“The paradox of teaching entrepreneurship is that such a formula necessarily cannot exist; because every innovation is new and unique, no authority can prescribe in concrete terms how to be innovative.” ― Peter Thiel, Zero to One Whether we’re talking about telematics, artificial intelligence (AI), digital distribution or peer-to-peer, investing in insurance-related technology (commonly termed "insuretech" or "insurtech") is no longer considered boring. In fact, insurtech is one of the hottest investable segments in the market. As a 20-plus-year veteran in insurance, I find it surreal that insurance has become this hip. Twenty years ago, I gulped as I sent an email to the CFO of my company, where I proposed that there was a unique opportunity in renters insurance. That particular email was ignored. Today, that idea is worth millions of dollars. What changed? Insurance seems to be the latest in a string of industries caught in the crosshairs on venture capital. With the success of Uber and AirBnB, VCs are now looking for the next stale industry to disrupt, and the insurance industry carries the reputation of being about as stale as they come. The VCs view the needless paperwork, cumbersome purchasing processes, dramatic claims settlement and overall old-school look and feel of the industry and think they can siphon those trillions of dollars of premium over to Silicon Valley. It seems like a reasonable thesis. The problem is, it’s not going to happen that way. Insurance will NOT be disrupted. While insurance looks old and antiquated on the exterior, it is actually quite modern and vibrant on the interior. The insurance industry is actually the Uncle Drew of businesses; it’s just getting warmed up! The Model Much of the reason I think VCs are unaware of their doomed quest for insurance disruption is that they are looking at the market from a premium standpoint and envisioning being able to capture large chunks of it. $5 trillion is a lot of money. Without an appropriate model, an outsider coming into insurance can naively think they can capture even a fraction of this. But premium is strongly tied to losses. Those premium dollars are accounted for in future claims. I once had a VC ask me what the fastest way to $100 million in revenue was. The answer is easy, “slash the premium.” I had to quickly follow up with, “and be prepared to be go insolvent, as there is no digging yourself out of that hole.” He didn’t quite get it, until I walked him through what happens to a dollar of premium as it enters the system. And it was this that became the basis of the model I use to assess new product formation and insurtech startups. There are four basic components to my model. Regardless of new entrants, new products or new sources of capital, these four components remain everpresent in any insurance business model. Even if a disruptive force was able to penetrate the industry veil, that force would still need to reflect its value proposition within my four components. Component 1 – EXPOSURE This is the component that deals with insurance claims: past, present and future. Companies or products looking to capture value here must be able to reduce, prevent, quantify or economically transfer current or new risks or losses. Subcomponents in this category include expenses arising from fraud and the adjustment of claims, both of which can add substantially to overall losses. See also: Insurance Coverage Porn   Startups such as Nest are building products that increase home security by decreasing the likelihood of burglary (or increasing the likelihood of capturing the criminals on video) and thus reduce claims associated with burglary or theft. Part of assessing the value proposition of Nest is to first understand the magnitude of the claims associated with burglary and theft and then quantify what relief this product could provide (along with how that relief should be shared among stakeholders). Another company that is doing some interesting things in this model component is Livegenic (disclaimer: I have become friends with the team). Livegenic allows insurers to adjust claims and capture video and imagery using the mobile phone of the insured. This reduces the expenses associated with having to send an adjuster out to each and every claim. Loss adjustment expenses can be in excess of 10% of all claims, so technology that reduces that by a few basis points can be quite valuable to an insurer’s bottom line and ultimately its prices and competitiveness. Component 2 – DISTRIBUTION This component focuses on the expenses associated with getting insurance product into the hands of a customer. Insurtech companies in this space are typically focused on driving down commissions. This can be done by eliminating brokers and going directly to customers. Savings can also be achieved by creating efficient marketplace portals that allow customers to easily buy coverage. Embroker is one of many companies trying to do just that in the small commercial space by creating a fully digital business insurance experience. Companies such as Denim Labs are providing social and mobile marketing services to companies in insurance. And then there is Lemonade, which is developing AI technology that it hopes will reduce the friction of digitally purchasing (its) insurance and making the buying process “delightful.”  Peer-to-peer (P2P) insurance is a fairly new insurtech distribution model that attempts to use the strength of close ties via social methods for friends and close associates to come together to make their own insurance pools. Distribution expenses in insurance are some of the highest in any industry. As with the risk component, reducing expenses in this component by even a few basis points is incredibly valuable. Component 3 – CAPITAL This component focuses on the expenses associated with providing capital or the reinsurance backstop to a risk or portfolio. For many insurers, reinsurance is the largest expense component in the P&L. Capital is such an important component to the business model that the ramifications of it almost always leak into the other components. This was one of my criticisms of  Lemonade recently. Lemonade will have a lot of difficulty executing some of the aspects of its business model simply because it cedes 100% of its business to reinsurers. So, when it comes to pricing or its general underwriting guidelines, its reinsurance expenses will overwhelm other initiatives. Lemonade can’t be the low-cost provider AND a peer-to-peer distributor because its reinsurance expenses will force it to choose one or the other. This is a nuance that many VCs will miss in their evaluation of insurtechs! For those seeking disruption in insurance, we have historical precedent of what that might look like based on the last 20 years of alternative capital flooding into the insurance space. I will devote space to this in future articles, but, in brief, this alternative capital has made reinsurance so inexpensive that smaller reinsurers are facing an existential crisis. Companies such as Nephila Capital and Fermat Capital are the Ubers of insurance. Their ability to connect investors closer to the insurance customer along with their ability to package and securitize tranches of risk have shrunk capital expenses tremendously. Profit margins for reinsurers are collapsing, and new business models are shrinking the insurance stack. It is even possible today to bypass BOTH veritable insurers and reinsurers and put the capital markets in closer contact with customers. (If you are a fan of Michael Lewis and insurance, you will enjoy this article, which ties nicely into this section of the article). In the insurtech space, VCs are actually behind the game. Alternative capital has already disrupted the space, and many of the investments that VCs are making are in the other components I have highlighted. Because of the size of this component, VCs may have already missed most of the huge returns. Component 4 – OPERATIONS The final component is often the one overlooked. Operations includes all of the other expenses not associated with the actual risk, backing the risk or transferring the risk from customer to capital. This component includes regulatory compliance, overhead, IT operations, real estate, product development and staff, just to name a few. It is often overlooked because it is the least connected to actually insuring a risk, but it is vitally important to the health and viability of an insurer. Mistakes here can have major ramifications. Errors in compliance can lead to regulatory problems; errors in IT infrastructure can lead to legacy issues that become very expensive to resolve. I don’t know a single mainstream insurer that does not have a legacy infrastructure that is impinging on its ability to execute its business plan. Companies such as Majesco are building cloud-based insurance platforms seeking to solve that problem. See also: Why AI Will Transform Insurance   It is this component of the business model that allows an insurer to be nimble, to get products to market faster, to outpace its competitors. It’s not a component that necessarily drives financial statements in the short term, but in the long run it can be the friction that grinds everything down to a halt or not. SUMMARY I have presented a simple model that I use when I assess not just new insurtech companies but also new insurance products coming into the market. By breaking the insurance chain into these immutable components, I can estimate what impact the solution proposed will provide. In general, the bigger the impact and the more components a solution touches the more valuable it will be. In future articles, I will use this model to assess the insurtech landscape. I will also use this model to assess how VCs are investing their capital and whether they are scrutinizing the opportunities as well as they should, or just falling prey to the fear of missing out. Originally published at www.insnerds.com,

