While life insurance used to be one of many Americans’ most important financial assets, a host of changes—economic, social and cultural—have caused it to become a lower priority. Customers' top two reasons: that life insurance is too expensive, and that they have other financial priorities. Given the difficulty of acquiring new customers, it is imperative for carriers to focus on retaining existing ones. In fact, small increases in retention can translate to large revenue growth, and the payoff can be substantial. Reaping the benefits of a thoughtful customer retention program requires a long-term vision. Carriers should consider the potential lifetime value of a customer (and the products he is likely to buy) that will allow a carrier to increase profitability—today and in the future. LexisNexis recommends three steps on the road to an effective customer retention program:

• Acquire customers with retention in mind
• Develop a customer-focused communications agenda
• Understand the customer experience

1. Acquire customers with retention in mind

Effective customer retention begins with targeted acquisition. Carriers must understand their own capabilities, risk appetite and services and acquire customers that they can serve well. The better a customer aligns with a carrier’s profile and preferred market spaces, the greater the likelihood she will stay. Segmentation and predictive models are key. Solutions available in the market include:

• Risk classification models to help carriers optimize leads and identify the most profitable prospects.
• Lookalike models to help carriers understand the characteristics of their best customers and attract similar prospects.
• Lifetime value models to identify the potential long-term return of a prospect—enabling a carrier to identify prospects with the greatest future potential for growth and loyalty.
• Prospect persistency to help predict whether a prospect will lapse within a given time.

In short, successful retention efforts begin well before a customer is acquired.

2. Develop a customer-focused communications agenda

Having done the legwork to acquire a suitable customer, carriers should ensure they have a strategy for strengthening the relationship. Each customer touch point is an opportunity to do so, and these touch points should be outlined in a customer-focused agenda and communication plan. The customer agenda defines customer touch points, such as:

• Onboarding process. The onboarding process can set the tone for the carrier-customer relationship. For example, customers might receive a welcome note with contact information in case of questions; where to learn more about protecting their life, health and other assets; how to set up a holistic financial protection plan; and more. Carriers can tailor these communications for individuals and reinforce the company’s brand, nurturing a conversation from the very start. These communications are usually separate from a carrier’s requirement to deliver legal policy documents, but this is not to say that the delivery of legally required documents has to be stiff or un-tailored. Every step of the process is an opportunity to nurture.
• Annual reviews. Many customers are either unaware of or confused about coverage options, so annual reviews are an ideal opportunity for the carrier to stay in touch with each customer and offer risk management advice. Annual reviews also help position the carrier as an adviser, not just a service provider. In addition, carrier support for annual reviews can help a sales team stay on top of its customers’ life changes—while also positioning each salesperson as a reliable and trusted adviser.
• Cross-selling opportunities. Based on their understanding of each customer, carriers can identify opportunities to cross-sell additional products, such as an annuity or supplemental health product. Carriers should also consider cross- or multi-product purchases within a household—for example, for an insured’s spouse, child or parent.
• Payment reminders and opportunities for automatic payments. Payment and premium reminder notices can trigger customers to lapse or switch providers, so managing these communications is critical to retaining customers. In addition, automatic payments can make paying life insurance premiums effortless for customers, minimizing the chance that they will lapse.

Carriers should also ensure that they maintain continuity across all channels, synchronizing their market messages across all digital and traditional communications channels including websites, print and radio ads, social media, email and direct mail. Traditionally, carriers have minimized communications with their customers, believing that reminders about life insurance are a reminder of that customer’s mortality as well as a budgetary expense. As such, retention strategies were more focused on conserving customers who had already decided to cancel their policies, typically by offering less coverage and lower premiums.

3. Understand the customer experience

The customer agenda outlines when and how a carrier will communicate with its customers but does not address an individual customer’s unique needs. To better understand their customers and identify these needs, carriers should supplement their internal data with external data sources and predictive models. This is one area where the life industry has much experience and has often excelled, but carriers have not been consistent in their pursuit of data for deeper customer insights. Exacerbating the issue, new sales have been harder to win, prompting carriers to focus heavily on acquisition—to the detriment of understanding current customers’ needs. The Internet and social media channels have changed the way that customers make purchases—and insurance is no exception. Rather than turn to a carrier or agent for advice, many customers now begin with online research. This research may include the carrier’s website, as well as comparison sites and online reviews. Increasingly, it also includes social media, which allows positive and negative experiences to be reported and shared. In general, these channels limit a carrier’s control over its brand and the customer experience. To better understand each customer’s individual needs, and how he experiences a relationship with the carrier and agent, carriers can work with a data partner to:

• Tap into third-party data sources to gain insight on a customer’s life changes. External data can help carriers identify customers whose insurance needs might change: For example, people often reevaluate their finances when they move or purchase a new home. Armed with up-to-date mover and homeowner information, carriers and agents can contact customers and advise them on ways to mitigate risk.
• Verify whether an insured has appropriate coverage. Customers may experience life changes and not think to update their life insurance provider. Working with a data partner, carriers can obtain up-to-date, accurate and validated wealth and asset information—to be certain each insured has appropriate coverage and affordable premiums for their means, and to offer alternatives if otherwise.
• Use models to determine the risk of a customer leaving. Market solutions are available that can help carriers predict the risk of a client leaving, so that carriers can take action before she leaves.

With data, analytics and predictive models, carriers can identify customers with changing insurance needs and life events and respond appropriately. An effective response will address a customer’s specific needs—and, in an ideal situation, will deliver a tailored message at the right time. In addition, market solutions can enable carriers to establish event alerts that deliver automatic messages at the right time. For example, a carrier could establish an automated event notification when customers apply for a new mortgage. An automated process could send each customer a note outlining tips for buying a home, while reinforcing the value of the life insurance the customer already holds, in helping to protect the home for the family. The communication would also remind customers to update their life insurance policy within a suggested time of a new home purchase to ensure they have adequate coverage. Automation ensures that messages are delivered efficiently, effectively and through the appropriate channel. It can also support a more cooperative carrier-agent relationship, as carriers can direct customer retention efforts while still empowering agents to connect with customers. In addition, automation better assures carriers that they are providing a consistent experience. Following each automated message, the carrier or agent should follow up with the customer to reinforce the 1:1 messaging and strengthen the relationship. In a continued low-interest rate environment, customer retention must be a priority for a carrier to thrive. Customer acquisition encompasses a host of carrier activities, from advertising and marketing, to on-boarding, underwriting and policy issue. In life insurance, it can take seven to eight years to recoup the acquisition costs for one customer. Bain has estimated that it is six to seven times more costly to acquire a new customer than to retain an existing one.

