Insurance executives can be excused for having ignored the potential of machine learning until today. Truth be told, the idea almost seems like something out of a 1980s sci-fi movie: Computers learn from mankind’s mistakes and adapt to become smarter, more efficient and more predictable than their human creators. But this is no Isaac Asimov yarn; machine learning is a reality. And many organizations around the world are already taking full advantage of their machines to create new business models, reduce risk, dramatically improve efficiency and drive new competitive advantages. The big question is why insurers have been so slow to start collaborating with the machines. Smart machines Essentially, machine learning refers to a set of algorithms that use historical data to predict outcomes. Most of us use machine learning processes every day. Spam filters, for example, use historical data to decide whether emails should be delivered or quarantined. Banks use machine learning algorithms to monitor for fraud or irregular activity on credit cards. Netflix uses machine learning to serve recommendations to users based on their viewing history and recommendations. In fact, organizations and academics have been working away at defining, designing and improving machine learning models and approaches for decades. The concept was originally floated back in the 1950s, but – with no access to digitized historical data and few commercial applications immediately evident – much of the development of machine learning was largely left to academics and technology geeks. For decades, few business leaders gave the idea much thought. Machine learning brings with it a whole new vocabulary. Terms such as "feature engineering," "dimensionality reduction," "supervised and unsupervised learning," to name a few. As with all new movements, an organization must be able to bridge the two worlds of data science and business to generate value. Driven by data Much has changed. Today, machine learning has become a hot topic in many business sectors, fueled, in large part, by the increasing availability of data and low-cost, scalable, cloud computing. For the past decade or so, businesses and organizations have been feverishly digitizing their data and records – building mountains of historical data on customers, transactions, products and channels. And now they are setting their minds toward putting it to good use. The emergence of big data has also done much to propel machine learning up the business agenda. Indeed, the availability of masses of unstructured data – everything from weather readings through to social media posts – has not only provided new data for organizations to comb through, it has also allowed businesses to start asking different questions from different data sets to achieve differentiated insights. The continuing drive for operational efficiency and improved cost management has also catalyzed renewed interest in machine learning. Organizations of all stripes are looking for opportunities to be more productive, more innovative and more efficient than their competitors. Many now wonder whether machine learning can do for information-intensive industries what automation did for manual-intensive ones. A new playing field For the insurance sector, we see machine learning as a game-changer. The reality is that most insurance organizations today are focused on three main objectives: improving compliance, improving cost structures and improving competitiveness. It is not difficult to envision how machine learning will form (at least part of) the answer to all three. Improving compliance: Today’s machine learning algorithms, techniques and technologies can be used on much more than just hard data like facts and figures. They can also be used to  analyze information in pictures, videos and voice conversations. Insurers could, for example, use machine learning algorithms to better monitor and understand interactions between customers and sales agents to improve their controls over the mis-selling of products. Improving cost structures: With a significant portion of an insurer’s cost structure devoted to human resources, any shift toward automation should deliver significant cost savings. Our experience working with insurers suggests that – by using machines instead of humans – insurers could cut their claims processing time down from a number of months to a matter of minutes. What is more, machine learning is often more accurate than humans, meaning that insurers could also cut down the number of denials that result in appeals they may ultimately need to pay out. Improving competitiveness: While reduced cost structures and improved efficiency can certainly lead to competitive advantage, there are many other ways that machine learning can give insurers the competitive edge. Many insurance customers, for example, may be willing to pay a premium for a product that guarantees frictionless claim payout without the hassle of having to make a call to the claims team. Others may find that they can enhance customer loyalty by simplifying re-enrollment processes and client on-boarding processes to just a handful of questions. Overcoming cultural differences It is surprising, therefore, that insurers are only now recognizing the value of machine learning. Insurance organizations are founded on data, and most have already digitized existing records. Insurance is also a resource-intensive business; legions of claims processors, adjustors and assessors are required to pore over the thousands – sometimes millions – of claims submitted in the course of a year. One would therefore expect the insurance sector to be leading the charge toward machine learning. But it is not. One of the biggest reasons insurers have been slow to adopt machine learning clearly comes down to culture. Generally speaking, the insurance sector is not widely viewed as being "early adopters" of technologies and approaches, preferring instead to wait until technologies have become mature through adoption in other sectors. However, with everyone from governments through to bankers now using machine learning algorithms, this challenge is quickly falling away. The risk-averse culture of most insurers also dampens the organization’s willingness to experiment and – if necessary – fail in its quest to