $1 million cyber insurance policy dropped to just $77. The Future of Cyber Insurance Adoption Compounding factors will continue to drive the SMB cyber insurance market. From a business perspective, state and federal regulations will likely make cyber insurance a mainstream business priority, and enterprise-level contractual requirements will make cyber insurance a must-have for third-party vendors. On the consumer side, customers will continue to take an increasingly active role in their personal cybersecurity, demanding SMBs effectively secure their personal data through security solutions, including cyber insurance. See also: How to Create Resilient Cybersecurity Model   Though our data is still maturing, the steady increase in SMB shopper awareness and overall market readiness indicate that 2018 serves as an inflection point for the mainstream adoption of cyber insurance. Furthermore, with the SMB population in the U.S. expected to exceed 34 million by 2025, cyber insurance will be an essential factor in securing our collective digital world, and we can expect any business with assets to secure, and long-term viability to protect, to make cyber insurance a critical element of their comprehensive cybersecurity plan.

Most employers, both large and small, consider workers’ compensation “the cost of doing business.” The vast majority of employers that are not covered under federal regulations such as the Longshore and Harbors Workers Act are 100%-controlled by individual state laws, court systems and dispute resolution procedures. The history dates back to over 100 years ago as the “exclusive remedy” for injuries and illnesses “arising out of, and in, the course of employment.” It was also designed as a “no-fault system.” On paper, it is a simple system to understand. In reality, a simple claim can be a potential landmine and can be lost in a myriad of bureaucratic red tape, attorney involvement and litigation through state court systems.

Although workers’ comp costs are typically viewed as strictly a risk management or safety responsibility, the only way for an employer to truly contain both direct and indirect costs is to take a comprehensive approach and view workers’ comp programs in the context of their overall human resource programs. This requires an integrated, pre-planned, post-injury program design along with clearly defined policies and procedures using tools available under both state workers' comp laws and federal disability laws. This includes the Americans with Disabilities Act (ADA), Family Medical Leave Act (FMLA), Occupational Safety and Health Administration (OSHA) recordkeeping regulations and other potentially specific federal rules and regulations such as medical exams covered under the Department of Transportation (DOT).

See also: The State of Workers’ Compensation  

Two of the most common cost drivers for employers is late reporting of injuries, known as lag time, and poorly designed return-to-work programs. Although both issues involve the core of workers’ comp cost management, neither is really dictated by state workers’ comp law. In fact, state workers’ comp laws and the treating providers working under those laws can be severely detrimental in efforts to improve prompt reporting and return-to-work programs.

Although workers’ comp benefits and systems are strictly governed by state law, the injury or illness is also covered by several federal laws. One of the biggest paradigm shifts in the workers’ comp industry was the result of the Equal Employment Opportunities Commission (EEOC) ruling in 2014 that the Americans with Disabilities Act (ADA) “applies all the time whenever a medical condition has the potential to significantly disrupt an employee’s work participation.” (See ITL article "Is EEOC an Unlikely Friend on Work Comp," March 25, 2015)

This EEOC ruling took the workers’ comp industry by surprise. Work-related injuries and illnesses are now clearly governed under federal law under the ADA “as soon as notified,” “all the time” and the process is “continuous.” The EEOC stated the only relevant question is, “whether the disability is now, or is perceived as potentially having an impact on someone’s ability to perform their job, bring home a paycheck and stay employed.” Further, the EEOC stated that the ADA applies, “when a medical condition has the potential to significantly disrupt an employee’s work participation.” What workers’ comp claim does not have the potential to disrupt work participation?

The EEOC went much further and stated that the cause of injury is “irrelevant” and that everyone, treating providers, TPAs and employers, should keep that in mind. Further, the EEOC indicated the employer is 100% responsible for the continuing interactive process regarding potential job accommodations and return-to-work policies under the federal ADA law. The following EEOC comment was the knockout punch: “Physicians and TPAs may be putting employers at risk, even if not properly passed along, and would be especially troublesome if the treating physician was selected by the employer.” This means that under the ADA the employer is 100% responsible for job accommodations for the employee “who can perform the essential functions of their job with a reasonable accommodation.”

A truly integrated disability approach and interactive process is required because all medical-related absences, both occupational and non-occupational, are covered under the ADA. Remember, the injury and return-to-work process are covered under the ADA, but the benefits associated with an occupational injury are still covered 100% under state workers' comp law. Workers' comp remains the exclusive remedy for claimant medical and lost-wage benefits but is not the exclusive remedy for an employer to gather relevant information such as accident witness information or medical reports regarding cause of injury, comorbidities and pre-existing conditions that can be extremely relevant in the adjudication of a workers' comp claim down the road.

