“Transparency” demonstrates whether a product or service has real value to society. It also promotes collaboration and process improvement. So, what does transparency mean, and how can the same standards be applied, in the context of workers’ compensation and the Texas and Oklahoma “options” to workers’ compensation? There are lessons all can learn on a path of progress. Transparency in Workers’ Compensation Transparency within the workers’ compensation industry has dramatically improved over the past 20 years, but some aspects remain translucent, at best. From an insurance agent and employer perspective, workers’ compensation is too often viewed as a complex government mandate to be complied with in the easiest manner possible. Most employers do not have the wherewithal to affect significant claims, dissect an experience modifier or otherwise engage with workers’ compensation systems beyond the review of insurance quotes, the payment of premium and the initial filing of a claim. Who can blame them with so little information readily at hand? For both employers and injured workers, most states provide little clear information on system rights and responsibilities. When was the last time you got on the Internet and reviewed all of an unfamiliar state’s workers’ compensation laws? Or attempted to find or build your own summary of benefits or claim procedures for an unfamiliar state workers’ compensation system? We go to the “For Employers” or “For Injured Workers” tab on the state system website but see only a high-level review of system benefit requirements and information on how to file a claim. But how is each form of benefit computed? When do they start and stop? What are the other exclusions and limitations on benefits? It is no wonder that employers and injured workers with concerns about their rights and responsibilities on a particular claim often engage legal counsel to navigate. At a workers’ compensation regulatory level, a few states excel at providing meaningful information that is readily accessible. For example, the Texas Department of Insurance has a research and evaluation group that continually generates good information on system performance. But most states provide little (if any) data on actual workers’ compensation system performance. There is no universal standard or consistency in what scant workers’ compensation information on regulatory costs, injury claim costs, employee satisfaction or other outcomes is available from government agencies at no charge to the general public. Many nongovernmental organizations (NGOs) do great work to fill this information void. The U.S. Chamber of Commerce, National Academy of Social Insurance (NASI), Workers’ Compensation Research Institute (WCRI) and other high-quality organizations provide helpful summaries of legal differences between state systems, as well as insightful claim data analyses. This information can be very useful to legislators, regulators and large employers, as well as insurance company executives and claim adjusters. It is rarely accessed by small business to affect their cost of workers’ compensation or by injured workers to advance their claim. The largest workers’ compensation NGO is the National Council on Compensation Insurance. NCCI privatizes the collection and analysis of claims and other statistical data for nearly 40 states and hundreds of insurance companies. NCCI tackles the enormous challenge of making sense of data flowing in disparate fields across different technology platforms, with a talented staff of more than 900 employees. In 2014, NCCI generated $152 million in net sales, with assets of $151 million and total equity of $42 million, for its insurance company members. Most NCCI data is proprietary and only available at significant expense to member insurance companies and certain state regulators. Only high-level summaries are provided to the general public, and most of that information is macro-focused on premium rate setting and insurance company profitability. State regulators use NCCI loss-cost projections to help set insurance premium rates. Projected loss-cost reductions are commonly viewed as a direct monetization of recent workers’ compensation law reforms. However, insurance companies are allowed to substantially deviate from those expectations when setting premiums for individual employer policies. Some insurance companies may reduce actual premium rates just enough to maintain credibility in view of recent reforms but maintain premium rates at the highest possible level for the benefit of their shareholders. Workers’ compensation is a highly risky business to underwrite, and shareholders reasonably expect profits. But we should understand that NCCI’s projected loss-cost reductions and premium rate projections may or may not translate to the lower costs employers have been told to expect from reforms. Transparency in Options to Workers’ Compensation In comparison to workers’ compensation systems, the option industry is relatively new and does not have a similar, robust infrastructure of NGOs to fill the information voids. But interest in and movement toward option programs is growing daily, and option proponents are committed to transparency. The states of Texas and Oklahoma begin the process by maintaining employer coverage lists. Texas maintains a searchable database of employers that carry workers’ compensation insurance and a list of employers that do not. Coverage is entirely voluntary in Texas, and employers on this latter list have self-reported (and most likely sponsor) an injury benefit plan.  The Texas Department of Insurance indicates that 95% of all Texas workers have either workers’ compensation or injury benefit coverage. Employers on neither Texas list are out of compliance with current legal reporting requirements and may have no workers’ compensation or injury benefit coverage for employees. Those are the companies that truly fit the derisive term “opt-out,” which is unique to Texas. The Oklahoma model and what other states are considering is a more highly regulated “option” to workers’ compensation. For the state of Oklahoma, every employer must have workers’ compensation or be approved as a “qualified employer” (https://www.ok.gov/oid/workerscompreform.html) that sponsors a legally compliant injury benefit plan and satisfies financial security requirements. From an insurance agent or employer perspective, insurance companies writing option policies have long insisted on a higher level of engagement than is common in workers’ compensation. Such agent and employer engagement requires transparency and understanding. Transparency is emphasized through simple requirements for active, pre- and post-injury communication between employers and employees, particularly on the need for immediate injury reporting, use of approved medical providers and following doctor’s orders. Safety program integrity is also commonly verified, particularly in the Texas Option environment, where both injury benefit and simple negligence liability exposures are insured. Option injury benefit plan documents and claim procedures have been widely available in the public domain since the early 1990s. These benefit plans are the functional equivalent of a state workers’ compensation statute, describing the plan’s funding, benefit payment and administration processes. Insurance companies have brought transparency to, exercise substantial control over and bring consistency across a large number of option programs by requiring most employers to use standardized injury benefit plan documents. In Texas and Oklahoma, option insurance companies freely distribute to independent agents their template plan documents and policy forms that vary because of competition on the breadth of coverage. Insurance agents then review these documents (often on a checklist), along with claim procedures and safety requirements with employers interested in implementing or renewing an option program. Employer implementation of the standardized program, including communication to all covered workers, is a condition of the insurance coverage. All injury claims must then be managed by the insurance company's owned or contracted claims unit.  Only large employers are allowed more flexibility to unbundle claims administration and make pre-approved customizations to their benefit plan. Hundreds of papers, articles, interviews and presentations that provide good information on options to workers’ compensation have been available over the past two decades. For example, http://www.partnersource.com/media/35242/partnersource_media_compilation_for_publication_1-21-2016.pdf. An abundance of information is available now, and this library is growing. For injured workers, Option plans provide substantially greater transparency than workers’ compensation. Every employee covered by an option plan sponsored by a private employer must be provided a detailed summary plan description (SPD) in accordance with the Employee Retirement Income Security Act. In plain language, the SPD must explain how the plan works, what benefits are available, how those benefits are provided, any exclusions and limitations applying to those benefits and the employee’s rights and obligations under the plan. A highlights section is commonly included at the front of the SPD. The SPD must be provided within 90 days of an employee becoming covered by an option plan but is routinely provided at the time of hire. Any material change to the plan must also be communicated. All of this information must be provided to each employee in a hard copy or electronically in a manner that satisfies regulatory standards. Another copy of the SPD is also available at any time upon request. Interpretive assistance is required for non-English reading employees. This transparency fosters employee appreciation for the program, as well as compliance with the accountability requirements found in option benefit plans. Open communication from employers promotes faster accident reporting, earlier