Claims operations have ascended the value chain from an “island in the stream” technical function into a key facet of the customer value proposition. To handle the growing demands, it's important to think about work comp claims in terms of four lanes. The first lane is governed by compliance rules and requires not just compliance awareness, but the knowhow to optimally integrate compliance into the operation. The second lane is focused on vendor management. This needs to go beyond simply outsourcing non-core competencies. Successful companies concentrate on ways to leverage vendors to achieve superior outcomes and competitive advantage. The third lane is defined by business rules. This is where automation is fully deployed and constantly improved. This lane draws from rules-driven facets of each of the other three lanes. The fourth lane is the “interpersonal, interpretative and professional judgment” perspective. It relies on the subjective application of knowledge and human interaction. This lane leverages engagement, training, technology and analytics to continuously accelerate accurate decision making, enhance performance and improve quality. The four lanes represent perspectives and should not be confused with a company’s organogram. Indeed, each lane touches every facet of any organogram found in the insurance industry today. The compliance, vendor management, business-rules and professional judgment lanes all benefit from a strong commitment to business process improvement (BPI). Data capture and analytics that support measurement of performance along the entire claims’ value chain is integral to BPI. The BPI discipline uses data to identify best practices, implement those practices, assess their effectiveness and uncover opportunity for further improvement. Embracing the four-lane view and BPI model will help carriers make strong, data-based decisions as they reconfigure their claims departments to control costs, stabilize case reserving and improve outcomes of their claims operations. Great tools, talented people and sound business practices are the timeless ingredients of success, as is operational adaptivity. Today’s workers’ compensation carriers are operating in an environment of increased uncertainty and complexity. Carriers face headwinds because of a shift into a healthcare-centric business, which has caught many carriers flat-footed. Medical costs are approaching 70% of the total claims spending in many jurisdictions. The utilization and cost of pharmaceuticals is rising at a rapid rate. According to the California Workers’ Compensation Institute, pharmacy and home-medical-equipment costs have risen by  more than 250% since 2004. Today’s companies must adapt their models to concentrate on effective and efficient delivery of care that improves patient outcomes, exudes customer value and underpins superior combined ratios. The undeniable reality is that the nature of work comp claims has changed. Traditional ideas on the core competencies necessary to operate an effective claims operation need to be challenged and adjusted. Positive differentiation and sustainable market leadership depend on effectively incorporating the ingredients of success into a well-defined strategy that produces desired results and provides an agile framework for continual business evolution.

The concept of the single view of the customer has been around for ages. I remember some significant single-view projects of insurers from the early 1990s. Many insurers have continued to strive toward this elusive goal. Now that the customer experience is front and center in insurers’ strategies, it’s time to revisit the single view, aka the 360-degree view of the customer. Three questions must be addressed: 1) What is single view anyway? 2) How does it relate to the customer experience? 3) What is the state of the industry? What is a single view anyway? Having a single view of the customer means that the insurer and any front-line individual dealing with the customer understand the full context of the relationship. This normally includes information such as the customer’s personally identifiable information (PII), products currently owned, relationship history and the named agent/producer (if applicable). Ideally, this is summarized for a quick snapshot of the relationship. Creating a single view is complicated by two main factors. First, the complexity and often siloed natures of IT systems make it difficult to have a common view. The evolution of channel options and technologies makes it a constant challenge to coordinate across the different systems. The second challenge relates to any company using independent agents, financial advisers, brokers or other producers. The producer does not typically share all the customer information with the insurer. Usually, the producer just passes along the minimum information needed for underwriting and servicing the customer. In addition, the producer may place insurance coverages for a customer with multiple insurance companies. The producer may have more of a single view of the customer’s insurance and financial services products and needs than the insurer has. How does single view relate to the customer experience? As challenging as it is, creating as complete a picture of the customer relationship as possible is essential today. Improving the customer experience is an SMA 2015 Imperative and a top strategic initiative for many companies and a key driver of business and IT strategies. Any touch point, whether human or digital, should be informed by the context of the customer relationship. An agent, customer service rep or adjuster should understand the value of the policyholder. While everyone is entitled to fair service that satisfies the contractual obligations, the level of attention and expertise applied might vary for an individual or business with a 20-year history and multiple policies vs. a new customer with just one small policy. A related question is, “Does the customer have a single view of the insurer?” Customers do not want to repeat information, experience delays in service, be presented with incorrect information or find that their favorite mode of interaction is not available or current. This is causing insurers to move toward providing an omni-channel environment, enabling policyholders to interact using whatever devices and channels they want at any time -- and making the transactions and interactions transfer across channels in real time. Ultimately, providing a world class customer experience requires the insurer to have a single view of the customer and vice versa. What is the state of single view in insurance? How many insurers have actually achieved this single view? According to SMA research, 35% say they have assembled a single view, but only 8% can present that view in real time to the individuals interacting with a policyholder. Another 46% do not have single view today but are working on it. There are also significant differences based on the size of the insurer. More insurers with less than $1 billion in premium actually have a full single view in real time than do their counterparts with more than $1 billion. This is likely because the smaller companies' product and distribution environment is less complicated than that of the larger companies. On the other hand, virtually all insurers with more than $1 billion are at least working on achieving a single view, whereas 30% of the smaller companies have no plans. Single view and improving the customer experience are inextricably linked. Business and IT strategies and plans should always consider the implications for both of these objectives.

