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Real Reason for the Protection Gap

Flood and earthquake insurance work well at the macro level, but try to buy a policy, and you see the problems quickly.

For several years, AIR has written about, presented about and created infographics around the problem of the “protection gap”—the difference between economic losses from extreme events and what is actually covered by insurance. For the most part, our discussions have focused on the macro-level issues of global (re)insurers and governments, catastrophe models and data. However, to learn more about the micro-level issues that may be contributing to the protection gap, I recently attempted to buy flood insurance on my townhouse condo in a suburb of Boston. As with any condo, there are two insurance policies at work here — a condo master policy and my condo HO-6 policy. In my case, there are two separate local insurance agencies. I called the agent on the master policy and asked whether I was covered for flood, knowing full well that I wasn’t. He correctly answered no, but quickly countered, are you in a flood zone? I responded no, and he appeared to be unsure as to why anyone would want flood coverage unless their bank required it for their mortgage. The same scenario played out with the insurance agent on my HO-6; she was confused about why anyone would want coverage that they wasn’t required by their mortgage lender. This time, I pushed a bit and explained that I had a friend who lived outside of a flood zone and had suffered a flood loss. That motivated her to initiate the process to sell me flood insurance. See also: The Myth of the Protection Gap   She emailed me a form that looked photocopied and asked me to fill it out, which I had to do by hand. Filling out forms by hand is one of the activities that I find most irritating in life, as my handwriting is absolutely illegible, even to me. Thankfully, the necessity of actually handwriting anything has declined dramatically in the past few years, but the technological changes that have made that possible have apparently not reached the independent insurance agency system in the U.S. But I had bigger problems than my handwriting. Many of the questions that were being asked on this form were ones I didn’t know the answer to, even after working at AIR for 10 years. The questions I easily knew the answers to were occupancy, year built, whether I had a basement and whether my house was elevated. Construction type was also an easy one for me, but I’m not sure that would always be the case for the typical customer. Here are some of the questions that I and the average consumer would find challenging:
  • Foundation: slab or pilings
  • Type of pilings: wood, concrete, driven or poured
  • Base flood elevation
  • Lowest floor elevation
  • Post-firm or pre-firm enclosure (luckily, I don’t have an enclosure)
At AIR, we’ve been talking about the protection gap and how to close it at a very macro level, but this exercise gave me a more practical feel for why the protection gap exists at all—including in developed countries. The ability to properly quantify flood risk does exist, from AIR and other modeling firms. And as we know all too well, there is currently enough capital to insure the risk. But those capabilities break down somewhere within the insurance value chain. As my own experience illustrates, there is a lack of willingness of the front-line insurance distribution system—in this case, insurance agents—to push the coverage. To the extent customers are aware of the risks and ask their agents to buy flood or earthquake coverage (a rare situation, to be sure), the process of getting this coverage is cumbersome and antiquated, to say the least. On this point, there are a slew of venture-backed startups dedicated to making the insurance purchase “mobile first,” but to date these startups appear to be more focused on auto, renters or lower-value contents coverage, and have not yet made inroads into streamlining the process of purchasing flood or earthquake coverage. See also: Future of Flood Insurance   Closing the protection gap will require a concerted effort on the part of every player in the insurance value chain—from agents, to carriers, to reinsurers and to those of us in the modeling industry. I also believe it will require technology that identifies those who need coverage and places that coverage in a seamless way, as the status quo doesn’t appear to be doing the job. Getting the entire insurance value chain on the same page to make the necessary investments to close the protection gap is easier said than done, of course, but that’s the real problem that needs to be solved if we are serious about closing it.

Vijay Padmanabhan

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Vijay Padmanabhan

Vijay Padmanabhan is vice president of marketing at AIR Worldwide, which provides catastrophe risk modeling solutions that make individuals, businesses and society more resilient.

Why WC Needs an Outcomes Strategy

States take different approaches to choosing workers' comp doctors, but ranking based on outcomes always delivers benefits.