medical diagnosis and treatment, a reduction in the number of disputes and less dependence on regulators and lawyers for basic information and claims support. Every covered employee and beneficiary also has access to the official injury benefit plan document and their claims information. Employers that fail to provide requested information face monetary penalties. Plan participants can include information in and otherwise affect their claim file, and have access to state and federal courts for benefit disputes. Though available to plan participants, publication of option benefit plans for review by the general public is not required by law. Oklahoma Option benefit plans were publicly available until the 2015 Oklahoma legislature decided to provide broad confidentiality of qualified employer application files in an effort to mirror the application file confidentiality of self-insured employers under workers’ compensation. The idea of establishing a public database of SPDs has also historically proven impractical. For decades, the federal government required employers to file a copy of the SPD for every employee benefit plan. That filing requirement was eliminated in 1997 because the government could not efficiently store the documents, such documents were rarely requested by the public and the related employer and taxpayer expense was deemed wasteful. Perhaps this subject should be revisited in the electronic age. At a system performance level, most option employers are small companies, with owners relying on their independent insurance agent for periodic updates on their own program performance. But there are also thousands of other workers’ compensation industry professionals who understand and support option programs. Many sophisticated, Fortune 500 risk managers, who are very aware of their brand value and most important asset manage option programs that cover billions of dollars in payroll. Many “A”-rated insurance companies support the option insurance marketplace and write approximately $150 million in annual premiums. Employers, insurance companies and many nationally recognized third party administrators and brokers successfully support resolution of tens of thousands of option injury claims every year. And several nationally respected actuarial firms have confirmed option program success for their clients. Self-interested opponents of option programs like to theorize about bad things that might happen under an option program, and falsely proclaim that option program savings only occur at the expense of injured workers. But what option industry professionals know from actual experience is that savings come from fewer employees being taken off work, faster return to work for employees who have been disabled and fewer disputes. This all speaks to better outcomes for injured workers and less cost-shifting to state or federal government programs. Those are the facts that truly deserve more transparency and study by policymakers. These facts are already reflected in many studies and reports recently summarized and released as Part 2 of a “Resource Guide” from the Association for Responsible Alternatives to Workers’ Compensation. Data on tens of thousands of Texas option claims is now in the hands of many insurance companies, third-party administrators and others. For example, PartnerSource prepares statistically credible claim analyses for many individual employers annually and conducts biennial benchmarking studies of Texas option claims across six different industries, covering billions of payroll and hundreds of thousands of workers. These benchmarking studies include sub-industry segmentation and data on the types of benefits, dollar/duration/percentage limits and other injury benefit plan terms most commonly used among option employers, as well as the insurance types, limits and retention levels. Consider this good-faith snapshot of Texas option industry aggregate data: [http://www.partnersource.com/media/34154/texas_option_data_review_for_publication_1-22-16.pdf]. Similar, expanded data reports, reviewed by independent actuaries, are expected in 2016. Better-established processes within private industry for aggregating claims data and collective insurance premium price setting seen in the workers’ compensation environment are simply not present today and have not been urgently needed in the option environment. For example, employers that sponsor option programs have focused on the results of their own individual programs. Option insurance companies individually set their own premium rates in a competitive environment, unsupported by the exemptions to antitrust laws and other protections enjoyed by the workers’ compensation insurance industry. Unlike in days of old, insurance companies and individual employers are able to collect and analyze a significant volume of data from their own experience, as well as other publicly available information, to chart their own destiny – something some option opponents fear most. Undoubtedly, more option industry aggregate data would be instructive and helpful to employers, insurance companies, legislators, regulators and other policymakers. But there is nothing nefarious in the lack of publicly available option data today, and option programs should not be held to a standard higher than workers’ compensation. All of the above-named NGOs that generate workers’ compensation system data have had decades to organize, refine, obtain many millions of dollars in funding for and publish industry aggregate and state-specific information. Data collection and reporting efforts in the option environment are in an early stage of development but can be expected to steadily advance. This process of gaining additional option industry transparency must be about more than satisfying voyeuristic curiosity. We must also distinguish between what is needed “for the public good” and the self-interest of certain option opponents. Even with approximately 50,000 injuries occurring outside of the Texas and Oklahoma workers’ compensation systems every year, we’ve seen no credible evidence to indicate that workers’ compensation systems generally perform better than option programs in any respect, and option opponents remain unable to muster more than a few anecdotes about option claims that have gone awry. Perhaps this will change as more option claims data becomes publicly available, but it will require independent verification through access to workers’ compensation system data that should also become more publicly available. Lastly, this process of gaining more option industry transparency must be about more than collecting data at unnecessary taxpayer expense for the sake of saying it has been collected. Note that substantial reporting of option program information has been reported to the state of Texas (on Forms DWC-5 and DWC-7) and the federal government (on Form 5500) at significant employer and taxpayer expense for decades but has not been used for any purpose. So, it should come as no surprise when employers, insurance companies and service providers are unable to support new data reporting mandates without a clear articulation of both the need and value, including regulatory commitment and funding to collect, sort, analyze and report such data. The Texas Alliance of Nonsubscribers took a neutral position on bills that would have added new option program claims reporting requirements in the 2015 Texas Legislative Session. The alliance is actively working with the Texas Division of Workers’ Compensation to improve employer compliance with and the usefulness of current reporting requirements and to extend workers’ compensation or injury benefit plan coverage to more Texas workers. Accepting the Call for Option Program Improvements and More Transparency  Employers and industry supporters of options to workers’ compensation support more public disclosure of program terms, claims data and other information and are actively working to achieve it. For example, option program improvements will likely be seen in 2016 as both Texas and Oklahoma employers and insurance companies positively respond to the past year’s dialogue and claims experience by broadening injury benefits coverage for hundreds of thousands of injured workers. Option programs are able to respond to important needs much faster than hyper-regulated systems that only change after protracted legislative and rulemaking processes. New option legislation introduced in other states will also reflect significant enhancements over prior proposals. Industry conferences are also responding to the need for more information on options to workers’ compensation. This topic has been featured at many professional and regulatory conferences in the past year, and more are scheduled in 2016. In view of widespread interest and the fact that option programs today cover more workers than 23 individual state workers’ compensation systems, these and other national workers’ compensation events should consider going beyond the one-hour session overview or debate. They can include an entire educational track that allows attendees to become truly knowledgeable about option program design, implementation, administration and regulatory requirements. Investigations of options to workers ‘compensation by the National Conference of Insurance Legislators, International Association of Industrial Accident Boards and Commissions and the U.S. Department of Labor will also be welcomed. More transparency and transformative change can result when option opponents and supporters simply sit down to work together. Whether discussing injury reporting requirements, compensability, medical expense coverage, financial security or other important public policy issues, civil dialogue matters. Those who are willing to have a reasoned discussion and information exchange will find ready partners on the current path of progress. Because sooner or later, all industries tend to change for the better, and we should be prepared to lead that change or adapt.

