We didn't intend to write a series on the symposium that Insurance Thought Leadership hosted at Google last week for C-suite executives of major companies and for regulators, but I want to build on the wonderful post yesterday by Iowa Insurance Commissioner Nick Gerhart, about the insights he picked up there. For me, the symposium underscored a crucial point about the pace of innovation -- how it can be faster than we expect at times but can also be slower. And it's crucial to get the timing right. The faster-than-expected part comes from a partner at one of the major Silicon Valley venture capital firms, which we visited as part of the symposium. All these firms track where entrepreneurs are seeing possibilities and where investments are happening, and the partner said that in all of 2014 the firm had been visited by exactly zero people hoping to innovate in insurance. Yet, just in the fourth quarter of 2015, the firm met with 60 companies looking to innovate in insurance. Even as innovation has surged in fintech, in general, investment in insurtech start-ups has been minimal, about 1% of the total for fintech. But that may now be changing. Start-ups may accelerate the disruption in insurance. You've been warned. The slower-than-expected (at least for me) part comes from a consensus about driverless cars at the symposium. The group discussions at all five tables reached almost identical conclusions: that fully driverless cars will be feasible technologically in roughly four years but that it will be 10 before they are a major presence on the road. In Silicon Valley-speak, saying something is 10 years out means it verges on science fiction. After all, 10 years at a pace set by Moore's Law means that you have some 30 times as much computing power available to you at no increase in cost -- if you need that much more power to make something happen, it's hard to know for sure that it works 10 years ahead of time. But the concerns of the insurance C-suiters and the regulators were more prosaic. They felt that anyone who might be left behind because of driverless technology would kick up a fuss and that state governments, likely led by the legislatures, could intervene on behalf of constituents to slow the transition. Perhaps insurance agents would fear the shift of auto insurance from a personal responsibility to a corporate one, shouldered by the manufacturers of the driverless cars or by operators of fleets of the cars -- if no person is involved in driving, how can an agent sell personal lines insurance? Maybe car dealers, already fighting a rear guard action to prevent direct sales by manufacturers to consumers, would fear further loss of their intermediary role -- why would a fleet operator need a dealer to purchase of tens of thousands of cars? Basically, think of anyone who might lose business because of driverless cars and the promised reduction in accidents -- parking garages, emergency rooms, whatever -- and you can see an obstacle. Not everyone will be explicit about their complaints. It's hard for an operator of prisons or funeral homes to demand more business. But our discussion groups were sure that opposition would surface in lots of ways and that politicians, always running for reelection, would lend support. In fact, some technical concerns about driverless cars have surfaced in recent months. It turns out that Google cars have more accidents than human drivers do, albeit only minor accidents thus far and, most importantly, not because of any fault by Google -- careless people seem to bump into Google cars a lot at stoplights. Google also acknowledges that the cars would have caused at least some accidents if not for intervention by the highly trained humans sitting in the driver's seat. So, the technology still has a ways to go. The pace of technical progress has still been faster than I expected when Chunka Mui and I published Driverless Cars: Trillions Are Up for Grabs nearly three years ago, and we staked out what was then a very aggressive position. The federal government recently stepped on the gas, if you will, by announcing a plan to spend $4 billion on driverless technology over the next decade and to reduce regulatory hurdles for adoption. The rationale -- which we have long predicted the government would have to adopt -- is that 25,000 lives could have been saved last year on U.S. highways if a mature form of the technology had been in use. For me, then, the fundamental question from our symposium is: How do you position yourself for a technology that may be wildly important, yet whose timing is uncertain? Two thoughts: --A line that carries considerable currency in Silicon Valley is: "Never confuse a clear view with a short distance." Even if you're sure that something will happen as part of the transition to autonomous vehicles, keep in mind the issue of timing. --Then think big, start small and learn fast -- a dictum that just happens to come from another book Chunka and I wrote, The New Killer Apps: How Large Companies Can Out-Innovate Start-Ups. That means you get in the game now, with as big a vision as you can conjure up for yourself or your company. Then you start experimenting to see what works and what doesn't -- while spending extremely little money. You make sure you can kill the experiments as soon as you gather the needed information -- no pilot projects allowed, at least not in the early days, and certainly no grand plans to go to market. And you keep iterating until both you and the market are ready. Then you start cashing checks. Actually, one more thought: Consider coming to the Global Insurance Symposium that Nick and the fine folks in Des Moines (my dad's hometown) are putting on in late April. Nick is as forward-thinking a regulator as I've met, and there will be lots of people there who can help you on your journey, whether that involves driverless cars or something else entirely. I'll be there....

We didn't intend to write a series on the symposium that Insurance Thought Leadership hosted at Google last week for C-suite executives of major companies and for regulators, but I want to build on the wonderful post yesterday by Iowa Insurance Commissioner Nick Gerhart, about the insights he picked up there. For me, the symposium underscored a crucial point about the pace of innovation -- how it can be faster than we expect at times but can also be slower.

And it's crucial to get the timing right.

The faster-than-expected part comes from a partner at one of the major Silicon Valley venture capital firms, which we visited as part of the symposium. All these firms track where entrepreneurs are seeing possibilities and where investments are happening, and the partner said that in all of 2014 the firm had been visited by exactly zero people hoping to innovate in insurance. Yet, just in the fourth quarter of 2015, the firm met with 60 companies looking to innovate in insurance.

Even as innovation has surged in fintech, in general, investment in insurtech start-ups has been minimal, about 1% of the total for fintech. But that may now be changing. Start-ups may accelerate the disruption in insurance.

You've been warned.

The slower-than-expected (at least for me) part comes from a consensus about driverless cars at the symposium. The group discussions at all five tables reached almost identical conclusions: that fully driverless cars will be feasible technologically in roughly four years but that it will be 10 before they are a major presence on the road.

In Silicon Valley-speak, saying something is 10 years out means it verges on science fiction. After all, 10 years at a pace set by Moore's Law means that you have some 30 times as much computing power available to you at no increase in cost -- if you need that much more power to make something happen, it's hard to know for sure that it works 10 years ahead of time.

But the concerns of the insurance C-suiters and the regulators were more prosaic. They felt that anyone who might be left behind because of driverless technology would kick up a fuss and that state governments, likely led by the legislatures, could intervene on behalf of constituents to slow the transition.

Perhaps insurance agents would fear the shift of auto insurance from a personal responsibility to a corporate one, shouldered by the manufacturers of the driverless cars or by operators of fleets of the cars -- if no person is involved in driving, how can an agent sell personal lines insurance?

Maybe car dealers, already fighting a rear guard action to prevent direct sales by manufacturers to consumers, would fear further loss of their intermediary role -- why would a fleet operator need a dealer to purchase of tens of thousands of cars?

Basically, think of anyone who might lose business because of driverless cars and the promised reduction in accidents -- parking garages, emergency rooms, whatever -- and you can see an obstacle. Not everyone will be explicit about their complaints. It's hard for an operator of prisons or funeral homes to demand more business. But our discussion groups were sure that opposition would surface in lots of ways and that politicians, always running for reelection, would lend support.