Risk management is ultimately about creating a culture that would facilitate risk discussion when performing business activities or making any strategic, investment or project decision.

Here are some of the key points that are often missed:

Looking into the past is sometimes the best way of predicting the future. And when it comes to using social media in the insurance industry, past announcements can be highly prescient. For example, if we go back to 2014 when AXA and Facebook announced a strategic partnership, it was commended in the nascent insurtech industry as a milestone moment and was seen as a brilliant, innovative move by industry-observer group SMA. But after 2 1/2 years, what has actually happened? Can customers buy insurance on Facebook yet? Is social media being used to augment underwriting data? Surprisingly, all the resources invested by insurance companies have not led to meaningful innovation in the niche field of using social media in insurance.

Until now.

See also: How to Capture Data Using Social Media  

In this overview, I will present three ways insurers can use social media to everyone’s advantage. 1) Outbound marketing

The most common form of social media use is by far outbound marketing. That makes sense, as 50% of consumers use social media to research their insurance purchase. However, merely posting updates on the latest way to save on your home insurance premiums won't cut through the clutter, which is why Aviva and others use more creative formats. But insurers have not yet absorbed the meaning of “social” in social media, and they often see it as another one-way communication channel. Used effectively, it can make the brand appear more “personal” and relatable, if insurers are interacting with customers on social media — this is easily done by simply posting Facebook updates or tweets. BoughtByMany is a startup trying to change the situation by allowing consumers to come together and group-buy specialized insurance policies. Using outbound marketing enables a company to have more control over who is being targeted in a marketing strategy and ensure that money is being spent effectively to reach them. Insurance companies — especially — can benefit from using different social media channels to advertise their products, as they can target those in certain areas of specific ages or even different income levels. Social media can also greatly help insurers because they can use the public data on an individual’s social media profile and generate insurance quotes in a quick and simple way for the buyer.

