A new report from the Workers Compensation Research Institute (WCRI) found evidence of frequent physician dispensing of new drug strengths and a new formulation at much higher prices. This phenomenon was observed in several states that recently instituted reforms aimed at reducing the prices for physician-dispensed prescriptions. Skirting the goals of those reforms, dispensing increased for new formulations of drugs that carried higher prices. That trend led to substantial increases in average prices for some common physician-dispensed drugs. “When prices are reduced by regulation, the regulated parties―in this case physician-dispensers―sometimes find new ways to retain the higher revenues they had prior to the reforms,” said Dr. John Ruser, president and CEO of WCRI. “The results raise questions about the effectiveness and sustainability of the price-focused reforms. The study also provides lessons for those states where physician dispensing is permitted.” See Also: Novel Controls on Physician Dispensing This report, Physician Dispensing of Higher-Priced New Drug Strengths and Formulation, is part of a series of WCRI studies that examine the effects of regulatory or legislative changes to the rules governing reimbursement for physician-dispensed prescriptions. In the past decade, many states in the U.S. have enacted reforms to cap prices paid to physicians by tying the maximum reimbursement amount to the average wholesale price (AWP) set by the original manufacturer of the drug. However, new strengths and formulations of drugs are labeled as being made by generic manufacturers, not merely as being repackaged, a technical distinction that lets the new strengths and formulations avoid the new reimbursement rules -- the generic "manufacturer" gets to set its own, much higher AWP. The study reported several drugs that exhibited this phenomenon and highlighted several states where physician dispensing of these new drug products was prevalent. Take cyclobenzaprine, a muscle-relaxant. The 7.5-milligram new strength was not seen in the market until 2012. For many years, the most common strengths were 5 and 10 milligrams. The manufacturer of this new strength assigned a new AWP, which was much higher than the AWPs for the 5- and 10-milligram products. Below are some examples from the study of the frequent physician dispensing of higher-priced new strengths.

• California: The average prices paid to physicians for cyclobenzaprine of 5 and 10 milligrams ranged from $0.38 to $0.39 per pill in the first quarter of 2014. The 7.5-milligram product, introduced in 2012 and almost always dispensed by physicians, cost $3.01 per pill in the same quarter. The percentage of physician-dispensed cyclobenzaprine prescriptions that were for the 7.5-milligram strength increased from 0% prior to 2012 to 55% in the first quarter of 2014.

• Florida: The average prices paid for physician-dispensed cyclobenzaprine of 5 and 10 milligrams were $1.75 and $1.29 per pill, respectively, in the first quarter of 2014. The 7.5-milligram new strength was seen prior to Florida’s 2013 reform, but the frequency of dispensing increased substantially post-reform—from 16% in the pre-reform second quarter of 2013 to 49% in the first quarter of 2014. When physicians dispensed the 7.5-milligram new-strength product, they were paid an average of $4.11 per pill.

• Illinois: The average prices paid to physicians for cyclobenzaprine of 5 and 10 milligrams were $1.55 and $1.25 per pill, respectively, in the first quarter of 2014. Prior to Illinois’ 2012 reforms, the 7.5-milligram new strength was rarely seen in the market, but, by the first quarter of 2014, 22% of all physician-dispensed cyclobenzaprine prescriptions were for the new strength. When physicians dispensed the new strength, they were paid on average $3.86 per pill.

• Tennessee: Ten-milligram cyclobenzaprine was the most-commonly dispensed drug strength by physicians in the state, which cost $1.08 per pill on average in the first quarter of 2014. The 7.5-milligram product was not seen in the initial post-reform quarters until the fourth quarter of 2013. By the first quarter of 2014, 19% of physician-dispensed cyclobenzaprine prescriptions were for the 7.5-milligram new strength. When physicians dispensed the new strength, it cost $3.97 per pill on average.

The data used for this report came from payers that represented 31–70% of all medical claims across 22 states studied and covered detailed prescriptions based on calendar quarter from the first quarter of 2012 though the first quarter of 2014. The 22 states in the study are Arizona, California, Connecticut, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Michigan, Missouri, New Jersey, North Carolina, Oklahoma, Pennsylvania, South Carolina, Tennessee, Virginia and Wisconsin. To purchase this study, visit here.

Telematics-fitted cars, cars with cruise control and emergency automatic braking, driverless cars and what not… the era of continuous innovation in this industry keeps on permeating our day-to-day life. While the underlying theme is reducing the number of accidents and promoting comfortable/safe driving, car manufacturers keep adding “features” that will transfer operational control of the vehicle significantly from the driver to automated systems. The car industry doesn’t preclude a futuristic scenario (though not necessarily in the near future) when we will be travelling in Uber & Lyft without drivers! Anyone who is associated with insurance will find it very interesting to look at how these innovations might affect car insurers. In today’s world, where the car insurance line of business is already stung by shrinking margins (due to competitive pricing on one hand and increasing claims payments on the other), these auto innovations are, in the opinion of many insurers, bound to further reduce written premiums. As we leverage automation to reduce human driving errors, customers are also going to expect car insurance premiums to go down and shop around for the cheapest insurance premium rates, further triggering price wars. See Also: A Word With Shefi: At Smart Drivinc However, innovations are going to affect the car insurance industry in various ways – which might force insurers to think of newer business models (products, services, partnerships, etc.). Four key areas within the value chain that have the potential to alter the future game plan for auto insurance are:

• In case of an accident (though expected to be highly improbable) who will assume the liability?  Will it be the owner/driver of the car or its manufacturer or the equipment or software manufacturer? How is the claims management ecosystem expected to evolve? Will we need specialized adjusters to handle claims involving damages to the supporting equipment?
• Rating and underwriting for car insurance will focus more on the security and safe functioning of the vehicle along with its set of software and hardware that enable the driverless capabilities -- such as onboard software, cameras, radar, altimeters etc. -- instead of the human driver. Though the frequency of accidents will come down rapidly, the loss expenses per accident is bound to go up due to enhanced cost of the supporting equipment.
• There will be new coverage developments relating to third-party collision damage due to high cost of equipment as well as the cyber risk to software that governs the driving functions of the next-generation cars.
• There will be opportunities around data analytics to harness the huge amount of data made available for better risk analysis and rating, loss development, location analysis, etc.