Jay Peichel, a principal at Keystone Risk Partners in Media, PA, was intrigued by the various ITL articles on ADA, DOT and OSHA and the federal laws’ relation to the workers' compensation process and how it may relate to the various barriers that can affect workers' compensation outcomes such as significant claim reporting lag, limited investigation, poor return to work process and ineffective med-legal determinations. Keystone designed a workers' comp survey and resultant proprietary scorecard as an assessment tool to quantify how current policies and procedures (including safety rules, accident reporting, supervisor training, medical management, use of provider networks, use of independent medical exams (IMEs) and medical second opinions and return-to-work programs) are integrated to take full advantage of state-specific workers' comp rules and regulation in coordination with federal disability laws such as the ADA, FMLA, DOT exams, when applicable, and OSHA recordkeeping regulations.

See also: How Should Workers’ Compensation Evolve?  

Keystone saw this tool as a natural fit in their risk mitigation and analytics service platform and also their core platform of captive consulting, captive management and risk placement. Jay Peichel, who specializes in workers' comp claim analytics and benchmarking for his employer clients, said this new survey was “designed to help isolate hidden cost drivers in HR and workers' compensation programs. It also provides us the road map to provide recommendations and intervention points not in isolation but rather within an integrated process utilizing best practices in both workers' comp and disability cost management. Strategically, it links to our analytics platform and our ability to quantify the changes in outcomes and total cost of risk.”

The survey and scorecard are provided for a nominal charge by Keystone Risk Partners. For more information, contact Jay at jpeichel@keystonerisk.com.