The Equal Employment Opportunity Commission (EEOC) has been quite active in challenging employers' use of criminal background and credit history checks during hiring. There is still significant uncertainty as to the current standards and law about the checks of criminal and credit history. The lack solid guidance makes it difficult for employers to determine how to evaluate their current use of this information, as well as to understand the legal pitfalls and hurdles that the EEOC has placed in front of them. EEOC Directives The recent activity emanates from the EEOC’s recent directive and key priority (as per its December 2012 Strategic Enforcement Plan (SEP)) to eliminate hiring barriers. This priority includes challenges to policies and practices that exclude applicants based on criminal history or credit check. The EEOC has a keen interest in this area, as it believes that criminal/credit checks have a disparate impact on African American and Hispanic applicants. As the EEOC pursues the directive, expect the EEOC to scrutinize failure-to-hire claims where a criminal history or background check was conducted. Even if the background check was “facially neutral” and was uniformly given to all applicants, the EEOC may investigate to determine if the check had a “discriminatory effect” on certain applicant(s). The EEOC asserts that criminal background checks must be “job-related” and “consistent with business necessity.” Employers are advised to consider: (1) the nature and gravity of the offense or conduct; (2) the time that has passed since the offense, conduct or completion of the sentence; and (3) the nature of the job held or sought. The EEOC stresses the need for an "individualized assessment" before excluding an applicant based on a criminal or credit record. Local/State/Federal Laws Employers face additional legal hurdles regarding hiring practices because of recent local and state legislative developments. These laws are commonly referred to as "ban the box" (i.e., restrictions on the use of criminal history in hiring and employment decisions). Making matters even more difficult, employers have also been subject to a surge in class action litigation under the Fair Credit Reporting Act (FCRA). The FCRA regulates the use of and gathering of criminal histories through third-party consumer reporting agencies with respect to conducting background checks on applicants or employees. Legal Actions In pursuit of its directive, the EEOC has filed several large-scale lawsuits against employers. We expect that the EEOC will continue to file similar lawsuits throughout 2015 and beyond. Most have been brought as failure-to-hire claims. For example, an African-American woman brought a claim alleging that she was discriminated against based on her credit history. This claim started out as a single plaintiff action, but, after the EEOC conducted its initial investigation, the EEOC dramatically expanded the scope of the initial charge, alleging that the employer was engaging in a “pattern and practice of unlawful discrimination” against: (1) African-American applicants by using poor credit history as a hiring criterion and (2) African-American, Hispanic and white male applicants by using criminal history as a hiring criterion. Reasonable employers complain that the EEOC has placed employers in a Catch 22. Employers have to choose between ignoring criminal history and credit background, exposing themselves to potential liability for criminal and fraudulent acts committed by employees or to an EEOC lawsuit for having used this information in a discriminatory way. Takeaway for Employers Claims involving criminal background checks and credit checks are an EEOC priority. At this time, employers have little guidance from the courts or the EEOC as to exactly what "job-related” and “consistent with business necessity" mean and just how closely a past criminal conviction has to correspond with the duties of a particular job for an employer to legally deny employment to an applicant. Moreover, employers continue to witness expanding restrictions dealing with criminal history at the state and local level based on ban-the-box legislation, as well as with an increasing number of class action lawsuits involving background checks as required under the Fair Credit Reporting Act. Employers are encouraged to work closely with legal counsel as to what they should and should not ask on applicants as well as how and when they can use background information they obtain. Based on this evolving area of the law, we additionally recommend that employers purchase a robust EPL policy that will defend them in the event that the EEOC or a well-skilled plaintiff’s counsel pursues a claim against them for discrimination, or for failure to hire based on criminal or credit background checks.

