In recent years, insurers have taken an active interest in a wide range of tools and technologies that fall under the “emerging” label. This label covers a spectrum: Tech approaching ubiquity, like mobile and predictive analytics, is on one end, and tech with low adoption rates, like blockchain and smart home, populates the other end. The five technologies that fall in the middle of the range are receiving a flurry of attention from insurers: artificial intelligence (AI), big data, sensors and telematics, drones and robotic process automation (RPA). Our study of more than 100 insurer CIO participants shows that while 15% to 25% of insurers have made deployments in this middle group of technologies, equal or greater numbers of carriers are actively planning pilot programs for 2018, and these technologies are poised for rapid growth. Most pilot activity is in digital and analytics areas as insurers look to these five emerging technologies to improve risk analysis, fraud detection, service and operating efficiency. See also: Insurtech: How to Keep Insurance Relevant   Under the umbrella of AI, machine learning is being used to improve the performance of rating or fraud-detection algorithms. Carriers are also embracing AI to mine unstructured data from images and raw text as they move forward in their journeys to improve data analytics. With the growth of AI and predictive analytics comes an increasing importance of big data. For about a quarter of insurers, the use of big data tools, such as Hadoop and NoSQL, is common. Less common is the use of big data sets such as weather data and raw internet consumer data. Regardless, insurers are planning explorations and pilot activity in both areas. Tools within the space of sensors (IoT) and telematics are maturing, moving beyond simple rating discounts. These tools are especially gaining traction and adoption in property/casualty; value messages are evolving to include value-added services, providing customers with greater risk management tools. The use of drones is enabling the capture of certain types of information for the first time. As a result, drones are quickly becoming a standard tool for both property inspections and claims. Most property/casualty insurers report a positive value, though most are working with service partner providers rather than building their own capabilities. RPA holds high interest for insurers and is an area of active pilot programs. While not a transformative technology, RPA is a valuable short-term fix for poorly designed systems and processes that helps avoid expensive reengineering. See also: Insurance Technology Trends in ’17, Beyond   The important thing to keep in mind is that technology changes faster than culture and practices at most insurance companies. To fully leverage the capabilities offered by emerging technology, carriers should look at their products and processes in light of new technical, market and customer realities. Harnessing the growth of emerging technologies should lead to improved risk analysis, streamlined processes and better business results for insurance companies in 2018 and beyond.

This post, which describes recent news coming from insurtech and digital insurance in China, was written for Daily Fintech by Zarc Gin from Insurview from within China. Happy New Year! It has been a great honor for me to share insurtech developments in China since last November. I hope my posts here help you understand what’s happening in China, so you can either learn from the experiences or even develop businesses opportunities in China. Today, I’m going to share the predictions we made about insurtech in China in 2018. They are a combination of opinions, ideas, trend analyses and hopes. 1. More funds, more IPOs We have seen huge amount of funds pouring into digital insurance in China, and top startups are well-funded. Because of the successful IPO of Zhong An, investors are looking for the next big name in digital insurance. Top startups are also aiming for IPOs to catch up with Zhong An. So the fever of digital insurance will enter the next level, with huge funds and IPOs in 2018. My forecast is that Ping An Good Doctor, a Ping An Group subsidiary, will be the first insurtech IPO this year. 2. More digital health insurance Premium income of health insurance has been growing quickly since 2011, with 404.25 billion RMB ($62.32 billion) income in 2016 and a 68% growth rate. Exalted Life was one of the most popular health policies from Zhong An in 2016. Ping An also launched E-home and E-life, which were well-received. The competition of digital health insurance got more intense in 2017 with the launch of Wesure. So, the competition will continue, and health insurance will be even more widely received in 2018. See also: How Is Insurtech Different in Asia?   3. Opportunities for B2B startups Over the past two years, B2C startups were in fashion. But the digitalization of the whole insurance industry is far from accomplished, and the infrastructure of insurance is still in its early stage. Therefore, the potential for B2B startups will be big in 2018. 4. Rise of a new type of broker CIRC has been trying to weaken bancassurance channels in China. This led insurers to seek the support from broker companies, and the insurance intermediary industry is expanding with this opportunity. Life brokers like Mingya and EverPro are growing quickly. Focusing on quality of individual brokers is their key difference from traditional broker companies. Digital broker companies like Tuniu are also growing rapidly with the help of e-commerce resources. We believe brokerage will have a new age in digital insurance, and both the life and property sectors will grow significantly in 2018. 5. New look on auto insurance With regulation on auto insurance tightening, the combined ratios for auto insurers are increasing. To reverse the situation, auto insurers need to grab the digital opportunity and develop policies from the perspective of customers. We believe digital auto insurer will explore the possibilities in the digital age and make a difference to the current auto insurance. 6. Opportunity in data and information Insurers are connected with their customers’ lives, so they will have access to all the data generated, such as health, habits and behaviors. Data can show insurers where the world is going, so there will be a huge opportunity in data collection and analysis. See also: Top 10 Insurtech Trends for 2018   7. Globalization The world is getting smaller thanks to the internet, both for China and for other countries. The interaction between China and the world is getting more and more frequent. Foreign insurtech companies such as Singapore-based CXA Group are exploring Chinese markets, and Chinese insurers like Fosun and CPIC are implementing their plans around the world. 8. Talent liquidity Tencent, Alibaba and Baidu all entered digital insurance in 2017. They will heat up the talent liquidity in this industry. We will see an increasing combination between tech talents and insurance talents in the future. This article first appeared at Daily Fintech.

