Lately, everyone from government agencies to regulators to corporate board members seem to be talking about the need for more effective risk management. The challenging part is that, despite the guidance provided in ISO 31000:2009, the concept of risk management effectiveness remains vague. This article attempts to summarize the basic components of effective risk management, which should help risk managers to respond to the challenges set by regulators and shareholders. The team at Institute for Strategic Risk Analysis in Decision Making (ISAR) and www.risk-academy.ru has been studying risk management for more than 15 years, and we firmly believe that effective risk management is only possible when all four criteria below are met. Each of these criteria is based on ISO31000:2009, the most widely used risk management standard in the world (translated and officially adopted in 44 of the 50 biggest countries based on the GDP). 1. Integrating Risk Into Decision Making One of the most important tests of true risk management effectiveness is the level of risk management integration into decision making. ISAR research shows that companies achieve long-term advantage if they are capable of systematically integrating risk management into planning and budgeting decisions, investment decisions, core operational business processes and key supporting functions. Just consider an example of a large investment fund, which makes investment decisions only after an independent risks analysis and does simulations to test the effect of uncertainty on key project assumptions and forecasts. Another example is a large airline, which makes strategic decisions based on several quality alternatives with a risk assessment performed for each alternative.

For us it's very important that risks are taken into account when investment decisions are made. That's why risk assessments are mandatory for all investment decisions. Risks are identified and evaluated by both the project team and the back-office departments, including legal, finance, scientists, strategy and others. This ensures a more objective and independent risk analysis when making investment decisions.

--Konstantin Dozhdikov, Head of Risk, RUSNANO

 2. Strong Risk Management Culture

Human psychology and the ability of business managers to make decisions in situations of great uncertainty have a huge impact on risk management effectiveness. Nobel laureates D. Kahneman and A. Tversky, have conducted some exceptional research in the field of risk perception, showing that most people, consciously or subconsciously, choose to be ignorant to risks. Robust risk management culture is therefore fundamental to effective risk management. Take for example a large petrochemical company, which used online and face-to-face training to raise risk management awareness and competencies across all staff levels. The company also allocated resources to integrating risk management principles into the overall company culture. Another example is a government agency, which documented transparent discussion and sharing information about risks as one of the corporate values, which were later communicated to all employees. See also: Risk Management, in Plain English

Training is one of the most important factors in the development of a risk management culture. Risk management can become an effective tool as soon as every employee understands what is it and how it applies to their personal area of responsibility. There are many different kinds of risk management training. It could be risk induction training offered to all new employees. Induction training should include a short explanation of the risks that might arise, information about a useful tool risk management and how to use it when making day-to-day business decisions. It is also useful to conduct separate specialized risk management training for department heads and key managers in order to help them integrate risk analysis into key business processes. The main thing is to remember that training is not supposed to be a one-time measure and, on the contrary, should be offered on a regular basis. Training sessions can be led by your company's own risk manager or an external party, but either way the trainers must possess relevant competencies and qualifications.

--Lubov Frolova, Head of Risk , Tekhnodinamika

3. Disclosing Risk Information Another criterion for effective risk management is willingness and ability of an organization to document and disclose risk-related information both internally and externally. A mature company not only documents the results of risk analysis in the internal decision making processes but also discloses information about risks and their mitigation to relevant stakeholders, where appropriate, in external reporting or on the company website. Because actual risk information may be sensitive and contain commercial secrets, the focus of disclosure should not be  on the risks themselves but rather on risk management framework, executive commitment to managing risks and culture of the organization. Many organizations tend to treat this formally, often copying and pasting risk management information in external reporting from year to year without any update. Remember that disclosure of risk management information allows companies to both make and save money. For example, the insurance market reacts positively to a company's ability to disclose information about the effectiveness of its risk management and control environment, offering a reduction in insurance premiums. Banks and investors also see risk disclosure in a positive light, allowing companies to lower their financing costs. One large mobile network operator takes risk reporting particularly seriously. Its approach changed after an IPO. To this day, risk reporting as part of the annual report is not just a recount of the typical risks within their industry sector, but a reflection of key risk management changes and achievements over the last period. Risk reporting is composed of two parts: 1) A general description of events linked to risk management within the company; and 2) A description of key risks facing the company over the year. In the first part, risk managers give a detailed description of significant risk management events that occurred within the company that year. For example, there could be a description of how closely the company is aligned with the ISO 31000:2009 principles, or how the company has strengthened its risk culture. The second part describes common risk categories facing the company. This should point out the typical risks in the industry sector as well as the most significant risks identified over the past year. Additionally, the description of each risk should include the status of mitigation actions taken to manage the risk, their effectiveness and the anticipatory measures that the company intends to take in the future.  4. Continuously Improving Risk Management The final criterion for effective risk management has to do with the continuous improvement of the risk management framework and the risk team itself. One investment fund was able to do this with the help of regular assessment of the quality and timeliness of its risk analysis, annual risk management culture assessments and periodic review of risk management team competencies. For example, professional risk management certification helps to boost risk team competencies. One of the reasons behind the need for constant risk management improvement is rapid development of risk management discipline. The ISO 31000:2009 standard is currently being reviewed by more than 200 specialists from 30 different countries, including experts from Russia and members of ISAR. Some of the suggestions for the new version of the standard include the greater need for integration of risk management into business activities, including decision making, and the need to explicitly take into account human and cultural factors. These changes could have a significant impact on many modern non-financial organizations, raising questions about their risk management effectiveness. See also: Risk Management: Off the Rails?   Risk management, just like any other element of corporate governance, must be integrated into the overall management system of the organization. The ISO 31000:2009 international standard explicitly talks about the need for risk management to be adaptive, dynamic and iterative. As organizational risk maturity improves, so will the tools used by the organization to manage risks in decision making. Professional risk managers should not only develop risk management processes for the organizations but also improve their own risk management competencies. As I am writing this, work is being undertaken on the update of both of the most widely adopted risk management standards (ISO 31000:2009 and COSO:ERM 2004). New versions are expected to be available in 2017 and promise to revolutionize our current understanding of risk management, not necessarily in a positive way. My experience shows that participating in international conferences, training sessions and certification programs constitutes a good way for risk managers to keep themselves in top professional shape. I hope I will see you at the G31000 conference in Dubai on Oct. 12-13, 2016:www.g31000conference2016.org, where I will be presenting on the topic of risk management maturity. We recommend executives and risk managers evaluate the current level of risk management maturity using the criteria for effective risk management presented in this article. If at least one of the puzzle pieces is missing, it is probably a bit premature to talk about effective risk management.