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Throughout this series, I have stressed the importance of connecting workers’ comp patients with great doctors at their time of need and how this results in an average of a 10% reduction in claims costs. I’ve also talked about the role of PPOs and EPOs. Next up: outcomes strategies for each jurisdiction. Workers’ compensation is determined state-by-state, requiring any national workers’ comp company to adhere to variations in the laws. Some states provide excellent control over care, while others allow so much choice that it can seem like there is no strategic use for an outcomes-based network. States use three main categories of jurisdictional control: panel (employee has to select from your list of doctors), care direction (you tell the employee who to use) and employee choice (employees choose their doctors on their own). The graphic below provides a visual breakdown of each state’s model: Despite what you might think, outcomes can play a meaningful role in any of these jurisdictions. Let’s discuss each model in more detail. Panel States In a panel state, employees are required to choose their doctors from a list created by payers or employers. These can range from exclusive provider networks (EPOs) to simple panels. The employee could be mandated to use doctors on the list for the life of an injury (as in the California MPN), or the designated doctor could maintain control for at least a meaningful portion of the claim (e.g., Pennsylvania workplace panels). The important consideration is that the employee can typically select anyone on your list. There is no way to manage around average doctors in your network, so it is in your best interest not to file your entire PPO as your exclusive provider listing. If you do, your overall average outcomes drop to the average across all doctors included, and you will have little recourse if injured workers choose the worst doctors on your list. For this reason, it is critical to stay on top of who’s included. Remove poor performers to ensure that any provider on that list can be trusted at any time. See also: 2018 Workers’ Comp Issues to Watch   My best practice recommendation is to “right-size” your EPO by first predicting how many doctors are necessary in each coverage area (typically about a 15-mile radius). Once you know your needs for appropriate coverage, then pull only that number starting with the best and working down the ranking. The tighter you keep participation, the more impact you will see on claims outcomes. A well-constructed model can leverage provider outcome and drive overall claims costs down by 10% or more. The downside of this model is the level of effort required to maintain your list. You should keep inclusion/exclusion criteria documented up front, so you have a structured plan for whom to keep and whom to remove. You also need to check in at least quarterly to remove anyone whose performance has dropped or who has moved or closed his or her practice. Typically, you are handing over a list and letting the employee select a provider. If there is a problem (such as a provider closing the practice and not notifying you), you probably won’t realize you have an issue until you hear from the injured worker’s lawyer. Key strategic driver: Focus on the providers in your listing at all times and keep the list tight. Care Direction States In a care direction state, the insurer or payer maintains the exclusive right to tell the injured worker which doctor to use. The biggest difference over a panel model is that providers can be selected in real time. This makes maintenance a lot easier because you don’t need to “right-size” the network and anticipate needs. What you do need is an integrated view of your networks that includes your scores. In care direction states, it is critical that the search engine your team uses to direct care shows the scores of the doctors. Any time a patient needs a doctor or specialists, you want your team selecting the best available provider proximate to the injured worker — not just the closest one in network. When outcomes as a measure first matured to the point where it was widely adopted, most people focused on using outcomes to select their networks for panel states. However, the care direction model actually has a higher potential ROI because you are always selecting the best provider at the time of need. In a panel state model, when I hand over a list, the average quality of all the doctors on the list will drive the impact on your claims population. In care direction, I am always selecting the best, which drives impact to the quality of your best doctors. In addition, because the scoring updates in real time, you are always making your care decision on the latest information at the time of need, not on the information available when you built your list. Also, your best strategy is to not limit yourself to your existing network. If you are looking for a top neurosurgeon in a rural area, and there are not any good options in your PPO, you should look for a high-scoring doctor outside your network before you send the patient a longer distance to an average doctor in your PPO. As I explained earlier in the series, the outcomes savings will almost always be more than the PPO discount. Key strategic driver: Always go for the best doctors available, keeping your scores integrated with your list. Employee Choice States Many people falsely believe that outcomes-based control strategies cannot work in a state that allows the employee to select whomever they want. This is not true. Soft channeling is a strategy that involves making targeted recommendations throughout the cycle of the claim. For example, selection of the doctors that show up on the workplace poster should be based on the best doctors nearby — not just the closest. Using outcomes scores when creating workplace panels helps encourage good choices without stepping on the rights of the employee. Another strategy for the employee choice model is to integrate scores into your billing workflow. If you see an initial consult from a poor-performing ortho, you have about two weeks before your claimant goes under the knife. If you can operationalize this strategy, you have the opportunity to reach out to the injured worker with a crafted message such as: “We typically recommend a second opinion in cases like yours; there is a great specialist not far from you. Would you like me to set up an appointment?” See also: The State of Workers’ Compensation   The point is to not interfere with the injured worker’s choice while taking every opportunity to provide great options for the person to consider. If your scoring model is focused on quality-of-life outcomes such as less time away from work or lower disability rates at the end of care, you are providing a valuable service to that injured worker when you steer the person away from a doctor who has high infection rates and a high incidence of failed surgeries. Certainly, the potential ROI is not as significant as in other states, but you only need a small number of injured workers to choose a better doctor to recoup typical costs of implementing these strategies. Wrapping Up There are methods and strategies to leverage outcomes in all jurisdictions. Some jurisdictions are easier than others, and your ROI and level of effort will vary, but don’t lose sight of why this is important: Better care improves everyone’s outcomes. Better outcomes improve not only the bottom line but also the quality of life for people who get injured on the job. Better care results in happier and more productive employees, fewer costly complications, less legal friction and, ultimately, a better workers’ comp system. Throughout this series of articles, I’ve covered multiple aspects of outcomes-based networks, including important considerations and strategies. These are recommendations and best practices pulled from my experiences. You don’t have to hit a home run every time. If you simply get 5% to 10% of the claims away from bad doctors and into the care of great doctors, you will have significantly better results overall. Please reach out with questions and feel free to comment with ideas for additional articles on the future of workers’ comp. As first published in Claims Journal.

Greg Moore

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Greg Moore

Gregory Moore is the former chief commercial officer of CLARA Analytics, a division of LeanTaaS and a leading predictive analytics company for workers’ compensation.

Prior to joining CLARA Analytics, Moore founded Harbor Health Systems, which he led for 16 years.

How to Innovate With Microservices (Part 2)

Functional silos are optimized for operational efficiency, but, as customer journeys change, are degrading the customer experience.