As we approach Super Bowl LII in U.S. Bank Stadium in Minneapolis, in which all-time great quarterback Tom Brady leads the Patriots against the underdog Eagles, what risk management issues are affecting the game and fans? Here are five (from an Eagles fan): 1. Have a Backup Plan This is Risk Management 101 stuff — backup and redundancy. Just as an organization needs to back up its data and processing capacity to ensure smooth and continuous operation, so, too, must a football coach have capable and trained backups ready to take over on a moment’s notice. Eagles Coach Doug Pederson conducted a clinic on the value of backups this year when the Eagles lost their starters at kicker, special teams ace, running back, middle linebacker, left tackle and quarterback. I confess that I grimaced when the Eagles signed journeyman quarterback Nick Foles to an expensive contract to serve as a backup, but now he leads the Eagles into the Super Bowl. See also: The Current State of Risk Management   2. Know Your Environment Smart business travelers take the time to learn the basics of local customs and protocols, especially when traveling overseas. It’s not only good manners to understand the local culture, but it can prevent you from being misunderstood. Sadly, some Vikings fans who came to Philadelphia for the NFC Championship game did not know the rabid level of Eagles fans' devotion at Lincoln Financial Field, and they were subject to rude and abusive behavior simply for wearing purple Vikings jerseys to the game. The Super Bowl is in Minnesota, but Minnesotans are more likely to behave hospitably, even toward Eagles fans. While some members of the Eagles have reported trouble getting a restaurant reservation in Minneapolis, the larger risk to manage is the frigid Minnesota climate. For example, even though the Super Bowl will be played in a climate-controlled domed stadium, heightened security concerns may mean long lines at entry gates; fans should dress for the outdoor weather. 3. Manage Expectations and Larger Social Implications The 2017 season had plenty of controversy, with players kneeling, some team owners and politicians criticizing and everybody tweeting about it. Each team had to manage the risk of controversy and how it affected the players, the fans and society at large. While some owners took a combative stance, the Super Bowl-bound Eagles found ways to create some wins here. Eagles star safety Malcolm Jenkins joined other NFL stars to form the Players Coalition to find solutions to social problems by working with legislators. Eagles owner Jeffrey Lurie helped players publicize their goals in a positive light. While some locker rooms were divided by sensitive issues, Eagles players and owners came together and found common ground. 4. The Plural of “Anecdote” Is Not “Data" We’re in the age of big data. Our risk management and insurance business is poised for a digital transformation as the Internet of Things generates masses of new data, blockchain offers new ways to store it and data analytics gives us the power to use all this data. Many coaches still rely on intuition or an inherently conservative approach to the game (ahem, Andy Reid), but "Moneyball" showed how data can be leveraged to maximize the odds of winning in baseball, and there is no shortage of data available to NFL teams for both player evaluation and game day strategy. Coach Pederson and the Eagles have fully embraced an analytics approach to the game; he communicates with his analytics experts during the game. The Eagles seem daring when they run an offensive play instead of punting on fourth down, but the calls are simply managing risk for optimum outcome. The Eagles average 4.7 points on drives that include a converted fourth down. See also: 3 Challenges in Risk Management   5. Manage Exposures The biggest gripe of NFL fans? The officiating. Despite the billions of dollars at stake in the NFL, the league continues to use part-time referees who are accountants and analysts in their regular full-time jobs. These referees do a remarkable job under the circumstances, but the NFL should have — like the NBA and MLB — full-time officials who get rigorous year-round training. When is the last time you felt that your baseball team lost because of the umpires? The risk of making fans feel cheated is an easy one to manage. Take a tip from risk managers, NFL. Scan the environment, assess the exposures and put plans in place to mitigate those risks. The article was originally published in Insurance Journal.

