From tracking our steps and calorie intake to the way we request taxis, technology has bled into almost every area of our existence. But not every industry has been able to move to a digital experience. The insurance industry is one of the least tech-savvy industries out there -- but it’s also a $1.1 trillion market. That is is why investors and entrepreneurs have begun tackling it, vowing to make every process within the insurance realm friendlier, easier and, most of all, digital. Where the industry stands today Emerging technologies have had little impact on improving the carrier side of things. Though carriers have built systems to make a broker’s life easier, these systems are largely outdated and clunky. These systems also have not addressed a larger issue: Small businesses are largely underserved in the commercial insurance world. Because the cost of acquiring a customer is high, brokers spend the majority of their time serving bigger businesses, which have more risk and higher premiums. Insurance brokers do not have the means to acquire small businesses in a cost-effective way, nor do they have the structures in place to support the digital customer. See also: Technology and the Economic Divide Unless you’re a company like Apple, you likely don’t have the luxury of innovating quickly; that is because there are often many layers of management standing in the way of making a quick decision. The insurance industry has found itself woefully unprepared to respond to the drastic change in our economy. The scrappiness you see in corporate innovators was absent; the status quo of bad process was king. Customers have higher expectations today than they did 20 years ago; couple that with changing demographics, and insurance companies start to feel the burn. Customers expect a seamless experience: that is, easily educating themselves, getting a quote, purchasing insurance and easily managing that insurance. However, insurance is a much more complex buying process than consumers are used to. Customer expectations are mismatched with the way insurance is currently purchased, and Insurtech start-ups are seizing the opportunity to redefine this process. Insurance is necessary. It allows us to protect ourselves, our businesses and our worldly possessions. But the process is outdated. So, nothing has changed? No one entity owns the insurance buying process, which makes it a slow-moving and often disjointed experience for customers. Things ARE heading for a change, though; it’s just been a slower change than other industries because of the complicated web of reinsurers, insurers, intermediaries and retail agencies that all have a stake in crafting the process. The right financial resources are being allocated to figuring out this process; insights are being learned from making consumer applications intuitive; and the incredible power of the internet is becoming easier to access within the insurance industry. Here’s what we’re already seeing:

• Data: Carriers are using data in a smarter, better way. Machine learning and the computational power that is available nowadays allow carriers to slice and dice data in ways that were never a possibility before. As a result, rates are better matched to a customer’s risk.

The use of data in insurance has been game-changing from a customer perspective, a carrier perspective and a broker perspective. One of the earliest ways data was adopted by the industry? Price comparison tools for auto insurance. Now? Progressive is offering cheaper pricing for safe drivers by measuring things like speed and braking through a tool called Snapshot--which plugs directly into a consumer’s vehicle. See also: Blockchain Technology and Insurance In life and health, carriers are using data gleaned from wearables, such as the ever-popular Fitbit, to create an experience that encourages insureds to participate in less risky behavior and provides incentives to participate in healthy activities.

• Speed and Ease: The use of third-party data has also opened the door for carriers to ask only the most relevant questions during the application process, which means shorter, better and less nitpicky applications overall.

SEMCI, or Single Entry Multiple Company Inquiry, is something we see more and more carriers take advantage of. The SEMCI approach enables brokers to obtain quotes from their markets. So, instead of spending hours filling in data and searching for quotes one at a time, I can get four quotes from four carriers within 90 seconds. Customers are now used to driving to their agent’s office and signing paperwork or faxing paperwork directly to a carrier, but this has become too arduous in a world where everything is fast-moving. So, companies like CoverWallet are creating a more digital experience for business owners seeking insurance. CoverWallet allows customers to buy and manage insurance from the comfort of their own homes by leveraging technology and taking a more intuitive approach to interviewing the customer. Paper applications were replaced by carrier portals where agencies manually entered data into their systems. Now, portals are being replaced by APIs and web services to stream information in an efficient and low-cost way. There’s still a long way to go It would be unfair to say that start-ups alone will change the face of the industry; the truth is carriers, brokers and innovators will all have to work together to create real, lasting change. The industry has taken steps in the right direction, but it’s nowhere near game over for innovation. Over the next year we’ll see:

• Improvements in accessing information and education: The information that’s found online surrounding insurance will become more personalized. For instance, what insurance does your business need if you live in a certain state and work in a specific industry?
• Emerging technologies present new opportunities: From data breaches to drones, new technologies have made carriers and start-ups take a look second look. How do you access risk and intelligently price new technologies with little information?
• Even smarter incentives: Wearables might be just the beginning for incentive-based pricing. We’re looking at an untapped market for incentive-based commercial insurance, but expect that to change in the near future.
• Friendlier service, any way you want it: Most carriers are providing service on the phone, but it’s impossible to think that won’t change, and fast. Expect to get in touch with a carrier or broker via email and chat--sooner rather than later.

See also: 4 Technology Trends to Watch for   At some point, change becomes easier than staying the same, and that’s where the insurance industry is now, if for no other reason than the consumer demanding it. Venture capitalists and entrepreneurs who have entered the space see the opportunity, and it’s up to carriers and brokers to seize it by working with entrepreneurs or innovating themselves. What they’ll choose is yet to be seen.

