You would think a judge would know better. But then again, because he was also the local cemetery sexton, perhaps he was too busy to educate himself on the finer points of law regarding workers' compensation fraud. A former Seneca County village judge has been convicted of falsely claiming two men attacked him outside his courtroom two years ago. A jury found him guilty of insurance fraud, falsifying business records, defrauding the government and falsely reporting an incident. The weapon he claimed to have been assaulted with? That would be the ubiquitous and sorely-in-need-of-regulating toilet tank lid. Yes, in what was sure to whip up a frenzy with the anti-toilet crowd, another seemingly innocent victim had suffered needless injury. Personally, as a pro-toilet guy, I feel compelled to urge calm and remind everyone that toilet lids don't kill people; people kill people. While there is no specific constitutional amendment that protects the right to bear toilets, I can state unequivocally that they are essential for both number one and number two. I sense I have strayed from my initial point. The judge told police in August 2013 that he was attacked from behind while locking up the Waterloo Village Court. He claimed to have been choked with something and hit over the head with a heavy object. Village police, using what can only be described as excellent police investigative techniques, found the shattered lid of a toilet tank at the scene. Photo by Seneca County District Attorney's Office Ultimately, however, a story emerged that made it appear our jaded jurist made up the affair as part of a nefarious scheme to obtain prescription painkillers through a workers' compensation claim. The district attorney who prosecuted the case said, "The jury heard evidence that this was a way for him to get a lifetime supply of painkillers." Can't argue with him there. If you are looking for a way to get an endless supply of top-grade narcotics, then workers' comp is where you want to be. We give that crap away like candy at Halloween. Perhaps the fact that this guy spent nine days on a pain pump at a Rochester hospital, while doctors and nurses testified he did not sustain any injuries whatsoever from choking, a blow to the head or any kind of assault, should have been a clue. I find myself asking, then, why the pain pump? But then I remember, "Ah, yes, this was a workers' comp case." Authorities report that the judge's medical records showed, prior to the bogus assault, he'd been on prescription painkillers for lower-back pain and for gout throughout his body. He also had 20 to 30 previous insurance claims for alleged accidents. The judge, who is not a laywer, had no known employment other than the acting village judge position -- except, of course, for his position as cemetery sexton, where he is under indictment for allegedly stealing gasoline from the village. Perhaps he needed it to pick up all those prescriptions. Honestly, we have a guy here who most likely has an obvious addiction problem and needs help beyond the two to seven years in prison he is currently facing. My bigger concern is the Waterloo village board. Despite the police department's determination that the judge's assault claim was false, the board re-appointed him to another term as acting village judge. Why they would do that is beyond my limited comprehension. The lessons here are twofold. First, and most importantly, toilet lids are safe when used by responsible adults. We do not need a plethora of restrictions and regulations just because one person abused them. Second, this village judge and cemetery caretaker might be a criminal and addict, but that does not make him stupid. That designation, it would seem, is reserved for the village board, which clearly has its share of idiots.

Recognizing the need for better cybersecurity in the insurance sector, the National Association of Insurance Commissioners (NAIC) recently published “Principles for Effective Cybersecurity: Insurance Regulators Guidance.” High-profile data breaches at several health insurance providers exposed data on 90 million consumers, revealing the industry’s vulnerability. So the NAIC document provides best practices for insurance regulators and companies, focusing on the protection of the sector’s infrastructure and data from cyber-attacks. Thus far, U.S. banks and payment processors have led the way on cybersecurity, both because they have been frequent targets of cyber-attacks and because of strong regulatory enforcement (e.g., FFIEC, GLBA, and PCI DSS). It’s time for insurance companies to play catch-up, and the NAIC is spurring them on. As a result, we anticipate seven changes:

1. An increase in cybersecurity regulations;
2. A focus on consumer privacy;
3. An increase in cybersecurity spending;
4. The growing importance of cybersecurity information-sharing and analysis groups;
5. The board’s and management’s involvement in cybersecurity;
6. The increased need to manage third-party risks; and
7. The link between cybersecurity and risk management.

Background The NAIC is the standard-setting and regulatory-support organization created and governed by the chief insurance regulators from the 50 states, the District of Columbia and five U.S. territories. But individual state and territorial regulators oversee the insurance companies’ practices within their jurisdictions. Only a few states (e.g., New York, California and Massachusetts) have actually enacted data protection laws that apply to the insurance sector. Thus, most individual regulators have been left to their own devices when it comes to cybersecurity practices, particularly given that there is no central regulator defining industry standards and no uniform set of requirements. Consequently, individual regulators on the whole have been using different standards when examining cybersecurity practices, with cybersecurity requirements varying state-to-state. The NAIC became involved to help both insurance regulators and companies. Specifically, it conducted a multi-state examination of a breached insurer’s cybersecurity practices and determined what actions the company could have taken to minimize its data loss. The NAIC then published two documents related to cybersecurity:

• "Principles of Cybersecurity" – Created by the NAIC’s cybersecurity task force (formed in November 2014), the document is intended to (a) help insurance regulators identify cybersecurity risks and communicate a uniform set of control requirements to their covered entities and (b) promote cooperation between regulators and the insurance industry in identifying and addressing cybersecurity risks. The document applies to state regulators and insurers, insurance producers and other regulated entities ("covered entities"); and
• "Annual Statement Supplement for Cybersecurity" – The NAIC’s property and casualty insurance committee created this document to establish requirements for insurers that provide cyber coverage. It requires insurers to report the range of limits offered on cyber insurance policies (both stand-alone and commercial, multi-peril packages), losses paid under each policy, earned premiums, whether policies are claims-made policies and whether tail coverage is offered.