In fact, some technical concerns about driverless cars have surfaced in recent months. It turns out that Google cars have more accidents than human drivers do, albeit only minor accidents thus far and, most importantly, not because of any fault by Google -- careless people seem to bump into Google cars a lot at stoplights. Google also acknowledges that the cars would have caused at least some accidents if not for intervention by the highly trained humans sitting in the driver's seat. So, the technology still has a ways to go.

The pace of technical progress has still been faster than I expected when Chunka Mui and I published Driverless Cars: Trillions Are Up for Grabs nearly three years ago, and we staked out what was then a very aggressive position. The federal government recently stepped on the gas, if you will, by announcing a plan to spend $4 billion on driverless technology over the next decade and to reduce regulatory hurdles for adoption. The rationale -- which we have long predicted the government would have to adopt -- is that 25,000 lives could have been saved last year on U.S. highways if a mature form of the technology had been in use.

For me, then, the fundamental question from our symposium is: How do you position yourself for a technology that may be wildly important, yet whose timing is uncertain?

Two thoughts:

--A line that carries considerable currency in Silicon Valley is: "Never confuse a clear view with a short distance." Even if you're sure that something will happen as part of the transition to autonomous vehicles, keep in mind the issue of timing.

--Then think big, start small and learn fast -- a dictum that just happens to come from another book Chunka and I wrote, The New Killer Apps: How Large Companies Can Out-Innovate Start-Ups. That means you get in the game now, with as big a vision as you can conjure up for yourself or your company. Then you start experimenting to see what works and what doesn't -- while spending extremely little money. You make sure you can kill the experiments as soon as you gather the needed information -- no pilot projects allowed, at least not in the early days, and certainly no grand plans to go to market. And you keep iterating until both you and the market are ready. Then you start cashing checks.

Actually, one more thought: Consider coming to the Global Insurance Symposium that Nick and the fine folks in Des Moines (my dad's hometown) are putting on in late April. Nick is as forward-thinking a regulator as I've met, and there will be lots of people there who can help you on your journey, whether that involves driverless cars or something else entirely. I'll be there....

As a regulator, I am often told I thwart innovation. To the contrary, I am very open-minded and excited by many of the innovative ideas I see and read about. Recently, I participated in an event at the Google campus with insurance experts from around the globe for a day of collaboration and learning. It was an experience I will not soon forget. We spent the day discussing Google Compare, Waze and autonomous vehicles. Ideas were freely shared, discussed and challenged. What most impressed me was the great excitement the group showed about insurance evolving with new technologies. Oftentimes, the regulators in the room were asked our opinions on these technologies and the inherent regulatory issues. The regulators did a nice job articulating our need to protect insurance consumers and to adequately supervise carriers to ensure financial soundness and legal compliance, while allowing for innovations that work within our regulatory system. It was a robust discussion, and I learned a number of key things about Google and its view of innovation and, in particular, insurance innovation.

• Google works to fix problems. The Google employees were clearly driven to fix problems, and that desire took precedence over job titles. This was refreshing to witness first-hand.
• Google thinks big picture. With a number of insurance regulators and insurance company executives in the room, it was eye-opening to hear a Google employee discuss statistics or numbers when solving problems only to admit the statistics or numbers were not precise. The Google employee considered best estimates that were “probably close enough” to a true statistic or number to be good enough to keep the ball rolling. Insurance company executives generally would only rely on exact figures to prove a business point, which requires actuaries to pound through data for weeks to get the correct number. Unfortunately, during the lengthy look at the data, innovation likely sits idle.  Google’s ability to not think in a vacuum or silo appears to be critical to moving innovation and ideas forward without being totally entrenched in analysis paralysis.
• Google focuses on the customer. Repeatedly, Google employees drilled home how they view their relationships with their customers and their desires to constantly improve the lives of those customers.
• Google wants to work with insurance regulators and policy makers. Google understands, respects and embraces the important role regulators play in protecting consumers. The fact that invited me to participate demonstrates this commitment.
• Google is incredibly mission-focused. All the people I met from Google discussed the mission they had for their particular projects over everything else. Whether the missions were saving lives, improving buying experiences or lessening traffic and use of fossil fuels, these employees know the mission of the projects they are working on and how they relate back to the overall mission of Google.
• Google could be a powerful force in the insurance space. Google has smart people who understand customers and the demands of the customers. Combining this with a desire to improve customers’ experiences and the immense technological and mobile resources Google possesses likely makes it a strong source of innovation in insurance.
• Google employees are powerful brand ambassadors. How employees act says more about an organization than any activities the employer does. Every Google employee I met was a true Google ambassador. From the individual who welcomed us, to the person who showed us around, to the staff in the cafeteria, to the executives. Google’s employees understand Google’s mission and, more importantly, have bought into the vision.

I have spent a lot of time working with innovative ideas and new companies. These experiences assist me in my role as commissioner in fulfilling the mission of the Iowa Insurance Division. As a leading insurance state, we focus on insurance innovation, and I’m excited to invite you to register for the third annual Global Insurance Symposium in Des Moines on April 26-28, 2016. During this symposium, renowned industry keynote and panel speakers will engage in dialogue on regulatory trends and issues that are affecting the industry, as well as focus on innovations in insurance across the globe. Don’t miss your chance to participate, ask questions and learn from some of the brightest minds from around the world. Visit www.globalinsurancesymposium.com for more information.    

