Transformation is underway in P&C commercial lines – finally! The nature and speed of the transformation will play out quite differently for small/medium/large commercial, workers’ comp and specialty lines. And the stage of the transformation journey may be very different based on business strategies, the appetite for innovation, emerging technologies, insurtech and the geographic scope of the insurer. But the overriding theme is that commercial lines insurers are more aggressively looking to go beyond business as usual. They are rethinking business strategies to ensure growth and profitability while adjusting to the changes in the competitive and industry landscape.

Our latest (and eighth) annual research study, 2018 Strategic Initiatives: P&C Commercial Lines, addresses 12 strategic initiatives, spending and priorities for 2018. The report reflects big increases in five key initiatives: digital transformational, innovation, core modernization, data and advanced analytics and customer experience. More than 90% of insurers state they are either planning, beginning investment or are in full deployment in these areas. Digital transformation and innovation are up from below 50% in 2017 – a significant increase. And emerging technologies and insurtech are reaching all-time highs of 87% and 58%, respectively.

See also: Commercial Lines: Best Is Yet to Come  

Across commercial lines, leadership teams are experiencing a new urgency to transform, and many are making significant investments toward creating and positioning for the future of insurance. Even though the commercial market financials and results continue to be cyclical, the industry remains financially strong. This allows for expansion in investments in transformational initiatives alongside the traditional ones. Most executive teams understand that the digital, connected world is evolving rapidly, and the competition is coming (not only from new corners but also from within the walls of the traditional industry). As a result, one of the biggest challenges for insurers is linking and balancing the initiatives of the traditional world with those of the new world, a key undertaking for achieving success in the age of digital transformation.

Every insurer actively must seek to understand and track activities in the insurtech and emerging tech spaces. It helps to create a way to evaluate new activities and align them to your business strategy. Actively engaging customers in the digital age and creating a culture of innovation are also mandatory. Perhaps the most important things for senior leaders to do are to ensure that the organization is considering and prioritizing the strategic initiatives identified in the report and then motivating and energizing employees across the organization to be open to the vast possibilities afforded by the convergence of traditional with the new. It would be a mistake to think that your company will be unaffected by the new developments.

Drug overdose is the leading cause of accidental death in the U.S., with 52,404 lethal drug overdoses in 2015. Opioid addiction is driving this epidemic, with 20,101 overdose deaths related to prescription pain relievers, and 12,990 overdose deaths related to heroin in 2015, according to a report from the Centers for Disease Control and Prevention (CDC). What’s behind this unfortunate trend? It is multifactorial. Paradoxically, improvements in healthcare over the last 20-some years are abetting the opioid epidemic. Hip replacements, knee replacements, spinal surgery and other procedures are now commonplace. More surgeries mean more patients who need pain relievers to help them with recovery – and then the subsequent potential for opioid addiction. It is no longer safe to assume that opioid addicts hail from the segment of the population that uses street drugs. Today, it is much more difficult to identify and understand the people who might be addicted to opioids, because all kinds of people – the high school athlete, the middle-aged professional, the retired grandmother -- are prescribed opioids for myriad reasons and then are at risk for developing an addiction. This diversity is what has made prescription opioid addiction so difficult to manage. These patients become very skillful at obtaining their opiates from their pharmacy and not a dealer. See also: The True Face of Opioid Addiction   With all of these changes, the experienced urban criminal detective is no longer the go-to resource used to identify opioid addicts. Alternatively, behavioral analytics is doing the job by making it possible to:

As the healthcare industry moves toward value- based care, reimbursement will be tied to quality outcomes achieved. While the concept is simple enough, operating under this model brings some complications. Advanced analytics can help healthcare organizations understand their current situation, what might happen in the future and what actions they should consider. Below are five ways that healthcare organizations could accelerate their success with their value-based initiatives by leveraging advanced analytics: At the end of the day, care givers seek to gain insight into not only what has happened, but what will happen and then what should I do about it. With so many competing priorities, it can be extremely difficult and overwhelming to know where to begin. By using advanced predictive and prescriptive analytics within daily workflow, healthcare organizations are able to confidently allocate resources to focus on high-value opportunities that will improve both clinical and financial outcomes. Interested in taking a deeper dive? Check out our webinar titled 5 Ways to Use Data for Advanced Analysis.

