As I researched recent developments in the telematics space, I thought of the wise words of an unknown car driver: “The worst fault of a car driver is his belief that he has none.” Whenever I speak to a group on telematics, I ask the audience, “Who considers themselves to be a better than average driver?” Every time, at least 80-90% of the hands go up. Even if we are all close to perfect drivers, accidents will still happen. And telematics data can be used to help identify who is at fault. Claims handling might be the new frontier for telematics, in general; beyond the early adopters of telematics-based pricing, many insurers have run pilots and proofs of concept with telematics in areas such as product development, underwriting, new business and market segmentation. They have gathered insights and developed telematics-based solutions for the broader market, often with the support of increasingly sophisticated telematics solution providers in technology or data and analytics. In fact, the SMA 2015 report, "The Changing Auto Insurance Landscape: Influencers Driving Disruption and Change," revealed that, since its introduction to the market in 2010, telematics has come to be recognized as a maturing rather than emerging technology and often gets incorporated into connected car initiatives. The study also discussed how the industry is starting to investigate even newer technologies that might affect the auto insurance market, such as shared transportation and the autonomous vehicle. However, it would be a mistake to move on to newer technologies and initiatives without further considering investments in telematics, especially when the full business value of telematics offerings may not have been reached yet. Right now, particularly in personal lines, telematics is used primarily for market segmentation, product and underwriting purposes. There is a growing appreciation, though, of the value of telematics in claims handling beyond accident avoidance and driver education. For example, at a recent LexisNexis/Wunelli insurance event, it was demonstrated that telematics can play a key role in claims investigations by helping to determine which party is at fault – not always a clear-cut matter. In the specific accident discussed, two cars hit each other in the parking lot of a supermarket. The physical damage did not give a clear picture of who was at fault, and the drivers disagreed in their statements about what actually happened. One of the cars involved, however, was equipped with a telematics device. At the request of the driver of this car, the insurance carrier was able to analyze the data on the location and speed of her car immediately preceding this accident. This analysis made it abundantly clear that the driver of the telematics-equipped car could not have been at fault, which provided the insurer with proof to settle the claim accordingly. I found it even more shocking that it was the insured driver who actually had to point out to her insurer that telematics data was available and that access to that data could be of great help in handling this claim. It was obviously not standard procedure for this specific carrier to look at telematics data in the claims handling process – and in this case, without the driver’s suggestion, the opportunity would have been missed. Unfortunately, I don’t believe that this carrier is unique. I would urge personal lines carriers, in particular, to consider the uses and applicability of telematics data outside of the market segmentation, product and underwriting functions. We can all learn from examples like this one, as well as from the commercial lines telematics applications for risk management and claims handling. Because we all know that, even though we drive better than the average driver, accidents still do happen.

For many years now, risk exposures regarding the use of labor leasing companies have been in the forefront of concerns for insurance professionals. However, many businesses use temporary staffing agencies and look at this process as just a matter of course. Some companies sporadically use these services for one or two people, but others often use hundreds of temps for specific  periods and needs. Insurance agents need to have a discussion with their clients about their use of staffing companies, particularly with those businesses operating in California. There are some terms that need to be defined within this type of employment situation.

• The general employer is the original employer and responsible for loaning the employee to another “employer.”
• The special employer is the other party involved in the “borrowing” of that employee from the general employer.
• The “borrowed servant rule” is a common law doctrine that applies in this type of situation but has typically applied when there is an express or implied contract of hire between the special employer and the employee, or the employee performs work primarily for the special employer and the special employer controls the details of the work.