Benjamin Franklin famously said, “In this world, nothing can be sure to be certain except death and taxes.” If he was alive today, he might want to rewrite that quote to include increasing insurance premiums. Every year, without fail, premiums rise. That's great news if you’re an insurance company, but it's not so great when you’re renewing your annual policy. And while there’s a weary public acceptance that insurance premiums will inevitably go up because insurance companies do, after all, have to make money like any other business, transparency around premiums and how they are calculated is an issue. Insurers still fall short when it comes to explaining to their customers about rates. Jargon is rife in communications to customers and is often indecipherable, which just makes matters worse. Consider my own recent experience: I purchased travel insurance online and was sent a 22-page policy document to decipher — most of which would have benefited from a lawyer’s expertise to help me understand it. Nine pages of the document were spent explaining what wasn’t included in my policy!    See also: The Insurance Renaissance, Part 2 More insurance companies could ensure greater customer loyalty and instill trust by doing a better job at explaining some of the policies and clauses. For example, some international health insurance clauses that consumers may not be aware of but which are highly beneficial:

• Many health insurers will provide protection for any unexpected cost in the future and keep providing cover even when a condition develops. They will keep paying the cost of any treatment required, up until the policy limits.

• International health insurance will cover medical costs abroad, even if the insured chooses to travel for surgery outside her country of residence. So if there is a famous specialist in another country and someone wants to have surgery there, their insurance will pay the medical costs.

• Most insurance companies will provide cover until very old age, 80 to 120-plus. This is important to know because if someone has an insurance policy that only provides cover up to the age of 60, it will be difficult to find insurance to cover any conditions subsequently developed. And this is the age when health insurance is more useful than ever.

• There are now insurers that are rewarding customers who don’t make a claim with a "No Claims Discount."  

And one that could cause confusion:

• A person may think he is covered for as much as $1 million under health insurance for hospital bills and treatment etc., but what is often unclear is what conditions are not covered by that sum.    

See also: Important Alliance to Fight Health Costs At the end of the day, buying insurance should be viewed as an investment that provides peace of mind and reduces a person’s financial liabilities — and everyone would agree that this is worth paying for. But consumers should be given the opportunity to make a much more informed choice when renewing a policy by having much greater visibility on how premiums are determined. For the insurance industry, a continuing lack of transparency around the calculations of premiums can only be bad for business in the long run. In a fiercely competitive industry like insurance, consumers now have more choice than ever when choosing a policy. So maintaining customer loyalty is everything and, together with consistently good customer service and swift settling of claims, the key to ensuring customer loyalty is better communication and transparency across the industry. After all, it’s much harder to win new business than to retain existing customers. A more consumer-focused insurance industry will also encourage more people to purchase their products, so getting better at communicating can only be a win-win situation. It’s also about making the process simpler, easier, transparent and giving an online experience that customers would expect. Most people can take bad or difficult news if it is explained to them properly — and getting a clear, jargon-free and understandable explanation for insurance premiums puts the purchasing decision power back where it should be: in the hands of the consumer.  

As the June 30 deadline approaches for the 2016 SMA Innovation in Action Award submissions, let’s take a look back at our insurer winners from 2015: Haven Life Insurance Agency, John Hancock and USAA. Their innovative projects and initiatives have demonstrated how they are rethinking and reinventing the business of insurance and furthering their progress toward becoming a Next-Gen insurer. Insurers that are considering submitting an application to the 2016 Innovation in Action Awards program can see from these examples what a winning business and technology project/initiative might look like. See also: How to Enable the Next-Gen Insurer The Next-Gen insurer model is based on five foundational areas of transformation: customer, products and services, technology and data, business model and innovative culture. (For more information on the Next-Gen Insurer model and its foundational areas, click here.) Insurers are taking creative approaches in all of these areas, and the 2015 winners are no exception. Winners are listed in alphabetical order.

• Haven Life Insurance Agency made a real leap forward for the entire insurance industry in the area of products and services by offering medically underwritten life insurance that can be purchased online. Haven simplified an arduous paper-based application process of four to six weeks to better meet the expectations of today’s customer. The company did this by leveraging technology and data – specifically, external data fed through sophisticated algorithms – to greatly reduce the amount of information that the customer has to provide to receive a quote. A partnership with MassMutual gives Haven Life access to the resources of a large organization while retaining the innovative culture that sparked the transformative approach to selling, underwriting and administering life insurance.

• The John Hancock Vitality Program reimagined the relationship between an insurer and its policyholders, creating a unique customer experience in the traditionally low-touch world of life insurance. The program rewards policyholders for healthy behavior such as exercising and getting annual physicals. These activities can be tracked through wearables technology and data via a free Fitbit or logged online through a computer or a mobile app. John Hancock uses this data in an online rewards program that offers premium savings, among other rewards, changing the business model for this life insurance product. In addition to rewards, policyholders can receive individualized encouragement toward further healthy behavior, a value-added service that represents a real advance in life insurance products and services.

• USAA pioneered the use of drones in the insurance industry, showing what this technology and data can do for insurers, especially in P&C claims. After mudslides hit Oso, WA, USAA’s deployment of drones for damage assessment established a new and vital service for policyholders in post-disaster situations, pushing the envelope in the foundational area of products and services.

See also: 6 Key Ways to Drive Innovation The real progress that these three insurers are making toward becoming Next-Gen insurers is evident in the effects these groundbreaking initiatives have on the five Next-Gen Insurer foundational areas. They are also fantastic examples of how thoughtful approaches to innovation can make insurers stand out from the crowd in the industry. This is the fifth year of our SMA Innovation in Action Awards program, which honors insurers and solution providers that are putting innovation into action with creative projects, initiatives, technologies or solutions that further insurers’ progress toward the goal of becoming Next-Gen Insurers. We encourage you to apply for the SMA Innovation in Action Insurer Award or the Solution Provider Award to share your successful innovations! Submissions are due by June 30, 2016. A full program description, FAQs and links to the applications for both awards can all be found on the SMA website.