Add Nobel Prize winner, economist Milton Friedman to the list of smartest guys in the room who said, did and taught the dumbest things. Just what did Friedman say in 1970 that American leaders in 2015 have become so infatuated with? Here it is. Word for word. “When I hear businessmen speak eloquently about the 'social responsibilities of business in a free-enterprise system,' I am reminded of the wonderful line about the Frenchman who discovered at the age of 70 that he had been speaking prose all his life. The businessmen believe that they are defending free enterprise when they declaim that business is not concerned 'merely' with profit but also with promoting desirable 'social' ends; that business has a 'social conscience' and takes seriously its responsibilities for providing employment, eliminating discrimination, avoiding pollution and whatever else may be the catchwords of the contemporary crop of reformers. In fact they are -- or would be if they or anyone else took them seriously -- preaching pure and unadulterated socialism. Businessmen who talk this way are unwitting puppets of the intellectual forces that have been undermining the basis of a free society these past decades.” Friedman actually said this stuff about businesses having no social responsibility. And American leaders believed it, and then acted on it. The result? It took 45 years, but American leadership finally created for today's knowledge workers-- but not themselves, of course -- what University of Massachusetts Professor William Lazonick refers to as "profits without prosperity." The problem isn't just the fox guarding the hen house. This is the fox in the hen house, waiting for the chickens to come home to roost. Sadly, both for American employees and for Friedman, the well educated economist's theory has for years replaced the golden egg (continuously improving people and process, which should have come first) with the smell of rotten eggs (the remnants of command and control). The evidence: America's all-time-low employee engagement, our virtually stagnant economy and wage deflation. American leadership's hen house now appears, instead, to be more of a dog house. Let's face it, we can't compete globally because modern leaders have failed to capture and engage man's curiosity and creativity. Because if they had, we would have exchanged our arrogance for our humility, and listened to learn rather than tell. We'd be continuously improving people, because learning comes from people, and improvement comes from learning. Which, in turn, comes about from the detection and correction of errors in our thinking. And we'd be using that employee knowledge to show leaders where wasteful activities exist,  destroying the American people, their personal productivity and their well-being. I suppose it was easier for Friedman to assign blame to the "intellectual forces...undermining the basis of a free society these past decades,” rather than teach executives the true human value of respect and continuous improvement. Especially when today's executives earn 300 times more than those they serve. Who could successfully argue that paying executives so much money doesn't make their companies better? Maybe Japanese executives like CEO Akio Toyoda of Toyota, who in 2013 earned just $2.9 million on $18 billion of profit. Respecting people; improving people; and improving process and wasteful activities that affect people. And, of course, selling cars to -- of all the crazy things -- more and more people. Seems like people do matter, Mr. Friedman. They're called customers and employees, fathers and mothers, friends and family. The Japanese circle of Kai and Zen -- the art of making change through continuous improvement -- is something we need more of in America and throughout the world. Let's stop turning to pontificating prognosticators: today's Tarot card readers using computer-driven analytics. The kind now used to determine people's job security and personal productivity, especially average people when the time comes for their annual review. Let's stop teaching children, employees and, sadly, future leaders, the wrong things about man's intrinsic motivation. Let's stop sending the message to society that man's intrinsic value is irrelevant. An unnecessary component in improving this strictly extrinsically valued society. In a 1991 article written by Alan Robinson from University of Massachusetts and Dean Schroeder from Valparaiso University paid close attention to the effective use of employee suggestions. Turns out, man's intrinsic value in other cultures and countries is extrinsically valuable to leaders and stockholders. Japanese employees turned in 32.5 suggestions per person. American employees turned in 0.11. American leaders implemented just 37% of the employee's recommendations, while Japanese leaders implemented 87%. American employers were too busy to listen, and employees too disengaged to contribute. Meanwhile, America was losing the luster on her once global competitiveness crown, and she didn't understand why. Perhaps emphasizing our need to nurture man's intrinsic value over his lifetime, not just nurture his extrinsic net worth quarter by quarter, still makes sense. Especially if we're going to improve one another, ourselves and our ability to compete in the global economy. And in that distinct order. The results of America's inability to compete today are simply the consequences from the consistent leadership message sent to the willing workers of today and yesteryear: We have little value for your mind, your heart or your soul. Your value to corporate America is, strictly speaking, only from the neck down. Don't speak or think; we know what's best for you. A message better understood by reading Steven Denning's, Forbes 2011 article, titled, "The Dumbest Idea In The World -- Maximizing Shareholder Value." Or, if you are really ambitious, and enjoy learning from history, read Out of The Crisis. The anti-gospel to today's American rhetoric on economic and management theory. The author, Dr. W. Edwards Deming, railed against American leaders, who, way back beginning in the 1940s, assigned regularly occurring production variances to employee failings. This while leaders continued to miss the true causes behind increasing production costs and poor quality. Deming assigned blame for this directly to American leaders, calling for a radical transformation to how America leadership conducts business. Deming knocked on American leadership's door but couldn't come in. Friedman's puppets had dead-bolted it shut; double locks; top and bottom. The unlimited asset of human capital Deming talked about -- once free for the asking -- has now all but dried up. Will the first country that really wants our human capital please come forward? As Professor Lazonick points out in his Harvard Business Review article, "Profits Without Prosperity," during the previous 45 consecutive years, real wage increases, (wages adjusted for inflation) have not increased more than 2% in any three consecutive years but once. And that was during the Internet bubble of 1997, 1998 and 1999. To put this in lay terms, my 24-, 22-, 20- and 18-year-old children now earn substantially less per hour for the same job that I performed in 1984. And even when I don't adjust for inflation. Got milk? At least recently? Mine's going sour; seems I can't afford a new gallon. So what can we do differently to improve America's ability to compete domestically and abroad? Let's turn to history and Gen. Douglas MacArthur, Taichi Ohno and the millions of other leaders and customers who collaboratively helped Japan become the second-most productive nation in the world, very shortly and efficiently, after World War II ended. Rebuilding a nation ravaged by war, but then greatly improved upon by humans -- and almost exclusively from the customer's point of view -- Japan used human capital and man's intrinsic creativity and curiosity to compete on a global basis. Adding greater and greater value to the products American consumers frequently told the Japanese they wanted more of, by putting their money where American leadership's mouth once was. What did Gen. MacArthur demand American leaders (working in Japan to re-build the country and the culture) do with the Japanese's people's curiosity, creativity and craftsmanship after WWII ended? He demanded leaders use the people's intrinsic cultural talents to create sustainable, corporate and societal advantages. In fact, MacArthur required the culture of Japan -- one of a highly curious, creative and respectful people -- not be challenged, changed nor interrupted by American occupiers. He feared that creativity -- Japan's cultural backbone -- could be lost forever. Sorry, Mr. Friedman, you were wrong in 1970, and you're even more wrong today. People matter. All of them.

