There are five factors why successful implementation of most enterprise programs is almost impossible. Factor 1 – Lost in Translation We all know the major steps in a software development life cycle (SDLC): Step 1 – Identifying Strategic Direction and Imperatives Step 2 – Creating Business Requirements Step 3 – Developing Technical Architectures Step 4 – Developing Technical Designs Step 5 – Code Construction Each step in an SDLC represents an interpretation of a prior step's deliverables into this step's deliverables. But it’s almost like translating from English into Mandarin Chinese. There will be gaps in this translation. Every step is, we hope, conducted by people who know their own step very well, yet they have a limited knowledge of the prior or the next step. Subject-matter experts (SMEs) writing requirements more often than not have a very limited understanding of all the current market needs, and even less of an understanding of future market trends. They for sure have no idea about underlying architecture. By the way, making strategists write requirements produces the same result. So let’s not even ask BCG or Bain to create requirements. Unfortunately, there is no magic button we can use to verify the created requirements’ compliance with the strategic direction, or how well architecture satisfies strategy or even business requirements. And the issue applies to every SDLC step. Let’s assume we are very good at what we do. Let's say we improperly translate only 10% of what was created by a prior step. This means that the probability of delivering something useful to a target market and to our internal business just dropped to below 60%! And this even before we take into consideration the budget and time overruns. So, at least 40% of objective market needs are not satisfied because they are lost in translation. And this is the best possible case. Factor 2 – Implementation Time Is Our Enemy These steps represent our subjective interpretation of what’s required by the target market players and by our internal business. So, the only objective entity here is our target market. And this market changes much faster than we suspect. While CIOs can ask or even demand during long-running programs to freeze changes to business requirements, we can’t ask the same from our markets and customers. Our target markets do not wait for us to complete software development. See also: Expanded Role for Alternative Capital   It is not uncommon for an enterprise program in insurance to last around 36 months. Let’s assume that one of the success factors is defined as not having a need for significant changes to the production code for the first 24 months after deployment. I even quantify a significant change as a change requiring 15% of the cost of initial implementation. That means that our strategy team must identify market needs with almost absolute accuracy for the next 60 months. Futuristic analysis like that is impossible for one simple reason – there are too many factors influencing consumer behaviors in a market, especially for such a long period. The longer we take to implement, the more likely it is that our understanding of objective market needs will change, and therefore the less accurate the initial assessment was. That means that by the time we deliver, we are already too late. What we deliver will be functionally outdated and must be immediately changed. We can certainly refresh our strategy every year. But what to do with the requirements that have already been implemented? And how to deal with new upstream and downstream process dependencies? DevOps approach, gaining popularity now, due to internal architectural dependencies of most legacy and even more modern off-the-shelf products, produces very limited success. Factor 3 – Measuring Success at the Wrong Spot When we measure success of the core systems implementations (and this kind of projects represents the majority of enterprise-sized programs), we count numbers, but the best way to measure success is to measure our internal users’ satisfaction. Right? No, not right. Remember the only objective entity? The only true measure of success is our target markets. If our work does not increase market penetration and does not result in revenue and cost improvements, then it doesn’t matter how good our organization feels about new, modern applications. It is that simple. So why do we so seldom measure the effects of our work on the markets? Because so often our business case is not really based on market needs and does not measure the effects of new systems and processes on our consumer. Factor 4 - The Wrong Reasons for the Program In my experience, as much as 70% of all programs represent a replacement of legacy systems by more modern applications. That’s the only business case. In some cases, my clients were losing vendor support, and in some cases teams that developed their legacy systems left the company. A true story: I was on an engagement for a client who wanted to have new tech so that she could move it to the cloud and save about $25 million in annual support cost. To do that, she was willing to spend around $200 million on core system replacement. There was no return on investment (ROI). She was not an exception. It’s amazing how often insurance companies get into long-term projects to replace one technology with another technology – without targeting or achieving any revenue increase, and without opening any new markets. Maybe it’s less expensive to train your people on older technology and keep supporting this old technology on your own while developing a real business case for replacement? Just saying. Factor 5 – Hero Worshiping One of the first questions I’m asked by my clients is what other insurance firms are doing. This question makes me very uncomfortable for many reasons. For one thing, I can’t disclose confidential information. But another reason is even more important. As a matter of fact, it is fundamental. Just because a perceived industry leader does something does not mean you should follow in his steps. Doing so relegates you to the position of a follower. Do you really want to be No. 2 or number ”anything except 1?“ Second, even leaders make mistakes. The difference is – big companies can mask their losses, but, if you work for a mid-size insurance firm, you can’t afford to fail. You have no billion- dollar budget to mask a $20 million loss. Finally, just because a leading insurance firm does something, that doesn’t mean that it does it right. Besides, a market leader’s customer profile can be vastly different from yours. So please do not jump from this roof because someone your worship jumps. It is bad idea for them, and it is an even worse idea for you. See also: Pulse Check: How Do You Approach Risk?   Conclusion There are only two events in the life of a modern Information technology organization that result in mass firings of executives. One of them is a security breach. Another one is the almost hopeless journey to implementing core system replacement and any large enterprise program. Before you embark on this journey, think about the real chances of your success, and think long and hard about what success really means to you. Are there simpler and less expensive ways to deliver value to your customers? Is doing nothing better than doing something? Are there better places to spend money? Try answering these questions before starting an enterprise program.