uncover new approaches. The challenge is that machine learning is all about experimentation and learning from failure; sometimes organizations need to test dozens of algorithms before they find the most suitable one for their purposes. Until "controlled failure" is no longer seen as a career-limiting move, insurance organizations will shy away from testing new approaches. Insurance organizations also suffer from a cultural challenge common in information-intensive sectors: data hoarding. Indeed, until recently, common wisdom within the business world suggested that those who held the information also held the power. Today, many organizations are starting to realize that it is actually those who share the information who have the most power. As a result, many organizations are now keenly focused on moving toward a "data-driven" culture that rewards information sharing and collaboration and discourages hoarding. Starting small and growing up The first thing insurers should realize is that this is not an arms race. The winners will probably not be the organizations with the most data, nor will they likely be the ones that spent the most money on technology. Rather, they will be the ones that took a measured and scientific approach to building their machine learning capabilities and capacities and – over time – found new ways to incorporate machine learning into ever-more aspects of their business. Insurers may want to embrace the idea of starting small. Our experience and research suggest that – given the cultural and risk challenges facing the insurance sector – insurers will want to start by developing a "proof of concept" model that can safely be tested and adapted in a risk-free environment. Not only will this allow the organization time to improve and test its algorithms, it will also help the designers to better understand exactly what data is required to generate the desired outcome. More importantly, perhaps, starting with pilots and "proof of concepts" will also provide management and staff with the time they need to get comfortable with the idea of sharing their work with machines. It will take executive-level support and sponsorship as well as keen focus on key change management requirements. Take the next steps Recognizing that machines excel at routine tasks and that algorithms learn over time, insurers will want to focus their early "proof of concept" efforts on those processes or assessments that are widely understood and add low value. The more decisions the machine makes and the more data it analyzes, the more prepared it will be to take on more complex tasks and decisions. Only once the proof of concept has been thoroughly tested and potential applications are understood should business leaders start to think about developing the business case for industrialization (which, to succeed in the long term, must include appropriate frameworks for the governance, monitoring and management of the system). While this may – on the surface – seem like just another IT implementation plan, the reality is that it machine learning should be championed not by IT but rather by the business itself. It is the business that must decide how and where machines will deliver the most value, and it is the business that owns the data and processes that machines will take over. Ultimately, the business must also be the one that champions machine learning. All hail, machines!           At KPMG, we have worked with a number of insurers to develop their "proof of concept" machine learning strategies over the past year, and we can say with absolute certainty that the Battle of Machines in the insurance sector has already started. The only other certainty is that those that remain on the sidelines will likely suffer the most as their competitors find new ways to harness machines to drive increasing levels of efficiency and value. The bottom line is that the machines have arrived. Insurance executives should be welcoming them with open arms.

This article was first published at re/code. It’s a common thread in nearly every industry: Innovation occurs when consumers’ growing needs and expectations converge with intense competition. It’s no surprise, then, that insurance — not exactly known for being on the forefront of technology — is one of the last remaining industries to innovate and fully embrace data, analytics and customer communication technologies. Insurance is a complex purchase business with a convoluted ecosystem and ever-changing regulatory requirements that has kept the industry in a well-protected bubble from external competition for decades. Now in 2015, the announcement of Google Compare for auto insurance pushes the industry to innovate from a technology standpoint, but most importantly from a structural standpoint, by changing the way insurance companies interact with their customers. The reasons below outline why Google has the greatest chance to succeed where others have not. A Lesson From Other Industries Google has previously disrupted numerous industries to great success — think health, travel and navigation — mostly because of its dominance in search. Many of Google’s consumer-facing businesses have followed as logical next steps in the Google search process. For example, do you want to use Google to search for the best insurance company, or would you prefer to find the best insurance company with the cheapest policy? Do you want to use Google to find the route for your road trip, or would you prefer to have Google find you the best route? Google’s constant innovation stems from a simple but effective idea: Eliminate an unnecessary extra step (or steps) in the process, and give the consumer what they desire most — ease and simplicity. There are some who believe that the tech giant may not be doing anything noticeably different from other aggregators in the auto insurance space. However, if its accomplishments in other industries tell us anything, Google will find a way to engage the consumer better than incumbent insurers do. Rather than writing its own business and determining individual risks, Google has teamed up with carriers of all sizes to reach customers efficiently, allowing them to quickly search, get rates and compare policies “pound for pound.” Already, this platform has helped shift the insurance industry’s emphasis on