Do auto insurers need to fear that the next-generation cars will sound the death knell for their business? Or will they see newer opportunities to engage with their customers and enhance their market share? We are all set to witness lot of action in this space in the coming years as new-era cars continue to evolve and auto insurers attempt to match these developments with newer strategies around products, distribution and policy services!

As more primary insurers use a formal risk appetite statement, their reinsurance buying habits have evolved, according to reinsurance brokerage Willis Re. And with reinsurance becoming a greater priority for many firms, there could be an opportunity for insurance-linked securities (ILS) to expand their global footprint. Increased regulation across the insurance and reinsurance industry—underlined by the implementation of Solvency II in Europe and combined with a desire for greater risk and transactional transparency from investors—has caused a “fundamental shift in reinsurance purchasing,” Willis Re says. In its recently published 2016 Global Risk Appetite Report, Willis Re highlights that reinsurance is moving up the priority list of global insurers. Purchasers are adopting different approaches, a trend that could result in the greater use of ILS capacity to optimize reinsurance programs. The report says, “With rising regulatory and shareholder demands, increased pressure on insurer margins and a growing desire for a strong performance measurement framework, the dramatic shift towards risk quantification and management is clear." See Also: How to Understand Your Risk Appetite At Artemis, we have previously discussed the notable changes in insurers reinsurance purchasing habits, particularly in light of the growing trend of centralized buying strategies to increase efficiency and drive potential organic growth opportunities, something that’s been limited in the softening landscape. As some primary insurers look to retain more business, essentially keeping more risk on their books, the establishment of centralized reinsurance purchasing units has increased. Furthermore, a need for greater capital levels under Solvency II regulation has also seen some insurers retain more business, something that could result in greater demand for reinsurance. Potential for increased reinsurance demand, the growing trend of centralized reinsurance purchasing and regulatory advances suggest ILS has an opportunity to capitalize on the changing habits of buyers and further grow their share of the overall reinsurance market pie. The collateralized reinsurance market is one of the fastest-growing sub-sectors of the ILS space, and, as more primary players look to move their reinsurance purchasing in-house, it’s possible that collateralized reinsurance could feature more and more as insurers look to diversify their reinsurance placements with capital markets investor-backed capacity. “As an industry, we’ve observed the broad shift around reinsurance purchasing in recent years with the increasing adoption of formal risk appetite statements," said Tony Melia, Willis Re International CEO. "Those statements have proven essential to provide macro-level guidance to underwriting, global retention management and alignment of cession to wider strategies—linking ‘micro’ strategies to ‘macro’ targets." As insurers and reinsurers continue to adapt to new regulatory requirements, the softening re/insurance landscape and the resulting challenges, it’s expected that a variety of purchasing and distribution tools will be adopted and tested. ILS capacity has been growing at an impressive rate absent any increase in demand for reinsurance protection from buyers, so it certainly wouldn’t be too surprising to us at Artemis if the market evolutions highlighted by Willis Re led to greater use of alternative risk transfer solutions to increase efficiency and diversify portfolios.

Digital transformation has become a major challenge for insurance companies all over the world. In Italy, this transformation is exemplified by the adoption of vehicle telematics. According to the latest IVASS data, black box became an integral part of 16% of new policies and renewals during the third quarter of 2015. The insurance sector is now seeing the same dynamics already experienced in many other sectors, including financial services: with start-ups and other tech firms innovating one or more steps of the value chain traditionally belonging to financial institutions. InsurTech has seen investments of almost $2.65 billion coming in during 2015, compared with $740 million in 2014. Like FinTech in 2015, it’s now InsurTech’s turn to define the elements to be included in the observance perimeter, this being a main point of debate among analysts. In my opinion, all players within the insurance sector will have to become InsurTech-centered in the coming years. It’s unthinkable for an insurance company not to pose the question of how to evolve its own model by thinking which modules within its value chain should be transformed or reinvented via technology and data usage. This digital transformation can be achieved by building the solutions in-house, by creating partnerships with other players—both start-ups and incumbents—or through acquisitions. Based on this view that all the players in the insurance arena will be InsurTech—meaning organizations where technology will prevail as the key enabler for the achievement of strategic goals—the way to analyze this phenomenon is via a cross-section view of the customer journey and the insurance value chain. This mental framework, which I regularly use to classify every InsurTech initiative—whether it’s a start-up, a solution provided by established providers or a direct initiative by an insurance company—is based on the following macro-activities:

1. Awareness: Activities that generate awareness in the client—whether person or firm---regarding the need to be insured and other marketing aspects of the specific brand/offer;
2. Choice: about an insurance value proposition, which, in turn, is divided into two main groups:
   1. Aggregators, which are characterized by the comparison of a large number of different solutions;
   2. Underwriters, which are innovating the way to construct the offer for the specific client, irrespective of the act to compare different offers.
3. Purchase: Focuses on innovative ways in which the act of selling can be improved, including collection of premiums;
4. Use of the insurance product: clarifies three very distinct steps of the insurance value chain: policy handling, service delivery (which is acquiring an ever-growing significance within the insurance value proposition) and claims management;
5. Recommendation: Part of the customer journey that is becoming a key element in the customer’s experience with a product in many sectors;
6. The Internet of Things (IoT), which can be included in the category of activities—though transversal  to the activities described above. The IoT covers all  the hardware and software solutions representing the enablers of connected insurance (the motor insurance telematics is the most consolidated use case);
7. Peer-to-peer (P2P): Initiatives that, in the last few years, have started to bring peer-to-peer logic to the insurance environment, in a manner similar to the old mutual insurance.

  Based on my interpretations of the evolution of the InsurTech phenomenon, I would say:

• on the one hand, there is a tendency toward ecosystems in which each value proposition becomes the integration of multiple modules belonging to different players;
• on the other hand, the lines between the classical roles of distributor, supplier (coming even from other sectors), insurer and reinsurer are getting blurred.