Principles of Cybersecurity Insurance regulators:

• Should ensure that confidential and personally identifiable information (PII) that covered entities hold is protected from cybersecurity risks.
• Should mandate that insurance providers have systems in place to alert consumers in a timely manner of cybersecurity breaches. Insurance regulators should collaborate with insurers, insurance producers and the federal government to achieve a consistent, coordinated approach.
• Should protect covered entities’ confidential information and PII that is collected, stored and transferred inside or outside of an insurance department or at the NAIC. In the event of a breach, those affected should be alerted in a timely manner.
• Should deliver flexible, scalable and practical cybersecurity regulatory guidance for covered entities that is consistent with nationally recognized efforts such as those embodied in the National Institute of Standards and Technology (NIST) framework.
• Should make regulatory guidance risk-based and consider the resources of the covered entities, with the caveat that a minimum set of cybersecurity standards must be in place for all covered entities that are physically connected to the Internet, regardless of size and scope of operations.
• Should provide appropriate regulatory oversight, including conducting risk-based financial examinations or market conduct examinations regarding cybersecurity.

Covered entities:

• Should appropriately safeguard customer PII that is collected, stored and transferred inside or outside of a covered entity’s network.
• Should implement incident response planning activities as part of a cybersecurity program, including conducting cyber incident response tabletop exercises.
• Should take appropriate steps to ensure that third parties and service providers have controls in place to protect PII. This may include third-party assessments to understand service providers’ current controls environments.
• Should incorporate and address cybersecurity risks as part of the enterprise risk management process. Cybersecurity transcends the information technology department and must include all facets of an organization.
• Should have a board of directors or its appropriate committee review information technology audit findings that present a material risk to an organization.
• Should participate in an information-sharing and analysis group to share information and stay informed regarding emerging threats or vulnerabilities.
• Should consider periodic and timely training, paired with an assessment, to be an essential component of all cybersecurity programs.

What Should Insurance Companies Expect? Over the next few years, we anticipate many changes in the insurance sector related to cybersecurity, including:

1. Increase in Cybersecurity Regulations – According to PwC’s recently released "The Global State of Information Security Survey," cybersecurity regulation within the financial services industry is only expected to increase in 2015 and beyond. Based on the NAIC’s guidance, we expect the various U.S. states and their insurance regulators to pass cybersecurity regulations to ensure that covered entities have adequate controls in place to protect consumer PII. Covered entities will be required to demonstrate resilience to cyber-attacks, including malware attacks, insider threats, data corruption and destruction and denial of service attacks.
2. Focus on Consumer Privacy – In addition to cybersecurity regulations, covered entities will be expected to comply with privacy regulations. The Consumer Privacy Bill of Rights, which the Obama administration proposed, includes provisions mandating transparency, individual control, respect for context, focused collection and responsible use, security, access and accuracy and accountability. If passed into law, the Consumer Privacy Bill of Rights would require covered entities to provide transparent descriptions of their data collection practices, and to limit how and what data they collect. Additionally, global data privacy laws, such as the European Union’s General Data Protection Regulation, increase compliance obligations of U.S. insurance companies doing business globally.
3. Increase in Security Spending – To implement adequate controls and comply with the regulatory requirements, covered entities will increase their cybersecurity spending. According to the New York State Department of Financial Services (NYDFS) study, “Report on Cyber Security in the Insurance Sector,” released in February 2015, 86% of insurers expect their security budgets to increase in the next three years. The study noted that only 51% of insurers had budgeted for cybersecurity incidents.
4. Importance of Information Sharing Organizations – Information-sharing will be an essential part of insurance companies’ cybersecurity strategies. We expect to see more insurance companies join Information Security and Analysis Centers (ISAC), such as FS-ISAC, or the recentlyannounced insurance ISAO.
5. Board and Management Involvement – For organizations to better address cybersecurity threats and regulatory guidance, we anticipate a push to increase senior management and board involvement in cybersecurity issues and decision-making. According to the NYDFS study, only 30% of boards receive updates on cybersecurity issues on a quarterly basis.
6. Managing Third-Party Risks – Concerns will grow around third-party risks and potential cybersecurity threats that can arise when sharing networks with business partners. Covered entities will be expected to demonstrate adequate oversight of their service provider relationships.
7. Link Between Cybersecurity and Risk – As cybersecurity incidents continue to proliferate, organizations must reposition their security strategies to align closely with their broader risk-management activities.

Your employee was just injured at work. He is in pain, cannot perform regular job duties and is unsure how quickly he can return to work. His mortgage, medical care and kid’s tuition payments are due next month. It is a vulnerable time for him, with substantial uncertainty. When a football player goes down on the field and is carried off, the crowd applauds in support of the player, and the player often returns a smile. When a worker is injured on the job, what happens at the workplace before and after the injury can affect the costs incurred by the employer and the outcome achieved by the injured worker. Twelve new state studies from the Workers Compensation Research Institute (WCRI) aim to help CFOs and other stakeholders identify ways they can improve the treatment and communication an injured worker receives after an injury, leading to better outcomes at lower costs. The studies interviewed 4,800 injured workers from across 12 states who suffered a workplace injury in 2010 and 2011 and received workers’ compensation income benefits. The 12 states surveyed were Arkansas, Connecticut, Indiana, Iowa, Massachusetts, Michigan, Minnesota, North Carolina, Pennsylvania, Tennessee, Virginia and Wisconsin. The surveys were conducted during February through June in 2013 and 2014—on average, about three years after these workers sustained their injuries. The research found that a worker’s fear of being fired after an injury had a large and pervasive effect on costs and worker outcomes, like return to work. The fear of being fired may arise out of the relationship between the worker and the supervisor. If the relationship is low trust, the worker is more likely to fear firing when injured. To describe the level of trust or mistrust in the work relationship, workers were asked to agree with the statement, “I was concerned that I would be fired or laid off.” Workers were given four possible answers—strongly agree, somewhat agree, somewhat disagree and strongly disagree. Depending on the state, 18% to 33% of workers strongly agreed that they feared being fired when injured. Overall, workers who were strongly concerned about being fired after the injury experienced poorer return-to-work outcomes than workers without such concerns. Across all 12 states, 23% of those concerned about being fired reported that they were not working at the time of the interview—double the rate observed for workers without such concerns. The following are other findings from workers who were strongly concerned about being fired:

• Concerns about being fired were associated with a four-week increase in the average duration of disability.