After going through the process of finding candidates, interviewing prospects and eventually choosing the individual who's perfect for the customer service representative (CSR) position you're trying to fill, it may be tempting to take a deep breath, sit back and think that the hard part is mostly over. And while taking a deep breath is certainly never a bad idea, thinking that new employees will simply figure everything out on their own is. This is especially true for CSRs, whose main responsibilities include being the face of the company, answering questions and helping clients and customers through their issues. In this case, proper onboarding couldn't be more critical. Providing CSRs with the information and tools they need to feel comfortable on the phone, via chat or in person, will not only make them better at their own jobs, but it will ensure that the image your company portrays is accurate at all levels of the business. Here are five ways to onboard new CSRs to help make their transition much smoother and to make them productive team members sooner.

• Create or customize a customer service employee handbook

Having a go-to source for every question and concern, while a sizable undertaking to start from scratch, can be extremely helpful for new employees. Fill a CSR handbook with information about the company, policies, FAQs, insights about customers and anything else that would help new CSRs feel as though they've been with the company for years. Or personalize an existing handbook by adding notes with tips, tricks and helpful message points. Your advice and suggestions can help new hires feel welcome and comfortable with you as a colleague or boss. See also: How to Redesign Customer Experience

• Set up new employee meet-and-greets

Usually during the first few days on the job, employees are bombarded with countless names and titles, making it stressful for them if they believe they are expected to remember everyone immediately. By organizing ice-breaking meet-and-greets between new and current employees, supervisors can provide everyone with the chance to learn a bit more about each other, and new hires may more quickly feel like part of the collective group.

• Organize regular check-ins

Starting a new job is overwhelming. It's often difficult to know how you're doing, if you're doing the job right and if there's anything you should be doing differently. By setting up weekly check-ins with new hires, even just for 10 minutes in the morning, employees can ask any questions they have, and you can provide helpful feedback on their performance. This can also be a great time to review customer service reports or calls to ensure that all steps are being taken to solve customers' issues. This small time commitment can help employees stay on track early in their development.

• Write an onboarding checklist

During the first few weeks of a new job, there are seemingly dozens of forms, meetings, technology setups and more that an employee has to complete. Developing a checklist for new employees to make sure they are prepared to do their job is a great way to take the full onboarding onus off of you or HR. This checklist can also be a great place to set immediate, concrete goals that you'd like new employees to achieve within a scheduled timeframe. To ensure that the checklist doesn't seem like one more piece of paperwork, make it a little less formal by adding a few must-visit lunch spots, important people to meet or other fun aspects of your corporate culture.

• Run through some mock customer service calls

New CSRs are ideally hired for interpersonal skills and their ability to solve problems. However, the way those things are conveyed to customers can vary dramatically from one company to the next, and new employees will often default to the methods and messages they used at their last employer. To gauge how new employees will respond to your company's calls and test whether they're staying on message, run through some mock customer service calls — from simple to exasperating — before allowing them to answer phones on behalf of the company. If adjustments need to be made, you can alert them to how things are done at your company and correct any issues before they present themselves during a live call. See also: Are We Listening to Our Customers? These suggestions are surely just a few ways to optimize your onboarding process. Do you have anything to add that you've found helpful? Please share your advice below so other professionals can learn from your experience. Thanks!

With a growing recognition that employees are a company’s greatest asset, it is increasingly important to consider how to keep staff in different countries happy and engaged. According to some studies, happy, comfortable employees are 12% more productive. Further studies suggest that benefits such as health insurance can reduce employee turnover by up to 25%. There is also increasing evidence that ensuring employees get enough time off and don’t work too many hours can boost productivity — as well as your workforce’s long-term health. A recent Aon survey of multinational companies found that 56% don’t have a global benefits database, despite global benefit reviews being a top priority. For companies operating in more than one country, setting benefits centrally can cut administrative costs, while simplifying reporting and reducing resentment between cross-border teams who may perceive the perks their colleagues receive to be unfair. Understanding what is normal in different countries is the best starting point to work out how to develop appropriate packages, from local working cultures — such as working hours, vacation time, salaries, levels of tax on earnings — to indirect benefits like the availability of state healthcare, statutory sick days and age of retirement. But when considering a working location, remember that simple top-level overviews like those shown below are never sufficient to make a decision — the devil is in the details, so seek out expert advice. In Depth Talking Points “There is a clear trend of centralization at multinationals, yet it isn’t flowing through to the way that employee benefits are managed…. The vast majority of decisions are still being taken by local stakeholders. [Effectiveness of global planning] is generally being restricted by a lack of up-to-date information and administration activities.” – Carl Redondo, Aon Global Benefits “When considering the impact of local laws, care should be taken to note cultural differences and issues of discrimination. Employers should question whether or not a particular benefit will integrate with cultural norms.” – Personnel Today “You need to understand what impact [benefit schemes] are having on behavior… a big alarm bell should be ringing if they perceive it to be unfair” – Jonny Gifford, Chartered Institute of Personnel and Development “This article originally appeared on TheOneBrief.com, Aon’s weekly guide to the most important issues affecting business, the economy and people’s lives in the world today.” Further Reading