Effective Jan. 1, 2015, California has revised the state’s labor law by creating joint liability for client companies when the general employer fails to secure workers' compensation coverage for, or pay wages to, workers who are supplied to clients (AB 1897). So, in California, the various obligations of the “borrowed servant rule” no longer need to exist. It is enough that the special employer is using employees supplied by the general employer. What does this really mean? It means that should the labor contractor (general employer) either not purchase workers’ compensation coverage or allow it to lapse, any employee not covered for their work-related injury or illness will be able to look to the special employer for recovery of benefits. The law does provide a number of exceptions, such as:

• Small employers with fewer than 25 employees (which includes the temporary or leased employees)
• An employer using five or fewer employees at any given time
• Municipalities

No problem, right? Your client carries workers’ compensation coverage for their directly hired employees; if an injured temp employee needs benefits because the temporary agency does not have workers’ compensation coverage, then your client’s insurance will respond. That automatic coverage may well be changing. Insurance companies are paying closer attention to the underwriting of this type of risk exposure and are often adding an endorsement that purports to remove coverage. This is done by adding Employee Insured by General Employer Excluded Endorsement (WC 04 03 17), which states: "It is agreed that, anything in this policy to the contrary notwithstanding, this policy does not insure: Any liability you may have as the special employer of an employee who is not on your payroll at the time of injury, based upon your representation that: (1) you have entered into a valid and enforceable agreement pursuant to Labor Code Section 3602(d) with the employee's general employer under which the general employer agrees to secure the payment of compensation for such employee and (2) the general employer has obtained workers' compensation coverage for the employee. " Well, why not? After all, the staffing company is supposed to be insuring its employees for work-related injuries. However, this endorsement creates several issues for the special employer:

• The special employer is automatically jointly liable in California for injury to the employee.
• The special employer must have a valid and enforceable agreement with the staffing company that requires the staffing company to purchase the workers’ compensation coverage, and the staffing company has to obtain the coverage.
• The special employer is required to state that the conditions are in place and sign the endorsement to this effect.
• The special employer should obtain a Certificate of Liability Insurance (ACORD 25) that verifies that coverage has been obtained.

The real problem with this endorsement is that it does not make clear that the policy will respond if the staffing company allows its insurance to lapse and the temporary employee looks to the special employer for coverage. Is it the intent of this endorsement to remove all coverage? Certainly, an argument could be made that it does not, but the language has not yet been tested in court, and your client likely does not want to be the plaintiff in trying to determine whether coverage might apply. If coverage does not apply, what are the ramifications?

• The temporary employee has no coverage available.
• The special employer becomes an uninsured employer and subject to all of the penalties and fines that can be imposed by the state:
• Pay all bills relating to the injury or illness.
• Subject to civil litigation brought by the employee (not covered).
• California Labor Code 3700.5 imposes a misdemeanor with fines not less than $10,000 and up to $100,000 maximum along with imprisonment up to one year.
• The Division of Labor Standards Enforcement will also issue a stop order that prohibits use of employees until coverage is obtained. If this stop order is not observed, the division can seek a misdemeanor criminal action with imprisonment up to 60 days, $1,000 fine per employee, subject to a minimum fine of $10,000 up to $100,000 maximum.

There is a second endorsement that has been filed for use in California and amended specifically because of AB 1897, WC 04 03 60 B (1-15). WCIRB states that: "The form was amended to avoid potential duplicate workers’ compensation and employers’ liability claims as a result of the passage of AB 1897. The revised Employers’ Liability Coverage Amendatory Endorsement form excludes any liability arising from Labor Code Section 2810.3 from the Employers Liability Insurance portion of a California workers’ compensation policy." It appears that the WCIRB considers that coverage exists in the workers’ compensation policy and is simply attempting to remove duplication of coverage and thus, de facto, not creating a situation where the special employer uninsured. Action Items

• Discuss use of temporary staff with your client
• If that exposure exists:
• Verify that there is a labor contract in place
• Verify that the contract requires the staffing company to obtain and keep in force workers’ compensation coverage
• Verify that your client has received a current ACORD 25 indicating workers’ compensation coverage exists
• Verify that the contract includes an indemnification agreement as per AB 1897
• If the underwriter questions the use of temps and adds WC 04 03 17, discuss with the underwriter and attempt to have it removed
• If the underwriter is unwilling to do so, discuss ramifications with the client at the time that you are obtaining the signature on the endorsement
• Your client should seek legal counsel before agreeing to this endorsement
• Your client could attempt to insert a requirement for notification in the event of coverage cancellation into the contract.