• Workers who were strongly concerned about being fired had higher rates of dissatisfaction with care (21% were very dissatisfied with care) when compared with workers who were not concerned about being fired after the injury (9%).

• Workers who were concerned about being fired were much more likely to report problems with access to care. Among workers who were concerned about being fired, 23% reported big problems getting the services they or their provider wanted. The rate was double the 10% among workers who were not concerned about being fired.

• 16% of workers who were strongly concerned about being fired reported large earnings losses at the time of the interview predominantly because of injury, compared with 3% of workers who were not concerned about being fired.

What do these findings really signify? The following are some alternative possibilities:

• Workers reporting a strong fear of being fired might know they have a difficult relationship with their supervisor. That difficulty might translate into fewer opportunities to return to work, or more active management of the nature of medical care and the selection of medical care providers.
• The worker may be exaggerating the possibility of termination, being a pessimist by nature, and that tendency to overreact might characterize the workers’ general performance on the job—perhaps resulting in fewer return-to-work opportunities and more active management of the care by the payers.
• The worker may be more likely to retrospectively report a fear of being fired if the worker has had a poor outcome. Poor outcomes color the worker’s view of most events in the course of the claim. Conversely, workers who have experienced excellent outcomes tend to see events in the course of handling the claim in a much more positive fashion.

This is not the first time we looked at trust as it relates to workers’ compensation. A study we did several years ago on attorney involvement, which was covered by CFO magazine, looked at why injured workers hired attorneys. The character of the employment relationship, for example, was a factor for the 23% who strongly agreed that they hired attorneys because they feared being fired or laid off. 15% also strongly agreed that they needed attorneys because their employer could perceive their claims as illegitimate. Employers Can Make a Difference WCRI contacted Lisa Healy, who is a manager of claims at AGL Resources, a natural gas-only distribution company in the U.S. She told us that AGL has been very successful in managing and reducing its workers’ compensation costs. In part, she ties this success to practices where employees in the organization feel engaged and trust the company. The following are five things she told us the company is doing to facilitate trust:

1. Establishing a set of values and a code of conduct with the ability to report those who violate it without fear of retaliation. This gives an organization depth in terms of morals and standards, which appeal to workers of all ages.
2. Holding claim adjusters accountable for treating injured employees in an honest fashion with dignity and respect.
3. Encouraging employees to identify possible safety hazards as well as recommend opportunities to improve safety. When workers are encouraged to point out safety issues or offer suggestions on how to improve things and these comments are taken seriously and addressed, trust is formed.
4. Providing a 24/7 nurse triage program to speed treatment for injured employees so they get the care they need as soon as possible. The employee can contact the nurse triage line immediately after feeling a twinge of pain or sustaining an injury that doesn’t require emergency treatment. This service not only ensures the employee gets the right care immediately, it also cuts down on unnecessary visits to the physician when the employee can use self-care treatments such as ice, rest, elevation or an aspirin.
5. Promoting early return to work with transitional duty positions whenever possible. Research has shown that the longer a worker is out, the harder it is to for the worker to return―not to mention that the costs go up the longer that person is out, so getting him or her back quickly shows the worker you care and is good for the worker and the employer.

The WCRI research is an important first step in realizing how important trust is between employee and employer to ensuring good outcomes when the employee is injured on the job. Additional studies by WCRI and others will provide further information on which policymakers can base appropriate measures. But employers can act now, as AGL Resources has demonstrated, to improve trust while lowering their workers’ compensation costs -- through early intervention, putting safety first, effective return-to-work programs and access to medical care.

We all manage risks in our daily lives—we keep a spare tire in our car in case we get a flat, a little cash in our pocket in case we lose our wallet—but how do companies manage risks for hundreds of thousands of individuals? To manage risks holistically across all divisions of an organization, companies use enterprise risk management (ERM), a process that helps them get an integrated understanding of risks, manage their net exposure, create efficiencies and add value. The challenge is putting it into practice. My colleagues Martin F. Grace of Georgia State University, Richard D. Phillips of Georgia State University and Prakash Shimpi of Fraime LLC and I wanted to find out how the most successful companies do this to develop a set of best practices. We studied the results of a worldwide survey conducted by a risk management consulting firm that asked life and property and liability insurance companies about their risk management practices. These companies take on big risks and need cash reserves in case their liabilities are greater than expected. They often use formulas called economic capital models (ECM) to determine how much money they need on hand to cover these risks. ECMs can be simple or complex. We found that these formulas matter, but companies don’t get additional value from more advanced calculations. The simpler formulas are sufficient, primarily because the cost of implementing sophisticated models often offsets the value derived from using them. We also found that having a dedicated risk manager creates value. This person need not be a chief risk officer, but there should be someone or a cross-functional committee in charge of looking at risks throughout the enterprise. Whether it’s a single person or committee, the risk manager can reduce costs by avoiding risk management strategies that are unnecessary. For example, if two divisions within a company are exposed to risk from changes to the value of the U.S. dollar but in opposite directions, the risk manager will see this and realize these risks cancel each other out and do not warrant the purchase of costly risk management. Intuitively, it seems that having the chief risk manager report to the organization’s board improves risk management, but ours is the first study that proves that this reporting structure reduces costs and enhances revenues. This structure signals to everyone in the organization that leaders take risk management seriously. More siloed approaches to risk management—where each division establishes and implements its own risk management plans—are inefficient and can lead to managing opposing risks that, when viewed holistically, cancel each other out. Having dedicated risk managers can improve efficiency and create value, and this research provides some helpful guidelines in implementing such an approach.