June 1 opened the North Atlantic hurricane season, with this year marking the 10th anniversary of one of the costliest storms to make landfall in the U.S. — Hurricane Katrina. Each year, hurricane season puts catastrophe (CAT) models to the test, with potentially millions of dollars riding on their accuracy. The loss estimates calculated by CAT models can play an important role in protecting your organization from financial loss. The models have changed a lot over the past several years. For example, Hurricane Andrew in 1992 exposed the shortcomings of traditional actuarial methods that insurers use to model risks. And the billions of dollars in insured losses from Hurricane Katrina in 2005 helped lead to today’s CAT modeling rigor and its universal acceptance and use by the industry. New Storms Change CAT Models CAT models use algorithms to estimate potential losses stemming from a catastrophic event. Over the 10 years since Katrina, CAT modeling has become more complex because of technology improvements and the greater availability of data. After a significant storm, the models are updated based on the new data and a larger body of knowledge. These changes could considerably affect your property insurance and risk management strategies. Here are some CAT modeling factors — which for U.S. hurricane exposures have changed several times in the last few years. You should consider the items below as you prepare for this year’s hurricane season:

• Check your policy, including deductibles, coverage limits and sublimits, to ensure they’re adequate and realistic; check that exclusions are acceptable.
• Ensure the quality of your CAT modeling data. Incomplete data causes more uncertainty for insurers; improving the data enables more accurate loss estimates and reduces the uncertainty for the underwriters.
• Take a big picture view of your CAT exposures. By modeling your worldwide portfolio, you can identify regional drivers, which can help put U.S. hurricane risks in perspective. Also, using actuarial resources after a CAT or non-CAT claim can help evaluate your organization's total cost of risk (TCOR), which can better inform how you use your risk management resources.

If you have locations in CAT-prone areas, you can fine-tune their CAT loss estimates with an understanding of how they’ve changed with each model update. Aligning your risk data with CAT modeling changes can yield better outputs for insurers to underwrite your risks. To register for a webinar on June 17, 2015, on the lessons from Hurricane Katrina, click here.