In my last post, I outlined the four dimensions that are defining the opportunities for health insurtech innovation: the health of the American people, marketplace trends, the role of regulation and the players. Incumbent health insurers are pursuing legacy tactics to compete in the ACA world. There are big M&A approved (Centene/Healthnet) and facing regulatory challenges (both Aetna/Humana and Anthem/Cigna). Many are increasing premiums. Others are leaving the public exchanges (notably, United Healthcare withdrew earlier this year, and Aetna just announced its withdrawal from 11 of the 15 exchanges). Innovators addressing the root of user pain points can influence how plans are selected and healthcare is consumed. The levers are not easy to move. Success requires compliant ways of combining big data analytics and personalization with user-centric digital experiences. The headline of a recently published New York Times article, Cost, Not Choice, Is Top Concern of Health Insurance Customers, would seem to state the obvious. Yet insurers have expressed surprise at the policy mix and which plans are proving to be most popular. Carriers participating in the public exchanges report poorer actual performance than anticipated in premiums (lower) and claims (higher). Users are gravitating toward lower-cost plan options and show a trend to self-select into higher-cost plans when they know a big health care expense looms. This is not just an issue for incumbents. Oscar, among the most visible innovators in the US health insurance marketplace, reported a $105 million loss in 2015. Lack of scale is a challenge, but the company has also been affected by the user decision-making dynamics affecting established carriers. See also: Matching Game for InsurTech, Insurers   The results suggest (at least) three pain points: 1. People don’t see value because they don’t understand what they are buying.

• When people think something is too expensive, it is because either they cannot afford it (i.e., it really is too expensive) or the perception of value does not justify the price.
• Reportedly one in seven employees do not understand the benefits being offered by employers, of which health insurance is by far the biggest piece.

2. People are being held accountable for health decisions that they are not equipped to handle.

• Faced with a complex set of choices and opaque information, it is no surprise that many go for the easy option: saving money now.

3. People don’t always make rational decisions.

• A basic primer in behavioral economics will tell you that emotion, bias and other limitations -- not rational analysis -- drive decisions and that people discount perceived upside relative to downside. There is not enough upside to pay more in the short term.

Players who manage to affect these behavioral drivers stand to gain. Here are examples of companies working the issues. Connecting disparate sources of data PokitDok creates “APIs that power every health care transaction.” They aim to enable data connectivity across the silos that in today’s world require manual navigation. They define an ecosystem including Private Label Marketplaces, Insurance Connectivity, Payment Optimization and Identity Management. The company closed a $35 million B round last year. PokitDok is a pure technology play. Achieving their vision could be the “holy grail”: better economics and better patient experiences and outcomes without owning underwriting risk. Helping employers It hasn’t been lost on the startup world that 150 million employees purchase health care via employers, which is why many companies are focused on improving the benefits buying experience and promising to help employers lower costs. The ACA requires that all companies with more than 50 employees offer health insurance. This aspect of the regulation, coupled with the fact that health benefits expense has risen steadily, provides a specific and large innovation space. Competitors include: Lumity, who reported raising $14 million last fall, acting as an insurance broker. The company claims to be “the world’s first data-driven benefits platform for growing businesses” promising to simplify benefits selection for employers and employees. Employees are asked to provide health data, which are compared with aggregate profiles using proprietary algorithms. The big question: Will employees see enough benefit to share potentially sensitive information? Zenefits, recovering from widely publicized regulatory issues, has new leadership. The company acts a broker, and focuses on small businesses. Collective Health is targeting a wide range of businesses via “ready-to-go,” “configurable,” and “advanced” solutions. The employee experience components of the offering are aimed at helping users make better-informed decisions with less hassle. SimplyInsured aggregates health insurance plan options for small businesses to make comparisons easier, and aims to automate processes presumably essential to creating a viable cost structure for serving this segment. See also: InsurTech Need Not Be a Zero-Sum Game   A number of benefits consultants including Aon and Towers Watson (the latter via their acquisition of Liazon in 2013) offer larger employers private exchange capabilities – these include portals for employee benefits enrollment enabled by data analytics and a friendly user interface. They act as or engage brokers to create benefits plans tailored to employers’ goals. Such portals can be helpful to employees, and check a box for employers seeking to improve the benefits experience, not just reduce expenses. Health Advocate, founded in 2002, is the largest example of a relatively new industry positioned to help patients navigate an increasingly complex system towards the right care and reimbursement. The question being raised around these solutions – although as the de facto advocate within my own family I’d love to have a professional advocate to whom I could outsource – is whether they are a workaround adding yet another layer of expense to an industry that earns among the worst customer satisfaction scores of any. As an employer, however, it’s a benefits option that could be valuable given the stress of managing the health care process many employees undergo. Motivating people to adopt healthier habits Vitality, reported on in an earlier post, is a cobranded platform offering deals and rewards designed to motivate people who take steps towards better health. Hancock offers the HumanaVitality program, integrating Vitality’s rewards program into the insurance relationship. If people see near-term benefit to behavior change this could be a good use case upon which to build. Facilitating patient payments to providers Patientco is a “payments hub” supporting “every payment type,” “every payment method,” “every payment location.” Focus is on efficiently increasing revenue for providers, secondarily to improve the payments experience for patients. The company provides the ability to integrate its solution with other health technology solutions. Providing better experience capabilities to carriers Zipari is a customer experience and CRM platform providing a product suite including enrollment, billing, and a 360-view of members across engagement channels. The company targets is product line at insurers, both direct-to-consumer and group or employer channels. See also: Be Afraid of These 4 Startups The multiple miracles that would have to occur for a quick fix make it unlikely that we will see a simple, logical health insurance experience any time soon. We are relatively early in what is likely to be a long game. But, insurtech innovators and even more mature companies operating within and around the sector are demonstrating the capacity to go after the possibilities that data, technology and the ability to see creative solutions offer to mitigate the pain.

