The economic devastation and human suffering that Hurricane Harvey inflicted on vast numbers of people will sorely test the National Flood Insurance Program (NFIP) as it comes up for renewal, with the NFIP lapsing if Congress and the president fail to act by the end of the month. Some in the federal government, state regulators, industry experts and this economist favor solutions encouraging private sector participation in flood insurance markets. Near-term, the most likely and wisest course seems to be a short extension allowing the Federal Emergency Management Agency (FEMA) and NFIP to focus on settling claims while politicians and policy experts develop longer-term solutions. With the U.S. Government Accountability Office (GAO) reporting the NFIP was $24.6 billion in debt before Hurricane Harvey, many in government and elsewhere feel significant reforms are needed. Other knocks against the NFIP as currently constituted include its reliance on allegedly inaccurate and out-of-date flood insurance rate maps (FIRMS), its failure to charge actuarially appropriate premiums and policy limits too low to provide adequate insurance protection. Some also contend that the NFIP encourages excessive risk taking and poor land use by providing subsidized insurance coverage for properties that repeatedly get flooded out, effectively divorcing those who choose to reside in flood prone locations from the consequences of their decisions. Uncertainty about the exact extent of the devastation caused by Harvey will persist for some time, as the huge number of properties damaged by the storm, difficult conditions and continuing lack of access to some of the hardest-hit areas all add to the time necessary to assess losses. Further complicating efforts to understand the magnitude of the losses caused by Harvey, published reports often fail to clearly distinguish between economic losses, insured losses covered by private carriers and insured losses covered by the NFIP. Nonetheless, it appears Hurricane Harvey may exhaust the NFIP’s financial capacity, causing the program to go still deeper in debt. See also: Harvey: First Big Test for Insurtech   The NFIP purchased private reinsurance covering 26% of its losses between $4 billion and $8 billion, but Fitch Ratings believes losses from Hurricane Harvey could consume the NFIP’s $1.04 billion in reinsurance protection. As Congress and the president ponder the way forward, the options available to them include several that would facilitate development of private markets for flood insurance akin to the private markets for homeowners insurance. Key elements of such solutions include measures clarifying mortgage lenders’ ability to use flood coverage underwritten by private carriers to satisfy insurance requirements imposed by Fannie Mae and Freddie Mac. The development of private markets for flood insurance will also require that the NFIP adopt actuarially sound pricing. Simply put, private carriers that must cover their costs and earn an adequate rate of return on capital would be at a tremendous disadvantage competing against taxpayer-subsidized coverage from the NFIP. And it would certainly help if carriers currently participating in the NFIP’s WYO Program were allowed to also offer alternative coverage. Currently, the WYO Program includes a non-compete clause that precludes carriers from offering alternative standalone flood insurance. The constituencies supporting increased private sector involvement in flood insurance markets include the National Association of Insurance Commissioners, the Property Casualty Insurers Association of America, the National Association of Mutual Insurance Companies and the American Insurance Association, which have all come out in favor of the Flood Insurance Market Parity and Modernization Act passed unanimously by the House in 2016. Thinking more broadly, there may be no need for the federal government to participate directly in the flood insurance business. Mechanisms akin to state FAIR and Beach Plans could serve as insurers of last resort for property owners unable to obtain coverage from private carriers. Or, we could transition from the NFIP as it exists today to a new NFIP modeled on the Terrorism Risk and Insurance Program (TRIP) introduced after the terrorists destroyed the World Trade Center on Sept. 11, 2001. Under that program, insurers must offer terrorism coverage, with policyholders then free to accept or decline. If insured losses from a terrorist attack exceed specified triggers, the federal government provides reinsurance protection, and insurers subsequently reimburse the federal government. Thinking still more broadly, there may be no need for the federal government to participate in the flood insurance business at all. With trillions of dollars flowing through global capital markets, catastrophe bonds and other insurance-linked securities could enable insurers and reinsurers to obtain all of the capacity necessary to cover flood risk without any federal reinsurance backstop. See also: Time to Mandate Flood Insurance?   An ideal solution would enable one policy to provide coverage for both wind losses and flood losses. As long as those losses are covered by separate policies, policyholders and insurers will remain burdened with having to distinguish wind losses from flood losses— a frequently contentious and often expensive undertaking that adds to the time necessary to settle claims. In any case, private sector insurers and reinsurers now have access to data and sophisticated flood models that enable them to price and underwrite flood risk intelligently. And developments such as the new commercial flood insurance program recently introduced by ISO and Verisk Analytics set the stage for greater participation in flood insurance markets by ever greater numbers of insurers, as will the corresponding personal property flood insurance program they plan to roll out later this year. With state regulators and insurers aligned, it seems all that’s necessary to unleash the power of private markets is action on the part of Congress and the president. Why not send them a postcard?