• Benefits Are the New Salary – Bloomberg Business, June 30, 2015
• The Employee Benefits That Make a Real Difference – Fast Company, June 2, 2015
• The World Bank Group and ILO Universal Social Protection Initiative – International Labour Organization, July 29 2015
• 5 Affordable Benefits Employees Appreciate but Few Companies Offer – Entrepreneur, July 6, 2015
• 15 Companies With Incredible Employee Perks – Business Insider, Aug. 13, 2015
• Centralising Global Benefits Held Back by Operational Realities – Employee Benefits, June 9, 2015
• Trends in Global Employee Engagement – Aon report
• Global Benefits Study – Aon report

As the Obamacare compliance clock ticked down, a Phoenix-area CEO lay wide awake at 2 a.m., worrying he might have to consider laying off more than 70% of his 170-employee workforce. Earlier that day, his insurance broker told him that companies with more than 50 full-time employees would be fined heavily if they didn’t provide health insurance under Obamacare. His lawyer confirmed it — the fine would be as high as $5,000 per employee. None of his options looked good. The cost of the health insurance his broker proposed exceeded his company’s profits; ignoring the law’s reporting requirements would increase his fines even more. Reducing his staff to avoid the Obamacare mandate meant splitting up his company or laying off 120 employees. Except for one thing: His broker and lawyer were wrong about the law. Obamacare does not require employers to offer health insurance. Since Obamacare became law, blue collar, service, construction and other such companies nationwide have grappled with providing employer-sponsored healthcare that wouldn’t completely bankrupt their business — a seemingly impossible challenge given the skyrocketing cost of medical insurance. Here in Arizona, CEOs are confronting the issue head-on. Like these CEOs, you have to start by arming yourself with the truth. Then, you realize that, if structured correctly, healthcare can become a huge competitive advantage for companies of all shapes and sizes. Say what? Healthcare is usually one of the biggest expenses for a company. Most people would consider it a major impediment to profitability — not a competitive advantage. But that’s where they’re wrong. In a previous article, I discussed how the correct place of service makes the biggest impact on healthcare costs. Simply understanding the huge difference in costs for services performed in a hospital vs. identical services received in a lab or imaging facility down the street can help companies and their employees make smart choices about getting high-quality, high-value care. But it doesn’t stop there. Beyond managing place of service, employers can take action right now to transform healthcare into a competitive edge. This might seem unbelievable — status quo healthcare is a colossal expense that’s bleeding companies dry — but small- and medium-sized businesses really can avoid overpaying, lower employees’ costs, decrease the amount of time spent away from work and provide benefits that larger competitors simply cannot match. See also: Is Transparency the Answer in Healthcare? The experts will tell you this is impossible, but these three steps are all it takes: 1. Think differently. First, businesses must decide that they are finished with the status-quo healthcare system. What would it be like for them to approach healthcare with a completely different mindset? To reconsider what they’re willing to tolerate and pay for — and what they’re not? Instead of being resigned about the burden of healthcare — helpless in controlling costs while also meeting the mandates of Obamacare — what would happen if they were to apply an entrepreneurial mindset and skill set to their healthcare problem? Despite shocking health insurance rates and a general belief that costs cannot be controlled, thinking differently about healthcare translates to an entirely different experience. With the help of a trusted broker — they’ll never think about their company’s healthcare the same way. 2. Understand the law and what’s required. Most business owners do not truly understand what the law requires or what the difference is between what’s required and what they may want to provide their employees for strategic reasons. In many cases, insurers are using Obamacare to convince companies they must provide traditional health insurance or risk massive government fines. Brokers can help their clients understand what the law requires and build a plan that meets Obamacare mandates and offers great healthcare without killing the bottom line. For example, self-insurance is a great solution for many companies. 3. Design and build a health plan that meets a company’s unique needs. Most employer-sponsored health plans are structured to benefit their insurer, but brokers can help their clients change all that. The best plan will allow the company and its employees to pocket the savings if waste, administration and overpricing are eliminated. See also: Healthcare Quality: How to Define It   Here are a few key components of a health plan that work well:

• $0 Co-pays for routine care (the “routine 90%”): 

It might seem counterintuitive, but charging co-pays for routine care will actually cost companies a lot more money in the long run, not to mention reduce employee satisfaction. The simple solution? Businesses should steer clear of routine co-pays. Instead, they can provide the “routine 90%,” meaning 90% of the care that 90% of people need and use, 90% of the time, all at no cost to their employees. This includes things like preventive services, primary care, physical medicine and injury care, rehabilitation (including chiropractic), basic labs, X-rays and immunizations. The “routine 90%” represents a very small portion of overall claims, perhaps as low as only 10% of the costs. Purchasing traditional insurance to cover this 90% is unwise for businesses aiming to control costs and make their workforces happy; self-insurance will usually make the most sense. When these services are free and easily accessible, expensive hospital and urgent care visits will go down a meaningful amount. But be wary: This “no co-pay” tactic can also backfire; it can be used as a loss-leader tactic to guide your staff toward high-priced hospital services when a hospital system employs the primary care doctors. This is exactly why it’s important for business owners to educate their people about the huge price differentials between hospital doctors and services and identical services performed at an off-hospital lab or office.

• Stop-loss insurance for non-routine services (the “other 10%”):

Stop-loss insurance covers the more expensive and less predictable 10% of costs for things like accidents, chronic or complex illness and catastrophic diagnoses like cancer. Such insurance will cover hospitalization, specialist care, brand-name prescriptions and other high-cost services and procedures.