the customer by allowing peer-to-peer ratings and allowing consumers to openly disclose any negative or positive experiences, which will breed superior customer service and experience. Millennials Trust Google It is highly unlikely that Google will ever become a full insurance company with its own agents and underwriters, but Google brings a brand name that elicits trust and familiarity. This is especially true of Millennials, who are set to overtake Baby Boomers as the largest consumer demographic, at 75.3 million in 2015. When Strategy Meets Action reported in early 2014 that two-thirds of insurance customers would consider purchasing products from organizations other than an insurer — including 23% from online service providers like Google — it created tension in the insurance industry. These findings are largely a reflection of consumer discontent with insurance companies and their seeming lack of transparency. Millennials do not trust insurance companies, but they do trust Google with just about every engagement they have with the Internet. And consumers trust other consumers: Google Compare’s user feedback platform brings transparency to consumers and requires the insurance industry to reevaluate how to effectively engage customers in a tech-driven environment. Pushed by Google’s unique insight into Millennials, traditional insurance companies must acquaint themselves with their new consumers, who are often considered impatient, demanding and savvy about social media. Establishing a Preferred Consumer Platform An eye-opening Celent study recently found that less than 10% of North American consumers actually choose financial service products based on better results. Instead, a vast majority places higher importance on ease (26%) and convenience (26%). Based on these findings, Google is using a business model that embodies the preferred consumer experience, a notion that is being reinforced by initial pilot results in California. According to Stephanie Cuthbertson, group product manager of Google Compare, millions of people have used Google to find quotes since its launch in March, and more than half received a quote cheaper than their existing policy. Other new entrants, like Overstock, have reported issues with completion of purchase because consumers will browse offerings but still hesitate to complete their purchase online in a single visit to a website. Google’s platform is attempting to avoid this issue by announcing agency support through its partnership with Insurance Technologies, allowing consumers peace of mind by speaking to an agent before purchasing a policy — but maintaining the online price quote throughout the buying experience. Potential for Future Growth While Google Compare is beginning with auto insurance, work with CoverHound gives a glimpse into where it may be looking to expand. CoverHound’s platform specializes in homeowners’ and renters’ insurance, the latter of which is growing exponentially with the Millennial generation, who prefer to rent rather than buy. According to a recent TransUnion study, seven out of 10 Millennials prefer to conduct research online with their laptop, computer or mobile device when searching for a new home or apartment to rent. Google Compare has also already shown momentum by recently announcing its expansion of services to Texas, Illinois and Pennsylvania, while adding a ratings system for each company it works with — much like the insurance version of TripAdvisor or Expedia. The Bottom Line Nearly every industry undergoes disruption when consumer expectations shift and businesses are forced to adapt and keep up. For decades, insurance didn’t have the kind of pressure from outside entrants that it is currently facing. Whether Google fails or succeeds early on makes little difference: Its entrance is a wake-up call. The more tech companies enter the space, the more traditional insurance must struggle to play catch-up. These new entrants are helping to not only force innovation from a technology standpoint but also to bring an innovation culture to the industry so insurers can stay ahead of consumers demands around buying and customer service. Agents and insurance carriers have a level of expertise that is unmatched by the Googles of the world, but it will be wasted if insurers can’t figure out a way to integrate that expertise in a modern way and connect to consumers through different social channels. The writing is on the wall, and how traditional insurance reacts will ultimately decide its relevance in the industry of the future.

At the 67th annual SAWCA Convention, Frank Neuhauser, executive director of the Center for the Study of Social Insurance (CSSI) at University of California at Berkeley, opened his keynote by discussing the future of workers’ compensation. He noted that the current system does not efficiently address the issues that employers and employees face today. In 1915, the system was created primarily to support a heavily industrialized workforce, but that is no longer the case. The organizational costs associated with administering $1.00 of medical treatment under workers comp is estimated to be $1.25. To administer at this same level of service under a group health plan costs just 14 cents. In addition, the use of workers’ compensation Medicare set asides (MSAs) creates Medicare to lose between 25% and 40% of the amount, and the MSA process is inefficient and has the potential to become costly. Neuhauser recommends that a more streamlined approach be designed by the states to limit the duration of employers’ liability to two years and then assess insurers and self-insurers “fair” payment to a Medicare trust fund. Non-traumatic injuries make up 67% of claims and 75% of claim dollars. So where do these injuries frequently occur? An employee is four times more likely to suffer a fatal injury away from the workplace, and 75% of workers are in occupations that are low hazard. In the next 20 years, this may lead to the conclusion that the workers’ compensation requirement for employers and occupations with negligible additional risk should be eliminated. Based on this conclusion and the ability to administer medical benefits more efficiently, Neuhauser recommends that 75% of employers should administer their workers’ compensation through a group health plan.