According to McKinsey, the goal in establishing a sound digital strategy is to simply meet customers’ expectations. What sounds straightforward and easy to a digitally advanced industry, such as retail, is a major undertaking for property and casualty insurers, particularly those that sell exclusively through independent or captive agent forces. As insurers prepare to go direct-to-consumer, they face a unique set of challenges, including the question of where to start. First, You Have to Know What the Customer Wants Creating a direct-to-consumer strategy that meets customers’ expectations requires P&C insurers to first understand who the customer is. For them, it’s a task similar to putting together a jigsaw puzzle. Each piece is part of an array of distributed and disparate systems, and there is no easy way to gain a single view of the customer without painstakingly assembling the picture piece by piece. Samantha Chow, senior analyst at market research firm Aite Group, in an interview with Informationweek said that insurers have data they can’t make heads or tails of because of data integration problems and lack of data governance. Many of the processes that incumbent insurers use to run their business still operate on legacy technology. Chow says that some top-tier carriers are running as many as 27 aging policy administration systems to support their products. To make matters worse, data across these informational silos is often inconsistent. See also: 9 Elements for Customer Portals   It seems that insurers have the wrong type of data, as well. According to Mark Breading, partner at Strategy Meets Action, insurers are limited by a customer view that delivers only “an awareness of the current and former products owned by the customer, the performance of those products, information related to product needs of the customer and perhaps some relationship information like the agent involved.” In direct-to-consumer distribution, insurers need to expand their data sets, tracking consumer activity across products and channels as well as gathering information from third-party sources to gain a broader understanding of the customer, their lifestyles, purchasing preferences and buying behavior. A single view of the customer is essential to respond to their complete coverage needs in real time and is a primary component of D2C engagement. Setting up the Online Storefront Amazon set up shop in 1994 as an online book and music seller, but rapidly evolved into an international retailer of just about everything. The fact that Amazon’s sales last year topped $135 billion underscores the effectiveness of the strategy: Make it easy for customers to find and buy the things they want, when they want them. As customers enter Amazon’s site, searching for products is fast and simple. They can easily compare pricing and then select the items that meet their needs. In many cases, purchasing is accomplished in a single click. When insurers try to recreate this type of environment in insurance, they run up against some impressive obstacles. For one thing, rapidly quoting, binding and issuing products that our housed in separate silos requires a central point of access. Only a handful of insurers have this today. Then there is product diversity. Consumers expect insurers to meet their coverage needs, but what happens when they can’t? The Amazon experience would dictate that the insurer offer products from other carriers to augment their own selection, similar to Amazon’s army of third-party sellers. “It’s an idea whose time has come,” said Eric Gewirtzman, CEO, BOLT. “Insurers who position themselves to meet more of the needs of their customers, even if it means offering products from other carriers, will be recognized as customer-first organizations.” Customers Still Need Agent Support Our research of top carriers indicates that 77% are seeing demand for D2C engagement, but providing online access to products and services also means setting up agent support for digital channels. A customer with a leading D2C insurer recently needed to obtain insurance for one of her vehicles in another state. Her daughter was registering the vehicle where she was attending college, but, given the significant cost advantages, the customer wanted to keep the teen-aged driver’s coverage bundled with the original policy. Unique situations like these often require support from an agent licensed in the specific state. In this example, much of the transaction was started online. Because all information was available to the agent, digital paved the way for a faster and more efficient response to the customer. Committing to a D2C strategy means providing agent support to field questions and issues from direct channels. For insurers that work exclusively through independent or captive agents, that means setting up or gaining access to licensed resources to support D2C channels and ensuring they have streamlined access to information customers enter online. Despite Challenges, Now Is the Time to Move Looking into insurer’s thoughts on the future, John Cusano of Accenture remarked on the company’s research with 563 insurance executives. “In our survey, we found that 87% of insurance respondents agree that we have entered an era of technology advancement that is no longer marked by linear progression, but by an exponential rate of change,” Cusano says. “What’s more, 86% say that their organization must innovate at an increasingly rapid pace just to keep a competitive edge.” See also: Why Customer Experience Is Key   Part of that innovation is advancing toward an omni-channel strategy that includes direct-to-consumer capabilities. Eric Gewirtzman of BOLT, in an interview with McKinsey, said, “Insurance customers are already moving between various channels.” Now insurers need a strategy that fulfills the customer’s demands for direct-to-consumer purchasing. Disruption from outside forces and continuously evolving consumer expectations is forcing the industry out of its protective shell and onto the cusp of change. Despite the challenges, the insurers who realize the greatest wins in the changing environment will be the ones who begin now to evolve into highly competitive digital institutions of the future.