As Hurricane Harvey finally relents, the insurance industry is about to experience the flip side of a famous line from Warren Buffett. Talking about how investment portfolios shouldn’t be judged in good times, Buffett said, “Only when the tide goes out do you discover who’s been swimming naked.” Well, with the rain and the rain and the rain that Harvey inflicted on Houston and surrounding areas, we’re going to get to see who in the insurance world can swim. That question will take two forms, one that we’ve seen in every disaster since time immemorial, but the other a new one, about insurtech. The normal one is about whether insurers will perform in their moment of truth, or whether we’ll find the kinds of dubious decisions by adjusters and faked engineering reports that led to improperly denied claims and gave insurance a black eye after Superstorm Sandy. In the case of Harvey, the question for the industry is, essentially: Do insurers want to be Joel Osteen or J.J. Watt? As you may know, given that he’s all over TV, Osteen is the senior pastor at a megachurch in Houston who was mocked on social media for being slow to open the doors of his “prosperity gospel” Christian church and provide shelter and aid for those displaced by the hurricane. He says that he has been maligned and that he was always ready to help, if the city had asked, but his many critics have noted that nobody had to ask Houston’s mosques to open their doors and made Osteen the king of memes this week. Osteen is damaged. The only question is how badly. On the flip side is J.J. Watt, the all-everything defensive lineman for the Houston Texans. Very early in the storm, he made a personal pledge of $100,000 and asked for others to kick in, stating a goal of $200,000. Well, his sincerity and concern went viral, drawing donations from tiny to huge, from Drake to Walmart. Last I checked, total donations exceeded $20 million. With the waters receding, Watt and teammates will be personally going around the city, delivering water, clothing and everything else he’s bought to hand out. He could run for king in Texas, and nobody would get in his way. While acknowledging that insurance is a business that has no obligation to pay more than it owes policyholders, I think the choice is clear: Be like J.J. Watt as much as you can. Don’t be Joel Osteen. See also: Harvey: Tips to Avoid Claim Issues   The new question is trickier. The insurtech movement has been around for a few years now, but Hurricane Harvey is the first true catastrophe that has happened during a time when the insurance industry is laying a claim to innovation. (For good measure, Typhoon Hato has been hammering Macau and Hong Kong at the same time.) We’re about to find out how innovative we really are. Some companies are following the traditional playbook and dispatching armies of adjusters to the afflicted region. But we’ll also see the skies filled with drones and will learn how effective they can be at documenting the damage and how much their work still has to be supplemented by humans. We’ll learn a lot about the “gig economy” and whether part-time workers, such as the “Lookers” provided by WeGoLook, can efficiently supplement the full-time insurance workforce, speed the process of claims and slash away at the costs of sorting out a full-on disaster. Supposedly, insurtech is letting everything happen faster. Startups such as ViewSpection and MondCloud provide for self-service on claims, letting individuals send photos and videos and allowing insurers to do triage and pay easy claims quickly. But reality may intrude. Every time I see a photo of some aid facility and spot a sign saying “Free legal services,” I want to applaud those who are helping the injured pro bono, but the cynic in me sees lawyers fishing for clients. I suspect that the hurricane is a full-employment act for every recent law school graduate in Texas. The lawyers, of course, have a vested interest in avoiding quick settlements, so they can work the insurers, take thousands of cases to court and perhaps find some lucrative class actions. Insurtechs, meet lawyers. We’ll have to see how that goes. I don’t often bet against the lawyers. Insurers have begun using chatbots, such as Pypestream’s, in their call centers, which should help handle the deluge of calls that will come in from customers and allow insurers to contact customers more often and more effectively to keep them up to date on the progress of claims. We’ll have to see how insurers do about handling customers' concerns in these hours and days and weeks of need, as well as what role technology plays. Better data and analytics, sometimes powered by AI, are supposedly making us all smarter about mitigating risks, underwriting and everything else, but it’s easy to congratulate yourself on being smart when you don’t face a test. In the real test -- accuracy -- I’d say insurtech startup HazardHub wins early points for putting out an analysis right before the storm saying that $77 billion of property was at risk in Houston, quite a bit higher than other estimates I saw – though lower than some estimates now circulating, and damage estimates always seem to grow, never diminish. We’ll see whether the powerful new analytics let any company in particular get away from the risks in Houston – keeping in mind that ProPublica identified the particular risks in Houston, because of lack of restrictions on real estate development, in a story published last year. If the journalists could spot the risks, how did the insurers do? The verdicts will take weeks and months to come in, because the damage has been so extensive and because problems are still developing in what continues to be a stew of mold, fetid water and chemicals. But we’ll get a sharp sense of where innovation has, in fact, happened and where it needs to go – if we keep our eyes open, evaluate the results honestly and take the lessons seriously. There’s one other question that needs to be answered, too, this one on the government policy level. Flood insurance isn’t working in the U.S., so what do we do about it? Perhaps lulled by a lack of major storms hitting the U.S., homeowners have increasingly declined to purchase policies, so estimates are that 80% to 85% of homes in Houston were not covered. Meanwhile, the National Flood Insurance Program (NFIP), which provides so much of the coverage, is already heavily in debt because it underprices risk and hasn't recovered from Superstorm Sandy. By law, the NFIP needs to be renewed this month, but we’ve all seen how dysfunctional Congress is these days, and Congress has even more pressing priorities this month, such as dealing with the budget and raising the national debt ceiling. The best proposal I’ve seen so far is to require that homeowners and renters insurance, commercial property policies, auto policies and so on all have a flood piece to them, so that citizens carry the responsibility and so that risk is priced in the market, rather than being dumped on the federal government. See also: Time to Mandate Flood Insurance? One person attached a compelling comment to this article on how the federal government, not insurers (and, ultimately, the insured public) will pay for the recovery from Hurricane Harvey: “Homeowners have three options: 1) buy flood insurance through the NFIP, 2) live in a non-flood plain or 3) accept the risk of living in a flood plain. Option 4 of Harvey victims expecting insurers/taxpayers to compensate them for their increased risk is not an option.” A century ago, in the earliest days of IBM, founding CEO Tom Watson Sr. placed signs in offices that said, “Think.” When the company sparked fears of bankruptcy 25 years ago, wags penciled in two words underneath some of those signs, so they read, “Think – or Thwim.” Flood insurance in the U.S. is in “Think or Thwim” mode. I hope we think.

