In a true Culture of Safety, safety always wins. It is the first among equals; it is the card that beats all others. In short, Safety is a Core Value of the organization. Safety and other Core Values are:

• Continuously communicated.
• Lived by leaders in their words and behaviors.
• Formally and informally reinforced, recognized and rewarded
• Integrated throughout all operations.
• Used as a compass to guide decisions.
• Measured and monitored against goals.
• Committed to, not simply complied with.

The Importance of Mindsets It’s my firm belief that for an individual to be successful at anything, he or she has to have the right Mindset, Skill set and Tool set. And of these, the most important is Mindset. Why? Because Mindsets drive Behaviors. Mindsets are created by a wide variety of factors: upbringing, social circles, religion, education, etc. But when it comes to the workplace, mindsets are created and reinforced by the organization’s Culture. People behave safely when they have a Safety Mindset, a belief that safety in the workplace is their responsibility, both for themselves and others. That belief leads to decision-making based on the potential hazards and risks of any behavior. Safety and Mental Health The Core Value of Safety is not just about the right safety gear or procedures. It creates an environment where the mental well-being of the people is just as important as their physical safety. Did you know 1 in 5 Americans in the workplace live with a diagnosable mental health condition? While many are able to use medication, treatment, wellness practices and peer support to manage these health conditions, too many go unidentified and untreated, And like most neglected health conditions, their status often worsens unnecessarily. Unaddressed mental health conditions and addictions can negatively affects productivity, attention to detail, quality of work and the safety of the individual as well as co-workers, but with treatment, support and wellness, people living with mental health conditions can be some of your most gifted employees. Most employers simply aren’t aware that often people with the strongest work ethic, creativity, charisma, detail-orientation, and interpersonal skills as also sometimes vulnerable to depression, bipolar condition, obsessive-compulsive disorder and anxiety. When left unchecked mental health conditions and addiction can be life-threatening. Tragically, the suicide rate in the United States has been steadily increasing since 1999, especially among working age men. According to the Centers for Disease Control and Prevention, suicide was the fourth leading cause of death for males ages 25 to 54 in 2014. See also: Language and Mental Health   When Safety is a Core Value, it goes beyond preventing physical illness and injury. It also includes supporting the emotional well-being of employees. Beyond being the right thing to do, it is in the organization’s economic best interest to ensure that its employees are mentally resilient, healthy, and productive. There is a significant return on investment by promoting employee mental health, positively impacting everything from disability and workman's compensation to productivity and employee retention. Does your Culture reflect the value of Mental Health? It can be difficult to determine the true nature of an organization’s culture when you’re inside it. As the noted media theorist Marshall McLuhan put it, “We don't know who discovered water, but we know it wasn't the fish.” But that doesn’t mean you shouldn’t continually evaluate your Safety Culture, especially in terms of mental health. These questions can help you determine if mental health is part of your Core Value of Safety:

• What does your company’s culture say about how you value mental health as a part of overall wellness?
• What does the work environment tell people about how they should best deal with stress? Conflict? Depression? Addiction?
• Does your company’s leadership model mentally healthy behavior? Is emotional intelligence and mental health self-care supported?
• Is anyone at the top level of leadership “out” and talking about their recovery journey from addiction or mental health challenges?
• Is mental health promotion and suicide prevention part of your Health and Safety Programs? (e.g., training on early identification and intervention, mental health resources like Employee Assistance Programs, suicide prevention hotlines, peer support resources, etc.)
• Do employees recognize unidentified and untreated addiction and serious mental health conditions as a potential safety hazard just as they would someone with a head injury, heart condition or broken leg?

Culture is Everyone’s Responsibility Cultures aren’t something “out there”. They are created and maintained by individuals, not organizations. They are the sum total of the shared values of everyone in the organization, how each individual shows up and creates an environment for others to show up. Anyone can — and does — have influence over the culture. Of course, Leaders have significant influence, but Culture is not simply their responsibility. To a larger or lesser degree, every employee influences the Culture every day. If you want to have a true Safety Culture, everyone in the organization must have:

• A Mindset of Safety, viewing every situation and decision through the lens of safety.
• Safe Behaviors that ensure a safe workplace.
• A recognition that mental health is as vital as physical health.
• An understanding of resources available to stay physically and mentally healthy.

Cultures are created, reinforced, or even changed one person at a time, having the right Mindset to lead to the desired behaviors. That’s how you move Safety beyond a program or set of rules to “the way things are done around here.” See also: Why Mental Health Matters in Work Comp   Promoting mental health, suicide prevention as well as physical health and safety is how an organization truly lives its Core Value of Safety.