Long-time Costa Rican National Champion Bernal Gonzalez told a very young me in 1994 that the world’s best chess-playing computer wasn’t quite strong enough to be among the top 100 players in the world. Technology can advance exponentially, and just three years later world champion Garry Kasparov was defeated by IBM’s chess playing supercomputer Deep Blue. But chess is a game of logic where all potential moves are sharply defined and a powerful enough computer can simulate many moves ahead. Things got much more interesting in 2011, when IBM’s Jeopardy-playing computer Watson defeated Ken Jennings, who held the record of winning 74 Jeopardy matches in a row, and Brad Rutter, who has won the most money on the show. Winning at Jeopardy required Watson to understand clues in natural spoken language, learn from its own mistakes, buzz in and answer in natural language faster than the best Jeopardy-playing humans. According to IBM, ”more than 100 different techniques are used to analyze natural language, identify sources, find and generate hypotheses, find and score evidence and merge and rank hypotheses.” Now that’s impressive -- and much more worrisome for those employed as knowledge workers. What do game-playing computers have to do with white collar, knowledge jobs? Well, Big Blue didn’t spend $1 billion developing Watson just to win a million bucks playing Jeopardy. It was a proof of concept and a marketing move. A computer that can understand and respond in natural language can be adapted to do things we currently use white collar, educated workers to do, starting with automating call centers and, sooner rather than later, moving on up to more complex, higher-level roles, just like we have seen with automation of blue collar jobs. In the four years since its Jeopardy success, Watson has continued advancing and is now being used for legal research and to help hospitals provide better care. And Watson is just getting started. Up until very recently, the cost of using this type of technology was in the millions of dollars, making it unlikely that any but the largest companies could make the business case to replace knowledge jobs with AIs (artificial intelligence). In late 2013, IBM put Watson “on the cloud,” meaning that you can now rent Watson time without having to buy the very expensive servers. Watson is cool but requires up-front programming of apps for very specific activities and, while incredibly smart, lacks any sort of emotional intelligence, making it uncomfortable for regular people to deal with it. In other words, even if you spent the millions of dollars to automate your call center with Watson, it wouldn’t be able to connect with your customer, because it has no sense of emotions. It would be like having Data answering your phones. Then came Amelia… Amelia is an AI platform that aims to automate business processes that up until now had required educated human labor. She’s different from Watson in many ways that make her much better-suited to actually replace you at the office. According to IPsoft, Amelia aims at working alongside humans to “shoulder the burden of tedious, often laborious tasks.” She doesn’t require expensive up-front programming to learn how to do a task and is hosted on the cloud, so there is no need to buy million-dollar servers. To train her, you literally feed her your entire set of employee training manuals, and she reads and digests them in a matter of a few seconds. Literally, just upload the text files, and she can grasp the implications and apply logic to make connections between the concepts. Once she has that, she can start working customer emails and phone calls and even recognize what she doesn’t know and search the Internet and the company’s intranet to find an answer. If she can’t find an answer, then she’ll transfer the customer to a human employee for help. You can even let her listen to any conversations she doesn’t handle herself, and she literally learns how to do the job from the existing staff, like a new employee would, except exponentially faster and with perfect memory. She also is fluent in 20 languages. Like Watson, Amelia learns from every interaction and builds a mind-map that eventually is able to handle just about anything your staff handled before. Her most significant advantage is that Amelia has an emotional component to go with her super brains. She draws on research in the field of affective computing, “the study of the interaction between humans and computing systems capable of detecting and responding to the user’s emotional state.” Amelia can read your facial expressions, gestures, speech and even the rhythm of your keystrokes to understand your emotional state, and she can respond accordingly in a way that will make you feel better. Her EQ is modeled in a three-dimensional space of pleasure, arousal and dominance through a modeling system called PAD. If you’re starting to think this is mind-blowing, you are correct! The magic is in the context. Instead of deciphering words like insurance jargon when a policyholder calls in to add a vehicle or change an address, IPsoft explains that Amelia will engage with the actual question asked. For example, Amelia would understand the same requests that are phrased different but essentially mean the same thing: “My address changed” and “I need to change my address.” Or, “I want to increase my BI limits” and “I need to increase my bodily injury limits”. Amelia was unveiled in late 2014, after a secretive 16-year-long development process, and is now being tested in the real world at companies like Shell Oil, Accenture, NNT Group and Baker Hughes on a variety of tasks from overseeing a help desk to advising remote workers in the field. Chetan Dube, long-time CEO of IPSoft, Amelia’s creator, was interviewed by Entrepreneur magazine: “A large part of your brain is shackled by the boredom and drudgery of everyday existence. [...] But imagine if technology could come along and take care of all the mundane chores for you, and allow you to indulge in the forms of creative expression that only the human brain can indulge in. What a beautiful world we would be able to create around us.” His vision sounds noble, but the reality is that most of the employees whose jobs get automated away by Watson, Amelia and their successors, won’t be able to make the move to higher-level, less mundane and less routine tasks. If you think about it, a big percentage of white collar workers have largely repetitive service type jobs. And even those of us in higher-level roles will eventually get automated out of the system; it’s a matter of time, and less time than you think. I'm not saying that the technology can or should be stopped; that’s simply not realistic. I am saying that, as a society, there are some important conversations we need to start having about what we want things to look like in 10 to 20 years. If we don’t have those discussions, we are going to end up in a world with very high unemployment, where the very few people who hold large capital and those with the STEM skills to design and run the AIs will do very well, while the other 80-90% of us could potentially be unemployable. This is truly scary stuff, McKinsey predicts that by 2025 technology will take over tasks currently performed by hundreds of millions of knowledge workers. This is no longer science fiction. As humans, our brains evolved to work linearly, and we have a hard time understanding and predicting change that happens exponentially. For example, merely 30 years ago, it was unimaginable that most people would walk around with a device in their pockets that could perform more sophisticated computing than computers at MIT in the 1950s. The huge improvement in power is a result of exponential growth of the kind explained by Moore’s law, which is the prediction that the number of transistors that fit on a chip will double every two years while the chip's cost stays constant. There is every reason to believe that AI will see similar exponential growth. Just five years ago, the world’s top AI experts at MIT were confident that cars could never drive themselves, and now Google has proven them wrong. Things can advance unimaginably fast when growth becomes exponential. Some of the most brilliant minds of our times are sounding the alarm bells. Elon Musk said, “I think we should be very careful about AI. If I had to guess, our biggest existential threat is probably that we are summoning the demon.” Stephen Hawking warned, “The development of full-artificial intelligence could spell the end of the human race.”

