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Healthcare: Time for Independence

“Employer frustration over the devastating collateral damage from a severely under-performing healthcare system is boiling over.”

Tom Emerick

July 7, 2016

Forbes carried a good article by Dave Chase, a leader in trying to reform healthcare in the right way. Chase writes, “Employer frustration over the devastating collateral damage from a severely under-performing healthcare system is boiling over.” Click here to read the full article. High health costs are driving U.S. jobs to Mexico and other countries. GE and scores of other companies are exporting high-value jobs. Some are even moving jobs to areas in the U.S. where healthcare costs are less exorbitant. IBM is a good example of the latter. Yet Chase and others have demonstrated that rising healthcare costs can be controlled, and controlled in an employee-friendly way. What an irony. He has created a Declaration of Independence From Traditional Health Insurance. The article lists a number of thought leaders, consultants and employer leaders who have signed that declaration, the goal of which is to create a sustainable healthcare equation in America. Signers include Al Lewis, Jim Millaway, Rajaie Batniji, Brian Klepper, Stan Schwartz, your humble author and others who have implemented effective health programs. This is a revolution worth fighting for.

Tom Emerick

Tom Emerick is president of Emerick Consulting and cofounder of EdisonHealth and Thera Advisors. Emerick’s years with Wal-Mart Stores, Burger King, British Petroleum and American Fidelity Assurance have provided him with an excellent blend of experience and contacts.

Personal Lines

Ads Can’t Buy You Happy Customers

With auto premiums surging, drivers are asking why they’re paying for insurers to outspend every other U.S. industry on ads by nearly 8%.

Mike McCormick

July 6, 2016

It seems like you can’t watch television for 10 minutes these days without hearing a sneaky gecko, a suit-clad man named Mayhem or Progressive’s Flo pushing insurance. Insurance ads like GEICO’s bring some humor to your between-show times, and they're definitely better than those psoriasis medication ads. But what’s not so funny is that policyholders are spending billions to broadcast those messages across the airwaves.

Now, with auto insurance premiums rising faster than they have in nearly 13 years, more drivers are asking why they’re paying for insurers to outspend every other American industry on ads by nearly 8%. In my opinion, it’s a fair question — especially considering that there are better ways to earn satisfied policyholders.

Ads Don’t Make Happy Customers

In 2014, S&P Global (formerly SNL Financial) analyzed auto insurance advertising spending and found that GEICO led the pack, spending almost $1.2 billion annually, closely followed by Allstate at more than $937 million. Those figures keep climbing, but do they translate to better service?

The Consumer Federation of America broke down the ratio of advertising to premiums and found that GEICO spent 6% of its budget on ads in 2013, while Allstate spent 5.7%. Interestingly, Allstate’s recent earnings report showed its net income fell by almost $1.2 billion from the first quarter of 2015 to the first quarter of 2016. GEICO, not to be outdone, had one of its worst years on record in 2015.

When it comes to customer satisfaction, though, the big spenders aren’t winning. When Reviews.com weighed the nation’s largest auto insurance companies for dependability, financial standing, reliability and customer focus, it was Amica and State Farm that came out on top. What do Amica and State Farm have in common? They’re both policyholder-owned.

So while investor pressures have put stockholder-owned GEICO and Allstate on top for ad spending, they’re not pleasing customers like mutually owned Amica and State Farm.

There are plenty of differences between mutual companies and investor-owned insurance companies, of course, but a big one is how they spend profits. While policyholder-owned insurers also purchase ads to tempt new customers, they — unlike stockholder-owned insurers — return a chunk of their profits to members in the form of dividends or reduced premiums.

Cut Ads, Not Service

Mutual companies have shown that it’s possible to contain — even to reduce — costs while still satisfying customers. After all, when was the last time you saw an Amica ad on television?

The first — and perhaps most important — step to keeping rates low is to reduce customers’ exposure to risk. Our company recently tightened its underwriting guidelines to contain claims and allow policyholders to benefit from the cost savings. It’s a difficult decision that can hinder sales, but it’s the best way to keep costs low for everyone. Next, find ways to get your name out there that benefit existing policyholders.

In lieu of ads, we conduct programs called brand energizers that reward the affinity groups we serve. Nurse’s Night Out, for example, treats our life-saving policyholders to an evening of fun, while our Work Hard/Play Hard sweepstakes are a great way to build word of mouth while rewarding customers who are first responders.

Reward programs are just one way to build your brand without ads. We’ve developed a team of field marketing managers, our brand ambassadors, who make appearances at schools, educational events and other local groups to explain the benefits of our policies. This model costs much less than a national television ad campaign while building our reputation in the communities we serve.