USA Today recently published a story about ProPublica, a nonprofit news organization that has developed a metric to score surgeons’ performance, comparing them with their peers. The study is intended as a tool for consumers, but it has generated concern among surgeons, who feel they are being treated unfairly. What the article neglects to mention is that rating doctors and hospitals is not new in the general health world. Scoring medical providers has been a practice for decades. The Leapfrog Group, which scores hospitals, has been in business much more than 20 years. Doctor Scorecard scores medical doctors, and a Google search will offer more. What is different about the ProPublica analysis is that it is based entirely on data and singles out surgeons treating the Medicare population. It also uses an adjustment score for the difficulty of cases analyzed called an adjusted complication rate. The ProPublica study includes 17,000 doctors performing what are called low-risk, elective surgical procedures derived from Medicare data. The adjusted complication rate selects cases that are considered low risk, such as gall bladder removal or hip replacement. The study looks for complications such as infection or blood clots that require post-operative care, in this case re-hospitalization. The cost of post-operative care requiring hospital readmission amounted to $645 million, which was billed to taxpayers for 66,000 Medicare patients from 2009 to 2013. Logic says that if surgical complications requiring hospitalization are so costly for Medicare patients, the costs must translate to astounding rates in workers’ compensation, as well. However, the study does not directly apply to work comp doctors. The ProPublica study does not directly translate to workers’ compensation because the study examines Medicare patients only. While some injured workers qualify for Medicare, the majority are healthy, working adults under Medicare age. What does translate from the study is that evaluating and rating medical doctor performance based on the data is do-able and important. However, it should not be limited to surgeons. The analysis of doctor performance must be comprehensive, accurate and fair. Rather than using the limited measure of adjusted complication rate following surgery, a broader view of the claim and claimant is appropriate for workers’ compensation. Analysis is not limited to those cases with complications. Instead, all claims are analyzed. Results are adjusted by the claimant’s age, general health (indicated by co-morbidities), and the type and severity of the injury itself. Administrative management analyses are also important in workers’ compensation such as direct medical costs, indemnity costs, return to work, and case duration, among others. Case complexity, sometimes presented as case mix adjustment, is important to fairness in rating doctors in workers’ compensation. Also, analyzing a broad scope of data elements smoothes the variability, leading to more accuracy. Fortunately, in workers’ compensation, claims have a very wide range of revealing data elements that can be drawn from a payer's multiple data silos. The ProPublica study has created pushback from the physician community for several reasons. For one, gall bladder surgery is often performed in an outpatient setting, so re-hospitalization is a meaningless metric. The same is also true for others of the so-called low-risk surgery category. Moreover, the study names names. Published provider ratings from a national survey caused much of the angst noted in the USA article. Names were even published in local papers, naming physicians well-known in their communities. Doctors cried foul! Expecting the general population of patients to understand what the ratings mean, regardless of their accuracy, is naive. Ratings listed as 2.5 or 1.6 have obscure meanings to the uninitiated. Fortunately, workers’ compensation providers do not face that level of exposure. Doctor ratings in workers’ compensation are not published for the general public or made available for consumer interpretation.

Musculoskeletal diseases, defined as injuries to the soft tissues, currently affect more than one out of every two persons in the U.S. age 18 and older, and nearly three out of four over the age of 65. Low back pain affects at least 80% of adults at some point, with an estimated annual cost of more than $100 billion. Trauma, back pain and arthritis -- the three most common musculoskeletal conditions -- are the most common reason for patient visits to physicians’ offices, emergency departments and hospitals every year. With the aging U.S. population, musculoskeletal diseases are becoming a greater burden every year. A determination must be made if the pain generator is muscular or structural, and incorrect diagnoses can lead to inappropriate treatments and, in the worst case, unnecessary surgeries. About 80% of healthcare and social costs related to low back pain are attributed to just 10% of patients with chronic pain and disability. This statistic suggests that improved interventions to reduce the recurrence of low back pain can underpin significant cost savings and improvement in patient outcomes. The standard approach to managing soft tissue injuries is to obtain a medical history and perform a physical examination. Imaging or testing usually is not needed in the early phases of treatment. In most cases, the natural history of a soft tissue injury resolves without intervention. There are excellent tools to diagnose structural abnormalities or nerve injuries. These include imaging studies, nerve condition tests and disograms. X-rays can be used to assess the possibility of fracture or dislocation. Nerve conduction studies may be used to localize nerve dysfunction. But they are not adequate for soft tissue injury or functional assessments. MRI and CT scans, while excellent tests to evaluate structure, are generally static and not designed to assess muscle function dynamically. In addition, these standard tests all carry a high rate of false positives. There is no magic bullet or one test that does everything. While many tests are good for what they are designed to evaluate, they are not appropriate to diagnose a soft tissue injury. Enter electrodiagnostic functional assessment -- EFA testing. The EFA is a diagnostic tool that combines and enhances five medically accepted tests: electromyography, range of motion, functional capacity evaluation, pinch and grip strength. The EFA is non-invasive and non-loading. The advantage the EFA presents over performing these tests individually is that it performs all tests simultaneously and in a dynamic fashion. This equipment has a 510 (k) registration with the Food and