2) Fraud prevention

It makes sense for insurers to look through a claimant’s social media channels for signs of fraud — for example, with home, car and disability insurance. In practice, this is very difficult and can lead to PR problems when handled in the wrong way. But because insurers uncover 350 insurance frauds totaling £3.6 million every day, (according to the Association of British Insurers), it is likely that more insurers will do anything they can to avert fraud. If insurance companies are providing quotes for customers by using their social media data, there is no room for buyers to falsely represent themselves in the application, because all data is gathered automatically from their profile once the user has granted access. Using identity verification mechanisms already built into the social media networks is another practical way of reducing fraud, because it creates an extra layer of security for the insurer. 3) Faster and friendlier customer journey

With so many people using various different social media platforms, it makes sense for businesses to adapt. What we are seeing today is many companies implementing a “helpful chatbot” function onto their website. One innovative startup is Spixii.ai, which uses the bots to speed the customer interaction. Businesses using certain social media channels, such as Facebook, are now able to chat directly with the customer, making it appear much more personal. If all our lives are already on social media, why are insurance companies asking so many questions when we buy an insurance policy? Why can't we just connect our Facebook or LinkedIn accounts and autofill at least the quote forms? When being required to fill out long, tedious online insurance forms, some users may not only lose interest but also not be sure on the correct answer, which, in turn, could lead to giving up during the application or receiving a policy that is not right for them. So far, using social data for insurance has not been done, but it represents a massive opportunity to increase online conversions by making life not only easier for the consumer but providing a more accurate and a faster customer experience, as well. See also: 2 Concepts on Social Media and Analytics  

The exponential growth of social media shows no sign of slowing, and, although insurance companies are only beginning to use social media, we are confident of rapid adoption. If social media has already transformed other industries, isn't it only a matter of time before it happens in insurance, too?

Insurance CEOs are acutely aware of the disruption and change facing their industry. Keeping pace isn’t just a matter of adopting new technology. It’s also about being innovative and developing the customer intimacy needed to meet fast-shifting market expectations, while sustaining an unrelenting focus on reducing costs. Disruption and change Insurance CEOs’ concerns over regulation, the pace of technological change, shifting customer behavior and competition from new market entrants have continued to rise from their already high levels. In fact, no other industry group of CEOs is as "extremely concerned" about the threats to growth in these four areas. Incremental innovation and marginal cost savings won’t be enough to sustain profitability and growth in this disrupted marketplace. The good news is that many insurers are embracing innovation. Two-thirds of insurance CEOs see creativity and innovation as very important to their organizations, ahead of other financial services sectors. They’re also ahead of the curve in exploring the possibilities of artificial intelligence and humans and machines working together. Innovation and growth 86% of insurance CEOs believe technology will completely reshape competition in the industry or have a significant impact over the next five years. The gathering transformation is already evident in areas ranging from robo-advice to pay-as-you-go and sensor-based coverage. See also: Convergence: Insurance in 2017   Cutting-edge customer interaction and data analytics have enabled insurtech businesses to set the pace in the marketplace. However, rather than being just a threat, collaboration with insurtech businesses can help more established insurers to make the leap from incremental to breakthrough innovation. This includes improving insurers’ ability to analyze the huge amounts of data at their disposal, which can lead to better customer understanding, higher win rates and more informed underwriting. Partnership with insurtech can help insurers improve processes, increase efficiencies and reduce costs. Data, digitization and trust While digitization and data proliferation are now central elements of the insurance business, they bring increased cyber risk. More than eight out of 10 insurance CEOs (81%) are "somewhat" or "extremely" concerned about the impact on their growth prospects, on a par with banking and capital markets (82%). Given the volume of medical, financial and other sensitive policyholder information that insurers hold, breaches could lead to a loss of trust that would be extremely difficult to restore. More than seven out of 10 insurance CEOs (72%) believe that it’s harder to sustain trust in this digitized world, though they also see the management of data as a competitive differentiator. Grappling with regulation A massive 95% of insurance CEOs are at least "somewhat concerned" about the potential impact of over-regulation on their growth prospects, and 67% are "extremely concerned." See also: Insurance Coverage Porn   The need to implement so many regulatory reforms across so many areas has inevitably tied up management’s time and made reporting more cumbersome. Compliance demands and costs also continue to rise, straining operational infrastructure and holding back returns. However, these are the unavoidable realities of today’s marketplace. Insurers that are able to build the changes into business as usual can gain a critical edge. And pressure on returns means the "second line" now has to pay its way as part of an approach that shifts the focus beyond compliance to sharpening competitive advantage. Download the full report here.