Hiring captive agents, too, is a good way to structure teams in a way that boosts service, not costs. Our account consultants are rewarded for bringing in new accounts, as well as for their retention efforts, and they’re not tied to particular clients. This creates incentives to provide world-class service to every potential client they encounter.

Don’t forget the value of a strong retention program, which captive agents can help with. Happy customers are loyal customers, and the cost of retaining a customer is much lower than earning a new one. According to Bain, a mere 5% increase in customer retention could garner your company as much as a 95% profit increase.

A focus on retention also builds brand champions who are willing to tell others about their experience. Wouldn’t you rather hear a neighbor’s recommendation than a gecko’s sales pitch?

Lastly, build a strong surplus to protect yourself against unexpected losses. If a tornado strikes, you’re only as strong as your reserves. Invest in this surplus so you can weather disasters without raising policyholders’ rates in their time of need.

When I started working in the industry, I rarely saw an insurance ad on television. I’m now sick of them, and I know customers are, too. To keep policyholders happy without dropping billions on ads, try it the old-fashioned way: Cultivate strong relationships and even stronger reserves, focus on retaining customers and build a team of brand advocates. Maybe you — and all of America — can then get back to watching your show in peace.

Mike McCormick

Mike McCormick is CMO and senior vice president at California Casualty, an auto insurance provider for educators, law enforcement officers, nurses and firefighters. McCormick has presented at Salesforce's annual Dreamforce conference.

Going Digital

Which to Choose: Innovation, Disruption?

Ask if your market faces unpredictable changes. Then determine how much control you have over those changes.

Jeff Pettegrew

July 6, 2016

Most executives are averse to risks but, ironically, create the risk of being leapfrogged by unforeseen competitors. Executives focus on innovation but only look for a new idea, device or methodology that incrementally provides greater efficiency or effectiveness, like the fifth blade in a razor or higher-resolution HDTVs. This sort of innovation, sometimes referred to as a sustaining innovation, is not the same as out-of-the-box thinking that leads to disruption. To be sure, sustaining innovation can sometimes produce great success. Google displaced Yahoo as the de facto search engine and web mail provider through incremental, in-house innovations, not through a disruptive strategy. Nevertheless, most companies, including insurers, are now being forced to change their products, service models or delivery systems because of threats from outside the mainstream in the industry. Management and marketing efforts have traditionally touted incremental, continuous improvements -- using words like “faster," "bigger," "better" or "more efficient” -- as a reason why clientele should remain loyal and why business should even expand. The incumbent mature market leaders, no matter how visionary they think they are, often ignore opportunities to invest in disruptive business strategies. Netflix beat Blockbuster in the consumer video market starting in 1997 by coming up with a new business model for DVDs by mail and by investing in the nascent technology of on-demand, downloading of video content while Blockbuster stayed with its traditional business model of renting DVDs in stores and kiosks. See also: Does Your Culture Embrace Innovation? Disruption is created through inventions or processes that transform and overturn the way we think, behave, buy products, communicate, travel and go about our daily business. It doesn’t have to be based on new technology. Disruption, unlike incremental innovation, displaces an existing market, industry or technology by reimagining something more efficient and wildly better. Disruption looks at the underlying principles and values of a product or service, then rethinks solutions. Disruption is aimed at a set of consumers whose needs are largely ignored by industry leaders. A disruptive innovation trades off performance along one dimension for performance along another, such as simplicity, convenience, values, ability to customize and transparent pricing. Initially, some disruptive models from a niche market (like Uber or Lyft) may appear unattractive to consumers or inconsequential to industry incumbents, but eventually many of these disruptive or enlightened approaches to business opportunities completely redefine the industry. New brands have turned their industries upside down. In fact, smaller companies with fewer resources have knocked many brand name incumbents out of business. Once mainstream customers start adopting an entrepreneurial entrant’s offerings in volume, disruption has occurred. Shilen Patel, founder of business accelerator Independents United, says: “Simply put, innovation is rational whereas disruption is irrational.” Most outrageous business ideas have had loud critics. Not disruption. Companies like Google (Alphabet) thrive by taking crazy ideas called moonshots at a devastating pace and seeing if they can make them believable, deliverable and profitable, knowing that just a small percentage of the ideas will work. So how does a business decide if it needs to innovate or reinvent itself to remain competitive? Corporate executives must ask themselves if their industry is facing unpredictable changes, then decide how much control they have over that change. As Mark Zuckerberg once said: “If we don’t create the thing that kills Facebook, someone else will.” Companies now run the risk of cross-industry disruption, where a high-tech company takes over autonomous transportation or even an industry like insurance. Amazon did just that with retail and is now considering its own drone delivery system, its own shipping fleet and 3D printing to disrupt certain supply industries. See also: 6 Key Ways to Drive Innovation The University of Southern California in 2014 began offering a program for entrepreneurs referred to as “a Degree in Disruption.” Venture capitalist Josh Linkner’s book, The Road to Reinvention, argues that “fickle consumer trends, friction-free markets and political unrest…along with mind-numbing technology advances,” mean that “the time has come to panic as you’ve never panicked before.” Twenty years ago, the disruption in manufacturing was offshoring. Now, the disruptions are technologies like 3D printing, artificial intelligence, transportation innovations and robotics -- and are bringing manufacturing jobs back to home markets. Investments in sustaining innovations obviously make sense for most companies, but some may choose to strengthen their ultimate market position by investing in enterprises that don’t necessarily align themselves with their core business strategies. Partly because of disruptive innovation, the average job tenure for the CEO of a Fortune 500 company has halved from ten years in 2000 to less than five years today. Eventually, foothold market companies may have to decide on the strategic choice of taking a sustaining, traditional path versus a disruptive one. The same forces that lead incumbent industries to ignore early-stage disruptions also compel disrupters to ultimately disrupt. But if a company’s innovations do change consumer behaviors and force a redrawing and expansion of market boundaries that separate its new business from the culture and processes of old ones – then you really have something.