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In Part 1 of this blog series, we shared how a microservices architecture can bring value to a constantly changing business environment. In this segment, we will share our views on the benefits of a microservices architecture for the insurance industry.The traditional insurance value chain and subsequently the customer experience over the last two-plus years has operated across a number of functional silos. Each of these silos has unique characteristics and is organized around its own KPIs. For example, underwriting/risk management is focused on risk assessment, underwriting quality and booking of premium. Claims is focused on claims management, fraud detection, leakage reduction and processing turnaround time. Typically, each of these functions operates with limited organizational integration. This organizational design is several decades old and inspired by Henry Ford's assembly line innovation that optimizes processing costs through specialization and automation. This design has served insurance well during the industrial and information ages, leading to specialized functional IT systems targeting the business needs of the silo functions from underwriting to policy management, billing, claims and more. The core system components are integrated as a suite. The components and suite serve well-defined functions that have had less dynamic integration needs. This organizational model and IT system landscape has been effective for decades. But as we enter the digital age, the painful and expensive business and IT modernization projects over the last decade, coupled with portals and complex integrations to these core systems to improve agent and customer experience, do not align with new market needs. Today’s insurance landscape demands agility to adapt with ease, innovation to reimagine the possibilities and speed to capture the opportunities. The digital age demands so much more to stay relevant and competitive. Customer Experience is the Differentiator Customer experience is front and center in differentiating insurers in the digital age. It is a key factor in driving higher customer acquisition and retention, which, in turn, drives growth. Customer experience is much more than offering a better user interface. It is about the customer journey that creates a unique, compelling and engaging experience that makes it “easy to do business” with insurers. Customer journeys must cut through functional silos, which are currently optimized for internal operational efficiency. These silos, however, as customer journeys are changing, are now contributing to the degradation of the customer experience. To design and refine customer journeys in today’s digital age, insurers will need to collect siloed capabilities into a new virtual capability designed to optimize the customer journey. This new virtual capability will require hyper-integration and micro-granularities of system capabilities to achieve the desired result. See also: Insurance Hasn’t Changed, but… (Part 5)   Insurance Value Chain Disrupted As we highlight in our Future Trends 2018: Catalyzing the Shift to Digital Insurance 2.0 report, the insurance value chain is rapidly shifting to adapt to new business models, innovative products, expanded distribution channels, new competition with entrants from outside the industry, elevated customer expectations and emerging technologies. Digital transformation is redefining the value chains and each component. New products such as on-demand products, connected products and micro-insurance are reshaping business assumptions and fundamentals. We are seeing innovative product design that uses new sources of data, new risk assumptions, micro-segmentation, expanded services, new customer engagement approaches and new channels to reach customers. These designs leverage new technologies such as artificial intelligence (AI), cognitive, analytics and microservices. The result is the disruption of the insurance value chain. With the value chain disrupted, the underlying systems must be disrupted, too. Rise of Ecosystems and the Platform Economy As we enter the digital age, the blurring of traditional industry boundaries is seeing the rise of ecosystems and the platform economy. Companies like Apple, Alibaba, Google, Amazon and Facebook are at the forefront of this shift. They are using an ecosystem with connected services from different parties to create a seamless customer experience. An ecosystem is the DNA of the platform economy, enabling a business model to exchange and share value among its partners and customers. To meaningfully participate in the platform economy, insurers must embrace ecosystems and be prepared to partner with competitors, other industries and innovative technology-based service providers. ZhongAn, an online Chinese insurer, generated 70% of its 2017 car insurance premium in one month (January 2018) by using AI and big data with the ecosystem, including carmakers, dealers, after-sales service providers and lenders that created market reach and a loyal customer base. The ecosystem approach eliminates traditional industry or organizational boundaries in designing products and creating a new customer journey. However, it necessitates the need for a flexible and granular system composed of different services running on different technology platforms that can easily integrate with any ecosystem. A New System Paradigm for the Digital Age A common theme is emerging that highlights the need for a new set of capabilities to support the paradigm shift. To succeed, let alone survive, insurers will need to respond to the value chain disruption, elevated customer expectations and the rise of the ecosystem and platform economy by using granular (single responsibility principle) API/microservices to build an on-demand business solution with loosely coupled microservices and find-n-bind capabilities that can leverage any ecosystem. A microservices architecture enables the building of new capabilities to meet these needs. The graphic below contrasts the anatomy of a traditional “pre-digital age” monolith insurance app and a “digital age” innovative microservices-based insured app. Today’s monolith insurance systems, although partially accessible through APIs, are built as a large deployable monolith unit. This architecture does not easily adapt to the rapid pace of change because the change is to a large-system single codebase and specific localized API. A separate API layer exposed over the single-monolith code base makes it difficult to integrate with ecosystem partners as well as making it extremely complex to orchestrate services across various systems or apps. In contrast, a microservices architecture decomposes a large unit into fine-grained single purpose, self-contained and independently deployable business services that enable the ability for rapid change and open the possibility of multiple change deployments daily instead of waiting for the periodic release cycle. Using microservices across various apps, insurers can orchestrate a composite user interface that is a tailor-made customer journey. It can be enhanced quickly based on customer feedback. The graphic below shows how a microservices architecture can assist in the design of a unique customer experience using a product offering and ecosystem.  Multiple customer journeys can be assembled by orchestrating functional microservices and ecosystem services available outside the insurer enterprise. The times are changing. And it is exciting! The ability to leverage powerful microservices architecture to build a new foundation for the digital age of insurance is game-changing. It will enable new business models, new products, refined customer experiences and timely responses to new business needs (in hours and days instead of months and years), and it will help insurers remain relevant and competitive. While microservices is exciting and will accelerate the industry’s ability to innovate, it is not the Holy Grail. The smaller, focused services have many advantages but also create complexity in the orchestration of those services. Employing best practices in designing microservices size and data model sizing is critical. Most importantly, determining the gradual transition to microservices rather than a big-bang approach will help insurers build a platform that can withstand the test of time and constant change to help insurers participate in the digital age and platform economy with agility, innovation and speed. See also: It’s Time to Accelerate Digital Change   In Part 3, we look forward to covering our views on best practices in introducing and scaling microservices within the world of the monolith IT system environment. We encourage you to read our thought leadership, Cloud Business Platform: The Path to Digital Insurance 2.0, to gain a deeper insight on these topics. Please share your views on this exciting topic in the comments section. We would enjoy hearing your perspective. This article was written by Manish Shah and Sachin Dhamane.

Denise Garth

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Denise Garth

Denise Garth is senior vice president, strategic marketing, responsible for leading marketing, industry relations and innovation in support of Majesco's client-centric strategy.

Global Trend Map No. 15: Products

It has become clear that product development can no longer occur in silos, with one function creating products for another function to sell.