• Plan design that guides and rewards

Most people don’t know how to get the most value out of the healthcare system, but brokers can help business owners educate their employees and provide smart incentives. Giving employees $0 co-pays for the inexpensive “routine 90%” is a great way to start, but there are plenty of other incentives that will save business owners money while also improving employees’ healthcare. As an example, a smart health plan design will always discourage the quick use of elective orthopedic surgeries and procedures until inexpensive $0 co-pays in the “routine 90%” prove ineffective. A smart plan will always reward the use of generic prescriptions over expensive brand names that provide no extra benefit. In future articles, we’ll dive into some easy (and very smart) incentives that any employer can include in their plan designs to ensure they can lower the bigger, unnecessary claims costs.

• Data analytics

A well-designed health plan includes a mechanism for continuous data collection and learning about the people who incur the most claims costs in any particular year, month or day. In a previous article, I discussed why business owners should own their company’s health data because it enables the employer and broker to negotiate fair pricing, educate their people about place of service and ensure they’re making smart decisions about care. The same is true for stop-loss insurance; companies should demand ownership of employees’ data. Collecting and leveraging this data will provide the advantage businesses and their brokers need to keep renewal costs from rising every year.

• Free protection and support

It’s important that HR managers and employees know where to start when they have questions or need care. Doctors and other health industry professionals may direct their patients to hospitals and other needlessly expensive places of service. And if the providers are affiliated with a hospital system, they may be obligated to refer patients to a hospital, even if the services they need are available at an offsite clinic at a much lower cost. Business owners have the power to disrupt this status quo process. By providing their people with free, 24-7 assistance in navigating the healthcare landscape, they can improve employee care and satisfaction and can protect their business from overpaying. Knowing the costs of services, where to find value and how to avoid waste before a service is needed is a critical part of the protection and support employees need and appreciate. In a future article I'll share some very valuable healthcare “hacks” that business owners and employees will find empowering. In the meantime, I encourage you to visit redirecthealth.com/HealthPlanScorecard to complete the free Health Plan Scorecard. In 10 minutes or less, you’ll be able to score your healthcare mindset and make immediate improvements.

Watching people try to recover from injury can be baffling. Some recover function quickly; others do not. Why is there so much variability with severity and duration of disability, given similar injuries or illnesses? Why do some individuals get stuck in delayed recovery? Our medical system has tended to focus on the physical: If there is back pain, there must be something going on in the disc, vertebrae or nerve roots. That approach isn't bad. Medicine has made a lot of progress with that tactic. But sometimes a physical cause isn't apparent. If we examine what else may be happening in people's lives, what they're thinking and what they're feeling, we start to uncover circumstances and behaviors that may be delaying their recovery. The Hartford is focusing on a different and promising approach that looks beyond the physical aspects (such as symptoms, physical findings, test results) and looks at the whole person as a biopsychosocial being who may have non-physical barriers that are delaying recovery. The Hartford has developed a program that offers help to assist people in getting unstuck. Internal data analytics indicate the presence of psychosocial risk factors can account for a two- to four-fold increase in disability duration of work-related injuries. Background The biomedical model has served as the traditional foundation of our understanding of the body and has formed the bedrock of modern Western medicine. In essence, this model reduces illness and injury to their most basic units; the body is seen as a machine that operates on the basis of physical and chemical processes. In other words, find out what's wrong with the body and fix it. The biopsychosocial model seeks to amplify the biomedical model by addressing an individual holistically as a physical, psychological and social being. The 1970s saw pioneering work in the treatment of chronic pain by using psychological — or behavioral - principles. For instance, W.E. Fordyce at the University of Washington found that helping patients with pain behave normally (that is, getting them to stop displaying pain behaviors) led to improvements in function. In the 1980s, cognitive behavioral therapy (CBT) began to be used in treating chronic pain patients. CBT tries to change patterns of thinking or behavior that are behind a person's difficulties all to change how they feel. In the past 20 years, some have shown the usefulness of interventions based on specific psychosocial risk factors for pain and disability. Much of this work has been carried out in Canada, Europe, Australia and New Zealand. See also: Better Outcomes for Chronic Pain The medical and research literature points to social and behavioral factors -- like fear, expectation of recovery, catastrophic thinking and perceived injustice -- as powerful forces that can delay recovery after an injury or illness. As one example, a 2015 WCRI study showed that fear of getting fired could affect a worker's return to work after an injury. The Hartford Approach Armed with an understanding of these drivers of disability, The Hartford is using its advanced data analytics and developing innovative solutions to help workers at risk regain the function they had before an injury or illness. A patented text mining technique allows us to look for psychosocial, comorbid and other risk factors to identify, early on, individuals who demonstrate a likelihood to have a prolonged disability. By combining this early identification tool with a growing toolkit of interventions, we are finding new ways to help individuals restore their lives after an injury or illness. One such tool is a proprietary, telephonic coaching intervention. Having identified claimants who show an elevated risk for prolonged disability, we invite them to participate in a program that matches them with a specially trained coach who helps them overcome psychosocial barriers. By equipping individuals with skills and techniques to change the way they think, feel and act, we help them develop confidence to take control of their recovery. This confidence allows them to increase function in all areas of life, including return to work. The voluntary program, called iRECOVER(SM) uses phone calls with the coach, along with a workbook and homework assignments. It can last several weeks. Although still in its early days, iRECOVER shows promising results: earlier return to function and return to work. Participant feedback has been very positive. For instance, we have received emails and letters from injured workers that say:

• "There's light at the end of the tunnel."
• "I feel confident going back to work. A good part of this is due to my participation in iRECOVER."
• "I think what you do is probably as important as medical treatment."
• "iRECOVER helped me be courageous and strong."