Jeff Pettegrew

As a renown workers’ compensation expert and industry thought leader for 40 years, Jeff Pettegrew seeks to promote and improve understanding of the advantages of the unique Texas alternative injury benefit plan through active engagement with industry and news media as well as social media.

Resilience & Sustainability

How to Make Flood Insurance Affordable

A combination of government vouchers and risk-based pricing shows promise.

Howard Kunreuther

Wendy Zhao

Jeffrey Czajkowski

July 6, 2016

Our study on Charleston County, SC, assesses the cost impacts of flood insurance if premiums were increased to risk‐based prices. We then consider a program that addresses affordability concerns coupled with cost‐effective risk reduction measures. We follow these two principles for flood insurance:

Flood insurance premiums should be priced to accurately reflect risk. Premiums reflecting risk inform individuals as to the hazardousness of the area and encourage investment in cost‐effective adaptation measures.
Issues of affordability should be addressed, but not by subsidizing insurance premiums. Many low‐ and middle‐income homeowners living in older homes in flood‐prone areas are not able to afford flood insurance if premiums are priced to reflect risk.

We determined risk‐based premiums for a subset of National Flood Insurance Program (NFIP) policyholders who live in Charleston County’s inland and coastal Special Flood Hazard Areas (SFHAs) who currently receive NFIP premium discounts despite their location in high-risk areas. If premiums were risk‐based, these homeowners in Charleston County’s FEMA‐mapped high‐risk flood zones that currently receive subsidies would see their costs increase substantially. If premiums were risk‐based, they would increase from their current levels by 108% on average for policies in the high‐risk 100‐year floodplain (A zone) and by 159% on average in the high-risk 100‐year coastal floodplain (V zone). Elevating a house by a few feet can decrease the risk‐based premium by 70% to 80%, saving thousands of dollars annually. However, elevating a house is very expensive. We propose a voucher program that has two key aspects: (1) insurance premiums are based on risk; (2) vouchers are used to offset both the premium and the cost of the loan for risk mitigation. Implementation of the voucher program with mitigation can reduce government expenditures by more than half over a program that does not require mitigation if the cost of elevating a house is around $25,000 in the A zone. In the high-hazard coastal V zone, cost savings can be achieved even when the cost of elevation is as high as $75,000. Mitigation does not lead to reduction in the cost of the voucher if the policyholder’s household income is below $10,000. Elevation is not feasible for all homes, notably those in historic districts. Other actions could also be considered, such as making a higher deductible the standard option. Other mitigation measures might also lead to lower NFIP premiums, such as wet flood‐proofing the ground floor or moving all habitable areas to the second floor in multi‐story homes. Premiums reflecting risk in the NFIP are primarily a function of the designated flood zone, coverage limits and the property’s structural features such as the height of the lowest floor relative to the base flood elevation (BFE). The BFE is the estimated height of floodwaters during a 100‐year flood. Charleston County is vulnerable to both inland and hurricane flood risks so there are incentives for many homeowners to take steps to invest in cost‐effective measures to reduce their risk and hence their risk‐based insurance premiums. To elevate the home, the homeowner would take a 20‐year, 3% interest loan. A voucher would offset both the reduced risk‐based premium and the cost of the loan to elevate the house. We assume that a household earning $50,000 gross income per year can contribute 5% ($2,500) to flood insurance. After the policyholder’s $2,500 contribution, the voucher covers the additional costs. To illustrate, consider a family living in the A zone with a house one foot below BFE where the risk‐based premium is $5,596. As shown in Table 1, at low and medium elevation costs, the annual cost (loan payment plus the flood insurance premium) is less than the voucher would have been had the homeowner not elevated the house. In fact, if mitigation were required, no federal expenditure would be incurred when elevation costs are low, because the loan cost and the risk‐based premium would be less than $2,500. Savings generated from risk mitigation are even greater in the V zone; even when elevation costs are high, the reduction in premium justifies the investment, as shown in Table 2. Table 1: Voucher Costs in the A Zone without and with Elevation (U.S. Dollars)

