Over the past two decades, enterprise risk management (ERM) has evolved from a novel concept to an accepted and mature business practice. As such, insurers have significantly improved their identification and mitigation of risks, especially in the areas of underwriting aggregation, capital inefficiencies, dominance of legacy systems and others. Certain emerging risk areas are definitely on insurers’ radar screens, such as: the Internet of Things (IOT), autonomous cars and climate change. Yet, there are other emerging risks that are not fully recognized or understood. These require a robust application of enterprise risk management techniques. Alternative Capital at the Primary Level So far, alternative capital providers, in the form of insurance-linked securities. collateralized reinsurance, etc., have made their impact felt among reinsurers. Primary insurers, of course, have used alternative capital in place of traditional reinsurance, usually CAT bonds. However, primary insurers have not felt the threat of being replaced by alternative capital. The risk is real that large books of low-volatility policies, which would normally be covered by primary insurers, could be packaged by banks, reinsurers or other parties into securitized risk pools. Such packages would be attractive to investors, who want to participate in a different tranche of risk than currently offered at reinsurance levels. Thus, primary insurers could be bypassed altogether, at least, in terms of bearing risk and being paid for risking their own capital for doing so. Primary insurers would likely be needed to supply some services, such as actuarial and claims, by the party packaging the pool. But insurers could be replaced over time by other entities, given advancements in automation, coupled with artificial intelligence. See also: Insurers Grappling With New Risks   Before a wholesale movement of business occurs, primary insurers themselves could package large books of their less volatile business and offer them as alternative capital investments. However, in doing that, they may hasten the scenario where other parties become the packagers, simply by virtue of providing the example. Market Fragmentation It is clear now that internet players, which are expert at digitization as well as a variety of other forms of innovation, will be insurers as well as distributors of insurance. What is less clear, but is nevertheless an emerging risk area, is how well they will perform at profitability and how much market share they will absorb. Despite the lack of clarity at this point, the risk boils down to increased fragmentation in the marketplace wherein large and small insurers, alike, will have to deal with more competition and a greater division of business among all players. It is not uncommon for personal insurance buyers to bundle their home, auto and either small business or life insurance with one or two carriers. But with more choices in an already crowded arena and heightened ease of doing business, it is easy to picture the same individual buying his or her 1) auto coverage from a per-mile internet provider because of best rates, 2) homeowners coverage from another internet provider because of its social responsibility stance, 3) small business coverage from a traditional insurer because of its customer service and 4) life insurance from yet another internet provider because it requires less information and hassle. It is also easy to see that more provider choices for customers will likely lead to less volume for any one insurer. Already there over 5,000 insurers domiciled in the U.S. Although the larger insurers control a disproportionate share, more active insurers may play havoc with that situation while knocking out some smaller insurers altogether. Bottom-line, fragmentation risk carries burdens for insurers in terms of: 1) how  to vary expense with volume, 2) how to keep their brand awareness and image vibrant and 3) how to encourage and manage continuous innovation. Cyber Aggregation Cyber has become a growing line of business among many, mainly larger insurers’ portfolios. When insurance pundits are questioned about where growth will come from, cyber is the answer cited most often, usually followed by privatized flood insurance. See also: How the Nature of Risk Is Changing   Although loss modeling has come a long way for natural catastrophe events, it is still in its infancy when it comes to cyber events. Thus, the progress that insurers have made in managing how much aggregate business they write subject to hurricane or earthquake prone losses is far superior to their ability to manage cyber aggregations. This risk area is incredibly significant because of factors that this author has written about previously. Cyber events can potentially be either or both simultaneous and ubiquitous, unlike natural catastrophes, which tend not to happen at the same time or simultaneously around the whole world. Consider the magnitude of the losses if the "Not Petya” cyberattack that happened to Merck were to have happened to the entire Fortune 500 or to half of the Fortune 1000 during the same week. The insured loss alone for the Merck attack was estimated by Verisk-PCS as $275 million. Alternatively, consider the losses if hackers were to strike the electric grid in five major cities at the same time. Insurers face the risk that they are assuming more risk than they realize or are capable of handling should a massive, coordinated attack occur. Until models are more perfect, insurers should proceed with an abundance of caution.

