Hiring an insurance broker should mean ease, speed and extra security. But not everything about putting a middle man in the process of buying insurance is great. Mistakes and mishaps are bound to happen at some point. Misunderstandings between homeowners and insurance brokers aren’t uncommon. The insurance industry has become a lot more chaotic. More clients are finding it hard to trust agents and brokers, who do sometimes use unethical tactics to earn a living. Let’s take a look at some of the most common misunderstandings. 1. Conflict of interest Insurance brokers get remunerated through a fee or commission for their services. They can get paid by the insurer for bringing a large volume of business to the company. They can also get a commission from their clients by finding the best deal and insurance for them. The risk of conflict arises when the insurance broker favors his personal gains over his duty to his client. This can result in the client agreeing to higher prices or extra coverage he doesn’t really need. See also: A Wakeup Call for Benefits Brokers   2. Nondisclosure and negligence Before a client signs up for insurance, it is his responsibility to divulge all pertinent information, including his income, medical history, home values and details of his home security. Failure to disclose all this information can render him uninsured when he files a claim. There are cases, however, where even forthright and honest men can forget pieces of information. Having an insurance broker handling all the processing can make it more likely to happen. And negligence by a broker can result in a costly misunderstanding. 3. Failure to understand exclusion Clients mostly shop around for price and reputation without realizing the other important factors that can affect their coverage. Insurers are slowly cutting back on coverage and increasing their deductibles in an attempt to increase profits. While insurance brokers can give their best when discussing the exclusion clauses buried in lengthy policies, they can still miss critical details, and one word or phrase can mean thousands of dollars when it’s time to make a claim. A carport, for example, does not technically fall into the category of a building, which means that a client should not expect his insurance to cover a collapse. 4. Underinsurance When doing an assessment, a typical insurance broker would need the help of real estate appraisers or an online program to know how much coverage a homeowner can get. If the broker is fairly new and untrained, he may even obtain figures by directly asking the homeowner how much exactly he is expecting to get. This lack of knowledge can mean that homeowners are greatly underinsured. Yet they will have a false sense of assurance and only realize their problem in the wake of a disaster, such as a tornado or flash flood. Another common misunderstanding between homeowners and insurance brokers involves replacement cost and market value. Most homeowners expect to receive a coverage that will equate to their home’s market value. Replacement cost, on the other hand, is generally higher than the amount a buyer is willing to pay for a house. It’s based on a lot of factors, including the materials used, cost of labor for the demolition and repair, etc. An agent or a broker needs to be very thorough in discussing these details so that he and his client can determine the right insurance and coverage. See also: A ‘Perfect Storm’ of Opportunity (Part 3)   5. Change of policies It’s the insurer’s obligation to notify its clients about any changes in their insurance coverage. It’s also a part of the broker’s responsibilities to let his client know the terms of renewal, cancellation and expiration of the insurance he’s offering and to make sure the client understands. But sometimes clients don't get the message and are underinsured or even uninsured when they file a claim. In cases like this, a client can take legal action against the broker. He may also file a case against the insurer, if it changes the insurance without its client’s consent.

Compliance has become a top priority for insurers as technology emerges to make the process easier and more cost-effective. Perhaps even more importantly, these solutions have demonstrated the ability to improve operational results while also boosting productivity and staff and policyholder satisfaction. Brief History of Insurance and Regulation For thousands of years, insurance was basically unregulated – until 1945. That year, with a focus on protecting consumers from “unscrupulous” insurers, a U.S. Supreme Court ruling put into motion the regulation of insurance, holding that insurance companies were subject to the Sherman Anti-Trust Act. Shortly thereafter, Congress enacted the McCarran Ferguson Act, creating the regulatory framework that has been guiding the insurance industry ever since and providing for individual states to regulate insurance. Fast Facts about U.S. State Insurance Regulation in 2015

• Total revenue collected by states from the insurance industry increased 3.4% to $22.6 billion
• Total projected fiscal year 2017 budgets for all state insurance regulatory agencies total more than $1.4 billion
• State insurance departments received 299,625 official complaints and nearly 1.9 million inquiries
• Total full-time insurance department staff was 11,304 (down 7.3% from 2007)
• Market conduct examiners and analysts numbered 497 and represented 4.4% of total staffing
• Of 880 market conduct only examinations completed, 714 resulted in administrative orders (fines)
• Fines and penalties against insurers totaling $224 million represented one-sixth of the total annual budget for all state insurance regulatory agencies

See also: The Coming Changes in Regulation   Top 5 Market Conduct Actions Against P&C Insurers According to research shared by Wolters Kluwer Financial Services, claims handling continues to be among the top areas of market conduct criticism:

1. Failure to acknowledge, pay, investigate or deny claims within specified timeframes
2. Using unapproved/unfiled rates and rules or misapplying rating factors
3. Failure to provide required compliant disclosures in claims processing
4. Failure to cancel or non-renew policies in accordance with requirements
5. Failure to process total loss claims properly

Compliance Challenges in Claims Management “Claims management has consistently been one of the top three compliance challenges for insurers over the last several years, and once again was the top compliance challenge in 2014 across all lines of business,” said Kathy Donovan, senior compliance counsel at Wolters Kluwer Financial Services. “Insurance claims professionals have to manage a variety of internal and external factors when processing claims, including claimant communications and mandatory disclosures, all within established timeframes. The targeted end result is providing proper payment in accordance with policy provisions and state law.” Compliance Solutions Software and technology are particularly well-suited to enable carriers to avoid fines and penalties, and total loss claim payments – the fifth most frequent source of market conduct fines – is a prime candidate. The U.S. auto insurance industry manages approximately 3.2 million total loss claims annually and is required to get those complex calculations 100% right every time or face fines of as much as $10,000 per claim. The vast majority of total loss claims payments are based on clearly stated rules, regulations, taxes and fees, but the complexity and frequent changes across literally hundreds of relevant state, municipal and other jurisdictions make the task daunting for even the most seasoned claim professionals, let alone the growing number of newer and less experienced staff. Sophisticated purpose-built software supported by a dedicated, expert research team can not only perform the majority of calculations with 100% accuracy every time but can also maintain an all-important audit trail for use in future market conduct exams and can also provide claim staff with instant access to relevant regulations and references for those few files where interpretation and judgment is required. For example, the issue of whether or not to include sales tax and partial refunds of title and registration fees has vexed claims handlers for years. State departments of insurance regularly cite insurers for failing to include or properly calculate tax on automobile total loss claim payments. Worse yet, a large number of insurance departments have either remained silent or issued ambiguous directions about what amounts must be paid and how they should be calculated. See also: Increasing COI Compliance   While increasing numbers of large, well-established information technology firms and some new early stage entrants offer enterprise solutions broadly defined as risk and compliance management solutions, few are specifically insurance-centric, and fewer yet are focused on specific areas of high exposure. In my practice, I have become familiar with some highly innovative insurance compliance solutions that are focused on solving a significant specific need in a major area of complexity and exposure. One such solution that fits this description is a cloud-based total loss workbook that provides automated settlement calculations on a high percentage of passenger vehicles of all types and sizes, including motorcycles in all jurisdictions. The software has the capability to be integrated with third party claims systems and information providers of total loss valuations and other relevant services to provide a truly bulletproof seamless end-to-end solution supplemented by a complete, up-to-the-minute reference library. I encourage insurance carriers and claim departments to take the time to regularly review all available solutions and, in so doing, refocus on their compliance strategies and results. I am available and glad to answer questions and discuss this topic with interested industry participants.