Executive Summary: Time-starved, multitasking executives engaged in drive-by conversations with employees are poor models for employees to emulate when they interact with customers. Instead, executives who give their undivided attention to internal team members embody the customer-focused cultures they seek to create, and subtle gestures of responsiveness can set the right tone for their organizations. Business leaders marvel at the distinctive, customer-focused cultures associated with legendary firms like Southwest Airlines, Apple and Disney. As executives of these companies readily acknowledge, their organizations’ outstanding performance is due, in large part, to the corporate culture they have created. But how does such a customer-focused culture arise? Despite all the talk about culture from leadership gurus and management tomes, it still remains a decidedly abstract concept for most business people. As a result, culture building often gets delegated to human resources or some employee-staffed culture committee. Or executives might invest in the development of grandiose mission and value statements, thinking that mere words on a page will shape workplace behaviors. While these approaches aren’t without value, they often overlook one essential truth: Culture isn’t something you promote. Rather, it’s something you embody. Organizational leaders, by virtue of the perch they inhabit, exert an enormous influence on workplace culture. Employees, whether subconsciously or consciously, take cues from their leaders. They watch them for signals about what “right” looks like—what behaviors are rewarded, which cultural attributes are valued. For this reason, the tools for forging a more customer-focused culture are closer at hand than many executives realize. Indeed, the personal behaviors of those leaders can serve as either an accelerant or a deterrent for the culture they seek to promote. See also: It’s All About the Customer Journey   Herb Kelleher, co-founder and former CEO of Southwest Airlines, would go to Dallas Love Field on Thanksgiving holidays and help load luggage onto aircraft alongside rank-and-file baggage handlers. That simple action sent a strong signal to the workforce about the culture Kelleher was trying to create—a culture grounded in humility and service. Steve Jobs, co-founder and former CEO of Apple, was personally involved in reviewing and approving the design of the box in which the iPhone was packaged—yes, the cardboard box! That sent a cultural signal to Apple executives and staff about the importance of elegant design and attention to detail. Walt Disney insisted that Disneyland executives spend time in the theme park, observing and listening to guests so they’d better understand how to make the park a more enjoyable place. Disney even had an apartment constructed for himself inside Disneyland, overlooking the Town Square, so he could personally watch guests’ reactions as they entered the park. How better to underscore the importance of customer closeness in the culture he was trying to build? What these examples illustrate is that even the most subtle leadership gestures can help shape a company culture in very powerful ways. Are you working to cultivate a more customer-focused culture in your organization? Consider the specific behaviors you’re trying to accentuate, then look for ways to demonstrate those qualities. Let’s take responsiveness as an example. Being responsive is an oft-emphasized cultural trait within organizations that seek to become more customer-focused. What leaders of these organizations must ask themselves, however, is to what degree are they embodying that attribute? If executives take days to respond to their staff’s emails or texts, that creates a disconnect for the workforce. Leadership’s call for customer-focused responsiveness begins to ring hollow, and employees start discounting the importance of that quality. To create a culture that orients around responsiveness, start with the speed of your own replies. The faster you answer (or at least acknowledge) that message from a colleague, the more successful you’ll be in reorienting cultural norms. Another instructive example comes from a hallmark of great customer experiences: strong communication practices. Customers value a company that communicates clearly and transparently. Here again, organizational leaders have an opportunity to model these qualities for the workforce, yet they often neglect to do so. Perhaps you’ve received an email from your boss that appeared to be written in grammar from another planet? We’ve all been there, getting a missive from an executive that raises more questions than it answers, creating more confusion than clarity. Even seemingly insignificant internal communications afford an opportunity for executives to show staff what customer-friendly messaging looks like. The lesson? Spend a little extra time composing that next email and make it a model of clarity that others can follow when they correspond with customers. As a final example, consider the concept of giving customers your undivided attention—actively listening to their needs and responding in kind. This, too, is a cultural characteristic that is commonly emphasized by customer-focused companies. Those that do it well make their customers feel special, almost like a VIP, because in today’s distraction-rich, smartphone-obsessed world, it’s pretty rare that someone gives you undivided attention. That sad reality applies to internal workplace interactions, as well. Time-starved executives are masters of multitasking and drive-by conversations. While they may think those behaviors foster efficiency, they represent the antithesis of giving people your undivided attention and provide a poor model for staff to emulate when they interact with customers. See also: Roadblocks to Good Customer Relations   The next time a staff member pokes his head into your office and asks to speak with you, give that person a master class in undivided attention. Look up from whatever you’re doing, make eye contact, invite him to sit down and place your smartphone aside, out of view. In short, during the few minutes that individual spends in your office, focus your attention on him so intensely that he’ll feel like the only person in the entire world. Imagine the signal that sends to your staff about the customer-focused behaviors you’re trying to advance. With every interaction in the workplace, organizational leaders have an opportunity to show staff what “right” looks like, an opportunity to define cultural norms that others will follow. Leaders who embody and visibly demonstrate the desired cultural characteristics will always be more successful than those who do not. No matter what business you’re in, or how large or small your organization, the journey to a competitively differentiated, customer-focused culture really does begin with you. This article was originally published on Carrier Management.