See also: Data Science: Methods Matter (Part 1) Conclusion By considering the whole patient, applying potent data analytics and developing innovative solutions, we are getting to the root of delayed recovery for many individuals. The results will benefit all concerned, especially the injured worker, who just wants life to get back to normal.

This is part 4 of a 4-part series. Part 1 can be found here. Part 2 can be found here. Part 3 can be found here.  In 1494, Luca Pacioli, a Venetian friar and mathematician, published a textbook that described the use of double-entry bookkeeping. Drawing upon his knowledge of Venetian merchants, Pacioli showed how this type of accounting kept an accurate record of accounts. This gave merchants a much clearer picture of their financials and business. With the clearer picture, merchants would both avoid loss and feel more confident in the use of funds to grow.  Double-entry bookkeeping was a tool for improving earnings and profitability. Today, earnings and profitability are still a priority. Earnings keep insurers in business. Just as merchants during the Italian Renaissance were looking for any way they could get ahead, today’s insurers are seeking new methods and tools that will power their growth, earnings and profitability. The questions remain the same: What will cause us to lose less of what we have earned? What will affect our growth and profitability? As we explore the new Insurance Renaissance, we are finding that many of yesterday’s answers are apropos to today’s questions. A matter of models For insurers, one model has worked for years; it centers on claims. If we keep claims loss ratios healthy within product portfolios by reducing the claims cycle time and keeping expenses under control, then insurers meet their obligations and regulatory mandates and can make a profit. This model has been effective. It has incrementally improved over time, with experience.  But taking an alternative model for claims in light of new tools and methods can radically improve the claims environment and financials. Why should insurers look at alternative models? Like Pacioli sketching out the best “new” methods of bookkeeping, we can also sketch out the best ways to think about new insurance models.  For insurers, the best new models will have a positive impact on claims and expenses — and, more importantly, enhance the customer relationship and experience. We can start with the assumption that claims on any of our products are higher than they could be and that the cost of administering the business is also higher than it could be. These concepts are basic and are nothing new, but innovative models often begin with the most mundane truths. See also: The Coming Renaissance New business models will lower claims No matter what form of insurance you sell, technology-led opportunities for risk prevention (and even elimination) have never been better. Connected devices in cars, in homes, on wrists and in pockets are giving insurers data that will allow them to know their customers and push them toward safer and healthier behaviors. New data streams will supplement insurer knowledge with outside evidence. The organization that places its focus on prevention and elimination (instead of payouts) will grow very adept at using data to enhance the customer relationship and experience, while fundamentally changing the claims model. It will provide greater event predictability and proactive management. Fraud will decline. Costs will decrease. Risks will grow much clearer. How low can claims go? Zero is certainly not attainable, but dramatic claims reductions are likely to occur as homes, cars, buildings, fleets, people and much more grow more connected. Insurer branding may shift to the point where insurers are considered prevention and elimination companies — providing real and valuable risk management services and capabilities. Their value proposition will be less about claims support and more about customer risk management and experience. This kind of business model will require a new financial model to accompany it — not unlike paying for a home or property security system. The offering will be in prevention and elimination, not in payout. New business models will lower expenses The sharing economy has arrived. Office space, server space, vacation space, tools and rides are all sharable. It makes sense, then, that the new models of business and technology will find the reusable and the sharable and put them to good economic use. Insurers have existed as operational islands for decades, in some cases to protect the company’s proprietary information, and in other cases just to maintain control. Today, it is possible to have greater control, more flexibility and greater security while operating in a shared cloud environment. The cloud lowers expenses and gives insurers greater investment capability, often while improving speed to market, decreasing total cost of ownership and providing greater agility to respond to change. Creating an insurance model with the use of cloud services will allow for agility to adapt with ease, innovation to reimagine the possibilities and speed to seize the opportunities for entrepreneurial testing and long-term success. See also: Data Science: Methods Matter New business models will open new revenue streams Cable television had a high hurdle to surmount when it proposed to charge households for TV service — a service that was still available for free. It had to prove its value before the return on investment would be clear. It had to show it could realize income from both advertisers and subscribers. Today, cable providers, internet companies and phone and mobile providers have entered a perpetual model flux where following consumer trends and providing new offerings are the only sure path to steady revenue, growth and customer satisfaction. Insurers may be on the cusp of a similar model flip, where models are continually in flux and unstable. An insurer’s outside income may not always be premiums. An insurer’s stability will be found in its capacity to adapt quickly, mining the opportunities to be found in value-added services, relevant partnerships and innovative offerings. These new revenue streams MAY lower the need to focus on claims ratios, or they may simply improve combined ratios overall. Will people pay their auto insurer for deeper automotive care that may extend the life of the vehicle? Will they pay their home insurer for connected home monitoring if it lowers their insurance premium and manages their risk? Could a life insurer offer variable premium products based on data gathered through an individual’s mobile phone regarding lifestyles, travel, activity and perceived stress levels? Anything is possible —and that’s the point. For insurers, new models are on the rise that will help them enjoy their own Insurance Renaissance. Preparing to meet the new economy with a Renaissance-ready infrastructure will turn the opportunities into real solutions … and real customer value.