Recent Supreme Court decisions in Oklahoma, Florida and — to a far lesser extent — Utah – have touched off a firestorm of debate over the so-called interference of the judiciary in the administration of state workers’ compensation systems. But the real issue in these cases is not the specific interpretations of complex laws; it is how state legislatures wind up passing such complex laws to begin with. Consider two older Supreme Court decisions: Hayes v. Continental Ins. Co. (1994) 178 Ariz. 264, 872 P.2d 668 and Smothers v. Gresham Transfer (2001), 332 Or. 83, 23 P.3d 333. In late 1985, the Arizona Court of Appeals recognized a civil action for bad faith by an injured worker against an insurance company. That opinion was not unanimous and seemed to be at odds with prior case law on this issue. Arizona’s legislature generally has short sessions, and, while this cannot be proved, it is likely that a solution to this new case law would have been difficult to arrive at by the May 14, 1986, sine die date in Phoenix. By 1987, the legislature did adopt a bad faith statute, giving the industrial commission the authority to resolve issues regarding unfair claims processing and bad faith actions by claims administrators. The statute begins: “The commission has exclusive jurisdiction as prescribed in this section over complaints involving alleged unfair claim processing practices or bad faith by an employer, self-insured employer, insurance carrier or claims processing representative relating to any aspect of this chapter. The commission shall investigate allegations of unfair claim processing or bad faith either on receiving a complaint or on its own motion.” That pretty much should have resolved the issue. Why would the legislature adopt a bad faith statute after 75 years other than to make clear that exclusive remedy barred an action by an injured worker for bad faith in the handling of claims and to effectively nullify recent judicial decisions saying otherwise? In 1994, the Arizona Supreme Court had the opportunity to answer that very question in Hayes. The court began its analysis by noting, “Although the trial and appellate courts assumed that the statute preempts and divests all state courts of jurisdiction over workers' compensation bad faith cases, Plaintiff correctly notes that the statute does not explicitly say this. In fact, it does not mention either common-law damage actions or divestiture of court jurisdiction.” See also: Where the Oklahoma Court Went Wrong That observation signaled where the court landed on the issue, and Arizona workers’ compensation claims administrators — and, recently, the legislature — have tried and failed ever since to limit the ability of an injured worker to access the courts under the theory of tortious bad-faith claims handling by insurers. The issue is far more complicated than simply one of judicial interpretation. The Arizona Supreme Court has yet to reach ultimate state constitutional issues regarding bad faith claims by injured workers because of its somewhat strained interpretation in Hayes of the 1987 law. At about the same time, the Oregon legislature was addressing a Supreme Court case, Errand v. Cascade Steel Rolling Mills, Inc. (1995), 320 Or. 509, 525, 888 P.2d 544, that called into question the scope of the exclusive remedy of workers’ compensation. The legislation enacted in Salem in response to this opinion included language stating, “(t)he exclusive remedy provisions and limitation on liability provisions of this chapter apply to all injuries and to diseases, symptom complexes or similar conditions of subject workers arising out of and in the course of employment whether or not they are determined to be compensable under this chapter.” In 2001, the Oregon Supreme Court issued its opinion in Smothers. The court took under consideration the cumulative effect of the very comprehensive exclusive remedy legislation enacted in 1995 and the requirement that workplace conditions be a “major contributing cause” of a claim for compensation arising out of an occupational disease. After an exhaustive analysis, the Supreme Court held that the exclusive remedy statute violated Article 1, Section 10 of the Oregon Constitution, which guarantees every Oregonian a “remedy by due course of law for injury done him in his person, property, or reputation.” The legislature promptly responded to the court’s decision and in 2001 addressed the ability of an injured worker who failed to meet the major contributing cause standard to bring a civil negligence action against the employer. The legislative resolution preserved the rule of law in Smothers, was constitutionally firm and ultimately resulted in little (if any) of the expected fallout from the court’s decision. As noted by the Oregon Department of Consumer and Business Services in its 2010 Report on the Oregon Workers’ Compensation System, “Although it was estimated that the Smothers decision could affect as many as 1,300 cases per year and cost up to $50 million per year, there have been no known cases in which workers have prevailed at trial; in a few cases workers have received settlements.” So what do these cases have to do with Maxwell v. Sprint PCS (in Oklahoma), Castellanos v. Next Door Company (in Florida), Westphal v. City of St. Petersburg (in Florida) and Injured Workers Association of Utah v. State of Utah? Everything. Workers’ compensation legislation has generated volumes of appellate case law across the ages and in all jurisdictions. There are a host of reasons for this, but one major factor is the very nature of workers’ compensation public policy. Rarely is the system going to be reviewed by legislators unless there is a crisis — historically, in the form of high insurance premiums but more recently when self-insured employers call for change and labor is more than willing to sit down with them and negotiate. This leads to prophylactic laws designed to ameliorate a specific situation and are combined with long-term benefit increases. Even Oregon, whose management labor advisory committee (MLAC) is a model for workers’ compensation public policy development, is not immune from these pressures, as Smothers demonstrated more than a decade ago. See also: Appellate Court Rules on IMR Timeframes   There is no justification to suggest that every element or iteration of workers’ compensation laws passed for well over a century is somehow immune from judicial scrutiny. Indeed, most states have, within their body of case law, important decisions redefining the law that are the result of appeals from employers rather than injured workers. These frequently result from interpretation of laws from administrative tribunals, as is noted in the lengthy line of cases over the past 10 years in California of appeals from decisions of the Workers’ Compensation Appeals Board. Furthermore, the courts cannot be held to a legislative agenda that is the result of one particular group or another successfully negotiating the political winds of the time. The stakeholders of the system are not immune from suggesting ill-conceived laws any more than legislatures are immune from passing them. None of this is to suggest that the majority opinions in these recent cases represent good legal scholarship. It is to say, however, that when going back to the respective state legislatures to address these cases, a more careful consideration of policy — even at the expense of losing a bit of the singular focus on costs — could lessen the possibility of unintended consequences. And, as for “due process,” we should all remember New York Central Railroad Co. v. White, (1917) 243 U.S. 188 also contained the following language when holding that the New York compensation scheme under review met due process standards: “This, of course, is not to say that any scale of compensation, however insignificant, on the one hand, or onerous, on the other, would be supportable. In this case, no criticism is made on the ground that the compensation prescribed by the statute in question is unreasonable in amount, either in general or in the particular case. Any question of that kind may be met when it arises.” The recent challenges and questions raised over workers’ compensation reform throughout the states over the past 20 years suggest we are closer to “the question of that kind” arising. Whether it does is in large part because of what stakeholders and policymakers determine should be done, rather than what one side or the other knows it can do simply because it has the votes.