Ever wondered what the Internet of Things (IoT) looks like? Well it’s not like the world of Pokemon Go – where virtual things push their way into the real world. The world of IoT is where real things are pushing into the virtual world, and the data these connected things provide is a heck of a lot more useful than any Pokemon you may catch. For all you hackers out there, this is your dream come true. For all you CIOs, I can hear you groan about yet another “attack surface” you need to police and lock-down. For those of us in the insurance industry, the IoT presents a very big opportunity. But what does it all mean? In our little Insurance world, we have been pretty happy (smug) with our sensors plugged into cars and smart watches spewing driving and exercise data. But we have barely scratched the surface of the available IoT data sources. If you go to thingful.net, you can drill down and look at the vast array of sensors. You’ll find personal weather stations, shopping center beacons, air quality sensors, river water level meters, building power supplies, ships, aircraft, radiation detectors -- a mind-blowing list of sensors that people have put into the wild and hooked up to the internet. See also: Insurance and the Internet of Things   So now I’ve got your attention. Let’s do a little survey of some of the more unusual suspects of devices being pressed into the service of underwriters and claim adjusters -- helping to reduce risk and improve lives. Let’s have some fun and do this in a “day in the life” style. A Day in the Life of IoT It’s Sunday evening. You’ve gone to bed, and you’re settling in for a good sleep. Part of the reason you are so relaxed is you have your new security system in place. Rather than having to wire up every door and window, this sentinel uses sound waves to determine if anything untoward is going on. If your spouse nudges you in the middle of the night and says, “Did you hear that? It must be a burglar! You go and check it out,” you can groggily reply, “The alarm didn’t hear anything, so go back to sleep!” Definitely worth its weight in gold. And what’s even better, insurers are giving premium discounts and incentives for the installation of such devices. So you blissfully snooze on, dreaming of all those savings. Rise and shine So there you are, enjoying your fantastic dream when gradually the light intensity increases and you wake. Groan; it’s Monday! The lamp next to your bed has been triggered by the sleep sensor strip under your mattress. This great night’s sleep has been fully recorded and automatically logged for your later analysis. Some insurers are now incorporating sleep into their premium discount models. According to the NHS, lack of sleep can lead to obesity, heart disease and diabetes, plus a range of other quality of life issues. You are a little smug – being paid to sleep – cool. See also: Coverage Risks From the ‘Internet of Things’ So the morning run is next. However, before you hit the track, you must “clean out the cocky’s cage” – brush your teeth. No problem, your connected toothbrush logs every swirl and stroke and the duration of your brushing. You hear your phone buzz with the alert on how you’ve missed the right molar at the back – oops! There is an insurer that offers discounts on dental insurance for sharing brushing data and following their dental health advice. Interesting to note that, beyond making you better social company, good dental hygiene reduces risk for heart disease, stroke, dementia, respiratory problems, diabetes, cancer plus a range of other issues. Running can be bad for business So now you slip on your running shoes. Inside, there are smart insoles that will log your run (just like all those boring wrist-bound trackers). They can also coach you to improve your running style by analyzing the data from pressure points on your feet and overall gait. Many insurers reward customers for being active, but not many are concerned that the chosen activity may cause other problems – it’s only a matter of time. What insurer would want to give discounts for running only to be hit with claims related to knee, hip and back problems due to poor running style? Fortunately, you’re a good runner and ready to hit the road. So you are just about to go out the door, when you remember you’d like to eat some hot soup for breakfast once you get back from your run. You head to the kitchen and put the soup on a slow simmer on the stove. Finally, you’re outside with your hot breath fogging in the brisk morning air – glorious. Your phone buzzes – what now! Your stove is warning you that you have left it on. Okay, no problem; you knew that. You reset the app alarm for 30 minutes – how long you expect to be running, so off you go. According to industry sources, the number one cause of household fires in the U.S. is from the stove being left on unintentionally. Some IoT sensors can automatically shut off the stove where the owner fails to respond. The cold air is invigorating as you jog down the road, but the thought of that hot soup waiting for you at home puts that little extra spring into your stride. Welcome home On return, you find the house still standing. No surprise, as your smoke detector is working, and your insurance company is making certain of it. More insurance companies are offering premium discounts for sharing detector data. A shocking statistic is that 60% of civilian fire fatalities in the U.S. occurred in homes without a working smoke alarm and that 70% of smoke alarms fail to operate because of missing or dead batteries. The soup and toast were wonderful. Now showered, dressed and energized you’re ready for work. Then the phone buzzes – “What did I have for breakfast?” You enter into a dialogue with your AI-powered diet coach. It inquires about your eating habits and discusses your personal weight and health targets. It closes out the conversation, encouraging you by letting you know what a good job you’ve been doing. Yay! BMI is already an entrenched factor for many insurance plans, so a personal dietary coach to help you eat healthy and achieve weight loss targets can assist to reduce premiums. Several companies are exploring the use of AI technology to effectively implement behavior change associated with dietary and exercise programs. Off to work Today, your car is in the workshop, so you take an Uber to work. As luck would have it, you get a Driverless Uber, so today has already turned out to be really geeky. See also: How the ‘Internet of Things’ Affects Strategic Planning Arriving at the construction site, you put on your work protection gear. Inside your gear, the wearable sensors plug you into the overall workforce management system for the site – your every move is now tracked. You know that safety always comes first. Since the new wearable system has been in place, accidents and injuries on the site have reduced significantly. Insurers are investing in and exploring the use of wearables and other related systems as a way of reducing workers’ compensation risk. The bottom line Had I had written this article five years ago, many would have scoffed at it as a work of pure fantasy. I am happy to say that all of the above cases are very real and do have insurance links. It goes to show that the range and depth of data available are rapidly expanding, and with it our ability to modify the risk equation. In our industry, that’s a big deal. So, next time someone says “IoT,” remember the big opportunity that goes beyond the usual suspects. You can be certain that someone out there is already thinking about how to exploit them. This article first appeared at The Digital Insurer.