Insurance voucher – no mitigation
Risk‐based premium without elevation	5,596
Homeowner pays 5% of gross income	2,500
Government voucher	3,096

Insurance voucher -- after house elevation	Low cost	Medium cost	High cost
Cost to elevate the house 2 feet	24,635	50,970	74,756
Risk‐based premium after elevation	839	839	839
Annual loan payment (3% interest, 20 years)	1,656	3,426	5,025
Total annual cost	2,495	4,265	5,864
Homeowner pays	2,495	2,500	2,500
Government voucher	--	1,765	3,364

Table 2: Voucher Costs in the V Zone without and with Elevation (U.S. Dollars)

Insurance voucher – no mitigation
Risk‐based premium without elevation	19,218
Homeowner pays 5% of gross income	2,500
Government voucher	16,718

Insurance voucher -- after house elevation	Low cost	Medium cost	High cost
Cost to elevate the house 2 feet	24,635	50,970	74,756
Risk‐based premium after elevation	5,304	5,304	5,304
Annual loan payment (3% interest, 20 years)	1,656	3,426	5,025
Total annual cost	6,960	8,730	10,329
Homeowner pays	2,500	2,500	2,500
Government voucher	4,460	6,230	7,829

When a family’s income is below $50,000, the homeowners’ proposed contribution would be less than $2,500 and the government’s contribution would therefore increase from the above examples. In both A and V zones, we find that when annual household income is below $10,000 it is cost‐effective for the government to offer a voucher without requiring the house to be elevated. For households in the $10,000–20,000 income bracket, elevation is cost‐effective for the government only when elevation cost is low. In the V zone, for incomes of more than $20,000, a voucher with a mitigation loan is always financially preferable even when the elevation cost is high. State‐Level Natural Disaster Programs in South Carolina South Carolina currently has several natural disaster programs and tax incentives to assist homeowners in purchasing insurance and fortifying homes.

South Carolina’s Omnibus Coastal Insurance Act of 2007 created the Safe Home grants program for low‐and middle‐income homeowners to retrofit primary residences against high‐wind and hurricane damages. Families making less than 80% of the county median household income and with home value below $150,000 qualify to receive as much as $5,000 in non‐matching grants. Families with income above that threshold and home value less than $300,000 are eligible for as much as a $5,000 matching grant. From 2008 to 2011, the Safe Home program awarded 2,500 grants totaling $12.1 million.
The Residential Retrofit Tax Credit provides state income tax credits of as much as $1,000 for expenses incurred when retrofitting a home against natural disasters. From 2008 to 2011, 670 Residential Retrofit Credits have been claimed, totaling $781,106.
The South Carolina Excess Insurance Premium Tax Credit allows homeowner to claim as much as $1,250 in state income tax credit against excess premium paid on property and casualty insurances. Excess premium is defined as the portion of the premium greater than 5% of the taxpayer’s annual gross income. Additionally, the state offers Catastrophe Saving Accounts, which are interest‐bearing accounts not subject to state income taxes if funds are used for qualified catastrophe expenses.

/ul>

Howard Kunreuther

Howard C. Kunreuther is professor of decision sciences and business and public policy at the Wharton School, and co-director of the Wharton Risk Management and Decision Processes Center.

Wendy Zhao

Jeffrey Czajkowski

Commercial Lines

Are Workers' Comp Systems Broken?

Here is a summary of research on how injured employees fare in workers' compensation systems.

Richard Victor

July 6, 2016

As national conversations occur about the direction of workers’ compensation (WC) systems, I sometimes hear comments that “WC systems are broken.” Rarely are public programs either all black or all white. The material below summarizes relevant information from a variety of published Workers Compensation Research Institute (WCRI) studies about how most workers fare in WC systems. How workers fare is critical to assessing the performance of WC systems, and the effectiveness of these systems affects the competitiveness of American business. See also: States of Confusion: Workers Comp Extraterritorial Issues The data from WCRI illustrates that the majority of workers in the workers’ compensation system:

Return to work within a few weeks of the injury, typically to their pre-injury employers at the same jobs and pay as before the injury
Receive their first income benefit payment in 30 days or less from the time that the payer is notified of the claim
Report that they were satisfied with the overall medical care received, including the time it took to have the first non-emergency visit with a provider and access to the desired medical services