I will never forget a frustrated Peter Drucker lamenting years ago, in his heavy German accent, the use of the term "nonprofit" when "the fact remains that profitability is vital to our sustainability?” To this point, I’ve been so impressed with the tools of technology (and equally with recent management appointments in nonprofits) that I’ve been encouraging nonprofits to raise their game relative to risk retention. This can be achieved with a more sophisticated form of reinsuring their liabilities and operations — captive, risk retention group — so that nonprofits’ efforts are rewarded through an ROI on their capital (i.e., a surplus), generating a “profit center” for mission protection. I believe the time has come for a more holistic view of how we manage, whether it’s our company, our organization or our household. (Interestingly, the word "economics" comes from two Greek words — oikos and nomia — whose earliest origins relate to taking stock of the affairs of the home.) I believe this blurring is manifest in much of what I am witnessing:

• For-profit executives leaving a life of “success,” corporately, for a life of “significance” in a mission-based organization (Bob Buford’s theory) at a mid-point in their lives;
• For-profit executives sitting on non-profit boards advocating for more enterprise risk management (ERM), a more sophisticated form of risk management; and
• A tidal wave of interest among emerging generations in the nonprofit sector — for careers, volunteerism and engagement.

Another concept of this blurring relates to the need for nonprofits to see resources, talent, contribution and solutions in their nonprofit, community-based neighbors. In fact, it appears that risk management is no longer an “organization issue,” per se; you can have the best-laid plans, but if you aren’t aligned with your community, you risk vulnerability. Additionally, so many recent security breaches point to the need for community-based solutions that are global, not just U.S.-centric. Below is a diagram I raised with a faith-based nonprofit to demonstrate how its approach to risk might, more effectively, be to find greater impact through alignments within the local community. Engaging your community Perhaps now is the time for “nonprofits” to change the semantics of their sector to a broader, community-based organization (CBO) concept. In fact, one idea that has emerged is an alternative label for a nonprofit: CBO. Perhaps — as CBOs — we will more effectively live out our missions, starting with a positive, inclusive approach rather than a negative (“non”) dynamic. And, no doubt, we’ll better manage risk through these alignments. Ultimately, we’re better off with collaboration!

Ransomware, a cyber scourge that appears on the verge of intensifying, poses an increasingly dire threat to small- and medium-sized businesses (SMBs) in 2016. In a ransomware attack, victims are prevented or limited from accessing their systems. Cyber criminals attempt to extort money by first using malware to encrypt the contents of a victim’s computer, then extracting a ransom in exchange for decrypting the data and allowing the victim to regain access. Until now, most attacks have targeted consumers and, to a lesser extent, businesses working on Windows platforms. That’s about to change. Security experts caution that small- and medium-sized business owners and users of non-Windows platforms can expect to be increasingly targeted in attacks that seek to extort money from them via sophisticated ransomware tools. Upcoming webinar: Navigating Identity Theft: How to Educate and Protect Your Employees and Clients Experts say many of the malicious campaigns will likely be carried out by opportunistic attackers and newbie extorters trying to take advantage of inexpensive do-it-yourself ransomware kits that are beginning to become available in underground markets. Estimates about the cost to victims from more widely used ransomware tools like CryptoWall and CryptoLocker range from tens to hundreds of millions of dollars. Now, analysts are concerned that cyber criminals are on the verge of widening the scope of their attacks. Last month, researchers at security vendor Emsisoft analyzed Ransom32, a malware tool many believe is a harbinger of things to come on the ransomware front. Fewer are immune to attack Ransom32 is the first ransomware tool written entirely in Javascript. That makes it easily portable to other platforms like Linux and Mac OS X.