Benefits managers who rely on their health plans to keep costs down are bound to be disappointed. Despite health plans’ protests to the contrary, paying them a percentage of total expenditures is an incentive to make healthcare cost more, not less. The largest insurance companies have been among the market’s most profitable performers, with almost 500% average health plan stock price growth since 2009. Until health plans are at financial risk for better health outcomes at lower cost, reducing total spending will continue to translate to reductions in net earnings, a result clearly at odds with their business interests. So for now, benefits managers interested in driving greater efficiencies are on their own. Their most promising opportunities are programs that deliver strong returns in health outcomes, productivity and savings. They can use their core plan for the basics. But then they can go around many of its programs, directly engaging instead with proven high-performance solutions compared with conventional health plan management. The challenge is determining which risk management approaches will yield the greatest value. Should you invest in targeted, high-impact solutions (like drug management, musculoskeletal management, imaging management or reference-based reimbursement), or should you pursue the broader management inherent in a worksite primary care clinic? See also: Healthcare: Need for Transparency   Generally, the answer depends on whether you have a short- or long-term horizon. For quick wins, many modular solutions have low-cost entry requirements and provide an immediate, powerful return on investment. For example, using an independent drug management firm in addition to your pharmacy benefit management arrangement can drop total healthcare spending by 7%. Musculoskeletal disorder management can save 5% to 10% off total costs with better health outcomes than conventional orthopedic care. Imaging management can reduce total spending by 5% to 8%. Reference-based reimbursement for hospital care can drop costs by 13% or more. Other services — claims audits, surgical management, cancer care management, large case management, large claims resolution, dialysis management, cardiometabolic care management — can deliver similarly strong savings and health outcomes improvements right away. Often, the vendors are willing to financially guarantee results. Of course, prioritizing the solutions to pursue is a delicate process and should be informed by your population’s experience, health characteristics and the sponsor’s tolerance for plan disruption. Plan sponsors with a longer view may want to consider a worksite clinic. Typically you’ll need to fund startup fees, the costs of establishing the physical plant and operational costs that are about 8% to 12% of current health plan costs. If you’ve chosen a capable vendor, the clinic may begin to save more money than it costs in the first 18 to 24 months. That said, be aware that Mercer survey data suggest that fewer than half (41%) of clinic sponsors can demonstrate savings, and the actual number may be lower than that. Identifying an effective vendor is critical, and the evidence is clear that most clinic sponsors and their consultants fail at that. But let’s say that you have chosen your vendor wisely and that your clinic performs as hoped. (Some do!) This puts a comprehensive primary care practice in place at the front end of the system, conveying more control of patients and the care they receive throughout the continuum. A clinic then becomes a platform that you can build on with a robust array of clinical and financial risk management tactics. These can include how co-pays are structured, managing referrals with high-performance narrow networks, or dispensing generic and therapeutic equivalent drugs directly into patients’ hands. It can mean handling many important, costly tasks more efficiently onsite, from imaging to managing diabetes or pain management. Seemingly small, thoughtful clinic design elements can have tremendous impacts on patient health and total cost. High-performance modular solutions, like those we’ve described above, can also be integrated into a clinic to get much greater traction over high-value problems. Healthcare’s problems are tremendously complex, and many highly tailored solutions are necessary to hold excess in check. What’s more, just as it’s challenging to identify them and bring them together, it is equally difficult to coordinate and manage their implementation. Having a dedicated platform that begins with healthcare’s front end is a logical and powerful way to bring these solutions together and deploy them effectively. See also: Optimizing Financing in Healthcare   The real goal of a fully capable clinic with a full array of management tactics, is to change conventional care and cost patterns, driving appropriate care and, just as importantly, disrupting inappropriate care. Within two years post-implementation, we have seen good clinics dramatically improve the health of both individual patients and the patient population and reduce total health spending by more than 20%. Combining a good clinic with high-value niche solutions can produce even higher impacts. Healthcare has become defined by rampant excess, so effective benefit managers will, of necessity, seek unconventional solutions. Established approaches are available now that will improve care and save considerable cost through clinics or high-value niches. As is always the case, success depends on being as knowledgeable as possible about the dynamics, choosing carefully and then holding all the participants accountable. This article was written by Brian Klepper and Richard Sutton. The article was originally published on Worksite  Health Advisors.