Football, in its infancy, had no plays. In the late 1870s, the visiting team would travel to the home team, where both teams would agree upon the set of rules for that game. The home team would supply officials, causing occasional controversy, and the game would be off and running. There was no quarterback, no set of downs and very few rules regarding possession of the ball. It wasn’t until Walter Camp, a former Yale player, introduced the concept of a quarterback and a limited time of possession, that “plays” became important. Camp wished to provide more of a strategic element to game play. This resulted in more practice, more play calling and much more interest in the game. Play calling and playbooks have increasing value and tremendous application for insurers as we rapidly shift from Insurance 1.0 to Digital Insurance 2.0. A playbook is meant to provide strategic direction that fits with current or projected circumstances. When business strategists read the industry, the different market segments and demographic trends, they can apply their plays more effectively to capture market share. Those without playbooks and plays will find themselves scrambling from priority to priority, instead of confidently executing their strategies to earn the win. Majesco is helping insurers build their unique digital playbooks with our strategic business platform solutions and market research-based, thought-leadership reports. In two of our recent reports, we provided both generational consumer playbooks and generational small-medium business (SMB) playbooks that give insurers valuable insights into digital capabilities enabled by technology’s potential that will energize insurance plays. In my next four blogs, we will draw on both reports to look at both Pregame Analysis and Ideal Offerings that insurers can use to target consumers and SMBs. Consumer generational playbooks — Pregame analysis Scouting the opposing team is the basis for creating and applying plays from the playbook to win. You’ll find an excellent scouting report of consumers (broken out by generational demographics) in Majesco’s recent thought-leadership report, The New Insurance Customer — Digging Deeper: New Expectations, Innovations and Competition. At a high level, the report highlights the demographic trends that are pointing to a different future for insurance, which we call Digital Insurance 2.0, recognizing that customer expectations, product needs, engagement and more are vastly different than the last 30-plus years.  New experiences and technologies are becoming “the new norm” across all generations but are more intensely and rapidly changing to the next generation of insurance buyers, Gen Z and millennials. See also: Does Your Structure Fit Your Strategy?   Throughout time, the youngest members of society have traditionally been the early adopters of new technology. Millennials and Gen Z are the early adopters of our current, digital age. Both generations are digital natives. Millennials grew up digital in a world connected by the internet, and Gen Z was “born digital” in a world dominated by mobile. In our Changing Insurance for the Digital Age report, we highlight that the U.S. millennial market alone could exceed $7.2 trillion by 2025 and is the driving force behind increasingly personalized capabilities based on unique customer journeys involving engagement and real-time personalized product delivery. However, nearly 69% of millennials remain either actively disengaged or indifferent with their insurance carriers. Adding to this shift and momentum is the fast-emerging Gen Z market, which is poised to surpass the size of the millennial market. Simply put, for these digital generations, the traditional products, the business models that support them and the customer experience do not align with their growing market dominance. We found that millennials and Gen Z demand much more in personalized products and experience, putting innovative products and competitors at an advantage. The scouting report highlights new consumer behaviors and expectations Driving that point home, Majesco conducted consumer research in 2017 to determine the acceleration in changing digital behaviors across a number of technology and business indicators — the factors that are reshaping insurance. To capture the next generation of buyers, let alone retain current customers, insurers must begin to use playbooks that are aligned to the generational consumer needs and expectations, personalizing insurance, and place their companies firmly into the realm of Digital Insurance 2.0. We found that all generations share the top three most-performed “new” activities that we used as consumer trend indicators. There are substantial numbers of people who have now:

• Paid for something with a company’s app (e.g. Amazon, Starbucks)
• Paid for transportation through a ride-sharing service like Uber or Lyft
• Used a fitness tracker like Fitbit, Garmin, etc.

The Gen Z and millennial generations are at about 45% to 60% in usage of the top three, indicating a critical mass of interest. And while Gen X and Boomers are in the 30%-40% range, given the growth in usage we expect this to continue in an upward trend, as their comfort level with digital technologies increases. Customers across all generations have come to expect the convenience of researching, buying and paying for products, services and information on demand – any time and any place – via any device (phone, tablet, wearables) … and that includes insurance. The on-demand context of these behaviors, based on location, time and activity, lend themselves well to insurance applications, as risks are influenced heavily by where a person (or thing) is, what they are doing and when and how long they are doing it. Interestingly, and counter to perceptions of older generations, there is strong on-demand interest by Gen Xers and pre-retirement Boomers … emphasizing why digital engagement needs to be personalized to be effective. The report categorized analysis of the activities into seven key areas: gig economy, sharing economy, connected devices, payment methods, products, channels and other emerging technologies. Here are some of the highlights:

• The 2016 Upwork and the Freelancers Union’s annual survey estimated that 55 million people, or 35% of the U.S. workforce, chose freelancing as their means of work. Our survey results confirm that participation in gig economy activities across all generations is similar to the Upwork survey. However, a smaller percentage have “side hustles” via ridesharing or renting their rooms/houses or cars.
• Consumption of ridesharing services is a dominant behavior across all generations. Home/roomsharing services are used about half as much, yet still have a strong and growing appeal.
• Connected device use is seeing tremendous gains. Fitness trackers are the most popular type of connected device across all generations. The nearly 33% of Gen Z and 25% of millennials using connected home devices could also rapidly help intensify these new needs and expectations.
• Use of ApplePay and SamsungPay saw strong year-on-year growth, with more than a third of Gen Z and millennials and a quarter of Gen X now using them regularly. The increased use of digital payment capabilities is raising the bar of expectations across all generations for all types of purchases, including insurance.
• Across all generations, 22% to 38% purchased insurance from a website, with Gen Z and millennials clearly leading the use of this channel. This suggests the increased ease and desire of the younger generation to buy online.
• On-demand insurance was surprisingly strong, with 25% to nearly 30% purchasing it for a specific item or event, such as the kind of insurance that Trov offers. On-demand and subscription-based models are rapidly gaining acceptance in a shorter time, as compared with website purchases, which have been around for nearly 20 years.
• Not surprisingly, Gen Z and millennials lead the older generations in their use of drones and 3D printers (or items produced by one). These are two rapidly growing technologies that present significant risk implications for the insurance industry.