Drug Administration as a Class II diagnostic device. Furthermore, the FDA has recognized in the intended use section that the technology can distinguish between acute and chronic pathology, is able to look at referred pain patterns and is useful with treatment recommendations and baseline testing. Physicians encounter patients daily with complaints of injuries to the soft tissues, particularly the paraspinal muscles. In many cases, objective findings are obvious, but many patients may have injuries that are subtle but continue to cause symptoms. In other cases, the injuries may be less recent, and the physical findings may not be apparent. Direct palpation of soft tissues can, in some cases, reveal the nature or type of injury, but this manner of diagnosis relies on static testing. For some individuals, problems may only be encountered during activity. Measuring muscle activity during range-of-motion testing is difficult at best. The extent to which a patient exerts herself also presents a subjective bias with soft tissue injury. Better outcomes will be demonstrated by using the correct tools to evaluate the underlying pathology. In Adam Seidner’s paper “Assessing disease and wellness in the occupational setting: Electrodiagnostic Functional Assessment from wired to wireless,” he demonstrated that, when the EFA was implemented as a case management tool, it enhanced the level of discussion among treating providers, injured workers and claim professionals. The study demonstrated that medical and lost wage payments to injured workers and their healthcare providers were 25% lower in the EFA group, for an average savings of $10,000 per claim versus the control group. Most importantly, the average return to work was 213 days in the EFA group versus 275 for the control group, or an average of 62 days sooner. The EFA was able to provide better diagnostic information on soft tissue injuries and return the individual back to activities of daily living sooner. Better patient care leads to better outcomes. The EFA results are further demonstrated in the paper “Musculoskeletal disorders early diagnosis: A retrospective study in the occupational medicine setting.” The study found EFA test results affected the course of treatment, improved clinical and functional outcomes, increased patient satisfaction and decreased dispute litigation. In fact, 98 of the 100 cases resulted in return to maximum medical improvement with no rateable impairment and full release to active duty. Only 2% of the cases were challenged, and 98% of those in the EFA control group returned to their pre-injury jobs. These cases were tracked over a three-year period. The EFA-STM baseline program is just another example of better diagnostics providing better patient care. This book-end solution allows for the best care possible for the work-related injury. If a condition is not deemed to be work-related, the individual can still receive the best care and a quicker resolution. The EFA does not replace the other, well-established diagnostic tests; it is simply a better diagnostic alternative for soft tissue injuries. All the tests can complement one another. At the end of the day, when it comes workers’ compensation, the issue is providing better patient care. It’s a win-win for all parties.  

We hope at least a few of you have lamented –we’ll settle for noticed -- our absence from ITL for the last six months. There are two reasons. First, in the immortal words of the great philosopher Gerald Ford, “When a man is asked to make a speech, the first thing he has to do is decide what to say.” We needed something compelling to say, and at this point yet-another-vendor-making-up-outcomes is old news. In any event, there is now an entire website devoted to that topic. (New news:  US Preventive Medicine is NOT making up its outcomes. It is the first wellness vendor to be validated.) Second, we have spent the last six months answering the perennial question: “So what would you do instead?” by developing www.quizzify.com. Quizzify teaches employees that “just because it's healthcare doesn’t mean it’s good for you,” and does it in an enjoyable Jeopardy-meets-health-education-meets-Comedy Central way, as playing the demo game will show. Quizzify’s savings are, uniquely in this industry, 100% guaranteed. But we digress. The news of the day is that we want to settle once and for all the he said-she said debate about whether wellness saves money, and we'll do it the old-fashioned way: by offering a million-dollar reward for anyone who can show that wellness isn’t a horrible investment. All someone has to do is show that the employer community as a whole breaks even on its wellness investment. The inspiration for this reward came when a group calling itself “The Global Wellness Institute Roundtable” released a report criticizing us for “mud-slinging on ROI.” (In other words, “proving that there is no ROI.”) We are not familiar with this group. Their headliner seems to be a Dr. Michael Roizen. If that name sounds familiar, it’s because he used to work with Dr. Oz, though to Dr. Roizen’s credit he was not implicated in the congressional investigation of Dr. Oz. This $1-million reward is – as an attorney recently posted-- a binding legal contract. It is also totally fair. The “pro” party is allowed to use the wellness industry’s own “official” outcomes report, which was compiled with no input from anyone opposed to wellness. Further, the panel of judges is selected from an independent email list, run by healthcare policy impresario Peter Grant. This is no ordinary independent email list—this is the invitation-only “A List” of healthcare policymakers, economists, journalists and government officials who make, influence or report the decisions and rules we live by. The “pro” party invites two people, we invite two and those four pick the fifth. This is truly the ultimate in fairness. Unfortunately, “fairness” is perhaps the second-scariest word to a wellness vendor (“validity” being the first), so there is no chance of anyone taking us up on this. (There is a slight risk in challenging us—whichever party loses has to pay the expenses of the contest, including the panelist fees. This will run likely $100,000. Still, that makes the proposition at worst 10-to-one odds, and the "pro" forces get their $100,000 back if they win.) Not being taken up on this offer is, of course, the entire point of making the offer. The wellness industry’s inaction will prove what numerous gaffes and misstatements  have already revealed: Wellness industry leaders know that wellness loses money. For them, wellness is all about maintaining the façade of saving money so that they don’t get fired from the employers they’ve been snookering.