Last Thursday, I snuck off early for a round of golf before heading into the office. We teed off at 6:45AM and were done by 9:40. A quick jaunt by the house for a shower and a change of clothes, and I was in the office by 10:30, with few the wiser regarding my absence. We've had a fairly low-humidity summer thus far, and it was a beautiful morning for golf, just a perfect day. At least it was until we teed off. I know this will be a shock, given my stunning physique, but I am not a very athletic person. I've never experienced runner's high. I get winded driving a four-minute mile. I've broken a leg playing soccer. I've broken my other leg ice skating. I once asked a kick boxing instructor if there would be doughnuts served after class. Needless to say, I am not a good golfer. My golf bag holds a chainsaw. My golf cart has four-wheel drive and big knobby tires. My Garmin watch occasionally asks me if I've stopped golfing, because it has detected that I've left the course. I use my Mulligan early, and then use a Poblaski, Heinrich, Gonzales, Ming and Schwartz -- all Mulligans of different ethnicities. The only birdie I've ever shot flew away unharmed after my ball hit it. The only time I've ever hit two good balls in a round is when I stepped on a rake (okay, you knew I had to put that one in). I asked my instructor how I could shave 10 strokes off my game. He told me to skip the 18th hole. He once looked at my scorecard and said, "Congratulations, you bowled a perfect game!" Yes, I generally suck at golf. Workers’ compensation is a lot like my golf game when you think about it. You enter with the greatest of hopes and expectations, and by the end you are just glad to be done with it – and you might be missing an arm. The game starts off okay. As it progresses, and more shots go astray, people start to help and try to “fix” my game. You’re hitting behind it. You’re hitting in front of it. You’re pushing through it. You’re topping it. You’re hitting across it. You’re teeing it too high. You’re teeing it too low. You’re not hitting it. You’re trying to kill it. Center the ball in your stance. Keep your head down. Bend your knees. Watch your alignment. Choke up on the club. Swing with your hips. Stand on one leg. Place your left elbow behind your ear. Pull your head out of your behind (just wanted to make sure you were still paying attention). Open your stance. Close your stance. Put the gun down, I’m only trying to help! With each “fix,” the results get progressively more convoluted; to the point where, by the 14th hole, I find myself playing through some family’s dining room while apologizing for their plate glass window. I also comment that I love the new curtains. They are much nicer than the ones there the last time I played this house. By the 16th hole, my shots are being independently reviewed, and the ranger is telling us to move it along. By the 17th hole, I have a lawyer. By the 18th hole, after all the reforms, all the fixes, every legislative tweak, you can’t even recognize what I am doing as golf anymore. My lawyer must first clear my intended shot with the golf committee, with everyone weighing in on club, stance, approach and strategy. My stance has transformed to one that most closely resembles a crushed aluminum can, and I am facing the wrong direction. I no longer remember what the front nine looked like. By the time I’m done I wonder why I wanted to try this in the first place. Duffers from the industry will understand this comparison. We continually reform and attempt to improve workers’ comp but see wilder and more inconsistent results in return for the effort. Perhaps it is time to return to the first tee, in a new round, so that we can remember why we are there in the first place.