You've probably noticed recent reports, within the workers' comp pharmacy benefits manager (PBM) industry and elsewhere, that prescription opioid use and overdoses are on the decline. It is a long journey, and we cannot yet see the destination, but progress is being made. One of the goals has been to make it more difficult to secure clinically inappropriate prescription opioids through legitimate (physician, dentist) and illegitimate (pill mills, street sales) means. Abuse deterrent formulations have also helped, creating a hassle factor for those who want to abuse them. The increase in focus on the subject in the media and government has made it more top-of-mind. Although even one death or the creation of one addict is too many, and we have lots of cleanup to do today on the damage already done to individuals and communities, the trends are heartening. However, for every intended consequence, there are also unpredictable unintended consequences. And one of those that I've been following for some time, that two recent clinical studies have codified as accurate, is the dramatic increase in the abuse and misuse of heroin. A good amount of that increase is theorized to be coming from those who may have become addicted or highly dependent upon the euphoric effect or dulling of the pain from opioids. Because today's heroin is "pharma quality" and less expensive than opioids on the street, heroin has become the primary alternative choice. If you think this is a recent issue, this USA Today article titled "OxyContin a gateway to heroin for upper-income addicts" was my initial warning, on June 28, 2013. The reasons for this switch are multiple and complicated. An excellent article on this issue was published in the June 2015 edition of "Pain Medicine News." Three quotes that struck me the most:

• "Fewer than 20% of chronic pain patients benefit from opioids."
• “The prolific normalization of opioid use for chronic pain within primary care has seeded the epidemic of heroin addiction."
• “We are going to see the biggest explosion of heroin addiction ever in the next five years."

Obviously, heroin is an illegal drug and therefore cannot be tracked or managed within a PBM. But everyone needs to be watching. While heroin use may not be a "workers' comp problem," it is a societal problem, which ultimately always rebounds as an issue for everyone (and everything) else. The CDC just published (or at least publicized on Twitter) a "Vital Signs" report specifically on the subject. This should be required reading for everyone concerned with the epidemic of substance abuse in the U.S. Note that I said "substance abuse," because as has been clearly stated the issue is not specific to prescription drugs or heroin or cocaine or alcohol binge drinking -- it is a cultural issue of people either wanting to have a good time or just to check out from life or pain. According to this CDC report, more than 8,200 people died from heroin overdoses in 2013. When you add that to the more than 175,000 people who have died from prescription drug overdoses since 1999, the people affected is staggering. Not just those who lost their lives, but friends and family left behind and communities (and, in some cases, employers) dealing with the aftermath. While there is a treasure trove of information included in the CDC's report, the most important point for me (given my focus since 2003) was the advice to states:

• Address the strongest risk factor for heroin addiction: addiction to prescription opioid painkillers

If you still don't believe that opioid use and the abuse of heroin (and other drugs) are related, you just aren't paying attention. Or you don't want to connect the dots. I will let the CDC prove my point ... The use of heroin is no respecter of income level, age, gender, education or geographic location. However, the CDC did outline those most at risk for use:

• People who are addicted to prescription opioid painkillers
• People who are addicted to cocaine
• People without insurance or enrolled in Medicaid
• Non-Hispanic whites
• Males
• People who are addicted to marijuana and alcohol
• People living in a large metropolitan area
• 18- to 25-year-olds

Do yourself a favor. Take 10 minutes and read the report from the CDC. It will only be wasted time if the information does not influence you to action.

ITL Editor-in-Chief Paul Carroll recently hosted a webinar on "Captivating Customers With All-Channel Experiences,” featuring experts from Capgemini and Salesforce.com and the former chief customer experience officer at AIG. To view or listen to the webinar, click here. For the slides, click here.  While insurers have focused on meeting the increasing demands of their customers and invested in customer-facing operations, they are continually losing ground. The World Insurance Report 2015 by Capgemini and Efma reveals that positive customer experience ratings declined at an alarming rate in the past year, from an already low 33% in 2013 to 29% in 2014. This should be a wake-up call to the industry. Insurers urgently need to accelerate their ability to deliver exceptional experiences and captivate customers -- or risk losing them. Of the 30 countries surveyed in the World Insurance Report 2015, 80% recorded a decline in the percentage of customers with positive experiences. Ten countries experienced a drop of more than five percentage points. They include the U.S., which dropped 8.3 points, marking the largest decline of all countries surveyed. Although the trend is clearly toward digital interactions with customers, the agent channel remains the preferred channel overall. It delivered positive experience levels that were almost double those of digital channels. But the digital/analog division has become a false one. The fact is that all channels have to fit together seamlessly to captivate customers. Customers have to be able to start a conversation in any way – face to face with an agent, on the phone with an agent, online with the agent, online at the carrier, at a social media site  – and pick it up later in any channel, in mid-sentence. Instead, at the moment, customers often wind up dropping partway through the process. They may begin a query online, get a rough idea of a premium and then go off to talk to their spouse or to do some research. Then they go back online to continue the process or call an agent, find they have to start over, get frustrated and stop. We have to get to an omni-channel world, where everything is seamless and efficient from the customer’s point of view. Falling customer experience ratings, coupled with a growing number of market disruptors (See exhibit  below), indicate that insurers need to take swift action to become truly customer-centric. They must improve their digital services and seamlessly connect the customer experience across mobile, social, digital and agent interactions. While doing so, they must ensure the important agent channel has the tools and full customer visibility to effectively sell to and service the customer in the digital world. Yet many insurers will find it hard to move quickly. The World Insurance Report identified seven core capabilities that insurers need to develop to enhance customer experience and take advantage of opportunities created by disruptors. Yet we found most insurers’ maturity levels to be lagging in all seven core capabilities: Insurers exhibited the lowest maturity levels across three essential areas:

• Connecting elegantly: All channels, including social media, are fully integrated in real time for all interactions, so that customers always feel that the insurer knows them well and that the agent can have an informed dialogue with individual customers.
• Engaging regularly: New content is continually created and published to the relevant customer segment through the right channels at the right time. Advanced content management and “gamification” platforms are put in place to take customer engagement to the next level. Agents have the tools to easily and frequently engage with customers via mobile channels, text messages and other digital means.
• Seeing completely: The insurer has a comprehensive view of each customer and understands each customer’s relationships (e.g., family, businesses.). Accurate, real-time data supports predictive analytics, planning and delivery.

Raising insurers’ maturity in these three areas, along with having a fully integrated agent workforce, can accelerate the ability to deliver an exceptional customer experience across all channels. Only by developing comprehensive plans for proficiency – including a comprehensive look at the technology that underpins each capability – can insurers hope to counteract the decline in customer experience ratings that threaten insurers’ growth and profitability. This is the first in a series of four articles drawn from the white paper by Capgemini and Salesforce.com, “Cloud-Enabled Transformation in Insurance: Accelerating the Ability to Deliver Exceptional Customer Experiences.” For the full white paper, click here.