In a scenario like this, the balance of power (and consequently the profit pool) among various actors is bound to be challenged, and each one of them may well choose to collaborate or compete depending on context and timing. My friends at InsurTech News represented - based on my framework described above - a map of the InsurTech newcomers and will continue to map the most interesting initiatives. Please feel free to comment adding more InsurTech newcomers you know.

Workers’ compensation has been around for more than 100 years. It was developed as a grand bargain between labor and employers to ensure that injured workers received appropriate medical care and wage-loss benefits while employers received protections against tort lawsuits arising from workplace injuries. The workplace is vastly different than it was when workers’ compensation was conceived. Workers’ compensation has also evolved in some ways, but in other ways it has not kept pace with changing workplace demographics and injury exposures. There are discussions in our industry around whether workers’ compensation is still meeting the needs of both employers and injured workers. Even the U.S. Department of Labor and OSHA have recently questioned the adequacy of workers’ compensation benefits. Some employers are actively pushing for an alternative option to workers’ compensation because they feel workers’ compensation no longer provides suitable protection for employers and injured workers. As a person who has been very actively engaged in the workers’ compensation industry, I see a variety of issues within the current system and I hear complaints from a variety of stakeholders about it. Industry groups are starting to engage in discussion about the future of workers’ compensation. With that as a backdrop, here are my thoughts around how workers’ compensation needs to evolve. Change Medical Delivery Model The single biggest flaw in workers’ compensation is the current medical delivery model. Medical costs keep rising, and outcomes are often poor. This is because, historically, the medical delivery model in workers’ compensation has been focused on two things: discounts and conflict. See Also: Workers' Comp Market Trends Too often, medical treatment in workers’ compensation claims is used as a weapon for secondary gain. Certain attorneys consistently refer injured workers to certain physicians who extend disability, perform unnecessary treatment and ultimately produce poor medical outcomes for the injured workers. These physicians producing the poor outcomes are well-known by the payers, yet they are allowed to continue to ruin the lives of injured workers so that the settlement will be larger and the attorney fee higher. This is just wrong. The reimbursement model has prominently focused on who will deliver the cheapest care, not necessarily the best care. In fact, sometimes the best physicians refuse to treat workers’ compensation patients because of the low reimbursement rates. In addition, unnecessary utilization review delays workers from receiving care. Bills are not submitted at fee schedule rates, which necessitates spending money on bill review services to ensure that the appropriate amount is paid. There is a lot of money wasted on the bill churn that would be better spent on medical care. We need to start over completely on the medical delivery model and look at what is happening in group health and Medicare for guidance. Under those models, insureds are not free to treat with any provider they choose; they must treat with someone “in network.” Certain treatments must be pre-authorized, and prescription drugs must be on an approved formulary to be covered. Both group health and Medicare are now scoring medical providers to see which of them produce the best outcomes. Those that consistently produce poor outcomes are excluded from coverage. Everyone with medical insurance, including Medicare, has operated under these rules for years. Yet, when the same rules are proposed under workers’ compensation, there is outrage that the injured worker would be denied the right to treat as he wishes. The industry and regulator needs to focus on identifying which medical providers produce the best outcomes for injured workers and also which providers follow established treatment guidelines. These physicians, and only these physicians, need to be treating workers’ compensation patients. Let’s eliminate the “plaintiff and defense” doctor mentality and just have good doctors treating our injured workers. Once we have identified those physicians, we need to get out of their way and let them treat the patient. There is no need for utilization review when an approved physician is following treatment guidelines and dispensing off the pharmacy formulary. Let’s change the focus from conflict and discounts to better outcomes and expedited treatment. These won’t be easy changes to make, but the result will be better outcomes for injured workers and lower costs for employers. Win-Win! Reduce Bureaucracy The administrative bureaucracy around workers’ compensation is complex, time-consuming and extremely costly. It also does little to enhance the underlying purpose of the workers’ compensation system, which is to deliver benefits to injured workers and return them to the workplace in a timely manner. States create a never-ending mountain of forms that must be filed and data that must be reported. These requirements vary by state, forcing carriers and TPAs to comply with more than 50 different sets of rules and regulations. Also, why are penalties for compliance errors not based on a pattern of conduct instead of being issued with every violation? If a payer is 99%-compliant across thousands of claims, it is making every effort to comply. But mistakes happen when humans are involved, so perfection is not obtainable. The focus of compliance efforts should be ensuring that every effort is being made to comply, not simply generating revenue from every error. State regulators need to take a critical look at their administrative requirements with a focus on increasing efficiency, reducing redundancy and lowering the costs to both payers and the states themselves. Tighten Thresholds of Compensability and Eliminate Presumptions The threshold for something to be a compensable workers’ compensation claim varies from 1% (aggravating condition) to more than 50% (major cause). Workers’ compensation benefits should be reserved for injuries and diseases caused by the workplace environment, not a simple aggravation. In addition, the normal human aging process should not produce a compensable workers’ compensation claim under the theory of “repetitive trauma.” There should not be workers’ compensation benefits for simply standing, walking, bending and other basic activities related to daily living. States should adopt a consistent threshold that the work injury is the major cause of the disabling condition. If work is not more than 50% responsible for the condition, then it belongs under group health. While we are at it, presumptions for certain conditions and occupations should be eliminated. These laws are based more on politics than science, and they add significant unnecessary costs to public entity employers, which, in turn, increases the tax burden on every person in this country. They also fly in the face of equal protection under the law by creating a preferred class of injured workers. If the facts of the case and the science support a compensable claim, then it should be compensable. However, a firefighter who has smoked two packs of cigarettes a day for 20 years should not automatically receive workers’ compensation benefits for lung cancer because of a presumption law. Eliminate Permanent Partial Disability and Focus on Return to Work The human body is a remarkable machine because it has the ability to heal itself. In addition, medical treatment is specifically meant to restore function. Most injuries do not result in some type of permanent impairment, yet most states have a permanent partial disability benefit. Why? This is how workers' compensation attorneys get paid. Permanent partial disability benefits represent a tort element injected into this no-fault benefit delivery system, and this is the leading cause of litigation in workers’ compensation. The goal of workers’ compensation is to return injured workers to employment. If they can go back to their regular earnings, then the goal is accomplished. If they cannot, then there should be a wage-loss benefit. This gives incentive to employers to return injured workers’ to employment, and it would significantly reduce litigation and conflict in the system. Eliminate Waiting Periods The suggestions I have provided thus far would all reduce workers’ compensation costs. The savings should allow us to increase certain benefits without increasing employer costs. Let’s start eliminating the waiting period. Why should someone have to go without pay for three to seven days because they suffered a workplace injury? This creates an unnecessary financial hardship on injured workers. You don’t have a waiting period when taking sick days from work, so why is there a waiting period for workers’ compensation benefits? Yes, a change would result in more indemnity claims, but we are talking small dollars in additional benefits when compared with the benefit this would provide to injured workers by reducing the financial strain caused by a workplace injury. Eliminate Caps on Indemnity Benefits All states cap the weekly indemnity benefits that injured workers can receive. These caps range from a high of $1,628 (Iowa) to a low of $469 (Mississippi). In 34 states, the benefit cap is less than $1,000/week. Think about that for a moment. In most states, if you are earning more than $78,000 per year, you will be subject to the benefit cap. This is not something that only affects the top 1% of the workforce. This cap affects skilled trade workers, factory workers, teachers, healthcare workers, municipal employees, police, firefighters and a variety of others. It is truly a penalty on the middle class. For workers subject to the cap, their workers’ compensation benefits will be significantly less than their normal wages. How many of us could avoid financial ruin if our income was suddenly reduced by a significant percentage? See Also: Why Mental Health Matters in Work Comp Workers’ compensation benefits are designed to be a backstop for those unfortunate enough to suffer a workplace injury. Having a workers’ compensation claim should not mean someone suffers a significant financial hardship simply because they earn a decent living. Eliminating the benefit cap would solve this problem. Define and Cover Known Occupational Diseases One area where workers’ compensation really needs to evolve is the coverage of occupational diseases. This concept was not contemplated when workers’ compensation statutes were drafted because the focus was on sudden traumatic injuries, but we know that occupational diseases are a reality. Science tells us that there are certain conditions that may be caused by workplace exposures. These conditions can take years to manifest. The industry and regulators need to work together to identify those diseases that are caused by the work environment and ensure that benefits are available to address them. This means eliminating statutes of limitations that are shorter than the latency period for the condition to develop. I refer back to my comments on thresholds of compensability. If the workplace exposure is more than 50% responsible for the condition, then it should be covered. If not, then it should be paid under group health. Reduce Inconsistency Between States Workers’ compensation is a state-based system, so there will always be variations between the states. However, there are some areas where the inconsistency increases costs and does not treat all workers equally. If states could agree on a common data template for carrier reporting, it would significantly reduce the administrative costs associated with gathering and reporting data. All the states don’t need to use the same data elements, but they could accept the feed and simply ignore what they did not need. There have been efforts in this area for years with no resolution. In addition, a common workplace poster for coverage and common forms would also significantly reduce the costs associated with compliance in these areas. As mentioned previously, the bureaucracy of workers’ compensation adds unnecessary cost to the system. We should be able to make some small changes to common templates to reduce costs and increase efficiency. Another area of inconsistency is the simple definition of who is an employee subject to workers’ compensation coverage. If two people work for the same company performing the same job in different states, one should not be subject to workers’ compensation while the other is not, yet this occurs. States vary on their definitions of employees vs. independent contractors. Some states exclude farm workers and domestic servants from workers' compensation, while others mandate coverage for those workers. Whether or not you are eligible for workers’ compensation should not vary based on your state of employment. Ensure That Permanent Total and Death Benefits Are Adequate Having a family’s breadwinner die or become permanently totally disabled (PTD) is both emotionally and financially devastating. Workers’ compensation benefits are supposed to help reduce the financial impact. Yet there are four states that have hard caps on all indemnity benefits (DC, MS, IN, SC). If you are permanently totally disabled in those states, benefits only pay for 450-500 weeks. That means, by design, those states shift PTD claims to the social welfare system. Things are even worse with death benefits. There are 19 states that cap death benefits, including the four listed above. In Georgia and Florida, death benefits are capped at only $150,000. Some would argue that there may be life insurance to provide additional funds, but there is certainly no guarantee of that. The most devastating injuries should not result in even more devastating financial consequences for the injured worker and the family. Adopt an Advocacy-Based Claims Model In many ways, workers’ compensation is a system based on conflict. We have “adjusters” who “investigate” your claim. A very small percentage of claims are ultimately denied as not being compensable, yet the claims review process is based on those claims rather than the vast majority, which resolve without any issues. Businesses stress the importance of customer service, and most employers agree that the workforce is the most valuable asset of any business. However, many businesses often fail to treat their own injured employees with the same consideration they give to their customers. That customer service focus needs to be extended not just to customers but to employees. In discussions around creating an “Advocacy-Based Claims Model,” employers adopting this approach are seeing less litigation, lower costs and greater employee satisfaction. Rather than just denying a claim and inviting litigation, workers are told about benefit options that are available when workers’ compensation is not appropriate. Changing this model is about changing attitudes, the language we use to communicate and even the workflow. It can be done. Workers’ compensation is still a valuable protection for both injured workers and employers. However, the time has come for it to evolve to better reflect the realities of the current workforce, risks present in the workplace, and advances in science and medicine. If workers’ compensation is to remain relevant for another 100 years, it needs to keep up with changes in society.