See also: Return to Work Decisions on a Worker’s Comp Claim Here is more detail: Return to work and recovery of earnings capacity The overwhelming majority of injured workers return to work and do so to their pre-injury employer at the same or higher pay:

75% to 85% of workers had less than one week of lost time^[1]
80% to 90% of workers had four weeks of lost time or less^[2]
85% to 95% of workers had six weeks or less of lost time^[3]
Only 5% to 10% said they earned a lot less when they first returned to work (for those who returned to work)^[4]
87% to 95% said they returned to their pre-injury employer^[5]
Half of those changing employers reported that the change was not due to the injury^[6]

Timely payment Most workers receive their first indemnity payment without dispute or substantial delay:^[7]

40% to 50% in 14 days or less from the time payer was notified of injury
60% to 75% in 30 days or less

Satisfaction and access to medical care By an overwhelming majority, most workers were satisfied with medical care received (workers with more than seven days of lost time):

75% to 85% reported somewhat or very satisfied^[8]
85% to 90% reported no problems or small problems getting desired care^[9]
80% to 90% reported being somewhat or very satisfied with the time it took to have the first nonemergency care^[10]

While the systems may serve most workers reasonably well, the data also shows that there are injured workers with certain attributes that make them less likely to receive these good outcomes. Discussions that focus on system changes that improve outcomes for these injured workers have high-impact potential. A subsequent post will highlight the evidence on who these workers are.

Richard Victor

Dr. Richard A. Victor is a senior fellow with the Sedgwick Institute. He is the former president and CEO of the Workers Compensation Research Institute (WCRI), an independent, not-for-profit research organization that he founded.

Claims

What Is an Extra Expense? (in English)

You don’t want to find out how your coverage works during a claim or that you’ve been paying for coverage you don’t need.

Christopher Hess

June 30, 2016

I am not sure why policy language has to be so confusing. Truly, there are some complicated risks that insurance covers, but even the simple ones seem to be made complicated by the language used. One example is extra expense. The words themselves seem pretty self-explanatory; a policyholder spends extra money due to an occurrence and submits the expenses as part of the claim. Though it sounds straight forward, within a property claim these expenses require different types of measurement, documentation and coverage. To ensure you are buying the right coverage for your risks, it’s important to understand the details and the differences. Per the International Risk Management Institute (IRMI), extra expenses are defined as: “…additional costs in excess of normal operating expenses that an organization incurs to continue operations while its property is being repaired or replaced after having been damaged by a covered cause of loss. Extra expense coverage can be purchased in addition to or instead of business income coverage, depending on the needs of the organization.” This is true, but there is another kind of “extra expense” that is included as part of your business income - this is commonly known as “expense to reduce loss.” These expenses meet the definition of extra expense, but they are incurred to reduce the duration or magnitude of the business income loss. See also: The Most Effective Insurance Policy Consider this scenario: A manufacturer is shut down because of a covered cause of loss. Despite damaged machinery, they manage to resume operations in the facility by performing work manually with more than normal labor. The extra labor costs enables the insured to maintain some production that reduces lost sales. Is this a business income loss, extra expense loss or both? In this case, extra expense coverage in excess of the business income would not be necessary since the extra expenses reduced the business income loss. Any sales that were lost could still be recovered as well. If only extra expense coverage was purchased, the manufacturer could recover the extra expenses but not any lost sales. The distinction between “extra expense” and “expense to reduce loss” is important when you are placing coverage. Quantification and documentation of extra expense exposures depends on the types of expenses and the scenarios envisioned. If the only extra expenses that are foreseen would be to reduce a greater business income loss, then it might not be necessary to purchase the additional coverage. If business income is not at risk or can be avoided entirely with extra expenses, extra expense coverage may be the way to go. Another category of coverage that gets confused with extra expense is expediting expense. Per the International Risk Management Institute (IRMI) expediting expenses are defined as: “…expenses of temporary repairs and costs incurred to speed up the permanent repair or replacement of covered property or equipment.” The need for expediting expense coverage came from a time when boiler and machinery coverage applied to specific objects written on separate policies. Modern all risk policies will include expediting expense as a part of expense to reduce loss or extra expense coverage. See also: Shouldn’t Your Insurance Coverage Become More Than An Expense? Again it is important to understand how you might incur these loss related expenses when placing coverage. To the extent that you can save the insurance company money by expediting, you are less likely to meet resistance. If you will need to expedite repairs for other reasons, regardless of cost or time savings, you may need to get coverage that provides full reimbursement. Understanding the different types of expense coverage and how they apply to your business is critical when buying insurance. You don’t want to find out how your coverage works during a claim or that you’ve been paying for coverage you don’t need. Think through your potential scenarios, consult your broker and a forensic accountant to explore what coverages and limits are best for your risks. Then, share your conclusions with your underwriter to make sure everyone is speaking the same language.