According to this article, only 15% of homeowners in the Houston area have flood insurance: "As of August 2016, just 15% of the 1.6 million homes in Harris County, where Houston is located, had flood insurance, according to emailed data from the Insurance Information Institute, and only 28% of the homes in 'high-risk' areas for flooding." See also: Hurricane Harvey: A Moment of Truth  We all know the reasons why people don’t buy flood insurance. They think, “It’ll never happen to me.” It’s too expensive. They don’t have to. They don’t know they need it. Or, they’re told they don’t need it in idiotic articles like this one that can be found plastered all over the internet: “Unless you live in a flood plain or an area with a history of water problems, don’t even bother buying flood insurance. If none of the homes in the area has ever been flooded, yours is unlikely to be the first.” Last month, in a blog post about healthcare, I raised the issue of whether we should explore an alternative system to how we currently insure catastrophic exposures to loss: I’ve opined for years that we should abolish the National Flood Insurance Program (NFIP) and windstorm pools, mandate property coverage by all owners and tenants and include flood and windstorm damage in standard homeowners, commercial property, auto and other policies. Minimum and maximum catastrophe loadings could be established so that there is some degree of subsidization in more risky areas. CRITICAL, though, would be mandated loss control measures, including zoning restrictions, building codes and so forth. Loss prevention and reduction would be absolutely necessary components of an insurance program, as they should be now. The reality is that, unless the risk of loss is almost definite or coverage is mandated, people simply will not buy the coverage. And if the risk of loss is high, the cost of insurance is either unaffordable or results in adverse selection and repetitive losses. While the focus today is on flood, this holds true for other catastrophic exposures like earthquake. Is this doable? Should property insurance be mandated and include catastrophe premium loadings similar to civil disorder charges applied in the late '60s? Can the risk of loss be spread enough that the private sector can manage it? Can commerce and governments work together to invoke loss control measures to mitigate loss to manageable levels? What are the issues? What are the obstacles? Can they be overcome? See also: Harvey: Tips to Avoid Claim Issues   Your comments are welcome below. And, please, no political rants, just rational and respectful arguments, points and counterpoints.

Data and analytics is a phrase that is probably in 75% of articles and blogs written today on the industry. In fact, data and analytics is used so frequently that it almost appears to be one word – dataandanalytics. SMA research shows that 92% of insurers have data and analytics initiatives under way in 2017. It is the number two initiative, only three percentage points behind customer experience, to which it is closely aligned! The importance of data and analytics to the enterprise is no longer debated. However, there is danger in this. A level of complacency has crept into how insurers are addressing data and analytics requirements. SMA survey results show that, on average, 65% of insurers are investing in reporting and dashboards and scorecards, spanning both personal lines and commercial lines of business. Clearly, it is important to do this because managing day-to-day operations is critical. However, and this is the salient point, investing in these areas is historical – it’s where the money has been going for quite some time. See also: Analytics and Survival in the Data Age   The flip side of this picture is that 80% of survey responders indicate they have no plans for investing in cognitive computing, and 37% have no plans for investing in data and text mining. Use cases follow the same pattern. In terms of the customer and distribution, insurers have been investing in new business analysis and agent performance for years. Yet, 53% of survey responders say they have no plans for using data and analytics for single view of the customer. Numerous other examples abound, as detailed in our research findings. The insurance industry is definitely focused on investing in data and analytics, but the research shows that the investment is in the same areas, for the same purposes. Insurers continue to get good at what they are already good at. And it is hard not to do this … the positive results are compounding! But one huge factor is making this direction untenable – the pace of change. Technology, particularly technology coming from insurtech organizations, is exponentially advancing. Customer expectations and the rapidly evolving nature of risk are figuratively (and somewhat literally) running right along next to these emerging technologies, eager for the value being delivered. When it comes to emerging data sources such as the IoT, wearables and drones, there are a handful of insurers that are embracing the data and developing capabilities. Yet, as many as 82% of insurers have no plans to leverage these data sources. Those insurers advancing with new data sources are rapidly creating a gap that insurers with no plans will find difficult to bridge. This is another example of where the pace of change will have a big influence. See also: Data and Analytics in P&C Insurance   A great percentage of insurers are poised to change direction and move from the data-and-analytics-investment “comfortable zone” and over into innovation. Significant work has been done from an organization and role perspective in terms of data and analytics teams, particularly at an enterprise level. But the measured steps of the past need to be replaced by a faster pace and focused on new targets that emulate the world that we live in. SMA’s recently released report, Data and Analytics in Insurance: P&C View Through 2020, provides a deep dive into the state of data and analytics today, as well as plans for the future. The report also features an updated version of SMA’s proprietary Data and Analytics Spectrum, which provides a framework for insurers to benchmark their initiatives. It also details the various components of a robust data and analytics strategy. Or is it a dataandanalytics strategy?

Express Scripts v. Kaleo illustrates what we have long suspected, that PBMs are re-labeling rebate dollars with another name to retain the value. Only now, we have insight as to what that value might be. Thanks to Robert Ferraro R.Ph at Conduent and Barry Cross at Michelin for passing this along, from ProPublica. Express Scripts Lawsuit Should Raise Everyone’s Eyebrows  For years, every PBM has refused to disclose the “rebates” that it earns on a drug-by-drug basis. As a result, no one has been able to detect the “net cost” of any drug (factoring in rebates), which means no one can assess whether a PBM’s formularies and programs favor higher-cost or lower-cost drugs. Every PBM has also refused to disclose how much in “other monies” the PBM is secretly being paid by manufacturers to favor the manufacturers’ products. As a result, no one has been able to determine how much a PBM is earning from its secret “deals” with manufacturers, or the amount that the PBM’s clients lose in potential savings because a PBM re-labels “rebates” with another name to avoid sharing those monies with its clients. But a few days ago, Express Scripts filed a lawsuit against the drug manufacturer Kaleo, and, while Express Scripts’ lawyers heavily redacted the complaint, they did not redact certain information that Express Scripts has long maintained as closely guarded secrets. The information that’s revealed is shocking. According to Express Scripts’ complaint, Express Scripts entered into “rebate agreements” with Kaleo in 2014 concerning its opioid overdose treatment Evzio that required Kaleo to pay Express Scripts far more in secret “administrative fees” (that Express Scripts presumably retained for itself) than Kaleo paid in “formulary rebates” (that Express Scripts presumably passed through to its clients). The complaint reveals that in four of its monthly invoices to Kaleo, Express Scripts invoiced Kaleo $26,812 in total “formulary rebates” but $363,160 in total “administrative fees.” Thus, based on the structure of Express