Recently, we received an amazing email from Warren Buffett, the Oracle of Omaha himself, congratulating us for InsNerds.com, confessing that he’s a big fan of our efforts and inviting us on an all expenses-paid trip (on NetJets, of course) to have dinner with him to discuss the industry. We had an amazing time over the three-hour dinner at Gorat’s Steak House. The best part was being able to pick his brain about the awesome industry we work in... Sadly, then the alarm clock went off at 5 am, and I realized I was dreaming. There was no email from Warren Buffett, no invitation for dinner and no flight on NetJets.   But all is not lost. Uncle Warren has written extensively about the insurance industry through letters to the shareholders of Berkshire Hathaway, which he has published every year since 1977. All this wisdom is available to anyone online for free, or you can even buy a printed copy. All you need is the nerdiness, dedication and patience to read through all 763 pages of material. Because we know you’re busy, and don’t have the time to do this, we did it for you. We went through all 38 years of Warren Buffett’s letters, and we extracted everything you need to learn about insurance from the Oracle of Omaha himself, largely in his own words, with some of our colorful commentary. There is a lot to learn from Omaha’s Oracle, so instead of overwhelming you with all 38 years worth of knowledge, InsNerds will be publishing a series of articles sharing his wisdom. The letters contain a lot of the history of GEICO, Gen Re, Berkshire Specialty Insurance and his other insurance companies in the letters; we chose not to include that and instead focus on insurance knowledge that can be useful to today’s insurance professionals. Uncle Warren keeps hitting many of the same points over and over; in those cases, we generally chose the wording from the newest letters, because, like good wine, Uncle Warren’s writing got better with time. Our first article will share three insights on the fundamentals of insurance:   1. At the core, insurance is nothing but a promise, and being able to fulfill that promise is key: “The buyer of insurance receives only a promise in exchange for his cash. The value of that promise should be appraised against the possibility of adversity, not prosperity. At a minimum, the promise should appear able to withstand a prolonged combination of depressed financial markets and exceptionally unfavorable underwriting results. ” 1984 letter, page 10. Buffett is indicating that a company must be cognizant of the promise that it is making to its customers, which is that the company will have the funds to indemnify its customers after a loss. The company must manage its reserves and investments wisely to be able to fulfill its promise when there is a claim, so the investments must be able to withstand a down market and a year of catastrophic losses at the same time. One of the main things that makes insurance interesting is that, contrary to most other businesses, we don't know the cost of our product when we sell it. 2. Uncertainty is okay, as long as it's priced appropriately: “Even if perfection in assessing risks is unattainable, insurers can underwrite sensibly. After all, you need not know a man’s precise age to know he is old enough to vote nor know his exact weight to recognize his need to diet.” 1996 letter, page 6. The purpose of insurance is to manage risk. When taking on a given risk, it is not possible to know if you will see a positive or negative outcome. In choosing risks, one must make informed decisions, but if a company waits to make a decision it may lose the business. Insurers must determine how much uncertainty they are comfortable with. The company will likely not be able to attain every single bit of information that it would like before making a decision, but a decision must still be made. 3. Always remember the big picture: “[…]any insurer can grow rapidly if it gets careless about underwriting.” 1997 letter, page 8. Finally, in the business of insurance, a company should take on smart risks. It can be tempting to grow rapidly by writing any piece of business that comes your way. A company may take shortcuts in underwriting to put business on the books. However, if this practice becomes a habit, the profitability of your book will be unsustainable. Playing the long game is necessary in our business. This is something Uncle Warren is constantly talking about in his letters: Underwriting discipline, especially when the market gets soft, is his top priority. These are three key observations about the basics of insurance that we found in reading Mr. Buffett’s letters. There are many more to be discovered, and we look forward to writing about some additional themes.