The National Flood Insurance Program (NFIP) needs to change. It was $30 billion in debt last year (though Congress forgave $16 billion of that), its flood maps are woefully outdated and its incentives are out of whack – while the riskiest homes it insures make up just 2% of premiums, they account for 25% of claims. In recent months, Congress has extended the program (and occasionally let it lapse) without making any meaningful reforms – a strategy that has proven woefully inadequate to the problems the NFIP faces. This month presents yet another deadline: Unless Congress renews the NFIP by tomorrow, it will lapse. This is a golden opportunity to modernize a program that is not adequate for the new realities of severe weather. We’ve faced this opportunity before, and various stakeholders have offered solutions. One common chorus is to encourage private insurers to get in the game to fix the NFIP. I’d like to modify that proposal slightly: Privatize flood insurance, and make everyone get it. If this sounds philosophically similar to what the Affordable Care Act tried to do for health insurance, that’s because it is. We all agree that health insurance premiums won’t come down if only sick people buy it. Encouraging everyone to buy health insurance makes sense because everyone – even the healthiest among us – faces risk. Anyone, after all, can get hit by a bus. Today, the same is true of flooding. After last year’s hurricane season, FEMA’s official position became “anywhere it can rain, it can flood.” In other words: All of us could benefit from flood insurance. See also: Emerging Market for Flood Insurance   Of course, there are several major differences between the health and flood insurance landscapes. First, while nutrition and medical research are improving our tools for staying healthy, our collective flood exposure is growing. There are three major culprits:

1. Human nature. We like living near water, which means living in high-risk areas. As long as people will buy or rent homes near the water, developers will build them.
2. The current regulatory environment provides incentives for development without providing incentives for management of flood risks – we saw the results of this all too clearly when Harvey hit Houston last year, and we saw it again this hurricane season with Florence and Michael.
3. Extreme weather is the new normal. Four of the five most damaging (and expensive) hurricanes of all time have happened since 2012. The most expensive was in 2005. This is not a fluke.

The second important difference between flood insurance and health insurance is that the American people are already paying for flood insurance. The NFIP is a taxpayer-subsidized program, but only taxpayers with an active policy enjoy protection in the event of a flood. Privatized universal coverage would not greatly affect the number of people currently paying for flood insurance, but it would significantly increase the number of people who enjoy the benefits of coverage because payments would be tied to actual policies. The third difference is that our current system for flood insurance encourages behavior by homeowners, developers and local leaders that works against everyone’s long-term interest. For example, the NFIP currently has updated flood maps for some communities that show an increased number of homes at risk for floods. But residents have, in some cases, successfully lobbied for delays in the effective date of those maps because, as soon as they become effective, home values will drop and residents will have to start buying flood insurance. In other words, skewed incentives are pushing people to act against their best financial interest and against the interests of other taxpayers. Privately run flood insurers would mean no reelection pressures to falsify flood maps (which local politicians currently face), and homeowners for whom flood insurance is mandatory would have no incentive to avoid it. See also: Future of Flood Insurance   Beyond all this, though, privatization makes sense for other reasons. Private insurers would find ways to provide incentives for relocation rather than rebuilding in areas that flood repeatedly. They would prioritize the data analysis necessary to make flood maps that are both accurate and predictive. And they would likely lend their lobbying weight to reforming development and environmental regulations that contribute to our growing flood exposure. This amounts to a significant change in how we think about flood insurance in the U.S., but our risk of flooding has changed significantly in recent years. Anything short of a drastic overhaul will mean the NFIP just ends up further underwater.