Scripts’ rebate contracts, Express Scripts would pass through in these four months about 6.9% of the total amount it collected. Stated otherwise, Express Scripts would retain about 13 times more in “administrative fees” than Express Scripts would pass through in “formulary rebates” to its clients. Here’s a summary of the information included in the complaint: What was Express Scripts doing – if anything – to earn so much in administrative fees? Obviously, no one knows. But every plan administrator and fiduciary should demand full disclosure of this information. After all, unless Express Scripts was engaged in actual work meriting these payments, Express Scripts should have used the label “rebates” for the “administrative fees” it collected and passed through all such monies to plans to reduce their costs. The federal government should also want to know what work Express Scripts actually performed to earn its “administrative fees” under the Medicare contracts. And the government should ensure that Express Scripts appropriately reported the amounts as Medicare obligates Express Scripts to do. Medicare rules require that Express Scripts only retain the “fair market value” of services that Express Scripts actually performed, and that Express Scripts report such money to the government as “bona fide service fees.” Therefore, assuming Express Scripts retained these monies, Express Scripts was obligated to perform services commensurate with the amounts it retained. See also: Is This the Largest Undisclosed Risk?   On the other hand, if Express Scripts did nothing – or little – to earn these fees, Medicare rules require that Express Scripts label whatever amounts did not represent the “fair market value” of its services as “direct and indirect remuneration”, and report and pass through those amounts to the government. Bottom line: The federal government should determine whether Express Scripts is accurately categorizing and reporting its “bona fide service fees” and “direct and indirect remuneration” or whether it is retaining and hiding monies that the government would otherwise benefit from. Also, we think the government should determine whether any activities that Express Scripts did perform under its Medicare contracts were actually in the interests of the government and Medicare beneficiaries, or contrary to those interests. As a taxpayer, wouldn’t you want the government to investigate and obtain answers on all these matters? Why Did Express Scripts’ Earnings Increase?  In this day and age, everyone knows that most manufacturers of brand drugs are continually increasing their prices. And some manufacturers are raising their prices exponentially. But no one knows what PBMs are doing to prevent such price increases. Nor does anyone know the extent that PBMs are profiting from manufacturers’ price increases. The complaint discloses that Express Scripts “administrative fees” in January 2016 were $24,963, but in April 2016 they had soared to $129,517 – an increase of more than 400%. In a separate paragraph, the complaint states that Evzio’s price dramatically increased in February 2016 from $937.50 to $4,687.50. Our investigation into other data reflects that, nationally, the number of Evzio scripts that were dispensed spiked during this period, too. Unfortunately, we can’t tell from the heavily redacted complaint why Express Scripts earned far more in “administrative fees” in April. Was it because the structure of Express Scripts’ contract enabled it to earn more when the drug’s price increased – or more when the number of dispensed scripts increased – or both? Does Express Scripts earn “administrative fees” based on a percentage of the “total dollar volume of drugs sold”? Regardless, obvious questions arise: Did Express Scripts actually perform more work in April 2016 than it did in January 2016? Did its work load increase by more than 400%, meriting increased payments of more than 400%? Or does Express Scripts simply structure its rebate contracts to get paid more and more secret money, as drug prices increase or more scripts are dispensed, regardless of the activities that Express Scripts actually performs? The Plot Thickens: “Price Protection Rebates” Based on the complaint, Express Scripts included an additional provision in its contracts if Kaleo increased the price of Evzio, namely “price protection rebates.” From conversations with other industry experts, we’ve long known that some PBMs sometimes include price protection provisions in their manufacturer contracts. These provisions typically state something like the following: "If the manufacturer increases the drug’s list price by more than _%, the manufacturer must provide a price protection rebate reimbursing the PBM for all price increases above the stated amount." Express Scripts’ complaint reveals it entered into two rebate contracts with Kaleo – for its commercial business and for Medicare. Assuming Express Scripts’ “price protection rebates” created the above-described types of “caps” on acceptable price increases, how much were those “caps”? Unfortunately, the redacted complaint does not provide us with an answer. But note the following: Even if Express Scripts named relatively low “caps”- say, 2% – plans and Medicare would be totally exposed to 2% of Evzio’s price increase. If Express Scripts named a higher “cap” – say, 10% – plans’ and Medicare’s costs would inevitably soar. What conclusion can we reach about Express Scripts’ “price protection rebates”? While Express Scripts may have positioned itself in its “rebate” agreements to experience an “upside” if Kaleo increased its price, its “price protection rebates” left plans and Medicare exposed to higher costs from price increases. Note that Express Scripts – and all other PBMs – could theoretically write “price protection rebate” provisions that entirely offset the full amount of any price increase. But according to everything we’ve learned, they don’t. It’s reasonable to ask “why not?”Is it because PBMs are profiting from manufacturers’ price increases? Another bottom line: Every plan administrator and fiduciary – and the federal government and taxpayers – should want to find out the amount of Express Scripts’ price protection “caps” – for Kaleo’s Evzio and for other manufacturers’ drugs as well. Shouldn’t everyone want to know the extent that Express Scripts (and other PBMs) are leaving their clients and the government exposed to price increases? And how that exposure compares with the additional profits that Express Scripts (and other PBMs) may be realizing from the very same price increases? In fact, there’s a host of basic questions that every entity should ask of its PBM: What percentage of the PBM’s manufacturer contracts include “price protection rebate” provisions? How many manufacturer contracts don’t include any “price protection rebates” at all? For those contracts with these “protections,” what’s the range of the “caps” below which plans are entirely exposed to the manufacturers’ price increases? How many manufacturer contracts have “caps” above 5% (or any other number you want to select)? How many manufacturer contracts ensure that the PBM will earn increased revenues if prices increase? How much additional revenues has the PBM earned in the past year (or two or three) as a result of manufacturers’ price increases? Do Express Scripts – and Other PBMS – Actually Pass Through “Price Protection Rebates”?  