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Following on from last week's post on Regulation, it is time for our final 'Key Theme', on Product Development, after which we move on to our Regional Profiles. Product development is the bread and butter of the insurance industry – the question is not whether to build products but rather which products will best serve the needs of today’s increasingly demanding insurance customers. What has become clear across this content series is that product development can no longer occur in silos, with one function creating products for another function to sell. Insurers are determined to make every moving part of their business serve the customer, and what this means in concrete terms is that every division of the business has a contribution to make toward the creation of customer-centric products. The line between product developers and product salespeople, as in so many industries, is therefore becoming blurry. In this sense, Product Development is the central node into which feed all our other 'Key Themes' (Analytics & AI, Digital Innovation, IoT, Marketing & Customer-Centricity, Distribution, Claims, Fraud, Cybersecurity, Investment Management and Regulation). And all the indicators suggest that insurers are only just beginning to tap the opportunities for technology-driven product creation.
"The biggest problem these days is, although everybody is talking about Digitisation and Disruption and are modernising their core systems with huge investments in order to support these new trends, the underlying products are not yet 'digital ready' – even new ones." — Oliver Lauer, former Head of Architecture / Head of IT Innovation at Zurich
In this installment, we start by looking at where innovation is occurring (by insurance line and insurance department) before considering some of the broad trends in product development – from bundling and upselling to diversification and Usage-Based Insurance (UBI). The following stats and perspectives are taken from our Global Trend Map; a full breakdown of our survey respondents, and details of our methodology, are included as part of the full report, which you can download for free at any time. So first up: which departments is product innovation currently coming from? ... The three highest-scoring departments were Underwriting (with 70% of respondents naming it), Pricing (55%) and Marketing (54%). Other areas that warrant mention were Actuarial (51%) and Distribution (36%). We noted in our earlier post on Marketing & Customer-Centricity that the roots of today’s consumer-led disruption are in the rise and ease-of-use of new distribution channels – so insurers that leave Distribution outside of their product discussions do so at their peril! See also: Next for Insurtech: Product Diversity   Which insurance lines are driving the greatest degree of product innovation? In addition to seeing product as department-driven, we also investigated the extent to which it is line-driven. The chart below shows Auto (voted by 56% of respondents), Home (45%) and Health (41%) to be the three lines experiencing the most product innovation (according to carriers taking our survey). This is corroborated anecdotally by the sheer number of in-market IoT products we see across these fields, from in-car telematics through to smart-home controllers and connected-health armbands. Life and Commercial are relative laggards in this regard, although we do believe there is ample opportunity in both these areas. This may follow the same pattern we identified with IoT (itself an abundant source of product innovation), where we saw platform implementation in Commercial currently trailing but quickly drawing level with other lines (see our earlier post on IoT). Regional trends for this question warrant some high-level comment: Health is a substantial driver of product development for carriers in Asia-Pacific and Europe. In North America, however, it appears relatively insignificant
  1. Life appears tagged to Health in terms of how it trends regionally and is consistently the least innovative of the lines#
  2. P&C/General, Commercial and Home insurance are relatively consistent across our different geographies
  3. Auto is ahead among carriers in Europe and Asia-Pacific compared to North America
The relative prominence of the different lines, as well as the broad regional tendencies outlined above, remain the same when we widen our scope beyond carriers to consider the industry as a whole.
"The biggest risk the insurance industry faces when it comes to innovation is not taking enough risk. True innovation requires experimentation, which most of the time results in failure. Insurance organisations are built to eliminate failure from their culture. Without failure, you can have no innovation. CEOs demand a positive Return on Investment (ROI), they now need to seek out and understand what it means to have a positive Return on Risk (ROR)." — Steve Anderson, President at The Anderson Network
[caption id="attachment_30597" align="alignnone" width="570"] Human hand pointing at touchscreen in working environment at meeting[/caption] Key trends in the development of products It’s clear from this section so far that product development is a strategic priority for a diverse spread of departments and lines. But how are insurers actually going about product development on the ground? Let us now present our trends on a number of product approaches that we identified among our carrier respondents: product diversification, Usage-Based Insurance (UBI) and product bundling/upselling.
"You don’t really have to invent new products in my eyes, you just have to make the existing ones easier and more 'digital native'. Today’s products have been and are still created for non-digitals. And this situation not only makes new customer-facing digital processes complicated, it also makes core replacements and automation more complicated and expensive than necessary." — Oliver Lauer, former Head of Architecture / Head of IT Innovation at Zurich
i) Product Diversification The pace of change in the insurance sector is picking up, and many ecosystem players are quickening their iterations both on new and existing products in a bid to stay relevant. 76% of (re)insurers are pursuing product diversification as part of their organisations’ growth strategies… This move towards diversification is not limited to any one kind of insurance market but is driving insurance growth all around the world. It is naturally very important for insurers looking to break into totally new markets, as is the case in many developing economies, where traditional insurance products may be inappropriate for lower-income demographics (microinsurance being a case in point). In mature markets, growth will come primarily from addressing existing demographics with more tailored products to fill in under-penetrated lines and segments; there is also the perennial threat that existing customers, tired of products that are suboptimal, will churn to competitors and new entrants who can offer better-suited ones. Whatever the market conditions, by trialling multiple products, insurers can both broaden their appeal and arrive at optimal products more quickly. ii) Usage-Based Insurance (UBI) The emerging generation of insurance products differ from those that have gone before in several key ways. One is the on-demand or usage-based component of new products – so that, rather than having idle and inflexible policies that subject the policyholder to the Tyranny of Averages, consumers can enjoy insurance-as-a-service. 32% of insurer respondents have a Usage-Based Insurance (UBI) strategy… This trend towards Usage-Based Insurance (UBI) is a global one, and there was no significant regional variation across our three key regions. More information about UBI models can be found in our earlier Internet of Things section and in our section on Europe in the upcoming Regional Profiles. "Most of the innovation in product development will happen where smart connected devices drive new business models based on behavioural data. I particularly expect improvements in pricing. UBI is a bigger game changer than covering events that are not insured today. In any case, there will be a huge need to understand, measure and manage rational and irrational behaviour." — Andreas Staub, Managing Partner at FehrAdvice iii) Product Bundling and Upselling A key trend we have witnessed in other B2C industries, like Amazon and Netflix, is the rise of the recommendation engine. This is not just a core component of the customer experience but also an important enabler of new business, insofar as it lets companies push new products to customers that they are actually likely to want and to find useful. We also see this in insurance, in the form of data-driven product bundling and upselling. 47% of insurers have a strategy to bundle and upsell products based on customer lifestyle analytics… Insurance has always had relatively few customer touchpoints, and even though insurers are now seeking to increase that number, insurance remains a product that is sold rather than bought. Taking full advantage of every selling interaction they have is therefore the surest way for insurers to increase their customers’ lifetime value. Bundling and upselling products is – like diversification – a strategy with strong applications regardless of what sort of insurance market you are operating in. Whether your focus is to chase new customers or to retain existing business, it is better to reap maximum reward on each customer from the outset than to re-engage them (perhaps unsuccessfully) later on. "The cost of customer acquisition is a critical metric for marketing efforts. Lifetime customer value also helps us know how much we should be spending to acquire as well as how we should expand our share of wallet within the products we offer." — Michael Shostak, SVP and Chief Marketing Officer at Economical Insurance See also: Insurance Product Development (Excerpt, Part 3)   There are obviously many aspects of product development beyond diversification, UBI and bundling/upselling which we were not able to investigate directly. For this reason, we asked our carrier respondents to indicate additional product-development talking points in open text. Two key points that emerged across their comments were:
  1. The need to increase the service element of products, to keep up with evolving consumer needs and to drive customer retention
  2. The problem of constrained development resources, especially in expert personnel and IT
Now that we have worked our way through all our Key Themes, it's time to move on to our Seven Regional Profiles, exploring on a geographical basis the stats and perspectives presented in the series so far. If you'd like to access all our Regional Profiles straightaway, then please feel free to skip ahead and download the full Trend Map here (it's free!).

Alexander Cherry

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Alexander Cherry

Alexander Cherry leads the research behind Insurance Nexus’ new business ventures, encompassing summits, surveys and industry reports. He is particularly focused on new markets and topics and strives to render market information into a digestible format that bridges the gap between quantitative and qualitative.Alexander Cherry is Head of Content at Buzzmove, a UK-based Insurtech on a mission to take the hassle and inconvenience out of moving home and contents insurance. Before entering the Insurtech sector, Cherry was head of research at Insurance Nexus, supporting a portfolio of insurance events in Europe, North America and East Asia through in-depth industry analysis, trend reports and podcasts.

Driverless Cars and the '90-90 Rule'

A programming aphorism says the first 90% of code takes the first 90% of development time—and the remaining 10% of code takes another 90%.