On a weekly if not daily basis, there are media reports about the growing impacts of addiction to opioids. The Centers for Disease Control and Prevention (CDC) reports that 78 people a day are dying from the effects of opioid overdose. Families are being systematically destroyed by the multiplicity of effects of this increasingly pervasive problem. In 2014, there were more than 47,000 drug overdose deaths in the U.S., and more than 28,000 of those deaths were caused by opioids (including heroin). The current overdose epidemic is unfortunately only one symptom of a greater problem in the U.S. Our nation consumes 80% of all opioids produced in the world, yet the American population makes up only 5% of the total world population. This strongly implies there is a societal, cultural profile in America that is unlike anywhere in the world, driving such demand and overuse. As the national “epidemic” of opioid abuse continues to get increasing attention, it’s important to realize the effect it has on employers. Prescription opioid abuse alone cost employers more than $25 billion in 2007. Even if the injured worker never develops an opioid misuse disorder, long-term opioid use is still extremely problematic. The evidence tells us that the effectiveness of chronic opioid therapy to address pain is modest and that effect on function is minimal. In addition, when injured workers are prescribed opioids long-term, the length of the claim increases dramatically and even more so when other addictive medications like benzodiazepines (alprazolam, lorazepam) are prescribed. Perhaps the most troubling statistic of all: 60% of injured workers on opioids 90 days post-injury will still be on opioids at five years. See also: Potential Key to Tackling Opioid Issues Workers’ compensation stakeholders are increasing efforts to call more attention to the use of these potent pain-relieving drugs by injured workers. In the highly complex and diverse field of workers’ compensation, entities from state governments to insurers and other workers’ compensation stakeholders are stepping up to address the issues and impacts of opioid use by injured workers in varying degrees through a myriad of methods. Most work-related injuries involve the musculoskeletal system, and doctors increasingly prescribe short- and long-term opioids to address even minor to modest pain despite broad medical recommendations against long-term use. Because of the prevalence of back injuries in the workplace, opioids are increasingly becoming the treatment of choice for what often starts as a short-term treatment, but frequently becomes long-term, with the likelihood of addiction occurring before treatment is completed. Claims professionals should understand that there are many variations of opioids, including fentanyl; morphine; codeine; hydrocodone (Vicodin, Lortab); methadone; oxycodone, (Percocet, OxyContin); hydromorphone (Dilaudid) – each with different levels of potency. For example, fentanyl is 50 to 100 times more potent than heroin. No wonder addiction is so often the result. Paul Peak, PharmD, assistant vice president of clinical pharmacy at Sedgwick, notes that opioids act on receptors in the brain; therefore, it’s expected that certain changes will occur over time as use continues. Each one of us would realize both opioid dependence (this means withdrawal symptoms occur when the drug is stopped) and opioid tolerance (this means more drug is needed to get the same effect as use continues) if we were to take opioids consistently for weeks or months. In many cases, patients who are prescribed opioids chronically will experience a worsening of pain that is actually caused by the opioids themselves. Because opioids have these profound effects on our brains, engaging injured workers in their own recovery is a best-claim practice, and it is critical to achieving the best outcomes. This should begin early, and a key part of the process includes encouraging workers to ask their doctors questions when they are being treated with drugs for pain. Some of these questions should include:

• Is this prescription for pain medicine an opioid?

Doctors should educate patients on what an opioid is and how to use it safely to relieve pain.

• What are some of the potential adverse effects of opioids?

Opioids can affect breathing and should be used with great caution in patients with respiratory issues. They most often cause moderate to severe constipation. Even short-term use can decrease sleep quality and impair one’s ability while driving.

• Where can I safely dispose of remaining pills?

To protect others from potential misuse, any excess supply should not be saved for later use. Injured workers should be advised not to give them to friends or family, and to dispose of unused pills appropriately. States often provide disposal options/locations for opioids to reduce the chance of leftovers getting into the hands of unintended users. In addition, CDC guidelines now recommend patients are only given a three-day or seven-day supply of opioids, and some states are now putting laws in place following this recommendation.

• Am I at risk for abuse?

Providers can use risk assessments to help determine those people at greatest risk for abusing opioids if prescribed. Peak notes that opioids do have some benefit in the acute phase post-injury, say within four to six weeks after injury. However, when improvement doesn’t occur in this time frame, continuing use of opioids is not appropriate, as addiction becomes increasingly assured. These are among the key questions for treating physicians that injured workers should ask. While engagement is a vital part of patient accountability, physician education is even more critical. Peak explains that more is expected of doctors because they are providing the care. Patients and physicians working together in a close relationship is key. Injured workers and family members should talk to the treating physician immediately if they see signs of addiction or dependence. There are some possible warning signs of addiction, such as craving the pain pills without pain or when pain is less severe, requesting early refills or stockpiling medication, taking more pills at one time or taking them more often than prescribed, or going to multiple prescribers for opioids or other controlled substances. Early detection can help stop the destructive cycle of addiction before it becomes too powerful to resist. Injured workers can also contact an addiction counseling organization. A note of caution for all whose accountabilities touch this area of treatment – terminating prescription opioids “cold turkey” can be dangerous and even fatal. Throughout the life of the claim and at the end of the day for injured workers using opioids, the relationship with their doctors will be the primary factor in determining how the treatment will end and the outcome that is achieved. Strategies for the claims team So where does all this leave claims professionals who want to see injured workers recover successfully and appropriately from their workplace injuries? See also: Opioids Are the Opiates of the Masses   Claims professionals must define a strategy for identifying and then monitoring physician prescribing patterns and the specific use patterns in each case. Some of the tactics that should be considered include:

• Leveraging pharmacy utilization review services
• Directing patients to doctors who won’t overprescribe opioids; and those who use prescription drug monitoring programs and tools, which are available in most states
• Engaging nurse case managers early and regularly; their involvement and intervention can help deter addiction; nurses can advocate for other more clinically appropriate options and advocate for best practices including risk assessments, opioid contracts, pill counts and random drug screens
• Ensuring that injured workers are getting prescriptions through pharmacy benefit management networks
• Leveraging fraud and investigative resources that are often useful in uncovering underlying, unrelated patterns of behavior that would indicate a propensity for opioid abuse
• Considering the cost of opioids versus alternatives; while many alternate treatments are more expensive on the front end, certain drugs may be much more expensive in the long term, especially if they lead to addiction
• Addressing the opioid issue well before case settlement; as with most longer-term open claims scenarios, those with opioid use will only produce worse outcomes and get more expensive over time without appropriate early interventions

Continued vigilance by claims professionals can enable and facilitate a better result at closure and avoid a lot of potential pain for the injured worker along the recovery path.