Insurance companies have historically struggled with the challenges posed by claims litigation and the threat of attorney involvement in multiple lines of business. According to the Insurance Information Institute, 39 cents of every dollar spent in loss costs in commercial multi-peril went toward defense costs or containment. For medical professional liability, the number increases to 43 cents, and for product liability it is as high as 77 cents. For workers’ compensation (WC), where the employee gives up the right to sue the employer for injuries that happen in the workplace, that number amounts to 13 cents. In 2014, the California Workers’ Compensation Institute performed an analysis of attorney involvement in California WC claims. Over the six-year period studied, attorneys were involved in 12% of all claims (including medical-only cases), 38% of lost-time claims and 80% of permanent disability claims. Although the report discussed multiple efforts by lawmakers to reform California’s WC laws to help reduce costs, the report noted: “Despite those efforts, the litigation rate has nearly doubled for all workers' compensation claims, and more than tripled for claims involving lost time.” With such large dollars at risk, it’s no wonder that companies are investing in claims system technology and the use of advanced analytics to help reduce the impact of litigation spend on their bottom line. This article will share how advanced analytics and data mining can be used early in the life cycle of a claim to help identify litigation-prone claims and triage them appropriately. Setting the Stage Cases with heavy litigation expenditures typically involve various parties connected in a complex way with differing and sometimes opposing incentives. The ultimate costs of litigation are driven by numerous, factors including the duration of the settlement discussions and trial, if applicable, cost of medical experts, discovery, depositions, attorney fees, responsiveness of the plaintiff attorney, impact of high/low agreements, the appeals process and more. Therefore, insurance litigation comes with a number of challenges that have historically made it difficult to predict litigation outcomes (e.g. dismiss, defend, settle, alternative dispute resolution, probability of winning, etc.). Traditional approaches have tended to focus on historical reporting and backward-looking data analyses to understand litigation rates, costs, trends, etc. However, such “hindsight”-focused measures are reactive in nature. In many situations, it has been difficult to segment litigation outcomes, especially in the early days of a claim’s lifecycle when an adjuster can make a real difference in the trajectory of a claim. For that reason, a number of innovative insurers have begun shifting to more predictive and forward-looking solutions, including predictive analytics. See also: Power of ‘Claims Advocacy’   The Inspiration for Litigation Analytics Insurance companies have largely been using data analytics to attack claim severity in lines such as WC, medical professional liability, general liability and auto liability bodily injury. By matching claim complexity with the appropriate resource skillset as early as first notice of loss (FNOL), a great deal of efficiencies have been introduced to help reduce claim durations and costs. Claim predictive models have helped insurers better segment and triage high severity workers’ compensation and bodily injury claims, driving up to 10-point reduction in claims spend. Models focuse on claim severity can naturally be extended to other business areas including medical management, special investigative unit (SIU) referrals and litigation management. We have seen such claim cost models be used by extension in these other areas as more severe claims also tend to be the most complex. For example, the most expensive 10% of bodily injury claims as predicted by these severity models can turn out to be as much as six times more likely to go to litigation and be more expensive to litigate. In WC, the most expensive 10% of claims can turn out to be as much as three times more likely to go to litigation and be even more expensive to litigate. Clearly, there is plenty of segmentation power to be gained – even more so if the models are specifically developed to predict litigation. Data Used Data is the first building block of any analytics journey. The ability of actuaries and data scientists to effectively identify litigation-prone claims can be attributed to the power of advanced analytics, the growth of big data and inexpensive computing power and storage. The data used in developing litigation models is similar to that of claim-severity models. They include internal and external third party data, structured and unstructured data, direct pull fields and synthetically created variables. The large number and diversity of the data sources used, sometimes numbering in excess of a thousand potential candidate variables, provide unique information for segmentation and analysis, thus helping to answer the question: which combination of complex patterns seem to make a claim more prone to litigation? Some of the data factors typically used in litigation models are quite intuitive and include claimant age and gender, accident jurisdiction, claim history, etc. Unstructured data such as the description of the injury and accident narrative are often valuable sources of information that may help to uncover indicators and behavioral clues that bear a strong correlation to future litigation likelihood. Text mining can be used to delve into such unstructured free form data and help identify co-morbidities that significantly drive up claim severity. Additionally, third party data commenting on the individual’s lifestyle and habits add a layer of information about the claimant that further helps to segment the litigation propensity of the claim. Analytics Techniques Used A number of modeling techniques can be used to predict the likelihood for a claim to move to litigation. There are a number of techniques that generally perform well if used in a robust end-to-end modeling process that actively involves the end users from day 1. From multivariate predictive modeling and machine learning techniques to neural networks, various methodologies are available to identify the most predictive variables. However, and as we noted in the article titled “The Challenges of Implementing Advanced Analytics,” it is important to balance building a high precision statistical model with being able to interpret and consume its results. Our experience has shown that it is more valuable to leverage less complex models that are easily interpretable to the end-users than going after highly precise and complex models that are hard to consume and understand. Models are typically trained on historical data with a defined target variable (i.e. what the model is trying to predict). Example target variables could be a binary 0-1 field (indicating if a claim has indeed moved to litigation “1” or not “0”), litigation dollars explaining how expensive are the claims that are already in litigation, a proxy for each, or a combination of both. Models are also validated on a holdout sample of claims to assess the robustness of the model. Not surprisingly, models could be built and developed leveraging data available at FNOL or day 1, helping insurers take expedited business actions and make important decisions early in the lifecycle of the claim. As additional data becomes available through time, these models benefit from added information to make their prediction in the weeks and months that follow. See also: 2 Steps to Transform Claims, Legal Group   Claims Systems Are Differentiators With the newest claims systems being implemented, insurance companies are achieving better claim outcomes and spending less on loss adjustment expense. The days of claims systems being only record keeping solutions are passé. The newest technology helps claimants directly verify the status of their claim regardless of the time of day or person’s location, through self-service portals and intuitive websites. But, these capabilities are not just for “external” system users alone. “Internal” system users can now leverage advanced analytics and spend less time on administrative tasks (e.g., manually populating spreadsheets), shifting their focus to working with insureds and improving their claims experience. Litigation Models in Action A number of models can be built to identify which claims could be more complex and involve litigation. As an example, an insurance company could build a model that answers the following questions: Of the claims that go to litigation, which ones are likely to be most expensive? If the model returns a high score, it means that the claim has a high likelihood of costing the insurance company a lot of money in litigation expenses. Therefore, it would suggest that the most experienced internal resources and attorneys should be focused on this claim. Data used and target variables For the case study at hand, a population of more than 10,000 bodily injury claims spanning multiple accident years was studied. For each claimant, many characteristics and factors about the claim, claimant, accident, injury, suit details (if the claim is litigated) were collected and recorded in a database. External third party data such as the vehicle identification number (VIN) and geo-demographic and behavioral data at the household and census block level were also added to capture more information. The target variable (i.e. what the model is trying to predict) was calculated as all dollars spent on litigation, including attorney fees and expenses. A predictive model was then built employing a standard train, test, validation methodology. Model results and output The resulting models exhibited strong segmentation across the holdout sample. For example, the litigation costs for the highest-scoring 10% of claims were almost double the average population, while the lowest-scoring 10% of claims had litigation costs that were less than half the cost of the average claim. This strong segmentation is even more impressive considering it was realized at day 1, not weeks or months into the life of the claim. The model contained about 30 predictive variables, some of which were intuitive and readily available (e.g., claimant age and gender, accident location and type – whether parking lot or intersection, etc.). The model also included information sourced from third party vendors (e.g., census employment statistics) and proxies for behavioral factors (e.g., the distance between the accident location and claimant’s residence, lag of time before reporting a claim, etc.). External geo-demographic data about the claimant were also beneficial (e.g., population density in the zip code of residence), in addition to data available from the National Highway Traffic Safety Administration (NHTSA) regarding fatal accidents statistics about the accident Zip code, etc. Bringing Models to Life Building a predictive model like the one described above is important but only beneficial if the model helps change behaviors, decisions and actions. The insights derived from these models help insurance companies take direct actions on their claim triage strategies, attorney selection and defense strategies. Business rules can be carefully crafted to help claim examiners in their decision-making process. When an adjuster understands that a high-scoring claim has a higher risk of moving to litigation and costing more, defense strategies can be adjusted accordingly. From assignment of external defense counsel, to settle or defend decisions based on case dynamics, insurance companies can alter their event management, resource allocation and escalation decisions earlier in the lifecycle of the claim. See also: Rethinking the Claims Value Chain   Carpe Diem With Analytics The claim insurance landscape is becoming more complex, competitive, fast-moving and disrupted. There is little doubt that the adoption of big data, data science and analytics is important to becoming more agile in this environment, helping insurance companies make better decisions within days of receiving a claim. With the underwriting cycle indicating another period of softening rates, and interest rates hovering at record low levels, tapping savings in litigation spend might just be what the doctor ordered for insurance companies brave enough to seize the opportunity. As Larry Winget said in his book It’s Called Work for a Reason, “Knowledge is not power; the implementation of knowledge is power.” The knowledge and analytics exist today to improve litigation costs. We believe the time has come to implement that knowledge. As used in this document, “Deloitte” means Deloitte Consulting LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting. This communication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms, or their related entities (collectively, the “Deloitte Network”) is, by means of this communication, rendering professional advice or services. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser. No entity in the Deloitte Network shall be responsible for any loss whatsoever sustained by any person who relies on this communication.