  Kowsik Guruswamy, chief technology officer at Menlo Security, says that, unlike the JavaScript in a browser that is sandboxed to prevent access to the file system and other local resources, Ransom32 also is designed to have unfettered access to the system. “Ransom32 is one-of-a-kind in that it’s cross-platform, which alone increases the targets for the malware authors,” Guruswamy says. “Since the underlying Chromium interpreter is cross-platform, this allows Ransom32 to target users across all of the (operating systems) and devices in one go. This is the worrisome part.” Related video: A case for making software more resistant from the start Significantly, the authors of the malware appear to have adopted a ransomware-as-a-service model in their distribution approach. Ransom32 is available via a hidden server on Tor to anyone with a bitcoin account. The malware does not require any specific skills to operate, and it comes with a management interface that the attacker can use to customize ransom messages and specify the ransom amounts. The interface supports a feature that lets the authors of Ransom32 track how much money is being collected via the tool and lets the authors take a 25% cut from the total. DIY kit for bad guys Ransom32 is the second publicly disclosed ransomware in recent months that is being distributed as a do-it-yourself kit in the cyber underground. The first was Tox, a malware tool discovered by a researcher at Intel’s McAfee Labs that, like Ransom32, was distributed via Tor to anyone interested in launching a ransomware attack. “Ransomware as a service is an increasing and worrisome trend,” says Fabian Wosar, a security researcher at Emsisoft. “Fortunately, most schemes are of poor quality, but the people writing these types of frameworks are learning.” Each time a security vendor finds a weakness in a ransomware tool, the threat actors figure out what mistakes they are making and plug it immediately, Wosar says. Going forward, expect to see the emergence of tools like Ransom32 and trends like ransomware-as-a-service pose a bigger threat for businesses, especially the small and medium ones, which generally don’t have the same resources that large companies have to defend themselves. Lately, there have been an increasing number of reports about company servers being attacked directly through the Remote Desktop Protocol (RDP) that is used to remotely administer and manage systems. SMBs have limited defenses “Most SMBs don’t have the budget to employ their own in-house IT staff,” Wosar says. “As a result, a lot of them employ outside companies to take care of their IT infrastructure, and these companies often use remote control tools like RDP to administrate the network and server [remotely].” One result is that a lot of SMBs are exposed to attacks that take advantage of weakly protected remote control interface to gain access to internal systems and data. Wosar says that in such situations it is just a matter of time before an attacker stumbles on a critical server and hijacks it for ransom. Because the attackers typically gain access to the server itself, they also can turn off any security software that might be installed on it, and they become virtually undetectable in the process. All that is left behind is usually a note that informs the admin about the hack, with a means of communication to negotiate the price. There already has been an increased interest from cyber criminals in specifically targeting companies, largely because of the potentially bigger payouts involved, says Christian Funk, who heads Kaspersky Lab’s global research and analysis team in Germany. “A business is depending on its digital assets and, therefore, often more willing to pay the ransom,” Funk says. “There have been cases where cyber criminals noticed that a company has been successfully infected and, therefore, the criminals decided to charge up to eight times the original ransom. I suspect such methods, as well as targeted attacks, are likely to increase in future.” This article was written by Third Certainty's Jaikumar Vijayan.

The '80s — Bon Jovi's "Livin' on a Prayer" blaring from car stereos; Back to the Future taking the country by storm; and who could forget velour track suits? While most of the world has moved on from big hair and parachute pants, many of today's most widely used workers' compensation payment processes are as outdated as your once-trusty Sony Walkman. Traditional payment methods like checks and electronic funds transfers (EFTs) are leveraged for both indemnity and provider payments by many organizations. However, their shortcomings signal the need to modernize the workers’ compensation revenue cycle and bring it into the 21st century. Checks Check use is gradually declining, but it continues to account for 50% of business-to-business payments in the U.S. Its continued prevalence makes checks the most highly targeted payment method by those committing fraud attacks, making up 77% of all attempted or actual payment fraud in 2014. Checks also accounted for the largest dollar amount of loss because of fraud in 2014. Even when fraud can be avoided, payers are still faced with an expensive payment method. According to an AP automation study, processing alone can cost as much as $8 per transaction (enough to buy eight loaves of Wonder Bread in 1986!).On top of processing and postage fees, the potential for lost or late checks adds to claim costs. Even if a payment is received on time, increasingly complex claims mean more valuable time is spent by providers depositing and processing payments. And if an injured worker receives a late indemnity check, he may not be able pay his mortgage or car payment on time. Electronic Funds Transfers EFTs date back to the advent of the ATM in the mid-1960s. Despite attempts to modernize, EFTs are prone to incorrect distribution, potential duplication of payments and delays in posting and hidden processing fees (sometimes per transaction). Additionally, workers are increasingly reluctant to give out sensitive account information to receive their indemnity payments via EFT. Pair the shortcomings of these traditional payment methods with an increasingly complex workers’ compensation landscape, and payers and providers alike are looking at a detrimental domino effect. Medical payments have increased to $30.8 billion—a staggering increase from years past—and claim severity is experiencing slight, but significant, increases. The more severe the claim, the longer it is open. And the longer the claim is open, the more payments must be pushed through the revenue cycle. Where Do We Go From Here? Simply put, it’s time to say goodbye to the outdated, inefficient payment methods of 1985 and say hello to the future. The good news? Viable alternatives are starting to gain traction. Centralized virtual payment solutions can help workers’ compensation payers streamline the revenue management cycle by automating payment processing, reconciliation and management. With faster reconciliation, reduced paperwork and more transparency, providers also benefit greatly from virtual payment solutions. Card-based solutions provide additional options with unique benefits for both injured workers and payers. A pre-paid, bank-neutral card given to injured workers reduces payment errors, decreases operational expenses and ensures all workers receive accurate, timely payments. Traditional payment processes have had their place in time, but, as with the DeLorean, it’s time to retire.