There is a monster lurking beneath the insurance companies. For now, it lies dormant, having already been satiated by enormous feasts of industry. But soon it will soon grow hungry again and may turn its voracious appetite and overwhelming power on the insurance industry. I am speaking, of course, about Apple. The tech giant is one of the biggest potential competitors of insurers, having the capital, ingenuity and distribution to become a major player in the industry. And this monster moves frighteningly quickly. Within a matter of months, Apple could release a top-notch life insurance product coupled with an enticing marketing campaign, effecting disaster for major insurance companies. Picture the following scenario: Apple execs, eyeing their unholy pool of liquid capital, begin brainstorming, “How to use it?” Stagnation must be prevented, growth is the mantra, the motive. “The phone and computer markets are nigh entirely tapped! Not much growth to be had there. We must look… elsewhere.” And then, an idea! Insurance! And the more they turn this idea over, the more practicable it appears, until they have a detailed plan, a proof of concept, laying out exactly the methods and means and growth timeline, and everything else required to break into insurance. See also: This Is Not Your Father’s Life Insurance   The plan, fitting very neatly within Apple’s modus operandi, is to galvanize some of their best and brightest into creating a sophisticated machine learning program for underwriting. Even the execs can see that machine learning software has potential for revolutionizing underwriting, it being a chancy, complex business. Not only would the software handle variables with an incredible efficiency, it would be able to identify new markers of mortality with relative ease. The program would also be able to draw from the huge amount of existing user data. Apple Health Kit alone could be a treasure trove of data plundered for mortality tables. And how much more does Apple have than that?! Location tracking, financial information… our whole lives are stored on our phones! One reels at the sheer amount of underwriting power this machine learning program would have. While the underwriting software is being developed, the marketing team goes to work setting up all the pieces they will need to successfully move into insurance. They set their developers to work building the app on which the insurance products will be purveyed and managed, directly embedded in iOS, just like Health Kit and other apps. Then, the team produces a slick commercial, as Apple is known to do, introducing their newest product, "Apple Life." Apple Life is "life insurance as it should be," i.e. hassle-free, cheaper, personalized and guaranteed by more cash reserves than any insurance company has. Now, there’s just one more step before going public: getting the paper, as they say in the industry, meaning making legally compliant products. While Apple would have no problem doing this itself, the quickest route would be to engage insurers and reinsurers that have already paved the way in all 50 states; they would be amenable to such a partnership, to say the least. Once the deal’s done, and the app is developed, and all teams are prepared to take this thing live, the execs pause, and they smile the kind of smile that comes when one knows he’s won for sure and that no one else does. Smugly satisfied, they release the app, queue the oh-so seductive marketing campaign, and voila! the public is smitten. Life insurance for all! Yet, perhaps after pondering a little more, the execs may realize there is an even quicker, deadlier way to realize Apple Life. They propose, "Why spend months on end developing proprietary underwriting software, when we could simply assemble the most effective underwriting practices of existing MGUs and put our distribution power behind it, the one thing they have always lacked?" And then, "Why not, instead of building our own life insurance app, engage an insurtech?" Knowing Apple, they would probably buy one to keep everything in-house, only making sure that the insurtech acquired has a viable product for them to release. The execs gloat, “Ah this plan is so much easier, so much quicker than the first. All we’re really doing now is draping our brand over products others develop for us. And, with our distribution power, not to mention our vast, unholy pool of liquid capital, these products will be a smashing success, without the time and hassle of us building them from scratch.” See also: What’s Next for Life Insurance Industry?   A clever plan, isn’t it? Apple would be able to execute this likely within the matter of a few months, which should put the fear of… something into life insurers. Maybe extinction. All Apple really needs to do is leverage its $260 billion in cash to hire the right people, then throw their brand and distribution power behind what those people provide. It’s that simple. And it’s clearly not just Apple that could do this— Amazon, Google, Microsoft, etc. are equally scary monsters looming far too near to the insurance industry. So what can life insurers do to prevent against this kind of scenario? Simple. Tap the talent before Apple does. Contract or buy a good insurtech, so you, life insurer, can release the hip, new life insurance product first.

While solutions to help employees manage their travel-related expenses have evolved steadily over the past two decades, innovation in the space has really accelerated in the last five years. Never have organizations of all sizes had so many options to choose from. As Gartner points out in its 2017 Market Guide for Travel Expense Management Software, organizations that are still processing expense reports manually can rapidly improve efficiency, accuracy and end-user satisfaction by moving to a modern expense management application. Well, things are about to accelerate even more. We are sitting on the cusp of the third wave of technology innovation, a wave that will transform the industry to the point where our kids and our grandkids will not even understand what “doing your expenses” means. When you explain to them how you used to do it in the old days, they will look at you in the same way that we would look at someone today if they described having to walk over to the TV and turn the dial to change the channel, or dialing a telephone number on a rotary phone. The First Wave How did we get here? The first wave of expense management innovation began in the late 1990s and lasted until the launch of the iPhone in 2007. The focus initially was automation and policy enforcement. The main players were the big enterprise resource planning (ERP) vendors, which built T&E applications as an extension to the ERP suite. These “solutions” were better than the decentralized, Excel-based systems most companies had been using up until that point. Expense management became easier in the sense that there was now a central tool where the company could specify certain policies, and employees could input their expenses. If something was out of policy, it didn’t have to be reimbursed. See also: Innovation Pivots: 10 Lessons Learned   These early tools helped with policy enforcement and vastly reduced the number of Excel spreadsheets floating around, but they didn't really go far enough. Employees found them extremely difficult to use. While they provided a user interface in name, it was clear that the vendors had not considered optimizing the user experience at all. What enabled this shocking lack of attention to the end user was the fact that ERP solutions were sold exclusively to finance and to IT, without any end users involved in the purchasing process. As the adage goes, “If you’re not at the table, you’re on the menu.” The frustration of end users would prove this to be true. The Second Wave Finally, in 2007, Apple launched the product that changed several industries: the iPhone. In expense management, the iPhone enabled a second wave of products that were not ERP-based, unleashing a classic wave of rapid innovation across the whole space. For the first time, we saw the rapid rise of cloud-based, pure-play expense management solutions. These applications offered a more nuanced approach to everything from user experience to reporting to approvals. There was a much better marriage of the needs of the user and the needs of the company. The biggest breakthrough, of course, was giving travelers the ability to do many expense reporting and approval tasks on their mobile phones. Today, as we pass the tenth anniversary of the iPhone launch, we can look back and say that, during this decade, we have succeeded in porting over the same old highly manual desktop-based processes into our mobile phones. Indeed, if we look at it simply from the perspective of being able to do everything on the phone that we can do on the computer, then it appears that we have tapped out all the innovation in this space. We’re done, right? Nothing could be further from the truth. We have been asking ourselves the wrong question this entire time. The question we were asking before was: How can we make this faster and easier? We’ve now done that in many ways that would have seemed futuristic just a few years ago. You can take a picture of your receipts on your phone, and they go right into an expense line. We can use GPS to automatically calculate your mileage. You can even speak your expense lines directly into your phone, on the go, when you’ve got a carry-on bag on one hand and you’re trying to catch your flight. The first two waves were about simply transferring the same level of work to more convenient mediums, first from Excel to an ERP-based specialized tool, then from the desktop computer to the mobile phone. However, the third wave will be about eliminating the work altogether. The Right Question The right question, as it turns out, is: Why are we spending any time doing this manual work in the first place? If you’re traveling and expensing for work, chances are good that you are a highly paid and thus highly valued employee. Why would your company want you spending any time at all on an activity that adds no value? Sure, there is a communication issue. Somebody needs to know exactly what has been expensed, and it has to be coded so that the finance team will understand and be able to approve it. But, in the not-too-distant future, employees will no longer have to take photos to communicate this information. They won’t even have to speak into their phone, and they will certainly not be typing anything at all into their phones or computers. Their transactions will automatically be recognized as either business spending or personal spending based on artificial intelligence that understands their patterns as a user and as a mobile traveler. This is a future state that we can all embrace. Following the Money How will this happen? Here's one possible way: payments. Today, we very rarely see cash payments any more, especially among millennial employees, who already represent the biggest demographic in most workplaces. Shifting to 100% electronic payments paves the way for a much bigger convergence between credit card and payment companies and expense management providers to share data. We already have partnerships between credit card companies and expense management vendors where transactions through a credit card partner automatically go into the expense management system. I believe we will see this on a much larger scale. Expense management technology will evolve to where the tools will be able to look at all the payments an employee is making, identify those that are business expenses and bring them in for reimbursement, perhaps even immediately. The concept of an expense report will be as foreign in the future as the concept of a typewriter. See also: Key Trends in Innovation (Part 7)   Certainly, there may be privacy considerations about allowing your employer access to your spending data, but it seems that majority of us have proven ourselves willing to sacrifice privacy for convenience, and repeatedly. We did it with mobile phones, where we allow location tracking so that we can use our maps apps. We did it with web browsers, where we allow companies to track our browsing history and market to us directly with banner ads. We did it with online payments, where we willingly hand over confidential credit card data. Does anyone doubt that we will do it again with expense reports to enable faster, more accurate repayment with less hassle? In this new world, business travelers will simply live their lives. When travel is booked through the company booking system, perhaps automatically based on scanning your emails for coming meetings away from your base locations and with knowledge of your travel preferences based on your history, all the details of the trip will be instantly shared with your expense system. When your trip starts, the expense system will begin recording and populating the expense report using payment, GPS and other data, with no effort needed. Any non-compliant activities will be flagged before they happen. For example, in the late afternoon, you might get a push notification reminding you of the spending limits for dinner and suggesting some nearby restaurants that would fit the bill. When the trip ends, the traveler gets a completed report to approve for reimbursement. That’s what the third wave of expense management solutions will do for corporate travelers. It’s an incredibly exciting time to be in this space.