The sharing economy, which is made up of consumers and businesses who provide on-demand services, faces particular challenges when it comes to insuring their risk while conducting business. Simply put, the sharing economy and the short-term exchange of assets for a fee has created headaches for insurers. Think of the early days of Uber and ride-sharing insurance. Certainly, one constant challenge that on-demand or freelance workers face, is purchasing insurance protection at affordable prices. Since on-demand workers typically work on a per project or per task basis, there may not be a need for annual policies. Especially if there is a gap of more than 30 days between jobs. In the sharing economy, where ride-sharing has become a tremendous service for on-demand workers, the ability to purchase automobile coverage on a per-mile basis may very well become a critical need for those who participate in this new industry. As the sharing economy continues to expand, the ability to purchase insurance products on a pay-as-you-use basis will become even more important to the members of this new economy. And, insurance companies will have to respond to the significant insurance implications. Let's go a little deeper. Short-Term Insurance: Pay-As-You-Use Pay-as-you-use is a fairly common economic precept in today’s technology landscape. It can only become profitable if the consumer realizes a benefit, values its ease of use, and the variable expenses. An example is when Metromile introduced its pay-per-mile insurance coverage; it easily appealed to the majority of low-mileage drivers who felt that they would now be treated more equitably. See also: Insurtech: One More Sign of Renaissance   Ride-share drivers obviously benefited from the reduction in wasted premium dollars, and they were compensated by the delivery of a personalized experience that made them feel counted. Consumers are responsible for constructing, through their needs and desires, a digitally keen, on-demand sharing economy. Innovative sharing economy companies like Airbnb, Uber, and WeGoLook, are turning wasted assets and labor into productive and profitable products and services. The Insurtech Movement Just as the Italian Renaissance took hold due to the desires and determination of dedicated stakeholders, insurtech as a concept has grown to be a collaborative movement (or Renaissance) in the insurance industry. Yes, we just compared the Renaissance to insurtech. The point here is, as with the 14th-century movement, these cultural shifts serve as a bridge from the old to new. Insurtech, as a technological movement, branched out from fintech following reports of significant capital entering the market for insurance start-ups. This massive availability of capital paved the way for start-ups and existing companies to innovate new products, services, and fresh new business models. These models are the innovative driving force supporting the insurtech movement, and why new and existing carriers are considering new business models to jump-start a fairly stale marketplace. Short-term insurance products are a part of this insurance renaissance. Denise Garth’s article at Majesco.com sums this all up eloquently;

“Just like the original Renaissance, today's Insurance Renaissance is spurred by the converging factors of people, technology, and market boundaries. InsurTech is powered by all three. Within insurance, this new Renaissance represents a real shift with significant business implications beyond legacy modernization. It represents a whole realm of new opportunities via greenfields, start-ups and incubators to cover a fast changing market landscape.”

The Big 3 Areas of Innovation and Disruption: Short-Term Insurance Implications The sharing economy is certainly a driving force behind the expected innovation coming out of the insurance industry as companies respond to the needs of the on-demand workforce. Three areas that are most important for short-term insurance innovation are: People As baby boomers hand-off to Gen X, and then Gen X hands off to millennials, and the sharing economy continues to grow, expectations must be met regarding pay-per-use-products and changes in communicating resulting from technology. Technology Consider for a moment how often consumers use their smartphone daily to research, purchase, and access products and services. The resulting expectations that are seeded by technology continually disrupt the traditional insurance marketplace and means of distribution. Mobile technology is the linchpin of short-term insurance as it guarantees immediate access and information flow between carriers and policyholders. Boundaries Traditional borders matter less and less. Technology and globalization generally simply does not value them. Consider how car manufacturers like Tesla are looking to offer the consumer vehicle insurance as a part of the vehicle purchase. The new business models being formed will drive additional changes in the lives of consumers leading to new expectations and innovation. With reduced boundaries and increased information, consumers require on-demand products that suit their personal needs. Short term insurance will be a large part of this discussion going forward. A Bright Horizon Today's insurers are gazing at the horizon that hasn't been this bright in decades. Their window of opportunity is wide open for participants to innovate and offer new business models and products to meet the needs of the pay-as-you-go culture that has developed. See also: A Renaissance, or Just Upheaval?   Thank you, sharing economy! Working capital is available for those with the vision, skill-sets, and determination, whether their experience is based on insurance, technology, or other market segments. Change is on the way, and we'd be wise to get on board lest we get left behind. Although the growing consumer emphasis is on short term and personalized products, these industry-changing innovations are by no means short term. They are here to stay!