About 50% of U.S. adults are married today. While this number has stayed fairly steady over the past five years, it represents the bottom edge of a downward trend that has continued for decades, according to Kim Parker and Renee Stepler at the Pew Research Center. Marriage rates have dropped 9% from 1998, and 22% from 1960. So, what’s causing the change in marriage rates? Financial security is a top consideration for many young adults, says Benjamin Gurrentz, a survey statistician at the U.S. Census Bureau. Higher marriage rates are correlated with full-time employment, median annual wages and home ownership. The financial security associated with marital status has long played a role in determining property and casualty insurance rates. For decades, insurance companies have relied on studies and data indicating that married adults file fewer claims and present a lower risk than unmarried adults. As U.S. adults delay or skip marriage, here’s how the landscape changes for P&C insurers. The Changing Landscape of U.S. Marriage Many adults are simply postponing marriage rather than skipping it altogether. The U.S. Census Bureau found that the median age for a first marriage rose about seven years between 1960 and 2016. In the 1960s, women generally got married around age 20 and men around age 23; today, those ages are closer to 27 for women and 30 for men. This doesn’t mean that younger adults in the U.S. are all living the single life. The number of adults who were cohabiting increased 29% from 2007 to 2016, according to Christina Cauterucci at Slate. About half of these adults were younger than 35, and nearly half this group doesn’t see marriage as a priority, either for themselves as individuals or for society as a whole. “The share of never-married adults under age 65 has risen dramatically — from 26% in 1990 to 36% in 2016 — which has directly contributed to the declining share of currently married younger adults,” says Wendy Wang, director of research at the Institute for Family Studies. Yet when younger adults get married, they tend to stay that way: The U.S. divorce rate dropped 18% between 2008 and 2016, with more younger couples staying married than in previous generations, says Philip Cohen, a professor at the University of Maryland. When adults in the U.S. do marry, financial stability ranks among the top six reasons, according to Abigail Geiger and Gretchen Livingston at the Pew Research Center. Making a lifelong commitment and creating a stable relationship in which to raise children also made the top six list, indicating that the declining marriage rate may be related to a rising sense of instability. See also: Even in Big Data Era, Relationships Count   The overall result is that fewer auto and home insurance customers are married overall, and the trend is particularly striking among younger customers, who also don’t see financial benefits like lower insurance rates as a compelling reason to marry. Marriage and Consumer Insurance Marriage brings certain benefits for property and casualty insurance consumers, Penny Gusner explains at Insure.com. For instance, auto insurance rates may decrease by 5% to 15% for married couples. Newlyweds who combine households may also qualify for multi-vehicle or multi-policy discounts. The insurance industry factors in marital status when setting P&C insurance rates because the statistics tell them to. “Individuals who are married tend to expose insurers less to overall claim costs,” explains Robert Hartwig, who works at the Center for Risk and Uncertainty Management at the University of South Carolina. The use of credit scores as a factor in determining property and casualty insurance rates can also change the calculation, says Karn Saroya at Cover. While spouses don’t share one another’s pre-marriage credit history, joint accounts do appear on both credit reports. Rates may be calculated differently on any purchase the spouses make together, such as a multi-car policy or an auto and homeowner insurance package deal, says Lance Cothern at Credit Karma. A married couple seeking homeowners insurance, for instance, can see their rates increase or decrease based on their jointly considered credit scores, Les Masterson writes at Insurance.com. Even unmarried couples living under the same roof must choose one of the pair to apply for homeowners insurance. Often, this will be the partner with the better credit, leading to lower rates from the insurance company. The problem? These rates may not accurately reflect the risk involved of insuring the couple as a family living under the same roof. “Sure, married people tend to get (financial) breaks, with their taxes and elsewhere,” says William F. Harris, an independent insurance agent based in Los Angeles. “It just happens to be the same when it comes to a homeowners policy.” Growing Families and Insurance U.S. demographic statistics indicate that while couples may be choosing not to marry, many are still choosing to have children. As these children mature, their presence can affect auto insurance rates, as well. For instance, Raltin’s Ishan Mukhopadhyay says that families with young drivers tend to pay more for auto insurance than other households. While this makes sense from a risk perspective, it also indicates a new calculation for both households and insurers: the teen driver whose parents, unmarried, have separate auto insurance policies and separately calculated risk. Younger adults are citing financial stress as a reason not to marry, but when they do marry they tend to be more financially secure, to share a commitment to the relationship and to stay married for longer than previous generations. As a result, P&C insurers must reconsider the value of marriage as a method of calculating risk — particularly in an era that offers unprecedented access to personalized data analysis for individual customers. How P&C Insurers Can Respond to Decreasing Marriage Rates As data becomes easier than ever to collect and analyze, some insurance companies are recalculating the value of lowering premiums for married customers. Several studies in the late 1990s and early 2000s did demonstrate a lower risk among married drivers. For example, a 2004 study in injury prevention became the basis for a number of insurance industry decisions to factor marriage into insurance premium rates. However, many of these studies have since been questioned for their relatively small sample sizes, and all of them are out of date. In the digital era, insurers have access to the quantity and quality of data they need to make more accurate, personalized decisions about the specific customer populations they serve. See also: Making Life Insurance Personal   Personalizing the Calculation of Risk A renewed focus on driving behaviors in the age of telematics has made calculations more accurate. Specifically, insurance companies can hone their focus on auto premiums that accurately reflect real-world driving risks, says Ed Leefeldt at CBS News. Calculations based on mileage, road congestion and driving behaviors like hard braking can help insurers focus on the risks individual drivers pose. This can be a more effective way to understand each customer’s risk, beyond looking at marital status. Staying in Touch: Examining Life Changes as a Way to Calculate Risk Some insurance companies are also considering life changes when they calculate risk. “Effectively capturing changes that may warrant up-charges or require the application or removal of a discount is best achieved at renewal,” says Jennifer Graham at Verisk. Checking in at renewal can help insurers keep better track of the changing patterns of customers’ families and living situations, even when these aren’t marked by official events like marriage. Recalculating for individual customers can also take into account changing patterns in household income related to evolving marriage patterns. For instance, median household income for homes with two adults is $86,000. For singles, it’s just $61,000, says Meera Jagannathan at Moneyish. She says that 42% of adults consider themselves not only unmarried but “unpartnered,” as well. As relationships have adapted to suit modern lifestyles, insurance companies are also adapting to better understand and quantify risk in the context of these relationships.

Heavy rains are forecast for Northern California this week, which may finally extinguish the vicious and deadly Camp Fire, but our friends in SoCal may not find relief just yet, and those caught up in the fire about 80 miles north of me still have to deal with unprecedented devastation. The latest grim numbers just from the NorCal fire: 77 confirmed dead, nearly 1,000 unaccounted for and almost 13,000 structures destroyed as 150,000 acres burned.

What to do?

Can we somehow mitigate these wildfires, or are we doomed to endure them?

There is plenty of reason for pessimism, a bit for optimism and a lot more for hope because of the intelligence that can be provided by the disciplines of risk management and insurance.