Sexual harassment lawsuits against another employee are not uncommon, but oftentimes employers overlook harassment of their own employees by customers. A 2014 Restaurant Opportunities Center United report about sexual harassment found that 78% of restaurant workers had been harassed at one time by a customer. Title VII of the Civil Rights Act requires employers to provide a workplace free of harassment. If the employer “knew, or should have known about the harassment and failed to take prompt and appropriate corrective action,” they can be held liable. Many guests don’t expect that their behavior will be questioned; many restaurants don’t want to make customers uncomfortable by correcting their behavior. So what is a restaurant to do when a customer harasses the staff? The first step for restaurants to fix this problem is to have a strong HR department that is serious about preventing and dealing with sexual harassment. It’s clear when employers are using training as a pre-emptive legal defense and when they actually take it seriously. Employees will respond with equal seriousness. If workers don’t feel like policies against harassment will be enforced, they won’t report. Another step that restaurants can take to prevent lawsuits is proper sexual harassment training. All restaurants need sexual harassment training, not just big ones with HR departments. There needs to be something written down somewhere that’s clearly visible — if this happens, this is how we will respond. In other words, employers can’t just say that all their employees deserve respect; they have to go out of their way to show that they won’t tolerate sexual harassment if there is to be any meaningful change. See also: Sexual Harassment: Just the Start   The final way to mitigate sexual harassment lawsuits is through employment practices liability Insurance. Some restaurants consider going without EPLI coverage. Others mistakenly assume they are covered under their general liability policies, which most often have a standard exclusion for employment practices liability exposures. Going without EPLI can be a costly decision. Even if a restaurant only has a few employees, it needs EPLI coverage. You can find the full report here.

Here are the themes I am seeing most often in health and welfare benefits:

Theme: Financial Wellness – Americans are struggling to get ahead, and the middle class is declining. Successful retirement and wealth planning for many people is a simple act of good accounting decisions multiplied over many years. Instant gratification has eroded good decision-making, and large majorities of people have no savings or retirement funds. Smart employers are taking steps to help their people make good decisions and become better stewards. This encapsulates retirement strategy, education, student loan assistance, emergency loan assistance and the like.

Sub-Theme: Student Loan Repayments – Extremely hot benefit right now; it’s one of the most requested benefits by new employees.

Theme: Dependent Care – People are living longer, and in sub-optimal health. Huge portions of the workforce are now having to spend large quantities of time managing the health and care of their dependents and loved ones. Smart employers are looking for ways to relieve this burden and improve the productivity of the workforce.

See also: Dissecting Landmark Decision on Wellness  

Theme: Hospital Department Quality vs. Physician Quality – More and more data is becoming available regarding hospital and doctor quality scores. How do we think about it? How is it used? Which firms are stepping forward to help people access quality? If I contract directly with a hospital, am I hurting patient access to the highest-quality providers who aren’t with that hospital? These questions are important and could be addressed with the right sessions.

Theme: Member Steering and Plan Strategy – The best plans are seeking new and improved strategies to steer members. As more cost and quality data becomes available, proper healthcare procurement begins to depend on the firm's ability to steer members. A few firms are leading the way to get exceptional procurement and steerage, and most employers could learn much from them to save millions and get control of (arguably) the hardest budget item in the firm.

Theme: The Care-Knowledge Gap – There is a devastating time period between when a therapy is discovered and when the therapy is available in most major hospitals. This gap has grown to 17 years; thus, the healthcare of 2035 is available today if you can find it. Smart employers and activist entities are working hard to reduce this wait time to save lives and accelerate the improvement of American healthcare.

Theme: Augmented Primary Care – Primary care has had a rough decade. At worst, it has been vanishing, and, at best, it has been acquired and used as a referral source for hospital systems. Smart employers realize that, for them to get control of their spending, they need to partner with primary care doctors whose interests are aligned with the employer and the member. This interest is to keep members healthy by consuming the minimum effective quantity of healthcare services, from professionals operating at the top of their respective licenses, in settings offering the best value. Direct primary care represents the best approach to achieve this objective, and building appropriate technology into these settings can significantly reduce the dependence on the greater hospital system.