Every Express Scripts client – and every other PBM client, as well – should also demand that its PBM state in writing whether the PBM is passing through all “price protection rebates” that the PBM collects from manufacturers. And every plan that is trying to put in place a new PBM contract – including by conducting a PBM RFP – should explicitly demand that its new PBM pass through 100% of its earned price protection revenue. That’s especially true, given the immense sums these rebates represent. The  Express Scripts’ complaint makes that patently clear. According to the complaint, in just the four months of invoices that are identified in the Express Scripts complaint, Express Scripts expected to collect more than $8.4 million in total “price protection rebates.” Express Scripts filed its lawsuit against Kaleo because Express Scripts claims that Kaleo failed to pay Express Scripts most of the money (and some of the “formulary rebates” and “administrative fees” that Kaleo also purportedly owed). But assuming Express Scripts collects the $8.4 million in “price protection rebates,” who will actually benefit? Will Express Scripts pass through all the money to its clients? Some? Or none? Are other PBMs passing through all – or some – or none – of the “price protection” revenues that they collect to all their clients? Or do some PBMs only pass through some “price protection” revenues to some clients? In recent PBM RFPs that our firm has conducted, we’ve observed that the rebates that many PBMs are now promising are far higher than the rebates that PBMs have promised in the past, or that PBMs are passing through to their existing clients. Are PBMs trying to win new clients by sharing some or all “price protection” revenues with new clients, even though PBMs are retaining “price protection” revenues that manufacturers pay PBMs in connection with PBMs’ existing clients? Are plans that are relying on PBM contracts that are a few years old losing out on large sums of potential rebates? Every plan administrator – and plan fiduciary – should want to know whether its existing contract is obsolete, and if there are ways to dramatically reduce costs by ensuring that all “price protection” revenues are passed through. Winners and Losers The revelations in Express Scripts’ complaint reflect that Express Scripts likely positioned itself to be a big winner regardless of Kaleo’s actions. If Kaleo kept its price “flat,” Express Scripts likely would collect far more in “administrative fees” than it would pass through to its clients in “formulary rebates.” If Kaleo raised its prices (which it did) – or dispensed more scripts (which it also did) – Express Scripts’ “administrative fees” would likely increase. And there’s an open question whether Express Scripts would also benefit from retaining some or all of the “price protection rebates” that it included in its rebate agreements. But Express Scripts placed plans in a far different position. If Kaleo kept its price “flat,” the only “rebates” that plans would likely collect on Kaleo’s high-price drug were the paltry “formulary rebates” revealed in the complaint. If Kaleo raised its prices – and Express Scripts structured its “price protection rebates” as they are typically written – plans were likely left completely exposed to price increases up to a stated amount. And to the extent that Express Scripts doesn’t pass through its “price protection rebates” to some or all plans, those plans were likely left exposed to price increases above any “cap” that Express Scripts imposed. Note that when Express Scripts penned its “rebate agreements” with Kaleo in 2014 – before Kaleo raised Evzio’s price dramatically – Express Scripts made the decision to include Evzio on its standard formulary, exposing all plans to Evzio’s far higher costs even though lower-cost alternative drugs were available. Evzio is an auto-injector that delivers a single dose of naloxone, a drug that can reverse the effects of an opioid overdose. In 2014, Evzio cost approximately $690 for a two-pack of single-use auto-injectors. Depending on dosage strength, generics made by Hospira and Mylan ranged from about $23 to about $63 for a single injectable vial. And there’s a third product that the FDA approved in 2015 – a nasal spray containing naloxone called Narcan – which cost approximately $150 for a two-pack. Evzio is an innovative product that talks to those using it and explains how to use the auto-injector, as reflected in this Kaleo video. But the generic injectors work just as well, as does the nasal spray Narcan (as long as a person is breathing). Based on the Express Scripts complaint, in late 2016 when Kaleo refused to pay Express Scripts all invoiced amounts, Express Scripts decided to exclude Kaleo’s Evzio from its standard formulary and solely provide coverage for the lower-cost alternatives. Because Express Scripts blocked Evzio in 2016 based on Express Scripts’ own financial interests, Express Scripts obviously could have made that decision far earlier based on plans’ financial interests and saved plans a lot of money. Turning to the federal government and Medicare Plan Beneficiaries, how did they fare as a result of Express Scripts conduct? Assuming Express Scripts passed through all “formulary rebates” but retained all “administrative fees,” the government lost out on a disproportionate amount of potential savings. Depending on Express Scripts’ price protection “cap,” the federal government was also exposed to some unknown amount of Kaleo price increases. If Express Scripts reported on and passed through all “price protection revenues” as “direct and indirect remuneration,” the government benefited from that money. But if Express Scripts didn’t do so, or only passed through some of those revenues, the government did not, and it was exposed to even more of Evzio’s exponential price increases. As for Medicare beneficiaries, because Express Scripts doesn’t negotiate to reduce the drug’s actual cost for beneficiaries – and the government retains all rebates it is paid – Medicare beneficiaries without “gap coverage” were exposed to Kaleo’s price increases. Each user’s exposure differed, depending on the phase of coverage the individual was in (deductible, initial phase, donut hole phase, etc.). But Express Scripts’ conduct did nothing to protect Medicare beneficiaries. See also: What Should Prescriptions Cost? The complaint also raises questions for the federal government in connection with its Medicaid program. The government requires all manufacturers – including Kaleo – to report the maximum amount of price reductions they provide in the commercial marketplace – known as their “best prices” – and to match those price reductions for the government when invoicing for Medicaid beneficiaries. Is Kaleo doing so? Are other manufacturers that are secretly entering into contracts with PBMs and agreeing to pay large “price protection rebates” doing so? The federal government should want to know. As a taxpayer, you should want the federal government to know. What about plan beneficiaries? How did they fare? Unfortunately, there’s no simple answer, other than “it depends.” Some beneficiaries weren’t hurt at all. While Kaleo inked its secret “deal” with Express Scripts (and perhaps other PBMs) – and raised its prices exponentially – Kaleo also did all it could to prevent consumers from screaming in outrage about its price increases. Kaleo made a savings card available to all who want to use it. As a result, the drug is free to all users who obtain the downloadable savings card. And everyone with insurance coverage who learns about the “Evzio Direct” program can obtain the drug directly from Evzio, while Evzio balance bills PBMs (meaning ultimately PBMs’ clients) for the the drug’s inflated price. Note that Evzio may be deducting out each user’s copay or coinsurance and deductible – or it may be balance billing for the entire cost of the drug – meaning your plan will be forced to absorb the cost of your beneficiaries’ cost share. Check your claims data to find out, because your PBM may not be bothering to do so. Plans should also want to know whether Express Scripts (and other PBMS) are indirectly assisting Kaleo in running its savings card program by giving Kaleo information about beneficiaries who are using Evzio or doctors who are prescribing it. Or Express Scripts (and other PBMs) may even be directly informing users or doctors about Kaleo’s savings card program. If any PBMs are doing so, they would obviously be secretly acting against plans’ financial interests, because PBMs would be end-running plans’ deductible and copay and coinsurance designs. For plan beneficiaries who don’t obtain access to Evzio’s savings card, those with  deductibles or coinsurance that need to be satisfied are hurt by Evzio’s inflated price and aren’t helped by any of Express Scripts’ secret rebate deals. As a result, from 2014 to 2016, they may not have been able to afford Evzio’s clever “talking treatment” to reverse opioid overdoses. And now that Express Scripts has blocked coverage of the drug for all plans relying on Express Scripts’ standard formulary, all affected plan beneficiaries will have to buy an alternative drug – or pay for Evzio entirely on their own – unless they can get Kaleo to cover the drug’s costs through a patient assistance program.