After more than 20 years in the insurance industry, working on three continents in various product lines and capacities, I have seen many changes occur alongside a notable constant: Insurance consumers want to pay less, and insurance company returns don’t satisfy shareholders. Therein lies the rub. The conventional way to increase returns has been for insurers to increase premiums (based on what is presumed to be a fixed risk level), but that approach is contrary to the client’s desire. Yes, insurers also look to improve operational efficiency and claims handling, but those efforts are yielding diminishing returns. Why not take a different tack and really focus our efforts on reducing the cost of risk? We’d then diminish the tension between insurers and their clients. Client premiums would drop, and insurers' profitability would rise. Like many, I believe that insurance is on the cusp of dramatic change. Insurers that thrive will put risk reduction at the forefront of their value proposition. That risk reduction will translate into lower premiums for diminished risk. Clients, and society at large, will be the ultimate winners. The increasing availability and variety of data, more sophisticated tools to extract insights from that data and technology to cost-effectively support risk reduction will fuel this evolution. Insurers will need to rebalance their resource deployment away from the evaluation of risk for the purpose of assuming liability (underwriting) to the evaluation of risk for the purpose of reducing risk (risk consulting). Clients will come to expect insurers to provide advice on actions they can realistically employ AND the savings they will be guaranteed if they take those actions. Whether change displaces current insurers or they evolve remains to be seen. Some insurance executives see a future of insurance that delivers a different value proposition to clients. We see a value proposition that primarily focuses on reducing the cost of risk. Insurers will increasingly supplement expertise with data, analysis and technology focused on reducing the cost of risk. They see a future where the industry unlocks the insights in insurers’ own data, integrates external sources as they become available and closes information gaps that exist. They see a future where clients are empowered with clear, objective risk measures that allow them to control their risk level … and their premiums. In this future, insurers become tech companies where the insurance policy covers the limited remaining risks and in essence serves as a warranty of the risk services provided. My discussions leave me optimistic that there are like-minded executives who see a different value proposition for insurers. But most I have spoken with draw the conclusion that neither their company nor any they know has the critical mass of support necessary to drive change. To adapt and stay viable, insurance companies need to think about how evolutions in technology and data science can benefit clients and reshape business models. My goal is to encourage that debate. I’ll be introducing a topic and perspective every other week that will focus generally on evolutions in the industry and the power of technology to transform the way risk is quantified, along with associated pitfalls. Each piece will conclude with a polling question and, depending on the volume of response, these results will be published. Coming topics will include: New Data and New Tools: When we think of data, most think of text and numbers that has been organized. By expanding our thinking, we can add satellite imagery, sensor-derived data, the Internet of Things (IoT), traffic cameras, customer service phone call recordings, pictures and many other potentially valuable sources. Imagine being able to analyze traffic light cameras to understand real-time risk at intersections. Imagine crowdsourcing the analysis of satellite and aircraft imagery to identify properties affected by natural disasters. Imagine being able to review a snapshot of a damaged automobile and adjust many claims without human intervention. Research, and in some case practical applications, exist in these and many other areas. We need to identify the information we need to know to understand risk and then either find the data that will help us or create our own. How do we ensure that the insurance industry is at the forefront of collecting, generating, integrating and analyzing all forms of data to drive deeper insights? Data, Data Everywhere but Not a Drop for (Clients) to Drink: Every insurance company collects and generates a tremendous amount of data. Some of that data is structured; a much larger volume is memorialized in pdf files, pictures and customer service call recordings. While potentially useful for clients, the data is rarely made available at all and even more rarely in a format that provides insights. Insurers are investing in using that information to drive better claims outcomes, better risk segmentation and better internal processes. Clients expect to benefit from insurers’ resources but generally don’t get the insight they need to effect change. What would it mean if we insurers transformed our business model so that data-driven insights and risk mitigation strategies replace risk transfer as the core of value proposition? Risk Mitigation Strategies and New Technologies: Imagine being able to identify the moment a risky behavior is occurring and having the ability to automatically intervene or alert the appropriate person. In some realms, that possibility already exists. Applications exist to alert drivers to their own risky behavior. Active technology exists to automatically apply the brakes to prevent collisions. Yet even where appropriate data exists, insurers are hesitant to make definitive recommendations based on specific technologies. Insurers are unique in that they price risk and ensure the realization of financial benefits from investments in risk reduction. Should we as an industry more actively become creators or advocates of risk technology? Can we have enough faith in our recommendations to integrate benefits immediately in prices? Does the traditional insurance policy become a form of warranty that our risk advisory services are effective? Transparent Risk Indices: We are about to enter an information age where it is possible to quantify risk objectively in real-time. Creating risk indices, making them transparent and using them as the basis for establishing price would give clients confidence in the objectivity of the process and confidence that if they invest in changing those indices they will immediately get the benefit. The indices will also give non-insurance risk capital providers the opportunity to deploy capital against and trade risks that previously lacked the transparency. What can we learn from other financial services that have developed transparent risk indices that allowed capital to be deployed against those risks from a wider variety of sources?

In an "Out Front Ideas with Kimberly and Mark" webinar broadcast on Jan. 12, 2016, we discussed our thoughts around the issues that the workers’ compensation industry should have on its radar for 2016. What follows is a summary of 20 issues that we expect to affect our industry this year.

1. Election Cycle

Everyone knows that this is a presidential election year. But election time also means governor and insurance commissioner seats are available. State insurance commissioners are elected in 11 states and appointed in the other 39. In the coming election, there are 12 gubernatorial seats and five insurance commissioner positions to be decided. The workers’ compensation industry needs to be paying attention to these elections because the insurance commissioners can have significant influence over procedures, policies and enforcement in their states.

2. Viability of Workers’ Compensation

It is important for all of us to consider the continuing viability of workers’ compensation. Is the grand bargain still doing what it was established to do? There is a growing debate around the gaps and shortcomings of workers’ compensation. Our industry needs to engage in a critical analysis of these issues.

3. Federalization

In October 2015, 10 high-ranking Democrats on key Senate and House committees sent a letter to the Department of Labor asking it to conduct a critical review of state workers’ compensation systems. Some are concerned that this is a sign we could see federal government involvement in state workers’ compensation systems. In some ways, the federal government is already involved in workers’ compensation. For instance, OSHA has a tremendous impact on workers’ compensation. Medicare Secondary Payer Compliance is another example of federal law affecting the system. Recent criticisms of workers’ compensation have focused on the vast benefit differences between states. There is also growing concern that workers who are permanently disabled are pushed off workers’ compensation and onto Social Security disability. With Social Security raising solvency concern, lawmakers will be receptive to discussions on how to keep workers’ compensation from shifting long-term claims to the federal government. This is a substantial issue to watch in the coming years, and there is a significant chance that the federal government will suggest minimum benefit recommendations to the states at some point. This could especially affect states that have hard caps on the total amount of indemnity benefits that an injured worker can receive.

4. Affordable Care Act

The Affordable Care Act (ACA) will continue to be a subject of discussion in 2016. The implementation date of the high-cost, employer-sponsored health plans tax, dubbed the “Cadillac tax,” was recently delayed from 2018 to 2020. It imposes an excise tax of 40% on health plans whose value is more than $10,200 for individual coverage and $27,500 for a family. Regardless of the delay, employer-sponsored benefit plans have evolved over the past five years in preparation to avoid the additional tax. The formerly rich benefit plans were dropped in an effort to provide benefit plans within ACA’s requirements and often replaced by higher-deducible plans with reduced benefits. NCCI and WCRI have both conducted studies on how the ACA has affected workers’ compensation. Results have not conclusively tied treatment delays or actual cost shifting to workers’ compensation. We believe continuing studies by these organizations and others are important to evaluate the impact of ACA on workers’ compensation. Other issues that should be monitored include consolidation of health systems, providers and insurers. In 2015, there was more than $700 billion of consolidation in the healthcare marketplace. This is driven, in part, by the ACA, because scale and size assist providers with efficiency, purchasing power and the need to provide a continuum of care. Another issue where the ACA could affect workers’ compensation is changing reimbursement models. Medicare is looking to shift into a value-based reimbursement model, and many state fee schedules are based on Medicare rates. Although not specifically related to ACA, a healthcare topic to keep an eye on is drug pricing. Drug pricing will continue to be a topic within the media, PBMs, employer benefit managers, health plan experts and the political arena. Prescription drug pricing increased more than 10% in 2015, and this trend is expected to continue. This has an impact on the cost of workers’ compensation claims.

5. Holes in Workers’ Compensation

What many people do not realize is that workers’ compensation protections are not available to all workers within the U.S. In 14 states, smaller employers with five employees or fewer do not have to secure coverage. In 17 states, there is no legal requirement for coverage of agricultural workers. Half of the states do not require coverage for domestic workers, and five states specifically exclude coverage for these employees. There are also states that create exceptions for certain types of workers, such as state employees in Alabama. Finally, we have seen from court cases around the country that occupational diseases that take several years to develop are often barred by the statute of limitations, leaving workers with no recourse for benefits. These holes are yet one more thing that critics point to when talking about the inadequacy of workers’ compensation. The occupational disease issue is particularly concerning because it is very easy to question the fairness of barring a claim under the statute of limitations and, at the same time, denying the injured worker the ability to pursue a claim in civil court under the exclusive remedy protections of workers’ compensation. This is another area where we will not be surprised to see the federal government give recommendations.