See also: Wellness Works? Prove It–and Win $$$  

Themes Losing Steam: These topics appear (to me) to be losing their luster very quickly:

1. Wellness
2. Medical tourism
3. Price transparency
4. Disease management
5. Private exchanges
6. PBMs and non-specialty Rx

As value-based payment models become more common, payers and providers are realizing that there is value in working together to reach mutual goals. A complete view of healthcare quality and costs is critical when working under models that base payments on clinical and financial outcomes, and not merely on the volume of services provided. Payers and providers are discovering the value of sharing vast amounts of data -- such as that in claims, clinical, social, economic, and more types -- just to name a few. Sharing is just a start, though. What is perhaps even more important is that these organizations need the ability to make sense of all this information. They need to understand that acquiring meaningful data is far more important than assimilating volumes of data. Once organizations have the right data, they can rely on predictive and prescriptive analytics to gain meaningful insight into the data to spot trends, performance outcomes, etc. See also: 2018 Workers’ Comp Issues to Watch   In fact, according to a recent Society of Actuaries survey of 223 payer and provider executives, 90% of respondents indicated that healthcare organizations will not be able to navigate the financial and clinical challenges of the future without investing in predictive analytics tools. The majority of payers and providers participating in the February 2017 poll agreed that predictive insights will be critical for the future of their businesses. More than a quarter of the respondents stated that they expect big data analytics tools to save them 25% or more on costs over the next five years. What’s more, 47% of providers and 63% of payers said they currently use predictive analytics tools. Over the next five years, just fewer than 90% of both payer and provider organizations said they will have adopted some form of forward-looking, big data analytics capabilities. See also: The Current State of Risk Management   A recent webinar presented by SCIO with Oracle Health Sciences, Payer Provider Convergence: Using Data to Strengthen Partnerships & Drive Outcomes, explored how payers and providers can share/analyze to increase collaboration and work toward improved health outcomes. More specifically, the presentation provided insight into how payers and providers can leverage data and analytics to advance goals such as:

• Managing Risk and Revenue
• Optimizing Reimbursement
• Improving Quality and Compliance
• Optimizing Provider Networks

To learn more contact SCIO Health Analytics at info@SCIOhealthanalytics.com or Oracle Health Sciences at healthsciences_ww_grp@oracle.com. This article was written by David Hom and Lesli Adams.

Every year, for the last six years, SMA has completed its Innovation in Insurance research report. Our insights are based on targeted research, experience in the industry and insights from our customers. It is with our unique lens that we investigate and analyze innovation in insurance to share trends and findings that will guide the industry into the exciting new year. This year’s report is called “Innovation is Mandatory.” The findings continually point back to the overall theme of the research: Innovation is happening everywhere, in all insurance segments, and it has expanded to the point that ignoring it is no longer an option. See also: Linking Innovation With Strategy   In the report, we look at who in the company is leading innovation. Innovation leadership is now initiated more and more in business units and less and less in IT. The shift is indicative of the internal innovations that are taking place within the organizations: new roles for innovation, strategic planning offices, c-suite positions, and innovation labs, among others. The research also indicates that, as innovation solutions are maturing, there is a natural progression away from IT and toward business management. While leadership for innovation has declined for IT, the research shows that IT still leads in emerging technology adoption. And that makes sense. Five years ago, innovation was in a similar place. SMA anticipates that the trend for emerging technology will follow the same path that innovation has; it will eventually shift toward management by the business. We are already seeing areas where this is happening. As emerging technology becomes mature technology, the transition will continue. Another interesting discovery from the research is that there is a clear indication that insurers don’t believe they are keeping up with the pace of innovation. The pace of new technology adoption coupled with the explosion of insurtech startups entering the marketplace is changing the competitive landscape. The clear majority of respondents identify themselves as mainstreamers just trying to keep up with the pack. It will be interesting to see where that number heads throughout 2018. See also: Global Trend Map No. 6: Digital Innovation   Finally, we see the importance that the changing customer experience has on triggering innovation. The digitization of the world is another force that drives innovation and has resulted in so many of the changes that have been made over the last several years. Becoming a digital insurer is essential to maintaining a competitive edge and shifting the focus toward the customer – we continue to see more value-in-use products and more incentive-based products. The digitization of the insurance ecosystem will continue and prove that innovation is mandatory, and not just for some. Innovation is for all.