Losses that appear to be under deductible always benefit from an independent review. Deductibles for CAT losses have become more complex over the years, and interdependent operations spread the impact across the organization, so it’s increasingly challenging to have confidence in the preliminary evaluation, especially when informing key stakeholders. Those who have had losses know, with hindsight, that there are gaps in understanding and initial questions that are critical to the deductible evaluation. Avail yourself of a candid, independent review from the start so that whether you have a recoverable claim or not, you’ll be prepared. Many policyholders engage forensic accountants when they are confident the loss exceeds the deductible, but few think to involve help when unsure. Experienced, professional help can highlight the key factors in this evaluation and will provide a result you can rely on to make better decisions and reduce potential wasted effort. See also: What Liabilities Do Robots Create?   Here are three reasons to make this step a standard risk management protocol for your company: Deductibles Require Measurement “Under or over deductible” is the first question once you turn your attention to the financial response. Deductible policy language has evolved over the years as insurers respond to claim nuances and program needs. The professionals at RWH Myers have assisted clients with quantifying deductibles and preparing claims throughout these changing times. We understand the language's quirks and can quickly scope out the magnitude of applicable deductibles. Insurance Accounting is Unique Loss accounting is a different discipline than financial or managerial accounting. Misunderstandings waste time and create unwanted transactional friction. Breed process efficiency with the right questions and meaningful answers from a team with experience translating managerial accounting into insurance loss accounting for policyholders. Consider Motivations Are operations overly optimistic? Is finance overly pessimistic? Might reporting a claim impact contingent commissions? Independent expertise will navigate through any biases to pull it all together in a way that answers the important questions based on their merits, ultimately facilitating the financial recovery process. See also: Time to End the Market for Ignorance   No one can anticipate a loss, and policyholders actively work to avoid them, but that doesn’t mean you don’t need to plan for when you have a claim. A candid, independent review will give you the confidence of an appropriate deductible threshold evaluation and will segue into a smooth and fair claim process.

Restaurant employers, beware! Restaurants are the target of a highly successful, U.S. Department of Labor Wage and Hour Division (WHD) restaurant enforcement and compliance initiative that WHD already has used to nail a multitude of restaurants across the country for “widespread violations” of Fair Labor Standards Act (FLSA) minimum wage, overtime, child labor and other wage and hour laws (WH Law). Having reportedly found WH Law violations in “nearly every one” of the WH Law investigations conducted against restaurant employers during 2016 and recovered millions of dollars of back pay and penalties from restaurants caught through investigations conducted under its WHD Restaurant Enforcement Initiative, WHD Administrator Dr. David Weil recently confirmed WHD plans to expand the restaurant employers targeted for investigation and other efforts to punish and correct WH Law violations under the Restaurant Enforcement Initiative through 2017 in an October 5, 2016 WHD News Release: Significant Violations In The Austin Restaurant Industry Raise Concerns For Us Labor Department Officials (News Release). The News Release quotes Administrator Weil as stating:

“The current level of noncompliance found in these investigations is not acceptable …WHD will continue to use every tool we have available to combat this issue. This includes vigorous enforcement as well as outreach to employer associations and worker advocates to ensure that Austin restaurant workers receive a fair day’s pay for a fair day’s work."

Given the substantial back pay, interest, civil or in the case of willful violations, criminal penalties, costs of defense and prosecution and other sanctions that restaurant employers, their owners and management can face if their restaurant is caught violating FLSA or other WH Laws, restaurants and their leaders should arrange for a comprehensive review within the scope of attorney-client privilege of the adequacy and defensibility of their existing policies, practices and documentation for classifying, assigning duties, tracking regular and overtime hours, paying workers and other WH Law compliance responsibilities and opportunities to mitigate risks and liabilities from WH Law claims and investigations. See also: Boston Furs Sued For $1M For Violations of Fair Labor Standards Act   Many Restaurants Already Nailed Through Restaurant Enforcement Initiative Even before the planned 2017 expansion of its Restaurant Enforcement Initiative, WHD’s enforcement record shows WHD’s efforts to find and punish restaurants that violate WH Laws are highly successful. Restaurant employers overwhelmingly are the employers targeted by WHD in the vast majority of the WH Law settlements and prosecutions announced in WHD News Releases published over the past two years, including aggregate back pay and penalty awards of more than $11.4 million recovered through the following 31 actions announced by WHD between January 1, 2016 and October 31, 2016:

• US Labor Department Investigation Finds Thundercloud Subs Owes Nearly $128K In Back Wages, Damages To Austin Restaurant Workers (October 20, 2016);
• US Labor Department Announces Hotline To Offer Updates To Capitol Hill Cafeteria Workers Owed Back Wage Payments (October 20, 2016);
• US Labor Department Recovers More Than $570K In Back Wages, Damages For 55 Workers At Johnny Rockets Restaurants In Washington Metro Area (October 11, 2016);
• Portland, Texas, Restaurant Settles Worker Retaliation Allegation After US Labor Department Finds Nine Employees Owed $25K In Back Wages (October 06, 2016);
• Providence Restaurant, Owner To Pay $567K In Back Wages, Damages To 104 Employees Denied Minimum Wage, Overtime Pay (September 23, 2016);
• US Labor Department Investigation Finds Capitol Hill Cafeteria Workers Illegally Denied More Than $1M In Wages By Federal Food Service Contractors (July 26, 2016);
• El Azteca Restaurant Group To Pay $700K In Back Wages, Damages To 129 Workers At Four Wisconsin Eateries (July 26, 2016);
• Historic Oklahoma City Restaurant Pays Workers $52K In Back Wages, Damages After Labor Department Investigation (June 22, 2016);
• Kissimmee, Florida, Restaurant To Pay Nearly $41KIn Back Wages To 15 Employees After US Department Of Labor Investigation (June 15, 2016);
• Court Orders Buffet Restaurant, Owners To Pay $128K In Back Wages, Penalties To Resolve Allegations Of Federal Minimum Wage, Overtime Violations (June 09, 2016);
• Grand Rapids Restaurant, Owners Agree With Court Order To Comply With Federal Record-Keeping Rules After Department’s Wage And Hour Investigation (May 31, 2016);
• Court Judgment Orders Four Phoenix-Area Federico’s Mexican Food Restaurants To Pay Workers $202KIn Overtime Back Wages, Damages (May 24, 2016);
• US Labor Department Investigation Finds Child Labor, Minimum Wage And Other Violations At Street’s Seafood Restaurant (May 17, 2016);
• US Labor Department Initiative Finds 14 Lawrence Restaurants Owe More Than $112K In Back Wages To 130 Workers (May 17, 2016);
• US Labor Department Obtains Order To Stop Arlington Restaurant Owners From Intimidating Workers Who Cooperate With Federal Investigators (May 16, 2016)
• Charleston Restaurants’ Minimum Wage, Overtime Violations Result In Nearly $217K In Back Wages For 26 Employees (May 9, 2016);
• Las Investigaciones Dieron Como Resultado Casi $1.2 Millones En Salarios Retroactivos Y Daños Y Perjuicios Para Más De 100 Trabajadores En 13 Restaurantes En El Área De Charleston and Investigations Result In Nearly $1.2M In Back Wages, Damages For More Than 100 Workers At 13 Charleston Area Restaurants (April 19, 2016);
• Clairmont Diner Will Pay $213K In Back Wages, Damages And Penalties After Federal Wage And Hour Investigation (March 30, 2016);
• Tampico Restaurants Agree To Pay $190K In Back Wages To 67 Workers (March 26, 2016);
• S. Labor Department Lawsuit Seeks Back Wages And Damages For Austintown, Ohio Restaurant Workers (March 16, 2016);
• Popular Cajun Food Enterprise Will Pay More Than $138K In Back Wages, Penalties Following U.S. Labor Department Investigation (March 07, 2016);
• US Labor Department Initiative Finds Ames Restaurants Owe Nearly $100K In Back Wages To More Than 150 Workers (March 02, 2016);
• S. Labor Department Sues To Recover Unpaid Minimum Wage, Overtime Plus Additional Damages For Akron Restaurant Workers (February 25, 2016);
• Paying To Work? Sophia’s House Of Pancakes Resolves Allegations Servers Made To Pay $2 Per Hour To Work At Restaurants (February 16, 2016)($245K);
• Two Hawaii Restaurants Found In Violation Of Overtime Pay Requirements (February 10, 2016)($81,294);
• Labor Department Launches West Coast Sweep To Investigate Pay Practices At Fast Food Establishments To Ensure Fairness, Compliance (February 4, 2016);
• Sushi And Ramen Restaurants Pay $621K In Back Wages, Damages And Penalties After US Labor Department Investigation (January 25, 2016)
• Federal Judge Overturns Jury Verdict, Orders El Tequila Restaurants And Owner Carlos Aguirre To Pay $2.1 Million In Back Wages And Damages To Workers (January 14, 2016);
• Taqueria La Herradura En Pharr, Texas, Paga Más De $33 Mil En Concepto De Salarios Retroactivos Y Daños Al Personal De La Cocina Después De Una Investigación Del Departamento De Trabajo De Ee.Uu.(January 12, 2016);
• Investigations At 10 North Carolina Restaurants Find More Than $510K In Back Wages Owed To 125 Workers (January 12, 2016);
• Restaurant Enforcement Initiative Finds More Than $2.27M In Back Wages, Damages Owed To More Than 3,000 Georgia Workers (January 05, 2016).