6. Blurred Lines Between Workers’ Compensation and Group Health

The employee health model is evolving. Employers are finding the need to provide a consistent healthcare experience for their workforce and plan members. Employers would like to find a model that provides both quality care and consistency for their employees, regardless of whether the need for treatment arises from a work injury or at home. Because a healthy workforce is a productive workforce, employers also feel that there is a need to tie health and productivity together. We will continue to see health systems build accountable care organizations (ACO) and enter the health plan, insurance and risk-bearing arena with the goal of directly selling to and partnering with employers. ACOs are an attractive model for employers supporting a healthier workforce by extending the culture of health philosophy from work to the home for their employees and their families. Mental health is a top driver for absence across employers and not simply a health cost concern. Mental healthcare should be as important as physical healthcare and is currently a focus of population health and employer programs. Employers are looking for healthcare models, which consider the person as a whole and offer consistent, engaging behavioral health and wellbeing programs for the workforce. Workers’ compensation key stakeholders should be a part of the evolving health model discussions and early stage planning so as not to be left in the dark as health models change.

7. Options to Workers’ Compensation

We all know that Texas has a unique system that allows employers to completely opt out of workers’ compensation benefits. The term “opt-out” refers only to the Texas system. Employers in Oklahoma have an option to workers’ compensation that allows them to develop a private benefit plan that replaces state-mandated workers’ compensation. It is this concept of an option that is looking to spread to other states. Bills on this issue will be reintroduced in Tennessee and South Carolina this year, and other states have begun preliminary discussions. Some employers feel that they can provide better benefits to their injured workers at a lower cost with these option programs. Others are concerned that these programs lack the controls and oversight of state workers’ compensation. One thing is certain: This issue is not going away any time soon. Perhaps these discussions around options to workers’ compensation can lead to discussions about workers’ compensation reform, including employer medical control, increasing thresholds of compensability and reducing the bureaucracy of the workers’ comp system.

8. Evolving Claims Model

There are significant discussions around the evolving claims model. The industry realizes that we need to focus more on the injured worker as a consumer. The model needs to focus more on advocacy, but what does this really mean? Should there be a person who assists the injured worker in understanding the claims process, or is there a need to change the culture of our industry to be less adversarial? Other parts of the evolving model involve who actually touches the claim. Are there elements that could be automated? Should there be more specialization with different individuals performing different tasks instead of the current model where the claims adjuster is a generalist performing multiple tasks across multiple jurisdictions? The claim handling model also needs to adapt to new technology and the way in which different generations want communication. Some injured workers prefer text instead of e-mail or phone calls. Some like to access claims information in an app on their mobile device or simply, 24/7, as they want it that moment. The model must evolve to take full advantage of new technology and communication methods. The March 15 “Out Front Ideas with Kimberly and Mark” webinar will focus on the evolving claims model and include guests who are passionate about an advocacy-based design.

9. Florida Supreme Court

Over the last two years, four cases challenging the constitutionality of various aspects of the Florida workers’ compensation statutes have made it to the state’s Supreme Court. The first of those cases, Padgett, ended in late December when the Supreme Court declined to review it. That case had been thrown out on procedural grounds during the appeal process, so the Court of Appeals and Supreme Court never addressed the underlying constitutional challenge. There are three cases still to be decided:

• Westphal, which deals with caps on temporary disability benefits.
• Castellanos, which addresses limitations on attorney fees.
• Stahl, which focuses on post MMI medical co-payments and the elimination of permanent partial disability payments.

The expectation is that the Florida Supreme Court will address all of these cases in 2016, but nobody knows when that will occur.

10. Bureaucracy

Workers’ compensation is one of the most highly regulated lines of insurance, and regulators are increasingly aggressive in pursuing fines and penalties. Every form filed and every payment transaction is an opportunity for a penalty. EDI allows regulators to automate the fines and penalties. Some states perform retrospective audits on activity five to 10 years in the past. The IMR process in California adds administrative cost to claims without necessarily improving outcomes, and states with self-imposed penalties may be driving up the cost of doing business beyond the benefit of the penalty payment. Lobbying is becoming an increasingly important area for payers and service providers to consider. The significant costs associated with the bureaucracy of workers’ compensation regulations are not improving the outcomes on claims. Most of the money collected from the fines and penalties is paid to the states. The programs may cover the operating costs of state workers’ compensation division and not be paid to the injured worker or medical provider. This topic is an important issue to watch in 2016 and will be the topic of our Feb. 9 “Out Front Ideas with Kimberly and Mark” webinar.

11. Regulatory Change

There are four states in particular that we should be keeping an eye on in terms of potential regulatory reforms in 2016: New York Employers in New York are continuing to push for additional workers’ compensation reforms to reduce their costs because the savings projected with the last round of reforms never fully materialized. Whether there is enough momentum to get a bill through this year remains to be seen, but the efforts are there. Florida In Florida, the situation is going to depend on what the state Supreme Court does with the cases mentioned earlier. If any of those cases punch holes in the constitutionality of the workers’ compensation law, then the legislature is going to need to address this. Again, this is a waiting game. Illinois Illinois Gov. Rauner has made it a priority to enact workers’ compensation reforms to reduce employer costs. But his efforts have been blocked by the state legislature, and there is a budget stalemate in the state. There has been much political back-and-forth on this budget and the workers’ compensation reforms. It remains to be seen if the governor has the political muscle to get his legislation passed. California Ever since the Schwarzenegger workers’ compensation reforms in 2004, and continuing with SB 863 passed by Gov. Brown, the California legislature has been trying to undermine these workers’ compensation reforms. Every year, multiple bills are passed by the legislature, and every year both Gov. Schwarzenegger and Gov. Brown have vetoed those bills. Gov. Brown is committed to preserving his workers’ compensation reforms, and there are three years left on his term. Once he is gone, there is concern about what could happen with workers’ compensation in California. But, for now, significant change is not expected.

12. Talent Acquisition

Talent acquisition and retention is probably the biggest issue facing the entire insurance industry. Consider:

• 25% of insurance industry workforce will retire by 2018 (McKinsey)
• There are 2.3 million workers in the insurance industry. More than 1 million will retire in the next 10 years, and 400,000 positions will be left open by 2020 (Deloitte and Jackson Group)
• Workers over the age of 45 represent 48% of the insurance workforce

Are we doing enough with colleges to show the career opportunities in the insurance industry? Although more colleges and universities are offering risk management programs, the reality is that there are very few of these programs nationwide. Our industry needs to support these programs with both grants and internship opportunities. In workers’ compensation, we need to be looking at the role of the examiner. Are there tasks that we could automate and reduce workload need? Millennials say they want to work with purpose. The role of the claims adjuster is to assist injured workers in their recovery. Could we be doing more to highlight the positive aspects of the claims adjuster role to make it more attractive to millennials? We also need to be looking at ways to be flexible with work schedules and at whether someone is tied to the home office or able to work from a remote location. Finally, we need to continue to focus on promoting diversity and inclusion within our workforce. In May, we will be doing an “Out Front Ideas with Kimberly and Mark” webinar devoted to this topic.