The current low-yield environment creates a major challenge for people who have to save for retirement. At the same time, in many countries, political efforts to limit public pension obligations increase the need for retirement savings. This makes the current low-yield environment especially harmful and raises questions about the efficiency of the pension reforms. Furthermore, there are indications that the combination of low interest rates and a greater reliance on retirement savings contributes to economic inequality. It will be important to address the growing inequality problem, and insurance can significantly contribute to this goal. Why are interest rates so low? Simply speaking, nominal interest rates should equal inflation plus the real growth rate of the economy. The latter could again be divided into productivity growth, which influences the output per person working, plus the growth rate of the labor force. In principle, monetary policy should not interfere with this relationship, as it is looking at these variables as well (e.g. by following the Taylor Rule). However, there is of course some leeway leading to relatively tight (higher interest rates) or expansive (lower interest rates) monetary policy. Hence, we have four main factors influencing interest rates: inflation, productivity growth, growth of the labor force and monetary policy. Inflation has declined in most advanced economies over the past 40 years and is at a very low level. In spite of the digital revolution, productivity growth rates have been rather low over the past years. Due to low fertility rates, the growth rate of the labor force has significantly declined over the past decades in most advanced economies and has turned even negative in some. Finally, monetary policy has become very expansive to support the slow recovery in many economies. Hence, all the driving factors have worked in the same direction, leading to the current low-yield environment. Given that the demographic trend of declining labor force growth rates is expected to continue and that higher inflation would not help to increase real returns, the only -- albeit limited -- hope for higher interest rates is a reversal of the productivity trend as well as a normalization of monetary policy. Impact on retirement funding Besides the low fertility rates, there is an additional major demographic development: an increasing life expectancy. This implies that we are living longer in retirement, and this in turn implies that we have to transfer more money from work life to retirement to keep appropriate living standards. There are basically two ways to do this: via a (public) pay-as-you-go system or via (private or occupational) retirement savings. See also: Buckle Up: Monetary Events Are Speeding   In a pay-as-you-go system, people in working life transfer a fraction of their income to the people living in retirement. In return, they get a fraction of the next generation's labo- force income when they are in retirement themselves. Hence, the implicit return on the pay-as-you-go contributions is influenced by the growth rate of the individual labor income (inflation plus productivity growth) and the growth rate of the total labor force. As we can see, the implicit return on the pay-as-you-go contribution is harmed by the same factors as the return on retirement savings (i.e. the interest rate). However, it is not affected by the very expansive monetary policy, which is only lowering the return on retirement savings. Hence, pay-as-you-go pensions should become relatively more attractive. Nevertheless, most pension reforms lead to a decreasing relevance of public pay-as-you-go pensions. One reason for this might be that politicians fear that a pronounced increase in social security taxes would not be opportune for their political future. It is important to note, however, that as a result people will have lower public pensions and therefore have to put the dollar they are not investing in the one system (the pay-as-you-go system) into the other system (retirement savings). Whether people are happy with this depends on the relative returns on the two systems. Due to the expansive monetary policy, it is far from given that the retirement savings offer the higher return. Social consequences When people have to save for retirement, they are directly affected by low interest rates. Let’s look at a young household that saves $1.000 per year for retirement, which starts in 40 years. At an interest rate of 2%, the household would have a bit more than $60,000 available at the start of retirement. At an interest rate of 0% (currently, real rates are rather negative) it would be only $40,000. Hence, the household would have to increase its annual savings by 50% to $1,500 to still end up with the $60,000. However, not everyone is affected by the low interest rates to the same degree. For comparison, we look at an older household that is saving $1,000 for five years. For this household, a reduction of interest rates from 2% to 0% translates into a reduction of the end sum from $5,300 to $5,000. Hence, this older household would not have to increase annual savings by 50% but only by 6%. For the young household, one way to compensate the strong impact of the low interest rates would be to increase risk taking. Stocks, for example, typically have an excess return of about 5%. This implies that in the current 0% interest rate environment, the young household would not end up with $40,000 but with more than $125,000! Even though there has never been a long period where stocks fared worse than bonds, many people shy away from taking on financial risk and are still looking for guarantees. Richard Thaler associates this with behavioral biases that could be overcome with the right nudges. However, it is also true that richer people tend to be better able to live with income fluctuations and therefore to take on financial risks. There is another reason why richer people might be better able to live with the declined interest rates: By definition, they already have wealth and therefore profit from the increase in asset prices that comes with decreasing interest rates. This capital gain is especially strong for long-term assets like very long-term bonds, real estate and stocks. As a result, for people with substantial wealth, the net effect of decreasing interest rates might well be positive. Richer people also profit relative to poorer from the shift from the public pay-as-you-go system to a greater reliance on retirement savings. First, public pay-as-you-go pensions often include some redistribution from people with a higher lifetime income to people with a lower income. This redistribution is typically not part of private retirement savings. Second, public pay-as-you-go pensions often provide insurance against some biometric risks that are not necessarily insured in private retirement saving products. One major risk is the individual longevity risk, i.e. the risk that a household outlives its savings. If people are rich enough, they never outlive their wealth but rather pass substantial amounts to their inheritor. However, this applies to far from everyone. Another biometric risk is the disability to work and to earn the labor income that is necessary to save enough for retirement. While richer people also have a disability risk, the financial consequences might be (relatively) smaller as they often also have capital income that is not (or less) affected by the disability. Others, however, risk outliving their savings even before reaching retirement age and falling into poverty due to disability. What should be done? As we have seen, the expansive monetary policy in combination with the shift from a public pay-as-you-go system toward a greater reliance on retirement savings affects people differently and will likely foster inequality. What can we do to address this social problem? First, it is important that central banks are aware of and consider the effects of their monetary policy decisions on retirement savings and inequality. In fact, there are also indications that the relationship works in both ways and that inequality also affects the monetary transmission channel as well as financial stability. As a result, several central banks have already started to analyze the relationship between monetary policy and inequality. Second, policy makers should reconsider the efficiency of shifting the focus of retirement funding from a pay-as-you-go system toward a pre-funded system based on savings. Retirement savings will always be an important pillar of retirement funding and a crucial funding source for long-term investments in an economy. However, there are limits to the efficiency of more savings, and we have to be aware that savings are affected by the same demographic factors that harm pay-as-you-go pensions. To make public pensions more sustainable, policy makers should rather aim to broaden the basis of contributors and to increase flexibility of labor markets and the retirement age. Third, individuals should reconsider which risks they want to take and which not. Retirement saving products with a guaranteed interest rate are still very popular. However, by choosing guarantee products, people substantially reduce the return on their savings even though the long-term nature of their retirement savings would put them in a good position to take the risk themselves. Biometric risks, in contrast, are difficult to take individually but lend themselves to risk pooling. Yet many individuals do not appropriately buy insurance protection against biometric risks like disability or longevity. What does this mean for insurers? See also: 4 Insurers’ Great Customer Experiences   By pooling individual risks, insurers not only support wellbeing of risk-averse individuals but also reduce inequality in a society. The degree to which insurers are fulfilling this valuable role depends, however, on the products they are selling to their customers. When it comes to retirement savings products, it is important that products include protection against biometric risks and not protection against financial risks. Given that insurance regulation aggravates the provision of financial guarantees, supply does not seem to be the problem in this regard. It is rather the demand side that for some reason prefers buying protection against financial risks to products that insure biometric risks. It will be important to increase our understanding of why this is the case and how we could overcome this bias. Further research is needed although behavioral economics already provides some first insights in this regard. Nudges to overcome the described behavioral biases are, for example, increasing the availability of risk information, limiting the number of alternative products and having appropriate default options.