  Enforcement Actions Highlight Common Restaurant WH Law Compliance Concerns Restaurant employers, like employers in most other industries, are subject to a host of minimum wage, overtime and other requirements including the FLSA requirement that covered, nonexempt employees earn at least the federal minimum wage of $7.25 per hour for all regular hours worked, plus time and one-half their regular rates, including commissions, bonuses and incentive pay, for hours worked beyond 40 per week. Employers also are required to maintain accurate time and payroll records and must comply with child labor, anti-retaliation and other WH Law requirements.

• The News Release identified some of the common violations WHD uncovered in these investigations included employers:
• Requiring employees to work exclusively for tips, with no regard to minimum-wage standards;
• Making illegal deductions from workers’ wages for walkouts, breakages, credit card transaction fees and cash register shortages, which reduce wages below the required minimum wage;
• Paying straight-time wages for overtime hours worked.
• Calculating overtime incorrectly for servers based on their $2.13 per hour base rates before tips, instead of the federal minimum wage of $7.25 per hour.
• Failing to pay proper overtime for salaried non-exempt cooks or other workers;
• Creating illegal tip pools involving kitchen staff;
• Failing to maintain accurate and thorough records of employees’ wages and work hours.
• Committing significant child labor violations, such as allowing minors to operate and clean hazardous equipment, including dough mixers and meat slicers.

Use Care To Verify Tipped Employees Paid Properly Based on the reported violations, restaurants employing tipped employees generally will want to carefully review their policies, practices and records regarding their payment of tipped employees. Among other things, these common violations reflect a widespread misunderstanding or misapplication of special rules for calculating the minimum hourly wage that a restaurant must pay an employee that qualifies as a tipped employee. While special FLSA rules for tipped employees may permit a restaurant to claim tips (not in excess of $5.12 per hour) actually received and retained by a “tipped employee,” not all workers that receive tips are necessarily covered by this special rule. For purposes of this rule, the definition of “tipped employee” only applies to an employee who customarily and regularly receives more than $30 per month in tips. See also: Workplace Retaliation: A Major Source Of Employer Exposure   Also, contrary to popular perception, the FLSA as construed by the WHD does not set the minimum wage for tipped employees at $2.13 per hour. On the contrary, the FLSA requirement that non-exempt workers be paid at least the minimum wage of $7.25 per hour for each regular hour worked also applies to tipped employees. When applicable, the special rule for tipped employees merely only allows an employer to claim the amount of the tips that the restaurant can prove the tipped employee actually received and retained (not in excess of $5.13 per hour) as a credit against the minimum wage of $7.25 per hour the FLSA otherwise would require the employer to pay the tipped employee. Only tips actually received by the employee may be counted in determining whether the employee is a tipped employee and in applying the tip credit. If a tipped employee earns less than $5.13 per hour in tips, the restaurant must be able to demonstrate that the combined total of the tips retained by the employee and the hourly wage otherwise paid to the tipped employee by the restaurant equaled at least the minimum wage of $7.25 per hour. Furthermore, restaurant or other employers claiming a tip credit must keep in mind that the FLSA generally provides that tips are the property of the employee. The FLSA generally prohibits an employer from using an employee’s tips for any reason other than as a credit against its minimum wage obligation to the employee (“tip credit”) or in furtherance of a valid tip pool. Also, whether for purposes of applying the tip credit rules or other applicable requirements of the FLSA and other wage and hour laws, restaurant employers must create and retain appropriate records and other documentation regarding worker age, classification, hours worked, tips and other compensation paid and other evidence necessary to defend their actions with respect to tipped or other employees under the FLSA and other WH Law rules. Beyond accurately and reliably capturing all of the documentation required to show proper payment in accordance with the FLSA, restaurants also should use care to appropriately document leave, discipline and other related activities as necessary to show compliance with anti-retaliation, equal pay, family and medical leave, and other mandates, as applicable. Since state law also may impose additional minimum leave, break time or other requirements, restaurants also generally will want to review their policies, practices and records to verify their ability to defend their actions under those rules as well. Child Labor Rules Require Special Care When Employing Minors While hiring workers under the age of 18 (minors) can help a restaurant fulfill its staffing needs while providing young workers valuable first time or other work experience, restaurants that hire minors must understand and properly comply with any restrictions on the duties, work hours or other requirements for employment of the minor imposed by federal or state child labor laws. As a starting point, the legal requirements for employing minors generally greater, not less, than those applicable to the employment of an adult in the same position. Employers employing workers who are less than 18 years of age (minors) should not assume that the employer can pay the minor less than minimum wage or skip complying with other legal requirements that normally apply to the employment of an adult in that position by employing the minor in an “internship” or other special capacity. The same federal and state minimum wage, overtime, safety and health and nondiscrimination rules that generally apply to the employment of an adult generally will apply to its employment of a worker who is a minor. Beyond complying with the rules for employment of adults, restaurants employing minors also must ensure that they fully comply with all applicable requirements for the employment of minors imposed under the FLSA child labor rules and applicable state law enacted to ensure that when young people work, the work is safe and does not jeopardize their health, well-being or educational opportunities. Depending on the age of the minor, the FLSA or state child labor rules may necessitate that a restaurant tailor the duties and hours of work of an employee who is a minor to avoid the substantial liability that can result when an employer violates one of these child labor rules. The FLSA child labor rules, for instance, impose various special requirements for the employment of youth 14 to 17 years old. See here. As a starting point, the FLSA child labor rules prohibit the any worker less than 18 years of age from operating or cleaning dough mixers, meat slicers or other hazardous equipment. Depending on the age of the minor worker, the FLSA child labor rules or state child labor laws also may impose other restrictions on the duties that the restaurant can assign or allow the minor to perform. Restaurants hiring any worker that is a minor must evaluate the duties identified as hazardous “occupations” that the FLSA child labor rules prohibit a minor of that age to perform here as an “occupation” and take the necessary steps to ensure the minor is not assigned and does not perform any of those prohibited activities in the course of his employment. In addition to ensuring that minors don’t perform prohibited duties, restaurants employing minors also comply with all applicable restrictions on the hours that the minor is permitted to work based on the age of the minor worker. For instance, the FLSA and state child labor rules typically prohibit scheduling a minor less than 16 years of age to work during school hours and restrict the hours outside school hours the minor can work based on his age. Additional restrictions on the types of jobs and hours 14- and 15-year-olds may work also may apply. See also: What Happens When Technology and Workers’ Comp Law Collide?   Compliance with the FLSA child labor rules is critically important for any restaurant or other employer that employs a minor, particularly since the penalties for violation of these requirements were substantially increased in 2010, as Streets Seafood Restaurant learned earlier this year. According to a WHD News Release, Street’s Seafood Restaurant paid $14,288 in minimum wage and overtime back wages and an equal amount in liquidated damages totaling $28,577 to eight employees, and also was assessed a civil money penalty of $14,125 for FLSA child labor violations committed in the course of its employment of four minors ages 15 to 17. Specifically, investigators found Street’s Seafood Restaurant:

• Required minors to operate, dismantle, clean and reassemble a meat slicer and a dough mixer.
• Required a 17-year-old to operate a motor vehicle to transport food to catering events.
• Required a 15-year-old to work more hours than allowed by law.
• Paid some workers only $6 per hour, below the required federal minimum wage of $7.25 per hour.
• Paid employees straight time for overtime when they worked more than 40 hours in a week, instead of paying them time-and-one-half, as the law requires.
• Failed to maintain proof of age of minors.
• Failed to maintain required time and payroll records.

WHD’s announcement of the settlement resolving these child labor laws quotes Kenneth Stripling, director of the division’s Birmingham District Office as stating:

“Employing young people provides valuable experience, but that experience must never come at the expense of their safety …Additionally, employers have an obligation to pay employees what they have legally earned. All workers deserve a fair day’s pay for a fair day’s work. Unfortunately, Street’s Seafood violated not only child labor laws, but has also shorted workers’ pay. The resolution of this case sends a strong message that we will not tolerate either of those behaviors.”

Restaurants Must Act To Minimize Risks Beyond WHD's direct enforcement actions, WHD also is seeking to encourage private enforcement of WH Law violations by conducting an aggressive outreach to employees, their union and private plaintiff representatives, states and others. Successful plaintiffs in private actions typically recover actual back pay, double damage penalties plus attorneys' fees and costs. The availability of these often lucrative private damages makes FLSA and other WH Law claims highly popular to disgruntled or terminated workers and their lawyers. When contemplating options to settle claims WH Law claims made by a worker, employers need to keep in mind that WHD takes the position that settlements with workers do not bar the WHD from taking action unless the WHD joins in the settlement and in fact, past settlements may provide evidence of knowingness or willfulness by the employer in the event of a WHD prosecution. The substantial private recoveries coupled with these and other WHD enforcement and other compliance actions mean bad news for restaurant employers that fail to manage their FLSA and other WH Law compliance. Restaurant employers should act within the scope of attorney-client privilege to review and verify their compliance and consult with legal counsel about other options to minimize their risk and streamline and strengthen their ability to respond to and defend against audits, investigations and litigation. Beyond verifying the appropriateness of their timekeeping and compensation activities and documentation, restaurants and staffing or management organizations working with them also should use care to mitigate exposures that often arise from missteps or overly aggressive conduct by others providing or receiving management services or staffing services. All parties to these arrangements and their management should keep in mind that both parties participating in such arrangements bear significant risk if responsibilities are not properly performed. Both service and staffing providers and restaurants using their services should insist on carefully crafted commitments from the other party to properly classify, track hours, calculate and pay workers, keep records, and otherwise comply with WH Laws and other legal requirements. Parties to these arrangements both generally also will want to insist that these contractual reassurances are backed up with meaningful audit and indemnification rights and carefully monitor the actions of service providers rendering these services.

The photo was jarring. A Jeep Cherokee stalled in a ditch after hackers remotely disabled its brakes. No one was hurt. The experiment in St. Louis was a coordinated hack designed and carried out by Charlie Miller and Chris Valasek, security researchers at Uber’s Pittsburgh-based Advanced Technologies Center. Miller and Valasek sought to prove a point that the emerging technology of connected—and pretty soon, autopilot—cars are full of holes when it comes to cybersecurity. They’ve been presenting their findings at conferences and events ever since, including at IDT911’s Privacy XChange Forum 2016 in Scottsdale, Arizona, in October. (Full disclosure: IDT911 sponsors ThirdCertainty.com.) Connected vehicles promise safer and more efficient driving experience. But Miller and Valasek’s car-hacking experiments partly prompted the Federal Bureau of Investigation, with the National Highway Traffic Safety Administration, to go public in March with a consumer warning about the possibility of an attacker remotely exploiting vulnerabilities. And cybersecurity issues have come to the forefront in discussions about the pitfalls of the Internet of Things as the technology rapidly evolves. A couple of well-chronicled incidents, including the Jeep, have ratcheted up consumers’ anxiety over the possible erosion of control over their cars. The fallout from the Jeep hack, wherein the security experts gained control of the car through its entertainment system, Uconnect, was swift. Chrysler, who owns the Jeep brand, recalled 1.4 million cars to fix the software bug. And Sprint, whose network was used in Uconnect, blocked access to a specific port for the private IP addresses used to communicate with the vehicles. Meanwhile, U.S. Sens. Edward Markey, D-Mass., and Richard Blumenthal, D-Conn., introduced a bill designed to require U.S. cars to meet certain standards of protection against digital attacks and privacy. “In the rush to roll out the next big thing, automakers have left the doors unlocked to would-be cyber criminals,” Blumenthal said. Art Dahnert, managing consultant at digital security firm Cigital, acknowledges the emerging problem but isn’t overly alarmed. Unless professionally coordinated, the current level of vehicle hacking generally requires close proximity to the car, he says. “A lot of it is hype,” he says. “Some of the issues may not affect a lot of consumers.” Still, consumers who own connected vehicles—and most new cars are—should be aware of relevant security risks and developments, he says. Here are some issues to consider.

• Owner education. Understanding how a vehicle and some components are connected to the internet is crucial. Cars contain numerous electronic units that control a wide range of functions, ranging from steering and braking to in-car Wi-Fi and diagnostics. These computers are networked and expose possible entry points for hackers. In-car Wi-Fi can be spoofed or accessed by hackers in nearby locations. And GPS, Bluetooth and smartphones can serve as conduits for hackers wishing to tap into the car’s control system. “If an app that manages your sound system is compromised, your phone is compromised,” Dahnert says.
• Updating software. Software bugs are inevitable. And vehicle owners should be vigilant in keeping up with updates, recalls and service bulletins. Criminals also may exploit update notices by sending fraudulent email that contains malicious software. Avoid downloading software from third-party websites or file-sharing platforms.
• Limit in-car use. Some digital bells and whistles are better left turned off whenever possible. “I would recommend that drivers learn how to disable some of the less used features of the vehicle, especially those that involve remote communications like Wi-Fi hotspots and remote starting,” Dahnert says. “These steps reduce the footholds that attackers use to hack your car.”
• Beware of third-party accessories. More third-party devices, such as insurance dongles, car monitoring tools and other telematics, can be plugged into the vehicle’s diagnostic port and become access points for hackers. Car owners should check with the security and privacy policies of device manufacturers and look to avoid them if they are from obscure companies or deemed untrustworthy. Some accessories also may be problematic. In August, researchers at the University of Birmingham in the U.K. used a piece of radio hardware to intercept signals from a key fob used in Volkswagens. The signals can be replicated to open the doors of millions of Volkswagens dating back to 1995, the researchers claim. “Don’t forget that it’s not just what’s under the sheet-metal, but what is in your pocket that could lead to a problem,” Dahnert says.
• Pitfalls of modification. Avid car owners are notorious for their love of modification, using after-market parts. Those who modify their electronic control units or wireless connections to enhance their cars’ performance could be inviting cybersecurity problems. “Such modifications may also impact the way in which authorized software updates can be installed on the vehicle,” the FBI says.
• Supplier concerns. The advent of autopilot cars and driver-assist systems will muddle the already complex ecosystem of car manufacturers and suppliers. Heightened security standards and practices within the connected car supplier ecosystem would be needed as technology evolves, Dahnert says.