When the mayor tells you, “if you're going to stay here, write your name and Social Security number on your arm with a sharpie pen," it's time to get out of there. But, whether residents stay or leave, physical structures don't have that luxury. So, we are about to see round one of an enormous claims process because of Hurricane Harvey. See also: 6 Reasons We Aren’t Prepared for Disasters Disaster mitigation and restoration services are critical after property damage, but how you manage these services may have an impact on the outcome of your claim. Though there are many capable firms that specialize in property damage clean-up and restoration, there are some that will make mistakes, and others may even take advantage of the situation. When it comes to recovering the cost of mitigation and restoration services for an insurance claim, any mishaps can create big problems that may leave you stuck with the bill. In the best of situations, you'd vet your emergency team before a loss. You cannot be too prepared. Recovery service providers should be identified and interviewed. Make sure the company you choose will be able to handle your potential issues. Involve your insurer during vetting. There are “approved” vendors that insurance companies recommend; however, just because they are “approved” does not mean there will not problems. Notify the insurance company of who you plan to use. With Harvey, the losses are already upon us, but here are some techniques you can still use to prevent problems:

• Clarify and document scope of work - Be clear on scope of work with the recovery firm, and make the adjuster part of that conversation. Often, emergency response does not follow the normal protocols of a typical project. There likely won’t be time for detailed estimates, so try to get the adjuster to approve work in real time to avoid second guessing.
• Take a hands-on approach - Your property may still be underwater, but, once access is granted, you must be hands-on. No one should have access to your facility without the presence of a company representative. Assign a property supervisor to the affected site to keep track of who is there and what they are doing. It’s your property and your responsibility. The bigger the loss, the more people coming in and going out, so it is vital to have a company representative onsite to observe and answer questions.
• Audit contractor charges before approving - The first weeks after a loss are chaotic. It’s important for policyholders to put controls in place to monitor activity and to verify that work has been completed to specifications and according to the terms of the agreement. Reimbursable insurance expenses should be separated and audited prior to payment for proper detail and accuracy. This needs to be done efficiently in real time. If you don’t have the resources, this step can be completed by your claim preparation accountants i.e. forensic accountants. Having forensic accountants on your team, along with your technical experts, can let you process this information in the context of insurance recovery. Don’t assume your forensic accountants will automatically audit invoices. Identifying errors or, worse, fraud is critical to avoid delays in payment or project completion.
• Address issues immediately - When the first invoice arrives, insurance companies may act surprised and even deny coverage, especially if the steps above have not been followed. Make sure to get the parties together to discuss the issues. Don’t procrastinate and don’t assume. It is important to be active with any potential discrepancies. The policyholder is responsible if there are unresolved differences. If the adjuster disagrees with the work performed and the invoices are paid, it may be difficult to recover all your expenses. The immediate aftermath of a disaster is stressful and hectic. Preparation and communication can help you weather the storm and minimize unwanted surprises when you’re looking for claim payment.

For many of us, it's very difficult to say no. We're asked to take on extra assignments at work and help colleagues and clients with projects that might be outside our official job description. We're asked favors by our friends, by our families and sometimes even by our LinkedIn connections. And though it's nice to help, we can end up overburdened with tasks and responsibilities we're not passionate about. See also: How Not to Make Decisions   Saying no is hard, but even harder is living the life you don't want to lead because you couldn't say no. So, a few years ago, I made it a New Year's resolution to learn to say no. And it's been an incredibly liberating experience. Here are the tips I've used. See how you can incorporate them into your life. 1. Recognize the legitimacy of saying no. It's OK to say no. I'll say that again: it's OK to say no! When we think about saying no, we're often focused on how our friend or colleague will react. How disappointed they will feel, and how bad that makes us feel. But how about you and your feelings... and your life? If you say yes to everything and everyone, you'll end up without the time or energy to do what you really love to do. And is that what you really want? So, instead of thinking about "no" as a bad thing, think about it as saying "yes" to you and your family and the other commitments you really care about. Frankly, if you say yes to the right things -- to the things that you really care about and that are important both personally and professionally -- it will feel much more legitimate and comfortable to say no when the time comes. Now doesn't that feel better already? 2: Find your voice. If you're not used to saying no to things, it's sometimes hard to actually find the words to say what you want to say. I personally like to make sure I thank the person making the request and offer what feels to me to be a legitimate excuse. For example: "I really appreciate you thinking of me, but I've just got too much on my plate right now," or "Thank you so much for the invitation. I would love to do it/serve/get involved, but I just can't right now. I hope you will think of me again" or, simply, "I'm just not able to do this right now, but thanks so much." In the end, the key is to find what works for you. 3: Press pause. In the heat of the moment, it's especially difficult to say no. This is especially true for people you like or for causes you care about, but where don't have the time or resources to commit. So instead of having timing work against you, make time your friend. Don't answer right away. Buy yourself time to think about the request by thanking the person for the opportunity, requesting some time to think about it, and even perhaps proposing a specific time to respond. Most people will understand, and you'll be able to buy time for yourself in the process. See also: Traditional Insurance Is Dying   Saying no is hard to do. But so, too, is burdening yourself with tasks and activities that you don't really have your heart in... and, as a result, constantly putting your true self on hold. So, use these tips to bring a little more "no" into your life. You'll be surprised how liberating it feels, and how much more productive you'll be.