So we all feel we have a tough deal. Creating a product, reducing claims ratios, improving profitability – and even being the captain of the ship when all around us the waters are turbulent, and storms are on the horizon. But I wanted to share with you what I think is one of the most stressful jobs in insurance. And that is in the HR (human resources) department. Okay, so you are thinking that HR is a comfortable, backroom activity away from the heat of the insurance battle. But that’s not the case. The insurance battle -- if not much of the war -- relates to cost-cutting. And that means losing people. Often good people, because they are expensive. These industry experts are often let go quickly, with little warning and with poor compensation despite years of service. See also: 8 Things to Know About Insurance   Why should this create stress in the HR department? First, let’s get over the notion that HR is the employee’s friend. I remember when HR was the "trusted adviser" to the employee as well as representing the employer's interest – but now HR is firmly there to implement employment processes within the terms of employment law. Many senior professions entered HR because of their soft skills, but now they are "the hatchet men" who have to implement major change. No wonder they feel uncomfortable. (We won’t touch on why it seems to be the guys in HR who get the top jobs, and not the women. That’s a different blog entirely. Think "glass" and "ceiling.") Then there is the issue of social media. Many conversations within businesses are meant to take place in an environment of confidentiality, but disgruntled employees are sharing information -- often under an alias -- about their severance terms and conditions. In many cases, the HR department has little insight into what is being said about their performance and behavior; if they did, they would be horrified. See also: The Human Resources View Of Health Care Benefits Needs To Change   The reality is that HR is a profession living in the 1980s but trying to operate in a a business environment of the 2020s, or thereabouts. No wonder HR professionals feel disillusioned and under stress. Big stress. HR needs to adapt rapidly. HR professionals need to be able to manage social media analytics, especially sentiment analysis, and to be able to manage employees in same way that the marketing department seek to understand their customers. Until that happens, these key professionals will feel like victims of change rather than being the effective implementors. (Even as victims, of course, at least they’ll keep their jobs. After all, doesn’t someone have to turn off the lights at the end of the day?)

The property and casualty insurance industry is on the verge of a transformation. New sources of data are creating possibilities that were previously unthinkable and are changing ingrained business processes, but they are also overwhelming companies with data. One significant source of this coming inundation will be unmanned aerial vehicles and systems (UAVs and UASs, more commonly referred to as drones). Soon, insurance companies will send drones to inspect roofs to determine P&C claims. Gone will be the days of adjusters risking personal safety while climbing and walking roofs to gather data and assess damage. See also: Data and Analytics in P&C Insurance   Much attention has been paid to the new methods of data collection and acquisition. Less attention has been paid to how industry will make efficient and economic use of the new data. The advent of new collection technologies necessitates the development of new data processing methods and processes. Merely adopting new methods for collecting visual data will not lead to significantly increased efficiencies or improved bottom lines. Data handling and business processing improvements must be coupled with new collection technologies. The Constraints: Business, Technology and Regulations The industry has been understandably cautious in adopting new technologies that will upset decades of established practice. There are numerous sources for this reluctance, the most important of which include:

• Scale: With the drone industry in its infancy, insurance providers have expressed concern that few (if any) drone operators could meet demand within specific markets, much less across large geographic areas. Demand for inspections could potentially far outpace the supply of drones and drone operators and could require some firms to contract with multiple operators, thereby adding unwanted layers of complexity to operations.
• Lack of confidence in the underlying technologies: There is also considerable concern that drone technologies have not yet matured sufficiently for widespread adoption. As an example, only recently has satellite imagery begun to be used more extensively. Adopting this technology so early in its development could expose companies to unpredictable downsides.
• Lack of turnkey solutions: Drone operators have limited or no ability to provide analytics for the image data acquired. Insurance companies either need to develop their own image analytics technology or engage yet another third party to extract meaningful information from the data.
• New technology supplanting drones: Some companies are concerned that tying themselves to drone technology providers will set them on a path-dependent course that may prevent them from adopting and profiting from unexpected developments of new technology.
• Out with the new, keep the old: In many cases, the objection to adopting drones is that the old ways work. Insurance companies have weathered numerous technology changes through the years and are not eager to jettison tried-and-true processes and relationships.
• Regulations: Another major concern has been the highly uncertain regulatory environment. The Federal Aviation Administration’s initial approach was highly restrictive, requiring pilot licenses for operators and effectively shutting the door to potential market entrants. The new round of regulations, specifically Rule 333 and Part 107, will reverse the overly restrictive pilot license rule and allow competitors to enter the market and drive down prices.