Ultimately, consumers have little direct control over the manufacturing and development of the Internet of Things in cars. But they can affect the industry with their checkbooks. “Consumers need to demand (security features) are updated. Don’t buy products that are not secured,” Dahnert says. This article originally appeared on ThirdCertainty. It was written by Roger Yu.

The focus for the last 10 years in insurance has been around how to streamline business processes to increase efficiency and create better experiences for customers and employees. New technologies including Robotic Process Automation (RPA) have become one of the next big things, not just in this industry but across many. For insurance, promising to automate processes and customer interactions that currently require lots of human involvement, primarily due to so many applications to swivel in and out of to deal with customer and broker requests – often add little value and distract the insurer from the most important person in the journey, dealing with the customer. Now organizations are beginning to take it a step further, coupling RPA with cognitive technologies including Machine Learning and speech recognition that can give these bots new power to learn and increase their ability to communicate intelligently. This is especially useful for those tasks that aren’t just routine, but that require judgment and perception. See also: Stop Overpaying for Pharmaceuticals   These new technologies will increasingly help firms gain customer loyalty, making the mastery of these cognitive capabilities a key differentiator when competing with customer centric insurtechs. In fact, 83% of technology professionals believe there will be a cognitive tipping point in the next five years. While the RPA market today is still relatively small, the technology is gaining traction as a cost-effective alternative to traditional systems integration and is projected to become a $5 billion market globally by 2020, with a CAGR of over 60 percent. Platforms including Microsoft Azure and IBM Watson have made these cognitive services more readily available and easier to consume, meaning that these technologies are no longer in our future, but they are very much in the here and now. How does Robotic Process Automation Impact Insurance? In the insurance industry, these automation capabilities enable more focus and time spent on the customer, and can mean better experiences not only for customers but for employees and agents as well. Specific examples of processes that are being automated through RPA are first notice of loss, fraud checking and policy renewal, including data gathering and recalculating policy premiums. Some of the key benefits include: Reduced error rate from human processing Robots don’t make mistakes or judgement calls, and they don’t get tired. With routine processes completed accurately, every time, you don’t need to allocate resources for making corrections. Cost Savings With automation of work processes, operational costs are reduced and no additional resources are needed, increasing ROI. Increased Productivity and Efficiency Robots don’t take coffee, lunch or holiday breaks. This means 24/7 monitoring and processing, increasing speed, efficiency and productivity. With robots taking over labor-intensive administration tasks, it frees up your employees for more high-value activities. Now employees can focus on those tasks that can’t be automated, like customer service. Scalability and Flexibility The ability to replicate robotic tools across geographies and business units increases scalability and flexibility. An example of a successful RPA implementation is a large consumer and commercial bank that redesigned its claims process and deployed 85 software robots, or bots, running 13 processes, handling 1.5 million requests per year. As a result, the bank was able to add capacity equivalent to around 230 full-time employees at approximately 30 percent of the cost of recruiting more staff. Additionally, the bank recorded a 27 percent increase in tasks performed “right first time.” On the flipside, there will always be exceptions where automation needs human intervention (often described as attended vs unattended automation). When there is an exception, it needs to be handled with a greater level of understanding and experience to quickly manage it through the process and get it back into automated mode as quickly as possible. How can your organization prepare for these cognitive gains and take advantage of new technologies? At Deloitte, we have already deployed RPA software at scale with clients’ organizations and within our own internal support process. Deloitte is advising on the application of emerging cognitive tools through the lens of the customer, and through this process we have come up with 7 Robotic Skills that can drive new types of automation. By breaking down these skills to figure out a) which specific tools deliver each skill and b) which skills are needed for your specific business case, you can figure out what means for your business. Once you have figured this out, it is important to understand that the journey to automation starts with a proof of concept project, starting small and proving out the value. This can take as little as two weeks, with a live pilot up and running within two to six weeks, depending on the complexity and use cases. With success, you can quickly scale to a center of excellence where all areas of the business can automate their individual processes, leveraging a common set of skills, integration and people. This type of robotic and cognitive technology ultimately needs to be embedded in software applications that manage processes for the customer experience. To deliver the right software, you need to be able to rapidly experiment at low cost. To maintain momentum and speed, low-code platforms provide another layer of abstraction, enabling organizations to easily embed cognitive technologies in custom web and mobile applications. Low-code platforms foster low-cost, high-value, rapid experimentation. RPA is now widely known and understood to an extent. I even recall some of the companies being Composite Applications or Mashups if you go back 10 years; However, most are just beginning to explore the use of robotic process automation, dipping their toes in the water, and with it being such a nascent technology, it is essential to test and learn quickly. It is important to remember that bots can do much more than automate routine processes. Implementing RPA is just the one of the many ways organizations are looking to digitize their businesses and tap into the power of cognitive technologies.

A while back I recorded a short video on the topic of risk management organizational structure in a non-financial company. In the video I discussed various options for risk manager's place in the overall organizational structure. Since there is really no single right answer, the few common options include: reporting directly to the CEO, reporting to the Board or Audit Committee, reporting to the CFO or the Head of Internal audit and so on. You probably already have a personal preference. I hope this article will help you to rethink it. It really doesn't matter... The first conclusion I make in the video is that it actually doesn't matter where risk manager sits as long as two important criteria are met:

• Direct access to decision makers - risk managers must be close enough to the decision makers to be able to support the risk management integration into business processes and decision making and be able to reinforce risk management culture. This requires some level of seniority to be able to participate in the decision making and reach executives or Board members when required.
• Access to information - risk managers need unfiltered access to various sources of information, including internal audit findings, IT data, production data, financial and accounting information, compliance data and so on. This requires good relationships with key information owners and established communication channels that will allow risk managers to use corporate data for risk analysis on a daily basis. The second criteria is the most important in my mind.

As long as these two criteria are met the risk manager will be able to fulfill his role almost anywhere within the organizational structure. See also: Top 10 Mistakes to Avoid as a New Risk Manager   ...but it helps to sit with Internal Audit My personal experience was reporting to Head of Strategy, CFO, CEO, Chair of the Audit Committee and the Head of Internal Audit. And while, it's unique to every organization and does depend to a large degree on the personal relationship with the supervisor/sponsor, I found that sitting together with Internal Audit makes perfect sense, because:

• Internal audit doesn't own many risks, so there is less pressure on risk managers to withhold information or exclude data from risk analysis. The opposite could be reporting to a CFO. Finance department originates and owns a lot of risks. I have come across companies where risk managers who reported to the CFO were pressured to exclude financial risks from the analysis or were prevented from integrating risk analysis into financial business processes.
• Internal audit has direct communication channel with the Board and the Audit Committee. This helps to integrate risk management into strategic decision making.
• Access to financial and operational company data. Internal auditors usually have full access to company data and facilities, which is invaluable when performing timely and accurate risk analysis.
• Access to audit findings, non-compliances, control weaknesses and so on. Internal audit is a gold mine of data that can significantly improve quality of risk analysis. I was very fortunate to be able to communicate with Internal auditors on a daily basis. Their input helped me dramatically improve my risk analysis and hence improve the quality of the overall decision making in the company.
• Risk management can also improve Internal audit planning and auditing procedures. The relationship works both ways.
• Higher ethical expectations from Internal audit.