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In programming circles, there is an aphorism known as the “90-90 rule.” It states that the first 90% of code accounts for the first 90% of the expected development time—and the remaining 10% of code takes another 90% of time. The rule is a tongue-in-cheek acknowledgement that technology projects always take longer than you expect, even when you know that they are going to take longer than you expect. Sacha Arnoud, director of engineering at Waymo, recently used a variant of the 90-90 rule to characterize Waymo’s self-driving car program. Waymo’s experience, he said, was that the first 90% of the technology took only 10% of the time. To finish the last 10%, however, is requiring 10x the initial effort. Arnoud’s remarks were given at a guest lecture at Lex Fridman's MIT class on “Deep Learning for Self-Driving Cars.” He offered technical insights on the history of the Waymo program, how it is applying artificial intelligence and deep learning and how it is moving from demo to industrial-strength product. The Waymo engineer’s lecture goes beyond most Waymo management presentations and press events. He provides vivid details on the complexity of the effort to date and insight on challenges to come—both for Waymo and for those trying to catch up to its pioneering efforts. Here are 5 takeaways, though I recommend watching the entire presentation. 1. Industrialization requires 10x the effort. Arnoud emphasized the large amount of work needed to go from a demo that works in a lab to an industrialized product that is safe to put on the road: “You need to 10x the capabilities of your technology. You need to 10x your team size, including finding effective ways for more engineers and more researchers to collaborate. You need to 10x the capabilities of your sensors. You need to 10x the overall quality of the system, including your testing practices.” 2. Deep learning enabled algorithmic breakthroughs. Arnoud noted that deep learning techniques were much less advanced in 2010 when Google started its work on self-driving cars. But, in the years since, deep learning has advanced to enable algorithmic breakthroughs in several critical areas for autonomous driving, including mapping, perception and scene understanding. Arnoud gave numerous examples, such as using deep learning to analyze street imagery to extract street names, house numbers, traffic lights and traffic signs. The ability to precompute such data and store them as maps in the car saves precious onboard computing power for real time tasks. See also: When Will the Driverless Car Arrive?   Deep learning is driving breakthroughs in real-time tasks as well, such as analyzing sensor data to identify traffic signals, other vehicles, obstacles, pedestrians, and so on. Deep learning capabilities also help in anticipating possible behavior of other drivers, cyclists and pedestrians, and driving accordingly. 3. Synergy with other Google units is key to Waymo’s progress. Arnoud acknowledged the importance of Google’s “whole machine learning ecosystem” to Waymo’s progress. This includes the seminal software advances by the Google Brain team and on-going collaboration with other Google teams working on deep learning at scale, such as in vision, speech, natural language processing and maps. The Google ecosystem also provides specialized infrastructure and tools for machine learning. This includes accelerators, data centers, labelled datasets and research that support Google’s TensorFlow programming paradigm. 4. Waymo’s testing program might be its secret sauce. Arnoud emphasized that however great Waymo’s algorithms, sensors and overall package might be, driverless cars are still complex, embedded, real-time robotic systems that must work safely with imperfect data in an unpredictable world. He highlighted Waymo’s three-prong testing program of real-world driving, simulation and structured testing as key to iterating on and productizing the technology. Much is made of the millions public-road miles that Waymo’s cars have driven autonomously. Arnoud described this as the equivalent of about 300 years of human driving experience and 160 times around the globe. Real world driving is critical, he said, but what is more important is the ability to simulate. Simulation is critical because it allows for Waymo to test each new iteration of software against all previously-driven miles. Even more important is the ability to test against “fuzzed” versions of those millions of miles, such as seeing how the software would handle cars going at slightly different speeds, an extra car, pedestrians crossing in front of the car and so on. Arnoud described Waymo’s simulation-based testing capability as the equivalent of 25,000 virtual cars driving 2.5 billion real and modified miles in 2017. The third component of Waymo’s testing program is its structured testing program. Arnoud said that there is a “long tail” of driving situations that happen very rarely. Rather than trying to encounter every possibility in real-world driving, Waymo set up a 90-acre mock city at the decommissioned Castle Air Force base where it can test its cars against such edge cases. These tests are then fed into the simulation engine and fuzzed to create variations for more testing. 5. Waymo’s next steps are big (and hard) ones. Arnoud closed with a discussion of the engineering challenges in front of Waymo. He described two big next steps. One next step is expanding the “operational design domains” (ODD) of the cars. This includes expanding into “dense urban cores,” such as San Francisco (in which Waymo recently announced it is expanding its testing program). The other ODD was additional weather conditions, such as hard rain, snow and fog. (Waymo CEO John Krafcik recently told an audience that he was “jumping up and down” recently when it snowed 12 inches near Detroit, because it would enable Waymo’s testing in snow.) See also: 7 Steps for Inventing the Future The other area of focus was what Arnoud called “semantic understanding.” As an example, he pointed to the chaotic Place de l'Étoile traffic circle around the Arc de Triomphe in Paris. The circle is a meeting point of 12 roads and notoriously difficult to navigate. Arnoud says he has driven it many times without incident, however, and that such situations require a lot more than perception and vehicle operating skills. They require deep understanding of local rules and expectations. They also require constant communication and coordination with other drivers, including signals, gestures and so on. This kind of deep reasoning is key to numerous edge cases and improving the general abilities of driverless cars. * * * While Waymo has clearly made tremendous progress towards the driverless future, Arnoud closed his presentation by emphasizing the engineering infrastructure and the complexities of scaling that have to be addressed in order to turn driverless cars into safe production systems. How far along is Waymo in the last 90% of that industrialization process? Arnoud never said. But, to put a point on the complexities, he showed a closing video of a Waymo car stopped at an intersection as a gaggle of kids bounced on frogger sticks across the street on all sides of the car. Some things are waiting for, he seemed to imply.

Work Comp: Mediation or an 'Informal'?

Negotiating a workers' comp settlement at a mediation is often better than at the board, but how does that compare with an informal? 

There are a lot of reasons why negotiating a workers' comp settlement at a mediation is better than at the board, such as control over scheduling and lack of time constraints. But how does that compare with an informal? The presence of the mediator makes all the difference. Here are three examples: Stop the Posturing When opposing counsel sit together they keep their cards close to the vest. They magnify the strengths of their own case while denigrating the opposing viewpoint. Once I separate the parties into separate rooms (caucuses), the motivation to aggrandize diminishes. Attorneys and their clients can reasonably discuss the good and bad sides of the issues with the mediator without giving up their negotiation position. Then it’s my job to convey that position so that another reasoned discussion happens in the other room. See also: Work Comp Mediation in a #MeToo World   The Neutral Sounding Board As a professional neutral, I do not have a stake in the outcome. I want to help the parties reach a settlement, which is the optimal result for all. I can provide untainted feedback and sometimes point out overlooked data. Some clients refuse to listen to their lawyer’s case assessment, and some lawyers have learned that their continued employment mitigates against contradicting their client’s overconfidence. As mediator, I can deliver an unwelcome message about the prospect of success, opening the door to a more frank discussion between attorney and client. Stakeholders Have Active Roles Unlike at the WCAB or an informal, the stakeholders are encouraged to take an active part in mediation. In caucus, clients and their attorneys can have frank discussions with the mediator—and each other. When claims adjusters and risk managers attend mediation, they maximize their understanding of the dynamics of the negotiation. Injured workers can receive settlement offers in real time. Some applicant attorneys keep their clients away from the negotiation in an informal meeting. The injured worker may be hidden in a back office or on telephone stand-by. There may be important reasons to prevent interaction between the defense attorney and the injured worker, but this approach prevents the injured worker from buying in to the negotiation. Sometimes, the result can be disastrous when the injured worker later repudiates that carefully crafted compromise and release. <See also: 25 Axioms Of Medical Care In The Workers Compensation System   In contrast, once the parties are separated into their caucus rooms, the stakeholders, their attorney and the mediator can have a confidential, free-flowing discussion without the presence of opposing counsel. It may be the only time the injured worker gets to tell the story to a neutral. The neutral intermediary is missing in an informal. My job is to steer the proceedings, frame communications to facilitate the negotiation and help parties decide their course.