13. Market Conditions

You cannot forecast the coming year for the workers’ compensation industry without talking about rates. Recently, for the first time in years, the Fed increased interest rates. This is good news, but the change is still insignificant and will not have a material impact on the workers’ comp industry. Because investment opportunities are limited for carriers, they continue to be very diligent with their underwriting. What does this mean for rates? Right now, the market is relatively stable. Accounts with good loss histories could see steady to slightly decreased rates, while accounts with poor loss histories will likely see slight increases. Overall, significant rate changes across the nation are not expected in the coming year.

14. Predictive Analytics

Predictive analytics have been a buzz word in our industry for a number of years. Most data models identify at-risk claims, which may benefit from additional intervention in terms of nurse case management or a more skilled adjuster. The goal of the intervention(s) is to change the trajectory of the claim, to do something different than in similar prior claims, so the result is improved over the past experience. Although most payers reflect having predictive analytics and a variety of models available, there are limited published results on the outcome and effectiveness. Watch in 2016 to see if organizations begin sharing outcomes as a way to market their business or provide industry thought leadership on what is working and should be considered to drive success. There is a need to evolve predictive analytics and big data models so that some human tasks are automated. Instead of just identifying cases where intervention is necessary, we should also identify claims where minimal intervention is needed. This approach frees resources and allows attention on claims, which will benefit from the touch. Future claims models will benefit from analytics using learning models similar to IBM Watson-type smart analytics.

15. OSHA

OSHA continues to be a challenge for employers. Going into 2016, OSHA has increased reporting and recordkeeping requirements. It is also increasing its focus on certain industries, including healthcare, and employers are seeing a significant increase in fines. This is an area that is constantly evolving. Our April 5 “Out Front Ideas with Kimberly and Mark” webinar will focus on these continuing developments and discuss the continuing issues that employers should track.

16. Utilization Review

There is industry buzz and sidebar conversations around utilization review (UR) and the current approach deployed by employers, payers and service providers. Physicians are asking more than ever how they can help streamline treatment requests, obtain decision outcomes electronically and more quickly and provide timely, appropriate care for patients. Utilization review should ensure that injured workers receive appropriate care within the right setting and for the correct duration. But what is the right UR model? Should all treatment be subject to UR or select treatment requests? Is UR a process strictly addressing the request for treatment and medical documentation submitted against guidelines of care or collaborative with adjusters, providers and the injured workers? Are denials of care driving up litigation unnecessarily? Do utilization review referral triggers change if the physician providing care is part of a high-performance network or known to be a top-performing physician? These are questions being raised by industry veterans and newcomers alike and are likely worthy of a review and further dialogue. In the consumer-driven health world where we find ourselves, there is greater interest from injured workers to understand treatment options and outcomes. If not a part of UR, is your case management or claim model providing medical treatment option education, inclusive of outcomes awareness? Transparency is becoming increasingly important to consumers.

17. Exclusive Remedy

Plaintiff attorneys are always trying to find ways around the exclusive remedy protections of workers’ compensation, and these efforts are becoming increasingly successful. In early January 2016, the District Court of Appeals in California allowed an injured worker to pursue a civil claim against a utilization review provider because the provider failed to warn him about the potential risks of medication withdrawal. More and more, judges are allowing such litigation to survive a motion to dismiss on summary judgement because of workers’ compensation exclusive remedy protections. This creates enormous costs for employers and carriers, which then must spend hundreds of thousands of dollars or more defending such lawsuits and face the risk of a jury award that could be worth millions. In addition, an employer’s liability award based on the “intentional actions” of the employer may have issues with insurance coverage. The entire industry should be paying close attention to this area of increased litigation around exclusive remedy.

18. ICD-10

The ICD-10 medical classification came along last year with a lot of hype and a significant amount of work effort to update systems and train teams. There was concern that the new diagnosis codes would result in slowed claims processes and treatment decisions. Thus far, workers’ compensation key stakeholders report little to no impact from the change. This may be because states did not mandate the use of ICD-10 for workers’ compensation and most organizations continue to accept ICD-9. Bill review receipt to pay timeframes have not lengthened, and e-billing rejections did not increase, which were two areas to watch after the ICD-10 go-live. In 2019, Medicare plans to roll out an incentive-based reimbursement model tied to patient outcomes (MACRA). The American Medical Association believes this will be a significant reimbursement change for physicians. Changes to Medicare reimbursement could impact workers’ compensation because some state fee schedules are Medicare based. History has proven Medicare does not always follow through with what it says it is going to do in terms of changing reimbursement models, but the MACRA implementation is an issue worth monitoring.

19. Marijuana

Thus far, New Mexico has been the only state allowing medical marijuana for treatment under workers’ compensation. But as the use of medical marijuana spreads, it is inevitable that we will see other states take on this issue. The answer is simple –if states put something in their statutes barring medical marijuana under workers’ compensation, then that solves the problems. Some medical marijuana states have already indicated that insurance is not responsible covering medical marijuana. State legislators and regulators can stop this before it becomes a legitimate problem. The bigger issue is employment practice concerns. Many expect the federal government to reclassify marijuana as a Schedule 2 drug, possibly by the end of this current administration. Once that happens, it will no longer be an “illegal” drug. Employers are going to need to adapt and drug test for impairment rather than just testing the presence of the drug. Standards are going to need to be developed on what constitutes “impairment” with marijuana. The science needs to catch up with the realities of this new normal when it comes to marijuana in the U.S.

20. On-Demand Economy

The on demand economy is creating new concerns about what constitutes an employee/employer relationship. Is an Uber driver an employee of Uber or an independent contractor? What about a repair person you hire through Angie’s List? While the on-demand economy is a newer dynamic, determining what constitutes independent contractor vs. an employee has been a challenge for the workers’ compensation industry for many years. In July 2015, the Department of Labor issued an interpretive memorandum indicating that the DOL feels “most workers classified as independent contractors are employees under the Fair Labor Standards Act’s broad definitions.” So perhaps the issue to watch here is not so much the on-demand economy, but instead whether we are going to see the Department of Labor push for fewer and fewer workers to be classified as independent contractors. This could have a significant impact on many industries as well as significantly changing the business model of services like Uber and Lyft.