There are of course arguments against having risk management and internal audit in one department. I am sure you have thought of a few right now. Most of them are not real. I encourage you to write your arguments for and against in the comments below and I will try to respond to each one. See also: Rising Risks of Medicare Audits   Lack of independence and conflict of interest are usually quoted as the main logic for separating risk management and internal audit. I find this quite naive: first to seriously think Internal audit is truly independent is a bit of stretch and second lack of independence with risk management in particular is literally the least of Internal auditor's problems. I summarize my thoughts on the 3 lines of defense in the following video: Please comment, share and like.

At the dawn of another year, it’s always helpful to reflect back and examine the last 12 months. What happened that surprised us? What were we proud of? And what lessons did we learn? In 2016 our entire industry went from one that was slow to adopt emerging technologies to one that is well on its way toward digital transformation. With increasing disruption in the form of innovation and new market entrants, we’ve moved more quickly toward progress than any time in history. And while this is a notable achievement (especially in the Property + Casualty insurance), reports show that there is a real movement for Straight-Through-Processing between all business processes. In the employee benefits/group insurance space that I work in, our experience is that insurance companies want to streamline all data. One of the prerequisites is eliminating the re-entry of data. For example, pushing CRM data to a rules-based underwriting and rating engine. Sending the information into illustrations and proposals and then populating an electronic application (e-app) into an enrollment component, where the insurer can cross-sell optional voluntary products is gaining traction. As are web services into various broker exchanges and automated renewals with seamless movement of data between claims and policy administration vendors into the sales and underwriting system. See also: Top 10 Insurtech Trends for 2017   However, many manual processes are still dominant across certain areas of insurance such as new case on-boarding, platform integration and voluntary product offerings (critical illness and accident), revealing there is still work to be done. In just one year, carriers have had to mobilize intelligently. They’re making strategic decisions that salvage previous investments in IT and equip present ones for growth. Taking large strides toward innovation and the Internet of Things gives insurers the inevitable benefits of this shift more quickly, too. 5 Key priorities Goals drive action, and Celent’s Life/Health Insurance CIO Pressures and Priorities 2016: North American Edition report outlined the following as some of the top business goals influencing CIO’s of mid and large sized carriers in 2016:

• Growth and retention
• Process optimization
• Regulatory requirements
• Innovation
• Cost reduction

Charged with finding the right solutions to realize these goals, IT departments have had important investment decisions to make. Not just for solutions that help achieve objectives today, but also ones that ensure mid-term and long-term success as well. Adapting to Disruptive Technology Insurtech is now a fully fledged stream of fintech with $1 billion of venture capital invested in 47 deals in the first half of 2016, Life Insurance International revealed. That’s great news for insurers. Contrary to what some others experts think, I believe insurtech to be more complementary to insurers as opposed to competition. Modernization of core legacy systems, new insurance exchanges and changing business models (platform and peer-to-peer) defined the year. They will continue to do so as carriers adopt digital strategies. Blockchain cryptocurrencies (Bitcoin), Artificial Intelligence (AI and chat bots), and sensor technology (wearables and autonomous cars) are taking hold in insurance and providing ample opportunity for disruption. The Internet of Things (IoT), the foundation for many emerging technologies, has irrevocably changed the way companies and consumers communicate. These trends are accelerating. See also: 5 Predictions for the IoT in 2017   Of course, Big Data, analytics and cloud technology are all part of the mix as well. Juggling the onslaught of new innovation and understanding how it can be used to create a competitive edge – very quickly - can be disconcerting. However, these disruptive forces should be seen as the catalyst necessary for the kind of dramatic change required to spur growth and new insurance products. Regulations Impact Technology Last April the US Department of Labor (DOL) set new regulations on the way agents and brokers will be compensated when advising on employee retirement plans or individual retirement accounts (IRAs). Scheduled to be in place by April 2017, the fiduciary rule will also affect strategic decisions for technology, compliance, products and employee training. Advisors and insurers must navigate which products the rule affects and how it will impact clients and operations. The proposed International Capital Standard (ICS) stands to address the capital requirements of global systemically important insurers and internationally active insurance groups. This unprecedented global measure is intended to regulate the capital allocations of international insurers. And while ICS is not yet enacted, international insurance carriers are encouraged to participate in forums and groups. This will help shape this global initiative to ensure key business concerns are addressed by the regulation. For a deeper understanding of the new standards, see this recent report by Price Waterhouse Cooper. 2016 in a Nutshell—and Moving Forward So can we wrap up 2016 in a bow? A lot of progress was made. But there is still a long way to go. It will take not place overnight, within a year or even a few years. It is a new paradigm that will continue evolve right along with us. The benefits of which will be felt as swiftly as companies are willing to change. Automation, integration and digitization are creating solutions for straight-through processing. They’re yielding faster turnaround times, reducing errors and optimizing workflow, creating the kind of connected insurance that customers and advisors are hungry for. “The secret to change is not to focus your energy on fighting the old but on building the new.” Those words of wisdom could have been uttered by a top management guru. But they were said by Socrates 2,400 years ago! Building the new—and building on the old, too. As we approach 2017, it’s clear that’s what the insurance industry leaders intend to do.

I'm speaking at a gathering of life insurance executives this week on the Gulf coast of Florida, and a topic that I'll address is one that merits wider consideration: the need for invisibility.

There's been talk about how insurance may be switching paradigms: Rather than having policies be "sold, not bought," we're now moving toward having them be "bought, not sold." There's truth to that, given that the internet gives people access to so much more information; potential clients are doing lots of research and are less susceptible to traditional sales tactics. But what if policies weren't either bought or sold? What if they just happened? What if they were almost invisible?

Trov, Slice and a few others are moving us in that direction, making activating a policy as simple as a swipe on a mobile phone. In the developing world, shipping rice may carry some insurance automatically, and other types of nearly invisible microinsurance are taking hold. Other types of insurance will follow, if we're creative enough. Perhaps taking out a commercial mortgage could bring with it a policy on the owner for the term of the mortgage -- the policy could be underwritten mostly based on some basic information about the owner, and there would be almost no transaction costs, removing two of the obstacles that can make buying life policies cumbersome.

In any case, the idea of invisibility is worth keeping in mind as a design principle. If we can move toward making policies as simple as an app on a phone, sales as easy as "would you like fries with that?" and customer service as comfortable as a stream of text messages, we'll go a long way.

To whet your thinking, here is a recent article from Forbes that explains how powerful the concept of invisibility has turned out to be in banking.

I hope you'll also visit our website to explore the nearly 2,600 articles by our more than 800 thought leaders. I also encourage you to look at the Innovator's Edge, where we are tracking the progress of nearly 800 insurtech startups. We're about to roll out some tools that will make it much easier for startups and incumbents to find each other there -- sort of an eHarmony for insurtech.

Cheers,

Paul Carroll, Editor-in-Chief

P.S. Yes, if you must know, it's lovely here. While my home state of California is being whacked by another major storm and much of the rest of the U.S. is shivering, the temperatures here will be in the high 70s and low 80s this week. I'll suffer through.... 