Nancy Newbee is the newest trainee for LOCO (Large Old Company). She was hired because she is bright, articulate, well-educated and motivated. She is in her second week of training. Her orders include: “We’ll teach you all you need to know. Sammy Supervisor will monitor your every action and coordinate your training. Don’t take a step without his clearance. When he’s busy, just read through the procedures manual.” Nancy is already frustrated by this training process but is committed to following the rules. Upon arriving at work today, Nancy discovers the kitchen is on fire! As instructed, she rushes to Sammy Supervisor. Interrupting him, she says, “There’s a major problem!” Sammy is obviously disturbed by this interruption in his routine. “Nancy, my schedule will not allow me to work with you until this afternoon; go back to the conference room and continue studying the procedures.” “But, Mr. Supervisor, this is a major problem!” Nancy pleads. “But nothing! I’m busy. We’ll discuss it this afternoon. If it can’t wait, go see the department head,” Sam says. Nancy rushes to the office of Billy Big and shouts, “Mr. Big, we have a major problem, and Mr. Sam said to see you!” Mr. Big states politely, “I’m busy now …," all the while wondering why Sam hires these excitable airheads. “But, Mr. Big, the building…,” Nancy interrupts. “Nancy, see my secretary for an appointment or call maintenance if it’s a building problem,” Mr. Big says impatiently, thinking, “Where does Sam find these characters?” Near panic, Nancy calls maintenance. The line is busy. As a last resort, Nancy calls Ruth Radar, the senior secretary in the accounting department. Everyone has told her that Ruth really runs this place. She can get anything done. “Ruth Radar, may I help you?” is the response on the phone. “Miss Radar, this is Nancy, the new trainee. The building is on fire! What should I do?” Nancy shouts through her tears. “Nancy, call 911!” Ruth says calmly. Of course, this dysfunction is a ridiculous example. Or is it? Assuming you are the boss, try this eight-question test:

1. In your business, do you hire the best and brightest and then instruct them not to think, act or do anything during their training except as you tell them to do?
2. Do you promise training but substitute reading of procedure manuals?
3. Do you create barriers to communications, interaction and effectiveness by scheduling the new employee’s problems and inquiries to the busy schedules of your other personnel?
4. Do you and your staff ignore what new employees are saying?
5. Is the process more important than the result? Does the urgent get in the way of the important?
6. Do layers of bureaucracy between you, your employees and customers interfere with contact, communications and results?
7. Is “Ruth Radar” running your shop?
8. Do you have any fires burning in your office?

If you answered “no” to all of these questions, congratulations! Now go back and try again. The perfect business would have eight “no” answers, but very few businesses are perfect. If you are like LOCO (a large old company), you might be so far out of touch with your trainees, employees and customers that you won’t hear about a fire until it starts to burn your desk. Look back at IBM, GM and Sears in the late 1980s. These were kings of their jungles. Yet all nearly burned to the ground. Many thousands of employees were terminated, profits ended and stock values fell. If you would have talked to any of these terminated employees you would have learned that the fire had burned for a long time and that many people had tried to sound the alarm. Remember the large old insurance companies that are no longer here – Continental, Reliance, etc. Did their independent agents smell the smoke? Did the leadership of these carriers ignore the alarm? Sam Walton, who had reasonable success in business during his lifetime, once said, “There is only one boss – the customer. Customers can fire everybody in the company from the chairman on down, simply by spending their money somewhere else.” Sam was right. In your business, do you or Nancy have the most direct contact with the customer – the ultimate boss? If Nancy has the most contact, is she adequately trained, motivated and monitored? Is she providing feedback to you? Are you listening? Take one minute to draw a picture of your organization. Are you, as the boss, at the pinnacle? Are Nancy and her fellow trainees at the base? Is it prudent to have the least experienced personnel closest to the customers? Your organization was formed to meet the needs of customers. You exist to serve these same customers. Where are these customers in the organizational chart? Did you forget them? How much distance is there between you (as boss) and the customers? Does this pyramid model facilitate the free flow of information between you and the customers or does it buffer you from the thoughts and feelings of the real boss (the customer)? In your business, is the customer and her problem seen as an interruption of the work or the very reason for your existence? If your customers voted tomorrow, who would be retained? Who would be fired? Think about it! Do you dare to ask?

How can a company liberate itself from the death spiral of product commoditization? Competing on price is generally a losing proposition—and an exhausting way to run a business. But when a market matures and customers start focusing on price, what’s a business to do? The answer, as counterintuitive as it may seem, is to deliver a better customer experience. It’s a proposition some executives reject outright. After all, a better customer experience costs more to deliver, right? How on earth could that be a beneficial strategy for a company that’s facing commoditization pressures? Go From Commodity to Necessity There are two ways that a great customer experience can improve price competitiveness, and the first involves simply removing yourself from the price comparison arena. Consider those companies that have flourished selling products or services that were previously thought to be commodities: Starbucks and coffee, Nike and sneakers, Apple and laptops. They all broke free from the commodity quicksand by creating an experience their target market was willing to pay more for. They achieved that, in part, by grounding their customer experience in a purpose-driven brand that resonated with their target market. Nike, for example, didn’t purport to just sell sneakers; it aimed to bring “inspiration and innovation to every athlete in the world.” Starbucks didn’t focus on selling coffee; it sought to create a comfortable “third place” (between work and home) where people could relax and decompress. Apple’s fixation was never on the technology but rather on the design of a simple, effortless user experience. But these companies also walk the talk by engineering customer experiences that credibly reinforce their brand promise (for example, the carefully curated sights, sounds and aromas in a Starbucks coffee shop or the seamless integration across Apple devices). The result is that these companies create something of considerable value to their customers. Something that ceases to be a commodity and instead becomes a necessity. Something that people are simply willing to pay more for. That makes their offerings more price competitive—but not because they’re matching lower-priced competitors. Rather, despite the higher price point, people view these firms as delivering good value, in light of the rational and emotional satisfaction they derive from the companies’ products. The lesson: Hook customers with both the mind and the heart, and price commoditization quickly can become a thing of the past. Gain Greater Pricing Latitude Creating a highly appealing brand experience certainly can help remove a company from the morass of price-based competition. But the reality is that price does matter. While people may pay more for a great customer experience, there are limits to how much more. And so, even for those companies that succeed in differentiating their customer experience, it remains important to create a competitive cost structure that affords some flexibility in pricing without crimping margins. At first blush, these might seem like contradictory goals: a better customer experience and a more competitive cost structure. But the surprising truth is that these two business objectives are actually quite compatible. A great customer experience can actually cost less to deliver, thanks to a fundamental principle that many businesses fail to appreciate: Broken or even just unfulfilling customer experiences inevitably create more work and expense for an organization. That’s because subpar customer interactions often trigger additional customer contacts that are simply unnecessary. Some examples:

• An individual receives an explanation of benefits (EOB) from his health insurer for a recent medical procedure. The EOB is difficult to read, let alone interpret. What does the insured do? He calls the insurance company for clarification.
• A cable TV subscriber purchases an add-on service, but the sales representative fails to fully explain the associated charges. When the subscriber’s next cable bill arrives, she’s unpleasantly surprised and believes an error has been made. She calls the cable company to complain.
• A mutual fund investor requests a change to his account. The service representative helping him fails to set expectations for a return call. Two days later, having not heard from anyone, what does the investor do? He calls the mutual fund company to follow up on the request.
• A student researching a computer laptop purchase on the manufacturer’s website can’t understand the difference between two closely related models. To be sure that he orders the right one for his needs, what does he do? He calls the manufacturer.
• An insurance policyholder receives a contractual amendment to her policy that fails to clearly explain, in plain English, the rationale for the change and its impact on her coverage. What does the insured do? She calls her insurance agent for assistance.

In all of these examples, less-than-ideal customer experiences generate additional calls to centralized service centers or field sales representatives. But the tragedy is that a better experience upstream would eliminate the need for many of these customer contacts. Every incoming call, email, tweet or letter drives real expense—in service, training and other support resources. Plus, because many of these contacts come from frustrated customers, they often involve escalated case handling and complex problem resolution, which, by embroiling senior staff, managers and executives in the mess, drive the associated expense up considerably. Studies suggest that at most companies, as many as a third of all customer contacts are unnecessary—generated only because the customer had a failed or unfulfilling prior interaction (with a sales rep, a call center, an account statement, etc.). In organizations with large customer bases, this easily can translate into hundreds of thousands of expense-inducing (but totally avoidable) transactions. By inflating a company’s operating expenses, these unnecessary customer contacts make it more difficult to price aggressively without compromising margins. If, however, you deliver a customer experience that preempts such contacts, you help control (if not reduce) operating expenses, thereby providing greater latitude to achieve competitive pricing. Putting the Strategy to Work If your product category is devolving into a commodity (a prospect that doesn’t require much imagination on the part of insurance executives), break from the pack and increase your pricing leverage with these two tactics:

• Pinpoint what’s really valuable to your customers.

Starbucks tapped into consumers’ desire for a “third place” between home and work—a place for conversation and a sense of community. By shaping the customer experience accordingly (and recognizing that the business was much more than just a purveyor of coffee), Starbucks set itself apart in a crowded, commoditized market. Insurers should similarly think carefully about what really matters to their clientele and then engineer a product and service experience that capitalizes on those insights. Commercial policyholders, for example, care a lot more about growing their business than insuring it. Help them on both counts, and they’ll be a lot less likely to treat you as a commodity supplier.

• Figure out why customers contact you.

Apple has long had a skill for understanding how new technologies can frustrate rather than delight customers. The company used that insight to create elegantly designed devices that are intuitive and effortless to use. (Or, to invoke the oft-repeated mantra of Apple co-founder Steve Jobs, “It just works.”) Make your customer experience just as effortless by drilling into the top 10 reasons customers contact you in the first place. Whether your company handles a thousand customer interactions a year or millions, don’t assume they’re all “sensible” interactions. You’ll likely find some subset that are triggered by customer confusion, ambiguity or annoyance—and could be preempted with upstream experience improvements, such as simpler coverage options, plain language policy documents or proactive claim status notifications. By eliminating just a portion of these unnecessary, avoidable interactions, you’ll not only make customers happier, you’ll make your whole operation more efficient. That, in turn, means a more competitive cost structure that can support more competitive pricing. Whether it’s coffee, sneakers, laptops or insurance, every product category eventually matures, and the ugly march toward commoditization begins. In these situations, the smartest companies recognize that the key is not to compete on price but on value. They focus on continuously refining their brand experience—revealing and addressing unmet customer needs, identifying and preempting unnecessary customer contacts. As a result, they enjoy reduced price sensitivity among their customers, coupled with a more competitive cost structure. And that’s the perfect recipe for success in a crowded, commoditized market. This article first appeared on carriermanagement.com.