At Bolt, we have been working with insurers since 2000, and I am often asked about the new startups entering the market and how traditional insurers can compete. The first thing I usually want people to understand is that not all insurtech is intent on disrupting the market. Bolt, for instance, is what we like to call an insurtech innovator. Our goal is to partner with existing insurers and help them find answers to the contemporary challenges they face. This explanation naturally leads to the next question I’m frequently asked: What should insurers look for when seeking an insurtech partner? Finding an Insurtech Partner That Brings Value The insurance industry is unique. Guarded by strong regulations and financial requirements, it has been relatively closed to new entrants, developing a culture and method of doing business that’s different from other industries. That makes finding a good partner from the growing list of insurtech innovators a challenge. See also: Insurance Coverage Porn   Below are the top five factors I think an insurer needs to consider when partnering with an insurtech innovator:

• Don’t fear change: While insurtech innovators need to understand the complex regulatory environment and the culture of the insurance industry, I also think that traditional insurers could learn a little from the newcomers. Silicon Valley startups, for instance, are at the forefront of cutting-edge technology. Consider the tremendous consumer backing that a company like Apple has, and you realize that these techy new entrants have tremendous insight into what makes the customer tick. Adopting a little of this can take insurers a long way in the customer-centric era, so don’t be afraid of a little give and take when it comes to merging your culture with an innovator’s.
• Have a plan: Some insurtech innovators are eager to enter the industry and will promise you the moon and stars, but do you really need the whole universe of what they are offering? For instance, most insurers have a strong agent channel, and their customers like working through agents. One insurtech may promise superior results by eliminating agents in favor of a straight D2C play. As we’re seeing with many new insurtech disruptors, consumers want to interact through a variety of channels, so you would be better served by digital capabilities that can support both D2C and agent channels.
• Avoid the culture clash: I’ve worked in both the technology industry and the insurance industry, so I understand the culture shock that can occur between the two types of organizations. Earlier this year, we attended the Auto Insurance Report National Conference (AIRNC) 2017, where Patrick Sullivan spoke about the wave of insurtech entrants. Based on his experience speaking with many of them, he concluded that the movement won’t change the world, but niches abound. What this means is that disruptors won’t be able to unseat existing insurers, but innovators with a strong insurance background can merge their technological skills with this knowledge to help insurers navigate the changing environment. The key is to find partners with strong industry experience.
• Support innovation: The insurance industry is well-known for being resistant to change, so it’s important that a spirit of innovation comes from the top down and that leaders support the progressive steps you’ll be taking with an innovator. For instance, at Bolt, we're always asked by companies that sell products on our platform why they should want to bundle in products from others in our network. We've seen companies greatly increase their results by doing so, because they show the customer they are committed to all of his or her needs. But making the commitment to bundle with competitors wouldn’t have been possible without an organization-wide commitment to change.
• Dedicated resources: Regardless of the change initiative underway, partners can only take you so far. Internal change management is the responsibility of the insurer, and you need to make certain you have a plan, and the dedicated resources, in place to support the new initiative. Over the last few years, we’ve worked with a major insurer on expanding product selection and giving agents access to top digital tools that streamlined the buying process. The company instituted internal ambassadors that led the change and supported agents throughout the transition, ensuring the success of the launch and beyond. The result was a $26 million increase in premiums over two years.

See also: Why AI Will Transform Insurance   Adapting to the industry evolution underway isn’t going to be easy, but insurers can pave the road to success by partnering with insurtech innovators that have solid insurance experience. By merging their native digital expertise with the ability to support and navigate the industry complexities, innovators can help traditional insurers become top-tier digital enterprises, capable of delivering the customer-centric environment consumers are demanding. To learn more about partnering with InsurTech Innovators, read our thought leadership piece, How InsurTech Will Revolutionize the PC Insurance Industry: Partnering Into the Future.

As an MGA, ensuring your commercial customers receive the quality service they deserve is a top priority—and premium financing options that help clients afford the best policies on the market are a great way to achieve that. The average premium finance loan can range from several thousand dollars to more than $25k—a welcome influx of cash that frees up customer capital to be applied toward more business-critical needs. Unfortunately, establishing a premium financing process is a multi-step affair that can often be drawn out for weeks or even months. But thankfully, there is a way to streamline the process: by partnering with a premium financing provider that supplies quality services on an accelerated timeline. How can a premium financing provider achieve this delicate balance? They do so by integrating automation into their processes, structuring certain aspects to address customer convenience and freeing up the crucial time you need to keep your company moving forward. See also: It’s All About the Customer Journey   Let’s take a look at some of the benefits of partnering with a premium financing provider that incorporates automated processes into their customer service delivery. 1. Automated quote integration Want to add value to your offerings and boost customer loyalty? Partner with a premium financing provider that automates the policy quoting process. Not only does this speed up a necessary step for everyone involved, it serves as a great starting point for a conversation around competitive policy rates available to your customers—so they can easily assess which rate and policy works best for them. 2. Online customer portal Another great way the right premium financing provider enhances the overall customer experience through automation is by granting customers access to an online portal. This allows your customers to follow along with every step of their premium financing journey, anytime they please, from start to finish. 3. Automated statements and reporting Keeping good records has always been important, but in the age of information it’s more crucial than ever. Putting policy statements and reporting easily within your customers’ reach is another benefit of premium financing automation, ensuring transparency and the accurate delivery of key data. Finally, even with all the benefits of automation, it’s worth noting that the right premium financing provider will also understand when to stick with more traditional methods. Key service offerings like live customer care—whether face-to-face or over the phone—are still critical to a successful premium financing partnership. See also: 3 Keys to Success for Automation   Automation can sometimes get a bad rap, but when applied to the right processes, it can be the perfect way to provide top-tier customer service to your commercial clients seeking premium financing services. Make sure to partner with a premium financing provider that shares these values and prioritizes you and your customers’ success.