Real growth -- not incremental improvements to last year’s numbers, but big results coming from new opportunities you manage to seize and commercialize -- is hard to come by. There are so many distractions, so many rabbit holes you can fall into -- the lure of a cool technology, a move by a competitor that appears to be smart, a high-pressure conversation with a board member, a convincing argument from a colleague on why an idea will or won’t work or a CFO waving a red flag. There are also so many ways to convince yourself that the status quo, at least for now, is tolerable -- the comfort of a good current quarter, the reassurance of lots of money being plowed into new technology, the establishment of an innovation team or being recognized with an industry award. But somehow, things still don’t feel quite right. You wonder why, in spite of upbeat business reviews from trusted employees, the new product pilots aren’t quite panning out. Some new start-up (or two, or three or more) seems to be whipping up a storm in the market, and you feel left in the dust (or left to contemplate paying a hefty premium to buy what someone else managed to build right under your nose). What to do? The answers are astoundingly simple, so simple, in fact, that they elude the very smart, big-school-degree types running around corporate America today. These leaders are fully in control of their growth destinies, yet all too often are unable to deliver and either blame some externality or create a mirage that all is well. Here’s the three-step formula to get real growth:

1. Define the customer problem you are solving. This is the first, almost painfully obvious step. Yet, consider how many people in big roles define their business’ marketplace value around internally generated definitions of value, claim to know customers' needs but never talk to customers or allocate resources to deploy new technologies with no connection to how customers act or how they lead lives in which your business probably plays only a teeny, tiny role.

Let’s parse what this first step means.

• Define: with absolute clarity, in a way that lets you understand the total scope of opportunity, not just what’s in front of your nose and linked to today’s P&L drivers.
• The: one, with focus.
• Customer: the people who take their wallets out of their pockets and give you their money – not the internal lobbyists.
• Problem: a real pain point, not something that merely makes people feel good. People will prioritize getting rid of their pain as way more important than a gratuitous feel-good purchase.
• You: the bigger you, the organization, mobilized around your singular focus.
• Solve: dramatically better than anyone else, so you have a massive jump on others in the market who will chase after any good business opportunity to eat into or take over share.

2. Establish the fundamentals to cultivate growth.

• Governance: If your plan is to create big sources of growth, the CEO has to own the goal, including implementation, and hold the rest of the C-suite accountable. If not, accept your destiny as an incremental player, at best.
• Accountability: Big new sources of growth will come from separate accountability outside the established P&L structures. No fault to the P&L leaders; their work is important and drives the company today. But the goals, timeframes, talent and implementation path to run a scale business is based on predictability, control and risk reduction. Contrast these attributes with what’s needed to spawn a big, new business: experimentation, failure, ambiguity and risk-taking. The established P&L priorities will always overwhelm the nascent ideas trying to grow into big future profit producers.
• Talent: The people who are absolutely brilliant at running the machine are unlikely to be the same folks who will create the next big thing, and vice versa. That’s not personal, it’s the reality that we are all really good at some things and mediocre at others and should just avoid yet others. Be truthful about that, both regarding yourself and when evaluating others.
• Metrics: Find the metrics that connect customer needs and wants to the customer actions driving the P&L. It’s a cop-out to say this can’t be done, and it’s easy to fall back on familiar but irrelevant metrics. Focus on customer behavior measurements to drive decisions. High-level reporting of income statement and balance sheet line items are interesting, and certainly matter to your investors. But they will blind you to the below-the-surface measures that matter – the real drivers that are moving every day as your customers make decisions affecting your performance whether or not you acknowledge them. Operate your business at that level, and you will drive your destiny.
• Process: Industrial-strength processes that enforce predictability, control and risk reduction will steamroll over anything that doesn’t look exactly like what came before. Remember the definition of insanity often attributed to Albert Einstein: “doing the same thing over and over again and expecting different results.”

3. Embrace and behave according to the mindset of a founder, or move on. In The Startup Playbook, author David Kidder cites the five qualities of the successful entrepreneur. These attributes apply equally well to leaders in any enterprise, not just what we have traditionally defined as start-ups.
   1. Know thyself. Your team’s success will be a direct reflection of your self-awareness and deployment of your own gifts to whatever opportunity you go after.
   2. Ruthlessly focus on your biggest ideas. Focus means laser-like drive against the beacon you see out in front of you that represents realization of your solution to the customer problem. But not to the exclusion of listening – being able to filter and apply that which is valid, without getting diluted by the well-meaning, but utterly useless opinions you will be offered. It’s a tightrope.
   3. Build painkillers, not vitamins. Back to Point 1. Solve a real problem. Don’t create a nice-to-have.
   4. Be 10x better. That’s Kidder’s estimate of how far ahead you have to be to outrun and outlast the inevitable competition.
   5. Be a monopolist. At least in mindset, think gigantically. Think about how you can own the market, not just create something that will satisfy a near-term demand.

Creating big sources of growth with real results can be predictable. You just have to follow the formula. This post also appearing in Huffington Post.