True or false? There was no way the Office of Personnel Management could have prevented hackers from stealing the sensitive personal information of 4.1 million federal employees, past and present. If you guessed “False,” you’d be wrong. If you guessed, “True,” you’d also be wrong. The correct response is: “Ask a different question.” Serious data breaches keep happening because there is no black-and-white answer to the data breach quagmire. So what should we be doing? That’s the right question, and the answer is decidedly that we should be trying something else. The parade of data breaches that expose information that should be untouchable continues because we’re not asking the right questions. It persists because the underlying conditions that make breaches not only possible, but inevitable, haven’t changed—and yet we somehow magically think that everything will be all right. And of course we keep getting compromised by a short list of usual suspects, and there’s a reason. We’re focused too much on the “who” and not asking simple questions, like, “How can we reliably put sensitive information out of harm’s way while we work on shoring up our cyber defenses?” According to the New York Times, the problems were so extreme for two systems maintained by the agency that stored the pilfered data that its inspector general recommended “temporarily shutting them down because the security flaws ‘could potentially have national security implications.’” Instead, the agency tried to patch together a solution. In a hostile environment where there are known vulnerabilities, allowing remote access to sensitive information is not only irresponsible — regardless of the reason — it’s indefensible. Yet according to the same article in the Times, the Office of Personnel Management not only allowed it, but it did so on a system that didn’t require multifactor authentication. (There are many kinds, but a typical setup uses a one-time security code needed for access, which is texted to an authorized user’s mobile phone.) When asked by the Times why such a system wasn’t in place at the OPM, Donna Seymour, the agency’s chief information officer, replied that adding more complex systems “in the government’s ‘antiquated environment’ was difficult and very time-consuming, and that her agency had to perform ‘triage’ to determine how to close the worst vulnerabilities.” Somehow I doubt knowing that protecting data “wasn’t easy” will make the breach easier to accept for the more than 4 million federal employees whose information is now in harm’s way (or their partners or spouses whose sensitive personal information was collected during security clearance investigations, and may have been exposed as well). A New Approach The game changer — at least for the short term — may be found in game theory. In an “imperfect information game,” players are unaware of the actions chosen by their opponent. They know who the players are, and their possible strategies and actions, but no more than that. When it comes to data security and the way the “game” is set up now, our opponent knows that there are holes in our defenses and that sensitive data is often unencrypted. Because we can’t resolve vulnerabilities on command, one way to change the “game” would be to remove personal information from systems that don’t require multifactor authentication. Another game changer would be to only store sensitive data in an encrypted, unusable form. According to Politico, the OPM stored Social Security numbers and other sensitive information without encryption. This fixable problem is not getting the attention it demands, in part because Congress hasn’t decided it’s a priority. The U.S. is not the only country getting hit hard in the data breach epidemic. The recent attack on the Japanese Pension Service compromised 1.3 million records, and Germany’s Bundestag was recently hacked (though the motivation there appeared to be espionage, according to a report in Security Affairs). According to an IBM X-Force Threat Intelligence report earlier this year, cyberattacks caused the leak of more than a billion records in 2014. The average cost for each record compromised in 2014 was $145 and has increased to $195, according to Experian. The average cost to a breached organization was $3.5 million in 2014 and is now up to $3.8 million. More than 2.3 million people have become victims of medical identity theft, with a half million last year alone. Last year, $5.8 billion was stolen from the IRS, and the Treasury Inspector General for Tax Administration predicts that number could hit $26 billion by 2017. If you look at the major hacks in recent history — a list that includes the White House, the U.S. Post Office and the nation’s second largest provider of health insurance — it would seem highly unlikely that a lax attitude is to blame. But a former senior administration adviser on cyber-issues told the New York Times about the OPM hack: “The mystery here is not how they got cleaned out by the Chinese. The mystery is what took the Chinese so long.” During this period when our defenses are no match for the hackers targeting our information, evasive measures are necessary. I agree with White House Press Secretary Josh Earnest, who said, “We need the United States Congress to come out of the Dark Ages and actually join us here in the 21st century to make sure that we have the kinds of defenses that are necessary to protect a modern computer system.” But laws take a long time, and we’re in a cyber emergency. The question we need to ask today is whether, in the short term, the government can afford not putting our most sensitive information behind a lock that requires two key-holders — the way nukes are deployed — or storing it offline until proper encryption protocols can be put in place.

In our survey of nearly 1,200 independent agents (IAs) in the U.S., we discovered that IAs generally don’t see technology as the answer to their needs. Indeed, they ranked digital capabilities as fifth out of 12 overall priority areas. In this Insurance Chart of the Week, we’ll examine IAs’ attitudes toward technology. Independent agents’ lower regard for some digital capabilities could impede future success Given customers’ changing expectations for how service is delivered, this disconnect—between IAs’ intent to focus on their customers and their lower regard for omni-channel capabilities—could impede IAs’ ability to continue to offer exceptional customer service. Mobile and social media capabilities, in particular, could help IAs offer the tailored, responsive experience that many customers have come to expect and demand. Learn more:

• Watch Evolving the independent agent channel (Part 1 of 4) | Insurance Chart of the Week.
• Watch Evolving the independent agent channel (Part 2 of 4) | Insurance Chart of the Week.
• Register to download Accenture Independent Agent Survey: Evolving to Compete and Win in the Long-Term (pdf).
• View other Insurance Chart of the Week videos.
• Email me to discuss how Accenture can help insurers take advantage of digital capabilities to enhance the IA channel.