Even some of the most successful innovators in history would tell you, “Don’t quit your day job.” George Eastman worked full-time while tinkering in his mother's kitchen on the inventions that let him found Eastman Kodak in the late 1880s. A century later, Steve Wozniak worked at Atari while developing the computer that he and Steve Jobs would turn into Apple. The fact is: No matter how great the idea, or how great a worker's skill, it's hard to mesh with an existing enterprise or any other group. The reason is explained by Nobel laureate economist Ronald Coase in his influential 1937 essay, "The Nature of the Firm." He theorized that people choose to organize themselves in companies and corporations rather than contracting their services out directly because of transaction costs. He cited: search and information costs; bargaining and decision costs; and policing and enforcement costs. "Within a firm, these market transactions are eliminated, and in place of the complicated market structure with exchange transactions is substituted the entrepreneur coordinator, who directs production," he wrote. Essentially, marketing, selling, pricing, negotiating and getting paid as a self-employed person isn’t all rainbows and unicorns – the work critical to running a business can be enormously complicated, time-consuming and costly. Thanks to technology, much has changed since 1937. Mobile connections, broadband and ubiquitous data have reduced transactional search and information costs considerably. It is much easier, faster and economical for a small business to effectively compete with larger firms. There has been a major shift in our buying behavior, too – consider how profoundly Amazon or iTunes has altered the way we discover, compare and purchase goods. Companies like Uber have used technology to reduce our search and information costs, as well as our bargaining and decision costs and policing and enforcement costs. If reducing one transactional cost shifts the economy, then reducing all three transforms it…. We are now officially unlocking the potential of the on-demand economy – one that will revolutionize the 21st century workplace and workforce. It’s so new, we haven’t decided on a name for it yet; it goes by various monikers like Uberization, the gig economy, the on-demand economy, the access economy and the peer-to-peer economy. This on-demand economy offers the exchange of goods and services between individuals instead of from business to consumer. The people providing goods and services aren’t necessarily employed by the company connecting them with the customer, either. Many are independent contractors or freelancers. Technology acts as the intermediary automating the handling of pricing and payments, vetting providers through a user-rating system and matching providers with consumers’ needs. This intermediary speedily brings together supply and demand via a platform that can be controlled by an app on any mobile device. The platform makes information available and accessible in the manner most efficient for the business, ensuring that transactions that are started are more likely to be concluded. The platform often obviates bargaining, directly polices its members, enables community-driven self-policing and enforces the terms of interaction. The costs of this coordination is added to each peer-to-peer transaction. The new economic model is a highly efficient, productive and cost-effective marketplace. Platforms like Luxe, Lyft and Uber offer transportation services; Caviar, Doordash and Munchery deliver food from local restaurants; Instacart will shop for and deliver grocery orders; AirBnB, HomeAway and Onefinestay connect renters and homeowners offering available space with people seeking accommodations; Handy, Taskrabbit and Thumbtack will help a household find an available plumber, drywaller, cleaner or furniture assembler; and delivery services like Postmates and Shyp will pick up, pack up and send packages. There appears to be no lack of supply or demand in this rapidly evolving phenomenon. Almost 53 million Americans currently serve as providers to on-demand platforms, at least part-time. Having goods and services on demand satisfies our need for “instant gratification” and allows consumers to find a broad array of competitively priced services 24/7 – they can get what they want, when they want with the touch of a few buttons. The advantages for providers are many, too. No longer saddled with the time-consuming chores of the self-employed, like marketing and promoting services, negotiating transactions or chasing down payments, the on-demand economy provides freelancers with a turnkey, hassle-free method of accessing a large market of ready-and-willing customers whenever they want to work. It’s freelance freedom and flexibility with almost no barriers to entry. You don’t need to be an economist to envision how the on-demand economy business model can benefit the marketplace as a whole: The Ma & Pa local restaurant that can easily deliver through a fleet without incurring staffing costs can substantially expand its market and service underserved markets. People can now use their cars to transport passengers and generate income rather than leave vehicles parked in driveways, resulting in a very good use of underutilized resources;. And, when a student can help an eBay seller package and deliver parcels on the fly, a job and professional support network are created that had not previously existed. The new economy is here. It’s poised to democratize the marketplace and its workforce by maximizing underused assets, creating jobs, expanding markets and meeting the needs of underserved markets, all while creating a faster, easier way for us to get what we want, when we want it. But this new business model comes with new world challenges as the distinction between personal and commercial activities becomes blurry. To thrive, policymakers, regulators, insurers and the companies enabling the new economy will have to work together to design a platform that protects consumers when they are operating as businesses.