It is difficult to imagine a world without the Internet or mobile devices. They have become core elements of our lifestyle and have brought a high degree of disruption to virtually every area of business. The financial services (FS) industry is no exception; the digital revolution is transforming the way customers access financial products and services. Although the sector has experienced a degree of change in recent years, the constant penetration of technology-driven applications in nearly every segment of FS is something new. At the intersection of finance and technology lies a phenomenon that has been accelerating the pace of change at a remarkable rate and is reshaping the industry’s status quo—it is called FinTech. What is FinTech? FinTech is a dynamic segment at the intersection of the financial services and technology sectors where technology-focused start-ups and new market entrants innovate the products and services currently provided by the traditional financial services industry. As such, FinTech is gaining significant momentum and causing disruption to the traditional value chain. In fact, funding of FinTech start-ups more than doubled in 2015, reaching $12.2 billion, up from $5.6 billion in 2014, based on the companies included on our DeNovo platform. Cutting-edge FinTech companies and new market activities are redrawing the competitive landscape, blurring the lines that define players in the FS sector. Our objectives and approach This report assesses the rise of new technologies in the FS sector, the potential impact of FinTech on market players and those players' attitudes toward the latest technological developments. Additionally, the report offers strategic responses to this ever-changing environment. Our analysis is based on the following:

1. Primary data derived from the results of a global survey that includes feedback from a broad range of players in the world’s top financial institutions—For this study, we surveyed 544 respondents, principally chief executive officers (CEOs), heads of innovation, chief information officers (CIOs) and top-tier managers involved in digital and technological transformation. Our survey was distributed to leaders in various segments of the FS industry in 46 countries.
2. Insights and proprietary data from DeNovo, PwC’s Strategy& platform, composed of a 50-member team of FinTech subject matter specialists, strategists, equity analysts, engineers and technologists with access to more than 40,000 public and proprietary data sources.

In the first section, we explore FS market participants’ perspectives on disruption. Next, we'll highlight the main emerging FinTech trends in the various FS industries and the readiness of the market to respond to these trends. Finally, we'll offer suggestions about how market players should strategically approach FinTech. The Epicenter of Disruption New digital technologies are in the process of reshaping the value proposition of existing financial products and services. While we should not underestimate the capacity of incumbents to assimilate innovative ideas, the disruption of the financial sector is clearly underway. And consumer banking and payments, already on the disruption radar, will be the most exposed in the near future, followed by insurance and asset management. Disruption targets mostly consumer banking and payments In keeping with the changes already underway, the majority of our survey participants see consumer banking as well as fund transfer and payments as the sectors most likely to be disrupted over the next five years. In consumer and commercial lending, for example, the emergence of online platforms allows individuals and businesses to lend and borrow between each other. Lending innovation also manifests in alternative credit models, use of non-traditional data sources and powerful data analytics to price risks, rapid customer-centric lending processes and lower operating costs. In recent years, the payments industry has also experienced a high level of disruption with the surge of new technology-driven payment processes, new digital applications that facilitate easier payments, alternative processing networks and the increased use of electronic devices to transfer money between accounts. Asset management and insurance are also on the disruption radar Although a high level of disruption triggered by FinTech is already beginning to reshape the nature of lending and payment practices, a second wave of disruption is making inroads in the asset management and insurance sectors. Our survey found that this perception is confirmed by insiders. Nearly half of insurers and asset and wealth managers consider their respective industries to be the most disrupted. When asked which part of the FS sector is the most likely to be disrupted by FinTech over the next five years, 74% of insurance companies identified their own industry, while only 26% of players from other sectors agreed; 51% of asset managers said their industry will be disrupted, while only 31% of other players agreed. However, there seems to be a perception gap here. Professionals from other industries do not see the same level of disruption in these areas. The fact that only insiders are aware of this situation, while outsiders don’t perceive it, could indicate the disruption is in its very early stages. Even so, venture capitalists are looking very closely at start-ups dedicated to reinventing the way we invest money and buy insurance. Annual investments in InsurTech startups have increased fivefold over the past three years, with cumulative funding of InsurTechs reaching $3.4 billion since 2010, based on companies followed in our DeNovo platform. The pace of change in the global insurance industry is accelerating more quickly than could have been envisaged. The industry is at a pivotal juncture as it grapples with changing customer behavior, new technologies and new distribution and business models. The investment industry is also being pulled into the vortex of vast technological developments. The emergence of data analytics in the investment space has enabled firms to home in on investors and deliver tailored products and automated investing. Additionally, innovations in lending and equity crowdfunding are providing access to asset classes formerly unavailable to individual investors, such as commercial real estate. Customer-centricity is fueling disruption As clients are becoming accustomed to the digital experience offered by companies such as Google, Amazon, Facebook and Apple, they expect the same level of customer experience from their financial services providers. FinTech is riding the waves of disruption with solutions that can better address customer needs by offering enhanced accessibility, convenience and tailored products. In this context, the pursuit of customer-centricity has become a main priority, and it will help to meet the needs of digital native clientele. Over the next decade, the average FS consumer profile will change dramatically as the Baby Boomer generation ages and generations X and Y assume more significant roles in the global economy. The latter group, also known as “Millennials” (those born between 1980 and 2000), is bringing radical shifts to client demographics, behaviors and expectations. Its preference for a state-of-the-art customer experience, speed and convenience will further accelerate the adoption of FinTech solutions. Millennials seem to be bringing a higher degree of customer-centricity to the entire financial system, a shift that is being crystallized in the DNA of FinTech companies. While 53% of financial institutions believe that they are fully customer-centric, this share exceeds 80% for FinTech respondents. In this respect, 75% of our respondents confirmed that the most important impact FinTech will have on their businesses is an increased focus on the customer. This post was co-written by: John Shipman, Dean Nicolacakis, Manoj Kashyap and Steve Davies.