There is a saying: “In wellness, you don’t have to challenge the data to invalidate it. You merely have to read the data. It will invalidate itself.” Indeed, if there is one thing you can take to the bank in this field, it’s that articles intending to prove that wellness works inevitably prove the opposite. Another saying is that the biggest nightmares of leading wellness promoter Ron Goetzel and his friends (the Health Enhancement Research Organization, which is the industry trade association) are, in no particular order:

1. facts;
2. data;
3. arithmetic;
4. their own words.

And Mr. Goetzel, writing in this month’s Health Affairs [behind a paywall], is Exhibit A in support of the paragraph above. To summarize the implication of this article, you, as brokers, need to take ROI off the table as an attribute of wellness. Instead, you’ll need to find wellness vendors who are willing to screen most employees much less often than once a year, just as government guidelines recommend. No wellness vendor ever got rich by screening according to guidelines. As a result, willing vendors are hard to find. (Examples include It Starts with Me and Sterling Wellness, as well as my own company, Quizzify, whose outcomes don’t rely on screening.) The lower screening frequencies also mean lower commissions. Weighed against that is the advantage of doing the right thing for your customer and their employees. See also: There May Be a Cure for Wellness   The Collapse of the ROI Myth The subject of Mr. Goetzel’s article was specifically employer cardiac spending vs. cardiac risks in an employer population. He found that cardiac risks correlated the “wrong” way with cardiac spending, meaning that companies with healthier employees somehow incurred more cardiac-related spending. But that correlation -- and it was only a correlation, not cause-and-effect -- by itself didn’t cause the death of wellness ROI, though it didn’t help. As is typical in wellness, and as was mentioned in the first paragraph, the proximate cause of the death of wellness ROI was that this breathlessly pro-wellness author accidentally provided the data proves that wellness loses money. Specifically, they didn’t separate the average employer cardiac claims spending of $329 per employee per year (PEPY) into “bad” claims (spending on events like heart attacks), vs. “good” claims (spending on preventive interventions to avoid heart attacks). How big a rookie mistake is combining these two opposite claims tallies -- prevention expense and event expense -- and calling it “average payment for all cardiac claims”? It would be like saying the average human is a hermaphrodite. Splitting that average into its two opposite components would have revealed that spending on actual avoidable events is much lower than spending on wellness programs implemented to avoid those events. That, of course, is exactly the right answer, as we showed 15 months ago. Let’s do the math How much do employers spend on “bad claims” like heart attacks? Here is the number of heart attacks, spelled out so that people can replicate this analysis using the official government database, tallying all the admissions for heart attack-related DRGs:

1. DRG 280 — 12,825
2. DRG 281 — 15,404
3. DRG 282 — 18,365
4. DRG 283 — 1,800
5. DRG 284 — 275
6. DRG 285 — 160

This totals to 48,829. Roughly 100,000,000 adults are insured through their employers. That means that about 1 in 2000 employees or spouses will have a heart attack in any given year. Let’s double that to generously account for any other cardiac events that could be prevented through screening employees, to 1 in 1000. Now let’s equally generously assume a whopping cost of $50,000 per heart attack. So of the $329 PEPY that Ron calculated for prevention and events combined, only $50 ($50,000 per event and 1 in 1000 working people suffering one) is spent on events. The rest is spent on prevention and management expense, like putting people on statins, diuretics etc., doctor visits, lab tests etc.—things done specifically to avoid these events. These latter expenses are not avoidable. Nor are they even reducible through wellness. Just the opposite– wellness vendors are always trying to close “gaps in care” by sending people to the doctor to get more of these interventions. See also: A Proposed Code of Conduct on Wellness   According to Mr. Goetzel’s own data, a wellness program — health risk assessments, screening, portals etc. — costs about $150 PEPY. An industry that spends that much to get what Mr. Goetzel himself states is at best a 2% reduction in a $50 PEPY expense can’t save money. This mathematical fact explains the industry’s constant need to lie about savings (and about me). Anyone care to claim my $2 million reward for showing wellness saves money? I didn’t think so…