The integration of technology in the insurance company’s value proposition is turning out to be one of the main evolutionary trends in the sector, and digital initiatives have been for a couple of years now one of the priorities of insurance groups. Until today, though, they have brought only limited improvement when it comes to the competitive abilities of the insurer. The best practices at the international level show that, to obtain concrete benefits, the innovation has to be directed toward clearly determined strategic objectives. An interesting example is the American company Oscar – a start-up that in less than two years has managed to raise more than $300 million at a valuation of more than $1.5 billion. It has radically innovated the customer experience of individual health insurance policies by directing the innovation effort toward two key factors that are crucial for the profitability of the medical spending reimbursement business: deductibles and “emergency” visits. Oscar has created an insurance value proposition based on a smartphone app that incorporates a highly advanced search engine – including a search based on symptoms – allowing the insured to identify and compare the medical structures part of the preferred network. In this way, the client receives support in optimizing direct spending before reaching the deductible; this basically postpones when the insurance company starts to pay and thus reduces the amount of spending (medical reimbursements) by the insurer for the remainder of the year. The company addresses emergency visits by providing chat with a specialist and a call-back system that the insured can choose at will from inside the network. This represents a comfortable alternative and reduces the number of urgent visits. Health insurance and connected health In these last months, I have been considering how to replicate the motor telematics experience for the health insurance sector. Insurance companies see the benefits from a telematics black box and how the return on investment in this type of technology can be maximized by the insurer: This is possible by taking into consideration not only the underwriting of the car insurance policy but by also looking at the services provided to the client, at loss control and at customer loyalty. In health insurance, similar benefits are achievable by using mHealth devices and wearables. The first element is risk selection, seen in car insurance as:

• the capacity of auto selection and dissuasion of risky behavior,
• the integration of static variables traditionally used for pricing with a set of “telematics data” gathered within a limited time and used exclusively for supporting the underwriting phase.

The creation of a value proposition that is focused on the use of wearables and that uses "gamification" makes the product attractive to individuals who are younger and healthier – generating a self-selection effect comparable to the motor telematics experiences. Oscar, since the beginning of January, has been offering clients a pedometer connected to a mobile app. Every day, the app shows a personalized objective that, if attained, means $1 earned by the customer. Each month, the customer can receive a maximum of $20 as cash back from the company. The second source of value generation is services. The use of telematics data represents an incredible opportunity for offering new health services and for offering a better customer experience: for example, the geolocation of medical structures and doctors who are part of the network, linked to a medical reimbursement policy. Medibank, of Australia, has integrated in its health policy (using a smartphone app) a series of services built on informative contents and advice. The services are medical – as done by the Italian insurance fund Fondo Assistenza Benessere, using an app called Consiglio dal Medico (an Italian start-up partnering also with Uber) – as well as related to wellness. Medibank, using this package of services, produced 10% growth in the company’s top line. This Australian player has created an app for noncustomers that gives access to wellness discounts and attracts customers who can later be offered other insurance, too. The ability to provide health services with a high perceived value (from the client’s point of view) can also allow the company to increase the efficiency of guidance inside the preferred network – this is a crucial aspect for controlling the loss ratio of a medical reimbursement product. The loss control actually represents the third area of value creation, just as it does for the auto business. Within the health industry, it will soon be possible to generate significant economical benefits employing telemedicine to optimize spending with medical reimbursements or to link the reimbursement to the actual observance of the client's medical prescriptions. In the medium to long term, the objective is to have behavioral and contextual data to prevent fraud and early warning systems that can spot altered health conditions and that allow preventive and timely intervention. South African-based Discovery has successfully tried out this second approach. It reduced the loss ratio of the cluster of insured who suffer from diabetes – mainly reimbursements linked to complications because of lack of self-control. Discovery provides an instrument for measuring the blood sugar level through a connected app and rewards the insured. Discovery's Vitality program represents the international best practice regarding the fourth axis of value creation: behavior guidance, by using a loyalty-based system that rewards non-risky behavior. The South African company has integrated - in its very complex reward system – devices for measuring physical activity and has incorporated their usage among the “rewarded” types of behavior. Discovery’s experience in several different countries proves the effectiveness of this approach in terms of:

• commercial appeal
• capacity to acquire less risky clients
• ability to gradually reduce the risk profile of the single client.