Teddy Snyder

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Teddy Snyder

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

How to Get Insurance Viewed as Profession

Do consumers view insurance agents as they do doctors, attorneys, accountants or perhaps clergy members? Almost certainly not.

As it is every year, March is Ethics Awareness Month for the insurance industry. Click here for my March 2017 article on this, though the poll I cite does not appear to have been updated for recent public opinion about the insurance industry. The CPCU Society usually leads the way on this, and you can get more information here. I wrote about the CPCU code of ethics in an article I called “The 7 Habits of Insurance Professionals.”

Those who view insurance as a career rather than a job probably think of themselves as professionals. As to what specifically constitutes a “professional,” here are some criteria from Ron Horn in an old CPCU text: 7 Characteristics of a Profession

  1. Commitment to high ethical standards
  2. Prevailing attitude of altruism
  3. Mandatory educational preparation
  4. Mandatory continuing education
  5. Formal association or society available
  6. Independence to make decisions
  7. Public recognition as a profession

Source: “On Professions, Professionals, and Professional Ethics” by Ronald C. Horn 

Based on these criteria, someone CAN be a “professional” in the insurance industry. The biggest stumbling block might be #7 above. Does the typical consumer view, for example, the typical insurance agent as a “professional” akin to their perception of a doctor, attorney, accountant or perhaps clergy member? 

The answer is almost certainly a resounding “No”… until their insurance claim is denied. At that time, the plaintiff will almost assuredly try to convince a judge or jury that the agent owed a higher standard of care as a professional in his or her field. 

See also: Will Insurance Ever See a ‘Killer App’?   

So, how do we begin the process of changing this unprofessional view of our industry, aside from voicing our displeasure with the incessant price-focused shilling that passes for advertising that dominates the media? 

The above was largely excerpted from my coming book “When Words Collide: Resolving Insurance Coverage and Claims Disputes.”

Bill Wilson

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Bill Wilson

William C. Wilson, Jr., CPCU, ARM, AIM, AAM is the founder of Insurance Commentary.com. He retired in December 2016 from the Independent Insurance Agents & Brokers of America, where he served as associate vice president of education and research.

How GDPR Will Affect Insurance

Being unprepared for GDPR come May will lead to a number of issues for insurers, especially the bigger they are and the more data they deal with.

From May 2018, new data protection laws will be implemented by the EU to help protect citizens' data. This looming deadline has made this a particularly hotly debated topic, in all sectors, not simply insurance. However, the question of how this new legislation will affect the insurance sector and future policies have been a contentious issue. Being caught unprepared by GDPR come May will lead to a number of issues for business, especially the bigger they are and the more data they deal with. As the insurance sector deals with intimate details of people’s lives and financials, it is vital that the implications of GDPR are considered and the necessary steps are taken to prepare the industry in time. An Overview of GDPR At the face of it, GDPR (General Data Protection Regulation) is designed to strengthen and unite data protection for all individuals with European Union citizenship. This includes the export of personal information outside of the EU, also. Meaning that this is a change which the whole world is watching with bated breath. This officially comes into effect from May 25th, 2018. The data specifically covered by GDPR includes name, date of birth, physical address, online IP address and other attributes that contribute to a person’s online presence. Non-compliance to protect this data comes with hefty fines. These can be either up to €20 million or 4% of a company’s annual turnover (whichever is the highest sum). See also: How to Avoid Being Bit by GDPR (Part 1)   The legislation specifically states that GDPR will have a greater impact on businesses with 250 or more employees, however, that does not mean that small business or even sole traders are exempt. Does Insurance Cover GDPR? Well, yes and no. It’s becoming a little bit of a grey area in the lead up to GDPR. Many companies are relying on their Cyber insurance policies to cover any fines they may garner as a result of GDPR, however, many professionals are stating that this will be unlikely to happen. Although many companies are trying to adapt their cyber insurance to cover GDPR, many are saying this is unrealistic. For most insurers, cyber insurance has a maximum cut off point of around £400 million, typically. GDPR has the ability to demand 4% of global turnover for larger companies - which can quickly outvalue this. How can insurance policies cope with this? This also begs another question: where does this leave freelancers and other smaller business, who perhaps can’t afford multiple types of insurance policies, or at least not one that can cover the eye-watering €20 million that GDPR calls for? Of course, there is a lesser tier of fines (2% of revenue or €10 million), but this is for lesser offences and not levelled for the turnover or size of a business. In fact, privately some insurance companies are considering that - realistically - GDPR may be wholly uninsurable in the long term. However, many are waiting for a test case in order to see whether this is the case or not. New Wave of Insurance So, the big question: will GDPR cause a new wave of insurance to be created? At the moment, it certainly seems that current insurance policies will have to be adapted in order to try and cover GDPR. There has been a surge in people taking out cyber insurance in the hope that it will cover them in the case of a GDPR infraction. And if this adaption fails, perhaps in the case of cybersecurity, the insurance industry must look to move forward with a wholly new type of insurance. Perhaps this is a specific policy which covers the fine up to a certain point, leaving it up to the business to cover the rest of the cost themselves. The ability to accurately measure risk is at the heart of the insurance sector. Which means that, as far as GDPR is concerned, the sector could be a leading force in setting the standard against this new legislation. Effect on the Insurance Sector According to Mark Williamson of Clyde & Co, many companies in the insurance sector itself will not be GDPR compliant by May. But, what does this really mean? Confusion surrounding GDPR and how to deal with it, industry-wide, has meant that many companies have been slow to take any action at all. Insurance companies both control and process data, two key factors being considered by GDPR, the need to adapt is vital. This includes insurance that is handled outside of the EU, so it isn’t an issue that will be resolved overnight. Policyholders are often switching insurance providers for better deals and rates. Moving forward, these changes may also be an incentive for people to choose an insurance provider, as proving able to handle GDPR will be a huge incentive for potential customers. In turn, it may also make insurers more wary of new customers. As data processors who are not compliant will be much more open to being fined and having to claim on their insurance policy. GDPR and Brexit The question of whether or not Brexit will also have an effect for British insurers has been raised. As the scission between Britain and the EU looms ever closer, the true impact of the move looms as a large question mark for many industries. See also: How to Earn Consumers’ Trust   But, as GDPR will be enforced both in and outside of the EU, this is one issue that Brexit will seemingly have no impact. Meaning at least one straightforward answer when it comes to GDPR for the insurance sector. A Need for Change If one thing is clear as we move closer and closer to the May 28th deadline, it is the fact that change needs to happen in the industry sector. The insurance sector needs to become fully compliant in the run-up to this deadline, while also auditing itself more carefully and even appointing a Data Protection Officer if necessary. Perhaps, the future solution will be a new type of policy. Currently, however, that seems to be a long-off thought for many insurance brokers. The immediate necessity is compliance, post-May we may see a move for a more concrete policy change. It is something to be watched carefully, especially in the first instance. As the first few cases, whether large or small, will help to set the precedent moving forward.