If corporate wellness didn't already exist, no one would invent it. In that sense, it's a little like communism, baseball, pennies or Outlook. After all, why would any company want to purchase programs that damage morale, reduce productivity, drive costs up...and don't work 90% to 95% of the time? And those are the results reported by wellness proponents. Those are the employers' problems, but the employers' problems become the employees' problems when employees are "voluntarily" forced to submit to programs that are likely to harm them. (As the New York Times recently pointed out, there is nothing voluntary about most of these programs.) Recently, the head of United Healthcare's (UHC) wellness operations (Optum), Seth Serxner, admitted that Optum's programs consciously ignore U.S. Preventive Services Task Force (USPSTF) screening guidelines. Rather than apologize, Serxner blamed employers for insisting on overscreening and overdiagnosing their own employees...and (by implication) overpaying for the privilege of doing so. "Our clients make us do it," were his exact words. We asked our own clients who use Optum about why they turned down Optum's generous offer to do more appropriate screenings at a lower price. None of them remember receiving such an offer. A UHC executive wrote and said we were making the company look bad. I said I would happily revise or even retract statements about the company if the executive could introduce me to just one single Optum customer -- one out of their thousands -- who recalls insisting on overscreening and overpaying. Never heard back.... United Healthcare isn't alone in harming employees. It is just the first company to admit doing so. It is also far from the worst offender, as the harms of its overscreening for glucose and cholesterol don't hold a candle to the ideas listed below, in increasing order of harms: #10 Provant We would say: "Someone should inform Provant that you are not supposed to drink eight glasses of water a day," except that we already did, and they didn't believe us. Obsessive hydration remains one of their core recommendations despite the overwhelming evidence that you should drink when you are thirsty. By contrast, the New York Times, which has an Internet connection, writes the opposite: #9 Cerner The employee who recorded this blood pressure is essentially dead. Cerner's diagnosis? Blood pressure "higher than what is ideal." Cerner's recommendation? "Talk to your healthcare provider." A real doctor's recommendation? "Call an ambulance. The guy barely has a pulse." This is not a random mistake. This is the front cover of the company's brochure. #8 Nebraska/Health Fitness Corp. USPSTF screening age recommendations aren't minimums. They are optimums, the ages at which screening benefits might start to exceed harms, even if they still fall far short of costs. Otherwise, you are taking way too much risk. This is especially true for colonoscopies, one of this program's favorite screens -- complications from the test itself can be very serious. Your preventive coverage is not supposed to be "greater than healthcare reform guidelines." That's like rounding up twice the number of usual suspects. And you aren't supposed to waive "age restrictions." That's like a state waiving minimum "age restrictions" to get a driver's license. Yet this program won a C. Everett Koop Award for excellence in wellness, not to mention the unwavering support and admiration of leading wellness apologist Ron Goetzel. #7-#6 (tie) ShapeUp and Wellness Corporate Solutions Both these outfits pitch exactly the opposite of what you are supposed to do in weight control: unhealthy crash dieting. Attaching money to this idea and setting a start date make the plan even worse: along with crash-dieting during these eight weeks, you're encouraging employees to binge before the initial weigh-in. Here is ShapeUp: Here is Wellness Corporate Solutions: Both also made up outcomes. In ShapeUp's case, the company had to rescind its "findings" after the customer, Highmark, skewered the company in the press. And neither seems to care that corporate weight control programs are proven not to work. #5 Aetna In addition to its wellness program that collects employee DNA (partnered, ironically, with a company called Newtopia) and then makes up claims about savings, Aetna owns the distinction of launching the only wellness program whose core drugs are specifically editorialized against in the Journal of the American Medical Association. This would literally be the most harmful wellness program ever, except that the only employees being harmed are (1) obese employees who (2) answer the phone when their employer's health plan calls them to pitch these two drugs; (3) who have a doctor who would willingly prescribe drugs that almost no other doctors will prescribe, because of their side effect profile; and (4) who don't Google the drugs. Presumably, this combination is a very low percentage of all employees. The good news is that the drugs, Belviq and Qsymia, should be off the market in a couple of years because almost no one wants to take them, so the harms of this Aetna program should be self-limited. #4 Star Wellness Star Wellness offers a full range of USPSTF D-rated screens. "D" is the lowest USPSTF rating and means harms exceed benefits. Star gets extra credit for being the first wellness vendor to sell franchises. All you need is a background in sales or "municipal administration" plus $67,000 and five days of training, and you, too, can poke employees with needles and lie about your outcomes. Is this a great country, or what? Also, the company's vaccination clinic features Vitamin B12 shots. We don't know which is more appalling--routinely giving employees Vitamin B12 shots or thinking Vitamin B12 is a vaccine. #3 Angioscreen Angioscreen doesn't have the most USPSTF D-rated screens. In fact, it offers only one screen in total, for carotid artery stenosis. That screen gets a D grade from USPSTF, giving Angioscreen the unique distinction of being the only vendor 100% guaranteed to harm your workforce. Angioscreen's other distinction is that the company admits right on its website that this screen is a bad idea. Angioscreen is probably the only non-tobacco company in America to admit you are better off not using its product. #2 Total Wellness In addition to the usual assortment of D-rated tests, the company offers screens that the USPSTF hasn't even rated, because it never, ever occurred to the USPSTF that anyone would use these tests for mass screening of patients or employees. Criticizing the USPSTF for not rating these "screens" (CBCs and Chem-20s) would be like criticizing Sanofi-Aventis for not warning against taking Ambien after parking your car on a railroad crossing. #1 HealthFair Let's leave aside the fact that the majority of its other screens are harmful and focus on its screening for H.pylori, the strain of bacteria associated with ulcers. Visit our full treatment here. In a nutshell, the majority of us harbor H.pylori--without symptoms. It may even be beneficial. The screening test is expensive and notoriously unreliable, and the only way to get rid of H.pylori is with some very powerful antibiotics, a treatment rarely even used on patients with symptoms, because of its inconvenience, ineffectiveness and potential long-term side-effects. A Modest Proposal So how should we as a country protect employees from these harms? Our policy recommendation is always the same and very non-intrusive. We aren't saying wellness vendors shouldn't be allowed to harm employees. That proposal would be too radical to ever pass Congress. If it did, the Business Roundtable would pressure the White House again, to preserve the hard-earned right to "medicalize" the workplace and show employees who's boss. Instead, we recommend merely a disclosure requirement. The harms of screens or (in United Healthcare's case) screening intervals that don't earn at least a "B" from USPSTF should be disclosed to employees, and employees should get a chance to "opt out" into something that isn't harmful (like Quizzify, perhaps?) without suffering financial consequences. Call us cockeyed optimists, but we don't think employers should be able to force employees to choose between harming themselves and paying fines.

In May 2015, the British Insurance Brokers Association (BIBA) released research showing the figures of usage-based insurance (UBI) in the UK. The research showed that the number of live UBI policies is just under 323,000, which represents only 9% growth from 296,000 UBI policies in December 2013. That figure is well down from the annual growth in 2013 of 64%, and of 80% in 2012. The decline could be understood if the market had reached its apogee, but the market is far from that. Another piece of research shows that the penetration rate of UBI in the UK is only 3% of the total. The UK is considered to be a mature market for UBI, and the figures in other mature countries are not different. In other countries, even in most developed Western European countries such as Germany, Netherlands, Belgium, Austria and Scandinavia, the penetration of UBI is much lower. If one can measure risk factors -- certain road types, road environment, time of the day, days of the week and driver behavior-- it is possible to assess high risks. Telematics enables insurers to assess their risk much better than the traditional proxies, and we could expect much higher adoption of insurance telematics. So, why it is not the case? Why hasn't UBI fulfilled the expectations? UBI BENEFITS So much has been spoken and presented in telematics conferences about the benefits and value of UBI for both the consumers and the insurers. Just to mention a few: For the insurance company:

1. Better assessment of the risk, enabling appropriate pricing
2. Self-selection of "good" drivers
3. Attracting safe drivers from the competitors
4. Developing and strengthening direct relationship between the insurer and its customers
5. Lowering the risk by advising the customer to drive safer

For the insurant:

1. Discounted premium (for "good" drivers)
2. Safer driving
3. Geo-fencing tools and young-driver monitoring

Let's examine honestly –

• Do the above benefits "work" in reality?
• Does UBI provide enough value to the customer to attract her to be connected and give up privacy?
• Does UBI provide enough value to the insurer and justify the high investment?

We have to admit that the answer to all those questions is "No." In other words, it seems that the current business model of UBI is wrong. Neither the insurant nor the insurer gets enough value to make UBI mainstream and a success story. Let's imagine a utopian scenario, where 100% of the customers agree to be "connected." Could the insurer monetize that connection? Could the insurer return the investment it made in telematics (capital expenditures and operating expenses)? The answer is probably "No." As long as the insurer has to encourage "good" drivers through premium discounts, and is unable to reject or levy a surcharge on "bad" drivers, the insurer cannot see the ROI. We heard voices from several insurers about surcharges for risky drivers, but it doesn't work in reality. Those customers will simply churn to the competition. As for the customer, discounted premium was not proven to be strong enough to "connect" customers and get them to give up their privacy. IS UBI A BUBBLE? The above draws a gloomy picture. However, the fact is that we see more and more conferences around UBI and new vendors joining the game. Is it a bubble that is about to explode? Not necessarily, but there is a need for a radical change in the business model. The connected car is much more than UBI. Therefore, the existing model where the insurer collects the driving data, owns it and uses it for insurance purposes only (underwriting, marketing and claims management) is completely wrong. The insurer cannot see the entire picture of connected car services, and, honestly, most of the insurers are not interested in more than insurance. So, what is the right way to make the connected car a success story, and UBI part of that success? KEEPING THE CUSTOMER ENGAGED To encourage dolphins to do their show, you must feed them with fish continuously. The same is with customers – if you'll pardon the analogy. You must keep them engaged and provide them monetary value on a daily basis, so they will be intrigued enough to be "connected." A very good example is the "rewarding" method of Wejo, where a customer collects miles and good scoring and can redeem it for free coffee, car wash, etc. When a customer feels that he gets real value, he is more likely to give up privacy. UBI AS PART OF A BROADER SUIT OF TELEMATICS SERVICES Insurers that offer additional services, such as roadside assistance and extended car warranty, can use the telematics device in those services. In that case, insurers can either cover the costs by the customer or spread the cost over the several uses and justify the investment. A WINNING ECOSYSTEM As mentioned above, insurance companies cannot see the entire connected car picture and therefore are not the ideal entity to collect and own the driving data. Moreover, as long as they cannot reject or levy a surcharge on "bad" drivers, why would insurance companies fund telematics (devices, connectivity, device management, data analytics) for those customers, if they can purchase a database of "good" drivers from a third party? Therefore, we can expect in the near future to see the rise of telematics facilitators/aggregators that will collect data from the vehicle and own it, providing value and engagement to the customer and forming a winning ecosystem of multiple players that can benefit from telematics data and insight. Once they have a mass amount of data, they will be able to driver behavior analytics and monetize it for insurance companies. What will be the profile of such facilitators/aggregators? Obviously, OEMs can play this role for embedded OEM devices. In the aftermarket telematics, we already see some cellular operators that are heavily involved in the connected car space, and we can expect more to come. Other optional players may be existing TSPs and UBI vendors that will see the potential in a multi-player game, as well as new entrepreneurs. The bottom line is that UBI is here to stay, but its business model will radically change.