Mold is an ubiquitous substance whose health hazards present indoor air quality challenges that have been gaining public attention in recent years. As clarity on the health effects of mold – both positive like penicillin and negative such as respiratory implications – has emerged, so too the propensity for claims of bodily injury and property damage. Indeed, at the beginning of this current millennium, predictions were that mold would emerge as the ‘next asbestos’. This prophecy, which has not materialized, was prompted by several notable property damage insurance claims that attracted media attention: one by Tonight Show sidekick Ed McMahon who agreed in 2003 to a settlement of $7.2 million for damages from alleged toxic mold that sickened his family and killed their dog; another involved a jury award of $32 million to a Texas couple for alleged mishandling of their mold claim. These high-profile claims, a series of tort claims, and mounting uncertainty as to whether mold would be considered a pollutant within the scope of the absolute pollution exclusion in commercial general liability policies, prompted the insurance industry to introduce a variety of mold and fungi related exclusions into their forms. In this emerging coverage void, insureds and their advisors sought an alternative risk transfer solution to address this now seemingly uninsured exposure. So if, as the industry thought, mold was a pollutant, then certainly mold should find a home in the environmental site liability insurance marketplace. Initially, insurers were justifiably skittish due to the media hype about mold claims. Adopting a cautionary approach, environmental underwriters began to conduct more particular analysis about the nature of a given structure’s building construction, specific materials and wall coverings. Underwriters also looked at a location’s history and source of water intrusions, not solely soil and groundwater beneath and around the property. The industry also looked at ways of more effectively managing and mitigating water intrusion events through development of mold mitigation plans and protocols. Soon, the environmental site liability industry was routinely adding mold to its list of trigger pollutants. See also: Three Surprising Hazards of Worksite Wellness Programs   Nevertheless mold claims are becoming a costly tormenter for environmental insurance carriers, especially in properties such as apartments, condos, and hotels, and present several unique challenges and considerations. Claims Made and Reported Coverage Mold coverage is typically offered on a claims-made-and-reported basis such that the claim, or discovery of the mold, must first happen during the policy period and be reported to the insurer in that same period. Property owners and managers of properties, especially residential and hotel properties, deal with a host of complaints involving water and mold, most of which are addressed as maintenance issues. These seemingly slight matters can mushroom into a lawsuit, which could become problematic if the initial complaint by the tenant or guest is not reported to the insurer during that policy year and is subsequently interpreted by the insurance company as the triggering claim under a succeeding policy when the lawsuit is filed. This presents a fundamental challenge on the claims made and reported requirement in the policy. Such circumstances may also implicate a known pollution exclusion, which is typically standard in environmental site liability policies. Late Notice/Consent When the mold is revealed by a tenant, often a property manager will want to take immediate steps to eliminate the problem. While laudable from the perspective of property stewardship, taking this action without notice to the carrier (pre-tender) and without consent (voluntary payments) can lead to a reduction or elimination of coverage. Cleanup Costs versus Water Damage Environmental site liability policies typically cover mold cleanup to the extent required by law or as recommended by a licensed and insurer-approved certified industrial hygienist (CIH). Usually, however, where there is mold, there is also water and water damage that needs to be addressed lest it develop into mold. The policies often only respond to actual mold conditions, not potential mold conditions. As an example, the policy will pay for the costs to handle and dispose of drywall that has mold on it, but not likely any drywall that is only wet or water stained or discolored. A CIH would recommend the removal of such material as well as addressing the source of the water. Unless, however, there is mold confirmed to be present, these non-directly-mold-related activities would not likely be covered under an environmental site liability policy. Restoration Costs In a similar vein, environmental site liability policies typically provide some restoration coverage for real or personal property not damaged by mold but damaged during the cleanup. So in the hypothetical situation above, the removal of the moldy wall in the course of the mold remediation would likely trigger an obligation to restore or replace such property. Restoration or replacement of the wet or water stained or discolored drywall, however, would not be covered. Policy wordings on this aspect can differ, but frequently in addition to requiring carrier prior approval, the restoration, repair or replacement is limited to the value of the property immediately before it was damaged during the cleanup. So, in other words, the value of the replacement could be limited to the value of a moldy wall. Business Interruption Another challenge arises when the insured’s operations or rental activities are suspended due to water and mold. The environmental site liability policies typically define the interruption as the suspension of operations directly resulting from the cleanup of the pollution and prescribe the period of restoration as the time necessary to complete the cleanup. Establishing that the interruption is the direct result of the cleanup can prove elusive and then isolating the duration of the mold business interruption from the water business interruption can also prove problematic. Additionally, sometimes the mold is discovered in the course of a planned renovation – this offers another avenue of dispute – determining what was the duration of the planned suspension compared with the duration of the suspension from mold cleanup. Other Insurance While environmental site liability insurance is typically written as primary coverage, often the mold extension is granted only in excess of other available coverage (such as, but not limited to, property coverage). This structure can add an additional level of complexity (and delay) as the insured must establish to the carrier that no other potential coverage could apply to the loss. See also: Bad-Faith Claims: 4 Ways to Avoid Them   Managing mold insurance claims can present unique challenges to owners and operators of real property, including disruption of tenancy, liability for bodily injury and property damage claims, costly cleanup, economic loss from a tenancy disruption and reputational damages. The first step is prompt notification of a claim or the discovery of mold to the carrier in accordance with the policy terms. Thereafter, clients can work with their broker in collaboration with the carrier so that the condition is remediated to the extent recommended by a CIH and that thorough documentation of the work and costs, including any business interruption expenses, are submitted to the carrier for consideration and prompt payment. Mold is not the next asbestos but offers unique challenges to those who advocate for, purchase, or sell coverage for mold conditions. All descriptions, summaries or highlights of coverage are for general informational purposes only and do not amend, alter or modify the actual terms or conditions of any insurance policy. Coverage is governed only by the terms and conditions of the relevant policy.