Pricing based on individual risk is the last benefit achievable with the integration of wearables and health insurance policies. Constant monitoring of the level of exposure to risk lets the insurer create tariffs based on the health state, lifestyle and context of a person. As already done in the auto telematics business, this will be a goal to be attained after some years of data gathering and systematic analysis of the historical series together with information regarding medical reimbursements. Home insurance and connected home Homes are another area in which, at an international level, there has been experimentation with how to integrate an insurance policy with actual sensors. There already exists a replication of the business model used more than 10 years ago in the auto insurance sector -- an up-front discount between 10% and 25% of the insurance premium based on installation of a device at the client’s house and by the payment of a fee for services or a lease for the technology. This approach, which has been adopted in the U.S. by State Farm, Liberty Mutual and USAA and in Italy by IntesaSanpaolo Assicura, BNP Paribas Cardif, Groupama e Poste, is based on two of the five levers of value creation: first, loss control – focused on flooding, fire and theft – and second, value-added services. American companies have even reached the point where they offer clients a wide range of services provided by selected partners (such as Nest) and tied to the home “ecosystem,” which can even include medical assistance services. An interesting and innovative example of the use of such technology for the assessment and risk selection in home insurance is the one adopted by Suncorp with a retail touch to it, and by ACE Group, which focuses more on the insurance needs of high net worth individuals (HNWIs). Both companies have used a partnership with a start-up called Trōv – a smartphone app that allows registering and organizing the information referring to personal objects, including through photos and receipts - to evolve their underwriting approach when it comes to the risk connected to the contents of the house. Domotics, or home automation, is growing at a high rate even in Italy and represents a material part of the revenues generated by the Internet of Things, according to data provided by the Osservatorio of the Politecnico di Milano. A horizontal domotics solution – with thermostats, smoke and water detectors, sensors present in appliances and other household items, sensors at the entrance and antitheft alarms, sensors spread within the building – would let an insurance company track the quantity and level of exposure to risk. This includes, for example, the periods and ways in which the home is used but also the state of the household and the external conditions to which it is exposed (humidity, mechanical vibrations, etc.). The insurer could price based on individual risk, adopting pricing logic based on behavior, as already done in the motor sector. This could open up growth opportunities, such as for secondary houses used only for vacation and rarely insured. This scenario, which sees the growth of solutions built on connected objects within the home – if correctly approached by insurers by reviewing their processes to make the most of the potential offered by gathered data – can lead to important benefits in loss control: Some studies have estimated that there is the potential to cut in half the current expenses for claims. To turn this opportunity into reality, it is essential that the insurer acquire the ability to connect its processes (through adequate interfaces) with the different connected objects. Insurers must create an open digital platform that uses the multiple sensors to be found in the home “ecosystem” – just like those used in the health sector. The change of paradigm doesn’t only concern fundamental aspects of the technological architecture – like data gathering or standardization of data coming from heterogeneous sources - but affects the strategic choices of the business model. For insurers, it becomes a necessity to define their level of ambition for their role in the ecosystem and for their cooperation with other players to create solutions and services around an integrated set of client’s needs. It is extremely interesting to see the journey made by American Family Insurance, which - in partnership with Microsoft – has launched a start-up accelerator focused on home automation. Insurers have to start thinking strategically around how adapt insurance business to IoT, before some new Fintech comers do it. This article originally appeared in the Insurance Daily n. 749 and n. 750 Editions.