What this conveys to insurers doing their own analysis is that “new” is increasingly “normal,” more quickly. Using research responses, we extrapolated valuable “plays” that insurers may pull for use in their own playbooks. See also: Stretching the Bounds of Digital Insurance   The game has already started…your team better join soon   Many new business models and new products emerging in the market are focused directly on exploiting these new behaviors and expectations. These Digital Insurance 2.0 teams are intent on challenging the traditional products, services and processes of traditional Insurance 1.0 teams. And while customers and the market will ultimately determine their success, we tested five of them and learned they stand a good chance of succeeding, especially among the younger generations who are the new generation of insurance customers. Furthermore, we decomposed these new products and new business models into 30 distinct attributes and tested them with customers to determine their interest in buying and potential to switch to them. And the interest to buy and switch is strong. Existing insurers need to seriously begin to understand, plan and develop new offerings and capabilities aligned to these … which represent Digital Insurance 2.0. In my next blog, we’ll look at customer reactions to those business models, assess their viability for use in insurer playbooks and discuss how the 30 attributes can be used to create some Ideal Offerings for different customer segments. For a preview, be sure to read, The New Insurance Customer — Digging Deeper: New Expectations, Innovations and Competition. Digital playbooks are already in use. Does your company have a strategy to embrace the digital age and shift to Digital Insurance 2.0 to drive growth? The time for developing and using the digital playbook is at hand.

"Your margin is my opportunity.” - Jeff Bezos Amazon has proven again and again that Bezos and team can bring fundamental change to multiple industries. Adding one of the world’s most respected and trusted business figures in Warren Buffett and the leader of one of the largest financial institutions who pulled it through the 2008 financial crisis in Jamie Dimon, and healthcare’s long overdue overhaul may be upon us. Not since I wrote Health Insurance's Bunker Buster nearly eight years ago have I seen anything that has the potential to bring a brighter future for all Americans. In this article, I refer to my book, The CEO’s Guide to Restoring the American Dream. You can get it on Amazon or download it for free here. For simplicity, I’ll refer to the Amazon-Berkshire Hathaway-JP Morgan Chase as “ABC.” The slide below is a very rough breakdown of where each dollar in the U.S. healthcare system goes. Shockingly little makes its way to the value-creators—primarily nurses, doctors and other clinicians. As I laid out earlier in 10 Mistakes Amazon, Berkshire Hathaway and J.P. Morgan Must Avoid to Make a Dent in Healthcare, conventional employer-led efforts have failed to change healthcare. Few would call Bezos, Buffett or Dimon conventional thinkers, and they collectively bring more weight than most of the world’s developed economies. Given that the U.S. healthcare industry would be tied with Germany as the 4th largest economy in the world, the potential of their influence becomes clear. The benefits from tackling the extraordinary fraud, waste and abuse in our healthcare system is why employers can and are doing it. More importantly, the collective successes have already created a guiding framework for all healthcare purchasers—private or public. We call this framework the Health Rosetta, but we’re just aggregating these successes. Baked into virtually every U.S. healthcare industry business model is that employers are what healthcare pundit and author Matthew Holt calls “dumb price takers.” Most readily pay 2X-10x more than market-clearing prices. Chapter 6, PPO Networks Deliver Value—and Other Flawed Assumptions Crushing Your Bottom Line, spells out how this happens. I will spell out below how ABC could tackle the healthcare tapeworm (Warren Buffett’s term for the negative impact of healthcare on the U.S. economy). See also: Whiff of Market-Based Healthcare Change? Three key facts potentially differentiate the ABC health initiative from past employer-led efforts:

1. The strategic focus and attention of three of the most successful CEOs in America.
2. Warren Buffett’s moral authority and trust, which will give the initiative a bully pulpit that can reach the general public.
3. Amazon and J.P. Morgan Chase’s technology, financial structuring, and data prowess, which can be applied to root out fraud, waste and abuse, create new care pathways and produce new revenue and financing models.

The following points riff off the line from The CEO’s Guide that people tell me most resonates with them—You’re in the healthcare business whether you like it or not. Here’s how to make it thrive. In other words, when ABC applies the same discipline to healthcare that they apply to every other area, modeling the path for other employers, everything will change. Below are 11 ways the ABC initiative could forever change the U.S. healthcare system, followed by a summary treatment of each point.

1. New industry norms for benefits-purchasing transparency and conflicts disclosure will emerge
2. Cybercrime fraud rates will drop dramatically
3. Fraud awareness enabled by healthcare industry will trigger landscape-changing litigation
4. Healthcare will stop stealing from retirement savings
5. Healthcare will stop stealing millennials' future
6. Market clarity will show that employers are the real “insurance” companies
7. A spotlight will shine on high rates of overtreatment and misdiagnosis
8. Open source will come to healthcare
9. Massive new capital restructuring opportunities will appear
10. Primary care will experience a rebirth
11. There will be a focus on going local to go national