This is part of a series of interviews by Shefi Ben Hutta with insurance practitioners who bring an interesting perspective to their work and to the industry as a whole. Here, she speaks with David Dror at Micro Insurance Academy. To see more of the “A Word With Shefi” series, visit her thought leader profile. To subscribe to her free newsletter, Insurance Entertainment, click here. Describe what you do in 50 words or less: I lead a team that brings the poor in rural informal contexts into the fold of insurance. We address this challenge by acting as change agents. We do not sell a product; instead, we take communities from having no risk-management solution to adopting a mutual-aid insurance model that enables them to establish both the demand for and supply of insurance, specific to their context. And when you are not working, what do you like to do? I like to read, write, walk, socialize and rest. How did you become engaged in microinsurance? I have been involved with social insurance since the 1970s, mostly at the macro level; in India, I work with grassroots communities. My experience in India teaches me one overriding lesson, that top-down interventions, without full funding, offer very little opportunity to affect social change, and “localism” that taps into invisible resources offers some unexplored opportunities to reach results. What is the main challenge the Micro Insurance Academy sets out to address? The social challenge we address is the uninsured exposure to risks that condemns the poor in the "informal sector" to poverty, ill health and uncertainty. Insurance is broadly recognized as an indispensable tool to improve access to healthcare, agricultural production (thus food security and livelihoods) and to mitigate climate-change-related crises. However, the challenge to roll out solutions in the informal sector has proved difficult largely because the multifaceted aspects of poverty are often anchored in families and extended families, and not the individual as in the formal sector. Dealing with those social units requires innovation in business models and social engagements. This is what MIA focuses on. In a recent paper termed “The Demand for (Micro) Health Insurance in the Informal Sector,“ you write about the importance of group consensus in driving individuals' buy-in to microinsurance. Do you see insurers account for this lifestyle in their selling proposition? Our solution, which is to assist the community to establish its own insurance schemes that leverage existing relationships of trust and obligation, is based on developing associations for the purpose of efficient sharing that enable the community to be consumers, creators, collaborators, suppliers and distributors of insurance. This is P2P "sharing economy." Success means that each member becomes both co-owner and customer, with a role in business decisions of the supply chain, organization and development. Traditional selling is simply not effective in this setting, and mobilizing entire communities, not merely community leaders, is the novel paradigm. What does success look like five years from now for Micro Insurance Academy? Many insurers work with us to adopt risk-management solutions to be demand-driven and needs-based. Success in business results would mean outreach to millions of uninsured people, and success in business process adaptation would mean that we mobilize resource pools from resources that are today invisible and inaccessible. Is the talent gap within insurance an issue in India as it is in North America? Our model relies on a three-pronged approach (capacity building, governance and insurance), each of which leverages local function, purpose and culture. Developing capacity is a challenge mainly because such capacity must be available at the community level, not just in a few remote back offices. Better local capacity is the backbone that supports good governance. Best life lesson: “The greatness of humanity is not in being human but in being humane” – Mahatma Gandhi.

It seems every press release you read, every case study in the news, every session at industry conferences and every webinar on tap for the next six months will at some point mention the 100% implementation success rate of the vendor involved. That fact, in and of itself, throws serious shade on what really constitutes implementation success and dilutes the impact or validity of the concept as a whole, but should it? Depending on where a person sits, implementation success can mean different things and may include different elements, technologies or metrics. Implementation success is therefore often qualified by varying criteria that are completely dependent on the role of the individual in the project or the company. To truly guarantee implementation success, all perspectives and perceptions must be considered and incorporated. For the CEO, it’s all about the big picture. Sure, nearly all CEOs want an increased ability to process new business and grow the company organically, but time and again individuals in this role will focus on these key questions:

1. Did we implement what we set out to implement?
2. How will this implementation affect our ability to modify existing products or launch new ones?
3. Does this implementation support our construction of a future-ready technology environment?

For the CFO, everyone instantly assumes a successful implementation is simply about being on-time and on-budget, and while those factors are definitely important, CFOs additionally want to know:

1. What is the maintenance and licensing like on this new technology product, and how does it affect our total cost of ownership (TCO)?
2. Does this implementation make other downstream or supporting systems obsolete, requiring the company to make additional technology investments in the coming year(s)?
3. Does this implementation allow the company to retire existing legacy systems and recognize cost savings in maintenance and support of these systems?
4. Is support or the professional services required to implement changes included in the initial contract price, or is it an additional, and continuing, charge?

For the CIO, data conversion is a crucial, yet truly not sexy, part of the package that allows one system to be turned off and the other turned on, so to speak. It is important to understand that while CIOs are often thought to have the most interesting, cutting-edge piece of the insurance technology puzzle, these individuals are not easily distracted by solutions, tools and gadgets that turn out to be little more than bright, shiny objects. Questions CIO typically focus on when measuring implementation success include:

1. Does my internal team have the expertise today to maintain the new solution, including making simple changes without deep technology programming expertise or the ability to create and implement custom coding?
2. Will I be able to easily integrate emerging technologies as the need arises?
3. What is the upgrade path for this solution that will clearly demonstrate my company is not implementing legacy?

Other players, including the company’s heads of claims, underwriting and customer service, are counting on achieving a certain percentage of straight-through processing (STP), decreasing the time from first notice of loss (FNOL) to claim resolution, and still others are rabid about mobile access and self-service capability delivered via a portal. Alternatively, FAIR Plans, for example, are less concerned about growth and bottom line profits, but instead are focused on increasing internal efficiency and delivering a top-quality customer experience. Different strokes for different folks. So, maybe it’s time to acknowledge that the magical middle ground that will make everyone happy likely doesn’t exist. It’s back to the old saying that it’s impossible “to make all of the people happy all of the time.” The trick is knowing which stakeholders’ happiness is on the nice-to-have list and which is on the must-have list. Keep in mind, there are degrees of happiness, and incorporating even small pieces of capability can be important when it means validating stakeholders’ priorities and implying broader ownership across the enterprise. Ultimately, what composes implementation success is unique to each company and should be well-defined for each company before the start of the project. All projects should have a well-defined set of expected outcomes from both business and technology that need to be achieved to have that project defined as a successful delivery. While budget and schedule can be a part of the objectives, they should not be the primary drivers. A successful implementation is one the delivers the required business and technology outcomes. When the core system implementation itself is done right, with the right partners and a well-defined set of objectives, it leaves room for peripheral goals to be achieved at the same time with a faster ROI and the ability to get back to the business of insurance.