The first two parts of this series are here and here. William Gibson, the author, once said, “The future is already here - it's just not very evenly distributed.” So what is "already here" in relation to claims handling? Two data points:

• Lemonade, the new U.S. insurer, says it has used AI to complete the entire claims process in less than three seconds.
• Fukoku Life, in Japan, expects 30% efficiency gains from replacing employees with an artificial intelligence system that can calculate payouts to policyholders.

See also: ‘Gig Economy’ Comes to Claims Handling   The Insurer of the Future will handle almost all of its claims automatically, without human intervention. It will:

• Detect claims using sensors on the Internet of Things (IoT) and data feeds from, for example, death registries
• Analyze those claims by drawing on multiple internal and external data sources and applying artificial intelligence (AI) to establish what needs to be done
• Assess appropriate reserve values and input them to the insurer’s financial systems
• Trigger external supply chains, such as clean-up and restoration services, body shops and online retailers, to return the policyholder to the pre-loss state
• Instruct loss adjusters where necessary, ingest their subsequent reports and act on their findings
• Make payments directly into policyholders’ bank accounts where appropriate
• Trigger, and follow up on, recoveries and reinsurance claims as needed

See also: Insurtech: Can It Help Claims Experience?   In the early days, this will happen for simpler claims only. But in due course, as the abilities of cognitive/AI systems surpass those of humans, claims personnel will no longer be required by the Insurer of the Future.

Health literacy and effective decision support tools are the “soft underbelly” of Healthcare Consumerism (HC). Creating smart patients lags behind the other building blocks of HC. If this area of current weakness is not resolved properly and/or if plan sponsors do not emphasize and support health literacy in materials and actions, HC may fail. To be successful, HC should have extensive educational, informational and decision-supporting tools. The plan member needs help with product selections, and patients need support with clinical options, cost concerns and lifestyle decisions. These tools serve as the foundation for encouraging behavioral changes by helping individuals make informed health care and medical treatment decisions. Information is intended to supplement the patient/physician relationship and provide a level of understanding about a potential or proposed course of treatment. Decision aids help shape consumers’ knowledge of the benefits and patients’ understanding of the risks of each treatment option. With improved knowledge of expected outcomes, consumers using decision guides have been more involved and effective in making decisions as partners with their doctors. Five compelling points underline why consumer decision guides are an integral part of the HC process.