The pessimism comes because there's no end in sight for climate change. California, and other states and countries, will continue to dry out, providing more and more tinder for massive fires. Changing weather patterns may also mean that, as in California this year, rain comes too late in the season to damp the danger of fires and that the winds that arrive with winter can fan the flames to fatal degrees.

The optimism starts because we're learning about what causes massive fires. We're no longer trying to so hard to stop all fires, understanding that limited, localized fires can prevent out-of-control fires later. This doesn't mean raking the floor of California's 30 million acres of forest, as our president oddly suggested, but forest management can be done better, and it seems that it will be. 

The optimism continues because of the role that risk management and insurance can play. The recent California fires didn't occur somewhere in the deep, dark forest. They started in areas where civilization and forest converge, where people have chosen to build despite the possibility of wildfires. Better identification and pricing of those fire risks, updated for our understanding of the growing effects of climate change, will help homeowners see a more accurate cost of risk reflected in their insurance premiums and incent them to take steps to minimize the hazard or choose to live elsewhere. Better risk analysis will also help governmental authorities see where they need to improve evacuation plans and perhaps take other actions that would mitigate catastrophic losses.

Better risk management and higher premiums isn't a panacea. I've been to Paradise, the town that was engulfed in the Camp Fire, and it was such a lovely little place set in hills in the forest that it never would have lent itself to a mass, efficient evacuation. But we can do an awful lot better if we send the right economic signals, and that's something that risk management and insurance professionals are exactly the right people to send.

Have a great Thanksgiving—and please keep those affected by the fires in your thoughts and prayers.