With the healthcare landscape changing from fee-for-service to fee-for-value models, healthcare provider systems (hospitals, clinics, independent physician associations, etc.) are now, more than ever, under pressure to effectively manage the health and cost outcomes of their given populations. Under such models, providers are not only providing healthcare service to the patients, but they are also sharing in the financial risk and reward of patient costs. To effectively become a value-based organization, providers today are adopting a process broadly termed "population health." The "population health" process usually starts with identifying key segments of a population that face certain risks of adverse health outcomes and thereby high cost — a step known as "risk stratification." Once risk is stratified, appropriate patient intervention programs are employed to improve: access to health, targeted encounters with providers and continuous monitoring of patient risk. This leads to lower emergency room visits, better clinical outcomes (such as properly managed blood glucose levels for diabetics) and lower financial cost. There are many proven methods of risk-stratification to assign patients to low-, medium- or high-risk groups. For example, the adjusted clinical groups method examines patient diagnoses, and the elder risk assessment method assigns risk based on patient demographics. In today’s market, we observe many proprietary methods of risk stratification developed by various provider systems. The variables used in risk stratification can be classified into the following categories:

1. Clinical: Data from electronic medical records (EMRs), patient vitals, laboratory data, etc.
2. Administrative: Usually patient claims that track diagnosis and procedures already conducted
3. Socio-Economic: Patients’ social situations, family and friend support systems, language preference, community involvement, the degree of influence that out-of-pocket expenses could have on the patient’s well-being, etc.
4. Lifestyle: Health and activity tracking devices such as Fitbit, Apple Watch, etc., which carry critical daily lifestyle data about a patient

While the above categories play a large role in risk stratification, a new dimension known as "spatial access" can significantly lend leverage to the provider systems in affecting patient outcomes. For some patients, the overall risk may increase significantly because of their spatial, geographical and transportation access to medical and wellness resources. Spatial access refers to patients’ geographic proximity and ease of mobility to resources such as hospitals, primary care physician offices, primary and specialty care clinics and nurses. The geographic arrangement of patient and provider resources can play a significant role in healthcare utilization. For example, patients living in areas with fewer healthcare resources — regions often termed "doctor deserts" — have been linked with higher rates of preventable ER visits that are notorious for raising healthcare costs without necessarily improving healthcare outcomes. Using geographical and spatial analysis to supplement existing risk stratification techniques can help providers with an untapped method of assessing risk and generating better ROI in the long run. To incorporate spatial access analysis into risk stratification, providers must:

1. Gather patients’ social network geographic information Most EMR systems already contain patient address information, but they often lack information about the patients’ social network. The following types of data should be collected and refreshed on an annual basis:
   • Distance to closest primary care clinic, both straight-line and network-distance;
   • Distance to closest primary care provider, both straight-line and network-distance;
   • Spatial density of medical resources in a given area, especially primary care services;
   • Access to vehicle transportation, either on the patient's own or through a family member; and
   • Proximity to public transportation.
2. Conduct “spatial access” risk stratification Using a geographic information system (GIS), assign relative risk to each patient based on each of the components listed above, then create a composite risk based on all of the attributes.
3. Represent population risk stratification visually via mapping Examine which areas of a provider’s service areas are prone to having individuals with high risk; look for clusters of high- or low-risk patients in doctor deserts. Viewing individual or aggregate risk through mapping would offer analysts and decision makers a comprehensive view of what types of risk are occurring in their service area.
4. Strategize how to implement interventions based on locations of high-risk patients If clusters of high-risk patients exist in a certain area, begin to strategize about what kinds of interventions may alleviate the problem. Interventions may include the placement of new primary or specialty care clinics. Because creating clinics can be challenging, increased use of mobile provider teams can be an alternate solution. Lastly, a combination of telemedicine and mobile medicine should be assessed for the right mix of care for doctor deserts and lack of physical clinics.

Understanding the spatial context of patient demand vs. provider supply of healthcare service is an important component for accountable care organizations to conduct accurate risk stratification. Moreover, incorporating GIS into healthcare service analyses improves decision-making capabilities for evaluating, planning and implementing strategic initiatives. By taking advantage of the analytic capabilities of GIS and spatial access risk stratification, healthcare service providers are better equipped to more comprehensively understand their patient population and to thrive in this new value-based world.

If you sit down with just about any college administrators and ask about the vision of their university, you may witness a dramatic change as their voices fill with passion, reserve disappears and the entire tone of the conversation shifts away from being transactional. As an insurance broker specializing in higher education, I have witnessed this transformative moment many times. Unfortunately, the passion for the institution, its vision and its future does not always translate into the insurance submission and renewal process. Many people, including some insurance brokers, view buying and selling insurance as a passionless transaction. Information about the college—such as financial statements, property values and loss experience—is gathered, tabulated into Excel spreadsheets and forwarded on to the underwriting arm of seemingly interchangeable insurance carriers. Underwriters review volumes of data about the college to decide whether the insurance company can comfortably provide a college with a certain level of insurance coverage in exchange for a fixed annual premium. See Also: A Practical Tool to Connect Customers The information provided to an underwriter creates a story about the college. Depending on how the information is received and presented, the story can be positive or negative. To the underwriter, sometimes the insurance submission can be as horror-filled as a Stephen King epic or as romantic as a Nicholas Sparks novel. Of course, the insurance submission is not a work of fiction. One of the first things that statistics students learn is that the same information (data set) can be used to draw multiple and sometimes competing conclusions. Where one person may see positive potential, another may see an organization in decline. The conclusions drawn from the data set by different insurers and underwriters reviewing the same information may vary significantly. Why? Though the information contained in a submission or application may be objective—meaning the information has not been altered or manipulated—the conclusions drawn from the information are less so. The underwriting process involves both subjective and objective analysis. And how the data is interpreted may have a significant impact on the underwriting decision and, ultimately, on the total premium an organization pays. Using Data According to a Harvard Business Review article, data can be used as a visual mechanism to direct the narrative surrounding a particular situation. The key is to:

1. Identify the narrative or the core message the audience should walk away with;
2. Identify your target audience and figure out what they are interested in—is the presentation to an underwriter, claims adjuster, insurance company executive, etc.?;
3. Remain objective and offer a balanced viewpoint—your credibility will suffer if what is being said cannot be supported by the facts;
4. Not censor the data—do not exclude unfavorable information, and this is especially important in an insurance setting as failure to disclose information can constitute insurance fraud; and
5. Take the time to edit—not the data itself, but how the information is presented.