Zack Halliwell

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Zack Halliwell

Zack Halliwell is a freelance writer in the business and marketing niche, using various sources, including Caunce O'Hara, to ensure his writing is as fact-filled and accurate as possible. When not writing he can be found on long mountain walks with his dog, Batman.

3 C's for Commercial Brokers in 2018

Macroeconomic forces have been fueling a contentious debate between brokers and underwriters on compensation, leading to a war of words.

As we first noted in our 2014 publication, Broking 2020: Leading from the front in a new era of risk, trends reflecting larger macroeconomic forces have been fueling a contentious debate between brokers and underwriters on compensation, leading to a war of words in 2017 that saw leading players on both sides invest to reinforce their market positions. The same trends are also driving increased customization of products, increasing reliance on direct-to-consumer models and greater economies of scale for an increasingly large number of market participants. Collectively, we categorize these trends into the “three Cs” of consolidation, customization and collaboration. Consolidation: We continue to see overall consolidation of the brokerage market; Conning tracked more than 450 transactions through October 2017. This activity compares favorably with 537 transactions in 2016 and an annual average of 414 transactions from 2011 to 2015. Looking forward, the factors that are driving consolidation and greater levels of operational efficiency include a low-interest-rate environment, the presence of alternative capital providers and continuing demand for expanded broker capabilities. Customization: Over all, the desire for more localized market knowledge and custom products is a strong and recurring trend, with historically strong insurance hubs such as Lloyd’s recognizing the increasing need to meet local demands. For brokers, the need is clear: provide local knowledge coupled with global scale to rapidly place risks across geographies. Collaboration: Technologies such as blockchain have the potential to transform insurance processes, providing efficiency savings and greater levels of information to both brokers and their customers. Depending on blockchain's ultimate implementation, it is possible that brokers could operate within a fully electronic process or be innovated out of it (i.e., be replaced by electronic platforms and algorithms for many categories of risks). Ultimately, the broker’s place in the insurance lifecycle likely will remain despite increasing automation, but for those risks from which an intermediary can be removed, disintermediation will occur. For example, we have seen innovative carriers such as Hiscox offer a direct-to-consumer model for small commercial risks. Trends that had an impact on the personal lines market in prior years are beginning to affect commercial lines, with risk managers looking for more customized products and technology-driven innovations for even the most specific product classes. Consolidation: The commercial brokerage market has experienced continued consolidation, with the top 10 brokers generating 2.5 times more revenue than the next 90 brokers in the market (Conning Insurance Segment Report: Property – Casualty Distribution, p. 2). We believe that three trends are driving this M&A wave: 1. Alternative capital – Alternative capital providers (e.g., hedge funds, private equity) have continued to play a role in accelerating consolidation, lured by consistent revenue streams (many brokers have renewal rates in the 80% to 90% range), as well as systemic diversification outside of the debt and equity markets. With continuing low investment yields, the presence of alternative capital is expected to keep influencing the market. The “hunt for yield” has raised broker multiples and created a feedback loop of higher valuations and deal volumes. 2. Stagnant revenue – Despite some short-term hardening as a response to catastrophic events in the second half of 2017, we believe generally favorable loss experience and historically high policyholder surplus will continue to pressure pricing for the foreseeable future. As a result, premium pricing could remain soft across most commercial classes, thereby restricting both premium and commission growth. This ceiling on commission growth will challenge brokers of all sizes to improve their internal cost structures, particularly for back-office processing, which can represent well over half of their operating costs. They are increasingly able to cut costs through technology initiatives that automate standard or low-value processes, as well as introducing better analytics and sales tools to increase conversion and retention ratios. 3. Demand for local market presence – As risk managers struggle with increasingly complex risk exposures, they are looking for brokers to provide enhanced services across their enterprises. While this would seem to benefit the largest brokers, we believe there is a growing appetite for a seemingly contradictory skill set: a global footprint with enhanced local knowledge – which puts pressure on brokers to expand their footprint in new or existing locations. See also: Why Commercial Insurers Can Rock   For brokers whose operating model is “hub and spoke” with branch offices remitting central placement to a global office, we believe smaller specialist firms that can provide immediate service on the spot will continue to compete strongly against brokers that are unable to provide comparable, enhanced local support. In fact, this expectation goes beyond the brokerage side of the value chain to insurers and even placement markets such as Lloyd’s, which are increasingly challenged to provide more efficient and localized service. PwC’s 2014 “Risk Buyer Survey” noted that risk managers ranked price-driven change as the third most likely reason to switch brokerages, below service capabilities and geographic reach. This strongly implies that brokers must continue to expand their service offerings while simultaneously offering local market knowledge and global scale. Three trends will continue to fuel the broker consolidation wave: alternative investors bringing new capital to the market, stagnating broker revenue driving efficiencies of scale and demand for greater local market presence. Customization: Current operating models need reassessment as the insurance buyer demands change. Beyond price, buyers are looking for a variety of choices and flexibility when working with their insurance brokers. The demand for choice has begun to split the commercial market, with buyers falling into two behavioral groups:
  • Insurance as a service: These buyers look for comprehensive risk management solutions and view insurance as a set of services (risk transfer, risk management and risk mitigation) that can lower their overall exposures to loss.
  • Insurance as a product: These buyers view insurance as a product and transaction and therefore look for the best combination of price and ease of doing business.
“Insurance as a service” buyers look for bespoke risk management services beyond placement. Their carriers need to provide risk advisory, value-added services such as site audits and close interaction with the company’s internal finance and accounting departments to align their insurance portfolios to their risk exposure. A relevant example is Hartford Steam Boiler providing site inspection and engineering consulting as a complementary service that moves beyond risk transfer into a recurring advisory role. On the opposite end of the spectrum, “insurance as a product” buyers look for a variety of insurance choices and the ability to compare and build more modular insurance products as needed. These buyers look to on-line solutions for their purchases and want to easily understand products for which robo-advisers and comparison sites are becoming competitors to traditional brokerages. We believe there are a number of new market entrants that can challenge incumbents in the “insurance as a product” space:
  • Direct-to-consumer carrier: Insurers such as Hiscox offer a consumer-facing website that allows SME markets to quote select liability exposures directly.
  • E-brokerage: Internet brokers such as Coverhound allow purchasers to submit quote information on-line.
  • Peer to peer: Startups like Lemonade and Bought by Many may displace the entire insurance model with peer-to-peer risk pooling.
Consumers are increasingly looking for more customized buying experiences and products from all industries. Commercial risk buyers are no different, and, as buyer expectations change, brokers will need to align their business models to their targeted buyer profiles. Collaboration — In the U.S. alone, Conning has estimated that 3,000 insurance companies and more than 30,000 agents and brokers serve the insurance market. Looking forward, blockchain could enable common data sharing across this fragmented market. Two possible scenarios could play out, broker-centric v. direct-to-consumer. In either model, blockchain has the potential to transform the (re)insurance value chain, including:
  • Risk Management – Blockchain could be combined with other Internet of Things products (such as RIFD) to track the transport of high-value goods.
  • Policy Validation – Blockchain implementation could support policy validation in real time, minimizing coverage validation and improving subrogation/recovery capabilities. Steps to create insurer-to-insurer (I2I) communications have already begun, with the carrier-led “B3i” initiative between Aegon, Munich Re, Zurich, SwissRe and Allianz to link the numerous insurer-specific use cases for blockchain.
  • Reinsurance – Complex, multi-layer reinsurance contracts could be managed on a common blockchain, allowing participants to automatically track and manage ceded/assumed premiums and losses.
In addition, as we noted in Broking 2020, one way brokers can create value in this environment is to become risk-facilitation leaders. This role would connect various industry leaders, (re)insurance leaders and governmental officials on select risks (e.g., cyber) to discuss holistic risk management solutions. Brokers seem ideally placed to facilitate such discussions, which would provide them an opportunity to move beyond risk transfer and become a collaborative partner in their clients’ operational success. PwC’s 2014 Risk Buyer Survey supports this idea: 67% of risk managers considered their brokerage firm a “trusted adviser," versus 46% who simply viewed themselves as a “placer of coverage.” (Note: respondents were able to select multiple choices, resulting in values greater than 100%.) See also: Commercial Lines: Best Is Yet to Come   New technologies such as blockchain could provide the insurance industry a unique opportunity to collaborate. How these technologies will affect the industry remain to be seen, but forward-thinking (re)insurers are already establishing collaborative initiatives to establish proofs of concept. Implications
  • Faced with the “three C’s” of consolidation, customization and collaboration, we believe brokers have an opportunity to implement changes before these trends cause even more disruptive change(s). Changing buyer demands will require brokerages to reassess their operating models to confirm they provide the correct balance of enhanced local market knowledge and scale efficiencies.
  • Industry consolidation will further concentrate market power. Smaller brokerages need to determine the appropriate business strategy for a market where the top 10 brokerages produce 2.5 times as much revenue as the next 90 firms.
  • Brokers could position themselves to compete in price-sensitive “insurance as a product” markets or establish risk management/advisory offerings to serve “insurance as a service” buyers.
  • Emerging technologies such as blockchain have the potential to disrupt insurance placement and policy management processes. Brokers should establish a plan to leverage these emerging technologies to manage or avoid disruption from new market entrants.
This article was written by Richard Mayock, Jamie Yoder, Francois Ramette, Marie Carr, Matthew Wolff and Joseph Calandro Jr. You can find the PwC report here.