For the thousands of healthcare consumers reading this post...and the millions in attendance across this great country...lllllllllllllllet's get ready to rummbulllllll! In this corner - fighting over a period of 68 years, with a track record of unaffordable and ever-skyrocketing premiums, causing long-term wage stagnation, plus lower rates of savings for individuals all over the land. The largely unchallenged, reigning champion in U.S. healthcare coverage for nearly all Americans under 65.......the third-party payers! And in this corner - fighting for more than 25 years. They've captured and controlled healthcare populations, acquired and limited provider competition, all the while driving up costs, consumer medical debt and personal bankruptcies. With a long history of mass overutilization, lower care quality and high administrative salaries......the hospital and health systems! Ladies and Gentlemen...this same fight took place back in the 1990s, for the purse strings of nearly all the private pay healthcare market. The hospital and health systems took on the risk of creating traditional health plans, and many of them took it on the chin. There were too many operational nuances, such as claims, underwriting administration and attracting sicker patient pools. Not to mention the ire of health payer executives. The environment is different today. The stakes are far higher. The outcome may determine the direction of more than $1 trillion per year in consumer and employer-directed healthcare payments, transforming the model of U.S. healthcare into one of needed, sustainable long-term growth. Today's payer profits are limited, not only by the medical loss ratio rule, but now with provisions of the ACA to accept all patients with pre-existing conditions. On the other side, health and hospital systems have successfully acquired a significant and well-diversified care "umbrella" over large populations. Many achieve greater leverage in securing higher payer reimbursement rates, all the while still capturing local practices, doctors and newly minted med school graduates, who willingly trade off past, present and future administrative headaches for more patient engagement and a steady paycheck. See also: Keep the Humanity in Healthcare   Yet within their growing mini-monopolies, hospitals and health systems, like payers, are also having a come-to-Jesus moment. Medicare quality scores give only 2.8% of all hospitals their highest, 5-star rating. Nearly 70% received only between two to three stars! There is argument on the factors for these ratings, yet administrators clearly understand that future Medicare payments will be based on value of care, where quality of care is very important. This is especially true as health systems and affordable care organizations (ACOs) will continue to dominate healthcare delivery in the U.S. And yes -- future private insurer payments are likely to follow suit. Let's Give Health Plans Another Shot More than ever, we're seeing health systems creating their own provider-sponsored plans (PSPs) and simply becoming their own payer, even where they can compete for covered lives in the growing Medicare Advantage and Medicaid Managed business. PSPs come in multiple varieties, depending on the questions asked and resulting strategies formed: Starting fresh or acquiring an existing plan? Partnering or not partnering on risk with existing insurers and provider networks? Covering care only in their care system or with other systems and providers? Though previously unsuccessful, PSP results appear more promising today. Atlantic Information Services (AIS) data shows there are more than 270 PSs in existence. This is up from 107 just two years ago -- and more than one-third have more than 10,000 members. If the trend continues, predictions are that about 70 million Americans could be enrolled in PSPs in five years. While that is happening, we are seeing payers such as Harvard Pilgrim and others seeking to go the way of Kaiser, adding medical facilities to create integrated care systems. Hence, both payers and health systems are blending more than ever, driving toward integrated care in smaller pockets of populations. These smaller pockets of integrated care appear to offset more risk, especially when they seek to merge. We are then likely to run into a microcosm of the same anti-competitive pricing fears as with Anthem-Cigna and Aetna-Humana. Let's Bypass the Problem...With Direct Contracting This option allows self-insured employers to work around health payers, by contracting with large, geocentric health systems to deliver care to their employees. By using third party administrators (TPAs), contracted transparent care and drug fees and in-house actuaries and risk managers, employers can also lower claim administration costs. Plus, employers gain other savings by working around payers. Just a little wrinkle here...What about the many millions of individual members who remain under fully insured payer plans? Well, we have the growth of health insurance captives, which pools together smaller companies to gain self-insured benefits. But the question still remains... When health plans get further cut out of the self-insured employer client loop, what happens to pricing for the rest of the remaining payer risk pool? The revenues and profits for payers will need to come from somewhere. See also: Healthcare: Time for Independence   We know payers are not getting onto ACA exchanges to acquire more customers. That leaves subsidization from the government to fill in the affordability gap for the fully insured. Other options are: 1) creating a single pay government plan; 2) providing government incentives to PSPs to be competitive in more local pockets or 3) offering incentives for the formation of fully insured and PSP plans, so payers and health systems can cover more with greater risk sharing. Healthcare 3.0: Increased quality, better technology, higher taxes, greater unemployment and remaining unaffordability Health systems have grown by implementing effective leadership, making strong IT investments, reducing geographic competition and employing better risk solutions and strategy. They are going to get stronger with direct contracting, mergers and acquisitions, growth of PSPs, improved care coordination and the use of new technologies in the emergence of value-based care. Solutions in areas such as predictive analytics, mhealth, patient-generated healthcare data, diagnostic accuracy, supply chain management, population health, chronic disease management, telehealth and artificial intelligence will promote greater efficiency, better outcomes and increased patient satisfaction and drive down cost in key healthcare industries. But driving down cost DOES NOT mean pricing for care, coverage and drugs will plummet for consumers. I expect mass unaffordability will largely remain. Look, the first order for businesses in any for-profit sector is to make profit, grow customers and remain competitive. While healthcare consumers and advocates believe in reforming our system to a fairer, more affordable solution for care, coverage and medications, equally for all Americans....businesses don't. And they're not going to succumb to guilt or public shaming, or be willing to give themselves significant salary haircuts to do so. In fact, I would expect that early cost-reduction successes will translate into healthcare companies largely funneling the differences back into themselves as re-investments or profits, while holding prices steady to claim consumer-friendly positioning. "Hey, at least we've put the brakes on higher prices. We'll try to figure out how to do more...but look, this is great news for now. Be in touch soon!" The only path I see toward future consumer affordability is to push and provide incentives blending our three-party into a two-party system. With enough healthcare players, greater transparency and relatively equal levels of care quality, free market forces will ultimately work to create a greater downward push for consumer pricing. A free market system would be painful in the beginning. Healthcare players will not only have to invest in and implement new technology, but also utilize augmented and artificial intelligence solutions. This would drive efficiency and accuracy to the obvious point where industry leaders would greatly reduce and replace their greatest expense...employees. By the end of 2016, the healthcare sector will be the largest employment pool in the U.S. In a free market, you cannot have bloated employment with acquired technology capable of creating massive efficiencies to drive down cost and consumer price. However, today's price-regulated market would allow that to happen, where excess expenses are simply passed down to healthcare consumers and employers in the form of higher prices. Free market healthcare is for now a far-off dream. So as the market slowly transforms and reshapes itself, we will likely see personal and corporate taxes going up. See also: Is Transparency the Answer in Healthcare?   With no foreseeable surge in GDP, new jobs or average worker wages, we're seeing the middle class slipping. Healthcare costs are not likely to translate into significant consumer price decreases. Add to that the past, current and future growth of healthcare subsidies per the ACA exchanges and ever-expanding Medicaid programs. Folks...that big nut will have to be covered at some point. Parting Thoughts... Woodrow Wilson once said, "The seed of revolution is repression." Healthcare has operated on a model outside of free market forces, where consumers have paid the price, literally for decades. In the next era of healthcare, consumers carry an obligation, not just to continue funding this juggernaut, but to take on greater responsibility for their health choices and results. No matter how this emerging fight changes healthcare, the patient, through greater engagement and care, should be at the center. I see population health management as both educating and necessarily empowering healthcare consumers. Not only to recognize poor past choices and grow from new healthier ones, but to appreciate and value how much they truly need healthcare services, coverage and medications that are simply out of their financial reach. Perhaps their own transformations will turn large-scale frustration into massive targeted determination, demand and revolution, where elected politicians begin to cower and capitulate, not to special interests, but to a population of healthy Americans who recognize the importance of an affordable and sustainable health care system. So they and future generations can embrace the American dream - and live healthier, less stressful lives while doing it. I hope to live to see that day.