Most people who purchase an insurance policy are faced with the daunting task of filling out an extensive application. The insurance company – either directly or through an intermediary – asks a myriad of questions about the “risk” for which insurance is being sought. The data requested includes information about the entity seeking to purchase insurance, the nature of the risk, prior loss experience and the amount of coverage requested. Insurers may supplement that information with a limited amount of external data such as motor vehicle records and credit scores. The majority of information used to inform the valuation process, however, has been provided by the applicant. This approach is much like turning off your satellite and data-driven GPS navigation system to ask a local for directions. According to the EMC Digital Universe with research and analysis by IDC in 2014, the digital universe is “doubling in size every two years, and by 2020 the digital universe – the data we create and copy annually – will reach 44 zettabytes.” That explosion in the information ecosystem expands the data potentially available to insurers and the value they can provide to their clients. But it requires new analytical tools and approaches to unlock the value. The resulting benefits can be grouped generally into two categories:

• Providing Risk Insights: Mining a wider variety of data sources yields valuable risk insights more quickly
• Improving Customer Experience: Improving the origination policy service and claims processes through technology enhances client satisfaction

For each of these areas, I’ll highlight a vision for a better client value proposition, identify some of the foundational work that is used to deliver that value and flesh out some of the tools needed to realize this potential. Risk Insights Insurance professionals have expertise that gives them insight into the core drivers of risk. From there, they have the opportunity to identify existing data that will help them understand the evolving risk landscape or identify data that could be captured with today’s technology. One can see the potential value of coupling an insurer's own data with that from various currently available sources:

• Research findings from universities are almost universally available digitally, and these can provide deep insights into risk.
• Publicly available data on marine vessel position can be used to provide valuable insights to shippers regarding potentially hazardous routes and ports, from both a hull and cargo perspective.
• Satellite imagery can be used to assess everything from damage after a storm to proximity of other structures to the ground water levels, providing a wealth of insights into risk.

The list of potential sources is impressive, limited in some sense only by our imagination. When using the broad digital landscape to understand risk -- say, exposure to a potentially harmful chemical -- we know that two important aspects to consider are scientific evidence and the legal landscape. Historically, insurers would have relied on expert judgment to assess these risks, but in a world where court proceedings and academic literature are both digitized, we can do better, using analytical approaches that move beyond those generally employed. Praedicat is a company doing pioneering work in this field that is deriving deep insights by systematically and electronically evaluating evidence from various sources. According to the CEO Dr. Robert Reville, “Our success did not come solely from our ability to mine data bases and create meta data, which many companies today can do. While that work was complex, given the myriad of text-based data sources, others could have done that work. What we do that is unique is overlay an underlying model of the evolution of science, the legal process and the dynamics of litigation that we created from the domain expertise of our experts to provide context that allows us to create useful information from that data built to convert the metadata into quantitative risk metrics ready to guide decisions.” The key point is that if the insurance industry wants to generate insights of value to clients, identifying or creating valuable data sources is necessary, but making sense of it all requires a mental model to provide relevance to the data. The work of Praedicat, and others like it, should not stop on the underwriter’s desktop. One underexploited value of the insurance industry is to provide insights into risk that gives clients the ability to fundamentally change their own destiny. Accordingly, advances in analytics enable a deeper value proposition for those insurers willing to take the leap. Customer Experience Requiring clients to provide copious amounts of application data in this information age is unnecessary and burdensome. I contrast the experience of many insurance purchasers with my own experience as a credit card customer. I, like thousands of other consumers, routinely receive “preapproved” offers in the mail from credit card companies soliciting my business. However appealing it may be to interpret this phenomenon as a benevolent gesture of trust, I know I have found myself on the receiving end of a lending process whereby banks efficiently employ available data ecosystems to gather insights that allow the assessment of risk without ever needing to ask me a single question before extending an offer. I contrast this with my experience as an insurance purchaser, where I fill out lengthy applications, providing information that could be gained from readily available government data, satellite imagery or a litany of other sources. Imagine a time when much of the insurance buying process is inverted, beginning with an offer for coverage, rather than a lengthy application and quote request. In that future, an insurer provides both an assessment of the risks faced, mitigations that could be undertaken (and the savings associated), along with the price it would charge. While no doubt more client-friendly, is such a structure possible? As Louis Bode, former senior enterprise architect and solution architect manager at Great American Insurance group and current CSO of a new startup in stealth-mode observes, “The insurance industry will be challenged to assimilate and digest the fire hose of big data needed to achieve ease of use and more powerful data analytics.” According to Bode, “Two elements that will be most important for us as an industry will be to 1) ensure our data is good through a process of dynamic data scoring; and 2) utilize algorithmic risk determination to break down the large amounts of data into meaningful granular risk indexes.” Bode predicts “a future where insurers will be able to underwrite policies more easily, more quickly and with less human touch than ever imagined." The potential to use a broader array of data sources to improve customer experience extends well beyond the origination process. Imagine crowdsourcing in real time the analysis of images to an area affected by a natural disaster, getting real time insights into where to send adjusters before a claim is submitted. Tomnod is already crowdsourcing the kinds of analysis that would make this possible. Or imagine being able to settle an automobile claim by simply snapping a picture and getting an estimate in real time. Tractable is already enabling that enhanced level of customer experience. The future for insurance clients is bright. Data and analytics will enable insurers to deliver more value to clients, not for additional fees, but as a fundamental part of the value they provide. Clients can, and should, demand more from their insurance experience. Current players will deliver or be replaced by those who can. I’d like to finish with a brief, three-question poll to see how well readers think the industry is performing in its delivery of value through data and analytics to clients. Here is my google forms survey.