Insurance has been around for a long time … dating back to ancient times. The first written insurance policy was carved into a Babylonian obelisk; the “Hammurabi Code” offered basic insurance for individuals if a personal catastrophe made it impossible to pay back a debt. Insurance continued to grow and evolve across centuries and continents. The guilds in Europe supported master craftsman with a type of group coverage to subsidize them and their families upon injury, disability or death. Deals made in London coffee houses to cover maritime risks were the beginnings of the London Market. These efforts met a universal and timeless need to stabilize individuals and the economy against risk. The evolution of insurance often followed emerging developments such as the agricultural revolution, the industrial revolution and the information revolution. Each of these revolutions created and reshaped businesses, including insurance. Insurance evolved with each revolution to meet changing needs and to adapt to new developments or technologies that changed businesses, markets and risk. Each revolution required a re-thinking and re-alignment. It required business leaders to shed sacred notions and wake up to the possibilities of rebuilding on a new foundation while maintaining the old structure long enough to move out safely. Erasing the notion of moderate change Our industry is waking up and finding itself in the midst of seismic shifts. A revolution is underway: the digital revolution. This revolution is different because of the complexity, breadth and depth of converging factors and global changes. Our industry, steeped in centuries of tradition, must erase the idea that we can ease our organizations into the new era with minor adjustments. Think of how the digital revolution is going to reinvent your business model. Insurers are moving from product-driven to customer-driven strategies; from limited distribution channels (such as agents) to an array of channels based on customer choice; from line-of-business silos to customer-centricity and customer experience for all products across all lines; from simply containing risk to actively providing personal risk management; and from siloed solutions focused on transactions to a platform portfolio that brings together real-time interaction for all products and services for customers, giving them an Amazon-like experience. Whew! It stretches our minds to consider it all at once. The rebirth of real opportunity These influencers of change are challenging traditional insurance models, resulting in declining customers, loyalty and premiums. Whether it is the demand for mobile channels in addition to agents; or declining life insurance or personal auto and home insurance because of demographic changes; or declining premiums for products like auto insurance because of the emergence of technologies like crash avoidance, connected cars and autonomous vehicles, these influencers of change demand we have a re-imagination and a rebirth of insurance. The promise of the digital revolution is that we can. Traditionally damaging business factors no longer have to be met with traditional business adjustments. Insurers must look to reinvent the business model, not unlike how Uber reinvented the taxi model. Increasingly, insurance CEOs are speaking out about the coming disruption of insurance and the need for insurance to aggressively rethink the business model. On May 27, 2015, Generali’s CEO, Mario Greco, commented in the Financial Times that insurers will disappear unless they embrace sweeping technological change. He went on to say that the insurance sector is “on the verge of a revolution and has been lagging behind every other industry — it has been paralyzed.” On June 30, 2015, Lloyd’s CEO, Inga Beale, stated in the Financial Times that insurers are in danger of being “uberized” as technology allows companies from other sectors to undermine insurance sectors role to manage risk. So how do insurers move forward? First they need to keep their current business viable and growing to fund the future. This requires transformation of the existing business by leveraging a platform of integrated solutions — laying the groundwork for a renaissance of insurance. Insurers may enhance auto or life insurance policies, processes and customer interaction. Foundational transformations can also be used to reinvent insurance such as by offering a “family or lifecycle policy” that offers a single bundle to meet the broad risk of individual or family needs instead of individual policies for each of the needs. Alternatively, insurers could offer new risk mitigation or value-added services that leverage technology from the connected home and connected auto … all creating a new customer experience and engagement model. In recent UK consumer research published by Majesco, one in every three customers feel that insurers are failing on minimum service expectations. Even the highest customer satisfaction score in the insurance industry -- 69%, reached by motor insurance providers -- compares unfavorably with world-class companies such as Amazon, which scores 87% based on the UK Customer satisfaction Index for January 2015. Furthermore, more than 70% of the market indicates they want a "family" product, combining motor, home, travel and pet in a single insurance policy. Nearly 42% would buy a family product tomorrow, while 30% were unsure but did not rule out the option – highlighting that a significant majority (72%) of the market expects access to a product that is not available today. While some insurers will dismiss the findings as not relevant to them, they should instead see a warning signal that policy bundling is growing in demand. The Internet has created a market with “no borders” because customers research online to seek out offerings and options to meet their needs. In today’s digital world, what happens in one region does not stay in one region. Rather, these new developments from products to services, new channels and new approaches to risk are rapidly rippling to other regions. The examples are many. John Hancock’s new life product uses South Africa’s Vitality concept. Google’s Compare site was the result of a UK acquisition. Direct-to-consumer models cropped up first and most strongly in Australia and the UK. Any one of a hundred multi-national insurers can send an idea rippling across continents at the speed of an e-mail. Meeting the digital revolution with real transformation is going to require an acceptance that everything we have known about insurance was good for yesterday. The only thing we can count on is the necessity of insurance that has held true from the Hammurabi Code until today. So as you attend industry events and read articles, blogs and reports, put the topic of business transformation into strategic perspective. Is business transformation helping you move from legacy software solutions to modern, configurable solutions that will handle the unexpected future? Are you providing a foundation to change traditional business assumptions and business models to provide an enhanced customer experience and value? Will you be the traditional retailer or an Amazon? Will you be the traditional taxi or Uber? Your answer will influence your strategic direction and relevance in an industry that is on the precipice of disruption. Will you be disrupted or be the disruptor? Majesco is focused on transformation as a path to renaissance. Are you?

While many (including me) talk about the need for integrating the setting and execution of strategy, the management of risk, decision-making and performance monitoring, reporting and management, there isn’t a great deal of useful guidance on how to do it well. A recent article in CGMA Magazine, 8 Best Practices for Aligning Strategy, Planning and Risk, describes a methodology used by Mass Mutual that it calls the “Pinwheel.” There are a number of points in the article that I like:

• “Success in business is influenced by many factors: effective strategy and execution; deep understanding of the business environment, including its risks; the ability to innovate and adapt; and the ability to align strategy throughout the organization.”
• "The CEO gathers senior corporate and business unit leaders off-site three times a year. As well as fostering transparency, teamwork and alignment, this ensures that the resulting information reaches the board of directors in time for its meetings….The result: The leadership team is more engaged in what the company’s businesses are doing, not just divisional priorities. This makes them more collaborative and informed leaders. This helps foster a more unified brand and culture across the organization.”
• “A sound understanding of global business conditions and trends is fundamental to effective governance and planning.” Comment: Understanding the external context is critical if optimal objectives and strategies are to be set, with an adequate understanding of the risks inherent in each strategy and the relative merits of every option.
• “Strategy and planning is a dynamic process, and disruptive innovation is essential for cultural change and strategic agility. Management and the board must continually consider new initiatives that may contribute to achieving the organization’s long-term vision and aspirations.”
• Key risk indicators are established for strategies, plans, projects and so on.
• “Evaluation and monitoring to manage risks and the overall impact on the organization is an ongoing process….Monitoring is a continuous, multi-layered process. In addition to quarterly monitoring of progress against the three-year operating plan and one-year budget, the company has initiated bottom-up 'huddle boards' that provide critical information across all levels of the organization."
• “Effective governance requires a tailored information strategy for the executive leadership team and the board of directors…. This should include: essential information needed to monitor and evaluate strategic execution of the organization; risks to the achievement of long-term objectives; and risks related to conforming to compliance and reporting requirements.”
• “Integrating the ERM, FP&A and budget functions can help to manage risks effectively and to allocate limited capital more quickly and efficiently.”