The first QRT and the Opening information ("Day 1 Reporting") have been filed. The insurers are "on track" with Solvency II ... at least from a pure regulatory compliance point of view ! However, my day-to-day observation is more likely to be a mixed picture. The new prudential framework is not yet "Business As Usual (BAU)" as the large majority of insurance organizations are pretty far away from using the framework as a risk and capital based decision framework.  The first "real world" ORSA process has been (more or less) launched but it continues to be considered as a "reporting exercise" despite EIOPA having launched a EU-wide stress-test and a major "stress event" has occurred in June with the UK "Brexit"! See also: The Right Way to Test for Solvency It appears useful to have a look on a target operating model underlying Solvency II:

• Solvency II Risk and Capital Management represents the core of the new model.
• This model requires policies to meet the regulatory and organizational targets - these policies have been designed and approved in 2015 or early 2016 and need to be applied progressively.
• The two ORSA preparation projects 2014 and 2015 should now become BAU and "only" need to be run as a real process translating the ORSA policy designed in 2015 or early 2016.
• The 2017 reporting deadline for the first SFCR needs preparation and strategic decision making on how to meet the regulatory requirements and how to communicate with the stakeholders, the analysts, the competitors and any other third party eager to understand the new transparency.
• The AMSB (Administrative Management Supervisory Board) is ready to demonstrate that it takes decisions based on the risks and the capital based principles governing Solvency II!

See also: Solvency 2: An Outcome Very Different Than Planned   We definitely face a sufficient number of challenges, expected and unexpected, to be eager to apply and test the new framework in BAU conditions. Let's take the time, or, if necessary, the break to really make it happen. This experience will be crucial to contribute to the 2018 review of the Solvency II framework by EIOPA and the NCAs.

Warning: this article may upset some conservative risk managers

Risk management in modern non-financial companies is very different compared to say 5 years ago. The level of risk management maturity, for lack of a better word, has grown significantly. As more and more companies across the globe are looking to implement robust risk management, the demand for risk management consultants is also growing. Unfortunately, not all risk consultants are able to generate long term value for their clients. Here are three reasons why: A. Selling the wrong product  Non-financial companies want to buy and many risk consultants continue to sell risk assessments, risk management frameworks, risk appetite statements and risk profiles. What do all these products have in common? I am being intentionally provocative here, so I will say all these products are missing the point completely. One thing they have in common is that they are designed to measure, capture or document risks, making us all believe that risks and their mitigation are the ultimate goals of the exercise.  Over the years, this tendency to treat risk management as a separate, standalone (some go as far as say independent) process with its own inputs (data, interviews, experts) and outputs (risk reports, risk matrices, risk registers) created a whole community of risk consultants who seem to be missing the plot completely. Risk management is not really about dealing with risks. Risk management is about helping companies achieve their objectives and make better decisions. See also: Risk Management: Off the Rails?   OK, sometimes it may be useful to capture risks for the sake of risks and discuss them with the management team, but this should be more of an exception than a norm. So if risk management is not about risk assessments or risks, then what is it about?