“Hi, Karlyn. It’s your sister. We’ve been evacuated. There’s a big fire up in Paradise that might head down our way. Just wanted to let you know we’re heading to our daughter’s house. We only had 15 minutes to grab stuff, but it probably is just a precautionary alarm. Call when you get a chance.” That was the voicemail I got Thursday afternoon after I had spent a day chatting with an insurer about customer experience and the claims process. The next voicemail said: “We’re on the road again. My daughter's place is now being evacuated. We’re going to mom’s.” And when I got off the plane, the last one said: “Mom’s evacuated now, too. We’re all coming to your house.” Sadly, she and her husband lost their home and business in the northern California wildfires. Fortunately, everyone is alive, I have enough room for everyone and I know a little bit about insurance. It turns out that being a bit bossy is also a great attribute when you’re helping someone in a disaster. Now, usually, I cover the claims process by looking at the technologies that insurers deploy when handling a claim. But all of a sudden, I now get to experience a totally different lens on the process. I helped my sister and her husband file their claim on the home and on the business. Both carriers are big name brand carriers that I know well. I know what systems they use, I know their strategy and their commitments to customer experience, and I know where their executives believe they are. But, so far, we’ve had mixed experiences. So I have some advice… The First Notice of Loss (FNOL)

• Both carriers had terrific after-hours intake staff. Although I know their claims admin solution and could visualize the fields on the screen as the carriers were gathering information, the intake process did not feel like they were just filling out a form. It truly felt like these people cared. They both spoke slowly. Which, it turns out is VERY important. They were patient, and they were very clear about the next steps. I asked my sister afterward how she felt, and she said “I feel safe. I think they’ll be here to help me.”

Advice to insurers:The FNOL process is not about how quickly you can get the information; it’s about how safe you can make the claimant feel. Yes, the technology is important, but this is not the place to put data entry staff. Five stars to both carriers! See also: Spreading Damage From Wildfires   Acknowledgment of Claim:

• Here’s where we first start to see some stubbed toes. Both companies sent an email after the FNOL. The commercial lines company came within hours and provided a contact name and phone number. Literally 40 minutes later, the claim was reassigned to a different adjuster. No other information was provided other than a name and phone number. There was no information about what was going to happen next or what to expect. The personal lines company's first email came one full day after the FNOL and said it was “reminding” us to view terms and conditions to receive claims documents. It required us to set up an account on the company's portal. This wasn’t really a reminder, as no one had mentioned a portal to us. The wording was such that we believed we had to set up the portal account before anything would happen on the claim – especially because, at that point, no adjuster had been assigned, and there had been no other contact by the insurer. And the process for creating an account was actually unclear even to me. It took me multiple attempts to just set up their account, and I’m not quite sure what we’ll do on that site once something happens. The setup certainly did not need to be done before contact with the adjuster.

Advice to insurers: Provide a more explanatory acknowledgment. Explain what will happen and when it will happen. Think about the sequence of the automated tasks and the order in which a claimant gets information. Don’t send out the online access instructions until after the adjuster has made contact and can explain the process. It’s too confusing when instructions just come randomly. Or provide a document that explains the process and where this step fits in the process. An acknowledgment of claim should include some level of information around what the process will be. By setting expectations early, you reduce the claimant's angst. Adjuster Assignment and First Contact

• The business insurance carrier reached out the next business day to provide basic information and to explain the next steps. My sister and her husband were told to put together an inventory and provide a monthly profit and loss statement going back two years. They were not given any information about what happens next in the process. We believe that nothing is happening until the inventory is complete and they find a way to recreate the P&L statements – both of which feel like pretty formidable tasks, especially for people who have just gone through such a harrowing experience. The personal insurance carrier did not even call. Not that day, or the next day or even the next day or the day after that. Meanwhile, friends who also lost their homes have had money deposited in their accounts and have people looking for long-term housing. My sister has nothing. Finally, five days after the FNOL, I called the personal lines insurer. The insurer claimed it had tried to call – but we show no record of any calls on my sister's phone  or her husband's – and there was also no email outreach from the adjuster (although the email on the terms and conditions did come through). Let me just say, I’m already pretty sure that I do not want this carrier as my insurer or as the insurer for my family and friends.