I applaud your announcement of a an organization designed to tackle what we believe is the greatest immediate threat to America -- our status quo healthcare system. I have sent your healthcare leaders the new edition of my book, The CEO’s Guide to Restoring the American Dream - How to Deliver World Class Health Care to Your Employees at Half the Cost. This book draws on my decades as an insider in healthcare, first as an Accenture consultant working inside dozens of hospitals, followed by founding Microsoft’s $2 billion-plus healthcare platform business and more recently as a healthtech CEO (WebMD acquired my company). Since my departure from WebMD, my life’s work has been to find real-life, practical solutions to the root causes of our healthcare system’s dysfunction. Through this, I’ve found microcosms of employers everywhere that have already tackled the most challenging problems, restoring for them and their employees the American Dream that healthcare has stolen. The great news is that every fix to healthcare's structural problems has been invented, proven and modestly scaled. With your large employee base and bully pulpit, you are in a unique position to massively scale these fixes. The wisest employers have found that the best way to slash healthcare costs is to improve benefits. We’ve found no company that has a better benefits package than Rosen Hotels, which spends 55% less per capita on health benefits than a typical company despite having a challenging workforce. For example, 56% of their employees’ pregnancies are categorized as high risk. I highlighted Rosen in my TEDx talk. They’ve invested money that otherwise would have been squandered in healthcare to provide free college to their employees, employees’ children and residents of a nearby neighborhood. Crime in that neighborhood plummeted 62%, and high school graduation rates soared from 45% to nearly 100%. The CEO’s Guide provides more details on what Rosen and many other smart employers are doing. For example, Pittsburgh-area schools, with a superior benefits plan, are spending 40% less than typical schools. See also: 3 Innovation Lessons From Jeff Bezos   There are many options to directly improve your employees’ health benefits while slashing costs. Hundreds of us have contributed to the Health Rosetta, which provides a blueprint for how to purchase healthcare services wisely. The Health Rosetta’s foundation is a set of guiding principles that leading thinkers ranging from Esther Dyson to Bill Gates have contributed to. If I were in your shoes, I’d start in the following places: My book can be found on Amazon or downloaded for free.