The risk management and insurance industry’s looming demographic challenge isn’t new or surprising, but it does bear repeating. There is a projected need for 70,000 new hires yearly, as boomers retire. Yet only about 14,000 individuals are graduating from risk management and insurance programs around the world annually, and there is steep competition for talent with what are viewed as more desirable career options in finance or technology. So, we’re in a tough spot. But there is a collaborative industry solution to this problem: "MyPath: Insurance. It’s Limitless." Not familiar with this initiative? It all started in 2011, when representatives from organizations spanning the industry approached the Institutes to ask if we would helm a collaborative initiative targeted at engaging millennials—that most coveted of generations that’s quickly becoming the largest population in the workplace—and getting them excited about careers in insurance. Reinforcing the difficulty of the effort, a survey of more than 1,600 millennials performed by the Griffith Insurance Education Foundation, an affiliate of the Institutes, showed that many find the industry boring, staid and unimaginative. With these insights in hand, the Institutes, in collaboration with the industry, set out to flip these misperceptions on their heads. MyPath was born. Launched in late 2014, the effort now has nearly 100 partners in organizations that range from some of the largest insurers in the country to family-owned niche companies, as well as academic partners vested in offering collegiate risk management and insurance programs. More than 300 internships have been listed on the website, and more than 1,000 individuals have opted to receive MyPath emails. The initiative has been featured in every insurance trade publication, as well as Bloomberg Businessweek and the Wall Street Journal. On social media, MyPath has racked up 4,000-plus Twitter followers and more than 2,000 Facebook-page likes. More than 600 internship candidates created profiles on the site within the first few months of its launch. It’s clear that, together with the industry, we’re making strides in the right direction, but more work lies ahead. Help spread the word about careers in insurance—become a partner today (at no cost) and share the news of MyPath.

“Medicine today is currently set up to be maximally imprecise,” Dr. Eric Topol says. Regular readers of Crackinghealthcosts.com will understand that comment. Topol, one of the world’s foremost cardiologists, has been a bit of a gadfly to Big Pharma and the medical profession. He discusses a coming revolution in how personal health care will be delivered. There is a huge amount of talk these days about “telemedicine” and “digital” healthcare. Most of what I’ve seen hasn’t been very promising, frankly. Topol describes something something called iDoctor, and other apps, that are as promising as anything I’ve seen so far. See this YouTube video for a full explanation. Via iDoctor, huge numbers of tests can be done more cheaply and faster and could be much less wasteful in terms of patients’ time and convenience. (As we all know, waste in U.S. healthcare is prodigious.) For example, the video shows an iPhone app that can instantly produce a cardiogram in a doctor’s office, thus “avoiding a $100 technician” fee and avoiding wasted time and inconvenience to the patient…all in one office visit. Let’s call that one-stop shopping. Let’s hope doctors use this tool to save time, money and patient irritation.

Without any doubt, connected cars are one of the most exciting and interesting areas right now, with focus from almost every sector: motor manufacturers, insurance providers, mobile and networks and so much more. Given the vast number of partnerships, from Apple CarPlay to Spotify to mapping providers and more, the car will be no doubt the most connected device that any of us own. Ten years ago, you jumped into a new car to test drive and wanted to see how it drove, handled and more. Today's customer jumps in and wants to know: Can I can connect my phone? What apps can I use? And more. However, and I think this was inevitable for us all - merely a matter of "when," not "if" -- Jeep just got hacked, and with a simple experiment that has demonstrated the catastrophic potential and risk that "connected everything" has. Fiat Chrysler (Jeep) is now recalling 1.4 million cars for an update that needs to be physically delivered -- ironic that the update can't even be delivered over the air, creating a huge cost for Jeep and an even bigger warning to the manufacturers and consumers alike. That said, there is a good interview here on CNBC with one of the security researchers, where he says he is more afraid of distracted drivers (texting, eating, smoking, etc.) than of hacked cars. From an insurance perspective, what are the implications here?