In spring 2016, PwC investigated the current state and future direction of stress testing. We surveyed 55 insurers operating in the US about their stress testing framework and the specific stresses that they test. We also engaged in more detailed dialogue with a number of insurers in the US and globally, as well as with some North American insurance regulators. Our principal conclusion is that stress testing, though well established, would benefit significantly from a modest amount of additional effort. Borrowing terminology from the Pareto principle, we think less than 20 percent more effort would yield 80 percent more value. A brief history Thanks to the requirements of the Dodd Frank Act of 2010, we expect that stress testing is the most widely recognized and understood risk management tool. The basic concept is relatively simple and most people in business and government readily accept the notion that if a specified future unfolded –say a repeat of the last economic crisis –it would be good to know ahead of time if banks would remain financially viable. After its initial introduction, stress testing continues to maintain a high level of attention via the ongoing publication of results from the Federal Reserve Board’s Comprehensive Capital Analysis and Review (CCAR) which the media, financial commentators, and the banks themselves eagerly anticipate. It is easy to see how stress testing concepts in the Dodd Frank Act could apply to insurers. And, indeed the insurance industry (more specifically, its actuaries) has widely used stress testing and scenario analysis for decades. More recently, 2013 was especially noteworthy for insurance stress testing, with publications on the subject by the North American CRO Council, the CRO Forum and the International Actuarial Association. From a regulatory perspective, the National Association of Insurance Commissioner’s (NAIC’s) Own Risk and Solvency Assessment (ORSA) calls for a prospective solvency assessment to ascertain that the insurer has the necessary available capital to meet current and projected risk capital requirements under both normal and stressed environments. In Canada, the Office of the Superintendent of Financial Institutions (OSFI) has provided clear direction on stress testing governance and methodology in its 2009 publication on Sound Business and Financial Practices (Guideline E-18). It also is noteworthy that, in Europe, despite all of the attention lavished on Solvency II and internal capital models, the European Insurance and Occupational Pensions Authority (EIOPA) launched a Europe-wide stress test for the insurance sector in May 2016. Equally as important as the regulatory initiatives are the business applications and benefits of stress testing. As we address in more detail below, survey results show that insurers make good use of this risk management tool and are looking to expand its application even further. A little more effort We see three areas where only a little more effort can yield substantial benefit: 1) a clearer definition of stress testing, 2) more thoughtful stress construction, and 3) a more robust stress testing platform. As a start, it will be useful to clarify what we mean by stress testing. As we use the term here, we mean a projection of income statements, balance sheets and –most importantly –projected available and required capital over a multiyear business planning timeframe (including new business over the planning timeframe). Typically the test is done for the entire enterprise and includes a base case and a number of stressed future states. This definition of stress testing is consistent with how both insurance (ORSA Guidance Manual) and banking (FRB CCAR) regulators use the term. It contrasts with risk-specific stress testing. Risk-specific stress testing typically looks at a single risk, often only for the part of the enterprise susceptible to that risk. And, it frequently assesses the impact over a range of stochastically determined scenarios. Distinguishing between stress testing and risk-specific stress testing needs little effort but can help companies avoid considerable confusion as they enhance and apply stress testing capabilities. Only with clear definitions can an insurer evaluate whether or not it has deployed the tool effectively. A vague notion of stress testing taking place somewhere in the organization typically means that there is unawareness of potential gaps in the enterprise risk management (ERM) framework. See also: The Key Role for Stress Tests in ERM Another area where we believe a little more attention would pay major benefits is the development of comprehensive stress scenarios. When describing future states, insurers have many factors to consider in order to articulate the risks that can impact their business. As an indication of the range of these factors, the section of our survey that addressed stresses had 32 questions, many with sub-parts, each covering a different risk. However, rather than starting with an effort to combine all of these risks, stress testing benefits from starting instead with a narrative that articulates a potential future and then addresses how that future would impact the insurer through various risk factors. For example, a stress narrative could be based on a prognosis of an ongoing steady decline in the price of oil and other commodities, then a postulation of the resulting impact on economic growth, interest rates, equity valuation, employment rate, etc. The narrative then could move to an analysis of the impact of these factors on the insurer’s risks, leading to a projection of how the company’s income statement, balance sheet, available and required capital would fare if this future, in fact, unfolded. Lastly, we note that despite the considerable attention and utilization of stress testing as a management tool, it appears that, for many insurers, the infrastructure that produces results is ad hoc and likely inefficient. Our survey indicates that only 10% of respondents have built a bespoke platform for stress testing. 78% of them use spreadsheets alone or spreadsheets combined with actuarial/projection software. In terms of how long it takes to conduct stress tests, 42% of respondents indicate the process takes between one and two months. A further 35% report that it takes more than two months, and sometimes longer than three months. While systems infrastructure updates do not normally result in major improvements from little effort, many insurers, particularly in the life sector, have already embarked on a process of modernization. As they are looking to address their risk, actuarial, and financial reporting needs in a comprehensive manner, we recommend that stress testing capabilities receive high priority. With a modest amount of extra effort, insurers should be able to incorporate significant enhancement to their stress testing platform as part of this modernization. This in turn will yield the benefit of more timely, accurate and insightful stress testing results. A lot more value Insurers already use their stress testing for many purposes. Survey results show that respondents currently utilize their stress testing for an average of almost five different uses. Additionally, respondents indicated they each had plans to add almost four new uses in the future. More than half of the respondents reported using their stress testing work for strategic planning, calibrating their risk tolerances and limits, assisting with dividend, share-repurchase and similar capital planning, and regulatory impact assessments. These are critical business decisions and further highlight the value of stress testing. Furthermore, stress testing usage has had a positive impact at a significant majority of respondents’ companies. 36% reported instances where key decisions have been made very differently compared to the process prior to stress testing. An additional 29% reported that the results of stress testing has a measureable influence on decision making, though no specific decisions were cited.   See also: New Approach to Risk and Infrastructure? More benefits We see a few additional areas where better articulated stress testing processes and procedures could result in significant benefits.