There are many different methods for presenting the narrative of an institution in the most positive light possible while still providing objective information. The first step to understand both the positive and negative elements. This allows the institution to showcase itself in the best light possible. A failure to fully engage in this process may leave the narrative open to misinterpretation, create questions about unexamined negatives and result in overlooking one or more positive elements. Communicating the story of an institution involves a deep understanding of the goals and vision of the institution, and there is no one better to communicate that story than a passionate college administrator. However, understanding what drives your institution is not enough—and that is where administrators need to leverage key professional relationships. Selecting the right broker is a key step in driving the narrative forward. A professional partner brings market knowledge and the ability to help transform the narrative from numbers into a story that honors the vision of the administration. Developing Key Relationships The majority of colleges and universities work with one or more insurance brokers to engage with the insurance marketplace. At minimum, a broker working with an institutional client assists in (1) identifying insurable exposures, (2) preparing recommendations for coverage types and limits, (3) identifying potential insurers to approach, (4) developing the insurance submission, (5) negotiating pricing and coverage terms and conditions with the markets and (6) presenting the carrier quotes to the institution. Institutions at every level can rely quite heavily on the services and recommendations of their insurance brokers. The broker can play a critical role between having a well-structured insurance program and having a potential mess of overlapping coverage, gaps in coverage, inconsistent coverage terms, out-of-balance limits and potential claims issues. The broker can also act as a key resource in communicating the organizational narrative to the underwriters. There are four key elements a broker adds to narrative development:

1. Market Knowledge: Insurance brokers keep abreast of developments in the marketplace, including insurer appetites: Like any company, insurers have target or preferred customers. Being in an insurer’s target class can provide premium discounts and coverage enhancements. Insurers typically understand the risk exposures associated with their target customers and are comfortable underwriting these risks and adjusting claims. For the insurance client, this means (1) access to expertise from an insurer that understands your institutional risk and (2) comfort in knowing the insurer has an understanding of institutional risk and will be unlikely to cancel or withdraw coverage in the event of a claim. Ultimately, it does not make sense to send an application to an insurer that does not understand or have a comfort level with higher education risks. Insurance brokers also keep abreast of market conditions. For the past few years, insureds have enjoyed relatively stable insurance rates and coverage offerings. It is currently the norm to see flat program renewals and even rate decreases in several key insurance coverage lines. However, it is unlikely that this trend will continue long -term, and it may be significantly affected by: 1) Mergers: The insurance market is changing as insurers look to increase market share and underwriting profit while minimizing exposure to catastrophic losses and unprofitable lines of business. 2) New Market Entrants: There has been an influx of third-party capital into both the insurance and reinsurance markets, resulting in lower insurance prices in the short term. The question is whether these new entrants are here to stay and whether capital levels have peaked.
2. Underwriting Guidelines/Expectations: Understanding how underwriters use information is a key element of the narrative development. Different insurance carriers use underwriting information differently. Customizing the insurance submission to highlight critical (or essential) information that will be viewed favorably by the underwriters make a big difference.
3. Risk Analytics: Analytical services provide a more complete picture of organizational risks, claims trends and opportunities for improvement. These services may include claims dashboards, benchmarking analytics, property valuation and catastrophic loss exposure analysis. This is really where brokers can distinguish themselves. Effective use of analytics allows the institution to home in on key risk and loss drivers and develop a risk management plan to address problem areas early. Early identification processes and plans can be communicated to underwriters as part of the application process. This can be critical for institutions with past losses, as it demonstrates steps to control future loss and an awareness of university exposures.
4. Alternative Program Structures/Alternative Risk Transfer Options: Not every risk can be transferred, and not all risks are adequately covered by buying off-the-shelf insurance products and services. Taking control of the insurance conversation may require a needs-based assessment of academic, administrative and financial processes to determine optimal (1) coverage types/limits and deductibles/retentions, (2) feasibility of self-insured or captive programs, (3) needed coverage enhancements and (4) key contributors to loss/potential losses.

Tips for constructing and delivering your narrative Start early. Waiting until a couple of months before program renewal does not provide a great deal of time to develop a cohesive narrative or to allow underwriters the time needed to develop a real understanding of the institution. In fact, it can be beneficial to begin the conversation with a prospective insurer years before moving coverage from a current insurer. This is important even if there is a comfort level with the current program structure and insurance providers. Organizational risks are not static, and insurance programs change over time. Engaging in regular dialogue with underwriters at different insurance companies allows multiple carriers to develop an understanding of the college/university’s operations and risks. Developing alternative carrier relationships provides a backup plan. See Also: Are Customers Like Berliners? Know and understand your institutional risks and objectives. This includes both the positive and negative aspects. It can be easy to focus on the positives, but, as with an ostrich hiding its head in the sand, that may result in overlooking key dangers to the continuity of the college itself. You should:

1. Create an internal risk review team made up of a diverse group of institutional stakeholders, such as human resources staff, facilities/housekeeping, faculty, administrative staff, board of trustees, alumni and students.
2. Engage an objective third party, such as a risk consulting firm, or use the institution’s insurance broker’s analytical team.
3. Participate in peer-review activities by engaging with administrative and risk management personnel at other institutions. Participating in risk management round-tables and discussions such as those provided by United Educators, URMIA and other educational insurers/associations can assist in planning for common areas of concern.

Use the data as a guide. As much as insurance brokers may wish otherwise, underwriters are pretty savvy people and will usually catch on to most omissions. It is very hard to recover from a situation where the underwriter feels misled about the organization—there is a loss of trust, respect and partnership that is impossible to get back. Be open and objective about the current position of the college/university. But do not allow the negative information to be all the underwriter sees—provide mitigating information such as steps the college is taking to: (1) improve loss experience, (2) attract higher enrollments or (3) renovate aging infrastructures. Underwriters want to write business, and most of them are looking for a reason to say “yes.” Do not rely solely on the insurance application. The application gathers the minimum amount of information that an insurance company needs to underwrite a risk. If the institution is working with an insurance broker (as most do), it is important to collaborate with the broker rather than just cede the submission development process entirely to the broker. A broker (regardless of how good she is) is never going to be as passionate about your institution as you are. Get to know your underwriters—go to lunch, meet them at conferences, attend a carrier networking event or even schedule periodic conference calls. If all your organization is to an underwriter is a few sheets of paper submitted 90, 60 or even 30 days prior to a renewal, you will not get the underwriter’s full attention or consideration. Engage your underwriters.