Jamie Yoder

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Jamie Yoder

Jamie Yoder is president and general manager, North America, for Sapiens.

Previously, he was president of Snapsheet, Before Snapsheet, he led the insurance advisory practice at PwC. 

4 Trends to Expect in Health Insurance

States may gain further flexibility to develop new healthcare models, including changes to affordability and choices offered.

As debate continues to swirl about the future of U.S. healthcare regulation, here are the four high-level trends we may expect, and how stakeholders could be affected: 1. Healthy people may start leaving the individual market Recent changes eliminate the penalty for not having health insurance. Under the ACA, consumers were charged a penalty for the year they lacked coverage. But now, when consumers file their taxes, they won’t be charged a penalty. Without the penalty, younger and healthier consumers may choose to not have individual coverage. However, this doesn’t mean they don’t need or want health insurance coverage. Expect employers to play an increasingly important role in filling the gap. That being said, not all employers offer health insurance. It’s still ambiguous what the self-employed (think contract, freelance or gig workers) will do. Under the likely scenario in which many of the self-employed forgo insurance under the new regulation, the uninsured rate may increase. See also: A Road Map for Health Insurance   2. Carriers may have to adjust their business The premiums received from healthy people are generally a great hedge for the unhealthier, or higher-risk, populations for carriers. With the changes occurring in the individual market, carriers can expect a worsening loss ratio: The ratios paid by the premiums to the insurance company to cover settled claims begin to decrease. With the risk pool looking worse, carriers may concentrate on boosting their sales in relatively more stable segments. 3. Employer-sponsored coverage will be critical for employee retention If the ACA’s employer mandate is repealed, small businesses may no longer be required to provide affordable, minimum-value coverage to their full-time employees to avoid penalties. That being said, with many people losing their individual health coverage, employees may increasingly expect health coverage from their employers. Employer-sponsored benefits have always played a critical role in attracting and retaining talent, but, with the current instability in the market, many employees will appreciate the security of an employer-sponsored coverage plan more than ever. 4. States may have increasing regulatory power States may gain further flexibility to develop new healthcare models, including changes to affordability and choices offered. A number of states are pushing for their own legislation that could potentially give additional protection to residents beyond the federal level. Keep an eye on states like New York and California, which seek to create programs to increase benefits and requirements set by the ACA.

Sally Poblete

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Sally Poblete

Sally Poblete has been a leader and innovator in the health care industry for over 20 years. She founded Wellthie in 2013 out of a deep passion for making health insurance more simple and approachable for consumers. She had a successful career leading product development at Anthem, one of the nation’s largest health insurance companies.