1. Send employees to Centers of Excellence for high-cost/complexity procedures: Typically, 6% to 8% of your employees consume 80% of spending in a given year. Large employers such as Lowes, Pepsico and Walmart have found stunning levels of misdiagnosis (25% to 67%) and overtreatment at low-value centers. For example, 40% of planned organ transplants diagnosed at community hospitals were deemed medically unnecessary after a second opinion from a high-value center such as the Mayo Clinic. Starbucks and Virginia Mason found that 90% of spinal procedures didn’t help at all and that the problems would have been better addressed via physical therapy. A large tire maker put in a proper musculoskeletal program for their employees and has already created nearly 2% of positive EBITA impact. One of the foremost experts in employer benefits, Brian Klepper, estimates that 2% of the entire U.S. economy is tied up in non-evidence-based, non-value-adding musculoskeletal procedures. [See Chapter 12 for more.]
2. Lead the employer movement to avoid opioid overuse: Every addict needs an enabler. Having deeply studied the underlying drivers of the opioid crisis, I found that employers are the key (unwitting) enabler of the opioid crisis on 11 of the 12 major drivers. The overwhelming majority of those with opioid overuse disorders followed doctors orders, and their drugs were paid for by employers. Unlike other great public health crises, the opioid crisis can’t be solved without significant employer action. You can save money and keep your employees and dependents out of harm’s way by adopting a smart benefits approach. [See Chapter 20 for more.]
3. Root out widespread criminal fraud: The Economist has called healthcare fraud the $272 billion swindle. More than 150 million health records have been hacked and are available for sale on the dark web. At a meeting with former HHS Secretary Tommy Thompson, I heard the stunning levels of fraud. One Fortune 250 company had more than 500,000 claims that were fraudulent (e.g., claims run 25 times and multiple claims for once-in-a-lifetime procedures such as a hysterectomy). In that room, one of the risk management practice leaders from a Big Four firm called the related ERISA fiduciary risk the largest undisclosed risk he’d seen in his career. The industry hasn’t adopted modern payment integrity software/algorithms for this readily fixable problem. [See Chapter 7 and 19 for more.]
4. Ensure employees receive the highest-value drugs: Employers such as Caterpillar have taken matters into their own hands as the pharmaceutical supply chain has become rife with hard-to-follow rebates and other tactics designed to redistribute your profits to them. Caterpillar hasn’t seen healthcare spending increases in 10 years, primarily due to getting their pharmaceutical spending under control. [See Chapter 18 for more.]
5. Establish value-based primary care foundation: As IBM found in a worldwide analysis of their $2 billion healthcare spending, it’s not possible to have a high-performance healthcare system without a proper primary care system in place. More than 90% of what people enter the healthcare system for can be addressed in a high-performance primary care setting (rare in the U.S.). Sadly, most U.S. primary care is like milk in the back of the store to get you to other high-margin and often low-value services. Not only can proper primary care go upstream to address issues before they flare up, it can help their patients navigate complex medical conditions. In fact, Amazon just hired Dr. Marty Levine, who was my parents' doctor in a great Medicare Advantage program. Levine and his team have been invaluable in helping us navigate my father’s Parkinson's journey. Based on what has transpired, I am certain that Levine’s team has saved taxpayers more than $200,000 in likely medical bills. This kind of care is not only outstanding, it more than pays for itself. [See Chapter 14 for more.]

See also: The Key to Digital Innovation Success   The title of my TEDx talk was Healthcare Stole the American Dream - Here’s How We Take it Back. It’s great to see your leadership on this critical issue. The Health Rosetta community stands ready to help your efforts. Sincerely, Dave Chase P.S. We would also encourage you to adopt the Health Rosetta Plan Sponsor Bill of Rights (https://healthrosetta.org/plan-sponsor-bill-of-rights/). In light of your respective backgrounds in financial services, you are likely to be shocked by the lack of disclosure and conflicts of interest that are standard operating procedure in the vast majority of employer health plans. [See Appendix B for more.]