I’m aware of no logic, facts or data to support the assertion that options increase workers’ compensation premiums. The exact opposite can be easily demonstrated. Ask yourself, are prices higher or lower when employers have only one product to choose from vs. when they are able to choose among competing products? Texas went from the 10^th most expensive workers’ compensation system in the U.S. in 2003 to the 38^th most expensive state in 2013 through a combination of workers’ compensation system reforms and competitive pressures from employers electing the Texas “nonsubscriber” option – choosing not to be part of the state’s workers’ compensation system. One-third of all Texas employers have elected the option. Employers representing hundreds of thousands of Texas workers evaluated the impact each system would have on their claim costs, compared insurance premiums and exited the state system between 2003 and 2013. Likewise, Oklahoma simultaneously enacted workers’ compensation reform and option legislation in 2013. Workers’ compensation premiums have since dropped more than 20%, and Oklahoma option programs are saving even more. Further debunking the myth option program raise workers’ compensation costs, a 2015 report from the Workers’ Compensation Research Institute studied workers’ compensation claims in 17 states and found that the total average cost per claim for injured workers in Texas was among the lowest. Costs per claim grew in Texas only 2.5% per year from 2008 to 2013, as measured in 2014. In contrast, for National Council on Compliance Insurance (NCCI) states, the average indemnity cost per lost-time claim increased by 4% in 2014, and the average medical cost per lost-time claim increased by 4% in 2014. Texas workers’ compensation is outperforming national averages because Texas employers have a choice. The option creates a greater sense of urgency among regulators and workers’ compensation insurance carriers to manage claims better so they can reduce premium rates and compete with the alternative system. The option also makes implementation of workers’ compensation reforms more manageable, because they happen across a smaller base of claims. Further, consider that most employers that implement option programs have some frequency of injury claims. Very few employers with no injury claims are willing to go to the time, effort and expense of adopting and communicating a special injury benefit plan, buying special insurance coverage, contracting a claims handling specialist and satisfying newly applicable state and federal compliance requirements (which may include a state qualification process and filing fee). Because options take many companies that have injury claim losses out of the workers’ compensation system, workers’ compensation insurance carriers suffer fewer losses and can reduce workers’ compensation premiums. The carriers must compete harder for business, and they have no justification for charging higher premiums when their total loss experience improves. Associations that represent workers’ compensation insurance companies have labeled options an “external threat” to the industry at a time when premium volume and carrier profits are up and losses are at a 17-year low.  Calendar-year 2014 underwriting results, combined with investment gains on insurance transactions, produced a workers’ compensation pretax operating gain of 14%. These insurance companies urge state legislators to protect their monopolistic, one-size-fits-all product and its profits. They also fight to maintain an anti-competitive web of price-setting collaborations that would violate antitrust laws in other industries. As David DePaolo recently noted on WorkCompCentral, in “the business of workers' compensation insurance… investors (the business side) want to know whether they are going to make money, and how much, by financing the system; not whether the system is working ‘correctly’ or not.” This is an important insight in the context of workers’ compensation insurance lobbyist objections to an option. The lobbyists promote the idea that workers’ compensation systems are superior and working fine, but that is not their primary motivation in trying to shut down competitive alternatives. Some insurance association members have defected and embrace free-market competition. More than $150 million in the Texas nonsubscriber option insurance premium was written last year alone. The Oklahoma option insurance market is just starting up. Many “A-rated” insurance companies now oversee the successful resolution of approximately 50,000 injury claims per year under option programs. An option can be authorized by a state legislature before, after or at the same time as workers’ compensation reforms are adopted. Legislators suffering from “workers’ comp fatigue” find option legislation to be dramatically less voluminous, time-consuming, confusing and contentious than major workers’ compensation reform.  