Whether you are new to college, single and dating or newly divorced (because you panicked and confessed when news of the Ashley Madison hack hit the media), I’ll bet there is at least one socially transmitted disease you haven’t started worrying about: identity theft. If you use Facebook, you’re making easy work for identity thieves. The same goes for the whole cosmos of social media whether you favor Twitter, Instagram, Reddit, Pinterest, YouTube or LinkedIn or prefer to Tumblr your thoughts, preferences and predilections to anyone who cares to know what they are. The more you put out there in publicly viewable spaces, the more your personal identity mosaic is exposed. An identity thief’s day job is piecing together that mosaic into a passable, or usable, version of you: one that will get through the authentication process of financial, medical or governmental organizations. The echo of another kind of disease here is intentional. Like the more widely known kind of STD, the socially transmitted diseases that fall under the rubric of identity-related crimes are contracted by unsafe personal information practices. Unlike the more familiar variety, where safety is taught in high school, tacked to college community boards and heralded by countless other media new and old, not as many people these days know how to stay as safe as possible from the threat of identity theft, especially online. How to practice "safe social":

1. Don’t overshare. It’s okay to let the world know you’re on vacation so long as you have a great security system at home or you have a house sitter. Traditional trespassers use social media to know when houses are unguarded. It is far better to share the memory than report the experience as it’s unfolding.
2. Be careful when posting pictures. While it’s fun to brag about a purchase—whether that be a diamond ring, a car or the smartest TV on the market, just be aware that anyone following you now knows where they can get your newest trophy or indulgence for free.
3. Geotagging is for victims. There is no upside for you here. Companies like geotagging photos and other people-powered media assets because it gives them bankable information that could lead to future sales. Whether you are letting Twitter or Facebook or FourSquare narrowcast (or broadcast, depending on your privacy settings) your location, failure to disable location services on your device permits geotagging, which also gives thieves bankable info that could lead to future crimes.
4. Know your privacy settings. Make sure you understand how your posts are being displayed or distributed by the social network you use. For instance, on Facebook you can set a post to “Public” or “Only Me,” with many choices in between.
5. Lying is good. Facebook, especially, is a perfectly acceptable place to not be forthcoming about your age, hometown, place of employment or even the college you attended and what years you were there. Identity thieves comb social sites for information to complete dossiers of personally identifiable information that will allow them to correctly answer security questions and thus open new financial accounts or empty existing ones. If you don’t want to actively fabricate answers to these questions, just don’t fill out those parts of your profile.
6. Beware of quizzes that require personally identifiable information. Make no mistake, your email address and name count.

There is no immunization Unlike the other kind of STD, the socially transmitted disease of identity theft is not avoidable. There is no immunization, no safe way to avoid it—not even complete abstinence. There have been too many breaches with too much data for anyone but those living entirely off the grid to be completely safe. (And even still you can’t be sure.) Your best bet, in my opinion, is a system detailed in my book (forthcoming in November). A key element to that approach is acceptance. Specifically, you need to come to terms with the fact that it’s no longer a question of “if” but “when” you will become a victim of at least one type, if not multiple types, of identity theft. Anyone who tells you that they can keep you from getting got is selling snake oil. In fact, they are running afoul of the Federal Trade Commission. There is no guarantee. There are, however, best practices. THE THREE M'S If you accept the basic premise that you are at risk for identity theft no matter what you do, here are some thoughts as to how you might stay as safe as possible. The good news may actually be that you are a seasoned and intelligent user of social media, because that means you already have several of the habits in place that you will need. Minimize your exposure The same strategies you can adopt to make yourself a harder-to-hit target on social media go for the rest of your life. Whether that means saying “no” when asked for your Social Security number, limiting the amount of sensitive personal information you provide to anyone who contacts you, making sure all your accounts (email, social networking, financial or retail) have different user names paired with unique, long and strong passwords, properly securing your computers and mobile devices or freezing your credit—there are a variety of things you can do to make your attackable surface smaller. Monitor your accounts If you use social media regularly, you are used to checking in on a regular basis—the Pew Research Center found that 70% of Facebook users check in daily, as did about half of Instagram users, and nearly 40% of Tweeps. The same behavior, applied to your financial life, may keep you from getting got … or help you undo or minimize the damage in case you do. Check your bank and credit card accounts daily. Other things you can do include signing up for free transactional monitoring alerts at your bank, credit union or credit card provider, or purchasing more sophisticated credit and noncredit monitoring programs. Manage the damage When the dark day comes that your daily practice of monitoring your credit or financial life yields a compromise, you need to get on it immediately by informing the institution of the account that is involved, as well as law enforcement and the fraud department of at least one credit reporting agency. Because many insurance companies, a number of financial services organizations and the human resources departments at a number of companies offer complimentary or low-cost identity theft assistance as a perk of your relationship with the institution, check to see if you are covered or, if not, how you can get covered. Resolution experts can greatly help you speed your way back to normalcy. Identity theft is a permanent threat. The best way to stay safe is to change your behavior. The above tips are only some of the ways to do that. In the age of universal data vulnerability, practicing safe information hygiene is a must—lest you contract the one STD that may haunt you for the rest of your life.

Forward-thinking insurance companies are leveraging technology to improve customer experience and differentiate themselves from the competition. Here are the top five insurance apps you should download today, to help with tasks ranging from creating a home inventory to improving your driving skills.

1. Home Gallery App Cost: Free Benefit: Helps you create a home inventory

A home inventory makes filing an insurance claim easier should your things be stolen or damaged. It also gives you an estimate of how much your possessions are worth, which is helpful when you shop for homeowners insurance. Fortunately, the Home Gallery app from Liberty Mutual makes cataloging your possessions a cinch. The app allows you to take photos of your items, note important information such as purchase price and date and share your inventory with family members or your insurer. Best yet, you can use the Home Gallery app whether or not you’re a Liberty Mutual customer.

2. Driver Feedback App Cost: Free Benefit: Gives you information to become a better driver

State Farm’s Driver Feedback app helps you become aware of driving habits that increase your chance of being involved in an accident, which could raise your auto insurance premium. The app uses your smartphone’s accelerometer and GPS locator to collect data about how you brake, corner and accelerate. Once you arrive at your destination, the app gives you a score for your trip and offers tips about how to improve your driving. Using the Driver Feedback app, you can also compare data from one trip with another and share the results via email or text. These features can help new drivers form good driving habits and allow parents to monitor their teen’s performance behind the wheel. Plus, using a driving app is one way your teen might reduce her auto insurance premium. You don’t need to be insured with State Farm to use the app, and your driving data isn’t shared with your insurance company.