• Recognize that stress testing is a separate tool in the risk manager’s tool kit–Frequently, publications and discussions on insurance stress testing describe it as something that supplements other risk management tools. We believe that relegating stress testing to supplementary status undervalues its benefits and contribution. It would be more productive to recognize stress testing for what it truly is: a separate tool with different strengths and applicability compared to VAR-based economic capital.

Some risks –for example, liquidity risk –can be addressed only via a stress test. Adding more required capital does not effectively address the problem; liquidity risk needs to be addressed by developing a preplanned course of action, including accessing prearranged liquid funds. Likewise, reputational risk –and in particular the reputational impact of a cyber event –is better addressed via the stress test tool than via the economic capital route (and the potential addition of more required capital). Similarly, for some risks where economic capital looks like a satisfactory tool, it can give misleading information. Often pertinent risks only reveal themselves fully via stress testing. New business is a good example. Economic capital can include one or more years of new business, typically by assuming new business premium, claims, expenses, etc. are a replica of previous years’ values. But this fails to provide a platform to study how external factors could impact the insurer’s fundamental business model, leading to little or no sales of any new business that resembles prior years’ business. Lastly, we note that most other measures, especially traditional economic capital, concern themselves primarily with very extreme, “in the tail” events. Stress testing is useful not only for high impact, low probability events. More likely events warrant attention –in fact, they may warrant more attention because they often represent more tangible and practical problems that management needs to address immediately.

• Use stress testing to “war game” management action and prepare in advance for risk crises –In our survey, we asked insurers if stress testing incorporates management actions. In other words, as stress events unfold, presumably management would take some form of corrective action in response, and that corrective action would impact future financial results. Almost half said they do not incorporate management actions. We believe this is a significant oversight.

Stress testing provides a ready platform to prepare in advance for risk crises. Insurers can use the tool to test different responses and select the one that yields the most effective resolution. They then can put in place a contingency plan and pre-event corrections appropriate to the event. Here again stress testing can provide a different perspective than economic capital and similar measures. Economic capital works well as a tool to quantify the impact of taking certain types of action in the present. For example, it can help determine the reduction in required capital if a particular reinsurance treaty were implemented. On the other hand, faced with a multifactor, multiyear stress event (perhaps including changes in interest rates, inflation and equity values, with increases in unemployment and deteriorating buying patterns), stress testing would be a more effective tool in judging if and when to reconfigure the asset portfolio, alter products and prices, and the cost and manner of reconfiguring staffing models. It is worth noting that, in our discussions with regulators about the merits of including the impact of management actions, their expectations are that, yes, insurers should include them. They recognize the benefit that stress testing can provide as an opportunity for planning ahead. However, they indicated that it would be appropriate to show the stressed result both before and after the application of management action. Showing both results can help promote thoughtfully developed post-management action results, not just a broad assumption that management will take appropriate actions.

• Take advantage of the board’s and senior management’s broad business insights to construct more insightful stress narratives –Our survey shows that most boards receive the results of the stress test either directly or via the risk committee of the board. However, only 11% report asking either the board or board risk committee to approve the stresses the company uses. We believe this represents a missed opportunity to gain board members’ insights and benefit from their engagement in the stress testing process. Not all directors will necessarily have detailed knowledge of the range of potential outcomes of all of the risks that can impact an insurer or the potential stochastic distributions of those risks, but directors typically are experienced and knowledgeable, often with a high level of business and economic acumen. Utilizing their individual and collective skills to contribute ideas on the types of stresses that merit study seems like a good fit for their role and an effective complement to managements’ efforts.

• Stress testing represents a potential avenue for global capital consistency –As a final potential benefit, we note again that stress testing seems to have a role in all major insurance and other financial services regulatory regimes. At the same time, the global insurance industry is challenged by the task of agreeing to a capital adequacy ratio, presumably based on an economic capital VAR-like foundation. A simpler capital formulation coupled with a robust stress testing regime may hold more promise for a globally agreeable approach.

See also: Key Regulatory Issues in 2016 (Part 2) A bright future Based on survey results and various discussions we had with insurers and other stakeholders, stress testing is universally accepted as a useful tool. We suspect that this is a consequence of its being directly related to the common business practice of preparing a financial plan. Including a few more future states or stresses and incorporating a measure of required and available capital in the financial plan are not major steps. Accordingly, the transition from planning to stress testing should be easy to accommodate. We note how sharply this contrasts with the introduction of economic capital, especially in the US insurance industry. Though its usage is growing, economic capital is not a uniformly accepted regulatory and business tool even after two decades. On the other hand, stress testing is already actively and universally used as a management and regulatory tool. With a little more effort, we believe it can yield very substantial benefits for all.