Today’s healthcare system is an absolute mess. It’s outrageously expensive, needlessly complicated and driven by transactions instead of relationships. People are paying more and more each year – always for less insurance coverage and very little “real” healthcare. Of course, the system is broken…. Or is it? To begin to transform healthcare, it’s important to identify and correct our misconceptions about the system. Let’s start with two big ones: Misconception #1: Americans spend nearly $3 trillion a year on healthcare (and this number is rising). Three trillion dollars is about 18% of our nation’s gross domestic product. We rank terribly against other developed countries for overall healthcare system costs. But there is a major problem with this statistic. It doesn’t represent what’s really happening. Look at Canada, which ranks much better than the U.S., spending less than 12% of its GDP on healthcare -- but we are calling foul on this stat. I lived in Canada for 23 years. I received my education there, trained there, practiced there, owned a company there and was a patient of the Canadian healthcare system on several occasions. I also have many friends and family members who still live there. The truth is that many Canadians come to the U.S. for routine and not-so-routine healthcare because it is not easy to access in Canada. In fact, if you’re in Canada and need healthcare urgently, you may find yourself in a terrible bind. The truth is that the Canadian healthcare system simply doesn’t match up to the U.S. system for quality, accessibility and true effectiveness. It’s not even close. The most privileged people in Canada wait (and sometimes die waiting) for services that the poorest and most average Americans can access right away, very successfully, every hour of every day. I’ve seen it over and over again with my own family and with many strangers looking for help. Americans wouldn’t tolerate for one day what even the most privileged Canadians endure indefinitely before finally coming to the U.S. for care. So how can Canada’s better healthcare GDP ranking be explained? Let’s start by breaking down U.S. “healthcare” spending: Do we really spend $3 trillion a year? Or is a large portion of this money wasted on excessive administration and poor planning but billed as “healthcare” spending? Are there healthcare companies that depend on revenue and profits generated by this waste and administration? Yes, there are. Here’s my take. Many status quo healthcare players are certain to disagree, but, as Upton Sinclair said, “It is impossible to prove something to someone whose salary depends on believing the opposite.” I believe that true healthcare costs in the U.S. are only about $1 trillion (6% to 8% of GDP) and that many industries are turning a nice profit by structuring their systems to capitalize on predictable waste, administration, inefficiencies and poor planning – built right into the U.S. healthcare design. See also: Why Healthcare Must Be Transparent   I’m not saying that there isn’t any waste or unnecessary administration that spur extra spending in Canada – there’s lots of it. I’m just saying that the financial incentives are much different. Waste and administration don’t pay as profitably in Canada as they do in the U.S. I’m also not saying that the Canadian healthcare system is better than in the U.S. I believe healthcare is far superior here. I’m just saying that in the U.S., we allow big industries to earn humongous profits off of waste, administration, inefficiency and poor planning. Canada does not. “Waste” is a bit abstract, so let’s provide a couple of examples. In Canada, an MRI completed at a cost of $300 to $500 in an independent lab is not performed again a week later in a hospital at a much higher cost, as can happen in the U.S. And a gall bladder surgery that can be performed at one site for $3,200 will not be performed at another hospital for $14,000. This happens in the U.S. many times every day, contributing greatly to our $3 trillion in costs. This difference in cost is “waste,” not “real healthcare.” “Poor planning” is also a bit abstract. But imagine the diabetic child of one of your employees running out of her 90-cent glucose monitoring strips that are essential for determining the correct dose of insulin she needs. It would not be uncommon for this situation to lead to a $20,000-plus hospital admission. So, you tell me, was the hospital’s $20,000-plus in revenue a result of a need for “healthcare,” or was it really because of “poor planning” built right into a system that limits diabetic supplies? Maybe we’d be going overboard if we claimed that this design was deliberate, but the fact remains that limiting basic, inexpensive primary care, education and diabetic supplies benefits the status quo players in healthcare. This amount also contributes to America’s $3 trillion in healthcare spending. Moreover, Canadian private insurance companies simply cannot demand double-digit premium increases from employers every year to pay for this waste, administration and poor planning, but it is tolerated by most businesses in the U.S. Misconception #2: The healthcare system is broken. Like most people, I used to agree with the commonly stated premise that the healthcare system is broken. I now have concluded that the American private healthcare system is working exactly as intended. Let me explain. America’s healthcare system is run and controlled by trillion-dollar industries with multi-hundred-billion-dollar companies that are publicly traded and exert a lot of influence on the actions of our governments. With all of the talk about the expenses resulting from the Affordable Care Act, it’s shocking to learn that the most profitable stocks from 2011-2016 were U.S. insurance, pharmaceutical, hospital and other related healthcare companies. In fact, the percent growth in American health insurance stocks during that period are four to five times greater than the Dow, and the Dow is up more than 100%! These public companies have a goal (and fiduciary duty) to grow revenue and profits (and share prices) by any legal means. Because these companies can easily leverage their size and influence to exert control, I believe it is reasonable to conclude that today’s U.S. healthcare system is working perfectly for what it was designed to do – return shareholder value to these companies. It’s just not working that well for the rest of us. Maybe it’s just not designed for us. Are there any business owners or employees who still feel that the healthcare system exists primarily to serve them? If the system did exist for you, wouldn’t you expect to see much more transparency in pricing? Would you accept insurance premiums that go up 10% to 40% percent every year? Wouldn’t your employees be able to make appointments much more easily and have more access to their doctors via the phone? Wouldn’t their doctors’ appointments begin on time, minimizing time wasted in a waiting room? In a nutshell, healthcare would be much easier, more convenient, more affordable and more accessible, and you wouldn’t have the hassle, frustration and feeling that you were being taken advantage of at every renewal time. Clearly, the system is not designed to serve the employer and employee. But this doesn’t mean it isn’t doing what those in power want it to do. Share prices don’t lie. The more we have studied it, the more we see that the only two stakeholders in the entire healthcare system who are aligned for costs, quality and customer experience are the purchaser of healthcare (the employer) and the user (the employee). All other stakeholders (e.g., hospitals, doctors, insurance companies, brokers, pharmaceutical companies, and even our politicians) have incentives to do things and make decisions that are not aligned with the employer and employee. At the very least, there are many things that happen in the healthcare system that do not benefit the employer and employee but do benefit other stakeholders in the system. But there is a secret: When an employer and employees team up and recognize their aligned interests, they gain a tremendous new capability for lowering healthcare costs, getting better quality and results and receiving the customer experience they want. Even though it could seem that the more organized stakeholders of healthcare (e.g., the hospitals, insurance companies, brokers, doctors, etc.) are conspiring to take advantage of employers and their employees, we would encourage you instead to consider that, in most cases, the people running the system are very good people who want the best and want to help people. This is why they pursued a career in healthcare in the first place. It is just unfortunate that the system in which they work has evolved and now essentially forces them to add the costs of profitable waste and unnecessary administration, and often they don’t even know they are doing it. See also: Not Your Mama’s Recipe for Healthcare   It doesn’t have to be this way -- and there are ways that employers can take back control. It always starts with challenging the status quo thinking, and by taking a common sense approach to simplifying and gaining price transparency. Designing an employer health plan that makes routine primary care, labs, chiropractic and preventive exams super easy, convenient and affordable is always the foundation for minimizing the high-dollar expenses that eat up most of the healthcare claims budget. Read “Business Owner’s Guide to FIGHTING HEALTHCARE” for more details on how anyone can make healthcare work for them.