America loves teams and team players, even outside of sports. What’s not to love? Team players are selfless—they set aside their personal goals and focus their talents on coordinating efforts with their fellow team members to achieve a common goal. Teams personify cooperation and collaboration and synergistic effort. And, of course, we’ve all been taught that teams inevitably generate better outcomes than individuals do. So it’s good to be on a team, and teams do good work, which means teams and teamwork are iconic realities of life in America—socially, educationally and professionally. It really doesn’t matter whether you are a toddler, a college student, a retail clerk or a corporate executive, today you regularly find yourself slotted onto teams (or onto committees or into small groups) where you are expected to behave like a good team player. And how does a good team player behave? According to leadership coach Joel Garfinkle, “You just need to be an active participant and do more than your job title states. Put the team’s objectives above yours and take the initiative to get things done without waiting to be asked.” He identifies five characteristics that make a team player great:

1. Always reliable
2. Communicates with confidence
3. Does more than asked
4. Adapts quickly and easily
5. Displays genuine commitment

Seems obvious, but think of your most recent team experiences. Were your team members behaving that way? Were you? Not likely, and J. Richard Hackman, a former professor of social and organizational psychology at Harvard University and a leading expert on teams, knows why. When interviewed by Diane Coutou for a 2009 Harvard Business Review article (Why Teams Don’t Work), he said:

Research consistently shows that teams underperform, despite all the extra resources they have. That’s because problems with coordination and motivation typically chip away at the benefits of collaboration.

Problems with coordination and motivation interfering with team collaboration and performance—doesn’t that sound like a rather modest challenge that could be resolved with more effective team management? Sure, to a certain extent. Teams are often too large; they are thoughtlessly staffed (proximity and position rather than proven talents and ability to produce results); and they are routinely launched with murky objectives, vague group member accountabilities and no formal support network for team process management. In other words, most teams don’t meet the five basic conditions Hackman, in his book Leading Teams, said teams require to perform effectively:

1. Teams must be real. People have to know who is on the team and who is not. It’s the leader’s job to make that clear.
2. Teams need a compelling direction. Members need to know, and agree on, what they’re supposed to be doing together. Unless a leader articulates a clear direction, there is a real risk that different members will pursue different agendas.
3. Teams need enabling structures. Teams that have poorly designed tasks, the wrong number or mix of members or fuzzy and unenforced norms of conduct invariably get into trouble.
4. Teams need a supportive organization. The organizational context—including the reward system, the human resource system and the information system—must facilitate teamwork.
5. Teams need expert coaching. Most executive coaches focus on individual performance, which does not significantly improve teamwork. Teams need coaching as a group in team processes, especially at the beginning, midpoint and end of a team project.

But there’s another challenge, and it is presented by the people who don’t want to be team players. People who, when added to a team, immediately focus their attention and effort not on being a good team player but instead on dodging work, avoiding exposure and manipulating the conscientious team players into doing more than their share of the work. This is known as social loafing (or slacking), and it describes the tendency of some members of a work group to exert less effort than they would when working alone. Kent Faught, associate professor of management at the Frank D. Hickingbotham School of Business, argues in his paper about student work groups in the Journal of Business Administration Online that social loafers can’t be successful, however, unless the other team members permit the loafing and complete the project successfully: 

…the social loafer must find at least one group member that CAN and WILL achieve the group's goals and ALLOW themselves to be social loafed on. "Social Loafer Bait" is the term used here to describe the profile of the ideal target for social loafers.

This problem isn’t new. Max Ringelmann, a French agricultural engineer, conducted one of the earliest social loafing experiments in 1913, asking participants to pull on a “tug of war” rope both individually and in groups. When people were part of a group, they exerted much less effort pulling the rope than they did when pulling alone. According to Joshua Kennon, Ringelmann’s social loafing results were replicated over the years in many other experiments (involving typing, shouting, clapping, pumping water, etc.), leading psychologists to believe that humans tend toward social loafing in virtually all group activities. Kennon shared two other conclusions:

• The more people you put into a group, the less individual effort each person will contribute;
• When confronted with proof they are contributing less, the individuals in the group deny it because they believe they are contributing just as much as they would have if they were working alone.

I recently asked a group of friends and colleagues who have been involved in group work at school or in their jobs to respond to a brief, unscientific survey on how they deal with social loafing. Their response pattern is shown in parentheses, and, although respondents varied in age from 20 to 50-plus, answer patterns didn’t seem to vary by age group: You are working on an important, time-sensitive project with a group of people. One of the group members is slacking off, not contributing to project work. What do you do about it? (choose one)

• Ask/Tell the slacker to commit to the project and start contributing (40%)
• Report the slacker to the project sponsor (3%)
• Complain about the slacker to other team members (10%)
• Work harder to pick up the slack and ensure the project is successful (30%)
• Follow the slacker’s lead and reduce your commitment and effort (0%)
• Other (17%—Most respondents who chose this reported they would employ more than one of the listed strategies)

How effective is the response you identified above?

• Solves the problem (27%)
• Partially solves the problem (53%)
• Fails to solve the problem (17%)
• Causes other problems (3%)

Respondents who took some action (talking to the slacker, or reporting the slacker to the project sponsor) were much more likely to report that their actions solved all or part of the problem. Complaining to other team members failed to solve the problem—no surprise there. And even though 30% of respondents elected to address the slacking problem by working harder to pick up the slack (earning themselves a “social loafer bait” ID badge), the effect of doing so was mixed, spread fairly evenly among solving, partially solving, failing to solve and causing other problems. What’s not clear is why we are so willing to tolerate social loafing in group projects and why we are so reluctant to call slackers out and hold them accountable. According to Kerry Patterson, co-author of the book Crucial Conversations: Tools for Talking When Stakes Are High:

93% of employees report they have co-workers who don't pull their weight, but only one in 10 confronts lackluster colleagues.

I suppose the reality is that unless work groups are tightly managed, they offer excellent cover for slackers—relative anonymity, little or no pressure from team members, great individual performance camouflage—with only a slight threat of exposure or penalty for not being a good team player. So the solution to the social loafer problem probably involves not only changes in how groups are formed, resourced and supported but also changes in the group work dynamic to eliminate the cover and camouflage and to illuminate how each individual contributes to the group work effort. (This is sometimes accomplished in university student work groups by using a formal peer review process to help group members hold each other accountable.) As you might expect, Google is serious about teamwork (all Google employees work on at least one team), and Google wants teams to be successful. A recent study of team effectiveness at Google determined that five team dynamics (psychological safety; dependability; structure and clarity; meaning of work; and impact of work) are more important to successful teams than the talents of the individuals on the teams. To help teams manage these dynamics, Google developed a tool called the gTeams exercise, described by Julia Rozovsky of Google People Operations as:

…a 10-minute pulse-check on the five dynamics, a report that summarizes how the team is doing, a live in-person conversation to discuss the results and tailored developmental resources to help teams improve.