Advice to insurers: Keep reaching out until you talk to the claimants. Or email. Or text. Any contact at all is better than none. My sister feels abandoned. Immediate Support

• When we finally got hold of the personal lines company five days after the total loss of my sister's home and business, the company offered $500 of emergency funds. Let me just say – that’s kind of a pathetic amount of money given that my sister and her husband had to buy clothing, toiletries and other supplies immediately. With only 15 minutes to evacuate both a home and a business, you don’t take a lot with you. Fortunately, they didn’t have to rent a hotel, but they were already $2,200 into basic expenses. And the document that they received explaining the temporary living expenses – honestly, it feels like it assumes that we’re going to try to defraud the insurer. Sure, you may have fraudulent claims. But if you have a trusted, long-term customer who has never filed a claim, you may want to treat that customer differently. My sister said, after that call – “I think they’re going to scam me. I think they’re going to do everything possible to not pay me. Do you think we need an attorney?” Notice how quickly she went from, “I think they’ll be here to help me,” to, “Do I need an attorney?”

Advice to insurers: Be careful in how you word your explanations. Small nuances in language come across very differently to people who are traumatized and desperate for help. Use some kind of fraud analytics tool up front to determine how trusted your claimant is. Trusted claimants may be eligible to go down a different path. Explanation of Benefits

• I happen to know a little bit about insurance and so requested copies of the policies so I could understand all the coverages. The first response from both companies provided only the jacket. I had to make a second call to each insurer to get the underlying language, although I had asked for that in the initial call. And the commercial lines company sent me the wrong person’s policy. I got a copy of a policy for someone else’s completely unrelated business entity. As expected, each policy has a lot of little sub coverages – like debris removal or coverage for fine arts. But both companies only told us about the limits of insurance for the major coverages. They did not identify all the little sub coverages – and without an insurance expert reading the contract, my sister and her husband wouldn’t have known that there is coverage for their trees and shrubs, so wouldn’t have put them in the inventory. On the commercial policy, there’s a difference of almost $400,000 of additional coverage from those small sub coverages. Additionally, the insurer got the basic limits wrong, as there is a special endorsement that attaches to the policy that provides additional coverages and extends certain limits within the policy. If I hadn’t requested the policies, and didn’t know how to read and interpret them, there’s a lot of coverage that might have gone unclaimed.

Advice to Insurers: Let the claimant know all the different sources of coverage that may be available to them. Send a full copy of the policy with all the underlying policy language. What Comes Next

• Here’s where being bossy comes in handy. It turns out there are a LOT of things that have to be done when your home and business burn down. Things like rerouting landlines to a cell phone and setting up a P.O. Box to get the mail. Filing a FEMA claim and contacting the county to get your property taxes reduced. Figuring out how to get an inspector and how to find a contractor. Even just figuring out who to call to see if the road has opened and whether you can get access to your home to start some kind of salvage. I bet that insurers know all these different steps. But neither carrier provided us with a checklist of things to do or a checklist of what will happen next. Our instructions are: “Create an inventory and keep receipts.” My sister and her husband are sitting in limbo and want to move forward. But they don’t know what needs to be done.

Advice to insurers: You know what has to be done. Help your clients with a checklist both of insurance activities and of non-insurance activities. Give them a timeline of what to expect. Recovery is more than a check. And claimants generally have not had their home or business destroyed in the past. They don’t have basic information about what to do. Even as simple a checklist as "reroute your phone lines and get a P.O. Box" is good advice. See also: Increased Flood Exposure From Fires   Going through a major event like a firestorm is traumatic. Technology is a terrific tool that allows carriers to deliver a great customer experience. But there are aspects of the customer experience that, as of today, even these two big brand-name carriers don’t have right. Some of it can be automated, and some of it is about the human touch. As an insurance industry, we can do better. And we should.

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.