And, as proven in Texas and Oklahoma, the option can slash employer claims costs by 40% or more. A single state (like Tennessee or South Carolina) can see lower government regulatory expense and more than $100 million in annual public and private employer savings. That impact grows exponentially through economic development multipliers. Those are dollars that can be used to create private-sector jobs and invest in education, safety, transportation and other legislative priorities. In contrast, when standing alone, workers’ compensation system reforms are typically returning single-digit premium rate reductions that do not move the needle on injured employee medical outcomes or economic development. Even the widely referenced Oregon premium ranking study (like many others) questions the ability of traditional workers’ comp reforms to create significant movement in employer costs or employee satisfaction. Options to workers’ compensation have particularly worked to the advantage of small employers, which pay most of the workers’ compensation industry premiums. Small companies that experience few, if any, on-the-job injuries typically purchase workers’ compensation insurance coverage on a guaranteed-cost (zero-deductible) basis. They get competitive quotes on both workers’ compensation and option insurance products, then typically choose to write the workers’ compensation premium check and be done. However, both big and small businesses can benefit from option programs. There are several Texas nonsubscriber insurance carriers that write policies for hundreds, even thousands, of small employers. In fact, the vast majority of Texas and Oklahoma employers that have elected the option are small, local businesses. Many reputable insurance providers sell “bundled” programs for small business that supply all option program components, including the insurance policy, injury benefit plan, employee communications, claims administration and legal compliance. It is a simple, turnkey service for insurance agents and employers, delivering better medical outcomes and higher employee satisfaction when the rare injury occurs. If an employer that has elected the option does not like it (for whatever reason), it can go back into the workers’ compensation system at any time. These facts are all reflected in the migration of small employers back and forth between workers’ compensation and option programs in Texas, choosing the best route for their companies and employees as workers’ compensation premium rates have moved up and down over the past quarter century. Even if (as seen in Texas) a significant percentage of a state’s employers elect an option, the “pool” of workers’ compensation premiums can still be hundreds of millions of dollars, a figure large enough to spread the risk and absorb catastrophic claims. Those who say that workers’ compensation premium rates will go up when a state legislature authorizes an option need to back up their fear mongering with similar logic, facts and data or admit their true, anti-competitive motivations.

I don't know about you, but when I think of artificial intelligence, I think Steven Spielberg and Arnold. That was until I saw a solution offered by Conversica, a Salesforce partner. AI is here, it's happening now and it's a lot more pervasive than you think. The rise of "robo advisers" in financial services, Ikea's "Anna" customer service rep and Alaska Airline's "Jenn" all point to the growing adoption of technology that personalizes customer experiences....at scale. One of the 5 D's of Disruption in insurance is "Dialogue." And AI is driving it. Today, in insurance, AI is used to create natural dialogue with customers, nurture those leads, prioritize them for agents and follow through as needed. Conversica, for example, gets smarter as it interacts more with customers. And, yes, it has passed the Turing test. It is particularly well-suited for B2C because the volume of interactions with prospects can be overwhelming for insurance agents. As insurers embrace omni-channel, new prospects can be created from any source, whether it be a contact center, social media or a face-to-face meeting. Not only is lead volume increasing, but it takes as many as six before an agent can get a prospect on the phone. This becomes a time and energy suck for agents; he is unable to follow through on every lead, and the quality of interactions goes down. So how are insurers and agents responding? In this webinar, Eric (Conversica) and Alex (Spring Venture Group) explain to me how AI is used to nurture and convert leads. My takeaway: AI is not just a science project. It works. It'll become more invisible to consumers. And it creates real value to both customers and employees. As Marc Benioff, CEO of Salesforce, said recently in Fortune magazine, "We’re in an AI spring. I think for every company, the revolution in data science will fundamentally change how we run our business because we’re going to have computers aiding us in how we’re interacting with our customers."