3. Text4Baby App Cost: Free Benefit: Provides tips to help expectant moms stay healthy during pregnancy

The Text4Baby app provides pregnant women with a wealth of information to help them have a healthy pregnancy and avoid preventable complications. When a mom signs up, she receives a “starter pack” of messages. Then, every week, she receives three text messages about prenatal care, ranging from doctor appointment reminders to information about symptoms that could warrant concern. Major insurance providers, like Aetna, CIGNA and Blue Cross and Blue Shield, are Text4Baby “outreach partners.” This means the companies encourage expectant moms to use the app to stay healthy, which can reduce the chance of complications that can make pregnancy-related costs skyrocket.

4. Infinity App Cost: Free Benefit: Allows you to create a secure digital inventory

The MetLife Infinity app gives you the power to create a digital inventory of photos, videos and audio files, plus important documents like wills and insurance policies. The app stores as much as five GB of data in the cloud, and it’s password-protected and permanently backed up. You can organize your information in collections and securely share the information with anyone, from a family member to your insurance agent. You can take advantage of the app even if you’re not a MetLife policyholder.

5. Defend Your Income Cost: Free Benefit: Explains how a disability can affect your life

Defend Your Income is an online game produced by the Council for Disability Awareness. Its goal is to help you understand how a disability may affect your life. Throughout the game you defend yourself from health-related issues like pregnancy complications, cancer, and respiratory disease. After you complete each round, you answer trivia questions and learn miscellaneous facts about the disability. By the end of the game, you’re more aware of your disability likelihood and have an idea of how much income you could lose if you become disabled. This information is useful when you’re calculating the amount of disability insurance you need. These apps are transforming the insurance industry by elevating customer service to a new level. Download one or more of them and then share your experience. We’d love to hear your thoughts.

If you read our most recent article, “Dinner With Warren Buffett,” you’ll already know that I've truly earned the title "insurance nerd" after dreaming about hours-long insurance conversations. After I woke up, we started this series to share Warren Buffett’s insurance industry wisdom from his annual letters to shareholders. Last week, we talked about the fundamentals; today, we’re going to share three challenges of the industry and two of its strengths. Challenges of the Insurance Industry 1. Dismal Economics: In the 1987 letter, Buffett explains that the insurance industry is “cursed” with “dismal economic characteristics” because there are hundreds of competitors, easy entry and a product that cannot be properly differentiated for a durable competitive advantage. This makes personal lines insurance a "commodity-like" business where, in his opinion, only a company that enjoys a cost advantage or one that operates in a very small niche can sustain high profitability levels in the long term. He goes on to explain that Berkshire’s differentiator is its ability to be the low-cost provider in personal lines through Geico and its financial strength for large specialized commercial lines and reinsurance. Competing on cost is always challenging in our industry, and maintaining financial strength in a turbulent world is also a feat not to be taken lightly. We think it’s funny that he talks about dismal economics when he has made most of his billions in our beloved industry, and he's very clear in the letters that Berkshire will always be heavily invested in insurance. However, we love insurance not because it's a great investment but rather because it’s a great place to work, one that’s interesting and rewarding and one where we are being a positive influence in the world. In that sense, we are very different from Uncle Warren, who sees insurance simply as an investment vehicle. If you see it only as a financial investment, some of its characteristics would make it tough. 2. Commoditization of the product can lead to poor returns: “Insurers have generally earned poor returns for a single reason: They sell a commodity-like product. Policy forms are standard, and the product is available from many suppliers, some of whom are mutual companies (‘owned’ by their policyholders rather than stockholders) with profit goals that are limited. Moreover, most insureds don’t care from whom they buy. Customers by the millions say, ‘I need some Gillette blades’ or ‘I’ll have a Coke,’ but we wait in vain for ‘I’d like a National Indemnity policy, please.’ Consequently, price competition in insurance is usually fierce.” -- 2004 letter, page 5. We’ve written about the commoditization of insurance before. Personal lines insurers are particularly aware of the struggles in that arena. Agents fight against it, regularly, and some companies are actively innovating to move away from this strategy. Some of the bigger companies add features to their policies that they hope others will be slow to follow, and newer companies, like MetroMile, aim to change the industry, but ultimately policies and endorsements must be filed and thus can be copied by competitors. Ironically, Buffett's own billions in advertising spending for Geico, almost exclusively focused on price, have done more to commoditize our industry in the eyes of the customer than anything else in its ingrained characteristics. 3. Maintaining underwriting discipline at the expense of growth is a challenge unique to the insurance industry: “Most American businesses harbor an ‘institutional imperative’ that rejects extended decreases in volume. What CEO wants to report to his shareholders that not only did business contract this year but that it will continue to drop? In insurance, the urge to keep writing business is also intensified because the consequences of foolishly priced policies may not become apparent for some time. If an insurer is optimistic in its reserving, reported earnings will be overstated, and years may pass before true loss costs are revealed. […] Finally, there is a fear factor at work, in that a shrinking business usually leads to layoffs. To avoid pink slips, employees will rationalize inadequate pricing, telling themselves the poorly priced business must be tolerated in order to keep the organization intact and the distribution system happy. […] [Underwriting] is not labor-intensive, and... we can live with excess overhead. We can’t live, however, with underpriced business and breakdown in underwriting discipline that accompanies it.” -- 2004 letter, page 5-7. Stock companies, particularly, will have challenges in maintaining underwriting discipline. If certain markets cannot show growth because of underwriting or capacity restraints, it requires that a clear picture be painted for stockholders to justify why the company has exercised this restraint. In addition, companies should be wary of laying off employees because of a temporary downturn. We think this one long paragraph really captures the spirit of the insurance industry and the innate contradictions of always pursuing growth. Uncle Warren's professed philosophy for the Berkshire companies is to only write business that is expected to be profitable and to always be willing to stand by and accept premium declines if the market is soft and proper rates can't be secured. We love that he professes to be willing to carry excess staff during quiet times, instead of endless waves of rightsizing and rehiring, and we think all insurance companies should consider similar policies. Advantages of the Insurance Industry 1. Profits can be outstanding if you manage your business well. “It is not easy to buy a good insurance business, but our experience has been that it is easier to buy one than create one. However, we will continue to try both approaches since the rewards for success in this field can be exceptional.” -- 1978 letter, page 5. Whether one buys or creates an agency or a carrier, managing the insurance portfolio well will typically lead to high payouts. The business also has the opportunity to truly provide for its customers, and it is very rewarding beyond the financial aspect at that time of need. On the carrier side, where Buffett focuses, ultimately it comes down to float: Premiums are received up front, and losses aren't paid until later, sometimes much later, allowing him to invest and multiply those funds. 2. You will never be bored. “You can get a lot of surprises in insurance.” -- 1978 letter, page 6. Finally, the element of surprise in insurance is exciting! Most people think of it as a boring, unchanging industry. But, particularly now, the industry is ripe for disruption. Beyond that, if you work for a carrier, you never know what your agents will call you with, and if you’re an agent or service representative, you never know what your customer will call you for. We are learning something every day and know that we will to do so throughout our careers! It is one of the best aspects of the profession.