Most of these issues are temporary. The regulatory environment is maturing and stabilizing to allow the growth of a new industry. Over a relatively short period, the market will sort out issues related to scale and availability, maturity of drone technology and whether a newer, superior technology could quickly supplant drones. The market pressures to adopt new technology will make it increasingly untenable to resist innovation. The issues that will continue to challenge the insurance industry are those related to analytics and business process integration, regardless of the regulatory environment, scale or specific data acquisition technology. The How: AI, Machine Learning and Business Platforms Drones are only the beginning of the story. They are merely the tool for collecting visual data, albeit with greater speed, safety, quality and depth than previously available. For an industry to make profitable use of this new source of data, however, visual data must be converted into meaningful information and must integrate seamlessly with all related business processes. Information must be extracted more efficiently from the data sources. Manually performing tasks such as damage detection will no longer be economically feasible given the volume of data and speed at which it will become available. Companies that harness technologies such as artificial intelligence (AI) and machine learning will significantly improve operations and establish clear advantages. Powerful algorithms will automatically detect damage sustained by a structure (for example, hail damage on a roof) as recorded by drones. These algorithms will be faster and more accurate than any human adjuster, able to perform in mere minutes (or less) what requires hours for humans to do, and the algorithms will be self-training and self-improving. However, data analysis still needs to be integrated with business processes such as settlement. A platform approach that combines data analytics with business processes, making the information instantly available to stakeholders, will be the most likely method of solving the problem. A fully integrated business platform would store, analyze and report data. It would eliminate reliance on multiple software applications and systems, bringing the full scope of business processes into a single, seamless package. In the case of roof damage claims, the platform approach would integrate detection of structural damage and determination of claim value, and it would issue a report and settlement payment for the homeowner, all with minimal human intervention and within minutes of receiving the visual data. Integrating advanced data analytics and business processes will allow companies access to real-time data and improve decision making with predictive analytics. See also: 2 Key Tools for Innovation in P&C   Platforms will also provide the infrastructure to connect insurance companies to drone operators, as well as policyholders. Platforms will provide a market exchange or job board for drone operators for hire across numerous markets, complete with their credentials and technical capacity. Insurance companies will be able to directly interact with their customers through platform technology. The Why: Increased Competitiveness, Improved Customer Relations and the Bottom Line The incentives to adopt new technologies are clear. Drones can acquire data more safely, faster, at lower cost and with higher quality than satellites or an army of adjusters. However, the industry will realize greater benefits from focusing on the analytics of the new data, rather than the specific method of collection and delivery of that data. Advanced analytics will drastically reduce the time to settle claims and will standardize the claims settlement process. Those quick to adopt the new technologies will gain early competitive advantages and efficiencies relative to their peers. Combining analytics and a computing platform approach that harnesses AI and machine learning will simplify business processes—replacing inefficient, disaggregated tools, software applications and systems—and improve decision making. Those that make this leap earlier than their peers will have the clear advantage. Faster, more accurate and more reliable claims settlement will lead to better business planning and risk management. Powerful computing platforms will allow insurance companies to employ predictive analytics that accurately and quickly determine business risks and provide tools for mitigating those risks. Improving the claims settlement process will yield improved customer relations. Home repairs, especially significant ones like roof replacement, are a major source of anxiety for homeowners. Reducing the time to completion of repairs through increased processing speed and standardized claims estimates will increase customer satisfaction and loyalty.

Many insurance companies have a deep sense they should be part of the blockchain movement, but they are not quite certain how to approach its implementation. Once you pull back the curtains, there appear to be two sets of mutually exclusive incentives underpinning the blockchain technology movement. One of them could be the greatest thing that has ever happened to insurance; the other may be systemically toxic to everything insurance stands for. A productive and sustainable economy requires stability — i.e., low volatility or no volatility. The insurance industry, by definition, must be able to identify predictable events over a long period. The value proposition of all insurance products depends on the ability to pool risk exposures appropriately and to lay off risk. These conditions limit the insurer only to those products where conditions are assured. The incentives of the insurance business seek to reduce volatility, categorize risk exposures appropriately and mitigate risks (where applicable). Anything less is called gambling. See also: Why Insurers Caught the Blockchain Bug   On the other hand, speculation may be needed to maintain efficiency and grow the blockchain. Speculation is often the sole basis of valuation for digital tokens and depends on high volatility to attract gamblers (for lack of a better term) to bridge the capitalization gap. Yet the creation and distribution of digital tokens is only a residual artifact of the blockchain use case, not the core use case. For the blockchain to maintain itself, the value of the digital token must exceed the cost of maintaining the blockchain. By contrast, a centralized organization would simply pay an IT department from operating revenue to maintain the system, whereas a decentralized organization, by definition, must be autonomous. The Great Blockchain dilemma is clear: Volatility and stability are mutually exclusive. The current blockchain/crypto-currency landscape is plagued by this dichotomy. Incentives are laid out to encourage speculation, yet the great vision of blockchain is one of a new economic paradigm ushering in an era of economic fairness and stability. Both of these things cannot happen at once. For example, investment banking and corporate decision-making is driven by quarterly profits. The incentives on Wall Street have become tragically short-term. The current view of blockchain is a miracle drug that can eliminate large swaths of human administrators while also increasing the performance of data structures. Not surprisingly, large banks have come together to form a consortium to define blockchain standards for transferring value within their industry. But this may be short-sighted. The hallmark of a great society is the ability to capitalize on its needs, not its arbitrage opportunities. While the case for creating a shiny new super currency is compelling, the primary objective should be to induce stability in the outcomes of events articulated on a blockchain. The value of the tokens must represent true human productivity of a physical nature. Otherwise, nobody else would be willing to perform work in exchange for it. With a broad social agreement, digital currency can achieve a state of mutual reciprocity and be traded widely across an economy without friction. See also: What Problem Does Blockchain Solve? Therefore, the highest and best use for blockchain technology is in the insurance industry and not necessarily the banking industry, because insurance can eliminate volatility. Properly deployed, blockchain technology can reduce the cost of capital by decentralizing risk. A developed economy is distinguishable from a less developed economy by the stabilizing force of insurance, not by the volatile nature of money.