Insurance buyers are changing. They are being conditioned by the internet to expect that they can interact with insurers in any manner they choose. They expect to be able to buy direct online, to call the insurer directly, to work with agents, and to access insurance at the same time that they purchase products. They have more insurance literacy than ever before, and they expect transparency and control over the buying process. These changing expectations mean that carriers are forced to assess and address new channels while finding ways of preserving their franchise value and existing channels. And so, distribution channels are exploding. Insurers are expanding channels, adding distributors, moving into new territories and growing their existing channel to improve customer acquisition and retention. See also: Taking the ‘I’ Out of Insurance Distribution   Distribution management is keenly important to insurers. For most insurers, this is a topic that reaches the level of a strategic corporate priority. According to our research, insurers today work with an average of three traditional channels. One way to grow a book of business is to move well beyond existing and traditional channels. Although most insurers do work with independent distributors, more and more are experimenting with other channels. Almost 15% say that one of their key strategies is expanding the types of channels they use. This is especially true for life insurers where 18% report expanding channels as a key priority. Despite these rapidly shifting distribution strategies, the reality is that the independent agent still accounts for the bulk of business written by most insurers today. Emerging Distribution Channels [caption id="attachment_27508" align="alignnone" width="471"] Source: Celent[/caption] The kinds of strategies carriers take are heavily influenced by their view of the agent. In no other industry that I know of do we have a disagreement about who the customer is. Yet in the insurance industry, this is a matter of religion for many people. Some insurers say that the policyholder is the customer. After all, they’re the ones who write the check and use the service. But others are adamant that the agent is the customer. They influence or make the placement decision — deciding which insurer will write the account. This question of who is the agent appears to have an impact on the investments insurers are making when it comes to managing the channels. Those who see the agent as their primary customer also are more likely to see distribution channel management as a top corporate priority. In addition to the traditional channels, a number of new channels are emerging. The biggest news here is the explosion of insurtech startups that have high hopes of disrupting the acquisition process. They provide a unique experience online and hope to garner a large portion of the online marketplace because of their ease of doing business. Some focus on unique slivers of the marketplace. We are aware of more than 145 startups in the US and over 300 worldwide. While a few insurers are very worried about the impact of InsureTech startups, most are watching closely and a little worried. This is more true for PC insurers where more than 40% say they’re a little worried – likely because of the greater activity in PC. Life insurers generally are watching, but not too worried, or see them as potential partners (31%). Direct-to-consumer isn’t limited to insurtech startups. There are also a large number of insurers that are actively engaged in building out direct-to-consumer capabilities. Many insurers offer some sort of direct sales capabilities for personal auto. Increasingly, they are extending to this direct sales capability to more complex lines including homeowners, workers compensation, and small business. To be successful here, an insurer has to have a streamlined process, a slick user interface, minimal data input, tailored advice, and real-time decisions. However, going direct to the consumer can create channel conflict. A variety of techniques are utilized to include and preserve the existing channel. Some will use a different brand such as biBerk, Say Insurance, TypTap, Haven Life, or eSurance. Some will assign an agent using algorithms that take into account location, status, or current production levels. Some will prompt the consumers to choose an agent. Going direct isn’t the only new distribution strategy carriers are experimenting with. Digital agents, aggregators, partnerships with other carriers and partnerships with non-traditional distributors are all gaining traction. As consumers increasingly expect instant action, insurers are looking for ways to be available at the point of need rather than after the need has been generated. Many insurers have defined themselves by their channel, saying “We’re a direct writer” or “We’re an independent agency company.” You don’t have to abandon those channels. But as a CEO of an insurtech startup said in a recent conversation, “Choosing your channel as the driving identity of your company is like me wearing a high school letterman jacket when I go out to dinner. It may be part of my identity, but I’m a 42 year old man. It doesn’t work anymore.” For most insurers, shedding the letterman jacket means integrating multiple distribution channels into whatever their historic context is. See also: How to Find Distribution Payday   This doesn’t come cheap. Expanding channels requires expanded technology capabilities. As consumers become more digital, the channel that is changing the most is the agent channel. Consumers are already voting with their wallet and moving online in droves, and insurtech firms are taking advantage of that. But it’s not easy for insurers to just go direct. Most insurers don’t have the skills necessary to sell a policy. They may have programs to help the agents, but don’t have their own capabilities. Decisions need to be made about how to proceed. Will they create an in-house call center? Will they commit marketing dollars to organically generate traffic to the website? As these operational decisions are being made, technology capabilities also must be expanded. Those who are going direct require a slick UI on the website as well as business rules, prefill, and workflow on the policy admin side to support straight-through processing. Ongoing servicing requires the ability to expose policies, bills, and claims functionality. Those who are partnering with aggregators or digital agencies need to build out connectivity solutions to pass data back and forth. Those who are partnering with other carriers may need an agency management system to track the leads and the commissions associated with them. And of course, the demand for data to manage these new channels is voracious. Distribution strategies are increasingly driving IT investments. While multiple channels are effective at targeting specific markets, the increasing complexity of managing these channels is placing pressure on IT organizations. Additionally, the explosion of insurtech startups carries with it the potential for channel disruption. Carriers can work with these startups, invest in the startups, or imitate the startups, but those who ignore them do so at their own peril.