1. Patients as consumers want information — and control. They want to pick their health plans, doctors and treatments; they want information, options and involvement.
2. Patients as consumers use — and like — decision aids. When offered and effectively communicated, people use them and find them helpful.
3. Decision aids change minds. When personal choice plays a critical role or patients are undecided about their options, decision aids are particularly useful.
4. Decision aids improve the quality of care and lower costs. Informed medical decisions can reduce unnecessary visits and services, increase use of highly effective services and ultimately lower costs.
5. Decision aids are getting smarter. Use of prescribed decision aids have become increasingly effective as health plans use predictive modeling to identify specific opportunities to support smart decision making.

  Health Literacy by Generation First Generation Decision Support First generation decision support services focus on providing members information on discretionary expenses such as, prescription drugs costs, relative office visits costs, plan comparison cost calculators and basic clinical library information. See also: Insurtechs Are Pushing for Transparency   Consumer information tools help individuals assess the relative value of purchases, whether paid for personally or covered by their medical plan. Such tools may help individuals:

• Compare benefit plans;
• Evaluate wellness, wellbeing and preventive care lifestyle changes;
• Locate in-network providers;
• Select alternative prescription drugs based on cost and efficacy;
• Evaluate the risks and benefits of expensive procedures or tests;
• Compare providers based on quality indicators; and
• Understand acute and chronic conditions and how best to manage them.

Second Generation Decision Support Appropriate content, form of messages and good programs and tools are necessary but not sufficient to change consumer and health behaviors. Second generation decision support tools that focus on changing health and consumer behaviors require active patient involvement with learning, practice, reinforcement and rewards. Although measurement of the value of behavioral changes can be challenging, collection and evaluation of program metrics are essential. The road to providing education and support tools is neither an easy nor a short path. A Kaiser Foundation study of how consumers compare the quality of health care among different providers showed they would first seek a friend or family member, followed by a health care professional. At the bottom of the list fell published materials and a toll-free number. More recently, health consumers have shown a strong interest in web tools. Smart phone technology and readily available phone apps are easy and convenient sources of medical information. Be sure that plan members are provided the right tools that are consistent with the plan design and coverages. Without question, HC requires significant effort and responsibility from individuals. They must make decisions about how they want to spend their healthcare dollars, which providers to see and what services are necessary. Both proponents and critics agree that success depends on members making good health and healthcare decisions based on medical evidence, personal preferences and overall value. For HC to ultimately succeed within an organization, it must put interactive action-based health decision tools into the hands of its members. Below is a listing of typical decision support tools. Basic Design Information: —HRA fund accounting —Underlying PPO plan design —Disease and/or medical management —HSA fund accounting —Debit/credit card Personal Benefit Support: —Plan comparison cost estimator —Account balance —On-line claim inquiry —Summary plan description Personal Health Management: —Health risk appraisal —Health & wellness information —Targeted health content —Medical record, history —Health coach Provider Selection Support: —Physician quality comparison —Physician cost comparison —Hospital quality comparison —Hospital cost comparison Care Support: —On-line provider directory —Provider scheduling —On-line Rx comparisons —On-line patient decision support —24/7 nurse line Third Generation Decision Support Tools Third generation tools extend the impact of decision support tools to other health, safety and performance metrics of an organization. Aggregated claim and risk assessment data can serve as the foundation to help identify opportunities for ongoing improvement in the health needs of the employed population. Targeted information, assessment, self-help and interventions in areas such as stress relief though lifestyle change and work process changes can have a dramatic impact on health and performance. In addition, organizational resources (other compensation, safety and recognition programs) may be better leveraged to optimally engage and support the employee’s health, well-being and productivity. For example, there can be an integration of and hot links to HR programs of financial management, leadership training, family support programs and other corporate self-help and training. Fourth Generation Decision Support Tools Fourth generation decision support tools will focus on the individual needs of each member. As fourth generation concepts develop, vendors can provide “arrive in time” information and services at critical moments for care. “Information therapy,” as promoted by Healthwise, suggests the active use of patient oriented information with clinical evidence based medicine. Information needs to be embedded into the process of care — as information therapy. See also: Is Transparency the Answer in Healthcare?   “Information therapy” is the prescription of specific, evidence-based medical information to a patient, caregiver or consumer at just the right time to help that person make a specific health decision or behavior change. It is the ultimate consumer decision support aid. For example, Healthwise identifies potential of “prescribing decision support” aids for each of the following tests and treatments:

1. Prostate surgery
2. Back surgery
3. ACL surgery
4. Coronary artery bypass surgery
5. Medication for depression
6. End-of-life care
7. Prescription of beta-blockers following heart attacks
8. Early-stage breast cancer testing
9. Colon cancer screenings
10. Immunizations and eye test reminders for diabetics

Information is powerful if used as an important part of medical care and if supported with incentives and part of a value chain for treatment. If properly integrated into care, it can be as important to health and healthcare as a medical test, medication or treatment. With good information, people can achieve better health outcomes at lower costs. With good information, consumers will be better equipped to fully accept their role in the new world of HC. The information presented and contained within this article was submitted by Ronald E. Bachman, President & CEO of Healthcare Visions. He is the author of a book entitled “Understanding Healthcare Consumerism.” You can find more information and free videos regarding Health Literacy and Healthcare Consumerism at www.ihcuniversity.com.