Everyone knows the purpose of insurance is to protect individuals against unexpected financial losses in the event of illness, accident or death. That's not surprising. What is surprising is that the majority of Americans are uninsured. Are you insured? Are those near and dear to you protected against financial losses that could arise because of health-related problems? See also: Gig Economy: Newest Tool for Insurance   Here are eight things you need to consider when assessing your insurance needs. 1. What you have First, analyze what you have now. How much do you have in your savings account? Do you have a regular source of income to meet your monthly expenses? Have you made smart investments in properties or stocks? 2. Debt What debts are you currently running? Do you have personal loans, mortgage loans or any credit card payments due? How much of the amount is yet to be paid? What happens to the debts when something unexpected happens to you? 3. Health Do you suffer from any health issues like back pain, obesity, blood pressure or heart problems? If so, you might want to purchase insurance plans before things get worse. It makes sense to check out reliable sources and find out whether you need to go for genetic testing. A healthy person gets as much as a 20% discount on premiums. 4. Financial commitments Ask yourself how much money you should leave for your spouse and children to lead a stress-free life financially. How much will your loved ones require to meet their household and healthcare expenses? What are the significant future expenses they’ll need help with? Education, household and healthcare are the major expenses for a family. In addition, there will be other costs like vehicle repair and maintenance, home renovation and home appliances. 5. Childcare and home duties Childcare is another major scenario you need to consider when thinking about whether you should purchase insurance. How would you like your children to be cared for if you or your spouse met with a major accident, disability or death? If something happens to the parents, the life of the children may be bleak if there is no backup plan. The two best ways to offer protection to your kids are (1) having a caregiver to take care of them or (2) sending them to childcare. Try to come up with a rough estimate of how much that would cost. 6. Living expenses Regarding your personal expenses, ask yourself how much money you will need to take care of yourself when you’re affected by a threatening disease, illness or disability. Also, consider the additional medical and caretaker expenses. 7. Funeral expenses Well, let’s hope that nothing of this sort happens to anyone at a young age or even middle age, but, again, this is a scenario that needs to be considered when assessing one’s insurance needs. The hard fact about funerals is that they are pretty expensive ($3,000 to $5,000). 8. Timeframe In the event of illness, how long will you be able to survive without your working income? Again, this comes down to the savings you have at present and the returns from investments you’ve already made. If you haven’t made any, then it’s high time you purchased a suitable insurance plan to prevent any unexpected financial damage to you and your family. See also: What Do Bots Mean for Insurance?   Situations and financial status changes from time to time, so ensure your insurance needs are regularly reassessed and you are covered accordingly. If you’re not sure how to get started, getting in touch with an expert is the best way to go about it. Talk to multiple insurance agents and compare different plans before choosing one. Make sure you are always covered!

The header image was part of an article by Bloomberg that was written more than two years ago (May 2014). The data itself goes back nine years. Mylan's price gouging was front and center recently, this week, but the gouging issue has been percolating for years. It has erupted before, and it will erupt again. Everyone's squawking, and legislators are “looking into it,” but it won't be solved this year — or even this election cycle. Here's why: Mylan's pricing controversy with EpiPen is the same controversy that plagues much of U.S. healthcare. As a country — and as individuals — we don’t like it when there’s a BIG, obvious imbalance between the cost of healthcare and the need for it at scale, especially for kids. Our indignation is righteous. The EpiPen delivers about $1 of a drug (epinephrine) easily and quickly to avoid a life-threatening condition (anaphylactic shock). The company that manufactures the EpiPen (Mylan) has raised the price dramatically through the years, especially relative to the cost of either the drug or the delivery mechanism. We can't really claim ignorance here; EpiPen is one of the drugs from that Bloomberg chart in the header. As hard as it may be to believe, the reason for all the increases isn't complex or complicated at all, it's simple. Mylan raise prices because it can — and the EpiPen is a BIG moneymaker for the company. But the EpiPen controversy isn’t unique to Mylan. It's the exact same controversy in that Bloomberg chart and the one sparked by Martin Shkreli last year (with the drug Daraprim). Shkreli was my pick for the No. 1 quote in my Top Ten Healthcare Quotes for 2015:

I probably would have raised the price higher … is probably what I would have done. I think healthcare prices are inelastic. I could have raised it [Daraprim] higher and made more profit for our shareholders, which is my primary duty — and again — no one wants to say it, no one’s proud of it — but you know this is a capitalist society, capitalist system and capitalist rules, and my investors expect me to maximize profits.

Not surprisingly — Shkreli was publicly supportive of Mylan’s pricing increases. However, Ralph Nader referred to Mylan as “greed on steroids.” See also: EpiPen Pricing: It’s the System, Stupid   Valeant Pharmaceuticals is another company like Mylan and Turing, and they, too, have generated similar controversies through the years with their price increases. The pattern is well-documented and easy to see. But there’s a really hard truth to these hemorrhoidal flare-ups of price gouging. We resent it, but not enough to understand it, and that’s a big problem. There's also a collective problem in trying to make real, substantive changes. Real change is difficult — and it requires a deeper understanding. We need to go beyond the headlines and understand how drug pricing fits into our whole healthcare system design. All too often, we simply throw up our hands and falsely conclude that our healthcare “system” is broken. The hard truth that we must face head-on is that it really isn’t. We think it’s “broken” because we don’t understand the evolutionary design of our healthcare system. There’s an urgent immediacy to our culture that makes history too long, too boring, too difficult — but it always bites us. As the author Michael Crichton said:

If you don't know history, then you don't know anything. You are a leaf that doesn't know it is part of a tree.

In fact, there’s another quote — by another author — that I like to use to highlight our specific challenge with that deeper understanding of our healthcare system. On the release of his book Flash Boys, author Michael Lewis was interviewed by Steve Kroft on “60 Minutes,” and a quote from that interview was both the inspiration and influence for my book Casino Healthcare:

If it wasn’t complicated, it wouldn’t be allowed to happen. The complexity disguises what’s happening. If it’s so complicated that you can’t understand it — then you can’t question it.