Christopher Hess

Christopher B. Hess is a partner in the Pittsburgh office of RWH Myers, specializing in the preparation and settlement of large and complex property and business interruption insurance claims for companies in the chemical, mining, manufacturing, communications, financial services, health care, hospitality and retail industries.

Agent & Broker

Distribution Debunked (Part 1)

We try technology solutions, but distribution channels have no motivation to accept them.

Donn Vucovich

Julie Zimmer

June 30, 2016

Over the past two years, there has been a rapidly accelerated emphasis on insurance technology, data and distribution. But are we as an industry spinning our wheels? I think the answer to that question is a big yes. Why? Because we haven’t asked the right questions and are not trying to solve for the right problem. All of the major technology, big data and distribution initiatives out there have a few common origination points, namely, underwriting profitability and transactional efficiency. There is a ton of money and resource spent on this, then we charge distribution with leveraging them in existing channels and in line with current transactional norms. In other words, we are trying to apply technology solutions to distribution channels that are not motivated or prepared to accept them – we then scratch our heads and wonder why we are so far behind as an industry. See also: Fast and Slow: the Changing Landscape Asking the right questions: To fully leverage our capabilities and move our industry forward, we fundamentally need to start asking different questions – we need to go at the problem from the customers’ perspective and then drive the solutions backward. This means having the courage to understand that a distribution infrastructure that is unwilling to change will have to be shelved in favor of distribution outlets that embrace change. Without that realization, there can be no progress. The only technology advancements that can take hold are the ones that support the traditional avenues and solidify the position of the stagnated channels. Until we understand this, we will never improve. Don’t believe me? Let’s look at the landscape: Why are we being commoditized? Insurers battle the commoditization of their product – yet distribution insists that the primary customer decision point is price, even though study after study shows that customers will pay a higher price when there is value and convenience provided. Because of this, the traditional distribution channels insist on building comparative quoting infrastructures and “get a quote now” facilities that escalate the commoditization. What does value mean? We insist on defining value in our own terms instead of on the customers’ terms. We continue to hear from insurers that they will not be the lowest price but that they provide significantly better coverage. That’s all fine and dandy, but the reality is that other insurers can mimic your offering in less time than it takes for you to educate your distribution, and then get them to start selling the product. In other words, your competitive advantage is hijacked before it ever gets to market. We fail to recognize that DISTRIBUTION ADOPTION TAKES LONGER THAN CUSTOMER ADOPTION. That has been OK for a lot of years because everyone has been looking at things the same way, but what happens when your competitors wake up and finally “get it”? See also: A Practical Tool to Connect to Customers What does the customer want? Isn’t it fascinating that this is what is at the bottom of the list? Ok let’s dig in…

Customers want a process that is not PAINFUL.
Customers want to feel like they are buying the right thing from the right company and feel good about the transaction.
Customers want more than just a promise to pay.
Customers want to get their questions answered quickly and clearly.
Customers want to communicate in a way that works best for them.

It’s important to ask the right questions so you can solve for the right problem. In our next installment, we’ll look at each of these and how distribution breaks down.

Donn Vucovich

Donn Vucovich is a managing partner at MVP Advisory Group. Vucovich has more than 25 years of combined financial services industry and consulting experience.

Julie Zimmer

Life & Health

Are Malpractice Claims Fading? (Video)

Do we no longer need to focus so much on tort reform related to medical malpractice?

Erik Leander

Richard Anderson

June 30, 2016

Healthcare Matters sits down with Dr. Richard Anderson, chairman and CEO of the Doctors Company. In Part 6 of the series, we ask Dr. Anderson if further tort reform is necessary, given that the medical malpractice insurance industry is experiencing a drop in claims and medical malpractice insurance rates continue to fall, creating what is essentially the longest softest market in history.

Erik Leander

Erik Leander is the CIO and CTO at Cunningham Group, with nearly 10 years of experience in the medical liability insurance industry. Since joining Cunningham Group, he has spearheaded new marketing and branding initiatives and been responsible for large-scale projects that have improved customer service and facilitated company growth.

Richard Anderson

Richard E. Anderson is chairman and chief executive officer of The Doctors Company, the nation’s largest physician-owned medical malpractice insurer. Anderson was a clinical professor of medicine at the University of California, San Diego, and is past chairman of the Department of Medicine at Scripps Memorial Hospital, where he served as senior oncologist for 18 years.

Resilience & Sustainability

Is Flood Map Due for a Big Data Make-Over?

The Internet of Things and big data technologies could turn the flood map into a poster child for the idea of smart cities.