In recent months, we have witnessed a series of significant events producing large — and mostly uninsured — economic losses. The Equifax data breach exposed personally identifiable information from more than 140 million consumers; there were tens of billions of dollars in flood losses from Hurricanes Harvey and Irma; and the damage costs from long-term power outages and business interruption losses stemming from Hurricane Maria’s devastation in Puerto Rico are still being calculated. All those underscore the low level of insurance penetration for perils like flood, cyber and contingent business interruption even in the U.S., one of the most highly insured economies in the world. Spurred by the growth of new technologies, the advent of new business models reliant on increasingly complex supply chains and the dynamic forces of climate change, emerging risks such as these have become increasingly important to consumers and businesses around the world. At a recent industry gathering, Mike McGavick, CEO of XL Catlin, asked how the insurance industry can remain relevant to its customers when it has seemed unable to develop insurance products to protect against some of the most critical risks facing policyholders in our modern, connected economy. It is an important question. While the insurance industry’s development of new products has typically lagged in the changes in technology and risk environment that drive demand for protection, the wave of new products, business processes and companies from insurtech startups can help insurance industry incumbents to accelerate their response to a changing risk environment. There are three categories of insurtech innovation that will be critical to this evolution: data, analytics platforms and tradable risk. See also: 8 Exemplars of Insurtech Innovation   Over time, free-market economies have evolved in ways to manage a variety of risks through the use of insurance. But the fundamental nature of emerging risks has challenged the insurance industry’s ability to develop new insurance products and price those products using historical data that actuaries typically rely upon to parameterize their pricing models. Even if such historical data existed, it would have limited predictive value for emerging and changing risks such as cyber because of the dynamic nature of the risk, as hackers constantly develop new methods to evade security and more and more of our intellectual and physical assets become interconnected through the internet. And the forces of climate change are quickly rendering historical data sets obsolete — even for classes of risk like hurricanes that have been considered to be well-understood. A number of innovative companies, both insurtech startups and a few more established enterprises, are building new platforms and data collection modalities designed to enhance the amount, granularity and quality of underwriting data for a broad range of traditional and emerging classes of risk. Companies like reThought Insurance (US flood insurance MGA), Audeamus Risk (a platform for managing and underwriting operational risk) and both Cyence and Symantec in the cyber risk area are collecting unprecedented amounts of data, including new data elements that can provide real-time indicators of changes in risk profiles in these areas. Other new technologies including sensors, wearables, telematics and social media networks can capture types and quantities of data far beyond what insurers have used to set premium rates and loss reserves. These new datasets can provide insurance and reinsurance companies with more extensive amounts of data and real-time information, allowing a carrier to track and monitor its policyholders with far more timely and actionable information than has previously been available. Increased quantity and quality of exposure data is a prerequisite to insuring emerging risks, but making sense of this tsunami of data requires other forms of innovation. Developments in artificial intelligence and machine learning provide new tools that can allow insurers and investors to filter vast data sets to isolate the variables with the most predictive value in signaling relationships between exposure and claim activity. But improvements in data collection and analytics alone are not sufficient to provide the risk-bearing capacity needed to accommodate emerging risks with the sheer volumes of exposure to loss of flood, cyber and contingent business interruption. A new approach is needed to develop vehicles through which the risk burden — and profit potential — can be spread beyond the insurance industry to tap into deeper pools of capital. The capital markets are great for this kind of creativity, as evidenced by the creation and development of asset-backed securities markets over the past 40 years, which brought liquidity to markets for mortgages, credit cards and auto loans. Since the 1990s, the insurance industry, where reinsurers historically have served as the “lenders of last resort,” has seen the emergence of capital market solutions to manage accumulations of risk. These have taken the form of so-called “alternative capital” products that have enabled hedge and pension funds to assume property reinsurance risk through catastrophe bonds and similar vehicles. In recent years, these products have served to dramatically decrease the cost of capital in the catastrophe reinsurance market while creating a high-yielding investment opportunity whose returns are uncorrelated with equities or interest rates. At Extraordinary Re we have built a trading platform for insurance risk, initially targeting “extraordinary” risk classes such as cyber and flood. By embedding our trading platform inside a reinsurance company, we bridge the insurance and capital market worlds, enabling insurers to transfer accumulations of risk to institutional investors in the form of tradable reinsurance. This innovation allows investors to assume risk in a liquid market with the ability to control the amount and types of risk and the timeframe over which that risk is carried. That permits the allocation of capital in a more flexible manner than is possible in the insurance industry, which takes a “buy and hold” approach to underwriting risk. It will even become possible for different investors to hold shares of a single reinsurance risk at different points in the lifespan of that risk between policy inception and the date when the last claim is settled. A trading market allows risk to be allocated to the most efficient (and lowest cost) capital provider throughout the term of each risk. See also: Insurtech: Are We Waiting for Godot?   The creation of this risk-transfer market produces a new source of data that will provide new benchmarks for pricing and valuation, leading to new product development efforts among the insurance companies originating the risk. Such an information feedback loop is particularly valuable for rapidly changing types of risk, where investors’ trading responses to real-time changes in the risk environment (including changes identified using new data sources and analytics) are likely to have far more predictive value than any historical data set. Only the global capital markets can provide the resources of liquidity and expertise to value and manage emerging risks. If the economic history of capitalism has taught us anything, it’s that a liquid trading market is the best mechanism for allocating capital and pricing risk in a dynamic and changing environment.