Now that you know where we’re going, let’s dive into each point. 1. New industry norms for benefits purchasing transparency and conflicts disclosure will emerge The ABC leaders each have deep financial services expertise where meaningful disclosure of compensation and conflicts of interest is deeply embedded both legally and culturally. As they dig in, I would expect them to conclude that new norms are needed in this space, such as what we’ve developed for the Health Rosetta plan sponsor bill of rights, benefits adviser code of conduct and disclosure standards. These are “motherhood and apple pie” concepts that are a 180-degree change from current industry norms, where benefits brokers often sit on both sides of a transactions with significant undisclosed conflicts. 2. Cybercrime fraud rates will drop dramatically The same sort of algorithms that identify fraud in credit cards can be applied to healthcare, but haven’t been. Simple-to-detect fraud like a single claim being paid 25 times to cybercriminals (a real and all-too-common occurrence that modern payment integrity services find) will be the low-hanging fruit, but these have not been broadly applied. ABC will also see that this blatant fraud is just the tip of the fraud, waste and abuse iceberg. As a bonus, a leader in payment integrity is one of the earliest adopters of Amazon’s AWS cloud service. 3. Fraud awareness enabled by healthcare industry will trigger landscape-changing litigation Even though cybercrime is only the tip of the iceberg on fraud, waste and abuse, it is so blatant that it is already spurring legal activity. In Chapter 19 of my book, I quote a Big Four risk management practice leader who said, “ERISA fiduciary risk is the largest undisclosed risk I’ve seen in my career.” There are two areas of legal jeopardy that are snapping CEOs to attention as they get awakened to the risk. Chapter 7, Criminal Fraud is Much Bigger Than You Think, is just the basics on ERISA fiduciary risk, but it is so blatant that there are dozens of cases in the works. An additional thread of fiduciary legal front is emerging—activist shareholders are realizing how straightforward it is to improve earnings by slaying the healthcare cost beast. The Health Rosetta website has a simple estimator that translates removal of healthcare waste into EBITDA impact. Here is just one example of the impact. A multinational manufacturer implemented a proper musculoskeletal management program by having physical therapists working with employees and workplace ergonomics. The savings (if applied directly to EBITDA) from this alone create a positive $2 billion of market cap impact (calculate savings x price-earnings multiple). 4. Healthcare will stop stealing from retirement savings Healthcare has crushed the average boomer’s retirement savings by $1 million. Even if this estimate is off by 10x (unlikely), it’s still $7.6 trillion that could have been under management by financial firms such as JP Morgan. My senior level contacts in the 401k/retirement segment surprised me when they said that government de-privatizing of retirement (due to low savings levels) is on the worry list of folks like Jamie Dimon. If true, it is another reason organizations like JPMorgan Chase would want to redirect money being squandered in healthcare to retirement accounts. 5. Healthcare will stop stealing millennials' future David Goldhill’s outstanding Catastrophic Care book gave an “optimistic” view of how healthcare is on track to consume half of a typical millennial’s lifetime earnings. He assumed that healthcare costs grew at half the rate of regular inflation (extremely rare—more typically, it’s 5% to 10%). As the largest generation in history, millennials are the most important generation for all of the ABC organizations. Smart employers find they are natural early adopters of Health Rosetta-type benefits programs. [See Chapter 4, Millennials Will Revolutionize Health Benefits] 6. Market clarity will show that employers are the real “insurance” companies This is the health plan industry’s worst nightmare. There is a growing realization that because less than a third of the claims that insurance companies process actually put the insurance companies’ money at risk, “insurance” companies are more appropriately described as commoditize-able claims processors. It is self-evident that paying a third party to manage risk when they benefit from rising costs hasn’t worked out well. The smart BUCAs already understand this, which is why you see some aggressively diversifying out of the insurance business. They are happy to milk the insurance business until it goes away, but their corporate development actions clearly signal the future. For example, I heard Aetna CEO Mark Bertolini say at a Health 2.0 conference that they increasingly see themselves as a technology company with insurance on the side. [See Chapter 3, What You Don't Know About the Pressures and Constraints Facing Insurance Executives Costs You Dearly] 7. A spotlight will fall on high rates of overtreatment and misdiagnosis ABC’s leadership will see past studies such as the Starbucks/Virginia Mason study that found that 90% of spinal procedures did not help at all. They will also be shocked to find extraordinary rates of misdiagnosis across healthcare, like what I outline in Chapter 12, Centers of Excellence: a Golden Opportunity. They will want to ensure their employees get the best possible care, which also saves tremendous money. It’s commonly known that ~50% of what we do to people in healthcare does not make them better and could make them worse. 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-added musculoskeletal procedures. 8. Open source will come to healthcare As much as companies such as Amazon keep some information and code proprietary, they also actively benefit from open source. Open source software underpins major parts of Amazon’s business. Some problems are too big to tackle on your own. As big as ABC are, they aren’t big enough to tackle all of healthcare, and they don’t have dominant market share in any single geography. Because adoption happens so slowly in healthcare, Health Rosetta is catalyzing the creation of a Wikipedia-like resource for the next 100 years of health (a group of visionary doctors call their vision Health 3.0) to dramatically accelerate the rate of adoption for successful approaches. Those insights will benefit ABC. In the other direction, ABC should be motivated to share what they are doing with other local employers to more rapidly change norms in a given healthcare market. While the Fair Trade-like model for healthcare transactions we’re working on is non-controversial outside of healthcare, ABC can add heft and use their bully pulpit to normalize more appropriate behavior in this area. For example, legitimate, known pricing (link to a petition by a former hospital CEO) versus the arguably predatory and arbitrary pricing today would still let healthcare providers set their prices (i.e., not government-set), but pricing would be consistent and known across all payers. One Health Rosetta component—Transparent Open Networks—already enables this. In other words, healthcare transactions could operate like every other part of the economy. Single pricing is a subtle, but critical, part of making healthcare functional. Not tackling this would be one of the biggest mistakes ABC could make. 9. Massive new capital restructuring opportunities will appear This item could be an entire white paper, but I’ll touch on just two opportunities stemming from the above items. Hundreds of billions of dollars (if not more) have been and are being tied up in fraud, waste and abuse. As large purchasers and others begin to account for this, a subset of it can be treated as bad debt and turned into instruments that are sold to opportunistic, sophisticated investors. The subsequent collection efforts by these purchasers would be dramatic to any person or organization enabling the fraud. Second, it is well known that we have at least 40% overcapacity of hospital beds, fueled by a massive revenue bond bubble. The orderly disposition and restructuring of these assets is another massive opportunity that can be accelerated by the work of ABC and others. Outside of rural settings that have few overcapacity issues, evidence shows that hospital closings have no impact on outcomes. Freakonomics did a segment on how health outcomes actually improved when hospital cardiologists were away at a conference. This horrific story about a typical overtreatment scenario leading to bad outcomes is another example of why this would be the case. 10. Primary care will experience a rebirth I detailed the critical reasons why ABC must have a strong primary care foundation in my open letter to Jeff Bezos, Warren Buffett and Jamie Dimon. Just based on the number of employees ABC has, it makes economic sense to fund ~1,500 value-based primary care clinics. They can derisk this investment by making the clinics available to ABC partners and customers. I wasn’t surprised that ABC recently hired my parents' primary care physician, who has deep experience in a vanguard value-based primary care organization. [See Chapter 14 for more on value-based primary care] 11. There will be a focus on going local to go national From Facebook to Uber and Lyft, the best way to go national with something game-changing is to start with a hyperlocal focus. This lets you prove unit economics in a controllable environment. Despite conventional wisdom, the future health ecosystem will be local, open and independent, which provides anti-fragility versus easy-to-destroy monoliths. I often draw an analogy between the Health Rosetta and LEED for many reasons. One is that certain locales were early adopters of LEED. Likewise, certain geographies will abandon the current, silly medical facility arms race. For example, Portland, OR, is an early adopter of LEED, and it has grown a cluster of sustainable industries by attracting talent and businesses to the area. Over the last year, I have been gathering feedback on creating a competition like Google Fiber or Amazon HQ2 competitions to identify communities where the new health ecosystem forms. See also: Media Coverage on Amazon Misses Point   Beyond the obvious benefits of defining and pioneering the next century of health, solving the opioid crisis is a profound imperative. As I pointed out in Chapter 20: The Opioid Crisis: Employers Have the Antidote, the largest public health crisis in 100 years has major employer/economic implications and is simply impossible to solve without active employer involvement. The sad fact is that every addict needs an enabler, and employers have been the biggest (unwitting) enabler in 11 of the 12 major drivers of the crisis. The silver lining is that solving the opioid crisis takes you a long way toward solving broader healthcare dysfunction. Employers implementing Health Rosetta-type benefits have much lower rates of opioid overuse disorders due to the upstream “antidotes” to the crisis. In short, ABC has the power to demonstrate that employer health benefits are the newspaper classifieds of transforming the healthcare business Healthcare has many analogies with another industry that has been dominated by regional monopolies/oligopolies—newspapers. Like employer health benefits, the classifieds business was very easy to overlook. However, in both cases, they drove a significant majority of profits for newspapers. Once the classifieds business was undermined, the newspaper industry was never the same. If the ABC initiative plays its cards right, they can catalyze restoring the American Dream for millions of Americans by fixing healthcare. The great news is that there are many microcosms in America where the best healthcare system in the world exists — far more affordable and effective than we’re used to. ABC has the opportunity to help America leapfrog the rest of the world and finally have a truly superior and efficient healthcare system. “You can always count on Americans to do the right thing - after they've tried everything else.” - Winston Churchill