Peter Williams

June 30, 2016

One of the staples of many cities’ and regions’ disaster planning and readiness is the flood map showing areas and, if you zoom in, structures at risk from floods of a given magnitude. These are published by FEMA in the U.S. and equivalent government agencies in other countries. Flood maps are not glamorous or technologically exciting things. They have done their work for many years and, provided that they are up to date, are an effective way of communicating a generalized level of risk. However, they are far from perfect, and it is possible to identify a number of improvements that could be made with some of the Internet of Things and big data technologies now available. In so doing, the flood map could become a poster child for the idea of smart cities. See also: The 2 New Realities Because of Big Data First, flood maps are regularly not up date, because they are updated on a five- or 10-year cycle (or, in poorer or or less capably governed locations, whenever funds are made available). In the interim, new understanding of weather patterns, sea level rise and the like can change the definition of appropriate flood scenarios to apply, and entirely new settlement and urbanization patterns can emerge. Flood maps would clearly be more useful if they were more dynamic – if the timescale for their updating was compressed. At the same time, because of their scale, flood maps cannot really capture localized variations in risk. The example below shows how these may apply even at the scale of individual homes, in this case in Florida.

(With thanks to Coastal Risk Consulting, an IBM Business Partner) If this local variation was just applicable to residential properties, that would be one thing (although bad enough for the owners of the higher-risk homes!). But if the variation made the difference between having part of the local phone or internet system working or not, or if it meant that a hospital that was thought to be safe was actually at risk of its ER wing being under 18 inches of water, that would clearly be something else again, because it could badly de-rail emergency response. Flood maps clearly need to be more granular – more detailed – as well as more dynamic. Improvements in dynamism are already being made, as the availability of commercial mapping services from Google, TomTom and others might make one suspect. These are updated rather more frequently than five to 10 years! There are also considerable improvements in granularity now available, as the above example showed – companies like Coastal Risk Consulting will provide LIDAR-based risk assessments at the level of individual properties. Different flood models can be plugged in to allow a city, business or a homeowner (or their insurers) to assess risk arising at individual locations from different scenarios. See also: Flood Insurance at the Crossroads But the improvements in dynamism and granularity could, in theory, go much further. The concept of elevation (above sea level or above a river) probably brings to mind something that is a given, fixed and invariable, unless you happen to be looking at geological timescales. But there are factors that can mediate the value of elevation that operate on a much shorter timescale. Consider a building that is 10 feet above sea level but protected by a levee 10 feet high. It may be said to have 20 feet of “virtual elevation,” inasmuch as it would require a flood crest of more than 20 feet above sea level to flood the property. Similarly, take a property 10 feet above sea level but in the area covered by a flood pump or storm drain that can remove 1.5 feet of water from that area. The property may be said to have 11.5 feet of “virtual elevation.” A property may also have a virtual elevation of less than its physical elevation if, for example, building work or a wall or pavement channels additional water toward it. The point about virtual elevation is that it may change in any given location by the year as, say, gophers undermine the levee; by the month, as an area is paved; by the day, if the flood pump is being maintained; or even by the minute if the pump suddenly fails (perhaps when its power supply is compromised by flooding elsewhere)! Virtual elevation is a highly dynamic, highly granular concept that a typical flood map would fail to capture – yet one that may make the difference between a critical asset being operable or not, or an evacuation route being open or not. A city faced with an oncoming storm-surge or a rainfall event upstream of where it is located might therefore need to ask “what’s our virtual elevation – our disposition - right now?” The answer might make a significant difference to its standing emergency management plans and require significant adjustments. All of which tends to imply that the traditional flood map really needs a makeover. At a minimum, while it still provides the baseline, the structures and urban extents that it shows need to be updated, say, annually; making the flood map part of a more interactive tool that allowed for different weather scenarios to be applied, say, would also be a step forward. In reality, the flood map would represent one end of a continuum stretching to something much more contemporaneous. Using the same core baseline data, changes to virtual elevation could be assessed as plans are approved or building permits are issued, or as assets are maintained and their records are updated. In this way the flood map would illustrate the observation that “big data” should really be labeled “small data” – but at enormous scale. If the extra data flows can be added to improve the flood map’s dynamism to, say, a daily or weekly update, and its granularity to the individual property or asset level, it would be transformed from some form or reference baseline that may or may not be up to date at any given point in time, to a live tool that supports day to day decision making.

Peter Williams

Dr Peter Williams is the Chief Technology Officer, Big Green Innovations, at IBM. His focus areas are Smarter Cities, with special reference to resilience to natural disasters and chronic stresses; and technology developments for governments.

Commercial Lines

I Got 99 Problems, but a Glitch Ain't One

Although the Jay-Z song isn't about workers' comp, the industry needs to see where its problems are -- and aren't.