I have tracked insurer IT budgeting and planning for more than a decade. During that time, there has been one major shift: Core systems replacement went mainstream as fear of inaction surpassed fear of change. Otherwise, I used to joke that I could republish a prior year’s study and no one would notice. This year, however, we may be starting to see some real evolution in insurer IT spending and planning. Security issues and innovation are breaking into the list of top concerns and challenges as multi-year core systems projects started in previous years are being completed. While average spending patterns haven’t yet changed significantly, there is a shift in priorities and challenges — and an increased variability in the sample of the nearly 100 insurers who participated in Novarica’s 10th annual study. Property/Casualty: Analytics and Speed to Market For property/casualty insurers, business intelligence and analytics are the most frequently cited areas of need; more than half of P/C insurers put it in their top three needs (followed by distributor ease of doing business and speed to market for product changes). Note that if the responses for speed to market for product changes are combined with the responses for speed to market for true new products, that becomes the most common area of priority for P/C leaders. Large P/C insurers are generally more optimistic about the capabilities of their key applications, except for CRM and portals. Core systems replacement activity is significantly lower this year than in previous years — partly because of variations in the sample, but also reflecting the effects of prior investments. Midsize P/C insurers are more conservative in their self-assessment than their larger peers, with more than 30% rating their own capabilities as “poor” or worse in customer portals, CRM, UW workbench, BI and predictive analytics. More than half are currently engaging in core policy administration system replacement or are planning to start a new replacement in 2018. See also: My 4 Ps for Investing in InsurTech   Life/Annuity: Digital For life/annuity insurers, the most commonly demanded business capabilities are digital marketing and customer engagement, surpassing even the combination of speed-to-market for product changes and true new products. Other common high-priority areas for life insurers include optimizing internal workflow (also a digital capability) and reducing operating expenses. In aggregate, large life/annuity insurers are most confident in their distribution and compensation management and CRM abilities and are least confident in their abilities in analytics, digital engagement, underwriter workflow and core policy administration. This correlates with significant replacement and enhancement activity in portals and core admin, as well as significant enhancement activity in analytics. Midsize life/annuity insurers judge their customer portal capabilities harshly, with half rating them “poor” or worse and 40% planning replacements for 2018. Additionally, 30% of the participants in this group are also engaged in core policy administration and claims replacement projects. Innovation and Insurtech While not as high priority as short-term needs, about 20% of respondents did note that the demand to support innovation and leverage insurtech was among their top three business priorities for the coming year. None had it as the business’s top priority, however. Tactical concerns continue to dominate. Security One significant change from last year is the increased citation of security as both a priority and a challenge, with 30-40% of insurers placing it in their top three compared to less than 20% in previous years. Although aggregate security spending levels haven’t changed significantly over the past year, remaining at close to 10% of total spending, security is consuming a much greater proportion of CIO mindshare than in previous years. One CIO said recently that the amount of time he spends on security issues has doubled every six months. More than 60% of insurers are planning to expand their capabilities in key security areas, including device security, application security, intrusion detection and data encryption. Similar numbers are also improving their audits and procedures. Insurers will need to continue to devote additional resources to security in 2018 and beyond. Unfortunately, taking those resources out of insurers’ traditional IT budgets of 3-4% of premiums would mean hamstringing their abilities to develop and deploy new capabilities. Insurers that have not already done so are likely going to create a real IT security organization and budget in addition to, not replacing, their current IT spending if they want to continue to move forward safely. See also: Security Training Gets Much-Needed Reboot   General Outlook Once again, the outlook for insurance IT in the coming year is very similar to the current year — with the notable exception of an increased focus on security. Business leaders are demanding additional capabilities in analytics, digital and speed to market; IT organizations are responding with enhancements of existing systems and replacements of legacy. While replacement activity is still significant, it seems to be ebbing somewhat among property/casualty insurers as the investments of the past decade are going into production. But overall, spending levels will remain essentially consistent, with some insurers spending slightly more, some holding steady and a smaller number making cuts. This consistency itself represents a risk. With security demands growing at the same time as business demands for digital and data capabilities, insurers are not going to be able to meet these concurrent demands within a traditional IT spending framework. Insurers need rethink their approach to IT budgeting. Rather than asking how little they can spend on IT next year, insurers should be asking themselves two key questions: What is the real price of maintaining a robust security program, and how much can I afford to invest in technology to remain competitive now and in the future?

If I were a young actuary or underwriter, I’d be worried — because the Insurer of the Future won’t have much need for my skills. What do these professionals do for a living? They rely on their personal experience and various data sources to understand and price a risk more accurately. Sometimes they carry out complex statistical calculations in support. See also: How Underwriting Is Being Transformed   But the Insurer of the Future will have its experience data captured on its internal systems. It will also tap into vast amounts of additional data available from external sources, some structured, some unstructured. And it will channel all of this data — far more than a human actuary or underwriter could ever handle — to its artificial intelligence (AI) engines. These AI engines will examine the data for patterns, apply multiple statistical models and add their own experience from previous analyses to come up with a much more accurate price, massively quicker than a human ever could. And for the Insurer of the Future, the AI engines will be wired directly into the sales and underwriting processes, which will operate “straight through,” with no involvement from humans. There will be room for some human oversight roles to ensure that the AI engines don’t “go rogue” and generate crazy pricing — but the vast majority of actuaries and underwriters will no longer be required. See also: Strategist’s Guide to Artificial Intelligence   Please see “Part 3 – Claims Handling” for further predictions.