Truth-stretching claims made by companies about their products are nothing new -- we need only think back to old-school infomercials for some prime examples. When the products in question are prescription drugs, however, the repercussions of product misrepresentation become much more complicated. Because there are a number of regulatory departments designed to root out potentially dangerous substances well before they make their way into patient hands, it seems reasonable to assume that the drugs prescribed to us are safe for their intended uses. Over the last few decades, the FDA has developed a number of programs designed to speed the drug approval process and more quickly deliver promising new medications to suffering patients. The 1997 Food and Drug Administration Modernization Act included a “fast track” program that allowed qualifying drugs to cut approximately a year off the median development timeline. From one point of view, cutting down the time it takes for new medications to make their way to patients in need of treatment has clear benefits. From another, shortening the review and approval process can lead to less rigorous trials with less time to observe potential side effects and interactions. Faster approval time also means that pharmaceutical companies can start to profit from their innovations more quickly, which provides another motivator for promoting a more streamlined approval process. In some cases, however, an expedited approval process can lead to complications. Pradaxa, sold without a reversal agent for its blood-thinning effects for at least five years, has contributed to severe bleeding incidents and hundreds of deaths. The drug’s manufacturer, Boehringer Ingelheim, has faced thousands of lawsuits due to the internal bleeding side effects and reached a $650 million settlement in 2014 to resolve roughly 4,000 claims. See also: The True Face of Opioid Addiction   There are cases to be made both for and against streamlining the FDA drug approval process, but as the aphorism “first, do no harm” urges, safely treating patients should always be at the core of any system. In the first quarter of 2017 alone, the pharmaceutical and health products industry spent a total of $78 million in lobbying, a $10 million increase from the same period in 2016. This massive spending has allowed large pharmaceutical companies to influence policies and laws, and the leverage that Big Pharma gains through lobbying accounts for one of the pathways allowing drugs with potentially life-threatening side effects to reach the market before they’re fully tested. In 2001, Pfizer, one of the world’s largest pharmaceutical companies, brought a drug called Bextra to market. Bextra belonged to a new class of painkillers called Cox-2 inhibitors -- purportedly safer than generics but with a much higher price tag. The FDA approved the drug to treat arthritis or menstrual cramps but rejected the drug for acute surgical pain (which would require a much higher dosage). Pfizer and its marketing partner Pharmacia pitched Bextra to surgeons and anesthesiologists anyway, and at doses up to twice what the FDA had approved as safe. Promoting a drug for off-label use is in direct contradiction to the Federal Food, Drug, and Cosmetic Act (FDCA) designed to protect the public by ensuring that pharmaceutical drugs are safe and effective for their intended uses. Unlawfully promoting drugs for unapproved uses constitutes healthcare fraud, which in turn excludes pharmaceutical companies from Medicare/Medicaid. The penalty of Medicare/Medicaid exclusion would result in the disruption of necessary prescriptions to patients, loss of jobs and stock losses for shareholders, while virtually guaranteeing financial collapse. Instead of charging Pfizer with the crime, federal prosecutors charged one of Pfizer’s subsidiaries, Pharmacia & Upjohn Co. Inc. The resolution ensured that workers at Pfizer who hadn’t engaged in illegal activity wouldn’t be affected, but it also reduced the penalty to Pfizer from federal charges to a criminal fine -- Pfizer is effectively still able to sell products through federal programs. The size of the fine (nearly $1.2 billion) pales in comparison to Pfizer’s annual revenue, and Mike Loucks, the federal prosecutor who oversaw the Pfizer investigation, worries that the penalty wasn’t steep enough to deter similar behavior in the future. Contributing to the current situation are four FDA policies that have created accelerated pathways to approval for new, breakthrough pharmaceutical drugs. For example, the 21st Century Cures Act allows companies, under certain conditions, to provide data summaries and "real world evidence" (such as observational studies, insurance claims data, patient input and anecdotal data) rather than full clinical trial results. The policy prioritizes innovation and expedited approval over public safety, resulting in an overcrowded market of nearly identical drugs backed by less comprehensive research. See also: Big Opioid Pharma = Big Tobacco?   The importance of research into new solutions to a growing list of healthcare concerns can’t be discounted, but the priorities of current systems seem to have strayed from their original purpose. With the focus behind many pharmaceuticals developed and marketed today being profitability over safety and efficacy, it’s clear that regulations need to change. The industry requires a greater focus on transparency around quality testing and legislation, as well as the elimination of exploitable policies that allow larger companies to stymie generation of quality, affordable generics. Such a shift has the potential to both reverse rising healthcare costs and improve the quality and accessibility of medication to the public.