According to Rozovsky, Google teams reported that having a framework around team effectiveness and a forcing function (the gTeams exercise) to talk about these dynamics was the part of the experience that had the most impact. That’s not surprising, because any “forcing function” that puts a public spotlight on ineffective or unacceptable behavior makes it easier to identify and eliminate that behavior. Given the concentration of talent at Google, I imagine the social loafers there probably boast a more refined slacker “craftiness” pedigree than most of us normally encounter. Still, I am betting the Google slackers aren’t very pleased with the light and heat generated by the gTeams exercise spotlight.

On average, 4% of the workforce experiences a non-fatal work injury each year. Considering the current number of employed workers in the U.S. is 144 million, the workers’ compensation industry is a huge sector that often flies under the radar – at least until recent years. With the establishment of the Affordable Care Act, combined with medical advancements and the way consumers interact with evolving technology, the industry is taking a new shape. Workers’ compensation triage did not exist two decades ago. I recall starting in the business and having to convince companies of the need for telephonic nurse triage. Today, virtually every large company is seeking solutions to better manage work injuries to both reduce costs and to have employees return to work more quickly. Substantial evidence shows that better outcomes are produced when an injured worker seeks care sooner rather than later. Because of that, a trend has emerged in which more entities are offering nurse triage as part of their workers’ compensation package to clients. Whereas big insurance brokers used to offer it, the service is now being offered at regional boutique firms as a way to control costs for clients. Another trend that is rapidly changing the workers’ compensation industry is telemedicine. How medical care is delivered to the injured worker is shifting and, with it, so must we. Digital health-at-large is among the biggest developments that workers’ compensation has been facing in recent years. What remains the same in treating work injury cases is fundamental human nature: care and empathy. Initiating positive early intervention is the cornerstone of a successful claims management program. Offering empathy to injured workers has been our guiding principle as our business model has been adapted over the years. Technology used to service a work injury claim must be seamless, efficient and robust to ensure the injured employee feels appropriately cared for in their very personal situation. In 2016, we will be releasing details on how we will be spearheading a new direction for the workers’ compensation industry using this new technology. Stay tuned.

We’ve been taking a look at how a confluence of forces are having an impact on insurance distribution and how insurance companies need to respond by following a 2D strategy. In my first two blogs, we detailed the four fundamental drivers of the changes. In my first blog post, “Bringing Insurance Distribution Back Into Sync Part 1: What Happened to Insurance Distribution?”  we talked about how new expectations are being set by other industries and technology.  Last time, in “Unending Waves of Change in Digital Expectations and Distribution Issues ,” I discussed the other three of the four fundamental drivers: that new products are needed to meet new needs and risks distributed in new channels; that channel options are expanding; and that the lines are blurring between insurance and other industries. Today, we’ll dive deeper into the components of the 2D strategy, which calls for:

• Optimizing the front-end with a digital platform that orchestrates customer engagement across multiple channels
• Creating an optimized back-end that effectively manages the growing array and complexity of multiple distribution channels beyond the traditional agent channel.

Optimize the Front End The digital revolution is being powered by an array of technologies and the changing expectations of customers across all demographic groups. As customers gain market power, they are increasingly comfortable with technology, have a stronger voice and are willing to use it to make their expectations and needs known. In this new world, all technology should be viewed as customer-touching, because it directly or indirectly influences the customer experience. As a result, many insurers are rapidly investing in digital initiatives and technologies, but too often they do so in a tactical, fragmented and reactionary approach. In today’s world, insurers must look to orchestrate the customer experience through any channel and technology that consumers choose to use. Whether they choose agents, websites, mobile apps, portals, compare sites, aggregators or retail firms, consumers want a consistent and compelling experience that gives them confidence in the insurer. This demands a platform that enables personalization of portal and mobile solutions based on the unique customer journeys and personas defined by each insurer. To fulfill their unique and multi-channel distribution and customer experience needs, the platform must be integrated with other core insurance solutions as well as an extensive partner ecosystem that integrates content, channels and technology. Optimize the Back End In a fast-paced competitive market, distribution channels and effective management of those channels is increasingly critical. Designing, developing, maintaining and managing productive channel relationships is crucial to achieve sustainable competitive advantage. Effective distribution management should cover a broad array of capabilities to drive operational effectiveness (including distribution registration and licensing); compensation plan design and configuration; compensation payments and reconciliation; and performance management reporting and analytics. Channel management and productivity are critical in contributing to overall growth and profitability. The ability to improve channel productivity, reduce sales cycles and increase cross-sell and up-sell opportunities is increasingly important for long-term success. To stay competitive and keep distribution channels engaged, insurers are increasingly putting a priority on servicing these channels. From providing access to their production and compensation reports to providing new leads and licensing compliance and education, these all offer opportunities for channel service excellence to retain and grow the channels. Enter the growing need for effective distribution management and systems that improve carriers’ capabilities to manage multiple channels and multiple factors. Conclusion An insurer can have the best insurance products, pricing and advertising to build its market presence, but if it doesn’t have a distribution ecosystem underpinned by a connected, digital front-end and a robust distribution management system on the back-end to optimize and maximize these channels, its customer growth and retention potential will remain limited. If it is difficult to effectively manage or, better yet, optimize compliance, compensation and performance of distribution channels, insurers could end up losing business to competitors that can. Customers expect and demand multiple, coordinated channel options to learn about, shop for, buy and use products and services, and insurance is no exception. Just as long-established retailers will remodel every few years, the place you meet your customers can’t remain untouched without your organization and its products losing their sense of value. Building an integrated digital distribution framework within a foundation of modern distribution management capabilities will provide new efficiencies, new opportunities and additional fuel for growth.