I believe that risk management is ultimately about changing how companies make decisions and operate with risks in mind.

The two modern trends in risk management by far are: integration into business processes / decision making and human and cultural factors. Yet, it seems most of the modern risk consultants completely ignore both of them. For example:

• It is fundamentally wrong measuring risk level when instead you could measure the impact risks have on key objectives or business decisions using budget@risk, schedule@risk, profit@risk or KPI@risk.
• I believe any qualitative risk analysis based on expert opinions is evil. More on this here.
• It is wrong to have a risk management framework document when instead you can integrate risk management principles and procedures into operational policies and procedures, like budgeting, planning, procurement and so on. I bet this example upset quite a few of you.
• It is a mistake to try and use a single enterprise-wide approach (sometimes referred to as ERM) to measure different risks. Different risks, different types of decisions and different business processes deserve unique risk methodologies, risk criteria and risk analysis tools.

Join the discussion in the G31000 group dedicated to ISO31000:2009 to find out more about the latest trends in risk management. As strange as it may sound, many risk consultants still have not read the ISO31000:2009 or are unaware of the changes happening to the most popular risk management standard in the world (officially translated and adopted in 65+ countries in the world and is currently being updated by 200+ experts from around the world).

The reality is that most risk management consultants sell completely wrong products. Management doesn't care about risks – they care about making decisions that will hold in court, making money and meeting KPIs. No wonder why modern risk management is mainly lip service.

The funny thing is that corporate risk managers make exactly the same mistakes. They too need to show value from risk management and fail to do so by focusing on risks (their domain) instead of business processes or decisions (business domain). B. Confusing risk management with compliance  Did you know that unlike many other ISO standards, the ISO31000:2009 is not intended for the purpose of certification? This was a conscious decision made by the people working on the standard at the time. It is a guidance document. Risk management is not just black and white. For example, risk management is about integrating decision making and business processes, but every organization will find its unique way of doing so. Many consultants make a huge mistake on insisting on a single version of the truth. Non-financial regulators or government agencies make even bigger mistake by taking guidelines and making them compulsory. Like COSO:ERM in the US, a bad document made obligatory for listed companies. Read more about the new COSO:ERM:

By far the best way to assess risk management effectiveness is by applying a risk management maturity model. Just keep in mind that most existing maturity models were created by consultants who miss the big picture, see point A.

See also: Risk Management, in Plain English   C. Failing to see the intimate details  One of my good friends, Anna Korbut, a few years ago said an interesting thing: "Risk management is a very intimate affair." I liked this phrase, so I have used it ever since. Risk management truly is intimate and unique. I have been working in risk management for over 13 years in 4 different countries, and I have seen close to 300 risk management implementations. Yet, every single one was unique in some way. Unfortunately, many consultants fail to dig deep enough to see how risk management is really implemented into organizational processes and into the overall culture of the organization. Risk management goes against human nature (see research by D.Kahnemann and A.Tversky), so most of the time risk managers use techniques that border line neuro-linguistic programming or building an internal intelligence network. Here are just two examples:

• I personally created a table tennis tournament in the company where I used to work to get an opportunity to meet all business units in informal settings and build rapport. This had a bigger positive impact than monthly executive risk committee meetings where all the same department heads were present.
• A colleague of mine created the whole operational planning procedure within the company to reinforce the need to discuss risks on a daily basis.

See also: Key Misunderstanding on Risk Management   The key takeaway is: unless specifically asked, most risk managers will never disclose how they really build risk management culture within the organization or how they integrate risk analysis into the business. According to ISO31000:2009, risk management is coordinated activities to direct and control an organization with regard to risk. It consists of about 1000 small things that risk managers do on a daily basis, most of which may not directly relate to risk. Yet it is those small things that build risk management culture within the organization. Unfortunately, most risk consultants are quick to jump to conclusions and do not bother to dig deep enough to see all the nuances.

Risk management in every company is unique. It is risk consultant's job to figure out how it all comes together to build better risk-based organization.

P.S. Remember, that if your consultant is showing signs of any of the above, it's time to have an honest chat with him/her.

This is part 5 of a 5-part series. Part 1 can be found here. Part 2 can be found here. Part 3 can be found here. Part 4 can be found here. A Thirst for Reality Today’s Insurance Renaissance shares one very clear trait with the Renaissance of the 1400s — in both cultures we find the thirst for reality.  If you look at the paintings of Jan Van Eyck or the sculptures of Donatello, you see a cultural wave influenced by the desire to see and know reality and portray it. Leonardo Da Vinci wrote about the change. When he described the art of Giotto di Bondone, his predecessor, he said, “Giotto appeared, and drew what he saw.” That was the beginning of a shift toward “real” pictures of people painted in the right perspectives, colors and tones. The insurance industry has always understood this craving for reality. In order to know and understand, they must first see clearly. The concept hasn’t changed much, but the tools and dimensions of perception have certainly changed.  We hone our tools (software and hardware), find the right paints (data streams, sensors, evidence providers) and practice at producing the correct colors and tones (analytics, product development, marketing messages). But the questions of reality and where an insurer fits into the current market are complex. When it comes to prioritizing, it seems that the “thirstiest” areas hold the most promise for technology’s answers. You could make a long list of how our organizations are now thirsty, but here are a few examples.