In the #MeToo and #TimesUp era, employees may be more ready to assert sexual aggression claims than in the past. These situations could lead to a workers compensation claim, a civil suit or even criminal proceedings. Privacy is an issue in each setting, but only in comp is the claims professional engaged in the victim's medical treatment. Privacy issues merit consideration throughout the life of the claim, including at time of resolution. (The applicability of SB 863 and Labor Code §4660.1(c) regarding the compensability of psych claims is outside the scope of this post.) Who is the adjuster? Advocacy-based claims handling emphasizes empathy with the injured worker. Adjusting a claim for physical injury from rape, actual or attempted, or a psych claim arising from sexual aggression may call for special attention to who will see the injured worker’s records. A female adjuster may be best-suited to handle a woman’s claim. But reports of Kevin Spacey’s and others’ behavior remind us this problem is not limited to aggression against women. An important concern with #MeToo claims is to avoid a string of claims personnel who have access to the injured workers' medical records as they make treatment authorization decisions. Some companies have procedures to limit access to sensitive records. However, the longer a case is pending, the more likely it is that multiple people will need to see these records, possibly causing additional stress for the injured worker. See also: ‘Slice’ Your Way to Mediation Success     Confidential Resolution As with all other workers' compensation claims, early resolution is best. Mediation is the most private place to resolve sexual aggression claims. Unlike with an informal meeting, mediation confidentiality is mandated by law. A WCAB hearing may create additional psychological issues for someone who has had these experiences. Assure that person or their representative that participants are barred from disclosing what happens in a mediation in other forums. Additionally, caucusing enhances a claimant’s privacy. Once I have separated the parties into separate spaces, they can talk to me without fear that anything will be communicated to those in the other room without their permission. As the mediator, I can reframe the injured worker’s concerns to maximize privacy. This environment facilitates case settlement.

Advanced planning and preparation, strategic global thinking, shifts in legislative landscapes and sound technology investments are on the minds of most industry leaders as we move into 2018. As an extension of its own thought leadership program, Sedgwick has identified key trends that are likely to affect risk management and benefit decisions in the coming year. To stay on top of issues that may affect our clients and industry partners throughout the year, we took a close look at internal research and colleague observations, external exploration and employer discussions and in-depth market monitoring of current and emerging risks. We will continue to watch and offer our projections on these potentially defining movements, classified into five categories:

• Compounding global risks
• Shifting tide of policy
• Bridging the gaps
• Leveraging interdisciplinary care
• Improving experience through technology