There are elements of medical care in the U.S. that just plumb confound me. One is the requirement of a prescription for the most mundane of items, particularly when you think about where we could be focusing our efforts. Please indulge me a moment while I 'splain the background on this. I went through a sleep study back in 2002, where I was diagnosed with sleep apnea. Apnea is a condition most identified with snoring, although not all snorers are apnea sufferers. After the diagnosis, I was provided with a CPAP machine, the device most commonly used in the treatment of that particular condition. Sleep apnea is described as a potentially serious sleep disorder in which breathing repeatedly stops and starts. What it really was, however, was a condition that kept my wife awake at night. I don't know why the doctors didn't treat her instead. The CPAP (Continuous Positive Airway Pressure) machine is designed to gently pressurize your airway, keeping it open, providing for a more sound sleep. Mostly for your wife. You see, the CPAP literature says the machine is designed to alleviate apnea episodes and reduce potentially fatal risks. The fatal risk it is most likely to alleviate is stopping your spouse from shooting you in the face with a bazooka at 3 am. I have used the same CPAP machine since 2002, and it has performed very well. I do sleep much better using it, as does my wife. I usually take it with me in my travels, and therein lies the conundrum that has produced this missive. My unit, now about 13 years old, is somewhat clunky for the frequent traveler. This is especially true when one does not generally check luggage. Somewhat bigger than a large box of Kleenex, the device either must be packed within my carry-on or in its own travel bag. As a medical device, it does not count as one of my two carry-on items under FAA rules, but it is nevertheless bothersome to have to tote a fairly significant extra bag around. Prior to the advent of PreCheck, it had to come out of the bag and be run through the X-ray equipment on its own. Until about five years ago, it even had to be pulled aside by TSA for explosives testing. If TSA was efficient, that would occur while I was having my prostate checked by Two Finger Lou. If not, the testing added a few minutes to every pass through security. Today, as a government-fingerprinted "Known Traveler" with my very own "Trusted Traveler" ID number (don't get me started on that), I always fly as a PreCheck passenger. The device no longer has to come out of the bag, so for trips of just a few days I pack it inside my carry-on. Of course, as we all really know, size does matter, and this is an issue for trips longer than just a few days. While I have become a very efficient packer and can get four or five days of clothes into a carry-on with the machine, anything longer requires that the unit be carried separately. With that in mind, I ordered a "travel CPAP": a machine about a quarter of the size of the one I have been using. After I placed the order with an online company, it notified me that it required a prescription for the machine to be on file before it could fulfill the order. I have a prescription for CPAP supplies on file with the company, but apparently being able to buy the supplies is different than buying the machine that uses them. According to the FDA, CPAP devices are considered Class II medical devices and require prescription by law. The issue is that my sleep specialist, whom I have not seen in more than 12 years, changed practices a decade ago, and records no longer exist with the practice where I was diagnosed. Without those records, no prescription will be forthcoming. I frankly don't know what my options are with the practice. I suppose I could set up an appointment, go through another two-night sleep study, spend a couple hundred in co-pays and have my insurance billed God knows what for the effort, all to get a piece of paper confirming something we already know I have. All for a machine whose basic function is blowing air. If we applied that logic here, you would need a prescription just to read my blog. Can someone in the medical community take a moment to explain this to me, an admitted medical ignoramus? Have these machines been abused in some unimaginable way? Were teens buying these machines in droves to huff air? Are they somehow vital in the making of meth? For Christ's sake, in the hands of evil men, what indeterminate hell could they unleash? What aren't you people telling us???? Someone should tell the FDA that CPAPs don't kill people; drugs kill people. Maybe the FDA should focus some of its enforcement zeal toward those things that really matter. Perhaps the FDA has heard of the need for a national prescription drug monitoring database. Unless, of course, I am mistaken, and rogue CPAPs are slaughtering more than the 20,000 people every year who die from prescription drug overdoses. My solution to this dilemma will, I hope, be found through my primary care physician. I have made an appointment with him for the sole and single purpose of getting that magic prescription. It will cost me $30, and my insurance company significantly more, all to tell the good doc that I'm feeling fine and that there is nothing wrong. I just need one of those air-huffing, meth-cooking, chaos-reigning machines -- but a small one to make my travel schedule easier to bear. There is a chance that he will not be able to authorize one without another complete sleep study, in which event it will represent a colossal waste of resources. In the absence of a logical explanation, this scenario simply serves to show the ridiculous waste of time, effort and resources in a system where common sense often struggles for its moment in the sun. In a world where we are trying to figure out how five or six remaining practicing physicians are going to treat 350 million people, is this really where we need to devote so much effort? It simply makes no sense to me. But then again, there may be reasons of which I am not aware. I am sure some medical wizard out there, or a medical-equipment salesperson, should be able to enlighten me and remove my veil of ignorance on the matter. I encourage you to do so, and you don’t even need to be gentle about it. It certainly won’t be my first time.