What Lewis was referencing was high-speed trading on Wall Street, but the quote could just as easily be applied to all of U.S. healthcare. In fact, it’s tailor-made. Our healthcare system has become so complicated that we can’t understand it. But that complexity is also by design as a way to avoid the hard questions. See also: Our Real Problem With Drug Pricing   We desperately want someone — or something — to just fix healthcare. We thought Obamacare might do so — and some truly believed it could — but Obamacare is really just a single step out of our healthcare wilderness, the same wilderness we’ve been wandering around in for decades. At different times we’re angry, lost, confused, frustrated and hurt — and it winds up being more of a ghoulish nightmare than a wilderness. But the hard truth in this wilderness is that in our Casino Healthcare (including big-side stories like EpiPen), all the players are complicit. Payers, providers, pharma, politicians and suppliers are all aligned to a primary objective: their objective. These objectives are unique to them individually, but they’re the same collectively. It’s the for-profit business of revenue, stock price, shareholders, risk capital and campaign contributions. Safety, quality and equality in our system are secondary objectives, even though there are many that push hard for the full attention they deserve (myself included). Mylan is simply doing what for-profit companies are legally required and expected to do : work in the best interests of their board, their investors, their stockholders — and, yes — themselves. Like her or not, the CEO of Mylan is doing exactly what she is paid (very well) to do. If she were fired tomorrow, any replacement would simply dial back the pricing to avoid the heat and slowly ratchet it back up when our anger and frustration moved on. It always moves on. We don’t like to hear it, but we’re complicit, too, just in a different way. We’re complicit in our ignorance because we don’t dig deeper, we don’t understand the whole design, and the media flare-ups do die down. Valeant, Turing and now Mylan are like accidents on the freeway. We slow down, we’re stunned and aghast at the horror — and then we move on. See also: How Quote Data Can Optimize Pricing   So, no, the EpiPen story isn’t rare or all that different. It's not just a delivery mechanism for epinephrine, it's an important lens into the whole healthcare debate. It just happens to be the latest in a long line of stories that will continue to repeat until we make systemic changes to the way U.S. healthcare is designed. We can make those changes. We should make those changes, but the first step for all of us is to understand that the system we have — now running at $3.4 trillion per year, more than $10,000 per capita — isn’t broken at all. It was designed this way, and we just need a whole new design. Not a partial one, not just around the edges, but at the core — one that’s not optimized for revenue and profits but one that's optimized for patient safety, quality and, yes, real equality first.

The gig economy has taken the world by storm, with more than 45 million Americans participating in it in some fashion. By 2020, one study estimates 40% of America's workforce will be self-employed through either contract work or freelancing of some sort. Previously, the biggest challenge for self-employed Americans was discovering new mediums to find work. No more. With the rise in the gig economy, these freelancers have access to millions of jobs at the click of a button. For instance, my company, WeGoLook, pairs freelance workers, or what we like to call "gig workers," with jobs across the country — and now the world — to fulfill client asset verification requirements. The rise of the gig economy isn't just a positive for these independent workers but for businesses and traditional industries, as well. The insurance industry is no different. Insurance Industry Growth and the Gig Economy According to an Insurance Institute survey, more than 40% of insurance companies plan to hire 100 or more employees between 2016 and 2017. A third of these jobs will be brand-new rather than replacements. This is becoming standard across the board as technology continues to change how the insurance industry operates. The word "outsourcing" is often misconstrued, with negative assumptions about offshore job movements and layoffs. The insurance industry, however, can easily leverage gig workers and maintain a traditional workforce. See also: 6 Points to Consider When Outsourcing   Here are five benefits to outsourcing traditional insurance work to gig workers: Worker Outsourcing Benefit #1: Looming Talent Gap A study by McKinsey & Co. revealed that 25% of insurance professionals will retire by 2018. Baby boomers are finally taking that retirement — all the millennials are applauding! This is going to leave a massive workforce gap in the insurance industry. Gig workers and outsourcing can help fill the massive vacancy left by retirees. Think gig workers aren't specialized or professional? Think again. With the rise of the gig economy, shared marketplaces and smartphone technology, gig workers are more professional, knowledgeable, trained and equipped than their freelance peers in the 1990s and 2000s. Worker Outsourcing Benefit #2: New Workforce, New Priorities Millennials are much different than their parents. They crave flexibility and experiences above all else. Sitting in a cubicle from 9 a.m. to 5 p.m. is likely not a professional priority of the typical millennial. This is why we have 53 million freelancers in America — a trend that will only increase into the future — and may be why millennials are the biggest demographic within that group. They want flexibility and the opportunity to be their own boss. This isn't to say millennials don't want full-time jobs, but the astronomical increase in gig workers in the U.S. indicates changing work priorities among millennials. By 2025, millennials will make up 75% of our workforce, so it's best we pay attention! Worker Outsourcing Benefit #3: Business Flexibility Outsourcing to gig workers will allow insurance carriers to remain flexible amid the ebb and flow of consumer demand and business requirements. More importantly for insurance carriers, on-demand workers provide flexibility because they allow companies to adjust to sudden staffing shortages when surges in demand occur. Natural disasters, for instance, place enormous pressures on claims processing and verification, right at the time when customers need it the most. Worker Outsourcing Benefit #4: Lower Costs In lieu of a full-time employee with a salary and benefits, gig workers can be leveraged to provide on-demand expertise when needed. Gig employees are much more flexible than traditional full-time employees and have more technological tools at their disposal. Now, I'm not saying an on-demand workforce replaces technical or certified field personnel, such as claims adjusters, but gig workers can augment and, in some cases, replace the full-time staffing requirement. See also: On-Demand Economy Is Just Starting   Reduced costs also emerge in the form of fleet vehicle costs, equipment maintenance, travel expenses and much more. Worker Outsourcing Benefit #5: Information Flow Now, more than ever, companies can tap into on-demand workers through various marketplaces that make up the gig economy, or what many term the “sharing economy.” The boom in the gig economy means a faster flow of information for traditional carriers because of its reliance on digital and mobile platforms. Gig workers can quickly digest information and relay it in real-time faster than a traditional employee. An insurance carrier would need to have thousands of local field agents to cover the space new sharing economy companies are covering by pooling gig worker talent. For instance, at WeGoLook we can dispatch any of our more than 26,000 “lookers” nationwide to gather information relevant to an insurance claim, asset verification, document retrieval, notary services and much more. To rival this, a traditional insurance carrier using the old employment model would need thousands of salaried positions placed strategically across the country. Or they'd require a web of complex contractors, which, in turn, would need to be closely managed by human resource professionals. This is no longer necessary thanks to the rise of the gig economy. Imagine what a workforce of 26,000 full-time employees would cost. But you can now have those employees at your fingertips just as you would if they were salaried — all by embracing the gig economy model. See also: How On-Demand Economy Can Prosper   As you can see, there are many benefits to embracing an on-demand workforce, particularly for traditional insurance carriers. This is not only because of a looming worker shortage but because hiring on-demand workers will reduce costs, increase information flow and will force the adoption of new technological trends.