Compounding global risks. An unusually high number of natural disasters in 2017 underscored the need for organizations to have a strong disaster recovery plan in place. Establishing strategic partnerships that can support an effective business continuity plan is critical. Preparation and action must occur before, during and after a catastrophe if an organization is going to recover and resume operations in a timely manner. Additionally, the continuing threat and prevalence of emerging risks are expected to push the boundaries of organizational resources and resiliency. Cyber threats like data intrusion and ransomware are evolving and multiplying as the global economy becomes increasingly connected. As we continue to see terrorism, both international and domestic, in the headlines, it underscores the need to prepare and protect our people and property. During these turbulent times, society’s reliance on first responders as a line of defense against risks of all types becomes even more critical. Caring for first responders’ overall physical and mental health is one way communities and businesses can increase preparedness for debilitating crises. Several states have taken up legislation aimed at increasing coverage for first responders. Organizations can anticipate that, as coverage grows, so will the need for specialized claims, managed care and disability services. See also: Industry Trends for 2017   Shifting tide of policy. Businesses can look for leave programs to expand in response to demand from their own employee populations, faced with the need to care for their own health and the welfare of their families. Parental leave, caregiver leave and other paid leave programs are on the rise; several states have already introduced new family-friendly paid leave bills, and others are clarifying and expanding regulations for leave benefits. This trend is expected to continue as the population shifts. More than ever, vigilance is needed for employers to maintain compliance with continuing changes in the Americans with Disabilities Act, Family and Medical Leave Act and other connected federal, state and municipal laws. Throughout 2018, organizations can expect regulatory complexity to increase and fines and litigation to be a looming threat for non-compliance. Many organizations are facing policy changes and compliance demands with a renewed willingness to collaborate across disability, leave of absence and workers’ compensation teams. It is impossible for organizations not to feel the impact of the prescription drug crisis on their workforces. The costs – personally and financially – of the misuse and abuse of opioids place undue burdens on society. Governmental agencies, pharmacy retailers and employers continue to look for ways to take back control through such means as legislation, drug formularies and first-fill limitations. Bridging the gaps. Throughout 2018, organizations will seek new ways to bridge gaps in knowledge and services based on evolving needs and preferences of consumers. Organizations are joining in the race toward on-demand, self-service innovation to provide immediate resources to those in need. The infusion of machine learning and artificial intelligence is advancing many capabilities by automatically sifting through mountains of data, allowing service providers to detect patterns faster and formulate valuable insights to improve the quality of the customer experience. Organizations are also seeking new ways to bridge diversity gaps. Different generations and populations have different needs when considering health concerns, technology, communication preferences and resources. We must address changing demographics within the workforce and determine how to better adapt practices to accommodate and support differences. Focusing on the claims industry specifically, insurance carriers, third party administrators and self-administered employers must broaden the knowledge and capabilities of today’s claims professional. As seasoned professionals begin to retire, bridging the talent gap becomes increasingly important. Training of claims professionals must expand beyond the traditional claims process. Claims organizations must look holistically at how examiners are addressing the needs of their clients and consumers and how their part in the process affects the bigger picture. Leveraging interdisciplinary care. The movement toward a whole health approach increases trust and engagement and places less influence on individual providers in favor of a more holistic, consensus view of treatments and interventions. As more employers embrace principles of advocacy, empathy and responsiveness, they are using centralized support to link teams and resources with a common focus on quality care. With this shift, organizations look forward to continued improvement in the consumer experience and stronger physical, emotional and financial health for employees. We are seeing more businesses embrace integrated programs as a means to address the shared challenges of healthcare, return to work and compliance. In addition, the importance of data connectivity within organizations and across providers will grow as organizations work to avoid information gaps, optimize care and avoid potential dangers. Interdisciplinary cooperation is also important as a means for exploring alternatives for pain management. Organizations can anticipate more collaboration between employers, physicians, claims specialists and patients as they move away from long-term drug prescriptions, looking instead toward alternative therapies and weaning techniques to help injured workers regain their health and productivity without the risk of addiction. See also: 3 Technology Trends Worth Watching   Improving experience through technology. Technology helps employers engage workers throughout their recovery, maintaining a stronger connection while they are away from work and making the process easier for them to understand. Better communication and improved access to on-demand care can help improve the claims experience, and increased consumer satisfaction is leading to accelerated outcomes and better overall health. Telemedicine and other remote access offerings are still on the rise and evolving as other “tele” services are added to the mix. Eliminating some of the barriers of distance and time, these resources are connecting patients with the right providers for initial and follow-up treatments for minor injuries and illnesses, as well as support resources throughout the claims process. Chatbots and avatars are becoming more prevalent as support and service options for all lines of business. The industry is even seeing potential for these tools as virtual health coaches for workers’ compensation, disability and wellness programs. Employers can also expect to see the claims industry reach the next level of decision optimization and use technology to deploy intervention strategies in real time. Analytics will influence next-generation methods for addressing all types of claims and be used to predict those that will become complex or incur large liability losses, anticipating care and pharmacy needs, prescribing appropriate steps toward resolution and facilitating return to work. While the year ahead may bring challenges, it also brings a renewed sense of hope and excitement. As these and other trends materialize and develop, those who have anticipated and planned ahead will be in a position to capitalize on opportunities as they arise. Sedgwick will continue to guide our clients and the broader industry by tracking topics and trends like these that may affect employees, customers and businesses. To read more, visit Sedgwick’s Navigating 2018 webpage.

The bankruptcy filing of an insurtech startup has drawn some recent attention, so here is our two cents:

In the world of startups, the fact that Human Condition Safety filed for bankruptcy in March 2017 would generate a headline something like: "Venture-backed startup filed the first bankruptcy of the day," or perhaps "the first bankruptcy of the week." Ho hum. 

In an era of accelerated development times, rapid testing and iteration of products, thousands of very smart people launch with solid practices, just as Human Condition Safety did in 2014, when its founders thought they could use artificial intelligence and wearables to simulate work environments and help employees learn to be safer. These startups often find a name client, as the company did with Bechtel, and attract real money, as Human Condition Safety did when it raised $18 million at a valuation as high as $90 million. Then the founders discover that reality is much different from theory. 