• Do we price connected cars at more expensive rates because of a higher hacking risk?
• Do we void any policy for motorists who have failed to collect their latest mandated update?
• Do we need to update our terms and conditions to ensure that it's the customer's obligation to make sure her car is running the latest version of software?
• What happens if you are in an accident with a vehicle that has been hacked? Who owns the risk?

What do you think?

The insurance industry has a reputation for being slow to change, but the “big data” revolution is driving significant changes in workers’ compensation underwriting. The emerging use of “big data” analytics in underwriting is diminishing the purpose and value of the experience modification factor and beginning to affect middle-market agents and their clients. Big data has already redefined industries like retail (Amazon), entertainment (Netflix) and content publishing (Facebook). Stock and mortgage brokers are well ahead of insurance with their own predictive models. Big data in insurance is still under the radar for many, but it’s beginning to affect pricing and how agents work with their middle-market clients. The National Council of Compensation Insurance’s (NCCI) experience rating plan was created to adjust premium costs to reflect “the unique claims experience of each eligible individual employer relative to other employers within the same industry group.” The experience rating plan helps insurers charge the appropriate premium for an individual employer’s work comp policy. Or, as one actuary stated, “The experience mod is a predictive indicator of future losses.” Traditionally, a higher experience mod predicts that the employer will have greater than expected losses in the coming policy period, so the insurer needs additional premium for the risk. Many experts would agree that the experience rating plan, created in the 1930s, has historically served the insurance industry well. However, we are entering a new era where individual insurers are building their own predictive analytics models because of:

• Recent and swift explosion of huge databases;
• Inexpensive computing power and data storage; and
• Advances in data acquisition and aggregation from multiple sources.

Computer hardware and software advancements, along with smart people, now allow insurers to quickly process millions of calculations, analyze the data they produce and promptly validate their emerging predictive models. Prior to these technological advances, insurers relied on the rating bureaus, such as NCCI, to collect and manage the data. In addition, there are significant inefficiencies in the rating system that data-savvy insurers can leverage to gain a competitive advantage. For example, they can analyze their own data instead of relying on the rating bureau’s broader, aggregate view to create a competitive advantage. Let’s assume the rating bureau’s data indicates that claim costs are rising for plumbers in a given state. The rating bureau will likely increase advisory and expected loss rates for plumbers in the entire state. However, an individual insurer may analyze its own book of business and see a decrease in claims costs for that state’s plumbers. The carrier could set a lower premium for plumbers and capture greater market share from competitors that only use aggregated rating bureau data. It’s no surprise that large global actuarial and consulting firms are working with insurers to develop and enhance predictive models. Insurers already possess a treasure trove of data just waiting for those, affectionately known as “data nerds,” to spin it into gold. As one actuary from a well-known consulting firm said at a recent industry conference, “Underwriters have been using about six to eight data points to determine acceptability and pricing of a risk. We can build them a model with 400 to 600 data points.” Big data brings big opportunities to insurers and agents; however, as with any collision of old-world and new-world methodologies, there will be some challenges and casualties. For example, let’s assume an underwriter receives an application for a workers’ compensation renewal, and the experience modification factor is renewing lower than the prior year. And the governing class code advisory rate is lower, as well. However, the insurer’s predictive model indicates an increase in pricing is needed. As a result, the underwriter removes the scheduled credit and adds a scheduled debit to the pricing. Now, the agent has to explain an unexpected higher premium to the client. Or, worse, the underwriter cannot even make an offer because the maximum allowed scheduled debit will not provide the pricing needed, according to the predictive model. In this case, an applicant’s reduced experience modification factor actually prevented the employer from getting a renewal offer from its current or preferred insurer. This may seem crazy, but when you add more and new data to a pricing model, you often get a different indicator. Enhanced data analytics can turn traditional rating and pricing upside down. The purpose of the rating bureau’s experience rating plans is to assist the insurers appropriately set a price for the risk. However, with advanced analytics and regulations mandating the use of the experience mod, employers may find themselves in the residual market because the insurer was unable to make an offer at their price. Workers’ compensation experience rating and experience modification factors are not going away any time soon; they are enmeshed into each state’s regulatory and statutory framework. And not all insurers will create and use their own predictive models, so some will continue to rely on the rating bureaus. However, you’re probably beginning to see anomalies between the old world of “predictive indicators of future losses” and the new world of insurance-specific predictive analytics. Agents must not only be aware of these underwriting changes but must educate their clients and prospects. The brightest future belongs to employers that can move the loss data in the right direction over the long term. The agent’s role is to help them establish processes to make that happen. As with most leadership challenges, agents need to start with a new conversation and dialog. Questions might include:

• Are you aware of how the “big data” revolution is affecting your insurance program and pricing?
• Has anyone shared with you how the insurance company’s underwriting process is going through its most dramatic change in more than 50 years?
• Have you taken steps to adapt and align your business objectives and risk management practices to leverage this new approach?

Agents often say they want a way to differentiate in a crowded and noisy marketplace.  This underwriting revolution presents a sustainable competitive advantage to those willing to invest in gaining knowledge and expertise.

However you feel about Tom Brady, the Patriots and football air pressure, today is a learning moment about cell phones and evidence. If you think the NFL had no business demanding the quarterback’s personal cell phone—and, by extension, that your company has no business demanding to see your cell phone—you’re probably wrong. In fact, your company may very well find itself legally obligated to take data from your private cell phone. New Norm Welcome to the wacky world of BYOD—bring your own device. The intermingling of personal and work data on devices has created a legal mess for corporations that won’t be cleared up soon. BYOD is a really big deal—nearly three-quarters of all companies now allow workers to connect with private devices, or plan to soon. For now, you should presume that if you use a personal computer or cell phone to access company files or email, that gadget may very well be subject to discovery requirements. Security & Privacy Weekly News Roundup: Stay informed of key patterns and trends First, let’s get this out of the way: Anyone who thinks Tom Brady’s alleged destruction of his personal cell phone represents obstruction of justice is falling for the NFL’s misdirection play. That news was obviously leaked on purpose to make folks think Brady is a bad guy. But even he couldn’t be dumb enough to think destruction of a handset was tantamount to destruction of text message evidence. That’s not how things work in the connected world. The messages might persist on the recipients’ phones and on the carriers’ servers, easily accessible with a court order. The leak was just designed to distract people. (And I’m a Giants fan with a fan’s dislike of the Patriots). But back to the main point: I’ve heard folks say that the NFL had no right to ask Brady to turn over his personal cell phone. “Right” is a vague term here, because we are still really talking about an employment dispute, and I don’t know all the terms of NFL players’ employment contracts. But here’s what you need to know: Technology and the Law There’s a pretty well-established set of court rulings that hold that employers facing a civil or criminal case must produce data on employees’ personal computers and gadgets if the employer has good reason to believe there might be relevant work data on them. Practically speaking, that can mean taking a phone or a computer away from a worker and making an image of it to preserve any evidence that might exist. That doesn’t give the employer carte blanche to examine everything on the phone, but it does create pretty wide latitude to examine anything that might be relevant to a case. For example: In a workplace discrimination case, lawyers might examine (and surrender) text messages, photos, websites visited and so on. It’s not a right, it’s a duty. In fact, when I first examined this issue for NBCNews, Michael R. Overly, a technology law expert in Los Angeles, told me he knew of a case where a company actually was sanctioned by a court for failing to search devices during discovery. Work Gets Personal “People’s lives revolve around their phone, and they are going to become more and more of a target in litigation,” Overly said then. “Employees really do need to understand that.” There is really only one way to avoid this perilous state of affairs—use two cell phones, and never mix business with personal. Even that is a challenge, as the temptation to check work email with a personal phone is great, particularly when cell phone batteries die so frequently. The moral of the story: The definition of “personal” is shrinking all the time, even if you don’t believe Tom Brady shrank those footballs. For further reading: here’s a nice summary of case law.