The model of employer-sponsored healthcare has historically been very paternalistic. Companies would differentiate themselves and take care of their workforce with health plan offerings (and dental, if you were lucky!), employees would enroll in and use the plans they were offered, and it was very difficult for people to get the care they needed without an employer plan. Things have changed in the past 50 years, however. Insurance is no longer the differentiator it used to be. People have options in terms of where they get their coverage and the plan options they choose. Healthcare costs have risen exponentially, meaning cost considerations are more important than ever, both for employers and the employees they cover. Cost sharing is becoming more common through so-called consumer-driven health plans or high-deductible plans. Because employers can no longer afford to cover everything for their employees, they shift costs to them and expect people to be smart about their healthcare spending. But what happens when employees have to pay elevated premiums just to get the minimum of what they expect from their plans? Employees avoid care altogether. Why? Because the tools to be smart, thrifty healthcare consumers just don’t exist. Why Patients Are Bad Consumers Consumers of just about everything else compare prices and quality to determine the best solution. Healthcare consumers can’t do either of these things. Prices vary based on region, provider, potential complications and a variety of other factors, meaning that simply discovering the price of a particular treatment is difficult. Data on care quality is even harder to quantify, and the consumers who do seek comparative outcomes find themselves among groups of doctors and providers still trying to get the same information. They don’t know what things cost or what they do, but we expect them to make educated decisions anyway. Buying healthcare isn’t like buying anything else. Someone looking at healthcare options is likely ill, distracted and even scared. Not only is his health in jeopardy, but thanks to the prominence of high-deductible plans, healthcare can cripple his financial life, as well. See also: Consumer-Friendly Healthcare Model   Most healthcare consumers don’t even need all the options in front of them. The popular “80-20” rule of healthcare, an approximation that 20 percent of patients incur 80 percent of costs, exists because rarer and more complex ailments take more resources to cure. These consumers often don’t have the luxury of shopping around, so providers don’t have to cut them any breaks when the bills come due. If healthcare consumers don’t know what they’re buying or how much it costs (and don’t feel like they have any say in the matter), are they actually consumers at all? Subscriptions Are Popular for a Reason Subscription services are picking up steam across the globe. People are outsourcing things like transportation to Uber, music to Spotify, shopping to Blue Apron — the list goes on, but healthcare has not yet taken advantage of the subscription model. We need the same subscription-based outsourcing of responsibility in the healthcare space to push more of the complexity of the consumer process under the surface and provide patients with easily comparable options. Right now, people have to choose how they die (cancer insurance, accidental death and dismemberment insurance) and which parts of their bodies are covered (vision, dental, health). Not only does going broke seem to be a requirement for good treatment, but healthcare providers also aren’t doing enough to show patients what they’re paying for and what their options are. Initiating the Change The healthcare structure needs to move from consumer-driven to consumer-centric. Navigating healthcare today is like producing a movie. Patients have to find the actors, directors and sets and then figure out the financing for everything separately without knowing what anything costs until the night of the premiere. Current healthcare transparency tools really only add another layer of confusion to the process because these tools communicate ineffectively. Unfortunately, the “Uber of healthcare” doesn’t exist and likely won’t for the foreseeable future. Too many parties have too much at stake, and major companies like Apple and Tesla won’t enter this space because the barriers are too daunting. So, with the stakes so high and the options limited, what is the healthcare industry to do? In short, be more helpful. We need to help people become healthier and protect their lives and their livelihoods, taking on the burden of information that has so far been placed at the feet of the unprepared consumer. Patients don’t care whether payment behind the scenes is coming from dental insurance or standard health insurance — they just want the bill paid and the service performed. Uber and Netflix have created a generation of people accustomed to having half the decision made before the information ever reaches them, and that’s what healthcare must become for the sake of its consumers. See also: Healthcare: Time for Independence   The industry must take these steps to simplify the healthcare consumer experience:

1. Drive relevance. People won’t watch videos about how healthcare works because they don’t trust the processes behind the industry as a whole. They’re more likely to watch videos — or download PDFs, listen to podcasts and otherwise consume content — about the benefits they’re receiving. That’s what affects them. We also need to put those benefits in context, comparing them with other plans both in the U.S. and abroad, and make that information engaging and digestible.
2. Package for impact. People want to make their own benefits decisions, but the process is complicated and confusing. Netflix offers choice without overwhelming its users, by incorporating data to automate the early part of the search (the hardest part) and allow consumers to select from a range of prescreened options. As an industry, we must simplify the user experience by leveraging intuitive technology to create holistic benefits packages that are easy to understand.
3. Prioritize everyday value. Right now, many healthcare options only step in when patients get hurt or seriously ill. We need to incorporate technology to make maintenance easier. Telemedicine and concierge services can eliminate many of the unnecessary barriers between consumers and care without breaking the bank.
4. Create intuitive interfaces. People expect real-time feedback, iterative updates and responsive mobile experiences, yet the industry today largely lacks these things. Providers and insurers should shed the paper-based status quo and bring the simplicity of the 21st century into healthcare with customizable apps.
5. Offer easy payments. Part of the appeal of subscriptions like Uber and Netflix is not having to pull out the credit card with every use. Healthcare needs to combine payroll deductions, copays, deductibles and co-insurance in a simple, single-payment system so people know when and where their money goes.
6. Open the data. The data to help families become more educated and live healthier lives is out there — but it’s siloed. Data exchanges can incorporate products that address multiple facets of health and wellness, streamlining existing data to create not only savvier healthcare consumers, but also healthier, wealthier families.

It’s time for the healthcare industry to make life easier on the patients it serves. By taking on more of the information burden and improving communications, healthcare insurers and providers can give patients clearer options and easier access to the care they need.