This isn't a negative. All sorts of studies have found that more than 90% of startups fail. The failures are a feature, not a bug, for the innovation ecosystem. The failures don't show that the founders are stupid, bad people, etc. They just show that people are being appropriately ambitious about important problems with potentially huge payoffs.

The failure rate for startups does raise a question that is worth some attention: What do best practices tell us about picking viable early-stage companies? In other words, can we do better than the standard failure rate?

Stats and research completed through our Innovator’s Edge platform strongly suggest the answer is yes.

Innovator's Edge is populated by more than 40,000 early-stage firms in 175 countries, with 7% of the firms qualifying as insurtech. (The remaining 93% are entrepreneurs with the potential to redefine risks we take as a given today.) Among all startups in the platform, 2017 funding transactions totaled nearly $345 billion. Research on the platform shows that insurers don’t limit involvement to investing. Participation includes mentoring, adopting, promoting and buying, as has happened with WeGoLook, Snapsheet, AppBus, Pypestream, RiskBlock, RiskGenius, Jamii, etc. Any additional involvement by insurers improves success rates.

The platform also shows that insurance-based venture investors appear to place more faith in the founding teams longer, and therefore tend to avoid replacing founders. Nor are they investing in teams that are looking for a quick exit. Changing out founding teams with executives selected by investors is a tactic of last resort, which fits with research we’ve done that found that 70% to 90% of a decision to support an early-stage company should be based on the team. Early-stage firms tend to lack experience at scale, but that’s what insurance companies do well–allowing for the sort of partnership that can produce great success. 

Let this story of a bankruptcy that took place nearly a year ago serve as a reminder on the risk/reward equation at work with insurtechs. The risks are high, so firms will fail. Get comfortable with that reality. However, when a startup with a solid team and a decent idea finds a good fit with an insurance investor that has clarity about the job to be done, the rewards are spectacular. 

Have a great week.

Paul Carroll
Editor-in-Chief

“The ballooning cost of healthcare acts as a hungry tapeworm on the American economy.” That’s how Warren Buffett framed the context as he, Jeff Bezos and Jamie Dimon announced the alliance of their firms, Berkshire Hathaway, Amazon and JPMorgan Chase, to address healthcare.

The problem is serious. Healthcare costs in the U.S. have been growing faster than inflation for more than three decades. There is little relief in sight. A Willis Towers Watson study found that U.S. employers expect their healthcare costs to increase by 5.5% in 2018, up from a 4.6% increase in 2017. The study projects an average national cost per employee of $12,850.

The three companies have a combined workforce of 1.2 million. Based on the Willis Towers Watson estimate, they could spend more than $15 billion on employee healthcare this year. But, what can the alliance do about it?

On that, Buffett was less clear: “Our group does not come to this problem with answers. But, we also do not accept it is inevitable."

The challenge is formidable. As the New York Times noted, employers have banded together before to address healthcare costs and failed to make much of a dent in spending. How will this effort be different?

See also: 10 Mistakes Amazon Must Avoid in Health  

If this alliance as simply another employer purchasing cooperative, it will probably have little effect. Neither 1.2 million employees nor $15 billion in spending is all that significant in a 300 million-person, $3.2 trillion U.S. healthcare market. The alliance might nudge the healthcare industry toward incrementally faster, better and cheaper innovations—but not much more.

If, however, the alliance thinks big and structures itself as a test bed for potentially transformative ideas, innovations and businesses, it could have a disruptive effect.

Amazon is the critical ingredient in this latter approach. Although all three companies bring employees and resources (both critical), only Amazon brings particularly relevant technological prowess and disruptive innovation experience. Amazon could think big by simply applying the standard operating principles and capabilities that it has perfected for retail—comprehensive data, personalization, price and quality transparency, operational excellence, consumer focus and high satisfaction—to healthcare.

It also has differentiated technologies like Alexa, mobile devices, cloud (AWS) and AI expertise. It could leverage its recent years of healthcare-specific exploration, such as those in cardiovascular health, diabetes management, pharmacies, pharmacy benefit management, digital health and other healthcare research. It could use Whole Foods as a physical point of presence.

Amazon could then start small and learn fast. It could crunch the numbers and come up with large enough interesting employee segments for experimentation. For example, it might focus on improving quality and satisfaction for the sickest 1% to 2% of employees. It might focus on those with hypertension or diabetes. It might focus on helping those undergoing specific treatments, such as orthopedics or cancer. It might focus on preventing the rise of chronic diseases in those at most risk, such as those with prediabetes or uncontrolled hypertension. It might focus on narrow but high-impact issues, like price transparency or prescription adherence. Issues in privacy would have be addressed, but there are many opportunities to address well-known but as-yet-unsolved problems in healthcare.

By first focusing on the quality, satisfaction and cost for the alliance’s employees, Amazon could justify its efforts through increased employee productivity and satisfaction and reduced cost. Indeed, the alliance emphasized that it its effort was “free from profit-making incentives and constraints.”

See also: Whiff of Market-Based Healthcare Change? 

That doesn’t mean, however, that profits are not possible in the future. Amazon built its AWS cloud computing business by first solving an internal problem in a plug-compatible, low-cost and scalable manner, and then bringing it to the market.

That business-building approach would provide an additional incentive that goes beyond cost-cutting: a new business platform for Amazon, an enormous investment opportunity for Berkshire and (despite short-term consternation to existing clients) investment banking opportunities for JPMorgan.

In Parts 2 and 3 of this series, I will explore what an Amazon inspired transformation in health care might look like and how Amazon is well-positioned to make it happen.