Having health insurance and dependable healthcare is one of the biggest concerns for people all over the world, but, unfortunately, there are many doctors who simply don’t trust the health insurance their patients use. No matter if you currently have health insurance, knowing what your doctor feels about your coverage can give you a deeper insight into just how well (or poorly) insured you truly are. One of the main reasons physicians don’t trust health insurance providers is because they feel insurance companies prevent them from offering patients the absolute best care. It’s understandable to be upset at the idea of not being able to perform your job to the best of your abilities. Insurance providers that are considered the most trustworthy include Blue Cross Blue Shield and Cigna, while those deemed the least trustworthy are UnitedHealthcare and Humana. These results stem from a 2015 survey conducted by the ReviveHealth Payor Trust Index, with responses from more than 600 specialists and primary care physicians. One thing to note is that Blue Cross Blue Shield earned a combined trust index rating of about 60 out of 100, which was the highest score but which also leaves an abundance of room for improvement. The Future of American Health Insurance The two most important factors physicians cited as influencing their opinions about how health plans help or hurt the quality of care they deliver were the level of coverage and number of claim denials. Physicians might also soon have to contend with new medical insurance companies made up of two or more of the most difficult companies to deal with, such as through the proposed merger of Anthem and Humana. If the deal goes through, physicians might find health insurance companies to be downright insufferable. Additional Reasons Besides having their hands tied, doctors provided the ReviveHealth Payor Trust with several more reasons they distrust health insurance companies. Physicians also don’t believe insurance providers do their best to honor commitments made to policyholders. Nor do they believe that companies advertise themselves accurately or honestly. Respondents to the survey also said insurance providers take advantage of doctors. If even doctors don’t trust insurance companies, where does that leave their patients? Not only do doctors have a better idea than their patients about how the human body works, doctors also have a better idea about how the health insurance industry works. If you’re considering health insurance plans, or if you’re thinking about switching insurance providers, ask your doctor for recommendations.

There’s a lot of talk these days about how failure is not just fine but fantastic. Tech companies famously tout “fail fast”-style mantras. One of Facebook’s guiding principles is "Done is better than perfect." Many start-up founders are known for having built companies that failed before finding long-term success. The philosophy of encouraging mistakes and quickly learning from them complements the design-thinking movement. In this way of thinking, you’re encouraged to launch quickly, shipping imperfect product and iterating based on customer feedback. But what role can this approach play in a slow-moving, large company? After all, many of the small start-ups that encourage fast failure will grow quickly, and maintaining that kind of culture as it scales is tricky. How do you treat not-quite-perfect, disappointing or outright failed ideas and projects as acceptable among hundreds or thousands of employees? Here are a few guiding principles for instilling an innovative, fail-fast philosophy in a larger organization. Set up mini innovation groups: I worked with an organization that set up small teams across the company with the mandate to drive innovations in the everyday routines of work. The teams discuss new processes, test their ideas and then present a summary of improvement initiatives. They share ways to extend their concept, and the teams look at other potential business implications. A review board makes the final approvals based on the portfolio and suggests ways to make wider impact. It’s an organized, civilized and, yet, wholly innovative way of working in a bigger company. And if the teams’  ideas fail? Well, at least they were given permission to try. Focus on feedback year-round: If you were working on a new project and it failed to launch or didn’t perform well in a test, would you want to hear about what you could’ve done better from your manager a year later? Real-time development happens throughout the work days and weeks– not during an annual performance review – and allows you to constantly and more quickly improve. But this is a change you should make as part of a bigger talent innovation strategy in performance management – it can’t be executed effectively alone. Recruit, promote and succession-plan differently: To encourage a fail-fast mentality, we must reimagine what we consider successful. Along with rethinking annual performance reviews, consider what guidance and framework you use to define a productive employee. Can you reward the team that boldly pushed new ideas, even if the ideas didn’t come to fruition? Is a top performer one who differentiated your brand in the marketplace with a new angle, even if it didn’t have the same broad reach as last year’s campaign? Adhere to what principles your organization’s strategy prioritizes, but ensure you’re not inadvertently punishing people who take smart risks. Follow basic culture evolution lessons: Strategy+business magazine’s article “Culture and the Chief Executive” shared how culture can evolve by following four tenets, and they’ll of course apply here, too.  The basic steps to remember:

• Demonstrate positive urgency by focusing on your company’s aspirations — its unfulfilled potential — rather than on any impending crisis.
• Pick a critical few behaviors that exemplify the best of your company and culture that you want everyone to adopt. Set an example by visibly adopting these behaviors yourself.
• Balance your appeals to the company to include both rational and emotional cues.
• Make the change sustainable by maintaining vigilance on the few critical elements that you have established as important.

Know your limitations: Certain companies, organizations within an enterprise and missions can more easily afford to push the envelope and experiment than others. While inspiration can come from the tech world, there are limits to how far your organization can go. The key is to understand, challenge and ultimately work within these limits to foster a culture of innovation. Even in risk-averse circumstances, some businesses exercise the fail-fast philosophy on non-mission-critical projects that won’t harm the business, brand or customers if they don’t pan out. This approach can reinforce your culture and can empower and engage the team. It can even lead to new value if the idea can spark other future, more achievable initiatives. It’s difficult to create a work world balance where innovation and creativity can quickly become executable projects or products in the market while also staying within the complex boundaries of a large organization — especially one that’s regulated. But a learning culture that embraces fresh ideas, even those that could fail, is increasingly essential. More than ever, our clients ask PwC to help them stay competitive and innovative while smaller organizations threaten their growth. And, more than ever, big businesses risk losing talent to these companies, too. To keep up, you’ve got to re-up. There’s little progress to be made by doing things the way you’ve done them in the past few years. If you consider how your company’s culture could better embrace risk and failed ideas, you’ll be better positioned to deal with more unpredictability and to grow in the future.