As part of the 2016 edition of the Usage Based Insurance study, we analyzed the impact of autonomy on the insurance market. We forecast that 380 million semi-, highly or fully autonomous vehicles will be on the road by 2030. This might sound like a lot, but then at the Consumer Electronics Show in Las Vegas we heard that new manufacturers are entering the race. Typically, we expect the luxury brands to foster the development of autonomous vehicles (AVs), with Mercedes, BMW and Tesla all topping the list of development activity. This time, however, it is the mid-market brands such as Nissan, Ford and GM that are making the announcements. All three arrived at the show with news and partnerships up their sleeves as the competition grows ever more intense.

• Nissan, in partnership with Renault, announced 10 vehicle models with autonomous capabilities on the road by 2020, with single-lane control from this year and rolling out multi-lane control intersections assistance from 2018 onward.
• GM announced a $500 million investment in Uber rival Lyft, which GM says could lead to the development of a fleet of driverless cars, some available for hire, as well as a network of car rental stations. This announcement follows news regarding the development of GM’s self-driving version of the hybrid Chevrolet Volt.
• Ford revealed an agreement with Amazon, aimed at linking cars with connected homes and the Internet of Things. Ford was also expected to announce a tie-up with Google, but that did not happen, possibly because of recent regulatory proposals limiting driverless vehicle testing in California. Instead, the car maker stated that it would triple the size of its Fusion Hybrid autonomous research fleet this year to 30. Ford will also integrate new solid-state lidar sensors that create real-time 3D models of the surrounding environment.

Although many autonomous functions, such as cruise and parking, are aimed at improving comfort, most of the development today is focused on safety and crash avoidance. These capabilities will have a direct impact on the insurance industry a lot sooner than the driverless car. We analyzed and quantified that impact in the study to precisely estimate the share of accidents that could be avoided with the introduction of advanced driver assistance systems (ADAS). For example, we concluded that frontal collision avoidance and cruise systems could reduce losses by as much as 50% (depending on the level of sophistication). ADAS functions could therefore lead to a reduction in accidents of between 30% and 40%, with AVs beginning to have a significant impact in mature markets from 2023 onward. In the most advanced countries, such as Germany, premiums will decrease by as much as 40% between 2020 and 2030. With the end of the statistical actuarial model also approaching, insurers will need to be acutely aware of the car technology evolution speed. The car without accident will be on the road long before the car without driver. The 2016 edition of the UBI Global Study was launched last month; It covers the impact of ADAS on insurance premiums in details and with a market forecast up to 2030. You can download the free abstract here.

While speaking at an insurance conference recently, I shared examples of how e-signatures are transformative because the technology now makes it possible to fully digitize the insurance sales and service process. “Imagine if tomorrow all your printers and filing cabinets disappeared,” I offered. Afterward, an agent approached me and said, “I don’t get what the big deal is with electronic signatures, anyway. My customers want to sit down with me and have me walk them through their policy.” This isn’t the first time I have been challenged in this way. Evidently, some agents in the audience were left with the impression that digitization would replace personal service – an outdated fear among some seasoned insurance agents. This misconception often holds agents back from offering the best possible customer experience and become a roadblock to increasing their business. Historically, the insurance business has been a personal one. Producers knew their customers well; knew their families, their businesses, their tolerance for risk. The entrance of direct writers onto the insurance scene has, indeed, removed some of that intimacy. But for independent agents, adding a modern, e-signing option to the buying experience doesn’t quash their personal touch. Let’s debunk the four most common myths among independent agents: Myth #1   Digital means “self-serve” The goal of automation is not to remove human interaction; the goal is to provide a more efficient, error-free customer experience. E-signatures have been adopted across all channels in insurance, from remote call centers to face-to-face client meetings. Regardless of channel, we are still seeing customers continue to call advisers and meet with their agents; but at signature time, there is no printing, just an email invite with a link to e-sign. Myth #2   Technology detracts from quality of service Some agents believe that technology detracts from the quality, consultative and personalized service upon which they have built their business. The adoption of digital processes does not dilute the continuing value that independent agents provide; it simply modernizes the administration of paperwork. In fact, the time saved managing paperwork will be more time agents can spend offering specialized expertise. Trusted advice will continue to play an important role in the industry. Myth #3   Consumers aren’t ready This is simply not true. We track client preferences for e-signature automation across many mediated and unmediated channels. Mediated is when the client’s transaction is guided by a representative, offering the option for e-signature at the time of signing. Unmediated is when the consumer is online, in a self-serve situation. In unmediated transactions, where e-signatures are offered 100% of the time, rather than being offered at the discretion of a sales agent, it is common to see adoption rates of more than 95% for e-signatures. Consumers are indeed ready and opting for the convenience and immediacy that e-signatures provide. Myth #4   Digital signatures are risky The fact is, electronic signatures are more secure than wet signatures. The identity of the signer – and the intent to sign – can both be authenticated and upheld in a court of law. Digitized audit trails of e-signing mean you not only get a log of document-level activity during the signing process, but everything the signer experiences during the signing ceremony can be captured, accessed and replayed as proof of signing. Doing Digital Right Independent agents who embrace digital upgrades to their processes will realize five key benefits:

1. Improved customer experience: personalized yet modern nets better customer retention.
2. Automated, expedited business process: requires less time to execute necessary paperwork.
3. Efficiency: less time managing paperwork and fixing errors.
4. Cost savings, by eliminating paper and having more time to spend with clients.
5. Fewer errors, leading to less errors and omissions risk.

One of the most important benefits of modernizing business systems is the ability to attract clients. As generations shift, underinsured Millennials will open market opportunities. Progressive, independent agents will be viewed as service providers who have kept current with the times – yet still offer industry expertise with personalized attention. “All business models must now rely heavily on digital tools; it’s what consumers want. What’s so exciting, however, is that consumers also hunger for a trusted adviser relationship with their insurance agent. Independent agents who marry the two will be big winners in the years ahead. That’s an opportunity direct writers can’t fully execute,” says Ron Berg, executive director, Agents Council for Technology.