Whether you commute to work on public transport to work or fly between busy airports to serve your clients, wherever you go you will see people glued to their phones, tablets or e-readers. More than likely, all these devices are connected to the Internet in real time over a mobile network or capable of connecting via Wi-Fi. There is so much written on the connected car and the connected ("smart") home, but we also need to open a discussion about connected humans. Let me clarify: I have no interest in talking about social networking. I'm more interested in connections from the perspective of tracking health and biometric data to be used by the healthcare and insurance industries for pricing. A decade ago, we were limited by the technology and the computing power of hand-held devices. Wearables and ingestible devices were nowhere in the ecosystem. It made perfect sense to use historical data to price and sell products based on stale census information. Technology drivers Fast forward to the current time. Computing power has scaled exponentially over the last decade. We have devices that can track, store and filter essential lifestyle and health data, and we have predictive analytic capabilities that would make historic rating methods look like the Stone Age. Market demographics The growth rate of Millennials earning paychecks is not keeping pace with the growth in the aging population living off savings. If that was not bad enough , buying behaviors of Millennials indicate that insurance is not one of their top priorities. There are numerous surveys you can find online that point to this problem. We have heard of "gamification" and customer engagement in the context of banking and financial services, to attract Millennials, but insurance and healthcare companies have barely touched the tip of the iceberg on this. The amount of biometric data that can be harvested and used for predictive analytics could include a host of items, including blood pressure, heart rate, vitamin count, sleep patterns, activity metrics and blood sugar, just to name a few. All this information, harvested and analyzed to price and sell a host of new products to new market segments with lifestyle diseases like diabetes or obesity, opens the route to gamification of healthcare apps and much better life insurance pricing. Providers today stop at just providing discounts on the fringes as I see it, not truly revisiting pricing. With technology evolving at the pace it is and with our ability to get more out of the data through predictive analysis, the healthcare and insurance segment could look very different 10 years from now. There is a school of thought that says privacy issues will limit the use of biometric data, but, if there is a business model that works for weight watchers and diabetic forums, there is a business case and a market segment to change the way insurance and healthcare products are priced and sold. Hertz has begun to pitch itself as a used-car sales channel, allowing the consumer to test drive a car for an extended renting period and then buy or not buy the car. In the insurance or healthcare context, if pricing were driven by behavioral patterns and biometric statistics, you could offer an extended free look or evaluation period allowing a skeptical diabetic or obese customer to try devices, see the effects on their health and the corresponding premium discounts and then make a decision on locking into the product. Insurance and healthcare have not truly embraced the technology and buying behavioral shift of customers. What remains to be seen is who leads the charge. Will it be insurance and healthcare companies? Will it be technology giants like Google, which are already tracking a lot of what people do? Or will it be a company like Tesla and Uber, which have disrupted traditional industry segments where they were never the incumbent.

As if there isn’t enough pressure on middle market carriers today, with the big players combining to get even bigger and with the rolling up of supply chains — the carriers are now faced with a strategic imperative: Make sense of their data through analytics. Meeting that imperative comes with a new competitive issue: fighting the war for talent to recruit and retain data scientists. The demand for data scientists is spiking at a time when it can’t be met by supply. The largest organizations have enough scale to fund and attract a team of analysts, but what is the middle market insurer to do? There are some straightforward strategies: Count on partners Many of the business demands for analytics will be met with software tools. The vendors for these solutions will be more than happy to have some data science types participate in your implementation and help to sort out your data. The same is true of marketing campaign vendors. They will have in their circles the experts needed to slice and segment targets, just like the large insurers can do on their own. Services vendors The services vendors are investing and building muscle in big data and analytics. Just as insurers augment their in-house actuarial talent when needed, we see the ecosystem of services vendors maturing nicely. You may pay more per hour than if you hired someone, but you only pay for what you need and you get a team that has "been there and done that." Decide not to decide We talk to a lot of middle market companies that are looking at big data analytics. Some are saying that they aren’t seeing the demand for it from the business areas. They know this may mean that people aren't doing enough to evangelize about analytics within the business, but analytics have no value if they don’t meet some kind of demand. If there’s no demand, push analytics out on the road map -- but keep it on the road map. That allows you to revisit the subject when the labor market for data science talent is less frothy. As is often the case, the reality is that most of the companies we see are doing some combination of these three strategies. They are engaging tool vendors for particular complementary needs, reaching into the service companies when that makes sense and putting the investment in their full-time staff until resources are more available. At the end of the day, we see the middle market reacting creatively and nimbly to the challenge. But, hey, that’s what they do with all of the challenges they face, so why would this time be any different?