Barry Thompson

June 30, 2016

I have taken some time to review notes from the Workers’ Comp Roundtable 2016 WC Summit. The laundry list of glitches and gripes is bountiful with few surprises. Although the notes themselves do little to move the needle, they clearly show where the needle points. The collected bulk of issues contributed from various corners illuminate a fantastically disjointed hopelessness. If nothing else, this summit is a general acknowledgement of workers’ comp as a systemic failure. This is very useful. Accepting failure is essential to force a widened perspective and arrest the status quo. Accepting failure means we don’t need a complicated sorting of issues to provide sense and direction. We need to stop glitch-fixing and work from a higher level. In that spirit, only two items picked from the vast summit notes are necessary to depict the problem and re-align a solution focus: Item #1: “Every single service provider makes more money if the case goes south.” Item #2: “80% of the system is working appropriately, but 20% needs addressing.” Consider that Item #1 is a truth caused by the incorrect assumption that “20% needs addressing,” per Item #2. The WC claims failure rate of between 10% and 20% has been an accepted statistical constant since at least the start of my career in the 1980s. It has not changed. Therefore, I submit that we must realize that this 20% is a societal-social-human element, which no part of the WC vendor arsenal can, nor should be expected to, fix. We need to stop addressing the 20% as if it has any potential for cure and return to work (RTW) and resolution. See also: States of Confusion: Workers Comp Extraterritorial Issues Fueling item #1 is the decades-long growth of various for-profit interventions, managed care controls and other misguided efforts aimed at the 20%. These remain alive and well, all “going south” for profit. No one corner of the industry has incentive to change. Each has a value proposition that makes some sense standing alone but falls apart and creates cross purposes in practice. Consider that most of the other summit notes are a sub-set of this fact, relating directly to glitches in execution and the lack of human consideration in the process-monster this industry has created, All address the 20%, with the backdrop of legislative pendulums swinging to over-correct and triggering counter forces to over-react. Consider the absurdity in this simple example: What if state law required restaurants to prepare food with 20% of their raw ingredients spoiled? Would any of their dishes be fit for consumption once the 20% was blended into recipes with the 80%? What if the restaurant’s solution was to charge more money to engage more specialized cooks and more expensive spices and techniques that promised to make the spoiled parts more palatable? What if the restaurant charged even more money to predict which dishes would be the most spoiled, yet served them anyway? What if over time the entire restaurant industry saw fit to lose money on the actual menu items but have profit rely entirely on the added services aimed at placating diners’ fears over spoiled food? This absurdity is our workers’ comp system. A restaurant should be able to throw away ingredients unfit for use. It is not that simple in WC, yet is it so far-fetched to consider legitimizing the statutory marking of such WC cases early or at any stage in real-time? Can some escape-hatch of “skipping medicine for resolution” be a legitimate mutual position from the claimant and defense side? Can the system open means for very early strategies and legal methods to dispatch the 20% without a need to pretend to “cure?” This has happened, in small doses. Remember back when California mandated vocational rehabilitation, and it became mostly an under-the-radar holding pattern to failure and a means to propel claimants into bigger and badder disability positions? Recall that the solution at one point was to allow the option for claimants to be paid the value of Voc Re, as if they attended. This situation is a legislative acknowledgement of my main point. Let’s expand this thinking on a grander scale. Let us also agree that employers should have 90% of the responsibility to identify the 20% – they should know their employees better than any predictive model, and adjusters should have the time and mandate to properly decipher real-time information with employers. Further, employers should strive to reduce the 20% as part of overall workplace culture efforts, just as a restaurant supplier is expected to minimize the delivery of spoiled produce. This is not just about WC. Better employer culture serves to better overall productivity. See also: Are Our Working Patterns Outdated? The industry needs to eliminate much of what it does that keeps claims churning open. Fees for claims and related services should be based on outcome performance. Eliminate rewards for false notions of “saved” medical dollars or simple transaction fees for late-timed or ill-fitted interventions. Think of how efficient the WC process would be if the 80% with outcome responsibility suddenly became the 99%. Many managed care schemes and other interventions would become unnecessary. Legislatively, we need an acceptance of the 20% as a human/societal anomaly and need to require judges to account for it in tougher court decisions. We need to craft law reforms that open different avenues to resolve these cases very early under a “nuisance” presumption. We don’t need to fix the 20%. We need very big changes that relieve workers' comp of this 20% burden. Once that happens, most every other item from the summit notes will be minimized or vanquished. Note: PDF downloads of complete summit notes can be found here.

Barry Thompson

Barry Thompson is a 35-year-plus industry veteran. He founded Risk Acuity in 2002 as an independent consultancy focused on workers’ compensation. His expert perspective transcends status quo to build highly effective employer-centered programs.