• We need new products that meet new market needs and customer expectations
• We want data to uncover new risk areas and improve risk selection
• We want predictions of customer trends to build appropriate channels and products
• We need to become digitally enabled
• We need to transform claims management … and eliminate or reduce claims proactively with customers
• We need to grow analytic capability to well beyond operational effectiveness

See also: How to Turn ‘Inno-va-SHUN’ Into Innovation   So how will insurers, as a part of the Insurance Renaissance, capture reality and put it to good use?  Let’s look at six areas in particular. New Products – Meeting an Unfolding New Market With the emergence of new technologies, new demographics and the falling of industry boundaries, we are seeing the growing demand for new, innovative and (in many cases) personalized insurance products than ever before. These range from products focused on the “on demand” economy, to new risks such as cyber and new needs for the sharing economy. All of these are unleashing a demand for innovation, simplification, and in some cases unbundling of the insurance risk to meet very different demands and expectations. Insurers need to capitalize on these opportunities to seize new markets and gain competitive advantage to drive revenue and profitability. Risk Selection — From Answers to Eyes The Internet of Things (IoT) from the connected car to the connected home, wearables for healthy living and more has given eyes to risk. For years, a commercial insurer would have to rely upon answers to questionnaires, claims experience and all of the numbers associated with insuring a business risk. Now sensors, drones, cameras and satellites are capturing not just real data, but real images. All of these efforts represent greater control and decision capabilities for insurers whose systems are prepared to use them. Customer Profiles — Getting to Know Them Who are we insuring? For centuries, insurers never truly know their insureds. Now, they can, leveraging real-time feedback on their day-to-day living, driving, exercise and travel. Technology has advanced far enough that artificial intelligence (AI) and demographic profiling can potentially recognize risk patterns that policyholders don’t recognize themselves. The additional consumer knowledge will contribute to additional, valid, automated decisions, streamlining the process. Automated decisions will contribute to flipping the insurance model upside down and beginning to focus heavily upon prevention. See also: Data Science: Methods Matter   Digital Readiness — Bringing the Pictures Home Insurers are now beginning to rely upon the tools that consumers wear, the devices they carry with them and their desire to do business where they are, at times that are convenient for them. Consider this: The consumer is actually the one paying for the equipment that the insurer is using to foster the relationship AND track lifestyle. Every digital interaction between the insurer and the consumer is a teachable moment for the insurer — but only if the insurer is digitally prepared and developing an omni-channel presence. So, if the insurer will simply “go half way” and provide the back-end platform, the consumer will provide the front-end communication devices, the telematic sensors and the location data. To bring this back to our analogy, it is the insurer prepping the canvas and the policyholder painting a self-portrait. That’s a real, modern, Insurance Renaissance concept. But insurers can’t tap into free portraits without providing the canvases. In many cases, now that greenfields, startups and aggregators are filling information gaps and now that companies such as Majesco are providing cloud-based platforms, an insurer doesn’t even need to make a tremendous upfront investment to become digitally prepared. It simply needs to have the desire to capture opportunities and a willingness to modify business models. It is the thirst that matters. See also: How to Plant in the Greenfields   Claims Transformation – From Payout to Prevention and Elimination In today’s fast paced world of disruption and transformation, the management of claims is increasingly complex, challenging and in a constant state of flux. Insurers who want to deliver a new level of customer experience to compete, must move beyond efficiencies, cost reduction and claims payment to innovating the claims process to enhance the customer relationship and to prevent or eliminate claims using new technologies.  The response to potential and actual catastrophic events is proactive, with a focus on saving lives, minimizing or eliminating damage (think about an alert for a severe thunderstorm with hail to get a car under cover) and to provide customers a feeling of personalized care. Analytic Capability — Making the Invisible Visible Trends will always be with us. They may annoy us with their persistence, but if there were no such thing as trends, there would be far fewer opportunities for competitive growth. It doesn’t matter if trends are demographic, operational, economic or atmospheric…we know more when we see trends clearly. Analytics is like a periscope that reaches up out of the depths of the home office and views the landscape, allowing us to make the decisions that will keep us on course. Today’s analytics are far more precise (and fast) than they used to be, so our virtual picture can be strikingly close to reality.  Analytic answers color in our blind spots, bringing light to areas where we have traditionally been in the dark. It adds a new dimension to our decisions and also allows for improved experimentation and testing. The Insurance Renaissance — Front Row vs. On Stage Of course, the end of all of this improved observation isn’t just a better picture of reality. If that were the case, insurers could be content to sit and watch.  The end result of the clear picture must be an active performance based upon perpetual observation. The industry will reward the players, not the spectators. For those who are watching — the pundits, the experts, the researchers and the industry — they are likely to see that the thirst for reality is simply a small step in a gigantic shift from a focus on indemnity to a focus on prevention.  Someday, perhaps, prospects will search for companies with the fewest claims — knowing that those insurers are the ones who actively turn their knowledge of reality into increased safety, reduced loss and improved lives.

Yes, you read that right. A vaccine for heroin. I first ran across this concept on Twitter last week. I saw a posting from @heroin_research about a heroin vaccine. I was trained by my parents, and through practical experience over the past 55+ years, I've learned that if something sounds too good to be true then it probably is. This sounded too good to be true. But, being The @RxProfessor, I had to check it out. And that led to a Saturday conversation with Caron Block. Caron's son has been in recovery from heroin for over four years. It has been a long journey. Unlike the new trend in heroin users, his abuse did not start with a legitimately prescribed opioid after an injury or surgery. It started with drinking himself to sleep in 8th grade, then escalation to marijuana, then meth, then cocaine, then heroin. Naloxone literally saved his life multiple times from an overdose death. He has had open-heart surgery for Endocarditis (a heart valve infection very common with heroin users). He was adjudged to be a "use till death" person given the nature of his genetic predisposition to addiction. By all accounts, the fact that he is still alive is a miracle. That he's on his way this Fall to Columbia University after restarting his education at a community college is astounding. While his battle with addition will last a lifetime, his is a story of victory ... achieved every single moment of every single day. See also: Progress on Opioids — but Now Heroin?   But Caron knew that her son's victory was unfortunately not common. She had personal experience with death and devastation among friends and family. Many of his friends (past co-users) have died. And many still use. Rather than preaching to those still suffering from the addiction, he's trying to lead by example. But it is frustrating. And overwhelming. And so that turned Caron into an evangelist for the work of Kim Janda, Ph.D., the Ely R. Callaway Jr. Professor of Chemistry at The Scripps Research Institute (TSRI), and his pursuit of immunopharmacotherapy. He is really smart, working initially on a cocaine vaccine, then a nicotine vaccine, then a methamphetamine vaccine, and now a heroin vaccine. Note that each drug requires it's own unique vaccine, so a heroin vaccine will not be an opioid vaccine. But it's certainly a step in that direction since the heroin vaccine deals with morphine, one of the two metabolites, along with  6-acetylmorphine or 6-AM, that come from heroin, which as a chemical actually only lasts for about 30 seconds in the body. If you have 47 minutes available, watch this YouTube video titled "Heroin Vaccine and Understanding Addiction with Dr. Kim Janda & Caron Block." If you only have 5 minutes, a June 28, 2016 article published by Science News entitled "Vaccines could counter addictive opioids" is a detailed accounting of the vaccine. Included is a sobering statistic:

More than 60 percent of people with addiction experience relapse within the first year after they are discharged from treatment

In essence, the heroin vaccine "trains the immune system to usher the drugs out of the body before they can reach the brain." Just like how all vaccines work, it creates antibodies and turns the immune system into the front-line defense. In this case, it keeps heroin away from the brain. The "active vaccination" is primarily to help people get through rehab/detox or to stay clean afterwards (even if they relapse, the vaccine has made heroin an enemy of the body and they can't get the reward effects of the drug). Importantly, the vaccine is only valuable to those who desire to defeat their addiction, so vaccine recipients would need to be carefully vetted. The expectation is three to four boosts would be needed every two weeks to build up the antibodies that could last for several months. For more details, please read the Science News article. According to a January 2015 TIME magazine article ...

In 2013, preclinical trials of the drug on heroin-addicted rats showed those vaccinated didn’t relapse into addiction and were not hooked by high amounts of heroin in their system. “It’s really dramatic,” says Dr. George Koob, director of the National Institute on Alcohol Abuse and Alcoholism (NIAAA) who was involved in the heroin vaccine research. “You can inject a rat with 10 times the dose of heroin that a normal rat [could handle] and they just look at you like nothing happened. It’s extraordinary.

In 2015 TSRI and Dr. Janda received a $1.6M grant from the National Institute on Drug Abuse (NIDA), with the potential of three additional years of funding, to support pre-clinical trials of the heroin vaccine. That is really good news. TSRI has a very specific plan forward:

• Pre-clinical meeting with the FDA
• Production of the vaccine under cGMP
• Animal toxicity studies (2 species)
• Efficacy study in another animal model (likely primate)
• IND filing with the FDA prior to initiating human trials

The corresponding bad news is that a lot more money will be required to take it to human trials and ultimately to FDA approval and production. They have estimated a minimum of $10.5M and 3 years to get through Phase II trials, after which they'll need even more money and time for Phase III trials, NDA application, FDA review and approval. There are a lot of financial headwinds for a variety of reasons (if you consider a heroin vaccine reducing demand, you can probably speculate on who might not be supportive). Caron is doing her part with a Facebook page and the aforementioned@heroin_research on Twitter. Dr. Janda believes that addiction is perceived to be a moral failing (of the individual or society as a whole) where it should be seen as a brain disease. Dr. Nora Volkow, Director of NIDA, believes in "treating addiction like a disease that needs to be managed, such as diabetes or high blood pressure, with a multiplicity of treatment options would help addicts find a treatment that works well for them over the long haul." That stigma certainly doesn't help fundraising. See also: Opioids Are the Opiates of the Masses   I'm an ALL OF THE ABOVE kind of person. For any complex multi-dimensional issue, there is no single solution. We need Medication Assisted Treatment. And greater access to substance abuse and mental illness treatment facilitated by the series of bills recently signed into law ("What will $180 Million Buy Us?"). And the use of PDMPs to identify prescription drug abuse/misuse. And the trending yet controversial "safe spaces" for heroin users to be guaranteed clean needles and clinical oversight (and, hopefully at some point, a recognition for the need to change). And any number of other initiatives around the country focused to combat the dual epidemics of painkiller and heroin abuse. At this point, I'm a believer that this is not "too good to be true." But it might not ever be one of the solutions available without other evangelists and dollars to fund the research to validate whether this really works on people. Are you willing to be an evangelist? Do you know somebody who would be willing to be an evangelist? Do you have access to research dollars? If the answer to any of those questions is "yes", let me know. Or contact Caron (@heroin_research). Or contact Christopher Lee (clee@scripps.edu) at TSRI. It would be yet another tragedy for this vaccine to hit a dead-end because of funding. If it truly does work, this should be one of the biggest no-brainers in our lifetime.

Today, dog lovers all over this great nation walk their dogs through neighborhood streets, and after the dogs “do their business” or “deposit a love biscuit,” the dutiful owner takes a moment to pick up the waste and carry it home. The telltale swinging plastic bag of poop is a sign the responsible dog caregiver is keeping their neighborhood clean. After all, only in America can placing a naturally degradable substance inside a plastic bag where it will last 10,000 years in a landfill be considered ecologically responsible. But all of that difficult work is about to end, thanks to a ridiculous bit of technology --  and signals the sort of confusing adjustment that workers' comp will have to make as the definition of work and work sites changes. Imagine, not so far in the future, the dog owner does not pick up his pooch's steaming pile of love. Rather, they grab their cell phone (which they were probably holding because they’ve been on Facebook for most of the walk), snap a picture of the pile, tag its location with an app and simply walk away. Somewhere, an “Uber style driver” is notified that fresh feces is afoot. They race to the geographically tagged location and, quick as a flash, scoop up Fido’s poop. They will have the onerous and odoriferous task of keeping your neighborhood safe from unwanted piles of poop. One and done — and you are good to go. I suppose the picture is useful for identification purposes. You wouldn’t want to scoop the wrong poop, after all. You read that right. There will soon be an app that will allow you to summon someone else to clean up after your dog. See also: Five Workers’ Compensation Myths Beyond being the ultimate sign of a lazy and slothful society teetering on the brink of self-destruction, this idea actually just stinks. Imagine, if you will, the physical machinations of the concept. You are standing in your neighbor’s yard, taking a picture of dog shit. As your neighbor stands in their living room window, drinking their morning coffee, what could they possibly be thinking? You might just be arranging for a pick up, but, in their mind, you’ve now been labeled an irresponsible pervert who commemorated the officious occasion of your dog dumping in their yard. Maybe Fido should get a ribbon for his effort. While the developers of the “Pooper App” claim it is an “Uber-like service,” it seems to lack an actual verification factor. How do we know the poop was actually purloined? I mean, with Uber, we know whether the guy showed up or not. With the pooper app, you may be able to see the pooper scooper drove by, but you’ll have no idea if they actually scooped the poop. Maybe they have to take a selfie with the poop as proof. It is certainly going to be an interesting morning in your neighbor’s yard. And who would actually want this job? I know that services already exist that clean out yards and such on a scheduled basis, but who will want to troll an area waiting for an app to notify them that there is poop afoot? The developers tell us pet owners of all types will take this job because they love animals so much that scooping their poop is a pleasure. I would conjecture that if people loved bagging poop so much, we wouldn’t need the pooper app to begin with. No, these scoopers must be experiencing a serious call of doody. That is the only explanation. From a workers’ compensation perspective, I suppose these Uber scoopers will have the same challenges now being faced by other participants in the sharing economy. Who will cover them? What if they are hurt on the job; say shot for trespassing on your neighbor’s lawn? And if they are covered under workers’ comp, what class code would we possibly assign them? See also: How Should Workers’ Compensation Evolve?   Technology continues to challenge our industry. At least we can be comforted by the fact that it is challenging our common sense, as well. This article first appeared on WorkersCompensation.com.