Unicorns – to some they are just mythical creatures of lore. To today's tech world, a unicorn is a pre-IPO tech start-up with a billion-dollar market value. These are the companies driving innovation, technology and disruption in every corner of every business, and their impact is truly being felt across the insurance industry. The number of unicorns is as elusive as the creatures themselves, as the herd is growing rapidly. "Fortune counts more than 80 unicorns today, but more appear with each passing week. Some even received their horns, so to speak, as the magazine went to press. And they’re getting bigger — there are now at least eight 'decacorns,' unicorns valued at $10 billion or more. So much for being mythical." -- Fortune Recognizing the powerful sway that unicorns have over new technologies, business models and more, insurers are now getting into the unicorn game themselves. They are identifying technology start-ups that can transform insurance and are becoming venture capitalists to tap into this great potential for creating the next generation of insurance. Different models and approaches are being used to identify, assess and influence these companies’ offerings. By understanding the benefits of outside-in thinking, insurers are finding ways to leverage these innovations. Some insurers are partnering with leading technology firms. Some of the large insurers are setting up their own venture capital firms. Still others are creating consortia to fund new start-ups to help accelerate innovation. Insurers and Unicorns The following are a few examples of new partnerships in 2015; the trend is continuing; AXA– In February 2015, AXA announced the launch of AXA Strategic Ventures, a €200M fund to boost technology start-ups focused on customer acquisition, climate change, travel insurance and more. The goal is to advance AXA’s digital and customer strategy by connecting with new technologies, new solutions,and new ways of thinking. The company anticipates the fund will complement AXA’s major operating investments, across all entities, into research and digital developments that will help transform how customers experience AXA. XL Insurance – On April 1, 2015, XL Insurance announced the formation of a venture capital fund, XL Innovate, to support insurance technology start-ups, with a focus on developing new capabilities in the insurance sector. XL indicated that this effort would extend its capabilities in existing markets and give it new opportunities to address some of the most pressing and complex risk problems in the global economy. In addition, XL sees it as a critical element to driving focus on innovation forward while securing relevance in the future. Global Insurance Accelerator – In February 2015, a group of seven Iowa-based insurers announced the formation and launch of the Global Insurance Accelerator (GIA), an insurance accelerator for start-ups. The start-ups receive $40,000 in seed money from the pool to create a minimum viable product to present to the Global Insurance Symposium. The insurers involved believe that the accelerator program will bring potential innovation and technology insights to the insurance industry. The Future Innovation, technology and the need to be future-ready are fueling today's unicorns and their capital supporters rapidly expanding the herd. In turn, these new business models and market leaders are spawning challenges and opportunities for all companies. Today's forward-thinking insurance companies are running their businesses while simultaneously creating their futures as Next-Gen insurers. It's critical to recognize the power and benefits of innovation and the role that unicorns play in planning for tomorrow. This is a decisive time as Next-Gen insurers emerge along with their unicorns to disrupt and redefine insurance and competitive advantage. What is your company’s approach to leverage and experiment with emerging technologies, start-ups and unicorns to fuel the potential and enable future market leadership?

Ethical behavior is crucial to preserving not only the trust on which insurance transactions are based, but also the public’s trust in our industry as a whole. Unfortunately, the public has a relatively low opinion of our ethical standards. For about 40 years, the Gallup Poll has asked Americans how they view the honesty and ethics of certain professions. Since 1977, no more than 15%  of respondents have said the ethics of insurance professionals are high, while no fewer than 25% have ranked us below average. Meanwhile, the ethics of accountants, bankers and lawyers have consistently rated higher. The Institutes, a non-profit provider of professional education for the risk management and property-casualty insurance industry, has worked to educate current professionals about the importance of ethics, and to do so it provides free courses on ethical best practices. Earlier this year, the Institutes also polled members of its online community to understand their perspective on the current state of ethics in our industry, and created this infographic to summarize the results.