I am not familiar with the company and its methodology, but based on the limited information in the article I think there are some areas for improvement: 1. Rather than selecting strategies and objectives and only then considering risk, the consideration of risk should be a critical element in the strategy-selection process. 2. The article talks about providing performance and risk information separately to the corporate development and risk functions. Surely, this should be integrated and used primarily by operating management to adjust course as needed. 3. I am always nervous when the CFO and his team set the budget and there is no mention of how operating management participates in the process. However, it is interesting that the risk function at Mass Mutual is involved. What do you think? I welcome your comments.

The U.S. District Court for the Eastern District of Kentucky recently held that an insurer properly denied coverage to a hospital because the hospital gave untimely notice of the claim. In Ashland Hospital Corporation v. RLI Insurance Company, Civil Action No. 13-143-DLB-EBA (E.D. Ky. Mar. 17, 2015), the insurer avoided exposure on a $10 million directors and officers (D&O) excess policy claim by successfully arguing that the insured, a hospital association, failed to give timely notice of the claim as required under the terms of the policy. Background The hospital purchased $15 million in primary D&O liability insurance for Oct. 1, 2010, through Oct. 1, 2011. The hospital also purchased a $10 million excess policy from another insurer covering the same one-year period. Both policies were written on a “claims-made” as opposed to an “occurrence” basis. In July 2011, the U.S. Department of Justice issued a subpoena to the hospital as part of a Health Insurance Portability and Accountability Act (HIPAA) investigation into allegations that the hospital billed federal healthcare programs for heart procedures that were not medically necessary. Ultimately, the hospital agreed to pay $40.9 million to resolve the allegations. The hospital notified the primary carrier of the HIPAA investigation in December 2011, which was within the 90-day notice period required by the primary policy. In June 2012, after being informed that the primary carrier’s policy covered the investigation, the hospital notified the excess insurer of the HIPAA investigation. The insurer denied coverage because the hospital failed to provide timely notice during the policy period or within the applicable 90-day extended reporting period after the policy terminated in October 2011. The insurer claimed that the notice requirement was a condition precedent to establishing coverage and that it did not have to show prejudice to deny coverage. The hospital sued for breach of the insurance contract. Decision The insurer argued that it correctly denied coverage because the hospital failed to provide notice within the 90-day extended reporting period after the excess policy expired. The insurer argued the excess policy followed form to the primary policy, thereby incorporating the notice provisions of the primary policy that required notice within 90 days of the end of the policy. The hospital admitted the excess policy did follow form to the primary policy but claimed that the presence of notice provisions in both policies made the primary policy’s notice provisions ambiguous. The Ashland court rejected the hospital’s argument, holding that the notice provisions in the primary and excess policies did not conflict; to the contrary, they coexisted. Therefore, the insurer’s denial of coverage was proper because the hospital failed to provide timely notice as required by the terms of the primary policy. The court also held that the hospital violated the notice provisions of the insurer’s excess policy, which required the insured to provide notice when specified events occurred. The hospital claimed that the notice provisions were ambiguous and did not require it to provide the insurer with notice every time an event specified in the notice provisions took place, but rather only when the most recent event occurred. The insurer countered that the terms of the policy were clear and that the hospital was required to provide notice when any event specified in the policy took place. The insurer contended that, because the hospital provided notice only when the most recent event occurred and not when previous events occurred, the hospital was not entitled to coverage. The Ashland court held that the provisions were not ambiguous and that adopting the hospital’s interpretation would effectively render the terms meaningless. The court agreed with the insurer that for coverage to exist, the hospital had to provide timely notice to the insurer when all of the events specified by the provision took place, not merely when the most recent event occurred. Because the hospital failed to do so, it forfeited its right to coverage under the terms of the excess policy. The Ashland court also considered and rejected the hospital’s alternative argument that the insurer had to show substantial prejudice to deny coverage. In so arguing, the hospital relied on Jones v. Bituminous Casualty Corporation, 821 S.W.2d 798 (Ky. 1991), which held that absent a showing of substantial prejudice a workers’ compensation insurer could not deny coverage because of an insured’s untimely compliance with a notice provision. The Ashland court noted that Kentucky courts have not addressed whether Jones applied to claims-made insurance policies but predicted that the Kentucky Supreme Court would not extend Jones to a claims-made policy because to do so would effectively rewrite the policy without justification. Takeaways There are two principal takeaways from the Ashland decision:

• First, in Kentucky, excess insurers desiring to “follow” a primary policy would be well-advised to use language that ensures neither policy conflicts. While not mentioned by the Ashland court, a simple way to accomplish this result would be for the excess policy to include language in the “following form” clause confirming that, in the event of any conflict between the primary and excess wording, the primary language should control. Failure to take these steps could render some terms of the policies ambiguous and unenforceable.
• The second takeaway concerns the Ashland court’s sustaining the enforceability of the claims-made and reporting provisions of the policy. Earlier this year, the state supreme courts in Colorado and Wisconsin reaffirmed that the claims-made and reporting requirements in D&O and professional liability policies are conditions precedent to coverage that cannot be trumped by the notice prejudice rule applicable to occurrence-based policies. (See Craft v. Philadelphia Ins. Co., 2015 CO 11 (Colo. Feb. 17, 2015); Anderson, et al. v. Aul, et al., 2015 WI 19 (Feb. 25, 2015). Thus, Ashland is illustrative of a continuing trend of recent decisions that have reached this same conclusion.

Wilson Elser will continue to monitor this and other cases involving primary and excess policy coverage disputes. NOTE: Patrick C. Walsh (Law Clerk-Louisville) assisted in researching and drafting this Alert.