The 1926 Model A is a far cry from the self-driving Tesla we see on the road today. The automotive industry has progressed light years since Henry Ford first paved the way for automobiles. From refrigerators to cars, technology is moving at warp speed. There’s just one industry that hasn’t quite kept up with the Joneses: the insurance industry. For over one hundred years, the $1 trillion industry has stayed pretty constant — consumers purchase a policy from an agent, pay their premiums and really don’t think twice about it. These four startups from Silicon Valley, New York City, etc. are about to turn the insurance world upside down. And, if you ask us, it’s about time. Mojio— Some may remember Mojio as a “connected car” hard- and software company, but the brand recently went through a major overhaul.  With a seasoned startup CEO on their hands, Mojio looked at industry trends and discovered a major hole and an opportunity for change. They plan to roll out their new business model in North America sometime this fall, in conjunction with the revamped AutoMobility LA, the first smart car technology trade show of its kind.  With their new model, Mojio hopes to create an automotive ecosystem where the automotive industry, insurance industry and telecom services thrive together. While staying mum about their North American partnerships, Kyle MacDonald, head of marketing had this to say:

“This open approach enables the owner of the car to become the owner of his or her data. Novel? Yes, but we believe this is simply the logical evolution of car ownership. As software continues to eat the world, startups like Mojio are poised to take a big bite out of the connected car market.”

Needless to say, your connected car is about to get a whole lot better. Mojio has been experimenting with their new model oversees with wild success. In an article posted on the Mojio blog, CEO Kyle Hawk said, “Deutsche Telekom and ZTE are turning to partners like Mojio to provide the platform for global, scalable connected car offerings, signaling an exciting time for not only the automotive and mobile industries, but ultimately for end users who’ll soon be able to enjoy a new era of car ownership and driving experiences.” See also: InsurTech: Golden Opportunity to Innovate   CoverHound— CoverHound is built for one-stop shoppers. With the wild success of things like Amazon's 1-click ordering, consumers are used to comparing and purchasing things in one place. Why not apply this philosophy to the insurance world? The brilliant minds behind CoverHound are doing just that. With $33.3 million in their series C round seed funding, this San Francisco startup is everything you would imagine. With urban chic offices and a mass of young professionals with immense potential, this start up is poised to rocket to even more success. They’ve already clobbered over similar sites like the now-defunct Leaky, and they’ve just secured a new round of investors. With this, they plan to take on business insurance coverage for small startups. CoverHound board member James D. Robinson III said, “The industry is ripe for change, CoverHound paves the way into the next generation of insurance.” They’re not just relying on a great user experience website; CoverHound allows potential customers to tweet at them for quotes, capitalizing on high traffic social media. With these innovative business practices, CoverHound will be the new way to get insurance as technology continues to push on. Trov— Insurance isn’t just about cars.; what about your house and all your belongings? There is nothing worse than coming home to a ransacked home and discovering that all your valuables have been stolen. Panic sets in. Did I pay my premiums this month? Will my renter’s insurance cover the cost of my bike? Do I even have proof of all my valuables? Trov solves all of these in one glorious mobile app. The brilliant minds behind Trov thought pretty critically about the behaviors of millennials before designing the platform Trov is built on. Insurance companies of the past have two fatal errors. The first is they don’t account for the fact that today’s consumer is far from stagnant and that moving every two years is commonplace. Home insurance policies for 30-plus years just aren’t happening anymore. The second, and perhaps the more frustrating, is claims. Insurance giants intentionally make the claims process difficult to discourage you from filing them. Trov solves it all with its cloud-based insurance app that — with a few swipes, photos and texts — you can catalog, insure and file a claim right from your phone. It’s a dream come true when it comes to insuring your valuables without the hassle. Right now, Trov is only available in Australia, but this Bay Area-based company plans to launch in the U.S. by 2017. Lemonade— For a company that has yet to launch after receiving one of the highest amounts in first-round seed funding, Lemonade is getting a lot of press. Claims like, “We aim to be the Facebook of insurance” are pretty bold, but we would be lying if we said we weren’t intrigued. Lemonade is a peer-to-peer insurance company. To put it simply, a group of small policyholders pay their premiums into a pool to pay claims. If there is still money left in the pool at the end of the period, the group gets money back. The company is backed by notable investors Sequoia and Aleph Capital and has brought on AIG and ACE veterans execs. A simple search of “Lemonade insurance” and you’ll find article after article of its “plans” to launch. As the end of 2016 creeps closer and closer, we can’t help but wonder what’s going on behind the hot pink doors. With a concept that’s yet to be tested in the American market, Lemonade has potential — but, then again, good press doesn’t last forever. See also: The Start-Ups That Are Innovating in Life Fast forward to 2017, and this list could be entirely different. That’s the beauty of startups: they’re constantly pushing boundaries. All of it is good news for the customer, who desires a better experience when it comes to their insurance policies. Giants such as State Farm and Progressive will have to rely on more than just clever marketing spokespeople to keep up with the tech trends. These four startups are already causing some mayhem of their own in the industry. With a piece of a $1 trillion pie at stake, it’s surprising it has taken this long for the shakeup. This article first appeared on obrella.com.