I’m currently working with the IT services team of a large government department. The goal is to help them become more innovative and agile so they can deliver faster, greater value to their internal and external customers. At Clustre, we fundamentally believe that innovation has to be focused on solving real issues.  Without that compass, innovation is a pointless vanity. Only by recognizing and understanding a problem can you begin to solve issues in a clever way. Innovation has to be driven from the edge – by front line staff actually immersing themselves in real problems – rather than in a remote innovation lab dealing in theoretical issues. This may sound painfully obvious but it’s a basic precept that is often forgotten in the headlong rush to embrace new thinking.

My client agrees. This project was firmly rooted in a very real problem – here’s the nub of it…

This government department serves an agency that holds frequent strategy meetings of significant national importance. Up to twenty senior people attend these events and, historically, they would each bring a note-taker to record every key discussion point for the benefit of absent colleagues. See also: How to Master the ABCs of Innovation   It’s a system that worked effectively – if somewhat cost-inefficiently – until austerity became an absolute government priority. Suddenly, this surfeit of scribes could no longer be afforded. Senior officials were left to take, summarize and circulate their own notes. It was too much of a multi-task. Notes became fragmentary and reporting became ever more sporadic. Clearly, the process was collapsing. So Clustre was asked to suggest ways of bridging the widening communication gap. Fortunately, my client had done a pretty thorough job of analysing and understanding the problem. Embedding a member of his Innovation team within the meeting group, he quickly identified the core issues. Undoubtedly – and perhaps understandably – the imposition of this rather menial ‘note-taking’ role aroused some deep resentment. But that was secondary to the main stumbling blocks: acute time starvation and an irreconcilable conflict of roles. To be both a thought-leading contributor to strategic meetings and a shorthand reporter took role-play too far. It simply wouldn’t work. But that left us with an even bigger question: what would? Serendipity is defined as ‘fortunate happenstance’ – a surprise collision of possibilities. Literally a few weeks earlier, we had welcomed a fascinating new company to our Clustre innovation community. This team has developed a technology that enables people to video capture and share meeting discussions and outcomes. What’s more, a powerful search agent also allows people to search for and instantly access pre-recorded material. It was our serendipity moment. I arranged to take the technology provider to meet the client and, to cut a long and very animated presentation short, he loved it. He instantly saw the potential applications and is now arranging to demo this clever piece of technology to his clients. I have high hopes. However, win or lose, this story is an object lesson. Increasingly we find that innovation is happening at the edge. Really clever thinking comes from reaching out to connect with real customers and resolve very specific human needs. In my experience, centralized innovation labs are often isolated from this reality. To close, let me leave you with this last thought… At some considerable expense, a government agency recently issued all front line staff with smart phones. Part of a bold initiative to promote the adoption of technology, these dedicated devices came fully loaded with some very secure apps. The agency’s end goal was to persuade people to use these devices exclusively. But many staff refused to play ball. They flipped between work and private devices until some simple behavioral research revealed the core issue… See also: 2017 Priorities for Innovation, Automation   When the agency gave permission for staff to upload their personal music, the problem was instantly eliminated. It just goes to prove that intelligence and lateral thinking will deliver solutions that money alone can’t buy.

Nearly 40 years ago, a Harvard MBA student named Dan Bricklin got tired of having to recalculate all the values in a spreadsheet every time a variable changed. Having been a computer science major at MIT, Bricklin sat down with a buddy and produced an electronic spreadsheet for the Apple II. 

Fast forward to the second half of the 1980s. I'm at the Wall Street Journal, and we're facing the most extraordinary wave of mergers and acquisition activity that anyone has ever seen. These were the days of Michael Milken and the Predators Ball, of Gordon Gecko and his "greed is good" speech in "Wall Street." What unleashed this tectonic shift in the landscape of business? Dan Bricklin and his rudimentary spreadsheet.

The spreadsheet didn't let people do anything that they hadn't been able to do before. Yet it did the work so much faster that it created a revolution. All sorts of bright young analysts could now fiddle with combinations of asset purchases and sales based on different assumptions about interest rates and growth and reimagine the business landscape on their PCs (while generating huge fees for investment banks).

This story came to mind last week as we held our Shaping the Future of Insurance event on the Google campus in Mountain View, CA. That was partly because my longtime colleague Chunka Mui, who first made the spreadsheet/M&A connection for me, did a great presentation on how to think about innovation in insurance and partly because Diane Greene, the Google SVP who runs their cloud business, followed with her vision for where the cloud will take us.

The cloud, like the spreadsheet, doesn't do anything that we can't already do, but the cloud is so much more efficient that, I believe, it will lead to tectonic shifts of its own. Data will not only be freed from the silos that make sharing within businesses difficult but will be available for easy combination with other data from within the insurance industry, from companies in other industries and from public sources. It will be possible to slice and dice data assets just as creatively as those spreadsheet jockies did with other assets in the late 1980s, and the result won't just be larger or smaller companies; the result will be whole new business models that generate knowledge that will make people's lives fuller and less risky. We can leave Gordon Gecko out of the picture this time. 

Cheers,

Paul Carroll,
Editor-in-Chief