Paul Carroll
Editor-in-Chief 

When Chloe steps out the door of her apartment on her way to work in the morning, her vehicle automatically unlocks its doors while the navigation system maps out the best route based on the latest weather and traffic conditions. Simultaneously, her home’s thermostat resets, and her security system arms. During her commute, Chloe decides to stop at a name-brand franchise for a cup of coffee. In a moment of weakness, Chloe – a diabetic – elects to consume a fresh-baked pastry along with her java. Fortunately, Chloe’s smart glucose monitoring system sends her an alert quantifying the size of the impending spike, and she responds appropriately to avert any issues. At her destination, Chloe’s car locks and arms when she walks away from it. As she makes her way indoors, Chloe’s workspace is simultaneously adjusting to her established lighting, temperature and activity levels. During the morning hours, Chloe elects to override two of the standing periods she’s selected for her daily routine. In the afternoon, Chloe’s home heating system detects a part is on the verge of failure. It generates a signal that triggers an automated process and orders the needed part, contacts a service provider and schedules the repair. Moments later, Chloe receives a notification of the impending breakdown as well as the day and time of the repair appointment, which she quickly confirms – via an app on her phone – and, using the same app, books a florist visit during the repair time frame to get some expert advice on an issue with her house plants. In the evening, as she arrives home from work, Chloe’s proximity disarms the household alarm and adjusts HVAC accordingly. After a healthful meal and her nightly yoga routine, Chloe sits down to finish reviewing several mortgage offers for the home she’s buying. Working on the mortgage causes Chloe to think about other ways to protect her family, so she clicks on a banner ad for a customized life insurance product. After staying up beyond her usual time, Chloe retires for the night. The Insurance IoT Imperative Today, most of us are familiar with basic forms of the electronic connectedness known as the Internet of Things (IoT). We obtain driving directions from our smartphone assistant, order pizza via smart speakers and control smart home devices with an app. But Chloe’s game-changing level of automated, integrated and connected IoT will arrive sooner than many people realize. As numerous consulting firms have discussed, businesses are becoming interdependent within and across categories. This will dissolve traditional industry boundaries and replace them with a set of distinctive and massive ecosystems clustered around fundamental human and business needs. In this article, we’ll review the current state of the Insurance IoT, explore what’s needed for future success and provide an executive-level overview of the technology considerations required for gaining favorable outcomes in a connected world. At the Starting Line Although IoT is most common among insurtechs, industry-wide efforts to harness insurance IoT are in their infancy. Many insurers are still focused on modernizing their core systems. Most are still struggling with defining what it means to transform into a “digital insurer” to meet escalating user experience expectations. As the accompanying overview graphic “Market Maturity” suggests, the majority of early insurance IoT initiatives have concentrated on one type of IoT, telematics, in personal and commercial auto lines. In the U.S., adoption is still minimal, with many initiatives having yet to realize a positive ROI. However, insurers have clearly grasped the larger potential as the traction and evaluation of new entrants, like Root, have captured the market’s attention and raised the sense of urgency. We’ve also seen some property insurance IoT efforts around residential and commercial structures. There, the focus has been assessing the impacts of mitigating various risks. By and large, even the most advanced initiatives are in the piloting or developmental phases, as insurers conduct research on sensor types, analytics tools, management systems, human interaction layers and adoption barriers. Progress among health insurers is similar to property. Early efforts range from offering fitness trackers to arming chronic obstructive pulmonary disease (COPD) inhalers with sensors for automatic tracking of medication use. Again, initiatives are in early phases, with real-world outcomes and profitability impacts yet unknown. See also: Insurance and the Internet of Things   Understanding the Real Value Proposition Moving forward, there’s little doubt the insurance industry will accelerate its embrace of insurance IoT. The true winners will be those who understand the real value proposition of insurance IoT, which are the opportunities for value creation and sharing that ultimately boost an insurer’s bottom line. To visualize how insurance IoT improves bottom lines, compared with traditional approaches, see the graphic portraying the respected “Insurance IoT Value Creation Framework.” This waterfall framework was created by the IoT Insurance Observatory, a think tank representing over 50 North American and European enterprises, including ValueMomentum. The Observatory also includes six of the top U.S. P&C insurance groups and four of the top seven global reinsurers. Let’s review some examples drawn from Chloe’s life, which illustrate the framework’s building blocks and how insurers benefit. First, Chloe’s renter’s insurance is a smart policy, offering more than monetary reimbursement when something bad has happened. Her insurer sold her a safety and security service for a monthly fee. Moreover, the insurer connected its systems to her smart home infrastructure and even added some water leakage sensors that were not previously present. The insurer created and manages the automated process that gets triggered by the signal from the heating system, enabling the insurer to intervene. Further, Chloe’s insurer receives revenue from its preferred service providers, like the repair technician and the florist, who pay the insurer a fee for automatic access to fulfilling Chloe’s needs. Although the policy Chloe selected permits her health insurer to raise her deductible for chronically engaging in risk-elevation activities, such as the contra-indicated pastries, reduced standing periods and sleep deprivation, Chloe chose this product because her transgressions are infrequent. As for the health insurer, it gains a self-selected, lower-risk policyholder. Chloe’s health insurer is also involved in her hyper-connected day, providing the glucose monitoring system together with an app that supplies Chloe with 24/7 access to a network of nutritionists. Chloe also receives a preferred rate for the monitoring and coaching, which reduces the insurer’s claims costs. Some of Chloe’s other activities also reduce risks and create value. These include automatically securing her home against intrusion and keeping indoor spaces the proper temperature to avoid infrastructure incidents and damage from frozen pipes, not to mention wearing her glucose monitoring system. Chloe’s insurers benefit from the reduced probability of Chloe submitting a claim. As for Chloe’s morning stop, she obtained her coffee for free by redeeming a QR code from her auto insurer sent as a reward for driving a certain number of miles at low risk (no hard