It’s okay to get help! Recently, we hired a business development professional. In learning our business model and marketing strategy, he asked, “Who is your biggest competitor?” We said: our customers -- the “do-it-yourselfers.” This struck him as odd, but it is the absolute truth. We are in the business of preparing property claims that usually involve physical damage and business interruption. This is a very specialized practice that is part accounting, part insurance and part art. However, the companies we approach often feel they are in the best position to handle this process and do not need outside assistance. Why is that? When a claim is reported, the insurance company will assign an adjuster to the claim -- either an inside adjuster or an independent adjuster -- sometimes both. The adjuster is hired by and paid for by the insurance company to make sure the claim fits within terms and conditions of the insurance contract. The adjuster will rely on specialists of his own -- usually forensic accountants and forensic engineers. The specialists allow the adjuster to focus on his job of interpreting the coverage, reporting back to the insurance company and negotiating settlement on behalf of the insurance company. The specialists are there to verify the details of the claim that is presented to them by the policyholder. The insurance adjuster alone cannot and does not take on all of the responsibilities. The adjusters are the experts at this process -- it is their business and they do it every day -- but they still get specialized help. So if the insurer handles claims this way, why would the insured not get expert help? Think of the “do-it-yourselfer” project at home. Let’s say you're pretty handy around the house, so you look at that bathroom that needs remodeling and decide, “I’ll do it myself this weekend.” Technically, you CAN do it yourself -- you can take your crowbar and sawzall and do the demolition; you can handle laying the tile; and, with a little research, you could figure out the plumbing. The first weekend you go out to buy the extra tools you need and some supplies, and you get to work. Maybe the demo will go easily, but if you’ve ever tackled a home project, you know nothing is as easy as it seems, and it always takes more time than expected. If you make it through the demo, you spend the rest of the weekend figuring out your strategy for the new bathroom. Because you have a day job, each evening that next week you try to make progress, but by the end of the week you are bleary-eyed from the stress of this unfamiliar work and the late nights of trial and error. The next weekend, you cannot get back to the work, because you have family activities. When the vanity arrives, you realize it does not quite fit the way it should. Next, you realize you need more tools. Your weekend project turns into months of disarray. If you stay the course, months later you’ll have a functional bathroom, but there are usually a few steps that you decide you’ll have to get to eventually. At this point, you're getting busier at work, and you just don’t have the bandwidth to get back to the myriad of subsequent bathroom issues, so you consider bringing in an expert to bail you out. Preparing a claim is very similar, if you do it yourself. In addition to saving time, stress and compromising the results, your claim preparation expert has the tools of the trade, the skills and the experience to achieve an accurate and timely recovery. In contrast to the home improvement example, though, your claim preparer's fees should be covered, in part or in full, by your property policy. So, if you're not saving time or money by doing it yourself, and an expert will get you a better result, why would you not engage a professional claim preparer? That question seems like a no-brainer, yet so many still take the DIY approach to property claims. To sum up, it is okay to ask for help. The policyholder is not expected to be able to “do it yourself.” That is why you have professional fees coverage. The insurance company assigns its experts to adjust and audit your claims, and they’ll be better-equipped to meet their objectives than you will if you take the DIY approach. They are the insurers experts, so it is advisable for you to bring in your experts to represent your interests. Here are a few suggestions of what to look for in a firm to prepare your claims.

1. A loss accounting specialist, because insurance accounting is a unique trade. Typically, the firm will identify itself as forensic accountants.
2. Experience with the types of property claims you have, in your industry or similar ones, and with at least 10 years in the field.
3. Independence. This will ensure the firm is on your side with no conflicts of interest. Avoid allowing your insurer's accountants to calculate your losses. The same hold for any other party that may have a conflict.
4. A firm that qualifies for professional fees coverage. The fees should be based on an hourly rating scale, not on contingencies. Property policies will have specific exclusions, such as public adjusters and broker affiliated services.
5. A firm that is respected by insurers, adjusters and brokers. Your accountants should not threaten your relationships to achieve the result.

If you see the benefit of engaging a team to prepare your property and business interruption claims, do your due diligence ahead of a loss. Interview any qualifying candidates and make your choice. The firm should be involved in your claim from the very beginning. If you take this advice, your claims will go much smoother, and the claim will be free of leaks and loose tiles.