braking, speeding, phone distractions, etc.). Previously, Chloe’s auto insurer had negotiated a very favorable rate on the coffee because the chain would benefit from cross- and up-sells, like Chloe’s impulse purchase. Chloe’s insurer reduces the risks to its book of business with this inexpensive behavior-change mechanism. In the evening, when working on her mortgage prompted Chloe to shop for life insurance, she opted in to permit the life insurer to obtain her health records, wellness activities from her mobile phone and the current contents of her refrigerator. In real time, the insurer calculated Chloe’s life score and created an exceptionally accurate quotation. Next, the insurer presented Chloe with a competitive quote based on her age, lifestyle and health history. Due to all of the positives, Chloe now loves her insurers. However, before her life was hyper-connected, she felt insurance was more of a necessary expense than a beneficial experience. Not only was her risk exposure greater, but she never received any rewards from her insurers. What’s more, Chloe’s insurance premiums were over 20% higher. By leveraging IoT data, Chloe’s insurers have created bottom-line value, a portion of which they share with her via discounted prices and other incentives. This value creation/value sharing model embodies insurance IoT’s transformational potential. What’s Required to Get There Once you’ve fully appreciated the business value embedded in the dozens of IoT data points your policyholders create every minute of every day, you can begin to acquire the appropriate technology capabilities for gathering, analyzing and acting on the IoT data in real time. Although this journey will involve numerous steps, a good starting point is understanding the seven primary technology layers required for insurance IoT and the key considerations for assembling them into a complete solution. For a visualization of these layers, consider the graphic “Insurance IoT Architecture” framed by the IoT Insurance Observatory. Technology Layer 1 - Sensors Devices that collect IoT data can range from simple, purpose-built solutions, such as a water flow detector, to complex devices that incorporate multiple types of sensors, like a smartphone. Although there’s no single “correct” type of sensor to use for any given application, it’s vital to consider both what data a given sensor is, or is not, gathering and how the sensor is collecting the data as each significantly affects analytics abilities and outcomes. Technology Layer 2 - IoT Data Collection and Data Sources Management Upon collection, data must be transferred for storage to a location where it, and other collected information, can be properly processed, managed and accounted for. In the early days of telematics, industry-specific solutions handled this layer. Now, as insurance IoT scales up to require data gathering from millions of policyholders, who are each generating thousands of different types of data points every nanosecond, this layer is quickly moving to mega-vendor platforms, like Microsoft Azure. Such platforms are purpose-built for fast transfer and management of vast amounts of information, plus they provide other services like device management, data security, resiliency, load balancing and ease of integration with other systems. All of these capabilities are vital to real-time insurance IoT. Technology Layer 3 - Insurance-Specific Data Analysis and Preparation From this layer forward, success depends on partnering with experienced solution providers that demonstrate a granular understanding of insurance nuances, ranging from rating requirements to loss specifics. Whether you’re developing a proprietary technology layer or adopting a purpose-built solution, partnering with experienced consultants and integrators is the most effective means to achieve your goals. Within Layer 3, collected data from all real-time, non-real time, internal and external sources gets normalized, interpreted and prepared for insurance-related purposes. A simple homeowners’ example is a combination of real-time data from smart sensors, both real-time and historical climate data from external providers and policyholder data such as contact information and preferences. The most advanced solutions for this layer now included advance algorithms and machine learning capabilities, speeding the normalization, interpretation and preparation chores. See also: Global Trend Map No. 7: Internet of Things   Technology Layer 4 - Advanced Insurance Analytics In this off-line layer, advanced analytics are performed on the data from the Layer 3 to create proprietary algorithms and models that are applied in subsequent two layers. A workers’ comp example is the probability of injury based on historical claims data combined with various external data sources. Or, in an automotive scenario, risk indicators that would predict a loss cost for a particular type of accident based on a particular type of vehicle on a specific type of roadway under a specific type of climatic conditions. Technology Layer 5 - Smart Insurance Actions Arguably, it’s within Layer 5, and its close cousin Layer 6, where the real-time “magic” of insurance IoT occurs. In other words, these layers translate the data and information from the forgoing layers into activities insurers can use for differentiating themselves and taking advantage of new opportunities to stay competitive. The technologies in both Layer 5 and Layer 6 can be made up of internal systems, cloud-based solutions or a hybrid. Specifically, Layer 5 rapidly applies algorithms and data from the previous layers to result in smart actions related to traditional insurance activities such as underwriting decisions, pricing calculations, claims management and cross-selling. Technology Layer 6 - Connected Insurance Ecosystems This layer can be thought of as a neighbor to Layer 5, rather than a vertical step up. This layer contains the partnering services and all of the connections required for the use of those services, as illustrated by Chloe’s story. However, the possibilities go far beyond those we’ve presented, making innovative thinking key to competitive success. Technology Layer 7 – User Experience Naturally, any successful insurance IoT deployment will involve integrating all of the forgoing back-end processes and systems with the front-end experience presented to policyholders and prospects. Such experiences should be designed as a mixture of digital and physical interactions, as insurance IoT is characterized by combining automated processes, triggered by data, with human engagement. Note that positive user experiences depend not only on the appropriateness of each interaction but also on appropriate timing. This ensures policyholders and prospects receive what they need and when they need it, rather than alienating users with distracting interactions that cause confusion or create interference. *** Regardless of which of the scenarios we’ve presented apply to your business, or where on the connectivity spectrum your enterprise is today, it’s clear the opportunities inherent in the insurance IoT offer vast possibilities for improving your bottom line and becoming beloved by your policyholders. Given the rapid paradigm shifts already underway, the greatest risk to insurers is delay. In short, the time to start building and executing your insurance IoT strategy is now. This article was first published on Carrier Management.